UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





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


For
the fiscal year ended December 31,
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. 1-11596





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


(Exact
name of registrant as specified in its charter)





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


(770)
587-9898


(Registrant's
telephone number)





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





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes    ̈     No
x





Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes    ̈     No
x





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


Yes   x    No   ̈





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





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 x        Non-accelerated
Filer  ̈        Smaller
reporting company  ̈





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yes     ̈     No   x





The
aggregate market value of the Registrant's voting and non-voting common equity
held by nonaffiliates of the Registrant computed by reference to the closing
sale price of such stock as reported by NASDAQ as of the last business day of
the most recently completed second fiscal quarter (June 30, 2009), was
approximately $122,980,000.  For the purposes of this calculation, all
executive officers and directors of the Registrant (as indicated in Item 12) are
deemed to be affiliates.  Such determination should not be deemed an
admission that such directors or officers, are, in fact, affiliates of the
Registrant.  The Company's Common Stock is listed on the NASDAQ
Capital Markets.





As of
February 26, 2010, there were 54,654,410 shares of the registrant's Common
Stock, $.001 par value, outstanding.





Documents
incorporated by reference:  none









PERMA-FIX
ENVIRONMENTAL SERVICES, INC.





INDEX





Page
      No.PART
      IItem
      1.
                      Business
                      1Item
      1A.
                      Risk
      Factors
                      11Item
      1B.
                      Unresolved
      Staff Comments
                      19Item
      2.
                      Properties
                      19Item
      3.
                      Legal
      Proceedings
                      20Item
      4.
                      Reserved
                      20Item
      4A.
                      Executive
      Officers of the Registrant
                      21PART
      IIItem
      5.
                      Market
      for Registrant’s Common Equity and Related Stockholder
    Matters
                      22Item
      6.
                      Selected
      Financial Data
                      24Item
      7.
                      Management's
      Discussion and Analysis of Financial Condition And Results of
      Operations
                      26Item
      7A.
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      54Special
      Note Regarding Forward-Looking Statements
                      55Item
      8.
                      Financial
      Statements and Supplementary Data
                      58Item
      9.
                      Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                      108Item
      9A.
                      Controls
      and Procedures
                      108Item
      9B.
                      Other
      Information
                      111PART
      IIIItem
      10.
                      Directors,
      Executive Officers and Corporate Governance
                      111Item
      11.
                      Executive
      Compensation
                      116Item
      12.
                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                      131Item
      13.
                      Certain
      Relationships and Related Transactions, and Director
      Independence
                      135Item
      14.
                      Principal
      Accounting Fees and Services
                      136PART
      IVItem
      15.
                      Exhibits
      and Financial Statement Schedules
                      137





PART
I





ITEM
      1.
            BUSINESS


Company
Overview and Principal Products and Services


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





·
            Nuclear
      Waste Management Services (“Nuclear Segment”), which
    includes:


o
            Treatment,
      storage, processing and disposal of mixed waste (which is waste that
      contains both low-level radioactive and hazardous waste) including on and
      off-site waste remediation and
processing;


o
            Nuclear,
      low-level radioactive, and mixed waste treatment, processing and disposal;
      and


o
            Research
      and development of innovative ways to process low-level radioactive and
      mixed waste.


·
            Consulting
      Engineering Services (“Engineering Segment”), which
    includes:


o
            Consulting
      services regarding broad-scope environmental issues, including air, water,
      and hazardous waste permitting, air, soil, and water sampling, compliance
      reporting, emission reduction strategies, compliance auditing, and various
      compliance and training activities to industrial and government customers,
      as well as engineering and compliance support needed by our other
      segments.


·
            Industrial
      Waste Management Services (“Industrial Segment”), which
      includes:


o
            Treatment,
      storage, processing, and disposal of hazardous and non-hazardous waste;
      and


o
            Wastewater
      management services, including the collection, treatment, processing and
      disposal of hazardous and non-hazardous
  wastewater.


o
            Treatment,
      processing, recycling, and sales of used oil and other off-specification
      petroleum-based products.





We have
grown through both acquisitions and internal growth.  Our goal is to
continue focus on the efficient operation of our existing facilities within our
Nuclear, Industrial, and Engineering Segments, evaluate strategic acquisitions
primarily within the Nuclear Segments, and to continue the research and
development of innovative technologies to treat nuclear waste, mixed waste, and
industrial waste.   Our Nuclear Segment represents our core
business segment.





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





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





Website
access to Company's reports


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





·
            our
      Code of Ethics;


·
            the
      charter of our Corporate Governance and Nominating
    Committee;


·
            our
      Anti-Fraud Policy;


·
            the
      charter of our Audit Committee.





1




Segment
Information and Foreign and Domestic Operations and Export Sales


During
2009, we were engaged in three operating segments.  In accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 280, “Segment Reporting”, we define an operating segment
as:





·
            a
      business activity from which we may earn revenue and incur
      expenses;


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


·
            for
      which discrete financial information is
  available.





We
therefore define our operating segments as each business line that we
operate.  These segments, however, exclude the Corporate and Operation
Headquarters, which do not generate revenue, and our discontinued operations:
Perma-Fix of Michigan Inc. (“PFMI”), Perma-Fix of Pittsburgh, Inc. (“PFP”), and
Perma-Fix of Memphis, Inc. (“PFM”), three non-operational facilities within our
Industrial Segment which were approved as discontinued operations by our Board
of Director effective November 8, 2005, October 4, 2004, and March 12, 1998,
respectively.  Our PFM facility was reclassed back into discontinued
operations from continuing operations during the fourth quarter of
2009.  As noted above, PFM was approved as a discontinued operation by
our Board on March 12, 1998.  This decision was the result of an
explosion at the facility in 1997, which significantly disrupted its operations
and the high costs required to rebuild its operations.  PFM had been
reported as a discontinued operation until 2001.  In 2001, the
facility was reclassified back into continuing operations as we had no other
facilities classified as discontinued operations and its impact on our financial
statements was de minimis.  As of December 31, 2009, we reclassified
PFM back into discontinued operations for all periods presented in accordance
with ASC 360, “Property, Plant, and Equipment”.  Our discontinued
operations also includes Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of
Dayton, Inc. (“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”), three
Industrial Segment facilities which were divested in January 2008, March 2008,
and May 2008, respectively.





Most of
our activities are conducted nationwide.  We do not own any foreign
operations and we had no export sales during 2009.





Operating
Segments


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





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





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




2





Diversified
Scientific Services, Inc. (“DSSI”) located in Kingston, Tennessee, specializes
in the processing and destruction of liquids, sludges, and certain solid forms
of mixed waste.  DSSI, like PFF, is one of only a few facilities
nationally to operate under both a hazardous waste permit and a radioactive
materials license.  Additionally, DSSI is the only commercial facility
of its kind in the U.S. that is currently operating and licensed to destroy
liquid organic mixed waste in permitted combustion treatment
unit.  DSSI provides mixed waste disposal services for nuclear
utilities, commercial generators, prominent pharmaceutical companies, and
agencies and contractors of the U.S. government, including the DOE and the
DOD.  On November 26, 2008, the U.S. EPA Region 4 issued an
authorization to DSSI to commercially store and dispose of radioactive
Polychlorinated Biphenyls (“PCBs”).  The first shipments of
radioactive PCBs were received by DSSI in early April 2009.





East
Tennessee Materials & Energy Corporation (“M&EC”), located in Oak Ridge,
Tennessee, is another mixed waste facility.  M&EC also operates
under both a hazardous waste permit and radioactive materials
license.  M&EC represents the largest of our four mixed waste
facilities, covering 150,000 sq. ft., and is located in leased facilities at the
DOE East Tennessee Technology Park.  In the second quarter of 2008,
M&EC was awarded a subcontract by CH Plateau Remediation Company (“CHPRC”)
to perform a portion of facility operations and waste management activities for
the DOE Hanford, Washington site.  The general contract awarded by the
DOE to CHPRC and our subcontract provide for a transition period from August 11,
2008 through September 30, 2008, a base period from October 1, 2008 through
September 30, 2013, and an option period from October 1, 2013 through September
30, 2018.  The subcontract is a cost-plus award fee
contract.  On October 1, 2008, operations of this subcontract
commenced at the DOE Hanford Site.





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





For 2009,
the Nuclear Segment accounted for $89,011,000 or 88.4% of total revenue from
continuing operations, as compared to $61,359,000 or 81.3% of total revenue from
continuing operations for 2008.  See “ – Dependence Upon a Single or
Few Customers” and “Financial Statements and Supplementary Data” for further
details and a discussion as to our Nuclear Segment's contracts with the federal
government or with others as a subcontractor to the federal
government.





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





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





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




3





Perma-Fix
of South Georgia, Inc. (“PFSG”) is a permitted treatment and storage facility
located in Valdosta, Georgia.  PFSG provides storage, treatment and
disposal services to hazardous and non-hazardous waste generators primarily
throughout the Southeastern portion of the United States, in conjunction with
the utilization of the PFO facility and transportation services.  PFSG
operates a hazardous waste storage facility that primarily blends and processes
hazardous and non-hazardous waste liquids, solids and sludges into substitute
fuel or as a raw material substitute in cement kilns that have been specially
permitted for the processing of hazardous and non-hazardous waste. In April
2009, PFSG completed construction and permitting activities related to
installation of its proprietary treatment process for characteristic hazardous
wastes. Characteristic hazardous wastes are defined as wastes that exhibit one
or more of the following characteristic:  ignitability, corrosivity,
reactivity, or toxicity.





For 2009,
the Industrial Segment accounted for approximately $8,283,000 or 8.2% of our
total revenue from continuing operations as compared to approximately
$10,951,000 or 14.5% for 2008.  See “Financial Statements and
Supplementary Data” for further details.





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





Schreiber,
Yonley & Associates (“SYA”) is located in Ellisville,
Missouri.  SYA specializes in air, water, and hazardous waste
permitting, air, soil, and water sampling, compliance reporting, emission
reduction strategies, compliance auditing, and various compliance and training
activities to industrial and government customers, as well as, engineering and
compliance support needed by our other segments.





During
2009, environmental engineering and regulatory compliance consulting services
accounted for approximately $3,382,000 or 3.4% of our total revenue from
continuing operations, as compared to approximately $3,194,000 or 4.2% in
2008.  See “Financial Statements and Supplementary Data” for further
details.





Discontinued
Operations


As stated
previously above, our discontinued operations includes the following facilities
within our Industrial Segment:  Perma-Fix of Michigan Inc. (“PFMI”),
Perma-Fix of Pittsburgh, Inc. (“PFP”), and Perma-Fix of Memphis, Inc. (“PFM”),
three non-operational facilities which were approved as discontinued operations
by our Board of Director effective October 4, 2004, and November 8, 2005, and
March 12, 1998, respectively, and PFMD, PFD, and PFTS, three Industrial Segment
facilities which were divested in January 2008, March 2008, and May 2008,
respectively.





Our
discontinued operations had no revenue in 2009 and generated $3,195,000 of
revenue in 2008.





Importance
of Patents, Trademarks and Proprietary Technology


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





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




4





The
Perma-Fix II process is designed to remove certain types of organic hazardous
constituents from soils or other solids and sludges (“Solids”) through a
water-based system.  Until development of this Perma-Fix II process,
we were not aware of a relatively simple and inexpensive process that would
remove the organic hazardous constituents from Solids without elaborate and
expensive equipment or expensive treating agents.  Due to the organic
hazardous constituents involved, the disposal options for such materials are
limited, resulting in high disposal cost when there is a disposal option
available.  By reducing the organic hazardous waste constituents in
the Solids to a level where the Solids meet Land Disposal Requirements, the
generator's disposal options for such waste are substantially increased,
allowing the generator to dispose of such waste at substantially less
cost.  We began commercial use of the Perma-Fix II process in
2000.  However, changes to current environmental laws and regulations
could limit the use of the Perma-Fix II process or the disposal options
available to the generator.  See “—Permits and Licenses” and
“—Research and Development.”





Permits
and Licenses


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





Nuclear
Segment:


PFF
operates its hazardous, mixed and low-level radioactive waste activities under a
RCRA (“Resource Conservation and Recovery Act”) Part B permit, Toxic Substances
Control Act (“TSCA”) authorization,   and a radioactive materials
license issued by the State of Florida.





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





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





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





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





Industrial
Segment:


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





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




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


5





Seasonality


Historically,
we have experienced reduced activities and related billable hours throughout the
November and December holiday periods within our Engineering
Segment.  Our Industrial Segment operations experience reduced
activities during the holiday periods; however, one key product line is the
servicing of cruise line business where operations are typically higher during
the winter months, thus offsetting the impact of the holiday
season.  The DOE and DOD represent major customers for the Nuclear
Segment.  In conjunction with the federal government’s September 30
fiscal year-end, the Nuclear Segment historically experienced seasonably large
shipments during the third quarter, leading up to this government fiscal
year-end, as a result of incentives and other quota
requirements.  Correspondingly for a period of approximately three
months following September 30, the Nuclear Segment generally slows down, as the
government budgets are still being finalized, planning for the new year is
occurring, and we enter the holiday season.    This trend
generally continues into the first quarter of the new year as government
entities evaluate their spending priorities.  Over the past years, due
to our efforts to work with the various government customers to smooth these
shipments more evenly throughout the year, we have seen smaller fluctuations in
the quarters.  Although we have seen smaller fluctuation in the
quarters in recent years, nevertheless, as government spending is contingent
upon its annual budget and allocation of funding, we cannot provide assurance
that we will not have larger fluctuations in the quarters in the near
future.  In addition, higher government (specifically DOE) funding
made available through the economic stimulus package (“American Recovery and
Reinvestment Act”) enacted by Congress in February 2009, could result in larger
fluctuations in 2010.





Backlog


The
Nuclear Segment of our Company maintains a backlog of stored waste, which
represents waste that has not been processed.  The backlog is
principally a result of the timing and complexity of the waste being brought
into the facilities and the selling price per container.  As of
December 31, 2009, our Nuclear Segment had a backlog of approximately
$16,898,000, as compared to approximately $10,244,000, as of December 31,
2008.  Additionally, the time it takes to process mixed waste from the
time it arrives may increase due to the types and complexities of the waste we
are currently receiving.  We typically process our backlog during
periods of low waste receipts, which historically has been in the first or
fourth quarter.





Dependence
Upon a Single or Few Customers


Our
Nuclear Segment has a significant relationship with the federal government, and
continues to enter into, contracts with (directly or indirectly as a
subcontractor) the federal government.  The contracts that we are a
party to with the federal government or with others as a subcontractor to the
federal government generally provide that the government may terminate or
renegotiate the contracts in 30 days notice, at the government's
election.  Our inability to continue under existing contracts that we
have with the federal government (directly or indirectly as a subcontractor)
could have a material adverse effect on our operations and financial
condition.





We
performed services relating to waste generated by the federal government, either
directly or indirectly as a subcontractor (including Fluor Hanford and CHPRC as
discussed below) to the federal government, representing approximately
$75,013,000 or 74.5% (within our Nuclear Segment) of our total revenue from
continuing operations during 2009, as compared to $43,464,000 or 57.6% of our
total revenue from continuing operations during 2008, and $30,000,000 or 46.5%
of our total revenue from continuing operations during 2007.




6





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 $45,169,000 or 44.9%
and $8,120,000 or 10.8% of our total revenue from continuing operations for
twelve months ended December 31, 2009 and 2008, respectively.  As
revenue from Fluor Hanford has been transitioned to CHPRC, revenue from Fluor
Hanford totaled $0 or 0%, $7,974,000 or 10.6%, and $6,985,000 or 10.8% of our
consolidated revenue from continuing operations for the twelve months ended
December 31, 2009, 2008, and 2007, respectively.





Competitive
Conditions


The
Nuclear Segment’s largest competitor is EnergySolutions, which provides
treatment and disposal capabilities at its Oak Ridge, Tennessee and Clive, Utah
facilities.  EnergySolutions presents the largest competitive
challenge in the market.  At present, EnergySolutions’ Clive, Utah
facility is one of the few radioactive disposal sites for commercially generated
wastes in the country in which our Nuclear Segment can dispose of its nuclear
waste.  If EnergySolutions should refuse to accept our waste or cease
operations at its Clive, Utah facility, such would have a material adverse
effect on us for commercial wastes.  However, with the recent
radioactive disposal license granted to Waste Control Specialists (“WCS”)
located in Andrews, Texas, this risk could be reduced as WCS brings its disposal
site online later in 2010 or early 2011.  The Nuclear Segment treats
and disposes of DOE generated wastes largely at DOE owned
sites.  Smaller competitors are also present in the market place;
however, they do not present a significant challenge at this
time.    Our Nuclear Segment solicits business on a
nationwide basis with both government and commercial clients.





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





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





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





Capital
Spending, Certain Environmental Expenditures and Potential Environmental
Liabilities


Capital
Spending


During
2009, our purchases of capital equipment totaled approximately $1,643,000 of
which $125,000 was financed, resulting in total net purchases of
$1,518,000.  These expenditures were for improvements to operations
primarily within the Nuclear and Industrial Segments.  These capital
expenditures were funded by the cash provided by both operations and financing
activities. We have budgeted approximately $2,000,000 for 2010 capital
expenditures for our segments to expand our operations into new markets, reduce
the cost of waste processing and handling, expand the range of wastes that can
be accepted for treatment and processing, and to maintain permit compliance
requirements.  Certain of these budgeted projects are discretionary
and may either be delayed until later in the year or deferred
altogether.  We have traditionally incurred actual capital spending
totals for a given year less than the initial budget amount.  The
initiation and timing of projects are also determined by financing alternatives
or funds available for such capital projects.




7





Environmental
Liabilities


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





In June
1994, we acquired PFD, which we divested in March 2008.  Prior to us
acquiring PFD in 1994, the former owners of PFD had merged Environmental
Processing Services, Inc. (“EPS”) with PFD.  The party that sold PFD
to us in 1994 agreed to indemnify us for costs associated with remediating the
property leased by EPS (“Leased Property”).  Such remediation involves
soil and/or groundwater restoration.  The Leased Property used by EPS
to operate its facility is separate and apart from the property on which PFD's
facility was located.  The contamination of the Leased Property
occurred prior to PFD being acquired by us.  During 1995, in
conjunction with the bankruptcy filing by the selling party, we recognized an
environmental liability of approximately $1,200,000 for remedial activities at
the Leased Property.  Upon the sale of PFD in March 2008 by Perma-Fix,
we retained the environmental liability of PFD as it related only to the
remediation of the EPS site.  In 2008, we performed a field
investigation to gather additional information required to close certain soil
contamination issues and to support development of the final groundwater
remediation approach.  During 2009, the investigation report was
submitted to and approved by the Ohio EPA and work on the revised Corrective
Action Plan, including Risk Assessment had begun.  We have accrued
approximately $350,000, at December 31, 2009, for the estimated, remaining costs
of remediating the Leased Property used by EPS, which will extend over the next
six years.





In
conjunction with the acquisition of Perma-Fix of Memphis, Inc. (“PFM”), we
assumed and recorded certain liabilities to remediate gasoline contaminated
groundwater and investigate, under the hazardous and solid waste amendments,
potential areas of soil contamination on PFM's property.  Prior to our
ownership of PFM, the owners installed monitoring and treatment equipment to
restore the groundwater to acceptable standards in accordance with federal,
state and local authorities. In 2008, we completed all soil remediation with the
exception of that associated with the groundwater contamination.  In
addition, we installed wells and equipment associated with groundwater
remediation.  We have accrued approximately $439,000 at December 31,
2009, which included an addition to the reserve of approximately $300,000 made
in the fourth quarter of 2009, for the estimated, remaining costs of remediating
the groundwater contamination, which will extend over the next six
years.  The increase to the reserve was the result of a reassessment
on the cost of remediation.





In
conjunction with the acquisition of PFSG, we initially recognized an
environmental accrual of $2,200,000 for estimated long-term costs to remove
contaminated soil and to undergo groundwater remediation activities at the
acquired facility in Valdosta, Georgia.  The remedial activities began
in 2003.  We have accrued approximately $810,000, at December 31,
2009, which included an addition to the reserve of approximately $281,000 made
in the fourth quarter of 2009, to complete remediation of the
facility.  The increase to the reserve was the result of a
reassessment on the cost of remediation.  We anticipate spending the
reserve over the next seven years.





As a
result of the discontinued operations at the PFMI facility in 2004, we were
required to complete certain closure and remediation activities pursuant to our
RCRA permit, which were completed in January 2006.  In September 2006,
PFMI signed a Corrective Action Consent Order with the State of Michigan,
requiring performance of studies and development and execution of plans related
to the potential clean-up of soils in portions of the property.  The
level and cost of the clean-up and remediation are determined by state mandated
requirements.  During 2006, based on state-mandated criteria, we began
implementing the modified methodology to remediate the
facility.  We
have spent approximately $854,000 for closure costs since discontinuation of
PFMI in October 2004, of which $109,000 was spent during 2009 and $26,000 was
spent during 2008.  We have $128,000 accrued for the closure, as of
December 31, 2009, and we anticipate spending $102,000 in 2010 with the
remainder over the next fouryears.  Our
accrual as of December 31, 2009 included a $300,000 reduction to the reserve
made in the fourth quarter of 2009, resulting from a field investigation and
draft Remedial Action Plan which identified substantial reductions in the
anticipated cost of the completion of the remedial site.  Based on the
current status of the Corrective Action, we believe that the remaining reserve
is adequate to cover the liability.




8





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





The
nature of our business exposes us to significant risk of liability for
damages.  Such potential liability could involve, for example, claims
for cleanup costs, personal injury or damage to the environment in cases where
we are held responsible for the release of hazardous materials; claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of our operations; and claims alleging negligence or
professional errors or omissions in the planning or performance of our
services.  In addition, we could be deemed a responsible party for the
costs of required cleanup of any property, which may be contaminated by
hazardous substances generated or transported by us to a site we selected,
including properties owned or leased by us (see “Legal Proceedings” in Part I,
Item 3).  We could also be subject to fines and civil penalties in
connection with violations of regulatory requirements.





Research
and Development


Innovation
and technical know-how by our operations is very important to the success of our
business.  Our goal is to discover, develop and bring to market
innovative ways to process waste that address unmet environmental
needs.  We conduct research internally, and also through
collaborations with other third parties.  The majority of our research
activities are performed as we receive new and unique waste to treat; as such,
we recognize these expenses as a part of our processing costs.  We
feel that our investments in research have been rewarded by the discovery of the
Perma-Fix Process and the Perma-Fix II process.  Our competitors also
devote resources to research and development and many such competitors have
greater resources at their disposal than we do.  We have estimated
that during 2009, 2008, and 2007, we spent approximately $361,000, $1,020,000
and $715,000, respectively, in Company-sponsored research and development
activities.





Number
of Employees


In our
service-driven business, our employees are vital to our success.  We
believe we have good relationships with our employees.  As of December
31, 2009, we employed 628 full time persons, of whom 19 were assigned to our
corporate office, 18 were assigned to our Operations Headquarters, 24 were
assigned to our Engineering Segment, 42 were assigned to our Industrial Segment,
and 525 were assigned to our Nuclear Segment.  Of the 525 employees at
our Nuclear Segment, 256 employees have been hired to work under the subcontract
awarded to us by CHPRC during the second quarter of 2008.  Of the 256
employees, 113 employees (representing approximately 18.0% of the Company’s
total number of employees) are unionized and are covered by a collective
bargaining agreement.  The current bargaining agreement became
effective April 1, 2007 and expires on March 31, 2012 (see “- Operating Segments
– Nuclear Waste Management Services” in this section regarding our CHPRC
subcontract).





Governmental
Regulation


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




9





The Resource Conservation and
Recovery Act of 1976, as amended (“RCRA”)


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





The
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA,” also referred to as the “Superfund Act”)


CERCLA
governs the cleanup of sites at which hazardous substances are located or at
which hazardous substances have been released or are threatened to be released
into the environment.  CERCLA authorizes the EPA to compel responsible
parties to clean up sites and provides for punitive damages for
noncompliance.  CERCLA imposes joint and several liabilities for the
costs of clean up and damages to natural resources.





Health
and Safety Regulations


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





Atomic
Energy Act


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





Other
Laws


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




10





Insurance


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





In June
2003, we entered into a 25-year finite risk insurance policy with Chartis, a
subsidiary of AIG (see “Part I, Item 1A. - Risk Factors” for certain potential
risk related to AIG), which provides financial assurance to the applicable
states for our permitted facilities in the event of unforeseen
closure.  Prior to obtaining or renewing operating permits, we are
required to provide financial assurance that guarantees to the states that in
the event of closure, our permitted facilities will be closed in accordance with
the regulations.  The policy provides a maximum $35,000,000 of
financial assurance coverage.  In March 2009, we increased our maximum
policy coverage to $39,000,000 from $35,000,000 in order to secure additional
financial assurance coverage requirement for our DSSI subsidiary to commercially
store and dispose of PCB wastes under an authorization issued by the EPA on
November 26, 2008.  As of December 31, 2009, our total financial
coverage under our finite risk policy totals approximately
$35,869,000.





In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility, which we acquired in June 2007, with Chartis, a subsidiary of AIG (see
“Part I, Item 1A. - Risk Factors” for certain potential risk related to
AIG).  The policy provides an initial $7,800,000 of financial
assurance coverage with annual growth rate of 1.5%, which at the end of the four
year term policy, will provide maximum coverage of $8,200,000.  The
policy will renew automatically on an annual basis at the end of the four year
term and will not be subject to any renewal fees.





ITEM
      1A.
            RISK
      FACTORS




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





Risks
Relating to our Operations





Our
insurer that provides our financial assurance that we are required to have in
order to operate our permitted treatment, storage and disposal facility has
experienced financial difficulties.


It has
been publicly reported that American International Group, Inc. (“AIG”), has
experienced significant financial difficulties and is continuing to experience
financial difficulties.  A subsidiary of AIG, Chartis, provides our
finite risk insurance policies which provide financial assurance to the
applicable states for our permitted facilities in the event of unforeseen
closure.  We are required to provide and to maintain financial
assurance that guarantees to the state that in the event of closure, our
permitted facilities will be closed in accordance with the
regulations.  Our initial policies provide a maximum of $39,000,000 of
financial assurance coverage of which the coverage amount totals $35,869,000 at
December 31, 2009.  We also maintain a financial assurance policy for
our PFNWR facility entered into in June 2007 which will provide maximum coverage
of $8,200,000 at the end of the four year term policy.  Chartis also
provides other operating insurance policies for the Company and our
subsidiaries.  In the event of a failure of AIG, this could materially
impact our operations and our permits which we are required to have in order to
operate our treatment, storage, and disposal facilities.




11





If
we cannot maintain adequate insurance coverage, we will be unable to continue
certain operations.


Our
business exposes us to various risks, including claims for causing damage to
property and injuries to persons that may involve allegations of negligence or
professional errors or omissions in the performance of our
services.  Such claims could be substantial.  We believe
that our insurance coverage is presently adequate and similar to, or greater
than, the coverage maintained by other companies in the industry of our
size.  If we are unable to obtain adequate or required insurance
coverage in the future, or if our insurance is not available at affordable
rates, we would violate our permit conditions and other requirements of the
environmental laws, rules, and regulations under which we
operate.  Such violations would render us unable to continue certain
of our operations.  These events would have a material adverse effect
on our financial condition.





The
inability to maintain existing government contracts or win new government
contracts over an extended period could have a material adverse effect on our
operations and adversely affect our future revenues.


A
material amount of our Nuclear Segment's revenues are generated through various
U.S. government contracts or subcontracts involving the U.S.
government.  Our revenues from governmental contracts and subcontracts
relating to governmental facilities within our Nuclear Segment were
approximately $75,013,000 and $43,464,000, representing 74.5% and 57.6%,
respectively, of our consolidated operating revenues from continuing operations
for 2009 and 2008.  Most of our government contracts or our
subcontracts granted under government contracts are awarded through a regulated
competitive bidding process. Some government contracts are awarded to multiple
competitors, which increase overall competition and pricing pressure and may
require us to make sustained post-award efforts to realize revenues under these
government contracts. All contracts with, or subcontracts involving, the federal
government are terminable, or subject to renegotiation, by the applicable
governmental agency on 30 days notice, at the option of the governmental
agency.  If we fail to maintain or replace these relationships, or if
a material contract is terminated or renegotiated in a manner that is materially
adverse to us, our revenues and future operations could be materially adversely
affected.





Failure
of our Nuclear Segment to be profitable could have a material adverse
effect.


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





Our
existing and future customers may reduce or halt their spending on nuclear
services with outside vendors, including us.


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





·
            accidents,
      terrorism, natural disasters or other incidents occurring at nuclear
      facilities or involving shipments of nuclear
  materials;


·
            failure
      of the federal government to approve necessary budgets, or to reduce the
      amount of the budget necessary, to fund remediation of DOE and DOD
      sites;


·
            civic
      opposition to or changes in government policies regarding nuclear
      operations; or


·
            a
      reduction in demand for nuclear generating
  capacity.





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




12





Economic
downturns (i.e.: the current economic environment) and/or reductions in
government funding could have a material negative impact on our
businesses.


Demand
for our services has been, and we expect that demand will continue to be,
subject to significant fluctuations due to a variety of factors beyond our
control, including the current economic conditions, inability of the federal
government to adopt its budget or reductions in the budget for spending to
remediate federal sites due to numerous reasons, including, without limitation,
the substantial deficits that the federal government has and is continuing to
incur.  During economic downturns, such as the current economic
condition, and large budget deficits that the federal government and many states
are experiencing, the ability of private and government entities to spend on
nuclear services may decline significantly.  Although the economic
stimulus package (American Recovery and Reinvestment Act) enacted by Congress in
February 2009 provides for substantial funds to remediate federal nuclear sites,
we cannot be certain that economic or political conditions will be generally
favorable or that there will not be significant fluctuations adversely affecting
our industry as a whole.  In addition, our operations depend, in large
part, upon governmental funding, particularly funding levels at the
DOE.  Significant reductions in the level of governmental funding (for
example, the annual budget of the DOE) or specifically mandated levels for
different programs that are important to our business could have a material
adverse impact on our business, financial position, results of operations and
cash flows.





The
loss of one or a few customers could have an adverse effect on us.


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





As
a government contractor, we are subject to extensive government regulation, and
our failure to comply with applicable regulations could subject us to penalties
that may restrict our ability to conduct our business.


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





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





Loss
of certain key personnel could have a material adverse effect on
us.


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




13





Changes
in environmental regulations and enforcement policies could subject us to
additional liability and adversely affect our ability to continue certain
operations.


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





The
refusal to accept our waste for disposal by, or a closure of, the end disposal
site that our Nuclear Segment utilizes to dispose of its waste could subject us
to significant risk and limit our operations.


Our
Nuclear Segment has limited options available for disposal of its waste. There
is only one disposal site for our low level radioactive waste we receive from
non-governmental sites.  If this disposal site ceases to accept waste
or closes for any reason or refuses to accept the waste of our Nuclear Segment,
for any reason, we could have nowhere to dispose of our nuclear waste or have
significantly increased costs from disposal alternatives. With nowhere to
dispose of our nuclear waste, we would be subject to significant risk from the
implications of storing the waste on our site, and we would have to limit our
operations to accept only waste that we can dispose of.  A second
low-level radioactive disposal site is scheduled to be operational during the
later part of 2010 or early 2011; and when this new disposal site becomes
operational, we do not believe that we will be as dependent on the current
disposal site.





Our
businesses subject us to substantial potential environmental
liability.


Our
business of rendering services in connection with management of waste, including
certain types of hazardous waste, low-level radioactive waste, and mixed waste
(waste containing both hazardous and low-level radioactive waste), subjects us
to risks of liability for damages. Such liability could involve, without
limitation:




·
            claims
      for clean-up costs, personal injury or damage to the environment in cases
      in which we are held responsible for the release of hazardous or
      radioactive materials; and


·
            claims
      of employees, customers, or third parties for personal injury or property
      damage occurring in the course of our operations;
  and


·
            claims
      alleging negligence or professional errors or omissions in the planning or
      performance of our services.





Our
operations are subject to numerous environmental laws and regulations. We have
in the past, and could in the future, be subject to substantial fines,
penalties, and sanctions for violations of environmental laws and substantial
expenditures as a responsible party for the cost of remediating any property
which may be contaminated by hazardous substances generated by us and disposed
at such property, or transported by us to a site selected by us, including
properties we own or lease.





As
our operations expand, we may be subject to increased litigation, which could
have a negative impact on our future financial results.


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




14





Our
operations are subject to seasonal factors, which cause our revenues to
fluctuate.


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





If
environmental regulation or enforcement is relaxed, the demand for our services
will decrease.


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





We
and our customers operate in a politically sensitive environment, and the public
perception of nuclear power and radioactive materials can affect our customers
and us.


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





We
may be exposed to certain regulatory and financial risks related to climate
change.


Climate
change is receiving ever increasing attention worldwide. Many scientists,
legislators and others attribute global warming to increased levels of
greenhouse gases, including carbon dioxide, which has led to significant
legislative and regulatory efforts to limit greenhouse gas
emissions.




There are
a number of pending legislative and regulatory proposals to address greenhouse
gas emissions. For example, in June 2009 the U.S. House of Representatives
passed the American Clean Energy and Security Act that would phase-in
significant reductions in greenhouse gas emissions if enacted into law. The U.S.
Senate is considering a different bill, and it is uncertain whether, when and in
what form a federal mandatory carbon dioxide emissions reduction program may be
adopted. These actions could increase costs associated with our
operations.  Because it is uncertain what laws will be enacted, we
cannot predict the potential impact of such laws on our future consolidated
financial condition, results of operations or cash flows.





We
may not be successful in winning new business mandates from our government and
commercial customers.


We must
be successful in winning mandates from our government and commercial customers
to replace revenues from projects that are nearing completion and to increase
our revenues. Our business and operating results can be adversely affected by
the size and timing of a single material contract.




15





The
elimination or any modification of the Price-Anderson Acts indemnification
authority could have adverse consequences for our business.


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





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





We
are engaged in highly competitive businesses and typically must bid against
other competitors to obtain major contracts.


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





Our
failure to maintain our safety record could have an adverse effect on our
business.


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




Failure
to maintain effective internal control over financial reporting could have a
material adverse effect on our business, operating results, and stock
price.


Maintaining
effective internal control over financial reporting is necessary for us to
produce reliable financial reports and is important in helping to prevent
financial fraud.  If we are unable to maintain adequate internal
controls, our business and operating results could be harmed. We are required to
satisfy the requirements of Section 404 of Sarbanes Oxley and the related
rules of the Securities and Exchange Commission, which require, among other
things, our management to assess annually the effectiveness of our internal
control over financial reporting and our independent registered public
accounting firm to issue a report on that assessment. For several years that
ended prior to December 31, 2009, we concluded that our disclosure controls and
procedures and internal controls over financial reporting were not
effective.  However, based on our assessment, we have concluded that
our disclosure controls and procedures and internal controls over financial
reporting were effective as of December 31, 2009.  Failure to
remediate any future deficiencies noted by our independent registered public
accounting firm or to implement required new or improved controls or
difficulties encountered in their implementation could cause us to fail to meet
our reporting obligations or result in material misstatements in our financial
statements. If our management or our independent registered public accounting
firm were to conclude in their reports that our internal control over financial
reporting was not effective, investors could lose confidence in our reported
financial information, and the trading price of our stock could drop
significantly.




16





We
may be unable to utilize loss carryforwards in the future.


We have
approximately $14,532,000 and $26,310,000 in net operating loss carryforwards
which will expire from 2010 to 2028 if not used against future federal and state
income tax liabilities, respectively.  Our net loss carryforwards are
subject to various limitations.  Our ability to use the net loss
carryforwards depends on whether we are able to generate sufficient income in
the future years.  Further, our net loss carryforwards have not been
audited or approved by the Internal Revenue Service.





Risks
Relating to our Intellectual Property





If
we cannot maintain our governmental permits or cannot obtain required permits,
we may not be able to continue or expand our operations.


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





We
believe our proprietary technology is important to us.


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





Risks
Relating to our Financial Position and Need for Financing





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


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





Our
amount of debt could adversely affect our operations.


At
December 31, 2009, our aggregate consolidated debt was approximately
$12,381,000. Our secured revolving credit facility (the “Credit Facility”)
provides for an aggregate commitment of $25,000,000, consisting of an
$18,000,000 revolving line of credit and a term loan of
$7,000,000.  The maximum we can borrow under the revolving part of the
Credit Facility is based on a percentage of the amount of our eligible
receivables outstanding at any one time.  As of December 31, 2009, we
had borrowings under the revolving part of our Credit Facility of $2,659,000 and
borrowing availability of up to an additional $11,535,000 based on our
outstanding eligible receivables.   A lack of operating results
could have material adverse consequences on our ability to operate our
business.  Our ability to make principal and interest payments, or to
refinance indebtedness, will depend on both our and our subsidiaries' future
operating performance and cash flow. Prevailing economic conditions, interest
rate levels, and financial, competitive, business, and other factors affect
us.  Many of these factors are beyond our control.




17





Risks
Relating to our Common Stock





Issuance
of substantial amounts of our Common Stock could depress our stock
price.


Any sales
of substantial amounts of our Common Stock in the public market could cause an
adverse effect on the market price of our Common Stock and could impair our
ability to raise capital through the sale of additional equity
securities.  The issuance of our Common Stock will result in the
dilution in the percentage membership interest of our stockholders and the
dilution in ownership value.  As of December 31, 2009, we had
54,628,904 shares of Common Stock outstanding.





In
addition, as of December 31, 2009, we had outstanding options to purchase
3,109,525 shares of Common Stock at exercise prices from $1.25 to $2.98 per
share.  Further, our preferred share rights plan and the shelf
registration statement, if either is triggered, could result in the issuance of
a substantial amount of our Common Stock.  The existence of this
quantity of rights to purchase our Common Stock under the preferred share rights
plan and/or the shelf registration could result in a significant dilution in the
percentage ownership interest of our stockholders and the dilution in ownership
value.  Future sales of the shares issuable could also depress the
market price of our Common Stock.





We
do not intend to pay dividends on our Common Stock in the foreseeable
future.


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





The
price of our Common Stock may fluctuate significantly, which may make it
difficult for our stockholders to resell our Common Stock when a stockholder
wants or at prices a stockholder finds attractive.


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





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





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





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


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




18





We have
authorized and unissued 12,111,571 (which include outstanding options to
purchase 3,109,525 shares of our Common Stock, outstanding warrants to purchase
150,000 shares of our Common Stock, and up to 5,000,000 shares authorized for
resale under the shelf registration statement) shares of Common Stock and
2,000,000 shares of Preferred Stock as of December 31, 2009 (which includes
600,000 shares of our Preferred Stock reserved for issuance under our preferred
share rights plan).  These unissued shares could be used by our
management to make it more difficult, and thereby discourage an attempt to
acquire control of us.





Our
Preferred Share Rights Plan may adversely affect our stockholders.


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





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





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





ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS




None





ITEM
      2.
            PROPERTIES




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





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




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




19




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





ITEM
      3.
            LEGAL
      PROCEEDINGS




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


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





The
Louisiana Department of Environmental Quality (“LDEQ”) has collected
approximately $8,400,000 to date for the remediation of the site (Perma-Fix
subsidiaries have not been required to contribute any of the $8,400,000) and has
completed removal of above ground waste from the site, with approximately
$5,000,000 remaining in this fund held by the LDEQ.  The EPA’s
unofficial estimate to complete remediation of the site is between $9,000,000
and $12,000,000, including work performed by LDEQ to date; however, based on
preliminary outside consulting work hired by the PRP group, which we are a party
to, the remediation costs could be below EPA’s estimation.  During
2009, a site assessment was conducted and paid for by the PRP group, which was
exclusive of the $8,400,000.  No unexpected issues were identified
during the assessment.  Collections from small contributors have also
begun for remediation of this site.  Remediation activities going
forward will be funded by LDEQ, until those funds are exhausted, at which time,
any additional requirements, if needed, will be funded from the small
contributors.  Once funds from the small contributors are exhausted,
if additional funds are required, they will be provided by the members of the
PRP group.  As part of the PRP Group, we 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 December 31, 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 first quarter of 2010.  As of the date of
this report, we cannot accurately access our ultimate liability.  The
Company records its environmental liabilities when they are probable of payment
and can be estimated within a reasonable range.  Since this
contingency currently does not meet this criteria, a liability has not been
established.





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.





ITEM
      4.
            RESERVED




20





ITEM
      4A.
            EXECUTIVE
      OFFICERS OF  THE
REGISTRANT




The
following table sets forth, as of the date hereof, information concerning our
executive officers:





NAME
              
              AGE
              
              POSITIONDr.
      Louis F. Centofanti
              
              66
              
              Chairman
      of the Board, President and Chief Executive OfficerMr.
      Ben Naccarato
              
              47
              
              Chief
      Financial Officer, Vice President, and SecretaryMr.
      Robert Schreiber, Jr.
              
              59
              
              President
      of SYA, Schreiber, Yonley & Associates, a subsidiary of the Company,
      and Principal Engineer





Dr.
Louis F. Centofanti


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





Mr.
Ben Naccarato


Mr.
Naccarato was named Chief Financial Officer by the Company’s Board of Directors
on February 26, 2009.  Mr. Naccarato was appointed on October 24, 2008
by the Company’s Board of Directors as the Interim Chief Financial Officer,
effective November 1, 2008.  Mr. Naccarato joined the Company in
September 2004 and served as Vice President, Finance of the Company’s Industrial
Segment until May 2006, when he was named Vice President, Corporate
Controller/Treasurer.  Prior to joining the Company in September 2004,
Mr. Naccarato served as the Chief Financial Officer of Culp Petroleum Company,
Inc., a privately held company in the fuel distribution and used waste oil
industry from December 2002 to September 2004.  Mr. Naccarato is a
graduate of University of Toronto having received a Bachelor of Commerce and
Finance Degree and is a Certified Management Accountant.





Mr.
Robert Schreiber, Jr.


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





Resignation
of Chief Operating Officer


On July
29, 2009, the Company accepted the resignation of Mr. Larry McNamara, as Vice
President and Chief Operating Officer of the Company.  Mr. McNamara’s
resignation as the Chief Operating Officer was effective September 1, 2009, and
as an employee of the Company effective September 30, 2009.  The
duties of the Company’s Chief Operating Officer have been temporarily assumed by
Dr. Centofanti, Chairman of the Board, President and Chief Executive Officer,
until the position of Chief Operating Officer is permanently
filled.





Certain
Relationships


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




21





PART
II





ITEM
      5.
            MARKET
      FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
    MATTERS





Our
Common Stock is traded on the NASDAQ Capital Markets (“NASDAQ”) under the symbol
“PESI”. The following table sets forth the high and low market trade prices
quoted for the Common Stock during the periods shown.  The source of
such quotations and information is the NASDAQ online trading history
reports.





2009
                      
                      
                      2008Low
                      
                      
                      High
                      
                      
                      Low
                      
                      
                      HighCommon Stock
                      1st Quarter
                      
                      $
                      1.15
                      
                      
                      $
                      1.95
                      
                      
                      $
                      1.49
                      
                      
                      $
                      2.482nd Quarter
                      
                      
                      1.64
                      
                      
                      
                      2.72
                      
                      
                      
                      1.50
                      
                      
                      
                      3.183rd Quarter
                      
                      
                      2.24
                      
                      
                      
                      2.72
                      
                      
                      
                      1.75
                      
                      
                      
                      2.994th Quarter
                      
                      
                      2.05
                      
                      
                      
                      2.51
                      
                      
                      
                      .63
                      
                      
                      
                      2.09





As of
February 26, 2010, there were approximately 260 stockholders of record of our
Common Stock, including brokerage firms and/or clearing houses holding shares of
our Common Stock for their clientele (with each brokerage house and/or clearing
house being considered as one holder).  However, the total number of
beneficial stockholders as of February 26, 2010, was approximately
3,728.





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





No sales
of unregistered securities, other than the securities sold by us during 2009, as
reported in our Forms 10-Q for the quarters ended March 31, 2009, June 30, 2008,
and September 30, 2009,  which were not registered under the
Securities Act of 1933, as amended, were issued during 2009.  There
were no purchases made by us or on behalf of us or any of our affiliated members
of shares of our Common Stock during the last quarter of 2009.





Shelf
Registration Statement


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.


22


Common
Stock Price Performance Graph


The
following Common Stock price performance graph compares the yearly change in the
Company’s cumulative total stockholders’ returns on the Common Stock during the
years 2005 through 2009, with the cumulative total return of the NASDAQ Market
Index and the published industry index prepared by Hemscott and known as
Hemscott Industry Group 637-Waste Management Index (“Industry Index”) assuming
the investment of $100 on January 1, 2005.





The
stockholder returns shown on the graph below are not necessarily indicative of
future performance, and we will not make or endorse any predications as to
future stockholder returns.











Assumes
$100 invested in the Company on January 1, 2005, the Industry Index and the
NASDAQ Market Index, and the reinvestment of dividends. The above five-year
Cumulative Total Return Graph shall not be deemed to be “soliciting material” or
to be filed with the Securities and Exchange Commission, nor shall such
information be incorporated by reference by any general statement incorporating
by reference this Form 10-K into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934 (collectively, the “Acts”) or be subject to
the liabilities under Section 18 of the Securities Exchange Act of 1934, except
to the extent that the Company specifically incorporates this information by
reference, and shall not be deemed to be soliciting material or to be filed
under such Acts.


23




ITEM
      6.
            SELECTED
      FINANCIAL DATA


The
financial data included in this table has been derived from our audited
consolidated financial statements, which have been audited by BDO Seidman,
LLP.  In 2009, we reclassified our Perma-Fix of Memphis, Inc. (“PFM”)
back into discontinued operations.  Our Perma-Fix of Memphis, Inc.
facility was approved as a discontinued operation by our Board on March 12,
1998.  This decision was the result of an explosion at the facility in
1997, which significantly disrupted its operations and the high costs required
to rebuild its operations.  PFM had been reported as a discontinued
operation until 2001.  In 2001, the facility was reclassified back
into continuing operations as we had no other facilities classified as
discontinued operations and its impact on our financial statements was de
minimis.  During the fourth quarter of 2009, we reclassified PFM back
into discontinued operations for all periods presented in accordance with ASC
360, “Property, Plant, and Equipment”.  In addition, certain prior
year amounts have been reclassified to conform with current year
presentations.  Amounts are in thousands, except for per share
amounts.   The information set forth below should be read in
conjunction with “Management’s Discussion Analysis of Financial Condition and
Results of Operations” and the consolidated financial statements of the Company
and the notes thereto included elsewhere herein.





Statement
of Operations Data:





2009(1)
                        
                        
                        2008(1)
                        
                        
                        2007(1)(2)
                        
                        
                        2006(1)
                        
                        
                        2005Revenues
                        
                        $
                        100,676
                        
                        
                        $
                        75,504
                        
                        
                        $
                        64,544
                        
                        
                        $
                        68,205
                        
                        
                        $
                        68,833Income
      (loss) from continuing operations
                        
                        
                        9,572
                        
                        
                        
                        985
                        
                        
                        
                        (2,360
                        )
                        
                        
                        5,620
                        
                        
                        
                        4,088Income
      (loss) from discontinued operations, net of taxes
                        
                        
                        50
                        
                        
                        
                        (1,397
                        )
                        
                        
                        (6,850
                        )
                        
                        
                        (909
                        )
                        
                        
                        (349
                        )Gain
      on disposal of discontinued operations, net of taxes
                        
                        
                        —
                        
                        
                        
                        2,323
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Net
      income (loss)
                        
                        
                        9,622
                        
                        
                        
                        1,911
                        
                        
                        
                        (9,210
                        )
                        
                        
                        4,711
                        
                        
                        
                        3,739Preferred
      stock dividends
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (156
                        )Net
      income (loss) applicable to Common Stockholders
                        
                        
                        9,622
                        
                        
                        
                        1,911
                        
                        
                        
                        (9,210
                        )
                        
                        
                        4,711
                        
                        
                        
                        3,583Income
      (loss) per common share - BasicContinuing
      operations
                        
                        
                        .18
                        
                        
                        
                        .02
                        
                        
                        
                        (.05
                        )
                        
                        
                        .12
                        
                        
                        
                        .09Discontinued
      operations
                        
                        
                        —
                        
                        
                        
                        (.02
                        )
                        
                        
                        (.13
                        )
                        
                        
                        (.02
                        )
                        
                        
                        (.01
                        )Disposal
      of discontinued operations
                        
                        
                        —
                        
                        
                        
                        .04
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Net
      income (loss) per share
                        
                        
                        .18
                        
                        
                        
                        .04
                        
                        
                        
                        (.18
                        )
                        
                        
                        .10
                        
                        
                        
                        .08Income
      (loss) per common share - DilutedContinuing
      operations
                        
                        
                        .18
                        
                        
                        
                        .02
                        
                        
                        
                        (.05
                        )
                        
                        
                        .12
                        
                        
                        
                        .09Discontinued
      operations
                        
                        
                        —
                        
                        
                        
                        (.02
                        )
                        
                        
                        (.13
                        )
                        
                        
                        (.02
                        )
                        
                        
                        (.01
                        )Disposal
      of discontinued operations
                        
                        
                        —
                        
                        
                        
                        .04
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Net
      income (loss) per share
                        
                        
                        .18
                        
                        
                        
                        .04
                        
                        
                        
                        (.18
                        )
                        
                        
                        .10
                        
                        
                        
                        .08Number
      of shares used in computing net income (loss) per share -
      Basic
                        
                        
                        54,238
                        
                        
                        
                        53,803
                        
                        
                        
                        52,549
                        
                        
                        
                        48,157
                        
                        
                        
                        42,605Number
      of shares and potential common shares used in computingnet
      income (loss) per share - Diluted
                        
                        
                        54,526
                        
                        
                        
                        54,003
                        
                        
                        
                        52,549
                        
                        
                        
                        48,768
                        
                        
                        
                        44,804


24





Balance
Sheet Data:


December 31,2009
                
                
                2008
                
                
                2007
                
                
                2006
                
                
                2005Working
      capital (deficit)
                
                $
                1,490
                
                
                $
                (3,886
                )
                
                $
                (17,154
                )
                
                $
                12,810
                
                
                $
                5,916Total
      assets
                
                
                126,075
                
                
                
                123,712
                
                
                
                126,048
                
                
                
                106,355
                
                
                
                98,457Current
      and long-term debt
                
                
                12,381
                
                
                
                16,203
                
                
                
                18,836
                
                
                
                8,329
                
                
                
                13,375Total
      liabilities
                
                
                51,271
                
                
                
                60,791
                
                
                
                66,035
                
                
                
                40,617
                
                
                
                50,019Preferred
      Stock of subsidiary
                
                
                1,285
                
                
                
                1,285
                
                
                
                1,285
                
                
                
                1,285
                
                
                
                1,285Stockholders'
      equity
                
                
                73,519
                
                
                
                61,636
                
                
                
                58,728
                
                
                
                64,453
                
                
                
                47,153





(1)
            Includes
      recognized stock-based compensation expense of $713,000, $531,000,
      $457,000 and $338,000 for 2009, 2008, 2007 and 2006, respectively,
      pursuant to FASB ASC 718, “Compensation – Stock
    Compensation”.





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


25


ITEM
      7.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Certain
statements contained within this “Management's Discussion and Analysis of
Financial Condition and Results of Operations” may be deemed “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(collectively, the “Private Securities Litigation Reform Act of
1995”).  See “Special Note regarding Forward-Looking Statements”
contained in this report.





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





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





Review


The
Company experienced strong improvement in 2009 as compared to
2008.  The improvement in 2009 was attributed primarily to the
subcontract that we received from CH Plateau Remediation Company (“CHPRC”), a
general contractor to the Department of Energy (“DOE”), in the second quarter of
2008 by our East Tennessee Materials and Energy Corporation (“M&EC”)
facility.  Under this subcontract, M&EC is performing a portion of
facility operations and waste management activities for the DOE Hanford,
Washington Site.  This subcontract officially commenced on October 1,
2008. We also believe that we have benefitted from the economic stimulus package
(American Recovery and Reinvestment Act) enacted by Congress in February 2009,
which provided additional funding for nuclear waste clean-up throughout the
Department of Energy (“DOE”) complex.  This benefit was reflective
primarily starting in the third quarter of 2009 in our Nuclear Segment, with
significant improvement in revenue generated from higher priced waste
receipts.  Our Industrial Segment results were negatively impacted
especially by the reduction in oil prices globally in 2009, as compared to 2008,
and the continued uncertainty in the economy.  Our Engineering Segment
continues to provide us with positive results.





In 2009,
our revenue increased $25,172,000 or 33.3% to $100,676,000 from $75,504,000 in
2008.  Our Nuclear Segment generated revenue of $89,011,000 in 2009,
an increase of $27,652,000 or 45.1% over the revenue of $61,359,000 in
2008.  The increase in revenue within our Nuclear Segment was
primarily due to the increase in revenue of $27,131,000 from the subcontract
awarded to our M&EC facility as mentioned above.  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 $8,283,000 in revenue in 2009 as compared to $10,951,000 in 2008 or a
24.4% decrease.  This decrease was primarily the result of a reduction
in oil sales revenue due primarily to decreased oil prices in 2009, as compared
to 2008, and a reduction in volume.  Revenue for 2009 from the
Engineering Segment increased $188,000 or 5.9% to $3,382,000 from $3,194,000 for
the same period of 2008.





Gross
profit increased $7,297,000 or 36.8% from 2008 to 2009 due primarily to an
increase in revenue from our CHPRC subcontract, receipt of higher priced waste
in our Nuclear Segment, and 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 Perma-Fix Northwest Richland, Inc. (“PFNWR”) facility in June
2007 (see “Cost of Goods Sold” in this section for further information regarding
this reduction).  Overall Selling, General, and Administrative
(SG&A) expenses were down $464,000 due to the Company’s continued efforts in
cutting costs.





Net
income applicable to Common Stockholders for 2009 was $9,622,000 or $.18 per
share as compared to net income applicable to Common Stockholders of $1,911,000
or $.04 per share for 2008.  Our net income applicable to Common
Stockholders for 2009 included a reduction to our cost of goods sold of
approximately $787,000, as mentioned above, as well as a release of a portion of
valuation allowance related to our deferred tax asset of approximately
$2,426,000 recorded in the fourth quarter of 2009.


26





We have
improved our working capital significantly in 2009.  Our working
capital position at December 31, 2009 was $1,490,000, which includes working
capital of our discontinued operations, as compared to working capital deficit
of $3,886,000 as of December 31, 2008. The improvement in our working capital
was primarily from paying down of our current liabilities from funds generated
from our operations.





Outlook


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





Results
of Operations


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





Below are
the results of continuing operations for our years ended December 31, 2009,
2008, and 2007 (amounts in thousands):





(Consolidated)
                      
                      2009
                      
                      
                      %
                      
                      
                      2008
                      
                      
                      %
                      
                      
                      2007
                      
                      
                      %Net
      Revenues
                      
                      $
                      100,676
                      
                      
                      
                      100.0
                      
                      
                      $
                      75,504
                      
                      
                      
                      100.0
                      
                      
                      $
                      64,544
                      
                      
                      
                      100.0Cost
      of goods sold
                      
                      
                      73,537
                      
                      
                      
                      73.0
                      
                      
                      
                      55,662
                      
                      
                      
                      73.7
                      
                      
                      
                      45,715
                      
                      
                      
                      70.8Gross
      Profit
                      
                      
                      27,139
                      
                      
                      
                      27.0
                      
                      
                      
                      19,842
                      
                      
                      
                      26.3
                      
                      
                      
                      18,829
                      
                      
                      
                      29.2Selling,
      general and administrative
                      
                      
                      17,728
                      
                      
                      
                      17.6
                      
                      
                      
                      18,192
                      
                      
                      
                      24.1
                      
                      
                      
                      17,859
                      
                      
                      
                      27.7Asset
      impairment (recovery) loss
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      (507
                      )
                      
                      
                      (.6
                      )
                      
                      
                      1,836
                      
                      
                      
                      2.8(Gain)
      loss on disposal of property and equipment
                      
                      
                      (15
                      )
                      
                      
                      3⁄4
                      
                      
                      
                      (295
                      )
                      
                      
                      (.4
                      )
                      
                      
                      172
                      
                      
                      
                      .3Income
      (loss) from operations
                      
                      
                      9,426
                      
                      
                      
                      9.4
                      
                      
                      
                      2,452
                      
                      
                      
                      3.2
                      
                      
                      
                      (1,038
                      )
                      
                      
                      (1.6
                      )Interest
      income
                      
                      
                      145
                      
                      
                      
                      .1
                      
                      
                      
                      226
                      
                      
                      
                      .3
                      
                      
                      
                      312
                      
                      
                      
                      .5Interest
      expense
                      
                      
                      (1,657
                      )
                      
                      
                      (1.6
                      )
                      
                      
                      (1,540
                      )
                      
                      
                      (2.0
                      )
                      
                      
                      (1,353
                      )
                      
                      
                      (2.1
                      )Interest
      expense – financing fees
                      
                      
                      (283
                      )
                      
                      
                      (.3
                      )
                      
                      
                      (137
                      )
                      
                      
                      (.2
                      )
                      
                      
                      (196
                      )
                      
                      
                      (.3
                      )Other
                      
                      
                      19
                      
                      
                      
                      3⁄4
                      
                      
                      
                      (6
                      )
                      
                      
                      3⁄4
                      
                      
                      
                      (85
                      )
                      
                      
                      (.1
                      )Income
      (loss) from continuing operations before taxes
                      
                      
                      7,650
                      
                      
                      
                      7.6
                      
                      
                      
                      995
                      
                      
                      
                      1.3
                      
                      
                      
                      (2,360
                      )
                      
                      
                      (3.6
                      )Income
      tax (benefit) expense
                      
                      
                      (1,922
                      )
                      
                      
                      (1.9
                      )
                      
                      
                      10
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4
                      
                      
                      
                      3⁄4Income
      (loss) from continuing operations
                      
                      
                      9,572
                      
                      
                      
                      9.5
                      
                      
                      
                      985
                      
                      
                      
                      1.3
                      
                      
                      
                      (2,360
                      )
                      
                      
                      (3.6
                      )


27





Summary - Years Ended
December 31, 2009 and 2008





Net
Revenue


Consolidated
revenues from continuing operations increased $25,172,000 for the year ended
December 31, 2009, compared to the year ended December 31, 2008, as
follows:


(Inthousands)
                                    
                                    2009
                                    
                                    
                                    %
                                      Revenue
                                    
                                    
                                    2008
                                    
                                    
                                    %
                                      Revenue
                                    
                                    
                                    Change
                                    
                                    
                                    %
                                      ChangeNuclearGovernment
      waste
                                    
                                    $
                                    29,844
                                    
                                    
                                    
                                    29.6
                                    
                                    
                                    $
                                    27,370
                                    
                                    
                                    
                                    36.2
                                    
                                    
                                    $
                                    2,474
                                    
                                    
                                    
                                    9.0Fluor
      Hanford
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    7,974
                                    
                                    
                                    
                                    10.6
                                    
                                    
                                    
                                    (7,974
                                    )
                                    
                                    
                                    (100.0
                                    )CHPRC
                                    
                                    
                                    45,169
                                    
                                    
                                    
                                    44.9
                                    
                                    
                                    
                                    8,120
                                    
                                    
                                    
                                    10.8
                                    
                                    
                                    
                                    37,049
                                    
                                    
                                    
                                    456.3Hazardous/non-hazardous
                                    
                                    
                                    3,583
                                    
                                    
                                    
                                    3.6
                                    
                                    
                                    
                                    3,973
                                    
                                    
                                    
                                    5.3
                                    
                                    
                                    
                                    (390
                                    )
                                    
                                    
                                    (9.8
                                    )Other
      nuclear waste
                                    
                                    
                                    10,415
                                    
                                    
                                    
                                    10.3
                                    
                                    
                                    
                                    13,922
                                    
                                    
                                    
                                    18.4
                                    
                                    
                                    
                                    (3,507
                                    )
                                    
                                    
                                    (25.2
                                    )Total
                                    
                                    
                                    89,011
                                    
                                    
                                    
                                    88.4
                                    
                                    
                                    
                                    61,359
                                    
                                    
                                    
                                    81.3
                                    
                                    
                                    
                                    27,652
                                    
                                    
                                    
                                    45.1IndustrialCommercial
      waste
                                    
                                    
                                    5,213
                                    
                                    
                                    
                                    5.2
                                    
                                    
                                    
                                    5,495
                                    
                                    
                                    
                                    7.3
                                    
                                    
                                    
                                    (282
                                    )
                                    
                                    
                                    (5.1
                                    )Government
      services
                                    
                                    
                                    559
                                    
                                    
                                    
                                    0.5
                                    
                                    
                                    
                                    814
                                    
                                    
                                    
                                    1.1
                                    
                                    
                                    
                                    (255
                                    )
                                    
                                    
                                    (31.3
                                    )Oil
      sales
                                    
                                    
                                    2,511
                                    
                                    
                                    
                                    2.5
                                    
                                    
                                    
                                    4,642
                                    
                                    
                                    
                                    6.1
                                    
                                    
                                    
                                    (2,131
                                    )
                                    
                                    
                                    (45.9
                                    )Total
                                    
                                    
                                    8,283
                                    
                                    
                                    
                                    8.2
                                    
                                    
                                    
                                    10,951
                                    
                                    
                                    
                                    14.5
                                    
                                    
                                    
                                    (2,668
                                    )
                                    
                                    
                                    (24.4
                                    )Engineering
                                    
                                    
                                    3,382
                                    
                                    
                                    
                                    3.4
                                    
                                    
                                    
                                    3,194
                                    
                                    
                                    
                                    4.2
                                    
                                    
                                    
                                    188
                                    
                                    
                                    
                                    5.9Total
                                    
                                    $
                                    100,676
                                    
                                    
                                    
                                    100.0
                                    
                                    
                                    $
                                    75,504
                                    
                                    
                                    
                                    100.0
                                    
                                    
                                    $
                                    25,172
                                    
                                    
                                    
                                    33.3





The
Nuclear Segment realized revenue growth of $27,652,000 or 45.1% for the year
ended December 31, 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 as discussed above.  Revenue from
CHPRC (generally under subcontract relating to remediation and/or on-site
management at DOE sites) totaled $45,169,000 or 44.9% of our total revenue from
continuing operations for the year ended December 31, 2009, which included
approximately $34,226,000 of revenue under the CHPRC subcontract at
M&EC.  We had revenue of approximately $8,120,000 or 10.8% of our
total revenue from CHPRC for the year ended December 31, 2008, which included
approximately $7,095,000 of revenue under the CHPRC subcontract at
M&EC.  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 $2,474,000 or 9.0% due primarily to higher
priced waste, which was partially offset by volume reduction.  We saw
significantly higher priced waste received starting in the third quarter of
2009.  Revenue from hazardous and non-hazardous waste was down
$390,000 or 9.8% due primarily to a reduction in volume of 4.2% and a reduction
in average pricing of 8.0%.  Other revenue decreased $3,507,000 or
approximately 25.0% 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
did not repeat in 2009.  In addition, reduced volume contributed to
this decrease in revenue.  Revenue from our Industrial Segment
decreased $2,668,000 or 24.4% primarily due to a significant reduction in oil
sales revenue resulting from a decrease in average price per gallon of 39.0% and
decreased volume of 11.6%.  In addition, commercial revenue was down
due to a reduction in field service revenue resulting from the slowdown in the
economy.  Revenue in our Engineering Segment increased approximately
$188,000 or 5.9% due to an increase in average billing rate of 8.2%, with
billable hours remaining constant.


28





Cost
of Goods Sold


Cost of
goods sold increased $17,875,000 for the year ended December 31, 2009, as
compared to the year ended December 31, 2008, as follows:





(InThousands)
                
                2009
                
                
                %Revenue
                
                
                2008
                
                
                %
                  Revenue
                
                
                ChangeNuclear
                
                $
                64,882
                
                
                
                72.9
                
                
                $
                46,101
                
                
                
                75.1
                
                
                $
                18,781Industrial
                
                
                6,286
                
                
                
                75.9
                
                
                
                7,439
                
                
                
                67.9
                
                
                
                (1,153
                )Engineering
                
                
                2,369
                
                
                
                70.0
                
                
                
                2,122
                
                
                
                66.4
                
                
                
                247Total
                
                $
                73,537
                
                
                
                73.0
                
                
                $
                55,662
                
                
                
                73.7
                
                
                $
                17,875




The
Nuclear Segment’s cost of goods sold for the twelve months ended December 31,
2009 increased $18,781,000 or 40.7%, which included the cost of goods sold of
approximately $27,302,000 related to the CHPRC subcontract.  Cost of
goods sold related to the CHPRC subcontract for the corresponding period of 2008
was approximately $5,584,000 since the subcontract did not officially commence
until October 1, 2008.  The cost of goods sold for our Nuclear Segment
included a reduction of approximately $787,000 recorded in the third quarter of
2009 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 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 decreased approximately
$2,150,000 or 5.3% primarily in material and supplies, lab, and
disposal/transportation expenses due to revenue mix.  In addition,
salaries and payroll related expenses were also down due to the segment’s
continued efforts to reduce costs.  The decrease was partially offset
by higher bonus/incentive due to higher revenue.  In the Industrial
Segment, the decrease of $1,153,000 or 15.5% was reflected in all areas due to
reduction in revenue, especially in oil sales revenue.  This decrease
was reduced by the expense of approximately $281,000 incurred in the fourth
quarter of 2009 in connection with the environmental remediation reserve for
PFSG (see “Environmental Contingencies” in this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for further
information regarding this reserve).  The Engineering Segment cost of
goods sold increased approximately $247,000 or 11.6% due primarily to reduced
allocation of internal labor hours to the Company’s Nuclear Segment. In 2008,
the Engineering Segment had two large projects for our PFNWR facility, in
addition to projects on the divestitures of certain of our Industrial Segment
during the first half of 2008, which did not exist in 2009.  Included
within cost of goods sold is depreciation and amortization expense of $4,445,000
and $4,612,000 for the years ended December 31, 2009 and 2008,
respectively.





Gross
Profit


Gross
profit for the year ended December 31, 2009, was $7,297,000 higher than 2008, as
follows:




(In thousands)
                  
                  2009
                  
                  
                  %
                    Revenue
                  
                  
                  2008
                  
                  
                  %
                    Revenue
                  
                  
                  ChangeNuclear
                  
                  $
                  24,129
                  
                  
                  
                  27.1
                  
                  
                  $
                  15,258
                  
                  
                  
                  24.9
                  
                  
                  $
                  8,871Industrial
                  
                  
                  1,997
                  
                  
                  
                  24.1
                  
                  
                  
                  3,512
                  
                  
                  
                  32.1
                  
                  
                  
                  (1,515
                  )Engineering
                  
                  
                  1,013
                  
                  
                  
                  30.0
                  
                  
                  
                  1,072
                  
                  
                  
                  33.6
                  
                  
                  
                  (59
                  )Total
                  
                  $
                  27,139
                  
                  
                  
                  27.0
                  
                  
                  $
                  19,842
                  
                  
                  
                  26.3
                  
                  
                  $
                  7,297





The
Nuclear Segment gross profit increased $8,871,000, which included gross profit
of approximately $6,924,000 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 as mentioned
above.  Gross profit related to the CHPRC subcontract for the
corresponding period of 2008 was approximately $1,511,000 since the subcontract
did not officially commence until October 1, 2008.  Excluding the
gross profit from the CHPRC subcontract and the legacy disposal adjustment,
Nuclear Segment gross profit increased approximately $2,671,000 or approximately
19.4%.  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 decreased due to reduction in
revenue, especially a 45.9% reduction in oil sales revenue which is a higher
margin revenue stream.  The decrease in gross profit in the
Engineering Segment was due primarily to reduced allocation of internal labor
hours to our Nuclear Segment facilities as discussed above.


29





Selling,
General and Administrative


Selling,
general and administrative (“SG&A”) expenses decreased $464,000 for the year
ended December 31, 2009, as compared to the corresponding period for 2008, as
follows:


(In thousands)
                
                2009
                
                
                %
                  Revenue
                
                
                2008
                
                
                %
                  Revenue
                
                
                ChangeAdministrative
                
                $
                6,389
                
                
                
                3⁄4
                
                
                $
                5,677
                
                
                
                3⁄4
                
                
                $
                712Nuclear
                
                
                8,737
                
                
                
                9.8
                
                
                
                9,168
                
                
                
                14.9
                
                
                
                (431
                )Industrial
                
                
                2,036
                
                
                
                24.6
                
                
                
                2,685
                
                
                
                24.5
                
                
                
                (649
                )Engineering
                
                
                566
                
                
                
                16.7
                
                
                
                662
                
                
                
                20.7
                
                
                
                (96
                )Total
                
                $
                17,728
                
                
                
                17.6
                
                
                $
                18,192
                
                
                
                24.1
                
                
                $
                (464
                )





Our
SG&A for the twelve months ended December 31, 2009, decreased approximately
$464,000 or 2.6% over the corresponding period of 2008.  The increase
in administrative SG&A was primarily the result of higher outside service
expense resulting from business development and corporate consulting matters,
audit and legal fees in connection with various company filings, subcontract
services for information technology matters, higher Management Incentive Plan
(“MIP”) compensation due to higher revenue and earnings, and higher stock
compensation expense in connection with the extension of 270,000 fully vested
non-qualified stock options to our Chief Operating Officer, who resigned from
the position effective September 1, 2009.  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 centralized
certain accounting functions to our corporate office in 2009.  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 down approximately $431,000 due mainly to lower salaries and
payroll related expenses, travel expenses, outside service expenses for legal
and consulting, and lower overall general expenses as the Segment continued its
effort to reduce costs.  The decrease was partially offset by higher
bad debt expense.  SG&A for the Industrial Segment decreased
$649,000 due primarily to 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 $96,000 primarily due to decrease in salaries and payroll related
expenses, travel, and outside service expenses.  Included in SG&A
expenses is depreciation and amortization expense of $301,000 and $254,000 for
the years ended December 31, 2009, and 2008, respectively.





Gain
on Disposal of Property and Equipment


The gain
on disposal of property and equipment in 2009 of $15,000 was primarily related
to the sale of idle equipment at various facilities.  The gain on
disposal of property and equipment in 2008 was primarily due to the sale of one
of the properties at our PFO for $900,000 which resulted in gain of
approximately $483,000.  The proceeds were used for our working
capital.  This gain was offset by loss from disposal of idle equipment
at our DSSI and M&EC facilities.





Asset
Impairment Recovery


The asset
impairment recovery for 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 during the third quarter
of  2008 from discontinued operations.


30





Interest
Income


Interest
income decreased $81,000 for the year ended December 31, 2009, as compared to
2008.  The decrease was primarily the result of lower interest earned on
the finite risk sinking fund due to lower interest rates.





Interest
Expense


Interest
expense increased $117,000 for the year ended December 31, 2009, as compared to
the corresponding period of 2008.





(Inthousands)
                
                2009
                
                
                2008
                
                
                Change
                
                
                %PNC
      interest
                
                $
                820
                
                
                $
                508
                
                
                $
                312
                
                
                
                61.4Other
                
                
                837
                
                
                
                1,032
                
                
                
                (195
                )
                
                
                (18.9
                )Total
                
                $
                1,657
                
                
                $
                1,540
                
                
                $
                117
                
                
                
                7.6





The
increase in interest expense for 2009 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
higher in 2009 resulting from the reload of our term note in August 2008 to
$7,000,000.  In 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.  Our average monthly revolver balance was higher in 2009
as compared to 2008 due to funding of our finite insurance policies,
specifically for our PCB permit for our DSSI facility.  Interest
expense was also higher in 2009 due to interest expense incurred on certain
vendor invoices.  The increase in interest expense was partially
offset by lower interest resulting from payoff of the KeyBank note in December
2008 at our PFNWR facility and payoff of our PDC note in May 2009 at our
M&EC facility.





Interest
Expense - Financing Fees


Interest
expense-financing fees increased approximately $146,000 from 2008 to 2009 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 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.





Income
Taxes- Valuation Allowance


In
accordance with ASC 740, “Income Taxes”, a valuation allowance is established
against a deferred tax asset if, based on the available evidence, it is more
likely than not that such assets will not be realized.  The
realization of a deferred tax asset ultimately depends on the existence of
sufficient taxable income in either the carryback or carryforward periods under
the law.  We periodically assess the need for valuation allowances for
deferred tax assets based on the ASC 740 more-likely than not realization
threshold criterion.  In our assessment, we consider a number of
factors including whether there is a historical pattern of consistent and
significant profitability in combination with our assessment of forecasted
profitability in the future periods.  Such patterns and forecasts
allow us to determine whether our most significant deferred income tax assets,
such as net operating losses, will be realizable in future years, in whole or in
part.  These deferred income tax assets in particular will require us
to generate taxable income in the applicable jurisdictions in future years in
order to recognize their economic benefits.  As of December 31, 2008,
we had concluded that insufficient evidence existed to support the recognition
of any of our deferred income tax assets and, as such, a full valuation
allowance was applied against our net deferred income tax asset.  As
of December 31, 2009, however, facts and circumstances have changed to alter our
conclusions and we have determined that it is more likely than not that
approximately $2,192,000 of deferred income tax asset will be realized based,
primarily, on profitable historic results and projections of future taxable
income.  For the years ended December 31, 2009 and 2008, we had
($1,922,000) and $10,000, respectively, in income tax expense(benefit), as a
result of a release in the valuation allowance against the deferred income tax
asset and our alternative minimum tax liability at December 31,
2009.   Our net operating loss carryforwards have not been
audited or approved by the Internal Revenue Service.


31





Summary - Years Ended
December 31, 2008 and 2007





Net
Revenue


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




(Inthousands)
                        
                        2008
                        
                        
                        %
                          Revenue
                        
                        
                        2007
                        
                        
                        %
                          Revenue
                        
                        
                        Change
                        
                        
                        %
                          ChangeNuclearGovernment
      waste
                        
                        $
                        19,050
                        
                        
                        
                        25.3
                        
                        
                        $
                        20,547
                        
                        
                        
                        31.8
                        
                        
                        $
                        (1,497
                        )
                        
                        
                        (7.3
                        )Fluor
      Hanford
                        
                        
                        2,814
                        (1)
                        
                        
                        3.7
                        
                        
                        
                        3,885
                        (2)
                        
                        
                        6.0
                        
                        
                        
                        (1,071
                        )
                        
                        
                        (27.6
                        )CHPRC
                        
                        
                        7,095
                        (1)
                        
                        
                        9.4
                        
                        
                        
                        3⁄4
                        
                        
                        
                        3⁄4
                        
                        
                        
                        7,095
                        
                        
                        
                        100.0Hazardous/non-hazardous
                        
                        
                        3,973
                        
                        
                        
                        5.3
                        
                        
                        
                        5,068
                        
                        
                        
                        7.9
                        
                        
                        
                        (1,095
                        )
                        
                        
                        (21.6
                        )Other
      nuclear waste
                        
                        
                        11,102
                        
                        
                        
                        14.7
                        
                        
                        
                        13,765
                        
                        
                        
                        21.3
                        
                        
                        
                        (2,663
                        )
                        
                        
                        (19.3
                        )Acquisition
      6/07 (PFNWR)
                        
                        
                        17,325
                        (1)
                        
                        
                        22.9
                        
                        
                        
                        8,439
                        (2)
                        
                        
                        13.1
                        
                        
                        
                        8,886
                        
                        
                        
                        105.3Total
                        
                        
                        61,359
                        
                        
                        
                        81.3
                        
                        
                        
                        51,704
                        
                        
                        
                        80.1
                        
                        
                        
                        9,655
                        
                        
                        
                        18.7IndustrialCommercial
      waste
                        
                        
                        5,495
                        
                        
                        
                        7.3
                        
                        
                        
                        5,699
                        
                        
                        
                        8.8
                        
                        
                        
                        (204
                        )
                        
                        
                        (3.6
                        )Government
      services
                        
                        
                        814
                        
                        
                        
                        1.1
                        
                        
                        
                        1,653
                        
                        
                        
                        2.6
                        
                        
                        
                        (839
                        )
                        
                        
                        (50.8
                        )Oil
      sales
                        
                        
                        4,642
                        
                        
                        
                        6.1
                        
                        
                        
                        3,090
                        
                        
                        
                        4.8
                        
                        
                        
                        1,552
                        
                        
                        
                        50.2Total
                        
                        
                        10,951
                        
                        
                        
                        14.5
                        
                        
                        
                        10,442
                        
                        
                        
                        16.2
                        
                        
                        
                        509
                        
                        
                        
                        4.9Engineering
                        
                        
                        3,194
                        
                        
                        
                        4.2
                        
                        
                        
                        2,398
                        
                        
                        
                        3.7
                        
                        
                        
                        796
                        
                        
                        
                        33.2Total
                        
                        $
                        75,504
                        
                        
                        
                        100.0
                        
                        
                        $
                        64,544
                        
                        
                        
                        100.0
                        
                        
                        $
                        10,960
                        
                        
                        
                        17.0





(1)Revenue
of $17,325,000 from PFNWR for 2008 includes approximately $14,505,000 relating
to wastes generated by the federal government, either directly or indirectly as
a subcontractor to the federal government.  Of the $14,505,000 in
revenue, approximately $5,160,000 was from Fluor Hanford, a general contractor
to the federal government and approximately $1,025,000 was from CHPRC, a general
contractor to the federal government.  Revenue in 2008 from Fluor
Hanford totaled approximately $7,974,000 or 10.6% of total consolidated
revenue.  Revenue in 2008 from CHPRC totaled approximately $8,120,000
or 10.8% of total consolidated revenue.





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


32




The
Nuclear Segment experienced a $9,655,000 increase in revenue for the year ended
December 31, 2008 over the same period in 2007.  Total revenue within
the Nuclear Segment included $17,325,000 of revenue at our PFNWR facility for
the full year of 2008 as compared to $8,439,000 after the facility was acquired
on June 13, 2007.  In addition, our revenue for the Nuclear Segment
included revenue of $7,095,000 for our new subcontract awarded to us from
CHPRC.  In the second quarter of 2008, we were awarded a subcontract
by CHPRC to perform a portion of facility operations and waste management
activities for the DOE Hanford, Washington Site.  The general contract
awarded by the DOE to CHPRC and our subcontract provide for a transition period
from August 11, 2008 through September 30, 2008, a base period from October 1,
2008 through September 30, 2013 and an option period from October 1, 2013
through September 30, 2018.  On October 1, 2008, operations of this
subcontract commenced at the DOE Hanford Site.  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.  Excluding our revenue from PFNWR and CHPRC, revenue
within our Nuclear Segment decreased approximately $6,326,000 or 14.6% as
compared to the same period of 2007.  Excluding revenue from PFNWR and
revenue from the CHPRC
subcontract, revenue from government generators (which includes our subcontracts
with Fluor Hanford) decreased $2,568,000 or 10.5% due primarily to overall lower
government receipts.  For 2008, government agencies were operated
under “Continuing Resolution” without finalized budgets due in part to the
impending change in Administration, which had a negative impact on availability
of funding for services offered by our Nuclear Segment.  We saw a
decrease of approximately $1,071,000 or 27.6% in revenue from Fluor Hanford due
to lower overall receipts and transition of revenue from Fluor Hanford to CHPRC
effective October 1, 2008 (see “known Trends and Uncertainties – significant
customers” in this section).  Revenue from hazardous and non-hazardous
waste was down $1,095,000 or 21.6% due to lower volume of waste received offset
by higher average prices per drum which increase approximately
38.5%.  The price change is primarily due to waste mix.  We
also had three large event projects in 2007, while none occurred in
2008.  Other nuclear waste revenue decreased $2,663,000 or 19.3% as
packaging and field service related revenue from LATA/Parallax Portsmouth
contract from 2007 did not occur in 2008.  Revenue in our Industrial
Segment increased $509,000 or 4.9% due primarily to higher oil sale
revenue.  We saw an increase of approximately 52.6% in average price
per gallon while volume only decreased 2.1%.  The increase in average
price per gallon was attributed to the high global oil costs throughout most of
2008.  This increase in oil sale revenue was partially offset by lower
government revenue resulting from termination of a government contract in July
2007.  Revenue in our Engineering Segment increased approximately
$796,000 or 33.2%due
primarily to the increase of billable hours of 29.0% caused by increase in
external business, with the billability rate remaining fairly constant, a slight
decrease of .3% from 2007 to 2008.
 
 Cost
of Goods Sold
 Cost
of goods sold increased $9,747,000 for the year ended December 31, 2008, as
compared to the year ended December 31, 2007, as follows:
 (In thousands)
                  
                  2008
                  
                  
                  %
                    Revenue
                  
                  
                  2007
                  
                  
                  %
                    Revenue
                  
                  
                  ChangeNuclear
                  
                  $
                  35,143
                  
                  
                  
                  79.8
                  
                  
                  $
                  30,261
                  
                  
                  
                  69.9
                  
                  
                  $
                  4,882Acquisition
      6/07 (PFNWR)
                  
                  
                  10,958
                  
                  
                  
                  63.2
                  
                  
                  
                  5,109
                  
                  
                  
                  60.5
                  
                  
                  
                  5,849Industrial
                  
                  
                  7,439
                  
                  
                  
                  67.9
                  
                  
                  
                  8,707
                  
                  
                  
                  83.4
                  
                  
                  
                  (1,268
                  )Engineering
                  
                  
                  2,122
                  
                  
                  
                  66.4
                  
                  
                  
                  1,638
                  
                  
                  
                  68.3
                  
                  
                  
                  484Total
                  
                  $
                  55,662
                  
                  
                  
                  73.7
                  
                  
                  $
                  45,715
                  
                  
                  
                  70.8
                  
                  
                  $
                  9,947
 
 Excluding
the cost of goods sold of approximately $10,958,000 for the PFNWR facility, the
Nuclear Segment’s cost of goods sold for the year ending December 31, 2008 were
up approximately $4,882,000.  The $35,143,000 in cost of good sold in
the Nuclear Segment (excluding PFNWR) includes cost of good sold of
approximately $5,584,000 related to the CHPRC subcontract.  Excluding
this $5,584,000 in cost of good sold, our remaining Nuclear Segment cost of
goods sold decreased $702,000 or 2.3%.  Although receipts were down
41.6% as compared to prior year, cost as a percentage of revenue (excluding the
CHPRC subcontract and PFNWR) increased to 80.0% from 69.9%. This reflects the
mix of wastes received which was costlier to dispose.  In the
Industrial Segment, cost of goods sold decreased $1,268,000 or 14.6% due
primarily to reduced revenue from a government contract which terminated in July
2007.  This decrease was offset by higher cost of good sold related to
material and supply purchases, especially raw oil purchases, the result of the
increase in the global cost of oil throughout 2008.  Cost as a
percentage of revenue decreased from 83.4% in 2007 to 67.9% due primarily to
reduction in government receipts processed.  Total cost of good sold
for the Industrial Segment decreased despite depreciation expenses of
approximately $244,000 incurred as result of the reclassification of PFFL, PFO,
and PFSG facilities as continuing operations.  The Engineering Segment
costs increased $484,000 or 29.5% due primarily to increased revenue of
33.2%.  Included within cost of goods sold is depreciation and
amortization expense of $4,612,000 and $3,918,000 for the year ended December
31, 2008 and 2007, respectively.


33




Gross
Profit


Gross
profit for the year ended December 31, 2008, was $1,013,000 higher than 2007, as
follows:





(In thousands)
                          
                          2008
                          
                          
                          %
                            Revenue
                          
                          
                          2007
                          
                          
                          %
                            Revenue
                          
                          
                          ChangeNuclear
                          
                          $
                          8,891
                          
                          
                          
                          20.2
                          
                          
                          $
                          13,004
                          
                          
                          
                          30.1
                          
                          
                          $
                          (4,113
                          )Acquisition
      6/07 (PFNWR)
                          
                          
                          6,367
                          
                          
                          
                          36.8
                          
                          
                          
                          3,330
                          
                          
                          
                          39.5
                          
                          
                          
                          3,037Industrial
                          
                          
                          3,512
                          
                          
                          
                          32.1
                          
                          
                          
                          1,735
                          
                          
                          
                          16.6
                          
                          
                          
                          1,777Engineering
                          
                          
                          1,072
                          
                          
                          
                          33.6
                          
                          
                          
                          760
                          
                          
                          
                          31.7
                          
                          
                          
                          312Total
                          
                          $
                          19,842
                          
                          
                          
                          26.3
                          
                          
                          $
                          18,829
                          
                          
                          
                          29.2
                          
                          
                          $
                          1,013





The
Nuclear Segment gross profit, excluding gross profit of our PFNWR facility,
decreased $4,113,000 from 2007 to 2008.  Gross profit of the Nuclear
Segment (excluding PFNWR) includes the gross profit of our CHPRC subcontract of
approximately $1,511,000.  Excluding this gross profit, our Nuclear
Segment gross profit decreased $5,624,000 or 43.2% from 2007 to 2008 due
primarily to lower volume of waste received.  Gross margin decreased
from 30.1% to 20.0% which reflects the receipt of lower margin waste streams in
2008.  The Industrial Segment gross profit increased $1,777,000 or
102.4% due primarily to the improved revenue mix resulting from higher margin
oil revenue which displaced lower margin hazardous waste disposal
revenue.  Gross margin increased to 32.1% in 2008 from 16.6% in 2007
which reflects the favorable increase in oil price throughout much of
2008.  The Engineering Segment gross profit increased $312,000 or
41.1% due to increased revenue resulting from a 29.0% increase in billable hours
in 2008 as compared to 2007.  Gross margin remained fairly constant,
with an increase of 1.9% in 2008 as compared to 2007.





Selling,
General and Administrative


Selling,
general and administrative (“SG&A”) expenses increased $333,000 for the year
ended December 31, 2008, as compared to the corresponding period for 2007, as
follows:





(In thousands)
                  
                  2008
                  
                  
                  %
                    Revenue
                  
                  
                  2007
                  
                  
                  %
                    Revenue
                  
                  
                  ChangeAdministrative
                  
                  $
                  5,677
                  
                  
                  
                  3⁄4
                  
                  
                  $
                  5,457
                  
                  
                  
                  3⁄4
                  
                  
                  $
                  220Nuclear
                  
                  
                  6,785
                  
                  
                  
                  15.4
                  
                  
                  
                  7,512
                  
                  
                  
                  17.4
                  
                  
                  
                  (727
                  )Acquisition
      06/07 (PFNWR)
                  
                  
                  2,383
                  
                  
                  
                  13.8
                  
                  
                  
                  1,483
                  
                  
                  
                  17.6
                  
                  
                  
                  900Industrial
                  
                  
                  2,685
                  
                  
                  
                  24.5
                  
                  
                  
                  2,890
                  
                  
                  
                  27.7
                  
                  
                  
                  (205
                  )Engineering
                  
                  
                  662
                  
                  
                  
                  20.7
                  
                  
                  
                  517
                  
                  
                  
                  21.6
                  
                  
                  
                  145Total
                  
                  $
                  18,192
                  
                  
                  
                  24.1
                  
                  
                  $
                  17,859
                  
                  
                  
                  27.7
                  
                  
                  $
                  333





Excluding
the SG&A of our PFNWR facility, our Nuclear SG&A expenses decreased
$727,000 or 9.8% in 2008 as compared to 2007.  The decrease within the
Nuclear Segment (excluding PFNWR) was due to lower payroll, commission, travel
related expenses, and general expenses due to headcount reduction resulting from
decreased revenue.  The increase in administrative SG&A was
primarily the result of higher stock option expenses as we granted 1,083,000
options to certain company officers and employees.  Such options were
not granted in 2007.  In addition, legal fees were higher in 2008 due
to the Company’s daily legal corporate matters and public corporate
filings.  These increases were offset by lower director fees in 2008
as we had a one time fee payment of $160,000 to a member of our Board of
Directors in 2007 as compensation for his service in negotiating the agreement
in principal to resolve a certain legal matter with the EPA against our former
PFD facility.  The decrease in SG&A in our Industrial Segment is
due to lower payroll related expenses as we continue to streamline costs within
the segment.  This decrease was offset by incremental depreciation
expense incurred in 2008 of approximately $128,000 as a result of the
reclassification of PFO, PFFL, and PFSG into continuing operations and higher
bonus/commission expenses at PFFL due to higher revenue in 2008 as compared to
2007.  The Engineering Segment increase was the result of an increase
in payroll related expenses but this increase was offset by a significant
decrease in bad debt expense.  Included in SG&A expense is
depreciation and amortization expense of $254,000 and $174,000 for the years
ended December 31, 2008 and 2007, respectively.


34





Loss
(Gain) on Disposal of Property and Equipment


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





Asset
Impairment Recovery


In May
2007, our PFSG, PFO, and PFFL facilities met the held for sale criteria under
FASB ASC 360, “Property, Plant, and Equipment”, as a result of our Board of
Directors approving the divestiture of these facilities, which resulted in
impairment losses of $1,329,000 and $507,000 for PFSG and PFO,
respectively.   In September 2008, these facilities were
reclassified back into continuing operations as a result of our Board of
Directors approving the retention of these facilities.  In the third
quarter of 2008, we reclassified one of the two properties at PFO as “net
property and equipment held for sale” within our continuing operations in
accordance with ASC 360.  We evaluated the fair value of PFO’s assets
and as a result, recorded the $507,000 previously impairment loss as an asset
impairment recovery.





Interest
Income


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





Interest
Expense


Interest
expense increased $187,000 for the year ended December 31, 2008, as compared to
the corresponding period of 2007.





(In
      thousands)
                
                2008
                
                
                2007
                
                
                Change
                
                
                %PNC
      interest
                
                $
                508
                
                
                $
                702
                
                
                $
                (194
                )
                
                
                (27.6
                )Other
                
                
                1,032
                
                
                
                651
                
                
                
                381
                
                
                
                58.5Total
                
                $
                1,540
                
                
                $
                1,353
                
                
                $
                187
                
                
                
                13.8





The
increase in 2008 was due primarily to higher interest resulting from external
debt incurred from the acquisition of our PFNWR facility in June 2007, interest
expense incurred from certain vendor invoices, and higher interest due to
capitalized interest of approximately $144,000 in 2007 resulting from the
completion of the “SouthBay” project in 2007 at our M&EC
facility.  This increase was partially offset by lower interest from
the reduction in term loan balance and the payoff of our term note from proceeds
received from the sale of our three Industrial Segment facilities, PFTS, PFD,
and PFMD, in addition to lower interest rate in 2008.





Interest
Expense - Financing Fees


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





35




Income
Tax


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





Discontinued
Operations and Divestitures


Our
discontinued operations encompass our Perma-Fix of Maryland, Inc. (“PFMD”),
Perma-Fix of Dayton, Inc. (“PFD”), and Perma-Fix Treatment Services, Inc.
(“PFTS”) facilities within our Industrial Segment, as well as three previously
shut down locations, Perma-Fix of Pittsburgh, Inc. (“PFP”), Perma-Fix of
Michigan, Inc. (“PFMI”), and Perma-Fix of Memphis, Inc. (“PFM”), three
facilities which were approved as discontinued operations by our Board of
Directors effective November 8, 2005, October 4, 2004, and March 12, 1998,
respectively,





Our
Perma-Fix of Memphis, Inc. facility was reclassed back into discontinued
operations from continuing operations in the fourth quarter of
2009.  As noted above, PFM was approved as a discontinued operation by
our Board on March 12, 1998.  This decision was the result of an
explosion at the facility in 1997, which significantly disrupted its operations
and the high costs required to rebuild its operations.  PFM had been
reported as a discontinued operation until 2001.  In 2001, the
facility was reclassified back into continuing operations as we had no other
facilities classified as discontinued operations and its impact on our financial
statements was de minimis.  As of December 31, 2009, we reclassified
PFM back into discontinued operations for all periods presented in accordance
with ASC 360, “Property, Plant, and Equipment”.





As
previously reported, we completed the sale of substantially all of the assets of
PFMD, PFD, PFTS, on January 8, 2008, March 14, 2008, and May 30, 2008,
respectively.





Our
discontinued Industrial Segment facilities generated revenues of $0, $3,195,000,
and $19,965,000, for the years ended December 31, 2009, 2008, and 2007,
respectively, and had net income of $50,000 and $926,000 for years ended
December 31, 2009 and 2008, respectively, and net loss of $6,850,000 for the
year ended December 31, 2007.   Our net loss in 2007 included
impairment losses of $2,727,000 and $1,804,000 for PFD and PFTS,
respectively.  Our net income for 2008 included a gain on disposal of
discontinued operations, net of taxes, of $2,323,000. Our “income from
discontinued operations” on the Consolidated Statement of Operations for the
twelve months ended December 31, 2009, 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 the recovery of these closure costs.  Our
income from discontinued operations for the twelve months ended December 31,
2009, also 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. Additionally, we had a tax benefit of
approximately $76,000 primarily due to a release of a portion of valuation
allowance related to our deferred tax asset at PFMI.





Assets
related to discontinued operations total $825,000 and $761,000 as of December
31, 2009, and 2008, respectively, and liabilities related to discontinued
operations total $2,426,000 and $3,531,000 as of December 31, 2009 and 2008,
respectively.


36





Non
Operational Facilities


As noted
previously, the Industrial Segment includes three previously shut-down
facilities.  These facilities include PFP, PFMI, and
PFM.  Our decision to discontinue operations at PFP was due to our
reevaluation of the facility and our inability to achieve profitability at the
facility.  During February 2006, we completed the remediation of the
leased property and the equipment at PFP, and released the property back to the
owner.  Our decision to discontinue operations at PFMI was principally
a result of two fires that significantly disrupted operations at the facility in
2003, and the facility’s continued drain on the financial resources of our
Industrial Segment.  As a result of the discontinued operations at the
PFMI facility, we were required to complete certain closure and remediation
activities pursuant to our RCRA permit, which were completed in January
2006.  In September 2006, PFMI signed a Corrective Action Consent
Order with the State of Michigan, requiring performance of studies and
development and execution of plans related to the potential clean-up of soils in
portions of the property.  The level and cost of the clean-up and
remediation are determined by state mandated requirements.  During
2006, based on state-mandated criteria, we began implementing the modified
methodology to remediate the facility.  In 2009, we incurred
remediation expenditure of $109,000.We have $128,000 accrued for
the closure, as of December 31, 2009, and we anticipate spending $102,000 in
2010 with the remainder over the next fouryears.We reduced our accrualby$300,000 in the fourth
quarter of 2009,as a result ofa field investigation and
draft Remedial Action Plan which identified substantial reductions in the
anticipated cost of the completion of the remedial site.  Based on the
current status of the Corrective Action, we believe that the remaining reserve
is adequate to cover the liability.





As part
of our acquisition of PFM in 1993, we assumed certain liabilities relative to
the removal of contaminated soil and to undergo groundwater remediation at the
facility. Prior to our ownership of PFM, the owners installed monitoring and
treatment equipment to restore the groundwater to acceptable standards in
accordance with federal, state and local authorities.  The groundwater
remediation at this facility has been ongoing since approximately
1990.  With approval of a remediation approach in 2006, PFM began
final remediation of this facility in 2007.  In 2008, we completed all
soil remediation with the exception of that associated with the groundwater
remediation.  In 2009, we incurred remediation expenditure of
$137,000.  In 2009, we also increased our reserve by approximately
$300,000 in the fourth quarter of 2009, a result of increase in costs associated
with delays in receipt of the Corrective Action
Permit.    As of December 31, 2009, we have $439,000 accrued
for the closure, which we anticipate spending over the next six
years.





Our PFMI has a pension
payable of $947,000 as of December31, 2009.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, including interest at 8% per annum, over an eight year
period.  This obligation is recorded as a long-term liability, with a
current portion of $199,000 that we expect to pay over the next
year.





Liquidity
and Capital Resources


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.


37





At
December 31, 2009, we had cash of $141,000.  The following table
reflects the cash flow activities during 2009.





(In thousands)
                  
                  2009Cash
      provided by continuing operations
                  
                  $
                  9,089Cash
      used in discontinued operations
                  
                  
                  (591
                  )Cash
      used in investing activities of continuing operations
                  
                  
                  (6,367
                  )Cash
      provided by investing activities of discontinued
operations
                  
                  
                  11Cash
      used in financing activities of continuing operations
                  
                  
                  (2,130
                  )Increase
      in cash
                  
                  $
                  12





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 a remittance lock box and is structured to accelerate collection
activities and reduce cash balances, as idle cash is moved without delay to the
revolving credit facility or the Money Market account, if
applicable.  The cash balance at December 31, 2009, primarily
represents minor petty cash and local account balances used for miscellaneous
services and supplies.





Operating
Activities


Accounts
Receivable, net of allowances for doubtful accounts, totaled $13,141,000, a
decrease of $275,000 over the December 31, 2008, balance of
$13,416,000.  The Nuclear Segment experienced an increase of
approximately $228,000 due primarily to increase invoicing resulting from
increase in revenue.  This increase was offset by our improved
collection efforts.  The Industrial Segment experienced a decrease of
approximately $616,000 due primarily to a decrease in revenue.  The
Engineering Segment experienced an increase of approximately $113,000 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 December 31, 2009, unbilled receivables
totaled $12,360,000, a decrease of $4,602,000 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 December 31, 2009 is $9,858,000, a decrease of $3,246,000 from
the balance of $13,104,000 as of December 31, 2008.  The long term
portion as of December 31, 2009 is $2,502,000, a decrease of $1,356,000 from the
balance of $3,858,000 as of December 31, 2008.





As of
December 31, 2009, total consolidated accounts payable was $4,927,000, a
decrease of $6,149,000 from the December 31, 2008, balance of
$11,076,000.  The decrease was due primarily to improved payments of
our vendor invoices as a result of improved cash from operations and revolver
availability.  We continue to negotiate and manage payment terms with
our vendors to maximize our cash position throughout all
segments.


38





Accrued
Expenses as of December 31, 2009, totaled $6,478,000, a decrease of $2,418,000
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 payoff of approximately $2,225,000 in interest on the PDC note
in May 2009.





Disposal/transportation
accrual as of December 31, 2009, totaled $2,761,000, a decrease of $3,086,000
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 December 31, 2009 was $1,490,000, which includes
working capital of our discontinued operations, as compared to a working capital
deficit of $3,886,000 as of December 31, 2008.  In 2009, we made
significant progress in improving our working capital primarily by paying down
our current liabilities from funds generated from operations.





Investing
Activities


During
2009, our purchases of capital equipment totaled approximately $1,643,000 of
which $125,000 was financed, resulting in total net purchases of
$1,518,000.  These expenditures were for improvements to operations
primarily within the Nuclear and Industrial Segments.  These capital
expenditures were funded by the cash provided by both operations and financing
activities. We have budgeted approximately $2,000,000 for 2010 capital
expenditures for our segments to expand our operations into new markets, reduce
the cost of waste processing and handling, expand the range of wastes that can
be accepted for treatment and processing, and to maintain permit compliance
requirements.  Certain of these budgeted projects are discretionary
and may either be delayed until later in the year or deferred
altogether.  We have traditionally incurred actual capital spending
totals for a given year less than the initial budget amount.  The
initiation and timing of projects are also determined by financing alternatives
or funds available for such capital projects.





In June
2003, we entered into a 25-year finite risk insurance policy with Chartis, a
subsidiary of American International Group, Inc. (“AIG”) (see “Part I, Item 1A.
– Risk Factors” for certain potential risk related to AIG), which provides
financial assurance to the applicable states for our permitted facilities in the
event of unforeseen closure.  Prior to obtaining or renewing operating
permits, we are required to provide financial assurance that guarantees to the
states that in the event of closure, our permitted facilities will be closed in
accordance with the regulations.  The policy 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 Chartis which
enabled our Diversified Scientific Services, Inc. (“DSSI”) facility to receive
and process wastes under an authorization 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 Chartis from maximum policy coverage
of $35,000,000 to $39,000,000, of which our total financial coverage amounts to
$35,869,000 as December 31, 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 Chartis.  In
addition, we are required to make three yearly payments of approximately
$1,073,000 payable starting December 31, 2009, of which $888,000 will be
deposited into a sinking fund account, with the remaining to represent fee
payable to Chartis.


39





As of
December 31, 2009, we have recorded $9,639,000 in our sinking fund related to
the policy noted above on the balance sheet, which includes interest earned of
$805,000 on the sinking fund as of December 31, 2009.  Interest income
for the twelve months ended December 31, 2009, was approximately
$75,000.  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.





In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility, which we acquired in June 2007, with Chartis, a subsidiary of
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 December 31,
2009, we have recorded $5,841,000 in our sinking fund related to this policy on
the balance sheet, which includes interest earned of $141,000 on the sinking
fund as of December 31, 2009.  Interest income for the twelve months
ended December 31, 2009 totaled $69,000.





Financing
Activities


We
entered into a Revolving Credit, Term Loan and Security Agreement (“Agreement”)
with PNC Bank, National Association, a national banking association (“PNC”)
acting as agent (“Agent”) for lenders, and as issuing bank.  The
Agreement provided for a term loan (“Term Loan”) in the amount of $7,000,000,
which requires principal repayments based upon a seven-year amortization,
payable over five years, with monthly installments of $83,000 and the remaining
unpaid principal balance due on November 27, 2008, as amended.  The
Agreement also provided for a revolving line of credit (“Revolving Credit”) with
a maximum principal amount outstanding at any one time of
$18,000,000.  The Revolving Credit advances are subject to limitations
of an amount up to the sum of (a) up to 85% of Commercial Receivables aged 90
days or less from invoice date, (b) up to 85% of Commercial Broker Receivables
aged up to 120 days from invoice date, (c) up to 85% of acceptable Government
Agency Receivables aged up to 150 days from invoice date, and (d) up to 50% of
acceptable unbilled amounts aged up to 60 days, less (e) reserves the Agent
reasonably deems proper and necessary.  As of December 31, 2009, the
excess availability under our revolving credit was $11,535,000 based on our
eligible receivables.





During
2008, we entered into various Amendments to the PNC Agreement.  Under
these Amendments, the due date of the credit facility with PNC was extended to
July 31, 2012, the method of calculating the fixed charge coverage ratio
covenant contained in the loan agreement in each quarter of 2008 was modified,
and our Term Loan was increased back up to $7,000,000 from the principal
outstanding balance of $0, with the revolving line of credit remaining at
$18,000,000.  The Term Loan continues to be payable in monthly
installments of approximately $83,000, plus accrued interest, with the remaining
unpaid principal balance and accrued interest, payable by July 31,
2012.  We agreed to pay PNC 1.0% of the total financing in the event
we pay off our obligations on or prior to August 4, 2009 and 1/2% of the total
financing if we pay off our obligations on or after August 5, 2009, but prior to
August 4, 2010.  No early termination fee shall apply if we pay off
our obligation after August 5, 2010.  We agreed to grant mortgages to
PNC as to certain of our facilities not previously granted to PNC under the
Agreement.  The $7,000,000 in loan proceeds was used to reduce our
revolver balance and our current liabilities.


40


On March
5, 2009, we entered into another Amendment with PNC Bank to our
Agreement.  This Amendment increased our borrowing availability by
approximately an additional $2,200,000.  In addition, pursuant to the
Amendment, monthly interest due on our revolving line of credit was amended from
prime plus 1/2% to prime plus 2.0% and monthly interest due on our Term Loan was
amended from prime plus 1.0% to prime plus 2.5%.  The Company also has
the option to pay monthly interest due on the revolving line of credit by using
the London Interbank Offer Rate (“LIBOR”), with the minimum floor base LIBOR
rate of 2.5%, plus 3.0% and to pay monthly interest due on the Term Loan using
the minimum floor base LIBOR rate of 2.5%, plus 3.5%.  In addition,
the Amendment also allowed us to retain funds received from the sale of our PFO
property.  All other terms and conditions to the credit facility
remain principally unchanged.  Funds made available under this
Amendment were used to secure the additional financial assurance coverage needed
by our DSSI subsidiary to operate under an authorization issued by the EPA on
November 26, 2008 to treat and dispose of PCBs as discussed
previously.





Additionally,
on January 25, 2010, we entered into another Amendment with PNC Bank, which
amends the interest rate to be paid under the LIBOR option.  Under
this Amendment, we and PNC agreed to lower the floor on the LIBOR interest rate
option by 150 basis points to 1.0% from 2.5%, allowing for minimum interest rate
floor under the LIBOR option on the outstanding balances of our term loan and
revolving line of credit of 4.5% and 4.0%, respectively.  The prime
rate option of prime plus 2.5% and 2.0% in connection with our term loan and
revolving line of credit, respectively, was not changed under the
Amendment.  All other terms of the Loan Agreement, as amended prior to
the Amendment, remain principally unchanged.




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 quarters in 2009 and we expect to meet our financial covenants in 2010 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 December
31, 2009:





Quarterly
                
                
                1st
      Quarter
                
                
                2nd
      Quarter
                
                
                3rd
      Quarter
                
                
                4th
      Quarter(Dollars
      in thousands)
                
                Requirement
                
                
                Actual
                
                
                Actual
                
                
                Actual
                
                
                ActualSenior
      Credit FacilityFixed
      charge coverage ratio
                
                1:25:1
                
                
                2:01:1
                
                
                1:63:1
                
                
                2:11:1
                
                
                2:79:1Minimum
      tangible adjusted net worth
                
                $
                30,000
                
                
                $
                51,065
                
                
                $
                51,878
                
                
                $
                55,229
                
                
                $
                61,168





In
connection with our acquisition of M&EC, M&EC issued a promissory note
in the principal amount of $3,700,000, together with interest at an annual rate
equal to the applicable law rate pursuant to Section 6621 of the Internal
Revenue Code, to Performance Development Corporation (“PDC”), dated June 25,
2001, for monies advanced to M&EC by PDC and certain services performed by
PDC on behalf of M&EC prior to our acquisition of M&EC.  The
principal amount of the promissory note was payable over eight years on a
semiannual basis on June 30 and December 31, with a final principal payment to
be made by December 31, 2008.  All accrued and unpaid interest on the
promissory note was payable in one lump sum on December 31, 2008.  PDC
directed M&EC to make all payments under the promissory note directly to the
IRS to be applied to PDC’s obligations to the IRS.  On December 29,
2008, M&EC and PDC entered into an amendment to the promissory note, whereby
the outstanding principal and accrued interest due under the promissory note
totaling approximately $3,066,000 is to be paid in the following
installments:  $500,000 payment to be made by December 31, 2008 and
five monthly payment of $100,000 to be made starting January 27, 2009, with the
balance consisting of accrued and unpaid interest due on June 30,
2009.  We made the $500,000 payment on December 31, 2008, with the
remaining balance consisting of interest only.    On May 13,
2009, we paid the outstanding balance of approximately $2,225,000, which
consisted of interest only, on the PDC promissory note directly to the IRS which
satisfied M&EC’s obligations to PDC in full.





In
conjunction with our acquisition of PFNWR, we agreed to pay shareholders of
Nuvotec that qualified as accredited investors, pursuant to Rule 501 of
Regulation D promulgated under the Securities Act of 1933, including Robert
Ferguson, who resigned as a member of our Board of Directors effective February
27, 2010, $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 the outstanding principal balance at 8.25% starting in June 2007 and is
payable on June 30, 2008, June 30, 2009, June 30, 2010, and June 30,
2011.  In June 2009, we paid the first principal installment of
$833,333, along with accrued interest.  Interest paid as of December
31, 2009 totaled $422,000, of which $206,000 was paid in June
2009.  Interest accrued as of December 31, 2009 totaled approximately
$69,000.  See “Related Party Transactions” in this Management and
Discussion Analysis of Financial Condition and Results of Operations” regarding
Mr. Robert Ferguson.


41





On May 8,
2009, the Company entered into a Loan and Securities Purchase Agreement
(“Agreement”) with William N. Lampson and Diehl Rettig (collectively, the
“Lenders”).  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 EcoSolutions, 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 following the acquisition 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.  Under the Agreement, we entered into a Promissory Note
(“Note”) with the Lenders in the amount of $3,000,000, which was used primarily
to pay off the promissory note, dated June 25, 2001, as amended on December 28,
2008, entered into by our M&EC subsidiary with PDC as mentioned previously,
with the remaining funds used for working capital purposes.  The 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
Note which is being amortized over the terms of the note.  The Note
may be prepaid at anytime by the Company without penalty.  As
consideration of the Company receiving this loan, we issued a Warrant to Mr.
Lampson and a Warrant to Mr. Diehl to purchase up to 135,000 and 15,000 shares,
respectively, of the Company’s Common Stock (“Warrant Shares”) 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 with Mr. Lampson
receiving 180,000 shares and Mr. Rettig receiving 20,000 shares of the Company’s
Common Stock (“Shares”).  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 December 31, 2009 totaled approximately
$216,000.  The Principal balance outstanding as of December 31, 2009
totaled approximately $1,938,000 which is net of the debt discount recorded of
$666,000 and amortized as noted above.





Under the
terms of the Agreement and Note, if the Company defaults in payment of any
principal or interest under the Note and such default continues for 30 days, the
Lenders shall have the right to declare the Note immediately due and payable and
to have payment of the remaining unpaid principal amount and accrued interest
(“Payoff Amount”) in one of the two methods, at their option:





·
            in
      cash, or





·
            subject
      to certain limitations and pursuant to an exemption from registration
      under Section 4(2) of the Act and/or Rule 506 of Regulation D, in shares
      of Company Common Stock, with the number of shares to be issued determined
      by dividing the unpaid principal balance as of the date of default, plus
      accrued interest, by a dollar amount equal to the closing bid price of the
      Company’s Common Stock on the date of default as reported on the National
      Association of Securities Dealers Automated Quotation System (“NASDAQ”)
      (“Payoff Shares”).  The Payoff Amount is to be paid as
      follows:  90% to Mr. Lampson and 10% to Mr.
    Rettig.





The
aggregate number of Shares, Warrant Shares, and Payoff Shares that are to be
issued to the Lenders under the Agreement and Note, together with the aggregate
shares of the Company’s Common Stock and other Company voting securities owned
by the Lenders as of the date of issuance of the Payoff Shares, if any, shall
not exceed:


42





·
            the
      number of shares equal to 19.9% of the number of shares of the Company’s
      Common Stock issued and outstanding as of the date of the Agreement,
      or





·
            19.9%
      of the voting power of all of the Company’s voting securities issued and
      outstanding as of the date of the
Agreement.





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”), who
resigned as a member of our Board of Directors effective February 27,
2010,  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, as amended (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 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.





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


43





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.





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.




During
2009, we issued an aggregate of 357,822 shares of our Common Stock upon exercise
of 347,822 employee stock options, at exercise prices ranging from $1.25 to
$1.86 and 10,000 outside director options, at exercise price of $1.25. Total
proceeds received during 2009 related to option exercises totaled approximately
$631,000.




In
summary, funds generated primarily from our operations have positively impacted
our working capital in 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.


44





Contractual
Obligations


The
following table summarizes our contractual obligations at December 31, 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
                
                
                2010
                
                
                
                2011-
                  2012
                
                
                
                2013 -
                  2014
                
                
                After
                  2014Long-term
      debt (1)
                
                $
                12,831
                
                
                $
                3,050
                
                
                $
                9,726
                
                
                $
                55
                
                
                $
                3⁄4Interest
      on fixed rate long-term debt (2)
                
                
                206
                
                
                
                137
                
                
                
                69
                
                
                
                3⁄4
                
                
                
                —Interest
      on variable rate debt (3)
                
                
                994
                
                
                
                486
                
                
                
                508
                
                
                
                3⁄4
                
                
                
                3⁄4Operating
      leases
                
                
                1,659
                
                
                
                652
                
                
                
                743
                
                
                
                264
                
                
                
                3⁄4Finite
      risk policy (4)
                
                
                6,231
                
                
                
                3,150
                
                
                
                3,081
                
                
                
                3⁄4
                
                
                
                3⁄4Pension
      withdrawal liability (5)
                
                
                947
                
                
                
                199
                
                
                
                447
                
                
                
                301
                
                
                
                3⁄4Environmental
      contingencies (6)
                
                
                1,727
                
                
                
                526
                
                
                
                557
                
                
                
                282
                
                
                
                362Earn
      Out Amount - PFNWR (7)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Purchase
      obligations (8)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Total
      contractual obligations
                
                $
                24,595
                
                
                $
                8,200
                
                
                $
                15,131
                
                
                $
                902
                
                
                $
                362





(1)
            Amount
      excludes debt discount recorded and amortized of approximately $128,000
      for the two Warrants and $322,000 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 1.0%, as amended,
      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
      favorable LIBOR option and we assumed an increase of 1/2% over the minimum
      LIBOR of 1.0% in each of the years 2010 through July 2012.  In
      addition, we have a $3,000,000 promissory note with Mr. William Lampson
      and Mr. Diehl Rettig which pays interest at LIBOR plus 4.5%, with LIBOR of
      at least 1.5%.  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.


45


(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.


46


Allowance for Doubtful
Accounts.  The carrying amount of accounts receivable is
reduced by an allowance for doubtful accounts, which is a valuation allowance
that reflects management's best estimate of the amounts that are
uncollectible.  We regularly review all accounts receivable balances
that exceed 60 days from the invoice date and based on an assessment of current
credit worthiness, estimate the portion, if any, of the balances that are
uncollectible.  Specific accounts that are deemed to be uncollectible
are reserved at 100% of their outstanding balance.  The remaining
balances aged over 60 days have a percentage applied by aging category (5% for
balances 61-90 days, 20% for balances 91-120 days and 40% for balances over 120
days aged), based on a historical valuation, that allows us to calculate the
total reserve required. This allowance was approximately 0.3% of revenue for
2009 and 2.2%, of accounts receivable as of December 31,
2009.  Additionally, this allowance was approximately 0.4% of revenue
for 2008 and 2.4% of accounts receivable as of December 31, 2008.





Intangible
Assets.  Intangible assets relating to acquired businesses
consist primarily of the cost of purchased businesses in excess of the estimated
fair value of net identifiable assets acquired  or goodwill and the
recognized value of the permits required to operate the business.  We
continually reevaluate the propriety of the carrying amount of permits and
goodwill to determine whether current events and circumstances warrant
adjustments to the carrying value.  We test each Segment’s (or
Reporting Unit’s) goodwill and permits, separately, for impairment, annually as
of October 1.  Our annual impairment test as of October 1, 2009 and
2008 resulted in no impairment of goodwill and permits.  The
methodology utilized in performing this test estimates the fair value of our
operating segments using a discounted cash flow valuation
approach.  Those cash flow estimates incorporate assumptions that
marketplace participants would use in their estimates of fair
value.  The most significant assumptions used in the discounted cash
flow valuation regarding each of the Segment’s fair value in connection with
goodwill valuations are:  (1) detailed five year cash flow
projections, (2) the risk adjusted discount rate, and (3) the expected long-term
growth rate.  The primary drivers of the cash flow projection in 2009
include sales revenue and projected margin which are based on our current
revenue, projected government funding as it relates to our existing government
contracts and future revenue expected as part of the government stimulus
plan.  The risk adjusted discount rate represents the weighted average
cost of capital and is established based on (1) the 20 year risk-free rate,
which is impacted by events external to our business, such as investor
expectation regarding economic activity, (2) our required rate of return on
equity, and (3) the current after tax rate of return on debt.  In
valuing our goodwill for 2009, risk adjusted discount rate of 19% was used for
the Nuclear and Industrial Segment and 16% for our Engineering
Segment.  As of October 1, 2009, the fair value of our reporting units
exceeds carrying value by approximately $19,869,000, $887,000, and $2,584,000
for the Nuclear, Engineering, and Industrial Segment, respectively.





In the
fourth quarter of 2009, we reclassified approximately $806,000 in costs incurred
from 2005 to 2007 from our Perma-Fix of Florida’s (“PFF”) construction in
process account to permit.  These costs were originally incurred in
connection with a major capital project at PFF, which has been placed on hold
indefinitely.  Upon further evaluation and analysis of the costs
related to this project, we determined that the $806,000 in costs incurred were
related directly to the expansion of our operating permit at PFF, which
we  included in our annual intangible asset valuation review conducted
as of October 1, 2009.  We also reclassified this adjustment to our
prior period balance sheets to reflect these costs as permit in process and
permit in the appropriate years since as of December 31, 2005.  We did
not amend our filings as this correction was not considered material to the
Consolidated Balance Sheet and had no impact on our Consolidated Statement of
Operations, income per share, accumulated deficit or our cash
flows.  In addition, this correction would not have resulted in
impairment charges from our annual intangible asset valuation reviews conducted
since October 1, 2005.





Intangible
assets that have definite useful lives are amortized using the straight-line
method over the estimated useful lives and are excluded from our annual
intangible asset valuation review conducted as of October 1.  On
November 26, 2008, the U.S. EPA Region 4 issued an authorization to DSSI to
commercially store and dispose of radioactive PCBs.  DSSI began the
permitting process to add Toxic Substances Control Act (“TSCA”) regulated
wastes, namely PCBs, containing radioactive constituents to its authorization in
2004 in order to meet the demand for the treatment of government and
commercially generated radioactive PCB wastes. Waste operation under this
authorization commenced in the first quarter of 2009.  Costs incurred
in connection with this authorization in the amount of approximately $545,000
were capitalized in Permits in the first quarter of 2009 and are being amortized
over a ten year period in accordance with its estimated useful
life.


47





Property
and Equipment


Property
and equipment expenditures are capitalized and depreciated using the
straight-line method over the estimated useful lives of the assets for financial
statement purposes, while accelerated depreciation methods are principally used
for income tax purposes.  Generally, annual depreciation rates range
from ten to forty years for buildings (including improvements and asset
retirement costs) and three to seven years for office furniture and equipment,
vehicles, and decontamination and processing equipment.  Leasehold
improvements are capitalized and amortized over the lesser of the term of the
lease or the life of the asset.  Maintenance and repairs are charged
directly to expense as incurred.  The cost and accumulated
depreciation of assets sold or retired are removed from the respective accounts,
and any gain or loss from sale or retirement is recognized in the accompanying
consolidated statements of operations. Renewals and improvement, which extend
the useful lives of the assets, are capitalized.  We include within
buildings, asset retirement obligations, which represents our best estimates of
the cost to close, at some undetermined future date, our permitted and/or
licensed facilities.  In 2008, due to change in estimate of the costs
to close our DSSI and PFNWR facility based on federal/state regulatory
guidelines, we increased our asset retirement obligation by $726,000 and
$373,000 for our DSSI and PFNWR facility, respectively, which has been
depreciated prospectively over the remaining life of the asset.  In
the first quarter of 2009, we increased our asset retirement obligation for our
DSSI facility by $1,980,000 due to the change in estimate of the costs to close
our DSSI facility based on federal/state regulatory guidelines as result of an
authorization that we received from the U.S. EPA Region 4 in November 2008 to
treat PCB wastes.  In the fourth quarter of 2009, we also increased
our asset retirement obligation for our PFSG facility by $158,000 based on
change in estimates of the costs to close this facility based federal/state
regulatory guidelines.  Adjustments to the asset retirement
obligations for these facilities are being depreciated prospectively over the
remaining of the asset, in accordance with Accounting Standards Codification
(“ASC”) 410, “Asset Retirement and Environmental Obligations”.





In
accordance with ASC 360, “Property, Plant, and Equipment”, long-lived assets,
such as property, plant and equipment, and purchased intangible assets subject
to amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset.  If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized in the amount by which the carrying amount of
the asset exceeds the fair value of the asset.  Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated.  The assets and liabilities of a disposal group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.





In 2007,
as result of the approved divestiture of our Industrial Segment by our Board of
Directors and in accordance with ASC 360, we recorded $2,727,000 and $1,804,000
in tangible asset impairment loss for PFD and PFTS, respectively, which were
included in “loss from discontinued operations, net of taxes” on our
Consolidated Statements of Operations for the year ended December 31,
2007.





In
September 2008, our Board of Directors approved retaining our Industrial Segment
facilities/operations at PFFL, PFSG, and PFO.  As a result of this
decision, we reclassified these three facilities/operations back into our
continuing operations.  Asset impairment losses of $1,329,000 and
$507,000 were recorded in 2007 for PFSG and PFO, respectively, and were
reclassified and included in “Asset impairment loss” in our Consolidated
Statements of Operations for the year ended December 31, 2007.  During
the third quarter of 2008, we classified one of the two properties at PFO as
“net property and equipment held for sale” within our continued operations in
the Consolidated Balance Sheets in accordance to ASC 360.  We
evaluated the fair value of PFO’s assets and as a result, recorded a credit of
$507,000 related to the recovery of previous impairment charges for PFO, which
was included in “Asset Impairment Recovery” on the Consolidated Statements of
Operations for the year ended December 31, 2008.  On December 23,
2008, we sold the property at PFO for $900,000 in cash resulting in a gain of
$483,000.


48


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
expansion to the facilities. Increases or decreases in accrued closure costs
resulting from changes or expansions at the facilities are determined based on
specific RCRA guidelines applied to the requested change.  This
calculation includes certain estimates, such as disposal pricing, external
labor, analytical costs and processing costs, which are based on current market
conditions.





Accrued Environmental
Liabilities. We have four remediation projects currently in
progress.  The current and long-term accrual amounts for the projects
are our best estimates based on proposed or approved processes for
clean-up.  The circumstances that could affect the outcome range from
new technologies that are being developed every day to reduce our overall costs,
to increased contamination levels that could arise as we complete remediation
which could increase our costs, neither of which we anticipate at this
time.  In addition, significant changes in regulations could adversely
or favorably affect our costs to remediate existing sites or potential future
sites, which cannot be reasonably quantified.  In connection with the
sale of our PFD facility in March 2008, the Company retained the environmental
liability for the remediation of an independent site known as
EPS.  This liability was assumed by the Company as a result of the
original acquisition of the PFD facility.  In connection with the sale
of our PFTS facility in May 2008, the remaining environmental reserve of
approximately $35,000 was recorded as a “gain on disposal of discontinued
operation, net of taxes” in the second quarter of 2008 on our “Consolidated
Statement of Operations” as the buyer has assumed any future on-going
environmental monitoring.  The environmental liabilities of PFM, PFMI,
PFSG, and PFD remain the financial obligations of the Company.





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





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





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


49





Income Taxes.The
provision for income tax is determined in accordance with ASC 740, “Income
Taxes”.  As part of the process of preparing our consolidated
financial statements, we are required to estimate our income taxes in each of
the jurisdictions in which we operate. We record this amount as a provision or
benefit for taxes.  This process
involves estimating our actual current tax exposure, including assessing the
risks associated with tax audits, and assessing temporary differences resulting
from different treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities. As of
December 31, 2009, we had deferred tax assets of approximately $20,460,000,
which were primarily related to federal and state net operating loss
carryforwards, impairment charges, and closure costs. We assess the likelihood
that our deferred tax assets will be recovered from future taxable income and,
to the extent that we believe recovery is not likely, we establish a valuation
allowance. As of December 31, 2008, we had concluded that insufficient evidence
existed to support the recognition of any of our deferred income tax assets and,
as such, a full valuation allowance was applied against our net deferred income
tax asset.  As of December 31, 2009, however, facts and circumstances
have changed to alter our conclusions, and we have determined that it is more
likely than not that approximately $2,192,000 of deferred income tax asset will
be realized based, primarily, on profitable historic results and projections of
future taxable income.





Known
Trends and Uncertainties


Seasonality.  Historically,
we have experienced reduced activities and related billable hours throughout the
November and December holiday periods within our Engineering
Segment.  Our Industrial Segment operations experience reduced
activities during the holiday periods; however, one key product line is the
servicing of cruise line business where operations are typically higher during
the winter months, thus offsetting the impact of the holiday
season.  The DOE and DOD represent major customers for the Nuclear
Segment.  In conjunction with the federal government’s September 30
fiscal year-end, the Nuclear Segment historically experienced seasonably large
shipments during the third quarter, leading up to this government fiscal
year-end, as a result of incentives and other quota
requirements.  Correspondingly for a period of approximately three
months following September 30, the Nuclear Segment generally slows down, as the
government budgets are still being finalized, planning for the new year is
occurring, and we enter the holiday season.    This trend
generally continues into the first quarter of the new year as government
entities evaluate their spending priorities.  Over the past years, due
to our efforts to work with the various government customers to smooth these
shipments more evenly throughout the year, we have seen smaller fluctuations in
the quarters.  Although we have seen smaller fluctuation in the
quarters in recent years, nevertheless, as government spending is contingent
upon its annual budget and allocation of funding, we cannot provide assurance
that we will not have larger fluctuations in the quarters in the near
future.  In addition, higher government (specifically DOE) funding
made available through the economic stimulus package (American Recovery and
Reinvestment Act) enacted by Congress in February 2009, could result in larger
fluctuations in 2010.





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 are
continuing to experience an economic slowdown due to the current uncertain
economic environment, we continue to review contracts and revenue streams within
our Industrial Segment in efforts to replace those that are not profitable with
more profitable ones.  Our Engineering Segment relies more on
commercial customers though this segment makes up a very small percentage of our
revenue.





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


50





Certain
Legal Matters:


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


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





The
Louisiana Department of Environmental Quality (“LDEQ”) has collected
approximately $8,400,000 to date for the remediation of the site (Perma-Fix
subsidiaries have not been required to contribute any of the $8,400,000) and has
completed removal of above ground waste from the site, with approximately
$5,000,000 remaining in this fund held by the LDEQ.  The EPA’s
unofficial estimate to complete remediation of the site is between $9,000,000
and $12,000,000, including work performed by LDEQ to date; however, based on
preliminary outside consulting work hired by the PRP group, which we are a party
to, the remediation costs could be below EPA’s estimation.  During
2009, a site assessment was conducted and paid for by the PRP group, which was
exclusive of the $8,400,000.  No unexpected issues were identified
during the assessment.  Collections from small contributors have also
begun for remediation of this site.  Remediation activities going
forward will be funded by LDEQ, until those funds are exhausted, at which time,
any additional requirements, if needed, will be funded from the small
contributors.  Once funds from the small contributors are exhausted,
if additional funds are required, they will be provided by the members of the
PRP group.  As part of the PRP Group, we 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 December 31, 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 first quarter of 2010.  As of the date of
this report, we cannot accurately access our ultimate liability.  The
Company records its environmental liabilities when they are probable of payment
and can be estimated within a reasonable range.  Since this
contingency currently does not meet this criteria, a liability has not been
established.





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,
our Nuclear Segment has a significant relationship with the federal government
and has continued to enter into contracts with (directly or indirectly as a
subcontractor) the federal government.  The contracts that we are a
party to with the federal government or with others as a subcontractor to the
federal government generally provide that the government may terminate on 30
days notice or renegotiate the contracts, at the government's
election.  Our inability to continue under existing contracts that we
have with the federal government (directly or indirectly as a subcontractor)
could have a material adverse effect on our operations and financial
condition.


51





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
$75,013,000 or 74.5% (within our Nuclear Segment) of our total revenue from
continuing operations during 2009, as compared to $43,464,000 or 57.6% of our
total revenue from continuing operations during 2008, and $30,000,000 or 46.5%
of our total revenue from continuing operations during 2007.





As
previously discussed, during the second quarter of 2008, our M&EC facility
was awarded a subcontract by CHPRC, a general contractor to the DOE, to
participate in the cleanup of the central portion of the Hanford
Site.  On October 1, 2008, operations of this subcontract commenced at
the DOE Hanford Site.  We believe full operations under this
subcontract will result in revenues for on-site and off-site work of
approximately $200,000,000 to $250,000,000 over the five year base
period.  As provided above, M&EC’s subcontract is terminable or
subject to renegotiation, at the option of the government, on 30 days
notice.  Effective October 1, 2008, CHPRC also 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 $45,169,000 or 44.9% and $8,120,000
or 10.8% of our total revenue from continuing operations for twelve months ended
December 31, 2009 and 2008, respectively.  As revenue from Fluor
Hanford has been transitioned to CHPRC, revenue from Fluor Hanford totaled $0 or
0%, $7,974,000 or 10.6%, and $6,985,000 or 10.8% of our consolidated revenue
from continuing operations for the twelve months ended December 31, 2009, 2008,
and 2007, 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 continued uncertainty 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.





Climate Change. Climate
change is receiving ever increasing attention worldwide. Many scientists,
legislators and others attribute global warming to increased levels of
greenhouse gases, including carbon dioxide, which has led to significant
legislative and regulatory efforts to limit greenhouse gas
emissions.




There are
a number of pending legislative and regulatory proposals to address greenhouse
gas emissions. For example, in June 2009 the U.S. House of Representatives
passed the American Clean Energy and Security Act that would phase-in
significant reductions in greenhouse gas emissions if enacted into law. The U.S.
Senate is considering a different bill, and it is uncertain whether, when and in
what form a federal mandatory carbon dioxide emissions reduction program may be
adopted. These actions could increase costs associated with our
operations.  Because it is uncertain what laws will be enacted, we
cannot predict the potential impact of such laws on our future consolidated
financial condition, results of operations or cash flows.





Profit
Sharing Plan


We
adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan (the “401(k)
Plan”) in 1992, which is intended to comply under 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.  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 up to 25% of our employees'
contributions.  We contributed $85,000 in matching funds during
2009.  The Company suspended its matching contribution effective March
1, 2009, in an effort to reduce costs in light of the downturn in the economic
environment.  Effective January 1, 2010, the Company reinstated this
matching contribution.


52





Environmental
Contingencies


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





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





We have
budgeted for 2010, $526,000 in environmental remediation expenditures to comply
with federal, state and local regulations in connection with remediation of
certain contaminates at our facilities.  Our facilities where the
remediation expenditures will be made are the Leased Property in Dayton, Ohio
(EPS), a former RCRA storage facility as operated by the former owners of PFD,
PFM's facility in Memphis, Tennessee, PFSG's facility in Valdosta, Georgia, and
PFMI's facility in Detroit, Michigan.  The environmental liability of
PFD (as it relates to the remediation of the EPS site assumed by the Company as
a result of the original acquisition of the PFD facility) was retained by the
Company upon the sale of PFD in March 2008.  All of the reserves are
within our discontinued operations with the exception of PFSG.  While
no assurances can be made that we will be able to do so, we expect to fund the
expenses to remediate these sites from funds generated internally.





At
December 31, 2009, we had total accrued environmental remediation liabilities of
$1,727,000 of which $526,000 is recorded as a current liability, which reflects
a decrease of $106,000 from the December 31, 2008, balance of
$1,833,000.  The net decrease represents payment of approximately
$387,000 on remediation projects as well as a decrease in our reserve at PFMI of
approximately $300,000 and increases in reserves of approximately $281,000 at
PFSG and $300,000 at PFM, due to reassessment of our remediation
estimates.  The December 31, 2009, current and long-term accrued
environmental balance is recorded as follows (in thousands):





Current
                    Accrual
                  
                  
                  Long-term
                    Accrual
                  
                  
                  TotalPFD
                  
                  $
                  147
                  
                  
                  $
                  203
                  
                  
                  $
                  350PFM
                  
                  
                  252
                  
                  
                  
                  187
                  
                  
                  
                  439PFSG
                  
                  
                  25
                  
                  
                  
                  785
                  
                  
                  
                  810PFMI
                  
                  
                  102
                  
                  
                  
                  26
                  
                  
                  
                  128Total
      Liability
                  
                  $
                  526
                  
                  
                  $
                  1,201
                  
                  
                  $
                  1,727





Related
Party Transactions


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 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 PFNWR and PFNW.  Effective February 27, 2010, Mr.
Ferguson resigned as a member of our Board of Directors.


53





Lawrence
Properties LLC


During
February 2006, our Board of Directors approved and we entered into a lease
agreement, whereby we lease property from Lawrence Properties LLC, a company
jointly owned by the president of Schreiber, Yonley and Associates, Robert
Schreiber, Jr. and his spouse.  Mr. Schreiber is a member of our
executive management team.  The lease is for a term of five years from
June 1, 2006.  We pay monthly rent expense of $10,000, which we
believe is lower than costs charged by unrelated third party
landlords.  Additional rent will be assessed for any increases over
the initial lease commencement year for property taxes or assessments and
property and casualty insurance premiums.





Mr.
David Centofanti


Mr. David
Centofanti serves as our Director of Information Services.  For such
services, he received total compensation in 2009 of approximately $166,000. Mr.
David Centofanti is the son of our Chief Executive Officer and Chairman of our
Board, Dr. Louis F. Centofanti.  We believe the compensation received
by Mr. Centofanti for his technical expertise which he provides to the Company
is competitive and comparable to compensation we would have to pay to an
unaffiliated third party with the same technical expertise.





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




For year
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 $173,000 for the year ended December 31,
2009. As of December 31, 2009, we had no interest swap agreement
outstanding.




54




SPECIAL
NOTE REGARDING 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,





·
            ability
      or inability to continue and improve operations and achieve profitability
      on an annualized basis;


·
            ability
      to comply with our general working capital
  requirements;


·
            ability
      to retain or receive certain permits, licenses, or
  patents;


·
            ability
      to renew permits and licenses with minimal effort and
    costs;


·
            ability
      to be able to continue to borrow under our revolving line of
      credit;


·
            ability
      to meet our fixed charge coverage ratio in the
  future;


·
            we
      anticipate meeting our fixed charge ratio in 2010 and
    beyond;


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


·
            ability
      to close and remediate certain contaminated sites for projected amounts
      over the projected periods;


·
            ability
      to fund expenses to remediate sites from funds generated
      internally;


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


·
            ability
      to fund budgeted capital expenditures during 2010 through our operations
      and lease financing;


·
            continued
      focus on efficient operations of our existing facilities within our
      Nuclear, Industrial, and Engineering Segments, evaluate strategic
      acquisitions primarily within the Nuclear Segment, and to continue the
      research and development of innovative technologies to treat nuclear
      waste, mixed waste, and industrial
waste;


·
            we
      believe that there are no formidable barriers to entry into certain of the
      on-site treatment businesses, and certain of the non-hazardous waste
      operations, which do not require such
permits;


·
            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;


·
              we
      believe that we are able to compete in the market based on our established
      reputation in these market areas and our expertise in several specific
      elements of environmental engineering and consulting such as environmental
      applications in the cement
industry;
 ·
              we
      believe that we are a significant provider in the delivery of off-site
      waste treatment services in the Southeast portion of the United
      States;


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


·
            under
      our insurance contracts, we usually accept self-insured retentions, which
      we believe is appropriate for our specific business
  risks;


·
            due
      to the continued uncertainty in the economy and changes within the
      environmental insurance market, we have no guarantee that we will be able
      to obtain similar insurance in future years, or that the cost of such
      insurance will not increase
materially;


·
            although
      we believe that we are currently in substantial compliance with applicable
      laws and regulations, we could be subject to fines, penalties or other
      liabilities or could be adversely affected by existing or subsequently
      enacted laws or regulations;


·
            we
      believe that, as our operations and activities expand, there could be
      similar increase in the potential for litigation alleging that we have
      violated environmental laws or regulations or are responsible for
      contamination or pollution caused by our normal operations, negligence or
      other misconduct, or for accidents, which occur in the course of our
      business activities which could adversely affect our financial condition
      and our ability to fund our
operations;


55




·
              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
      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;
 ·
              we
      believe that government funding made available for DOE remediation
      projects under the government stimulus plan in February 2009 should
      continue to positively impact our existing government contracts within our
      Nuclear Segment;
 ·
              we
      expect that demand for our services will be subject to fluctuations due to
      a variety of factors beyond our control, including the current economic
      conditions, and the manner in which the government will be required to
      spend funding to remediate federal
sites;
 ·
              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;
 ·
              although
      we have seen smaller fluctuation in the quarters in recent years,
      nevertheless, as government spending is contingent upon its annual budget
      and allocation of funding, we cannot provide assurance that we will not
      have larger fluctuations in the quarters in the near
    future;
 ·
              if
      EnergySolutions should refuse to accept our waste or cease operations at
      its Clive, Utah facility, such would have a material adverse effect on us.
      However, with the recent radioactive disposal license granted to Waste
      Control Specialists (“WCS”) located in Andrews, Texas, this risk could be
      reduced as WCS brings its disposal site online later in 2010 or early
      2011;
 ·
              we
      believe that the range of waste management and environmental consulting,
      treatment, processing, and remediation services we provide affords us a
      competitive advantage with respect to certain of our more specialized
      competitors;
 ·
              we
      believe that the treatment processes we utilize offer a cost saving
      alternative to more traditional remediation and disposal methods offered
      by certain of our competitors;
 ·
              no
      further impairment to intangible
assets;
 ·
              no
      expectation of material future inflationary
  changes;
 ·
              we
      do not believe we are dependent on any particular trademark in order to
      operate our business or any significant segment
  thereof;
 ·
              based
      on the current status of Corrective Action for the PFMI facility, we
      believe that the remaining reserve is adequate to cover the
      liability;
 ·
              despite
      our aggressive compliance and auditing procedure for disposal of wastes,
      we could further be notified, in the future, that we are a PRP at a
      remedial action site, which could have a material adverse
      effect;
 ·
              we
      could also be subject to fines and civil penalties in connection with
      violations of regulatory
requirements;
 ·
              no
      immediate plans or current commitments to issue shares under the
      registration statement;
 ·
              we
      plan to fund any repurchases under our common stock repurchase plan
      through our internal cash flow and/or borrowing under our line of
      credit;
 ·
              we
      do not expect ASU 2010-6 to have a material impact on our consolidated
      financial statements; and
 ·
              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.


56





While the
Company believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance such expectations will prove to be
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 to maintain the listing of our Common Stock on the
      NASDAQ;


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


·
            renegotiation
      of contracts involving the federal
government;


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


·
            Risk
      Factors contained in Item 1A of this
report.




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


57


ITEM 8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





Index to
Consolidated Financial Statements





Page No.Consolidated Financial
      StatementsReport
      of Independent Registered Public Accounting Firm, BDO Seidman,
      LLP
                  59Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                  60Consolidated
      Statements of Operations for the years ended December 31, 2009, 2008, and
      2007
                  62Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008, and
      2007
                  63Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2009,
      2008, and 2007
                  64Notes
      to Consolidated Financial Statements
                  65Financial Statement
ScheduleII
      Valuation and Qualifying Accounts for the years endedDecember
      31, 2009, 2008, and 2007
                  139





Schedules
Omitted


In
accordance with the rules of Regulation S-X, other schedules are not submitted
because (a) they are not applicable to or required by the Company, or (b) the
information required to be set forth therein is included in the consolidated
financial statements or notes thereto.


58




Independent
Auditors’ Report




Board of
Directors and Stockholders


Perma-Fix
Environmental Services, Inc.


Atlanta,
Georgia




We have
audited the accompanying consolidated balance sheets of Perma-Fix Environmental
Services, Inc. and subsidiaries as of December 31, 2009 and 2008 and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2009. In connection
with our audits of the financial statements, we have also audited the financial
statement schedules listed in the accompanying index. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Perma-Fix Environmental
Services, Inc. at December 31, 2009 and 2008, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2009, in conformity with
accounting principles generally accepted in the United States of
America.




Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Perma-Fix Environmental Services, Inc.’s
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control – Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 12, 2010 expressed an
unqualified opinion thereon.




/s/ BDO
Seidman, LLP




Atlanta,
Georgia


March 12,
2010


59


PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
BALANCE SHEETS


As
of December 31,





(Amount
      in Thousands, Except for Share Amounts)
                
                2009
                
                
                2008ASSETSCurrent
      assets:Cash
                
                $
                141
                
                
                $
                129Restricted
      cash
                
                
                55
                
                
                
                55Accounts
      receivable, net of allowance for doubtful accounts of $296 and $333,
      respectively
                
                
                13,141
                
                
                
                13,416Unbilled
      receivables - current
                
                
                9,858
                
                
                
                13,104Inventories
                
                
                351
                
                
                
                344Prepaid
      and other assets
                
                
                3,097
                
                
                
                2,565Deferred
      tax assets -current
                
                
                1,856
                
                
                
                —Current
      assets related to discontinued operations
                
                
                174
                
                
                
                110Total
      current assets
                
                
                28,673
                
                
                
                29,723Property
      and equipment:Buildings
      and land
                
                
                27,098
                
                
                
                24,726Equipment
                
                
                31,757
                
                
                
                31,315Vehicles
                
                
                650
                
                
                
                637Leasehold
      improvements
                
                
                11,455
                
                
                
                11,455Office
      furniture and equipment
                
                
                1,933
                
                
                
                1,904Construction-in-progress
                
                
                1,275
                
                
                
                35374,168
                
                
                
                70,390Less
      accumulated depreciation and amortization
                
                
                (28,441
                )
                
                
                (23,762
                )Net
      property and equipment
                
                
                45,727
                
                
                
                46,628Property
      and equipment related to discontinued operations
                
                
                651
                
                
                
                651Intangibles
      and other long term assets:Permits
                
                
                18,079
                
                
                
                17,931Goodwill
                
                
                12,352
                
                
                
                11,320Unbilled
      receivables – non-current
                
                
                2,502
                
                
                
                3,858Finite
      Risk Sinking Fund
                
                
                15,480
                
                
                
                11,345Deferred
      tax asset, net of liabilities
                
                
                272
                
                
                
                3⁄4Other
      assets
                
                
                2,339
                
                
                
                2,256Total
      assets
                
                $
                126,075
                
                
                $
                123,712





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


60





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
BALANCE SHEETS, CONTINUED


As
of December 31,





(Amount in Thousands, Except for Share
      Amounts)
                
                2009
                
                
                2008LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                
                $
                4,927
                
                
                $
                11,076Current
      environmental accrual
                
                
                25
                
                
                
                112Accrued
      expenses
                
                
                6,478
                
                
                
                8,896Disposal/transportation
      accrual
                
                
                2,761
                
                
                
                5,847Unearned
      revenue
                
                
                8,949
                
                
                
                4,371Current
      liabilities related to discontinued operations
                
                
                993
                
                
                
                1,285Current
      portion of long-term debt
                
                
                3,050
                
                
                
                2,022Total
      current liabilities
                
                
                27,183
                
                
                
                33,609Environmental
      accruals
                
                
                785
                
                
                
                419Accrued
      closure costs
                
                
                12,031
                
                
                
                9,879Other
      long-term liabilities
                
                
                508
                
                
                
                457Long-term
      liabilities related to discontinued operations
                
                
                1,433
                
                
                
                2,246Long-term
      debt, less current portion
                
                
                9,331
                
                
                
                14,181Total
      long-term liabilities
                
                
                24,088
                
                
                
                27,182Total
      liabilities
                
                
                51,271
                
                
                
                60,791Commitments
      and ContingenciesPreferred
      Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized,
      1,284,730 shares issued and outstanding, liquidation value $1.00 per
      share
                
                
                1,285
                
                
                
                1,285Stockholders'
      equity:Preferred
      Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and
      outstanding
                
                
                3⁄4
                
                
                
                3⁄4Common
      Stock, $.001 par value; 75,000,000 shares authorized, 54,628,904 and
      53,934,560 shares issued and outstanding, respectively
                
                
                55
                
                
                
                54Additional
      paid-in capital
                
                
                99,641
                
                
                
                97,381Accumulated
      deficit
                
                
                (26,177
                )
                
                
                (35,799
                )Total
      stockholders' equity
                
                
                73,519
                
                
                
                61,636Total
      liabilities and stockholders' equity
                
                $
                126,075
                
                
                $
                123,712





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


61





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


For
the years ended December 31,





(Amounts in Thousands, Except for per Share
      Amounts)
                
                2009
                
                
                2008
                
                
                2007Net
      revenues
                
                $
                100,676
                
                
                $
                75,504
                
                
                $
                64,544Cost
      of goods sold
                
                
                73,537
                
                
                
                55,662
                
                
                
                45,715Gross
      profit
                
                
                27,139
                
                
                
                19,842
                
                
                
                18,829Selling,
      general and administrative expenses
                
                
                17,728
                
                
                
                18,192
                
                
                
                17,859Asset
      (recovery) impairment loss
                
                
                —
                
                
                
                (507
                )
                
                
                1,836(Gain)
      loss on disposal of property and equipment
                
                
                (15
                )
                
                
                (295
                )
                
                
                172Income
      (loss) from operations
                
                
                9,426
                
                
                
                2,452
                
                
                
                (1,038
                )Other
      income (expense):Interest
      income
                
                
                145
                
                
                
                226
                
                
                
                312Interest
      expense
                
                
                (1,657
                )
                
                
                (1,540
                )
                
                
                (1,353
                )Interest
      expense – financing fees
                
                
                (283
                )
                
                
                (137
                )
                
                
                (196
                )Other
                
                
                19
                
                
                
                (6
                )
                
                
                (85
                )Income
      (loss) from continuing operations before income taxes
                
                
                7,650
                
                
                
                995
                
                
                
                (2,360
                )Income
      tax (benefit) expense
                
                
                (1,922
                )
                
                
                10
                
                
                
                —Income
      (loss) from continuing operations
                
                
                9,572
                
                
                
                985
                
                
                
                (2,360
                )Income
      (loss) from discontinued operations, net of taxes
                
                
                50
                
                
                
                (1,397
                )
                
                
                (6,850
                )Gain
      on disposal of discontinued operations, net of taxes
                
                
                —
                
                
                
                2,323
                
                
                
                —Net
      income (loss) applicable to Common Stockholders
                
                $
                9,622
                
                
                $
                1,911
                
                
                $
                (9,210
                )Net
      income (loss) per common share – basic:Continuing
      operations
                
                $
                .18
                
                
                $
                .02
                
                
                $
                (.05
                )Discontinued
      operations
                
                
                —
                
                
                
                (.02
                )
                
                
                (.13
                )Disposal
      of discontinued operations
                
                
                —
                
                
                
                .04
                
                
                
                —Net
      income (loss) per common share
                
                $
                .18
                
                
                $
                .04
                
                
                $
                (.18
                )Net
      income (loss) per common share – diluted:Continuing
      operations
                
                $
                .18
                
                
                $
                .02
                
                
                $
                (.05
                )Discontinued
      operations
                
                
                —
                
                
                
                (.02
                )
                
                
                (.13
                )Disposal
      of discontinued operations
                
                
                —
                
                
                
                .04
                
                
                
                —Net
      income (loss) per common share
                
                $
                .18
                
                
                $
                .04
                
                
                $
                (.18
                )Number
      of common shares used in computing net income (loss) per
      share:Basic
                
                
                54,238
                
                
                
                53,803
                
                
                
                52,549Diluted
                
                
                54,526
                
                
                
                54,003
                
                
                
                52,549





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


62




PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


For
the years ended December 31,





(Amounts
      in Thousands)
                                
                                2009
                                
                                
                                2008
                                
                                
                                2007Cash
      flows from operating activities:Net
      income (loss)
                                
                                $
                                9,622
                                
                                
                                $
                                1,911
                                
                                
                                $
                                (9,210
                                )Less:
      Income (loss)on discontinued operations
                                
                                
                                50
                                
                                
                                
                                926
                                
                                
                                
                                (6,850
                                )Income
      (loss) from continuing operations
                                
                                
                                9,572
                                
                                
                                
                                985
                                
                                
                                
                                (2,360
                                )Adjustments
      to reconcile net income (loss) from continuing operations to cash provided
      by operations:Depreciation
      and amortization
                                
                                
                                4,746
                                
                                
                                
                                4,866
                                
                                
                                
                                4,092Asset
      impairment (recovery) loss
                                
                                —
                                
                                
                                
                                (507
                                )
                                
                                
                                1,836Non-cash
      financing costs
                                
                                
                                216
                                
                                
                                —
                                
                                
                                —Deferred
      taxes
                                
                                
                                (2,426
                                )
                                
                                —
                                
                                
                                —Provision
      for bad debt and other reserves
                                
                                
                                352
                                
                                
                                
                                187
                                
                                
                                
                                119(Gain)
      loss on disposal of plant, property and equipment
                                
                                
                                (16
                                )
                                
                                
                                (295
                                )
                                
                                
                                172Issuance
      of common stock for services
                                
                                
                                251
                                
                                
                                
                                257
                                
                                
                                
                                391Stock-based
      compensation
                                
                                
                                713
                                
                                
                                
                                531
                                
                                
                                
                                457Changes
      in operating assets and liabilities of continuing operations, net
      of  effect from business acquisitions:Accounts
      receivable
                                
                                
                                (77
                                )
                                
                                
                                1,358
                                
                                
                                
                                (614
                                )Unbilled
      receivables
                                
                                
                                4,602
                                
                                
                                
                                (3,254
                                )
                                
                                
                                1,132Prepaid
      expenses, inventories and other assets
                                
                                
                                1,058
                                
                                
                                
                                3,019
                                
                                
                                
                                2,115Accounts
      payable, accrued expenses and unearned revenue
                                
                                
                                (9,902
                                )
                                
                                
                                (2,872
                                )
                                
                                
                                (352
                                )Cash
      provided by continuing operations
                                
                                
                                9,089
                                
                                
                                
                                4,275
                                
                                
                                
                                6,988Cash
      (used in) provided by discontinued operations
                                
                                
                                (591
                                )
                                
                                
                                (3,810
                                )
                                
                                
                                27Cash
      provided by operating activities
                                
                                
                                8,498
                                
                                
                                
                                465
                                
                                
                                
                                7,015Cash
      flows from investing activities:Purchases
      of property and equipment, net
                                
                                
                                (1,518
                                )
                                
                                
                                (981
                                )
                                
                                
                                (2,920
                                )Proceeds
      from sale of plant, property and equipment
                                
                                
                                20
                                
                                
                                
                                881
                                
                                
                                
                                75Payments
      to finite risk sinking fund
                                
                                
                                (4,135
                                )
                                
                                
                                (5,311
                                )
                                
                                
                                (1,516
                                )Payment
      of earn-out to Nuvotec shareholders
                                
                                
                                (734
                                )
                                
                                —
                                
                                
                                —Cash
      used for acquisition consideration, net of cash acquired
                                
                                —
                                
                                
                                
                                (14
                                )
                                
                                
                                (2,991
                                )Cash
      used in investing activities of continuing operations
                                
                                
                                (6,367
                                )
                                
                                
                                (5,425
                                )
                                
                                
                                (7,352
                                )Proceeds
      from sale of discontinued operations
                                
                                —
                                
                                
                                
                                6,734
                                
                                
                                —Cash
      provided by (used in) discontinued operations
                                
                                
                                11
                                
                                
                                
                                75
                                
                                
                                
                                (219
                                )Net
      cash (used in) provided by  investing activities
                                
                                
                                (6,356
                                )
                                
                                
                                1,384
                                
                                
                                
                                (7,571
                                )Cash
      flows from financing activities:Net
      (repayments) borrowings of revolving credit
                                
                                
                                (3,857
                                )
                                
                                
                                (335
                                )
                                
                                
                                6,851Principal
      repayments of long term debt
                                
                                
                                (2,639
                                )
                                
                                
                                (8,842
                                )
                                
                                
                                (8,593
                                )Proceeds
      from issuance of long-term debt
                                
                                
                                2,982
                                
                                
                                
                                7,000
                                
                                
                                —Proceeds
      from issuance of stock
                                
                                
                                631
                                
                                
                                
                                184
                                
                                
                                
                                418Proceeds
      from finite risk financing
                                
                                
                                753
                                
                                
                                
                                368Repayment
      of stock subscription receivable
                                
                                —
                                
                                
                                
                                25
                                
                                
                                
                                54Cash
      used in financing activities of continuing operations
                                
                                
                                (2,130
                                )
                                
                                
                                (1,600
                                )
                                
                                
                                (1,270
                                )Principal
      repayment of long-term debt for discontinued operations
                                
                                —
                                
                                
                                
                                (238
                                )
                                
                                
                                (277
                                )Cash
      used in financing activities
                                
                                
                                (2,130
                                )
                                
                                
                                (1,838
                                )
                                
                                
                                (1,547
                                )Increase
      (decrease) in cash
                                
                                
                                12
                                
                                
                                
                                11
                                
                                
                                
                                (2,103
                                )Cash
      at beginning of period
                                
                                
                                129
                                
                                
                                
                                118
                                
                                
                                
                                2,221Cash
      at end of period
                                
                                $
                                141
                                
                                
                                $
                                129
                                
                                
                                $
                                118Supplemental
      disclosure:Interest
      paid, net of amounts capitalized
                                
                                $
                                4,188
                                
                                
                                $
                                1,712
                                
                                
                                $
                                1,125Income
      taxes paid
                                
                                
                                349
                                
                                
                                
                                3
                                
                                
                                
                                311Non-cash
      investing and financing activities:Long-term
      debt incurred for purchase of property and equipment
                                
                                
                                125
                                
                                
                                
                                148
                                
                                
                                
                                614Issuance
      of Common Stock for debt
                                
                                
                                476
                                
                                
                                —
                                
                                
                                —Issuance
      of Warrants for debt
                                
                                
                                190
                                
                                
                                —
                                
                                
                                —





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





63





PERMA-FIX ENVIRONMENTAL SERVICES,
INC


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


For
the years ended December 31,


(Amounts
in Thousands, Except for Share Amounts)





Common
      Stock
                                          
                                          
                                          Additional
                                            Paid-In
                                          
                                          
                                          Stock
                                            Subscription
                                          
                                          
                                          Accumulated
                                          
                                          
                                          Total
                                            Stockholders'Shares
                                          
                                          
                                          Amount
                                          
                                          
                                          Capital
                                          
                                          
                                          Receivable
                                          
                                          
                                          Deficit
                                          
                                          
                                          EquityBalance
      at December 31, 2006
                                          
                                          
                                          52,053,744
                                          
                                          
                                          $
                                          52
                                          
                                          
                                          $
                                          92,980
                                          
                                          
                                          $
                                          (79
                                          )
                                          
                                          $
                                          (28,500
                                          )
                                          
                                          $
                                          64,453Net
      loss
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (9,210
                                          )
                                          
                                          
                                          (9,210
                                          )Issuance
      of Common Stock for cash and services
                                          
                                          
                                          143,005
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          391
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          391Common
      Stock issued in conjunction with acquisition
                                          
                                          
                                          709,207
                                          
                                          
                                          
                                          1
                                          
                                          
                                          
                                          2,164
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,165Repayment of Stock
      Subscription Receivable
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          54
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          54Issuance
      of Common Stock upon
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          —exercise
      of Warrants and Options
                                          
                                          
                                          798,560
                                          
                                          
                                          
                                          1
                                          
                                          
                                          
                                          417
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          418Stock-Based
      Compensation
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          457
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          457Balance
      at December 31, 2007
                                          
                                          
                                          53,704,516
                                          
                                          
                                          $
                                          54
                                          
                                          
                                          $
                                          96,409
                                          
                                          
                                          $
                                          (25
                                          )
                                          
                                          $
                                          (37,710
                                          )
                                          
                                          $
                                          58,728Net
      income
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,911
                                          
                                          
                                          
                                          1,911Issuance
      of Common Stock for services
                                          
                                          
                                          118,865
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          257
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          257Repayment
      of Stock Subscription Receivable
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          25
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          25Issuance
      of Common Stock upon exercise of Options
                                          
                                          
                                          111,179
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          184
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          184Stock-Based
      Compensation
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          531
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          531Balance
      at December 31, 2008
                                          
                                          
                                          53,934,560
                                          
                                          
                                          $
                                          54
                                          
                                          
                                          $
                                          97,381
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          (35,799
                                          )
                                          
                                          $
                                          61,636Net
      income
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          9,622
                                          
                                          
                                          
                                          9,622Issuance
      of Common Stock for services
                                          
                                          
                                          136,522
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          251
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          251Issuance
      of Common Stock upon exercise of Options
                                          
                                          
                                          357,822
                                          
                                          
                                          
                                          1
                                          
                                          
                                          
                                          630
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          631Stock-Based
      Compensation
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          713
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          713Issuance
      of Common Stock for debt
                                          
                                          
                                          200,000
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          476
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          476Issuance
      of Warrants for debt
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          190
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          190Balance
      at December 31, 2009
                                          
                                          
                                          54,628,904
                                          
                                          
                                          $
                                          55
                                          
                                          
                                          $
                                          99,641
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          (26,177
                                          )
                                          
                                          $
                                          73,519








64





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.


Notes
to Consolidated Financial Statements


December
31, 2009, 2008, and 2007







NOTE
1


DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION





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





·
            Nuclear
      Waste Management Services (“Nuclear Segment”), which
    includes:


o
              Treatment,
      storage, processing and disposal of mixed waste (which is waste that
      contains both low-level radioactive and hazardous waste) including on and
      off-site waste remediation and
processing;


o
              Nuclear,
      low-level radioactive, and mixed waste treatment, processing and disposal;
      and


o
              Research
      and development of innovative ways to process low-level radioactive and
      mixed waste.


·
            Consulting
      Engineering Services (“Engineering Segment”), which
    includes:


o
              Consulting
      services regarding broad-scope environmental issues, including air, water,
      and hazardous waste permitting, air, soil, and water sampling, compliance
      reporting, emission reduction strategies, compliance auditing, and various
      compliance and training activities to industrial and government customers,
      as well as engineering and compliance support needed by our other
      segments.


·
              Industrial
      Waste Management Services (“Industrial Segment”), which
      includes:


o
              Treatment,
      storage, processing, and disposal of hazardous and non-hazardous waste;
      and


o
              Wastewater
      management services, including the collection, treatment, processing and
      disposal of hazardous and non-hazardous
  wastewater.


o
              Treatment,
      processing, recycling, and sales of used oil and other off-specification
      petroleum-based products.





We have
grown through both acquisitions and internal growth.  Our goal is to
continue focus on the efficient operation of our existing facilities within our
Nuclear, Industrial, and Engineering Segments, evaluate strategic acquisitions
primarily within the Nuclear Segments, and to continue the research and
development of innovative technologies to treat nuclear waste, mixed waste, and
industrial waste.   Our Nuclear Segment represents our core
business segment.





We are
subject to certain risks as we are involved in the treatment, handling, storage
and transportation of hazardous and non-hazardous, mixed and industrial wastes
and wastewater.  Such activities contain risks against which we
believe we are adequately insured.





Our
consolidated financial statements include our accounts and the accounts of our
wholly-owned subsidiaries as follows:





Continuing
Operations:  Schreiber, Yonley and Associates (“SYA”),
Diversified Scientific Services, Inc. (“DSSI”), East Tennessee Materials &
Energy Corporation (“M&EC”), Perma-Fix of Florida, Inc.
(“PFF”),  Perma-Fix of Northwest Richland, Inc. (“PFNWR” – acquired in
June 2007), Perma-Fix of Ft. Lauderdale, Inc. (“PFFL”), Perma-Fix of Orlando,
Inc. (“PFO”), and Perma-Fix of South Georgia, Inc. (“PFSG”).





Discontinued Operations (See “Note
9”):  Perma-Fix of Maryland (“PFMD”), Perma-Fix of Dayton, Inc.
(“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”), which were sold in
January 2008, March 2008, and May 2008, respectively, and three non-operational
facilities, Perma-Fix of Michigan, Inc. (“PFMI”),  Perma-Fix of
Pittsburgh, Inc. (“PFP”), and Perma-Fix of Memphis, Inc. (“PFM”).





65





Our PFM
facility was reclassed back into discontinued operations from continuing
operations during the fourth quarter of 2009.  PFM was approved as a
discontinued operation by our Board on March 12, 1998.  This decision
was the result of an explosion at the facility in 1997, which significantly
disrupted its operations and the high costs required to rebuild its
operations.  PFM had been reported as a discontinued operation until
2001.  In 2001, the facility was reclassified back into continuing
operations as we had no other facilities classified as discontinued operations
and its impact on our financial statements was de minimis.   As
of December 31, 2009, we reclassified PFM back into discontinued operations for
all periods presented in accordance with ASC 360, “Property, Plant, and
Equipment”.  (See “Note 9 – Discontinued Operations and Divestitures”
for additional information regarding PFM).








NOTE
2


SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Principles
of Consolidation


Our
consolidated financial statements include our accounts and those of our
wholly-owned subsidiaries after elimination of all significant intercompany
accounts and transactions.





Reclassifications


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





Use
of Estimates


When we
prepare financial statements in conformity with generally accepted accounting
principles in the United States of America, we make 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.  Actual results could differ from those estimates. See Notes
9, 12, 13, and 15 for estimates of discontinued operations, closure costs,
environmental liabilities and contingencies for details on significant
estimates.





Restricted
Cash


Restricted
cash of $55,000 reflects secured collateral relative to the various bonding
requirements required for the PFFL treatment, storage, and disposal facility and
escrow for our workers’ compensation policy.





Accounts
Receivable


Accounts
receivable are customer obligations due under normal trade terms requiring
payment within 30 or 60 days from the invoice date based on the customer type
(government, broker, or commercial).  Account balances are stated by
invoice at the amount billed to the customer.  Payments of accounts
receivable are made directly to a lockbox and are applied to the specific
invoices stated on the customer's remittance advice.  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 will not be collected.  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
balance that will not be collected.  This analysis excludes government
related receivables due to our past successful experience in their
collectability.  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.  Once we have exhausted all options in the
collection of a delinquent accounts receivable balance, which includes
collection letters, demands for payment, collection agencies and attorneys, the
account is deemed uncollectible and subsequently written off.  The
write off process involves approvals, based on dollar amount, from senior
management.





66





Unbilled
Receivables


Unbilled
receivables are generated by differences between invoicing timing and the
percentage of completion methodology used for revenue recognition
purposes.  As major processing and milestone 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 but are normally considered collectible within twelve
months.  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 postpone and delay the collection of some of
these receivables greater than twelve months.  However, our historical
experience suggests that a significant part of unbilled receivables are
ultimately collectible with minimal concession on our part.  We
therefore, segregate the unbilled receivables between current and long
term.





Inventories


Inventories
consist of treatment chemicals, salable used oils, and certain
supplies.  Additionally, we have replacement parts in inventory, which
are deemed critical to the operating equipment and may also have extended lead
times should the part fail and need to be replaced.  Inventories are
valued at the lower of cost or market with cost determined by the first-in,
first-out method.





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 improvements,
which extend the useful lives of the assets, are
capitalized.  Included within buildings is an asset retirement
obligation, which represents our best estimate of the cost to close, at some
undetermined future date, our permitted and/or licensed
facilities.  The asset retirement cost was originally recorded at
$4,559,000 and depreciates over the estimated useful life of the
property.  In 2007, as a result of the acquisition of PFNWR, we
recorded an additional asset retirement obligation cost of $3,768,000, which is
being depreciated over the estimated useful life of the property.  In
2008, due to change in estimate of the costs to close our DSSI and PFNWR
facility based on federal/state regulatory guidelines, we increased our asset
retirement obligation by $726,000 and $373,000 for our DSSI and PFNWR facility,
respectively, which has been depreciated prospectively over the remaining life
of the asset.  In the first quarter of 2009, we increased our asset
retirement obligation for our DSSI facility by $1,980,000 due to the change in
estimate of the costs to close our DSSI facility based on federal/state
regulatory guidelines as result of a an authorization that we received from the
U.S. EPA Region 4 in November 2008 to treat PCB wastes.  In the fourth
quarter of 2009, we also increased our asset retirement obligation for our PFSG
facility by $158,000 based on change in estimates of the costs to close this
facility based federal/state regulatory guidelines.  Adjustments to
the asset retirement obligations for these facilities are being depreciated
prospectively over the remaining of the asset, in accordance with Accounting
Standards Codification (“ASC”) 410, “Asset Retirement and Environmental
Obligations”.





In
accordance with ASC 360, “Property, Plant, and Equipment”, long-lived assets,
such as property, plant and equipment, and purchased intangible assets subject
to amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset.  If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized in the amount by which the carrying amount of
the asset exceeds the fair value of the asset.  Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated.  The assets and liabilities of a disposal group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.





67





In 2007,
as result of the approved divestiture of our Industrial Segment by our Board of
Directors and in accordance with ASC 360, we recorded $2,727,000 and $1,804,000
in tangible asset impairment loss for PFD and PFTS, respectively, which were
included in “loss from discontinued operations, net of taxes” on our
Consolidated Statements of Operations for the year ended December 31,
2007.





In
September 2008, our Board of Directors approved retaining our Industrial Segment
facilities/operations at PFFL, PFSG, and PFO.  As a result of this
decision, the consolidated financial statements for all periods presented were
restated to reflect the reclassification of these three facilities/operations
back into our continuing operations.  As a result of this decision to
retain PFFL, PFSG, and PFO (except for the property at PFO classified as held
for sale as noted below), we incurred approximately $372,000 in incremental
depreciation expense, which was included in our Consolidated Statements of
Operations for the year ended December 31, 2008.  Asset impairment
losses of $1,329,000 and $507,000 were previously recorded in 2007 for PFSG and
PFO, respectively, and were reclassified and included in “Asset impairment loss”
in our Consolidated Statements of Operations for the year ended December 31,
2007.  During the third quarter of 2008, we classified one of the two
properties at PFO as “net property and equipment held for sale” within our
continued operations in the Consolidated Balance Sheets in accordance to ASC
360.  We evaluated the fair value of PFO’s assets and as a result,
recorded a credit of $507,000 related to the recovery of previous impairment
charges for PFO, which was included in “Asset Impairment Recovery” on the
Consolidated Statements of Operations for the year ended December 31,
2008.  On December 23, 2008, we sold the property at PFO for $900,000
in cash resulting in a gain of $483,000.





Capitalized
Interest


The
Company’s policy is to capitalize interest cost incurred on debt during the
construction of major projects exceeding one year. A reconciliation of our total
interest cost to “Interest Expense” as reported on our consolidated statements
of operations for 2009, 2008 and 2007 is as follows:





(Amounts in Thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007Interest
      cost capitalized
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  144Interest
      cost charged to income
                  
                  
                  1,657
                  
                  
                  
                  1,540
                  
                  
                  
                  1,353Total
      Interest
                  
                  $
                  1,657
                  
                  
                  $
                  1,540
                  
                  
                  $
                  1,497





Goodwill
and Other 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 (“goodwill”) and the recognized permit value of the
business.  Goodwill and intangible assets that have indefinite useful
lives are tested annually for impairment, or more frequently if triggering
events occur or other impairment indicators arise which might impair
recoverability.  An impairment loss is recognized to the extent that
the carrying amount exceeds the asset’s fair value.  For goodwill, the
impairment determination is made at the reporting unit and consists of two
steps.  First, the Company determines the fair value of a reporting
unit level and compares it to its carrying amount.  Second, if the
carrying amount of a reporting unit exceeds its fair value, an impairment loss
is recognized for any excess of the carrying amount of the reporting unit’s
goodwill over the implied fair value of the goodwill.  The implied
value of goodwill is determined by allocating the fair value of the reporting
unit in a manner similar to a purchase price allocation, in accordance with ASC
805, “Business Combinations”.  Our annual
financial valuations performed as of October 1, 2009, 2008, and 2007, indicated
no impairments.  The Company estimates the fair value of our reporting
units using a discounted cash flow valuation approach.  This approach
is dependent on estimates for future sales, operating income, working capital
changes, and capital expenditures, as well as, expected growth rates for cash
flows and long-term interest rates, all of which are impacted by economic
conditions related to our industry as well as conditions in the U.S. capital
markets.  In the fourth quarter of 2009, we reclassified approximately
$806,000 in costs incurred from 2005 to 2007 from our PFF construction in
process account to Permits on our Consolidated Balance Sheet.  These
costs were originally incurred in connection with a major capital project at
PFF, which has been placed on hold indefinitely.  Upon further
evaluation and analysis of the costs related to this project, we determined that
the $806,000 in costs incurred were related directly to the expansion of our
operating permit at PFF, which we  included in our annual intangible
asset valuation review conducted as of October 1, 2009.  We also
reclassified this adjustment to our prior period balance sheets to reflect these
costs as permit in process and permit in the appropriate years since as of
December 31, 2005.  We did not amend our filings as this correction
was not considered material to the Consolidated Balance Sheet and had no impact
on our Consolidated Statement of Operations, income per share, accumulated
deficit or our cash flows.  In addition, this correction would not
have resulted in impairment charges from our annual intangible asset valuation
reviews conducted since October 1, 2005.





68





Intangible
assets that have definite useful lives are amortized using the straight-line
method over the estimated useful lives and are excluded from our annual
intangible asset valuation review conducted as of October 1.  On
November 26, 2008, the U.S. EPA Region 4 issued an authorization to DSSI to
commercially store and dispose of radioactive PCBs.  DSSI began the
permitting process to add Toxic Substances Control Act (“TSCA”) regulated
wastes, namely PCBs, containing radioactive constituents to its authorization in
2004 in order to meet the demand for the treatment of government and
commercially generated radioactive PCB wastes.  Waste operation under
this authorization commenced in the first quarter of 2009.  Costs
incurred in connection with this authorization in the amount of approximately
$545,000 were capitalized in Permits in the first quarter of 2009 and are being
amortized over a ten year period in accordance with its estimated useful life
(see “Note 6 – Goodwill and Other Intangible Assets” for further discussion on
goodwill and other intangible assets).





Accrued
Closure Costs


Accrued
closure costs represent our estimated environmental liability to clean up our
facilities as required by our permits, in the event of closure.





ASC 410,
“Asset Retirement and Environmental Obligations”, requires that the fair value
of a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made, and
that the associated asset retirement costs be capitalized as part of the
carrying amount of the long-lived asset.  In conjunction with the
state mandated permit and licensing requirements, we are obligated to determine
our best estimate of the cost to close, at some undetermined future date, our
permitted and/or licensed facilities.  We subsequently increase this
liability as a result of changes to the facility, changes in estimated cost for
closure, and/or for inflation.  The associated asset retirement cost
is recorded as property and equipment (buildings).  We depreciate the
asset retirement cost on a straight-line basis over its estimated useful life in
accordance with our depreciation policy.





Income
Taxes


Income
taxes are accounted for in accordance with ASC 740, “Income Taxes”. Under ASC
740, the provision for income taxes is comprised of taxes that are currently
payable and deferred taxes that relate to the temporary differences between
financial reporting carrying values and tax bases of assets and liabilities.
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 or reverse the related valuation
allowance we have recorded on these deferred tax assets, 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.





69





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.





Concentration
Risk


Approximately
113 or 18.0% of the Company’s employees are unionized and are covered by a
collective bargaining agreement.  All of these employees were hired as
result of the subcontract awarded to us by CHPRC in the second quarter of
2008.  The current bargaining agreement became effective April 1, 2007
and expires on March 31, 2012.





Gross
Receipts Taxes and Other Charges


We
adopted ASC 605-45, “Revenue Recognition – Principal Agent Consideration” for
the year ended December 31, 2006.  ASC 605-45 provides guidance
regarding the accounting and financial statement presentation for certain taxes
assessed by a governmental authority. These taxes and surcharges include, among
others, universal service fund charges, sales, use, waste, and some excise
taxes. In determining whether to include such taxes in our revenue and expenses,
we assess, among other things, whether we are the primary obligor or principal
taxpayer for the taxes assessed in each jurisdiction where we do
business.  As we are merely a collection agent for the government
authority in certain of our facilities, we record the taxes on a net method and
do not include them in our revenue and cost of services.  The adoption
of ASC 605-45 did not change our accounting for these taxes.





Revenue
Recognition


Nuclear revenues. The
processing of mixed waste is complex and may take several months or more to
complete, as such we recognize revenues on a percentage of completion basis with
our measure of progress towards completion determined based on output measures
consisting of milestones achieved and completed.  We have waste
tracking capabilities, which we continue to enhance, to allow us to better match
the revenues earned to the processing phases achieved.  The revenues
are recognized as each of the following three processing phases are completed:
receipt, treatment/processing and shipment/final disposal. However, based on the
processing of certain waste streams, the treatment/processing and shipment/final
disposal phases may be combined as they are completed
concurrently.  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 preapproval prior to our shipping waste for
disposal and our contract terms with the customer that we dispose of the waste
prior to invoicing.  As the waste moves through these processing
phases and revenues are recognized, the correlating costs are expensed as
incurred.  Although we use our best estimates and all available
information to accurately determine these disposal expenses, the risk does exist
that these estimates could prove to be inadequate in the event the waste
requires retreatment.  Furthermore, should the waste be returned to
the generator, the related receivables could be uncollectible; however,
historical experience has not indicated this to be a material
uncertainty.  Under our subcontract awarded by CH Plateau Remediation
Company (“CHPRC”) in 2008, we are reimbursed for costs incurred plus a certain
percentage markup for indirect costs, in accordance with contract
provision.  Costs incurred in 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.  We include in revenues the amount of the reimbursement for
costs incurred plus the markup for indirect costs as well as the fee that we
have earned.  Cost of revenue under this subcontract consists of
direct and indirect costs.  Our revenue under this subcontract is
recorded gross versus net in accordance with ASC 605-45, “Revenue Recognition –
Principal Agent Consideration”.





70





Consulting revenues.
Consulting revenues are recognized as services are rendered. The services
provided are based on billable hours and revenues are recognized in relation to
incurred labor and consulting costs.  Out of pocket costs reimbursed
by customers are also included in revenues.





Industrial waste revenues.
Since industrial waste streams are much less complicated than mixed waste
streams and they require a short processing period, we recognize revenues for
industrial services at the time the services are substantially rendered, which
generally happens upon receipt of the waste, or shortly
thereafter.  These large volumes of bulk waste are received and
immediately commingled with various customers' wastes, which transfers the legal
and regulatory responsibility and liability to us upon receipt.





Self-Insurance


We are
self-insured for a significant portion of our group health.  The
Company estimates expected losses based on statistical analyses of historical
industry data, as well as our own estimates based on the Company’s actual
historical data to determine required self-insurance reserves. The assumptions
are closely reviewed, monitored, and adjusted when warranted by changing
circumstances.  The estimated accruals for these liabilities could be
affected if actual experience related to the number of claims and cost per claim
differs from these assumptions and historical trends. Based on the information
known on December 31, 2009, we believe we have provided adequate reserves for
our self-insurance exposure. As of December 31, 2009 and 2008, self-insurance
reserves were $485,000 and $535,000, respectively, and were included in accrued
expenses in the accompanying consolidated balance sheets. The total amounts
expensed for self-insurance during 2009, 2008, and 2007 were $2,735,000,
$2,794,000, and $3,100,000, respectively, for our continuing operations, and $0,
$144,000, and $1,050,000, for our discontinued operations,
respectively.





Stock-Based
Compensation


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





We
recognize stock-based compensation expense using a straight-line amortization
method over the requisite period, which is the vesting period of the stock
option grant.  As ASC 718 requires that stock-based compensation
expense be based on options that are ultimately expected to vest, our
stock-based compensation expense is reduced at an estimated forfeiture
rate.  Our estimated forfeiture rate is generally based on historical
trends of actual forfeitures.  Forfeiture rates are evaluated, and
revised as necessary.





Net
Income (Loss) Per Share


Basic
earnings 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 years ended December 31, 2009, 2008, and
2007:





71





(Amounts
      in Thousands, Except for Per Share Amounts)
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    2007Income
      (loss) per share from continuing operationsIncome
      (loss) from continuing operations
                                    
                                    $
                                    9,572
                                    
                                    
                                    $
                                    985
                                    
                                    
                                    $
                                    (2,360
                                    )Basic
      income (loss) per share
                                    
                                    $
                                    .18
                                    
                                    
                                    $
                                    .02
                                    
                                    
                                    $
                                    (.05
                                    )Diluted
      income (loss) per share
                                    
                                    $
                                    .18
                                    
                                    
                                    $
                                    .02
                                    
                                    
                                    $
                                    (.05
                                    )Income
      (loss) per share from discontinued
operationsIncome
      (loss) – basic and diluted
                                    
                                    $
                                    50
                                    
                                    
                                    $
                                    (1,397
                                    )
                                    
                                    $
                                    (6,850
                                    )Basic
      loss per share
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    (.02
                                    )
                                    
                                    $
                                    (.13
                                    )Diluted
      loss per share
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    (.02
                                    )
                                    
                                    $
                                    (.13
                                    )Income
      per share from disposal of discontinued
      operationsGain
      on disposal of discontinued operations
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    2,323
                                    
                                    
                                    $
                                    —Basic
      income per share
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    .04
                                    
                                    
                                    $
                                    —Diluted
      income per share
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    .04
                                    
                                    
                                    $
                                    —Weighted
      average common shares outstanding – basic
                                    
                                    
                                    54,238
                                    
                                    
                                    
                                    53,803
                                    
                                    
                                    
                                    52,549Potential
      shares exercisable under stock option plans
                                    
                                    
                                    245
                                    
                                    
                                    
                                    200
                                    
                                    
                                    
                                    —Potential
      shares upon exercise of Warrants
                                    
                                    
                                    43
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Weighted
      average shares outstanding – diluted
                                    
                                    
                                    54,526
                                    
                                    
                                    
                                    54,003
                                    
                                    
                                    
                                    52,549Potential
      shares excluded from above weighted average share calculations due to
      their anti-dilutive effect include:Upon
      exercise of options
                                    
                                    
                                    1,595
                                    
                                    
                                    
                                    1,908
                                    
                                    
                                    
                                    132Upon
      exercise of Warrants
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —





Fair
Value of Financial Instruments


The
carrying values of cash, trade accounts receivable, trade accounts payable,
accrued expenses and unearned revenues approximate their fair values principally
because of the short-term maturities of these financial
instruments.  The fair value of our long-term debt is estimated based
on the current rates offered to us for debt of similar terms and
maturities.  Under this method, the fair value of long-term debt was
not significantly different from the stated carrying value at December 31, 2009
and 2008.  The carrying value of our subsidiary's preferred stock is
not significantly different than its fair value.





Recently
Adopted Accounting Standards


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.  The adoption of ASC 105 did not have an
impact on the Company’s financial condition or results of
operations.





72





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, financial position, or disclosures.





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.  ASU 2009-12 did
not materially impact our financial condition, results of operations, and
disclosures.





In
December 2009, the FASB issued ASU No. 2009-16 “Transfers and Servicing (Topic
860) – Accounting for Transfers of Financial Asset”.  ASU No. 2009-16
formally codifies Statement of Financial Accounting Standards No. 166,
“Accounting for Transfers of Financial Assets, an Amendment of FASB Statement
No. 140”, into the FASB ASC.  ASU No. 2009-16 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.  ASU No. 2009-16 did not have a material effect on its
results of operations, financial position or liquidity.




In
December 2009, the FASB issued ASU No. 2009-17, “Consolidation (Topic 810) –
Improvement to Financial Reporting Enterprises Involved with Variable Interest
Entities”.  ASU No. 2009-17 formally codifies Statement of Financial
Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)”,
into FASB ASC.  ASU No. 2009-17 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.  ASU No.
2009-17 did not materially impact its operations, financial position, and
disclosure requirement.





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





73





Recently
Issued 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 itsconsolidated
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.





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




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




NOTE 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 stock-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values.





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





74





On July
29, 2009, we granted 84,000 Non-Qualified Stock Options (“NQSOs”) 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.





In 2009,
our Board of Directors granted a total of 170,000 Incentive Stock Options
(“ISOs”) which allows for the purchase of 170,000 shares of Common Stock
from the Company’s 2004 Stock Option Plans as follows:  On February
26, 2009, 75,000 ISOs were granted to our newly named Chief Financial Officer
(“CFO”) and 70,000 ISOs were granted to certain employees of the
Company.   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.  On
October 29, 2009, 25,000 options were granted to a certain
employee.  The options granted were also 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 $2.43 per share
which was based on our closing stock price on the date of grant.





As of
December 31, 2009, we had 2,415,525 employee stock options outstanding, of which
1,710,192 are vested.  The weighted average exercise price of the
1,710,192 outstanding and fully vested employee stock option is $1.93 with a
remaining weighted contractual life of 2.56 years.  The fair value of
the employee options which vested in 2009, 2008, and 2007 totaled $607,000,
$270,000, and $283,000, respectively.  Additionally, we had 694,000
director stock options outstanding, of which 610,000 are vested.  The
weighted average exercise price of the 610,000 outstanding and fully vested
director stock option is $2.24 with a weighted remaining contractual life of
5.50 years.  The fair value of the director options which vested in
2009, 2008, and 2007 totaled $150,000, $234,000, and $157,000,
respectively.





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 and the related assumptions used in the Black-Scholes option pricing
model used to value the options granted for fiscal year 2009, 2008, and 2007
were as follows:





Employee Stock Option
    GrantedFor Year Ended2009
                            
                            
                            2008
                            
                            
                            2007(4)Weighted-average
      fair value per share
                            
                            $
                            0.82
                            
                            
                            $
                            1.03
                            
                            
                            $
                            —Risk
      -free interest rate (1)
                            
                            
                            1.98%-2.40
                            %
                            
                            
                            1.35%-3.28
                            
                            
                            
                            —Expected
      volatility of stock (2)
                            
                            
                            59.16%-61.20
                            %
                            
                            
                            55.54%-58.85
                            %
                            
                            
                            —Dividend
      yield
                            
                            None
                            
                            
                            None
                            
                            
                            
                            —Expected
      option life (in years) (3)
                            
                            
                            3.9-5.8
                            
                            
                            
                            5.0-5.1
                            
                            
                            
                            —Outside Director Stock Option
      GrantedFor Year Ended2009
                            
                            
                            2008
                            
                            
                            2007Weighted-average
      fair value per share
                            
                            $
                            1.97
                            
                            
                            $
                            1.79
                            
                            
                            $
                            2.30Risk
      -free interest rate (1)
                            
                            
                            3.69
                            %
                            
                            
                            4.04
                            %
                            
                            
                            4.77
                            %Expected
      volatility of stock (2)
                            
                            
                            63.37
                            %
                            
                            
                            66.53
                            %
                            
                            
                            67.60
                            %Dividend
      yield
                            
                            None
                            
                            
                            None
                            
                            
                            NoneExpected
      option life (in years) (3)
                            
                            
                            10.0
                            
                            
                            
                            10.0
                            
                            
                            
                            10.0




75





(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.





(4)No
employee option grants were made in 2007.





The
following table summarizes stock-based compensation recognized for the fiscal
year 2009, 2008, and 2007.


Year Ended2009
                  
                  
                  2008
                  
                  
                  2007Employee
      Stock Options
                  
                  $
                  544,000
                  
                  
                  $
                  368,000
                  
                  
                  $
                  242,000Director
      Stock Options
                  
                  
                  169,000
                  
                  
                  
                  163,000
                  
                  
                  
                  215,000Total
                  
                  $
                  713,000
                  
                  
                  $
                  531,000
                  
                  
                  $
                  457,000





The
stock-based compensation expense for 2009 included approximately $144,000
incurred in the fourth quarter of 2009 in connection with the extension of
270,000 NQSOs to Mr. Larry McNamara.  Mr. 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 and extended his fully vested outstanding 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 which resulted in stock-based
compensation expense of $144,000.





We
recognized stock-based compensation expense using a straight-line amortization
method over the requisite period, which is the vesting period of the stock
option grant.  ASC 718 requires that stock-based compensation expense
be based on options that are ultimately expected to vest.  ASC 718
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.  We have generally estimated forfeiture rate based on
historical trends of actual forfeiture. When actual forfeitures vary from our
estimates, we recognize the difference in compensation expense in the period the
actual forfeitures occur or when options vest.  Our 2009 stock-based
compensation included approximately $18,000 recorded in the third quarter of
2009 resulting from 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 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 December
31, 2009, we have approximately $580,000 of total unrecognized compensation cost
related to unvested options, of which $356,000 is expected to be recognized in
2010, $212,000 in 2011, and $12,000 in 2012.





76








NOTE
4


CAPITAL
STOCK, STOCK PLANS, WARRANTS, AND INCENTIVE COMPENSATION





Stock
Option Plans


Effective
September 13, 1993, we adopted a Non-qualified Stock Option Plan pursuant to
which officers and key employees can receive long-term performance-based equity
interests in the Company.  The maximum number of shares of Common
Stock as to which stock options may be granted in any year shall not exceed
twelve percent (12%) of the number of common shares outstanding on December 31
of the preceding year, less the number of shares covered by the outstanding
stock options issued under our 1991 Performance Equity Plan as of December 31 of
such preceding year.  The option grants under the plan are exercisable
for a period of up to ten years from the date of grant at an exercise price,
which is not less than the market price of the Common Stock at date of
grant.  On September 13, 2003, the plan expired.  No new
options will be issued under this plan, but the options issued under the Plan
prior to the expiration date will remain in effect until their respective
maturity dates.





Effective
December 12, 1993, we adopted the 1992 Outside Directors Stock Option Plan,
pursuant to which options to purchase an aggregate of 100,000 shares of Common
Stock had been authorized.  This plan provides for the grant of
options to purchase up to 5,000 shares of Common Stock for each of our outside
directors upon initial election and each re-election.  The plan also
provides for the grant of additional options to purchase up to 10,000 shares of
Common Stock on the foregoing terms to each outside director upon initial
election to the Board.  The options have an exercise price equal to
the closing trading price, or, if not available, the fair market value of the
Common Stock on the date of grant.  As amended and approved at the
December 1996 Annual Meeting, the plan provided that each eligible director
shall receive, at such eligible director’s option, either 65% or 100% of the fee
payable to such director for services rendered to us as a member of the Board in
Common Stock.  The number of shares of our Common Stock issuable to
the eligible director shall be determined by valuing our Common Stock at 75% of
its fair market value as defined by the Outside Directors Plan.  As
amended and approved at the May 1998 Annual Meeting, the Plan authorized 500,000
shares to be issued under the Plan.  On December 12, 2003, the plan
expired.  No new options will be issued under this plan, but the
options issued under the Plan prior to the expiration date will remain in effect
until their respective maturity dates.





Effective
July 29, 2003, we adopted the 2003 Outside Directors Stock Plan, which was
approved by our stockholders at the Annual Meeting of Stockholders on such
date.  A maximum of 1,000,000 shares of our Common Stock are
authorized for issuance under this plan.  The plan provides for the
grant of an option to purchase up to 30,000 shares of Common Stock for each
outside director upon initial election to the Board of Directors, and the grant
of an option to purchase up to 12,000 shares of Common Stock upon each
reelection.  The options granted generally have vesting period of six
months from the date of grant, with exercise price equal to the closing trade
price on the date prior to grant date.  The plan also provides for the
issuance to each outside director a number of shares of Common Stock in lieu of
65% or 100% of the fee payable to the eligible director for services rendered as
a member of the Board of Directors.  The number of shares issued is
determined at 75% of the market value as defined in the plan.  During
the annual meeting held on August 5, 2008, the stockholders approved the First
Amendment to our 2003 Outside Director Stock Plan which increased from 1,000,000
to 2,000,000 the number of shares reserved for issuance under the
plan.









77




We follow
FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) to account for
employee and director stock options.  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 stock-based payments
to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values.  See “Note 3 –
Stock-Based Compensation” for further discussion on ASC 718.





During
2009, we issued an aggregate of 357,822 shares of our Common Stock upon exercise
of 347,822 employee stock options, at exercise prices ranging from $1.25 to
$1.86 and 10,000 outside director options, at an exercise price of
$1.25.  Total proceeds received during 2009 for option exercises
totaled approximately $631,000.  During 2008, we issued 111,179 shares
of our Common Stock upon exercise of 106,179 employee stock options, at exercise
prices ranging from $1.25 to $1.86 and 5,000 outside director stock options, at
an exercise price of $1.75.  Total proceeds received during 2008 for
option exercises totaled approximately $184,000.  During 2007, we
issued 234,927 shares of our Common Stock upon exercise of 237,225 employee
stock options, at exercise prices from $1.25 to $2.19 per share.  An
optionee surrendered 2,298 shares of personally held Common Stock of the Company
as payment for the exercise of the 4,000 options.  Total proceeds
received during 2007 for option exercises totaled approximately
$418,000.





We issued
a total of 136,522, 118,865, and 143,005 shares of our Common Stock in 2009,
2008, and 2007, respectively, under our 2003 Outside Directors Stock Plan to our
outside directors as compensation for serving on our Board of
Directors.  During 2009, we paid 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.





78





Summary
of the status of options under the plans as of December 31, 2009, 2008, and 2007
and changes during the years ending on those dates is presented
below:





2009
            
            
            2008
            
            
            2007Shares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Intrinsic
              Value (a)
            
            
            Shares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Intrinsic
              Value (a)
            
            
            Shares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Intrinsic
              Value (a)Performance
      Equity Plan:Balance
      at beginning of year
            
            
            —
            
            
            $
            —
            
            
            
            
            
            
            9,000
            
            
            $
            1.25
            
            
            
            
            
            
            12,000
            
            
            $
            1.25Exercised
            
            
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            (4,000
            )
            
            
            1.25
            
            
            $
            5,300
            
            
            
            (3,000
            )
            
            
            1.25
            
            
            $
            5,470Forfeited
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            (5,000
            )
            
            
            1.25
            
            
            
            
            
            
            
            —
            
            
            
            —Balance
      at end of year
            
            
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            —
            
            
            
            9,000
            
            
            
            1.25
            
            
            $
            10,980Options
      exercisable at year end
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            9,000
            
            
            
            1.25Non-qualified
      Stock Option Plan:Balance
      at beginning of year
            
            
            1,084,848
            
            
            $
            1.86
            
            
            
            
            
            
            
            1,174,859
            
            
            $
            1.85
            
            
            
            
            
            
            
            1,297,750
            
            
            $
            1.85Granted
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            —Exercised
            
            
            (89,489
            )
            
            
            1.54
            
            
            $
            68,526
            
            
            
            (60,511
            )
            
            
            1.54
            
            
            $
            60,352
            
            
            
            (119,391
            )
            
            
            1.91
            
            
            $
            112,546Forfeited
            
            
            (4,000
            )
            
            
            1.97
            
            
            
            
            
            
            
            (29,500
            )
            
            
            1.91
            
            
            
            
            
            
            
            (3,500
            )
            
            
            1.72Balance
      at end of year
            
            
            991,359
            
            
            
            1.89
            
            
            $
            374,939
            
            
            
            1,084,848
            
            
            
            1.86
            
            
            $
            —
            
            
            
            1,174,859
            
            
            
            1.85
            
            
            $
            731,441Options
      exercisable at year end
            
            
            991,359
            
            
            
            1.89
            
            
            
            
            
            
            
            1,084,848
            
            
            
            1.86
            
            
            
            
            
            
            
            1,174,859
            
            
            
            1.851992
      Outside Directors Stock Plan:Balance
      at beginning of year
            
            
            135,000
            
            
            $
            2.08
            
            
            
            
            
            
            
            150,000
            
            
            $
            2.04
            
            
            
            
            
            
            
            165,000
            
            
            $
            2.05Granted
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            —Exercised
            
            
            (10,000
            )
            
            
            1.25
            
            
            $
            10,300
            
            
            
            (5,000
            )
            
            
            1.75
            
            
            $
            3,450
            
            
            
            —
            
            
            
            —
            
            
            $
            —Forfeited
            
            
            (25,000
            )
            
            
            1.25
            
            
            
            
            
            
            
            (10,000
            )
            
            
            1.75
            
            
            
            
            
            
            
            (15,000
            )
            
            
            2.13Balance
      at end of year
            
            
            100,000
            
            
            
            2.38
            
            
            $
            12,488
            
            
            
            135,000
            
            
            
            2.08
            
            
            $
            468
            
            
            
            150,000
            
            
            
            2.04
            
            
            $
            78,680Options
      exercisable at year end
            
            
            100,000
            
            
            
            2.38
            
            
            
            
            
            
            
            135,000
            
            
            
            2.08
            
            
            
            
            
            
            
            150,000
            
            
            
            2.042003
      Outside Directors Stock Plan:Balance
      at beginning of year
            
            
            510,000
            
            
            $
            2.21
            
            
            
            
            
            
            
            426,000
            
            
            $
            2.18
            
            
            
            
            
            
            
            324,000
            
            
            $
            1.94Granted
            
            
            84,000
            
            
            
            2.67
            
            
            
            
            
            
            
            84,000
            
            
            
            2.34
            
            
            
            
            
            
            
            102,000
            
            
            
            2.95Balance
      at end of year
            
            
            594,000
            
            
            
            2.27
            
            
            $
            108,000
            
            
            
            510,000
            
            
            
            2.21
            
            
            $
            —
            
            
            
            426,000
            
            
            
            2.18
            
            
            $
            172,800Options
      exercisable at year end
            
            
            510,000
            
            
            
            2.21
            
            
            
            
            
            
            
            426,000
            
            
            
            2.18
            
            
            
            
            
            
            
            324,000
            
            
            
            1.942004
      Stock Option Plan:Balance
      at beginning of year
            
            
            1,687,499
            
            
            $
            2.08
            
            
            
            
            
            
            
            830,167
            
            
            $
            1.84
            
            
            
            
            
            
            
            1,018,000
            
            
            $
            1.82Granted
            
            
            170,000
            
            
            
            1.57
            
            
            
            
            
            
            
            1,083,000
            
            
            
            1.93
            
            
            
            
            
            
            
            —
            
            
            
            —Exercised
            
            
            (258,333
            )
            
            
            1.86
            
            
            $
            152,750
            
            
            
            (41,668
            )
            
            
            1.85
            
            
            $
            26,000
            
            
            
            (114,834
            )
            
            
            1.68
            
            
            $
            134,901Forfeited
            
            
            (175,000
            )
            
            
            2.16
            
            
            
            
            
            
            
            (184,000
            )
            
            
            2.05
            
            
            
            
            
            
            
            (72,999
            )
            
            
            1.86Balance
      at end of year
            
            
            1,424,166
            
            
            
            2.05
            
            
            $
            324,153
            
            
            
            1,687,499
            
            
            
            2.08
            
            
            $
            —
            
            
            
            830,167
            
            
            
            1.84
            
            
            $
            522,819Options
      exercisable at year end
            
            
            718,833
            
            
            
            1.99
            
            
            
            
            
            
            
            467,999
            
            
            
            1.83
            
            
            
            
            
            
            
            272,833
            
            
            
            1.80





(a)
Represents the difference between the market price at the date of exercise or
the end of the year, as applicable, and the exercise price.





79





The
summary of the Company’s total Plans as of December 31, 2009, and changes during
the period then ended are presented as follows:





Shares
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Term
                
                
                Aggregate
                  Intrinsic
                  ValueOptions
      outstanding January 1, 2009
                
                
                3,417,347
                
                
                $
                2.03Granted
                
                
                254,000
                
                
                
                1.93Exercised
                
                
                (357,822
                )
                
                
                1.76
                
                
                
                
                
                $
                231,576Forfeited
                
                
                (204,000
                )
                
                
                2.04Options
      outstanding end of Period (1)
                
                
                3,109,525
                
                
                
                2.05
                
                
                
                3.8
                
                
                $
                819,580Options
      exercisable at December 31, 2009 (1)
                
                
                2,320,192
                
                
                $
                2.01
                
                
                
                3.3
                
                
                $
                697,779Options
      vested and expected to be vested at December 31, 2009
                
                
                3,071,742
                
                
                $
                2.05
                
                
                
                3.8
                
                
                $
                819,580





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





Warrants
and Capital Stock Issuance for Debt


We have
issued various Warrants pursuant to acquisitions, private placements, debt and
debt conversion to facilitate certain financing arrangements.  The
Warrants principally are for a term of two to five years and entitle the holder
to purchase one share of Common Stock for each warrant at the stated exercise
price.





As of
December 31, 2009, we have two Warrants outstanding to purchase up to an
aggregate 150,000 shares of the Company’s Common Stock. The two Warrants were
issued on May 8, 2009 as consideration of a $3,000,000 loan received by the
Company from Mr. William N. Lampson and Mr. Diehl Rettig (collectively, “the
Lender”) .  The Warrants are exercisable six months from May 8, 2009
and expire two years from May 8, 2009.  We issued no warrants in 2008
and 2007.  During 2007, we issued 563,633 shares of Common Stock upon
exercise of 1,281,731 warrants on a cashless basis, resulting in the
surrendering of the remaining 718,098 warrants.  In addition,
1,775,638 warrants expired in 2007.





As
consideration of receiving this $3,000,000 from the Lender, we also issued,
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended (the “Act”), and/or Rule 506 of Regulation D promulgated
under the Act, an aggregate of 200,000 shares of the Company’s Common Stock to
the Lenders  (See Note 10 – “Long Term Debt – Promissory Note and
Installment Agreement” for further information regarding the Common Stock and
Warrant issuance and the accounting treatment of the Common Stock and
Warrants).





Shares
Reserved


At
December 31, 2009, we have reserved approximately 3,259,525 shares of Common
Stock for future issuance under all of the above option and warrant
arrangements.





Put
Options


In
2001, we entered into an Option Agreement with Associated
Mezzanine Investors (“AMI”) and Bridge East Capital, L.P. (“BEC”),
dated July 31, 2001 (the "Option Agreement").  Pursuant to
the Option Agreement, we granted each purchaser an irrevocable option
requiring us to purchase any of the Warrants or the shares of Common
Stock issuable under the Warrants (the "Warrant Shares") then held by the
purchaser (the "Put Option").  The Put Option could be exercised
at any time commencing July 31, 2004, and ending July 31, 2008.  In
addition, each purchaser granted to us an irrevocable option to
purchase all the Warrants or the Warrant Shares then held by the
purchaser (the "Call Option").  The Call Option could be
exercised at any time commencing July 31, 2005, and ending July 31,
2008. The purchase price under the Put Option and the Call Option was based on
the quotient obtained by dividing (a) the sum of
six times our consolidated EBITDA for the period of
the 12 most recent consecutive months minus Net Debt plus the
Warrant Proceeds by (b) our Diluted Shares (as the terms EBITDA, Net Debt,
Warrant Proceeds, and Diluted Shares are defined in the Option
Agreement).  On November 8, 2007, BEC exercised the 569,658 Warrants
on a cashless basis, resulting in issuance of 273,321 shares of Common Stock and
on December 31, 2007, AMI exercised the 712,073 Warrants on a cashless basis,
resulting in issuance of 290,312 shares of Common Stock, with the remaining
warrants forfeited.  For the life of the Put Option to the warrant
exercise date, this instrument had been measured regularly to have no value and
thus no liability had been recorded.   As result of the exercises
by BEC and AMI, the Company has no further obligations under the “Option
Agreement”.





80








NOTE
5


PREFERRED
STOCK ISSUANCE AND CONVERSION





Series
B Preferred Stock


As
partial consideration of the M&EC Acquisition in 2001, M&EC issued
shares of its Series B Preferred Stock to stockholders of M&EC having a
stated value of approximately $1,285,000. No other shares of M&EC's Series B
Preferred Stock are outstanding.  The Series B Preferred Stock is
non-voting and non-convertible, has a $1.00 liquidation preference per share and
may be redeemed at the option of M&EC at any time after one year from the
date of issuance for the per share price of $1.00.  Following the
first 12 months after the original issuance of the Series B Preferred Stock, the
holders of the Series B Preferred Stock will be entitled to receive, when, as,
and if declared by the Board of Directors of M&EC out of legally available
funds, dividends at the rate of 5% per year per share applied to the amount of
$1.00 per share, which shall be fully cumulative.  We began accruing
dividends for the Series B Preferred Stock in July 2002, and have accrued a
total of approximately $483,000 since July 2002, of which $64,000 was accrued in
each of the years ended December 31, 2003 to 2009.







NOTE
6


GOODWILL
AND OTHER INTANGIBLE ASSETS


The
following table is a summary of changes in the carrying amount of goodwill for
the years ended December 31, 2007, 2008, and 2009.  As a result of the
acquisition of the PFNWR facility within our Nuclear Segment on June 13, 2007,
we recorded $7,716,000 in goodwill within our Nuclear Segment in
2007.  In 2008, we recorded an additional $1,777,000 in goodwill
related to the acquisition of PFNWR as we finalized the allocation of the
purchase price to the net assets acquired in this acquisition in the second
quarter of 2008.  In the fourth quarter of 2008, we determined that we
had not appropriately recorded purchased unbilled
receivables.  Accordingly, we recorded an adjustment in the fourth
quarter of 2008 to correct goodwill and unbilled receivables related to the
PFNWR acquisition.  This correction increased goodwill and decreased
unbilled receivable by $497,000.  We did not amend our prior financial
statements as this correction was not considered material to the Consolidated
Balance Sheet and had no impact on our Consolidated Statement of Operations,
income per share, accumulated deficit or our cash flows.  In 2009, we
recorded $734,000 in goodwill in the second quarter of 2009 in connection with
an earn-out amount that we were required to pay in connection with the
acquisition of our PFNWR facility in 2007 (See Note 15 – “Commitments and
Contingencies – Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNW”) and
Perma-Fix Northwest Richland, Inc. (“PFNWR”)” for information regarding this
earn-out amount).  In the fourth quarter of 2009, we also determined
that we had not appropriately recorded deferred tax liability on indefinite
lived intangible asset in connection with our acquisition of PFNWR in June
2007.  Accordingly, we recorded an adjustment in the fourth quarter of
2009 to correct goodwill and deferred tax liability related to the PFNWR
acquisition.  This correction increased goodwill and increased
deferred tax liability by $298,000.  We did not amend our prior
financial statements as this correction was not considered material to the
Consolidated Balance Sheet and had no impact on our Consolidated Statement of
Operations, income per share, accumulated deficit or our cash
flows.





81





Goodwill (amounts in thousands)
                
                Nuclear
                  Segment
                
                
                Engineering
                  Segment
                
                
                TotalBalance
      as of December 31, 2006
                
                $
                —
                
                
                $
                1,330
                
                
                $
                1,330Goodwill
      Recorded as Result of PFNWR Acquisition
                
                
                7,716
                
                
                
                3⁄4
                
                
                
                7,716Balance
      as of December 31, 2007
                
                $
                7,716
                
                
                $
                1,330
                
                
                $
                9,046Additional
      Goodwill Recorded as Result of PFNWR Acquisition
                
                
                2,274
                
                
                
                3⁄4
                
                
                
                2,274Balance
      as of December 31, 2008
                
                $
                9,990
                
                
                $
                1,330
                
                
                $
                11,320Additional
      Goodwill Recorded as Result of PFNWR Acquisition
                
                $
                298
                
                
                
                3⁄4
                
                
                
                298Goodwill
      Recorded in connection with PFNWR Earn-Out
                
                
                734
                
                
                
                3⁄4
                
                
                
                734Balance
      as of December 31, 2009
                
                $
                11,022
                
                
                $
                1,330
                
                
                $
                12,352





The
following table is a summary of changes in the carrying amount of permits for
the years ended December 31, 2007, 2008, and 2009.   In the
fourth quarter of 2009, we reclassified approximately $806,000 in costs incurred
from 2005 to 2007 from our Perma-Fix of Florida’s (“PFF”) construction in
process account to Permits on our Consolidated Balance Sheet.  These
costs were originally incurred in connection with a major capital project at
PFF, which has been placed on hold indefinitely.  Upon further
evaluation and analysis of the costs related to this project, we determined that
the $806,000 in costs incurred were related directly to the expansion of our
operating permit at PFF, which we  included in our annual intangible
asset valuation review conducted as of October 1, 2009.  We also
reclassified this adjustment to our prior period balance sheets to reflect these
costs as permit in process and permit in the appropriate years since as of
December 31, 2005.  We did not amend our filings as this correction
was not considered material to the Consolidated Balance Sheet and had no impact
on our Consolidated Statement of Operations, income per share, accumulated
deficit or our cash flows.  In addition, this correction would not
have resulted in impairment charges from our annual intangible asset valuation
reviews conducted since October 1, 2005.  During the first quarter of
2009, we also capitalized costs incurred of approximately $545,000 in connection
with an authorization received from the U.S. EPA Region 4 by our DSSI facility
to commercially store and dispose of radioactive PCBs in
Permits.  DSSI began the permitting process to add Toxic Substances
Control Act regulated wastes, namely PCBs, containing radioactive constituents
to its authorization in 2004 in order to meet the demand for the treatment of
government and commercially generated radioactive PCB wastes.  Waste
operation under this authorization officially commenced in the first quarter of
2009.  This permit, which is our only definite-lived permit, is being
amortized over a ten year period, the estimated life of the
permit.  In 2007, we recorded $4,500,000 in permit costs within our
Nuclear Segment as result of the acquisition of our PFNWR facility on June 13,
2007 (See “Note 7” below for permit recorded as result of the acquisition of
PFNWR facility).  Our Engineering Segment has been excluded as it has
no permits recorded.





82





Permit (amount in thousands)
                
                Nuclear
                  Segment
                
                
                Industrial
                  Segment
                
                
                TotalBalance
      as of December 31, 2006
                
                
                11,824
                
                
                
                1,190
                
                
                
                13,014Permits
      in progress
                
                
                (688
                )
                
                
                —
                
                
                
                (688
                )Permit
      expansion at PFF
                
                
                806
                
                
                
                —
                
                
                
                806Acquired
      Permit as Result of Acquisition
                
                
                4,500
                
                
                
                —
                
                
                
                4,500Balance
      as of December 31, 2007
                
                
                16,442
                
                
                
                1,190
                
                
                
                17,632Permits
      in progress
                
                
                299
                
                
                
                —
                
                
                
                299Balance
      as of December 31, 2008
                
                $
                16,741
                
                
                $
                1,190
                
                
                $
                17,931Permits
      Capitalized in connection with PCB at DSSI
                
                
                500
                (1)
                
                
                —
                
                
                
                500Permits
      in progress
                
                
                (352
                )
                
                
                —
                
                
                
                (352
                )Balance
      as of December 31, 2009
                
                $
                16,889
                
                
                $
                1,190
                
                
                $
                18,079





(1) Net of $45,000 of permit
amortized.







NOTE
7


BUSINESS
ACQUISITION


Acquisition
of Nuvotec


On June
13, 2007, the Company completed its acquisition of Nuvotec and its wholly owned
subsidiary, Pacific EcoSolutions, Inc (“PEcoS”), pursuant to the terms of the
Merger Agreement, between Perma-Fix, Perma-Fix’s wholly owned subsidiary,
Transitory, Nuvotec, and PEcoS, dated April 27, 2007, which was subsequently
amended on June 13, 2007.  The Company acquired 100% of the
outstanding shares of Nuvotec.  The acquisition was structured as a
reverse subsidiary merger, with Transitory being merged into Nuvotec, and
Nuvotec being the surviving corporation.  As a result of the merger,
Nuvotec became a wholly owned subsidiary of ours.  Nuvotec’s name was
changed to Perma-Fix Northwest, Inc. (“PFNW”).  PEcoS, whose name was
changed to Perma-Fix Northwest Richland, Inc. (“PFNWR”) on August 2, 2007, is a
wholly-owned subsidiary of PFNW.  PEcoS is a permitted hazardous, low
level radioactive and mixed waste treatment, storage and disposal facility
located in the Hanford U.S. Department of Energy site in the eastern part of the
state of Washington.




Under the
terms of the Merger Agreement, the purchase price paid by the Company in
connection with the acquisition was approximately $18,033,000, consisting of as
follows:




(a)
            $2,300,000
      in cash at closing of the merger, with $1,500,000 payable to unaccredited
      shareholders and $800,000 payable to shareholders of Nuvotec that
      qualified as accredited investors pursuant to Rule 501 of Regulation D
      promulgated under the Securities Act of 1933, as amended (the
      “Act”).




(b)
            Also
      payable only to the shareholders of Nuvotec that qualified as accredited
      investors:




·
            $2,500,000,
      payable over a four year period, unsecured and nonnegotiable and bearing
      an annual rate of interest of 8.25%, with (i) accrued interest only
      payable on June 30, 2008, (ii) $833,333.33, plus accrued and unpaid
      interest, payable on June 30, 2009, (iii) $833,333.33, plus accrued and
      unpaid interest, payable on June 30, 2010, and (iv) the remaining unpaid
      principal balance, plus accrued and unpaid interest, payable on June 30,
      2011 (collectively, the “Installment Payments”).  The
      Installment Payments may be prepaid at any time by Perma-Fix without
      penalty; and




·
            709,207
      shares of Perma-Fix common stock, which were issued on July 23, 2007, with
      such number of shares determined by dividing $2,000,000 by 95% of average
      of the closing price of the common stock as quoted on the NASDAQ during
      the 20 trading days period ending five business days prior to the closing
      of the merger. The value of these shares on June 13, 2007 was
      approximately $2,165,000, which was determined by the average closing
      price of the common stock as quoted on the NASDAQ four days prior to and
      following the completion date of the acquisition, which was June 13,
      2007.





83




(c)
            The
      assumption of $9,412,000 of debt, $8,900,000 of which was payable to
      KeyBank National Association which represents debt owed by PFNW under a
      credit facility. As part of the closing, the Company paid down $5,412,000
      of this debt resulting in debt remaining of $4,000,000, which was paid off
      by the Company as of December 31,
2008.




(d)
            Transaction
      costs totaling approximately
$922,000.





In
addition to the above, the agreement contains a contingency of an earn-out
amount not to exceed $4,552,000 over a four year period (“Earn-Out Amount”), as
amended.  The earn-out amounts will be earned if certain annual
revenue targets are met by the Company’s consolidated Nuclear
Segment.  (See “Note 15 – Commitments and Contingencies – Earn-Out
Amount – Perma-Fix Northwest, Inc. (“PFNW”) and Perma-Fix Northwest Richland,
Inc. (“PFNWR”)” for information regarding our first required Earn-Out payment of
$734,000 and the accounting treatment of such Earn-Out Amount made in 2009, in
addition to an amendment made to the merger agreement in 2009 in connection with
this Earn-Out Amount).





The
acquisition was accounted for using the purchase method of accounting, pursuant
to ASC 805, “Business Combinations”. The consideration for the acquisition was
attributed to net assets on the basis of the fair value of assets acquired and
liabilities assumed as of June 13, 2007.  The results of operations
after June 13, 2007 have been included in the consolidated financial statements.
In the second quarter of 2008, the Company finalized the allocation of the
purchase price to the net asset acquired in this acquisition.  The
excess of the cost of the acquisition over the estimated fair value of the net
tangible assets and intangible assets on the acquisition date, which amounted to
approximately $9,493,000, was allocated to goodwill.  In the fourth
quarter of 2008, we determined that we had not appropriately recorded purchased
unbilled receivables.  Accordingly, we recorded an adjustment in the
fourth quarter of 2008 to correct goodwill and unbilled receivables related to
the PFNWR acquisition.  This correction increased goodwill and
decreased unbilled receivable by $497,000.  We did not amend our prior
financial statements as this correction was not considered material to the
Consolidated Balance Sheet and had no impact on our Consolidated Statement of
Operations, loss per share, accumulated deficit or our cash flows.  In
2009, we were required to pay approximately $734,000 of earn-out in connection
with the acquisition of PFNWR in June 2007 (See Note 15 – “Commitments and
Contingencies – Earn-Out Amount – Perma-Fix Northwest, Inc. (“PFNW”) and
Perma-Fix Northwest Richland, Inc. (“PFNWR”)” for information regarding this
earn-out amount).  The $734,000 was recorded as an increase to
goodwill for the acquisition.  In the fourth quarter of 2009, we also
determined that we had not appropriately recorded deferred tax liability on
indefinite lived intangible asset in connection with our acquisition of PFNWR in
June 2007.  Accordingly, we recorded an adjustment in the fourth
quarter of 2009 to correct goodwill and deferred tax liability related to the
PFNWR acquisition.  This correction increased goodwill and increased
deferred tax liability by $298,000.  We did not amend our prior
financial statements as this correction was not considered material to the
Consolidated Balance Sheet and had no impact on our Consolidated Statement of
Operations, income per share, accumulated deficit or our cash
flows.





The total
goodwill recorded for this acquisition totaled $11,022,000, which is not
amortized but subject to an annual impairment test.  The following
table summarized the final purchase price to the net assets acquired in this
acquisition.





84





(Amounts in thousands)Cash
                    
                    $
                    2,300Assumed
      debt
                    
                    
                    9,412Installment
      payments
                    
                    
                    2,500Common
      Stock of the Company
                    
                    
                    2,165Earn-Out
                    
                    
                    734Transaction
      costs
                    
                    
                    922Total
      consideration
                    
                    $
                    18,033




The
following table presents the allocation of the final acquisition cost, including
professional fees and other related acquisition costs, to the assets acquired
and liabilities assumed based on their estimated fair values:




(Amounts in thousands)Current
      assets (including cash acquired of $249)
                    
                    $
                    2,400Property,
      plant and equipment
                    
                    
                    14,978Permits
                    
                    
                    4,500Goodwill
                    
                    
                    11,022Total
      assets acquired
                    
                    
                    32,900Current
      liabilities
                    
                    
                    (10,801
                    )Non-current
      liabilties
                    
                    
                    (4,066
                    )Total
      liabilities assumed
                    
                    
                    (14,867
                    )Net
      assets acquired
                    
                    $
                    18,033








NOTE
8


CHANGES
IN ESTIMATE – LEGACY WASTE ACCRUAL – PERMA-FIX NORTHWEST, INC. (“PFNW’) AND
PERMA-FIX NORTHWEST RICHLAND, INC (“PFNWR”)


As
discussed previously, 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.  In 2008, the Company finalized the cost of the
acquisition to the assets acquired and liabilities assumed. Adjustments to
assets acquired or liabilities assumed during the purchase allocation period,
which is generally one year, were 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 had resulted in our identifying more
efficient and cost effective ways to dispose of this legacy waste.





85








NOTE
9


DISCONTINUED
OPERATIONS AND DIVESTITURES


Our
discontinued operations encompass our PFMD, PFD, and PFTS facilities within our
Industrial Segment as well as three previously shut down locations, PFP, PFMI,
and PFM, three facilities which were approved as discontinued operations by our
Board of Directors effective November 8, 2005, October 4, 2004, and March 12,
1998, respectively.  In May 2007, PFMD, PFD, and PFTS met the held for
sale criteria under ASC 360, “Property, Plant, and Equipment”, and therefore,
certain assets and liabilities of these facilities were classified as
discontinued operations in the Consolidated Balance Sheet, and we ceased
depreciation of these facilities’ long-lived assets classified as held for sale
in May 2007.  In accordance with ASC 360, the long-lived assets for
these facilities were written down to fair value less anticipated selling
costs.  We recorded $4,531,000 in impairment charges for PFD and PFTS,
all of which were included in “loss from discontinued operations, net of taxes”
on our Consolidated Statement of Operations for the year ended December 31,
2007.





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.





The
following table summarizes the results of discontinued operations for the years
ended December 31, 2009, 2008, and 2007.  The gains on disposals of
discontinued operations, net of taxes, as mentioned above, are 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 “Loss from discontinued operations, net of
taxes”.





86





For
      The Year Ended December 31,(Amounts in Thousands)
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007Net
      revenues
                  
                  $
                  —
                  
                  
                  $
                  3,195
                  
                  
                  $
                  19,965Interest
      expense
                  
                  
                  (85
                  )
                  
                  
                  (125
                  )
                  
                  
                  (197
                  )Operating
      loss from discontinued operations
                  
                  
                  (26
                  )
                  
                  
                  (1,397
                  )
                  
                  
                  (6,850
                  )Income
      tax benefit
                  
                  
                  76
                  
                  
                  
                  —
                  
                  
                  
                  —Gain
      on disposal of discontinued operations (1)
                  
                  
                  —
                  
                  
                  
                  2,323
                  
                  
                  
                  —Income
      (loss) from discontinued operations
                  
                  
                  50
                  
                  
                  
                  926
                  
                  
                  
                  (6,850
                  )





(1)Net
of taxes of $71,000 for year ended December 31, 2008.





Our
“Income from discontinued operations, net of taxes” on the Consolidated
Statement of Operations for the twelve months ended December 31, 2009, 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 the recovery these
closure costs.   Our income from discontinued operations for the
twelve months ended December 31, 2009, also 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.  The income tax benefit noted above was primarily due to
release of a portion of valuation allowance related to our deferred tax asset at
PFMI.





Assets
related to discontinued operations total $825,000 and $761,000 as of December
31, 2009, and 2008, respectively, and liabilities related to discontinued
operations total $2,426,000 and $3,531,000 as of December 31, 2009 and 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 December 31, 2009 and 2008.  The held for sale asset and
liabilities balances as of December 31, 2009 may differ from the respective
balances at closing:





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





(1)net
of accumulated depreciation of $13,000 for each period noted.





87





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 December
31, 2009 and 2008:





December31,
                  
                  
                  December31,(Amounts in Thousands)
                  
                  2009
                  
                  
                  2008Other
      assets
                  
                  $
                  174
                  
                  
                  $
                  110Total
      assets of discontinued operations
                  
                  $
                  174
                  
                  
                  $
                  110Account
      payable
                  
                  $
                  1
                  
                  
                  $
                  15Accrued
      expenses and other liabilities
                  
                  
                  1,508
                  
                  
                  
                  2,214Deferred
      revenue
                  
                  
                  —
                  
                  
                  
                  —Environmental
      liabilities
                  
                  
                  917
                  
                  
                  
                  1,302Total
      liabilities of discontinued operations
                  
                  $
                  2,426
                  
                  
                  $
                  3,531





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.  We completed the remediation of the leased property and
the equipment at PFP in February 2006 and released the property back to the
owner.  Our decision to discontinue operations at PFMI was principally
a result of two fires that significantly disrupted operations at the facility in
2003, and the facility’s continued drain on the financial resources of our
Industrial Segment.  As a result of the discontinued operations at the
PFMI facility, we were required to complete certain closure and remediation
activities pursuant to our RCRA permit, which were completed in January
2006.  In September 2006, PFMI signed a Corrective Action Consent
Order with the State of Michigan, requiring performance of studies and
development and execution of plans related to the potential clean-up of soils in
portions of the property.  The level and cost of the clean-up and
remediation are determined by state mandated requirements.  During
2006, based on state-mandated criteria, we began implementing the modified
methodology to remediate the facility.  In 2009, we incurred
remediation expenditure of $109,000.We have $128,000 accrued for
the closure, as of December 31, 2009, and we anticipate spending $102,000 in
2010 with the remainder over the next fouryears.We reduced our accrualby$300,000 in the fourth
quarter of 2009,as a result ofa field investigation and
draft Remedial Action Plan which identified substantial reductions in the
anticipated cost of the completion of the remedial site.





Our PFMI has a pension
payable of $947,000 as of December 31, 2009.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 $199,000 that we expect to pay
over the next year.





Our
discontinued operations also include another previously shut-down facility,
Perma-Fix of Memphis, Inc. (“PFM”).  PFM was approved as a
discontinued operation by our Board on March 12, 1998.  This decision
was the result of an explosion at the facility in 1997 which significantly
disrupted operations at the facility and the high costs required to rebuild the
facility.  PFM had been reported as a discontinued operation until
2001.  In 2001, the facility was reclassified back into continuing
operations as we had no other facilities classified as discontinued operations
and its impact on our financial statements was de
minimis.   During the fourth quarter of 2009, we reclassified PFM
back into discontinued operations for all periods presented in accordance with
ASC 360, “Property, Plant, and Equipment”.  Net liabilities of PFM at
the end of 2009 and 2008 reclassified to discontinued operations from continuing
operations consisted of the amounts in the following table.  PFM had
no assets at the end of the periods noted: (See “Note 12 – Accrued Closure
Costs” for additional information on Memphis closure accrual.





88





December31,
                  
                  
                  December31,(Amounts in Thousands)
                  
                  2009
                  
                  
                  2008Current
      liabilties:Current
      environmental accrual
                  
                  $
                  252
                  
                  
                  $
                  74Total
      current liabilities
                  
                  
                  252
                  
                  
                  
                  74Long-term
      liabilities:Long-term
      environmental accrual
                  
                  
                  187
                  
                  
                  
                  201Accrued
      closure cost
                  
                  
                  268
                  
                  
                  
                  262Total
      long-term liabilities
                  
                  
                  455
                  
                  
                  
                  463Total
      liabilities:
                  
                  $
                  707
                  
                  
                  $
                  537





As part
of our acquisition of PFM in 1993, we assumed certain liabilities relative to
the removal of contaminated soil and to undergo groundwater remediation at the
facility. Prior to our ownership of PFM, the owners installed monitoring and
treatment equipment to restore the groundwater to acceptable standards in
accordance with federal, state and local authorities.  The groundwater
remediation at this facility has been ongoing since approximately
1990.  With approval of a remediation approach in 2006, PFM began
final remediation of this facility in 2007.  In 2008, we completed all
soil remediation with the exception of that associated with the groundwater
remediation.  In 2009, we incurred remediation expenditure of
$137,000.  In 2009, we also increased our reserve by approximately
$300,000 in the fourth quarter of 2009, a result of an increase in costs
associated with delays in receipt of the Corrective Action Permit.  As
of December 31, 2009, we have $439,000 accrued for the closure, which we
anticipate spending over the next six years.





89








NOTE
10


LONG-TERM
DEBT





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




(Amounts in Thousands)
                  
                  December 31,
                    2009
                  
                  
                  December 31,
                    2008Revolving Credit
      facility dated December 22, 2000, borrowings basedupon eligible
      accounts receivable, subject to monthly borrowing base calculation,
      variable interest paid monthly at option of prime rate (3.25% at December
      31, 2009) plus 2.0% or minimum floor base London InterBank Offer Rate
      ("LIBOR") of 2.5% plus 3.0%, balance due in July 2012. (1)
      (3)Weighted average interest rate on year end balances
      are 5.5% and 5.8%, respectively.
                  
                  $
                  2,659
                  
                  
                  $
                  6,516Term Loan dated December
      22, 2000, payable in equal monthlyinstallments of
      principal of $83, balance due in July 2012, variable interest paid monthly
      at option of prime rate plus 2.5% or minimum floor base LIBOR of 2.5% plus
      3.5%. (1)
      (3)
                  
                  
                  5,667
                  
                  
                  
                  6,667Installment Agreementin
      the Agreement and Plan of Merger withNuvotec and PEcoS,
      dated April 27, 2007, payable in three equal yearly installment of
      principal of $833 beginning June 2009.  Interest accrues at
      annual rate of 8.25% on outstanding principal balance starting June 2007
      and payable yearly starting June 2008
                  
                  
                  1,667
                  
                  
                  
                  2,500Promissory Notedated
      May 8, 2009, payable in monthly installments of principal of $87 starting
      June 8, 2009, balance due May 8, 2011, variable interest paid monthly at
      LIBOR plus 4.5%, with LIBOR at least 1.5%.(2)
                  
                  
                  1,938
                  
                  
                  —Various capital lease and
      promissory note obligations, payable 2010 to2013, interest at
      rates ranging from 5.0% to 12.6%.
                  
                  
                  450
                  
                  
                  
                  52012,381
                  
                  
                  
                  16,203Less current portion of long-term debt
                  
                  
                  3,050
                  
                  
                  
                  2,022$
                  9,331
                  
                  
                  $
                  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 of ($450,000)
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.  The Agreement initially provided for a term loan (“Term Loan”)
in the amount of $7,000,000, which requires principal repayments based upon a
seven-year amortization, payable over five years, with monthly installments of
$83,000 and the remaining unpaid principal balance due on December 22,
2005.  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.  Our
revolving credit and term loan are collateralized by substantially all of the
assets of the Company, excluding the assets of PFNWR.  As of December
31, 2009, the excess availability under our revolving credit was $11,535,000
based on our eligible receivables.





90





The
Agreement has been amended on numerous occasions since it was originally
executed.  During 2007 and 2008, we have entered into seven amendments
to the Agreement, including, without limitation, consenting to our acquisition
of PFNW and PFNWR; revising our borrowing availability under the Agreement;
extending the term of our credit facilities under the Agreement to July 31,
2012; allowing us to use a certain amount of the proceeds received from the sale
of certain collateralized property within our Industrial segment for purposes
other than reducing the outstanding loans under the Agreement; waived fixed
charge coverage ratio, non-compliance and revised method of calculating such
ratio during 2008, increasing our term loan up to $7 million from outstanding
principal balance of zero; and revising the monthly interest rate.





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 another amendment to the Agreement with
PNC.  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, 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 an authorization issued by the
EPA on November 26, 2008 to treat and dispose of PCBs.





Promissory
Notes and Installment Agreements


On May 8,
2009, the Company entered into a promissory note with William N. Lampson and
Diehl Rettig (collectively, the “Lenders”) for $3,000,000.  Mr.
Lampson was formerly a major shareholder of PFNW and PFNWR prior to our
acquisition of PFNW and PFNWR, and Mr. Rettig was formerly a shareholder of, and
counsel for these companies at the time of our acquisition and following the
acquisition 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.  The proceeds of the loan were used primarily to pay
off the promissory note, dated June 25, 2001, as amended on December 28, 2008,
entered into by our M&EC subsidiary with PDC as mentioned below, with the
remaining funds used for working capital purposes.  The promissory
note provides for monthly principal repayment of approximately $87,000 plus
accrued interest, starting June 8, 2009, and on the 8th day of each month
thereafter, with interest payable at LIBOR plus 4.5%, with LIBOR at least
1.5%.  Any unpaid principal balance along with accrued interest is due
May 8, 2011.  We paid approximately $22,000 in closing costs for the
promissory note which is being amortized over the 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 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 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 December 31, 2009 totaled approximately $216,000.





91





The
promissory note also includes an embedded Put Option (“Put”) that can be
exercised upon default, whereby the lender has the option to receive a cash
payment equal to the amount of the unpaid principal balance plus all accrued and
unpaid interest, or the number of whole shares of our Common Stock equal to the
outstanding principal balance.  The maximum number of payoff shares is
restricted to less than 20% of the outstanding equity.  We concluded
that the Put should have been bifurcated at inception; however, the Put Option
had and continues to have nominal value as of December 31, 2009.  We
will continue to monitor the fair value of the Put on a regular
basis.





In
connection with our acquisition of M&EC, M&EC issued a promissory note
in the principal amount of $3,700,000, together with interest at an annual rate
equal to the applicable law rate pursuant to Section 6621 of the Internal
Revenue Code, to Performance Development Corporation (“PDC”), dated June 25,
2001, for monies advanced to M&EC by PDC and certain services performed by
PDC on behalf of M&EC prior to our acquisition of M&EC.  The
principal amount of the promissory note was payable over eight years on a
semiannual basis on June 30 and December 31, with a final principal payment to
be made by December 31, 2008.  All accrued and unpaid interest on the
promissory note was payable in one lump sum on December 31, 2008.  PDC
directed M&EC to make all payments under the promissory note directly to the
IRS to be applied to PDC’s obligations to the IRS.  On December 29,
2008, M&EC and PDC entered into an amendment to the promissory note, whereby
the outstanding principal and accrued interest due under the promissory note
totaling approximately $3,066,000 is to be paid in the following
installments:  $500,000 payment to be made by December 31, 2008 and
five monthly payment of $100,000 to be made starting January 27, 2009, with the
balance consisting of accrued and unpaid interest due on June 30,
2009.  We made the $500,000 payment on December 31, 2008, with the
remaining balance consisting of interest only.  On May 13, 2009, we
paid the outstanding balance of approximately $2,225,000, which consisted of
interest only, on the PDC promissory note directly to the IRS which satisfied
M&EC’s obligations to PDC in full.





In
conjunction with our acquisition of PFNWR, we agreed to pay shareholders of
Nuvotec that qualified as accredited investors, pursuant to Rule 501 of
Regulation D promulgated under the Securities Act of 1933, including Robert
Ferguson, who resigned as a member of our Board of Director effective February
27, 2010, $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 the outstanding principal balance at 8.25% starting in June 2007 and is
payable on June 30, 2008, June 30, 2009, June 30, 2010, and June 30,
2011.  In June 2009, we paid the first principal installment of
$833,333, along with accrued interest.  Interest paid as of December
31, 2009 totaled $422,000, of which $206,000 was paid in June
2009.  Interest accrued as of December 31, 2009 totaled approximately
$69,000. See Note 15 – “Commitments and Contingencies - Earn-Out Amount - PFNW
and PFNWR” and Note 17 – “Related Party Transaction” in this section for
information regarding Mr. Robert Ferguson.





Additionally,
in conjunction with our acquisition of Nuvotec and PEcoS , (collectively n/k/a
“PFNWR”) which was completed on June 13, 2007, we entered into a promissory note
for a principal amount of $4,000,000 to KeyBank National Association, dated June
13, 2007, which represented debt assumed by us as result of the
acquisition.  The promissory note was payable over a two year period
with monthly principal repayment of $160,000 starting July 2007 and $173,000
starting July 2008, along with accrued interest.  Interest was accrued
at prime rate plus 1.125%.  This note was paid off as of December 31,
2008.


92





The
aggregate approximate amount of the maturities of long-term debt maturing in
future years as of December 31, 2009, is $3,050,000 in 2010; $3,329,000 in 2011;
6,397,000 in 2012; $36,000 in 2013, and $19,000 in 2014.  Total
aggregate amount above excludes debt discount recorded and amortized of
approximately $128,000 for the two Warrants and $322,000 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 as discussed
above.





Capital
Leases


The
following table lists components of the capital leases as of December 31, 2009
(in thousands):





Captial
                      LeasesYear
      ending December 31:2010
                    
                    $
                    1682011
                    
                    
                    1552012
                    
                    
                    722013
                    
                    
                    362014
                    
                    
                    19Later
      years beyond
                    
                    
                    ―Total
      Minimum Lease Payments
                    
                    
                    450Less
      amount representing interest (effective interest rate of
      7.75%)
                    
                    
                    (58
                    )Less
      estimated executory costs
                    
                    
                    ―Net
      minimum lease payments
                    
                    
                    392Less
      current installments of obligations under capital leases
                    
                    
                    168Obligations
      under capital leases excludingcurrent
      installments
                    
                    $
                    224





NOTE
11


ACCRUED
EXPENSES





Accrued
expenses at December 31 include the following (in thousands):





2009
                
                
                2008Salaries
      and employee benefits
                
                $
                3,766
                
                
                $
                3,173Accrued
      sales, property and other tax
                
                
                481
                
                
                
                519Interest
      payable
                
                
                132
                
                
                
                2,722Insurance
      payable
                
                
                1,351
                
                
                
                1,553Other
                
                
                748
                
                
                
                929Total
      accrued expenses
                
                $
                6,478
                
                
                $
                8,896





NOTE
12


ACCRUED
CLOSURE COSTS





We accrue
for the estimated closure costs as determined pursuant to Resource Conservation
and Recovery Act (“RCRA”) guidelines for all fixed-based regulated operating and
discontinued facilities, even though we do not intend to or have present plans
to close any of our existing facilities.  The permits and/or licenses
define the waste, which may be received at the facility in question, and the
treatment or process used to handle and/or store the waste.  In
addition, the permits and/or licenses specify, in detail, the process and steps
that a hazardous waste or mixed waste facility must follow should the facility
be closed or cease operating as a hazardous waste or mixed waste
facility.  Closure procedures and cost calculations in connection with
closure of a facility are based on guidelines developed by the federal and/or
state regulatory authorities under RCRA and the other appropriate statutes or
regulations promulgated pursuant to the statutes.  The closure
procedures are very specific to the waste accepted and processes used at each
facility.  We recognize the closure cost as a liability on the balance
sheet.  Since all our facilities are acquired facilities, the closure
cost for each facility was recognized pursuant to a business combination and
recorded as part of the purchase price allocation of fair value to identifiable
assets acquired and liabilities assumed.


93





The
closure calculation is increased annually for inflation based on RCRA
guidelines, and for any approved changes or expansions to the facility, which
may result in either an increase or decrease in the approved closure
amount.  If there is a change to the closure estimate, we record this
change in the liability and asset, with the asset depreciated in accordance with
our depreciation policy.  Annual inflation factor increases are
expensed during the current year.  In 2008, due to change in estimate
of the costs to close our DSSI and PFNWR facilities based on federal/state
regulatory guidelines, we increased our closure accrual by $726,000 and $373,000
for our DSSI and PFNWR facility, respectively.  In the first quarter
of 2009, we increased our asset retirement obligation for our DSSI facility by
$1,980,000 due to the change in estimate of the costs to close our DSSI facility
based on federal/state regulatory guidelines primarily as the result of an
authorization that we received from the U.S. EPA Region 4 in November 2008 to
treat PCB wastes.  In the fourth quarter of 2009, we also increased
our asset retirement obligation for our PFSG facility by $158,000 based on
change in estimates of the costs to close this facility based federal/state
regulatory guidelines.





During
2009, the accrued long-term closure cost increased by $2,152,000 to a total of
$12,031,000 as compared to the 2008 total of $9,879,000 for our continuing
operations.  This increase is principally a result of normal inflation
factor increases as well as changes in estimates to close our DSSI and PFSG
facilities as discussed above.  Accrued closure cost for our
discontinued operations consists of only our Perma-Fix of Memphis, Inc facility
which had a balance of approximately $268,000 as of December 31,
2009.  The closure accrual for PFM has been increased annually for
inflation based on RCRA guidelines.  We expensed this increase in
closure cost in each of the years 2007 to 2009.





NOTE
13


ENVIRONMENTAL
LIABILITIES





We have
four remediation projects, which are currently in progress at certain of our
permitted Industrial Segment facilities (three within our discontinued
operations, PFD, PFM, and PFMI) owned and operated by our
subsidiaries.  These remediation projects principally entail the
removal/remediation of contaminated soil and, in some cases, the remediation of
surrounding ground water.  All of the remedial clean-up projects in
question were an issue for that facility for years prior to our acquisition of
the facility and were recognized pursuant to a business combination and recorded
as part of the purchase price allocation to assets acquired and liabilities
assumed.  Three of the facilities, (PFD, PFM, and PFSG) are RCRA
permitted facilities, and as a result, the remediation activities are closely
reviewed and monitored by the applicable state
regulators.  Additionally, we recorded environmental liabilities upon
acquisition of PFMD and PFP in March 2004, which were not RCRA permitted
facilities.  We recognized our best estimate of such environmental
liabilities upon the acquisition of our facilities, as part of the acquisition
cost.  In January 2008, we sold substantially all of the assets of our
PFMD facility at which time the buyer assumed PFMD’s environmental liability of
approximately $391,000.  In the normal course of our business, the
operations will on occasion create a minor environmental remediation issue,
which will be evaluated and a corresponding remedial liability recorded. Minor
environmental remediation liabilities were recognized and recorded for the PFTS
facility during 2004.  In May 2008, we sold substantially all of the
assets of our PFTS facility.  The environmental reserve for PFTS of
approximately $35,000 was recorded as a “gain on disposal of discontinued
operations, net of taxes” on the Consolidated Statement of Operations upon the
sale of PFTS.


94





At
December 31, 2009, we had total accrued environmental remediation liabilities of
$1,727,000 of which $526,000 is recorded as a current liability, which reflects
a decrease of $106,000 from the December 31, 2008, balance of
$1,833,000.  The net decrease represents payment of approximately
$387,000 on remediation projects as well as a decrease in our reserve at PFMI of
approximately $300,000 and increases in reserves of approximately $281,000 at
PFSG and $300,000 at PFM, due to reassessment of our remediation
estimates.  The December 31, 2009, current and long-term accrued
environmental balance is recorded as follows (in thousands):





Current
                      
                      
                      Long-termAccrual
                      
                      
                      Accrual
                      
                      
                      TotalPFD
                      
                      $
                      147
                      
                      
                      $
                      203
                      
                      
                      $
                      350PFM
                      
                      
                      252
                      
                      
                      
                      187
                      
                      
                      
                      439PFSG
                      
                      
                      25
                      
                      
                      
                      785
                      
                      
                      
                      810PFMI
                      
                      
                      102
                      
                      
                      
                      26
                      
                      
                      
                      128Total
      Liability
                      
                      $
                      526
                      
                      
                      $
                      1,201
                      
                      
                      $
                      1,727





PFD


In June
1994, we acquired from Quadrex Corporation and/or a subsidiary of Quadrex
Corporation (collectively, “Quadrex”) three treatment, storage and disposal
companies, including the PFD facility.  The former owners of PFD had
merged Environmental Processing Services (“EPS”) with PFD, which was
subsequently sold to Quadrex.  Through our acquisition of PFD in 1994
from Quadrex, we were indemnified by Quadrex for costs associated with
remediating this facility leased by PFD (“Leased Property”) but never used or
operated by PFD, which entails remediation of soil and/or groundwater
restoration.  The Leased Property used by EPS to operate its facility
is separate and apart from the property on which PFD's facility is located. In
conjunction with the subsequent bankruptcy filing by Quadrex, and our recording
of purchase accounting for the acquisition of PFD, we recognized an
environmental liability of approximately $1,200,000 for the remediation of this
leased facility.  This environmental liability for the EPS site was
retained by the Company upon the sale of PFD in March 2008.  We have
pursued remedial activities for this Leased Property since we acquired PFD and
after evaluating various technologies, are seeking approval from appropriate
governmental authority for the final remedial process.  In 2008, we
performed a field investigation to gather additional information required to
close certain soil contamination issues and to support development of the final
groundwater remediation approach.  During 2009, the investigation
report was submitted to and approved by the Ohio EPA and work on the revised
Corrective Action Plan, including Risk Assessment had begun. During 2009, we
incurred remedial expenditures of $139,000, which reduced the
reserve.  We
have $350,000 accrued for the closure as of December 31, 2009, and we anticipate
spending $147,000 in 2010 with the remainder over the next fiveyears.





PFM


Pursuant
to our acquisition, effective December 31, 1993, of Perma Fix of Memphis, Inc.
(“PFM”) (f/k/a American Resource Recovery, Inc.), we assumed certain liabilities
relative to the removal of contaminated soil and to undergo groundwater
remediation at the facility. Prior to our ownership of PFM, the owners installed
monitoring and treatment equipment to restore the groundwater to acceptable
standards in accordance with federal, state and local
authorities.  The groundwater remediation at this facility has been
ongoing since approximately 1990.  With approval of a remediation
approach in 2006, PFM began final remediation of this facility in
2007.  In 2008, we completed all soil remediation with the exception
of that associated with the groundwater remediation.  In 2009, we
incurred remediation expenditure of $137,000.  In 2009, we also
increased our reserve by approximately $300,000 in the fourth quarter of 2009, a
result of increase in costs associated with delays in receipt of the Corrective
Action Permit.   As of December 31, 2009, we have $439,000
accrued for the closure, which we anticipate spending over the next six
years.





PFSG


During
1999, we recognized an environmental accrual of $2,199,000, in conjunction with
the acquisition of PFSG.  This amount represented our estimate of the
long- term costs to remove contaminated soil and to undergo groundwater
remediation activities at the PFSG acquired facility in Valdosta,
Georgia.  PFSG have over the past five years, completed the initial
valuation, and selected the remedial process to be utilized.  Approval
to proceed with final remediation has not yet been received from the appropriate
agency.  Remedial activities began in 2003.  In 2009, we
incurred remedial expenditures of approximately $2,000.  In addition,
we also increased our reserve by approximately $281,000 in the fourth quarter of
2009 due to reassessment of our remediation estimates.  We have $810,000 accrued for
the closure, as of December 31, 2009, and we anticipate spending $25,000 in2010 with the
remainder over the next six years.


95





PFMI


As a
result of the discontinued operations at the PFMI facility in 2004, we were
required to complete certain closure and remediation activities pursuant to our
RCRA permit, which were completed in January 2006.  In September 2006,
PFMI signed a Corrective Action Consent Order with the State of Michigan,
requiring performance of studies and development and execution of plans related
to the potential clean-up of soils in portions of the property.  The
level and cost of the clean-up and remediation are determined by state mandated
requirements.  During 2006, based on state-mandated criteria, we began
implementing the modified methodology to remediate the facility.  In
2009, we incurred remediation expenditure of $109,000.We have $128,000 accrued for
the closure, as of December 31, 2009, and we anticipate spending $102,000 in
2010 with the remainder over the next fouryears.We reduced our accrualby$300,000 in the fourth
quarter of 2009,as aresultofa field investigation and
draft Remedial Action Plan which identified substantial reductions in the
anticipated cost of the completion of the remedial site.





We
performed, or had performed, due diligence on each of these environmental
projects, and also reviewed/utilized reports obtained from third party
engineering firms who have been either engaged by the prior owners or by us to
assist in our review.  Based upon our expertise and the analysis
performed, we have accrued our best estimate of the cost to complete the
remedial projects.  No insurance or third party recovery was taken
into account in determining our cost estimates or reserve, nor do our cost
estimates or reserves reflect any discount for present value
purposes.  We do not believe that any adverse changes to our estimates
would be material to us.  The circumstances that could affect the
outcome range from new technologies, that are being developed every day that
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.





NOTE
14


INCOME
TAXES





The
components of current and deferred federal and state income tax for continuing
operations for the years ended December 31, consisted of the following (in
thousands):





2009
                  
                  
                  2008
                  
                  
                  2007Federal
      income tax expense - current
                  
                  $
                  161
                  
                  
                  $
                  —
                  
                  
                  $
                  —Federal
      income tax benefit - deferred
                  
                  
                  (2,426
                  )
                  
                  
                  —
                  
                  
                  
                  —State
      income tax expense - current
                  
                  
                  343
                  
                  
                  
                  10
                  
                  
                  
                  —State
      income tax expense - deferred
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      income tax (benefit) expense
                  
                  $
                  (1,922
                  )
                  
                  $
                  10
                  
                  
                  $
                  —





We had
temporary differences and net operating loss carry forwards, which gave rise to
deferred tax assets and liabilities at December 31, as follows (in
thousands):


96





2009
                        
                        
                        2008Deferred
      tax assets:Net
      operating losses
                        
                        $
                        6,617
                        
                        
                        $
                        9,040Environmental
      and closure reserves
                        
                        
                        3,932
                        
                        
                        
                        3,114Impairment
      of assets
                        
                        
                        7,627
                        
                        
                        
                        7,658Other
                        
                        
                        2,284
                        
                        
                        
                        2,151Deferred
      tax liabilities:Depreciation
      and amortization
                        
                        
                        (7,117
                        )
                        
                        
                        (7,833
                        )13,343
                        
                        
                        
                        14,130Valuation
      allowance
                        
                        
                        (11,151
                        )
                        
                        
                        (14,130
                        )Net
      deferred income tax asset
                        
                        $
                        2,192
                        
                        
                        $
                        —





An
overall reconciliation between the expected tax benefit using the federal
statutory rate of 34% and the provision for income taxes from continuing
operations as reported in the accompanying consolidated statement of operations
is provided below.





2009
                
                
                2008
                
                
                2007Tax
      expense (benefit) at statutory rate
                
                $
                2,601
                
                
                $
                261
                
                
                $
                (809
                )State
      taxes, net of federal benefit
                
                
                227
                
                
                
                7
                
                
                
                206Previously
      unrecorded state tax benefit
                
                
                (1,752
                )
                
                
                —
                
                
                
                —Permanent
      items
                
                
                (167
                )
                
                
                37
                
                
                
                (1
                )Other
                
                
                148
                
                
                
                (153
                )
                
                
                (5
                )Increase
      (decrease) in valuation allowance
                
                
                (2,979
                )
                
                
                (142
                )
                
                
                609Provision
      for income taxes
                
                $
                (1,922
                )
                
                $
                10
                
                
                $
                —





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


97





The
Company regularly assesses the likelihood that the deferred tax asset will be
recovered from future taxable income.  The Company considers projected
future taxable income and ongoing tax planning strategies, then records a
valuation allowance to reduce the carrying value of the net deferred income
taxes to an amount that is more likely than not to be realized.  For
the years ended December 31, 2007 and 2008, the Company maintained a full
valuation allowance against net deferred income tax assets because insufficient
evidence existed to support the realization of any future income tax
benefits.  For the year ended December 31, 2009, however, the Company
has reassessed this conclusion.  Based upon the Company’s assessment
of all available evidence, including a return to profitability, expectation of
future profitability, and the Company’s overall prospects of future business,
the Company has determined that it is more likely than not that the Company will
be able to realize a portion of the deferred income tax assets as of December
31, 2009.  As a result, a deferred income tax benefit in the amount of
$2,426,000 has been realized for the year ended December 31, 2009.





Our
valuation allowance (decreased) increased by approximately ($2,979,000),
($107,000), and $3,263,000 for the years ended December 31, 2009, 2008, and
2007, respectively.  Included in deferred income tax assets as of
December 31, 2009 is a future deductible income tax benefit associated with the
impairment of assets for financial reporting purposes in the amount of
$7,627,000.  Of this amount, approximately $7,175,000 was recorded in
conjunction with our acquisition of DSSI in August 2000 and approximately
$452,000 was in conjunction with impairment of assets at PFSG in
2007.  For income tax reporting purposes, the future income tax
benefit of these impairment charges will be recorded when the underlying assets
are actually disposed.





We have
estimated net operating loss carryforwards (NOL's) for federal and state income
tax purposes of approximately $14,532,000 and $26,310,000, respectively, as of
December 31, 2009.  These net operating losses can be carried forward
and applied against future taxable income, if any, and expire in various amounts
through 2028.  However, as a result of various stock offerings and
certain acquisitions, the use of these NOLs will be limited under the provisions
of Section 382 of the Internal Revenue Code of 1986, as amended.  As
of December 31, 2009, we have approximately $7,522,000 of net operating loss
carryforwards available to offset future taxable income after Section 382
limitations are considered.  Additionally, NOLs may be further limited
under the provisions of Treasury Regulation 1.1502-21 regarding Separate Return
Limitation Years.





NOTE
15


COMMITMENTS
AND CONTINGENCIES





Hazardous
Waste


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





Legal
Matters


Notice
of Violation – Perma-Fix of South Georgia, Inc. (“PFSG”)


In
December 2009, PFSG received a notice of violation (“NOV”) from the Georgia
Environmental Protection Division (“EPD”) alleging the facility had previously
stored certain hazardous wastes in a manner which violated its hazardous waste
permit requirements.  PFSG received a proposed Consent Order offering
to settle the matter and imposing a $50,000 civil penalty for the
violations.  We are currently in discussion with the Georgia EPD
regarding the alleged violation and proposed Consent Order.  As a
result, we accrued $50,000 in the fourth quarter of 2009 at PFSG related to this
proposed Consent Order.





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.


98





The
Louisiana Department of Environmental Quality (“LDEQ”) has collected
approximately $8,400,000 to date for the remediation of the site (Perma-Fix
subsidiaries have not been required to contribute any of the $8,400,000) and has
completed removal of above ground waste from the site, with approximately
$5,000,000 remaining in this fund held by the LDEQ.  The EPA’s
unofficial estimate to complete remediation of the site is between $9,000,000
and $12,000,000, including work performed by LDEQ to date; however, based on
preliminary outside consulting work hired by the PRP group, which we are a party
to, the remediation costs could be below EPA’s estimation.  During
2009, a site assessment was conducted and paid for by the PRP group, which was
exclusive of the $8,400,000.  No unexpected issues were identified
during the assessment.  Collections from small contributors have also
begun for remediation of this site.  Remediation activities going
forward will be funded by LDEQ, until those funds are exhausted, at which time,
any additional requirements, if needed, will be funded from the small
contributors.  Once funds from the small contributors are exhausted,
if additional funds are required, they will be provided by the members of the
PRP group.  As part of the PRP Group, we 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 December 31, 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 first quarter of 2010.  As of the date of
this report, we cannot accurately access our ultimate liability.  The
Company records its environmental liabilities when they are probable of payment
and can be estimated within a reasonable range.  Since this
contingency currently does not meet this criteria, a liability has not been
established.





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.





In
addition to the above matters and in the normal course of conducting our
business, we are involved in various other litigations.  We are not a
party to any litigation or governmental proceeding which our management believes
could result in any judgments or fines against us that would have a material
adverse affect on our financial position, liquidity or results of future
operations.





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”), who
resigned as a member of our Board of Director effective February 27, 2010, 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,
as amended (See Note 17 – “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:


99





·
            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.





·
            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.





Pension
Liability


We had a
pension withdrawal liability of $947,000 at December 31, 2009, based upon a
withdrawal letter received from Central States Teamsters Pension Fund (“CST”),
resulting from the termination of the union employees at PFMI and a subsequent
actuarial study performed.  In August 2005, we received a demand
letter from CST, amending the liability to $1,629,000, and provided for the
payment of $22,000 per month, including interest at 8% per annum, over an eight
year period.





Insurance


In June
2003, we entered into a 25-year finite risk insurance policy with Chartis, a
subsidiary of American International Group, Inc. (“AIG”) (see “Part I, Item 1A.
– Risk Factors” for certain potential risk related to AIG), which provides
financial assurance to the applicable states for our permitted facilities in the
event of unforeseen closure.  Prior to obtaining or renewing operating
permits, we are required to provide financial assurance that guarantees to the
states that in the event of closure, our permitted facilities will be closed in
accordance with the regulations.  The policy 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 Chartis which
enabled our Diversified Scientific Services, Inc. (“DSSI”) facility to receive
and process wastes under an authorization 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 Chartis from maximum policy coverage
of $35,000,000 to $39,000,000, of which our total financial coverage amounts to
$35,869,000 as December 31, 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 Chartis.  In
addition, we are required to make three yearly payments of approximately
$1,073,000 payable starting December 31, 2009, of which $888,000 will be
deposited into a sinking fund account, with the remaining to represent fee
payable to Chartis.


100





As of
December 31, 2009, we have recorded $9,639,000 in our sinking fund related to
the policy noted above on the balance sheet, which includes interest earned of
$805,000 on the sinking fund as of December 31, 2009.  Interest income
for the twelve months ended December 31, 2009, was approximately
$75,000.  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.





In August
2007, we entered into a second finite risk insurance policy for our PFNWR
facility, which we acquired in June 2007, with Chartis, a subsidiary of
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 December 31,
2009, we have recorded $5,841,000 in our sinking fund related to this policy on
the balance sheet, which includes interest earned of $141,000 on the sinking
fund as of December 31, 2009.  Interest income for the twelve months
ended December 31, 2009 totaled $69,000.





Operating
Leases


We lease
certain facilities and equipment under operating leases.  Future
minimum rental payments as of December 31, 2009, required under these leases for
our continuing operations are $652,000 in 2010, $469,000 in 2011, $274,000 in
2012, $257,000 in 2013, and $7,000 in 2014.





Net rent
expense was $1,404,000, $1,409,000, and $1,464,000 for 2009, 2008, and 2007,
respectively for our continuing operations.  These amounts include
payments on operating leases of approximately $816,000, $652,000, and $1,075,000
for 2009, 2008, and 2007, respectively.  The remaining rent expense is
for non-contractual monthly and daily rentals of specific use vehicles,
machinery and equipment.





Net rent
expense was $66,000, $177,000, and $1,134,000 for 2009, 2008, and 2007,
respectively for our discontinued operations.  These amounts include
payments on operating leases of approximately $0, $0, and $476,000,
respectively.  The remaining rent expense is for non-contractual
monthly and daily rentals of specific use vehicles, machinery and
equipment.


101







NOTE
16


PROFIT
SHARING PLAN





We
adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan (the “401(k)
Plan”) in 1992, which is intended to comply under 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.  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 up to 25% of our employees'
contributions.  We contributed $85,000, $401,000, and $418,000 in
matching funds during 2009, 2008, and 2007, respectively.  The Company
suspended its matching contribution effective March 1, 2009, in an effort to
reduce costs in light of the downturn in the economic
environment.  Effective January 1, 2010, the Company commenced this
matching contribution.





NOTE
17


RELATED
PARTY TRANSACTIONS





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 10 “Long Term Debt – Promissory Note and Installment
Agreement” and Note 15 “Commitments and Contingencies – Earn-Out Amount – PFNW
and PFNWR” 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.  Effective February 27, 2010, Mr. Ferguson resigned as a member
of our Board of Directors.





Lawrence
Properties LLC


During
February 2006, our Board of Directors approved and we entered into a lease
agreement, whereby we lease property from Lawrence Properties LLC, a company
jointly owned by the president of Schreiber, Yonley and Associates, Robert
Schreiber, Jr. and his spouse.  Mr. Schreiber is a member of our
executive management team.  The lease is for a term of five years from
June 1, 2006.  We pay monthly rent expense of $10,000, which we
believe is lower than costs charged by unrelated third party
landlords.  Additional rent will be assessed for any increases over
the initial lease commencement year for property taxes or assessments and
property and casualty insurance premiums.





Mr.
David Centofanti


Mr. David
Centofanti serves as our Director of Information Services.  For such
services, he received total compensation in 2009 of approximately $166,000. Mr.
David Centofanti is the son of our Chief Executive Officer and Chairman of our
Board, Dr. Louis F. Centofanti.  We believe the compensation received
by Mr. Centofanti for his technical expertise which he provides to the Company
is competitive and comparable to compensation we would have to pay to an
unaffiliated third party with the same technical expertise.





NOTE
18


OPERATING
SEGMENTS





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





·
            from
      which we may earn revenue and incur
expenses;




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




·
            for
      which discrete financial information is
  available.




102





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 9 – “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., which was acquired in June 2007.





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





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




103




The table
below shows certain financial information of our operating segment for 2009,
2008, and 2007 (in thousands).





Segment Reporting as of and for the year ended December 31, 2009Nuclear
                            Services
                          
                          
                          Engineering
                          
                          
                          Industrial
                          
                          
                          Segments
                            Total
                          
                          
                          Corporate
                            And Other(2)
                          
                          
                          Consolidated
                            TotalRevenue
      from external customers
                          
                          $
                          89,011
                          (3)
                          
                          $
                          3,382
                          
                          
                          $
                          8,283
                          
                          
                          $
                          100,676
                          
                          
                          $
                          —
                          
                          
                          $
                          100,676Intercompany
      revenues
                          
                          
                          2,349
                          
                          
                          
                          446
                          
                          
                          
                          678
                          
                          
                          
                          3,473
                          
                          
                          
                          —
                          
                          
                          
                          3,473Gross
      profit
                          
                          
                          24,129
                          
                          
                          
                          1,013
                          
                          
                          
                          1,997
                          
                          
                          
                          27,139
                          
                          
                          
                          —
                          
                          
                          
                          27,139Interest
      income
                          
                          
                          1
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1
                          
                          
                          
                          144
                          
                          
                          
                          145Interest
      expense
                          
                          
                          640
                          
                          
                          
                          4
                          
                          
                          
                          18
                          
                          
                          
                          662
                          
                          
                          
                          995
                          
                          
                          
                          1,657Interest
      expense-financing fees
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          283
                          
                          
                          
                          283Depreciation
      and amortization
                          
                          
                          4,246
                          
                          
                          
                          35
                          
                          
                          
                          425
                          
                          
                          
                          4,706
                          
                          
                          
                          40
                          
                          
                          
                          4,746Segment
      profit (loss)
                          
                          
                          14,064
                          
                          
                          
                          423
                          
                          
                          
                          (51
                          )
                          
                          
                          14,436
                          
                          
                          
                          (4,864
                          )
                          
                          
                          9,572Segment assets(1)
                          
                          
                          95,366
                          
                          
                          
                          2,077
                          
                          
                          
                          5,666
                          
                          
                          
                          103,109
                          
                          
                          
                          22,966
                          (4)
                          
                          
                          126,075Expenditures
      for segment assets
                          
                          
                          1,422
                          
                          
                          
                          3
                          
                          
                          
                          210
                          
                          
                          
                          1,635
                          
                          
                          
                          8
                          
                          
                          
                          1,643Total
      long-term debt
                          
                          
                          1,993
                          
                          
                          
                          23
                          
                          
                          
                          101
                          
                          
                          
                          2,117
                          
                          
                          
                          10,264
                          (5)
                          
                          
                          12,381Segment
      Reporting as of and for the year ended December 31, 2008Nuclear
                            Services
                          
                          
                          Engineering
                          
                          
                          Industrial
                          
                          
                          Segments
                            Total
                          
                          
                          Corporate
                            And Other(2)
                          
                          
                          Consolidated
                            TotalRevenue
      from external customers
                          
                          $
                          61,359
                          (3)
                          
                          $
                          3,194
                          
                          
                          $
                          10,951
                          
                          
                          $
                          75,504
                          
                          
                          $
                          —
                          
                          
                          $
                          75,504Intercompany
      revenues
                          
                          
                          2,915
                          
                          
                          
                          709
                          
                          
                          
                          886
                          
                          
                          
                          4,510
                          
                          
                          
                          —
                          
                          
                          
                          4,510Gross
      profit
                          
                          
                          15,258
                          
                          
                          
                          1,072
                          
                          
                          
                          3,512
                          
                          
                          
                          19,842
                          
                          
                          
                          —
                          
                          
                          
                          19,842Interest
      income
                          
                          
                          2
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2
                          
                          
                          
                          224
                          
                          
                          
                          226Interest
      expense
                          
                          
                          895
                          
                          
                          
                          3
                          
                          
                          
                          18
                          
                          
                          
                          916
                          
                          
                          
                          624
                          
                          
                          
                          1,540Interest
      expense-financing fees
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          137
                          
                          
                          
                          137Depreciation
      and amortization
                          
                          
                          4,328
                          
                          
                          
                          32
                          
                          
                          
                          463
                          
                          
                          
                          4,823
                          
                          
                          
                          43
                          
                          
                          
                          4,866Segment
      profit (loss)
                          
                          
                          4,973
                          
                          
                          
                          418
                          
                          
                          
                          1,803
                          
                          
                          
                          7,194
                          
                          
                          
                          (6,209
                          )
                          
                          
                          985Segment assets(1)
                          
                          
                          98,748
                          
                          
                          
                          2,024
                          
                          
                          
                          6,115
                          
                          
                          
                          106,887
                          
                          
                          
                          16,825
                          (4)
                          
                          
                          123,712Expenditures
      for segment assets
                          
                          
                          976
                          
                          
                          
                          61
                          
                          
                          
                          76
                          
                          
                          
                          1,113
                          
                          
                          
                          16
                          
                          
                          
                          1,129Total
      long-term debt
                          
                          
                          2,836
                          
                          
                          
                          28
                          
                          
                          
                          156
                          
                          
                          
                          3,020
                          
                          
                          
                          13,183
                          
                          
                          
                          16,203Segment
      Reporting as of and for the year ended December 31, 2007Nuclear
                            Services
                          
                          
                          Engineering
                          
                          
                          Industrial
                          
                          
                          Segments
                            Total
                          
                          
                          Corporate
                            And Other(2)
                          
                          
                          Consolidated
                            TotalRevenue
      from external customers
                          
                          $
                          51,704
                          (3)
                          
                          $
                          2,398
                          
                          
                          $
                          10,442
                          
                          
                          $
                          64,544
                          
                          
                          $
                          —
                          
                          
                          $
                          64,544Intercompany
      revenues
                          
                          
                          3,103
                          
                          
                          
                          1,069
                          
                          
                          
                          785
                          
                          
                          
                          4,957
                          
                          
                          
                          —
                          
                          
                          
                          4,957Gross
      profit
                          
                          
                          16,334
                          
                          
                          
                          760
                          
                          
                          
                          1,735
                          
                          
                          
                          18,829
                          
                          
                          
                          —
                          
                          
                          
                          18,829Interest
      income
                          
                          
                          1
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1
                          
                          
                          
                          311
                          
                          
                          
                          312Interest
      expense
                          
                          
                          577
                          
                          
                          
                          1
                          
                          
                          
                          19
                          
                          
                          
                          597
                          
                          
                          
                          756
                          
                          
                          
                          1,353Interest
      expense-financing fees
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          196
                          
                          
                          
                          196Depreciation
      and amortization
                          
                          
                          3,763
                          
                          
                          
                          36
                          
                          
                          
                          225
                          
                          
                          
                          4,024
                          
                          
                          
                          68
                          
                          
                          
                          4,092Segment
      profit (loss)
                          
                          
                          6,599
                          
                          
                          
                          245
                          
                          
                          
                          (3,112
                          )
                          
                          
                          3,732
                          
                          
                          
                          (6,092
                          )
                          
                          
                          (2,360
                          )Segment assets(1)
                          
                          
                          98,037
                          
                          
                          
                          1,986
                          
                          
                          
                          5,732
                          
                          
                          
                          105,755
                          
                          
                          
                          20,293
                          (4)
                          
                          
                          126,048Expenditures
      for segment assets
                          
                          
                          2,937
                          
                          
                          
                          20
                          
                          
                          
                          382
                          
                          
                          
                          3,339
                          
                          
                          
                          19
                          
                          
                          
                          3,358Total
      long-term debt
                          
                          
                          6,659
                          
                          
                          
                          6
                          
                          
                          
                          216
                          
                          
                          
                          6,881
                          
                          
                          
                          11,351
                          
                          
                          
                          18,232





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





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


104





(3)
            The
      consolidated revenues within the Nuclear Segment include the CH Plateau
      Remediation Company (“CHPRC”) revenue of $45,169,000 or 44.9%, $8,120,000
      or 10.6%, and $0, or 0%, for 2009, 2008, and 2007, respectively, of our
      total consolidated revenue from continuing operations.  Our
      M&EC facility was awarded a subcontract by CHPRC, a general contractor
      to the DOE in the second quarter of 2008.  Operations of this
      subcontract officially 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 or 0%, $7,974,000 or 10.6%, and
      $6,985,000 or 10.8%, of total consolidated revenue for continuing
      operations for 2009, 2008, and 2007, 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 Part II, Item 7, “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” for the revenue transition
      discussion.





(4)
            Amount
      includes assets from our discontinued operations of $825,000, $761,000,
      and $8,626,000, as of December 31, 2009, 2008, and 2007,
      respectively.





(5)
            Net
      of debt discount recorded ($666,000) and amortized ($216,000) 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 10 – Long-Term Debt – Promissory
      Note and Installment Agreement” for additional
  information.


105







NOTE
19


QUARTERLY
OPERATING RESULTS (UNAUDITED)





Unaudited
quarterly operating results are summarized as follows (in thousands, except per
share data):





Three Months Ended
    (unaudited)March 31
                  
                  
                  June 30
                  
                  
                  Sept 30
                  
                  
                  Dec. 31
                  
                  
                  Total2009Revenues
                  
                  $
                  22,002
                  
                  
                  $
                  23,698
                  
                  
                  $
                  26,534
                  
                  
                  $
                  28,442
                  
                  
                  $
                  100,676Gross
      profit
                  
                  
                  5,003
                  
                  
                  
                  5,939
                  
                  
                  
                  7,611
                  
                  
                  
                  8,586
                  
                  
                  
                  27,139Income
      from continuing operations
                  
                  
                  249
                  
                  
                  
                  994
                  
                  
                  
                  2,634
                  
                  
                  
                  5,695
                  
                  
                  
                  9,572Income
      (loss) from discontinued operations, net of taxes
                  
                  
                  299
                  
                  
                  
                  (243
                  )
                  
                  
                  (12
                  )
                  
                  
                  6
                  
                  
                  
                  50Net
      income applicable to Common Stockholders
                  
                  
                  548
                  
                  
                  
                  751
                  
                  
                  
                  2,622
                  
                  
                  
                  5,701
                  
                  
                  
                  9,622Basic
      net income (loss) per common share:Continuing
      operations
                  
                  
                  —
                  
                  
                  
                  .02
                  
                  
                  
                  .05
                  
                  
                  
                  .10
                  
                  
                  
                  .18Discontinued
      operations
                  
                  
                  .01
                  
                  
                  
                  (.01
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Net
      income per common share applicable to Common Stockholders
                  
                  
                  .01
                  
                  
                  
                  .01
                  
                  
                  
                  .05
                  
                  
                  
                  .10
                  
                  
                  
                  .18Diluted
      net income (loss) per common share:Continued
      operations
                  
                  
                  —
                  
                  
                  
                  .02
                  
                  
                  
                  .05
                  
                  
                  
                  .10
                  
                  
                  
                  .18Discontinued
      operations
                  
                  
                  .01
                  
                  
                  
                  (.01
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Net
      income per common share applicable to Common Stockholders
                  
                  
                  .01
                  
                  
                  
                  .01
                  
                  
                  
                  .05
                  
                  
                  
                  .10
                  
                  
                  
                  .182008Revenues
                  
                  $
                  17,470
                  
                  
                  $
                  18,502
                  
                  
                  $
                  15,989
                  
                  
                  $
                  23,543
                  
                  
                  $
                  75,504Gross
      profit
                  
                  
                  4,359
                  
                  
                  
                  5,787
                  
                  
                  
                  4,016
                  
                  
                  
                  5,680
                  
                  
                  
                  19,842(Loss)
      income from continuing operations
                  
                  
                  (347
                  )
                  
                  
                  760
                  
                  
                  
                  (258
                  )
                  
                  
                  830
                  
                  
                  
                  985Loss
      from discontinued operations, net of taxes
                  
                  
                  (691
                  )
                  
                  
                  (410
                  )
                  
                  
                  (177
                  )
                  
                  
                  (119
                  )
                  
                  
                  (1,397
                  )Gain
      on disposal of discontinued operations, net of taxes
                  
                  
                  2,107
                  
                  
                  
                  108
                  
                  
                  
                  94
                  
                  
                  
                  14
                  
                  
                  
                  2,323Net
      income (loss) applicable to Common Stockholders
                  
                  
                  1,069
                  
                  
                  
                  458
                  
                  
                  
                  (341
                  )
                  
                  
                  725
                  
                  
                  
                  1,911Basic
      net (loss) income per common share:Continuing
      operations
                  
                  
                  (.01
                  )
                  
                  
                  .02
                  
                  
                  
                  (.01
                  )
                  
                  
                  .01
                  
                  
                  
                  .02Discontinued
      operations
                  
                  
                  (.01
                  )
                  
                  
                  (.01
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (.02
                  )Disposal
      of discontinued operations
                  
                  
                  .04
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  .04Net
      income (loss) per common share applicable to Common
      Stockholders
                  
                  
                  .02
                  
                  
                  
                  .01
                  
                  
                  
                  (.01
                  )
                  
                  
                  .01
                  
                  
                  
                  .04Diluted
      net (loss) income per common share:Continued
      operations
                  
                  
                  (.01
                  )
                  
                  
                  .02
                  
                  
                  
                  (.01
                  )
                  
                  
                  .01
                  
                  
                  
                  .02Discontinued
      operations
                  
                  
                  (.01
                  )
                  
                  
                  (.01
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (.02
                  )Disposal
      of discontinued operations
                  
                  
                  .04
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  .04Net
      income (loss) per common share applicable to Common
      Stockholders
                  
                  
                  .02
                  
                  
                  
                  .01
                  
                  
                  
                  (.01
                  )
                  
                  
                  .01
                  
                  
                  
                  .04





Net
income applicable to Common Stockholders in the third quarter of 2009 included a
reduction of approximately $787,000 to our disposal/transportation expense in
our cost of goods sold resulting from 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 (See Note 8 – “Change in Estimate – Legacy Waste
Accrual – PFNW and PFNWR” for further discussion of this
reduction.  Net income applicable to Common Stockholders in the fourth
quarter of 2009 included a deferred income tax benefit of approximately
$2,426,000 for continuing operations.  Net loss applicable to Common
Stockholders in the third quarter of 2008 included a recovery of impairment loss
of $507,000 for PFO within our continuing operations.  Net income
applicable to Common Stockholders in the fourth quarter of 2008 included a gain
on the sale of property at PFO of $483,000 within our continuing
operations.


106







NOTE
20


SUBSEQUENT
EVENT


Revolving
Credit and Term Loan Agreement


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


107





ITEM 9.
            
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURENone.ITEM 9A.
            
            CONTROLS
      AND PROCEDURESEvaluation
      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 (“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 assessment,
      which was completed as of the end of the period covered by this Annual
      Report on Form 10-K, we have assessed, with the participation of our Chief
      Executive Officer and Chief Financial Officer, the effectiveness of our
      disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15
      of the Securities Exchange Act of 1934, as amended).   In
      designing and assessing our disclosure controls and procedures, our
      management recognizes that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving
      the desired control objectives and are subject to certain limitations,
      including the exercise of judgment by individuals, the difficulty in
      identifying unlikely future events, and the difficulty in eliminating
      misconduct completely.  Based upon this assessment, we have
      concluded, with the participation of our Chief Executive Officer and Chief
      Financial Officer, that our disclosure controls and procedures were
      effective as of December 31, 2009.Management's
      Report on Internal Control over Financial ReportingOur
      management is responsible for establishing and maintaining adequate
      internal control over financial reporting, as such term is defined in
      Rules 13a-15(f) of the Securities Exchange Act of
      1934.  Internal control over financial reporting is designed to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting principles in
      the United States of America. Because of its inherent limitations,
      internal control over financial reporting may not prevent or detect
      misstatements or fraudulent acts. A control system, no matter how well
      designed, can provide only reasonable assurance with respect to
      financial statement preparation and presentation.Internal
      control over financial reporting includes those policies and procedures
      that (i) pertain to the maintenance of records that, in reasonable
      detail, accurately and fairly reflect the transactions and dispositions of
      the assets of the Company; (ii) provide reasonable assurance that
      transactions are recorded as necessary to permit the preparation of the
      consolidated financial statements in accordance with generally accepted
      accounting principles in the United States of America, and that receipts
      and expenditures of the Company are being made only in accordance with
      appropriate authorizations of management and directors of the Company; and
      (iii) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use or disposition of the Company's
      assets that could have a material effect on the consolidated financial
      statements.Because
      of its inherent limitations, internal control over financial reporting may
      not prevent or detect misstatements or fraudulent acts. Also, projections
      of any evaluation of effectiveness to future periods are subject to the
      risk that controls may become inadequate because of changes in conditions,
      or that the degree of compliance with the policies or procedures may
      deteriorate.Management,
      with the participation of our Chief Executive Officer and Chief Financial
      Officer, conducted an assessment of the effectiveness of internal control
      over financial reporting based on the framework in Internal Control–Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO).  Based on this assessment, management
      concluded that the Company’s internal control over financial reporting was
      effective as of December 31, 2009.




108





BDO
      Seidman, LLP, an independent registered public accounting firm, audited
      the effectiveness of the Company’s internal control over financial
      reporting, and based on that audit, issued their report which is included
      herein.Changes
      in Internal Control over Financial ReportingThere
      have been no changes in our internal controls over financial reporting (as
      defined in Rule 13a-15(f) under the Securities Exchange Act of 1934)
      during the fiscal quarter ended December 31, 2009 that have
      materially affected, or are reasonably likely to materially affect, our
      internal controls over financial
reporting.




109





Report
of Independent Registered Public Accounting Firm




Board of
Directors and Stockholders


Perma-Fix
Environmental Services, Inc.


Atlanta,
Georgia




We have
audited Perma-Fix Environmental Services, Inc. and subsidiaries’ (the “Company”)
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying “Item 9A, Management’s Report on Internal
Control Over Financial Reporting”. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our
audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, Perma-Fix Environmental Service, Inc. and subsidiaries maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2009, based on the COSO criteria.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company
as of December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2009 and our report dated March 12, 2010 expressed
an unqualified opinion thereon.




/s/ BDO
Seidman, LLP




Atlanta,
Georgia


March 12,
2010


110





ITEM
      9B.
              OTHER
      INFORMATION


None.





PART
III





ITEM
      10.
            DIRECTORS,  EXECUTIVE
      OFFICERS AND CORPORATE GOVERNANCE





DIRECTORS


The
following table sets forth, as of the date hereof, information concerning our
Directors:





NAME(1)
            
            AGE
            
            POSITIONDr.
      Louis F. Centofanti
            
            66
            
            Chairman
      of the Board, President and Chief Executive OfficerMr.
      Jon Colin
            
            54
            
            DirectorMr.
      Jack Lahav
            
            61
            
            DirectorMr.
      Joe R. Reeder
            
            62
            
            DirectorMr.
      Larry M. Shelton
            
            56
            
            DirectorDr.
      Charles E. Young
            
            78
            
            DirectorMr.
      Mark A. Zwecker
            
            59
            
            Director





Each
director is elected to serve until the next annual meeting of
stockholders.





(1)Mr.
Robert L. Ferguson served as a Director of the Company since August 2007 and
resigned effective February 27, 2010.





Director
Qualifications


The
following paragraphs provide information about each of our
directors.  The information presented includes information each
director has provided regarding positions he has held, his principal
occupation





Dr.
Louis F. Centofanti


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





As the
founder of Perma-Fix, PPM, Inc., and his service as an executive management team
member at USPCI, Dr. Centofanti has extensive business experience in the waste
management industry as well as a drive for innovative technology which is
critical for a waste management company.  In addition, his service in
the government sector provides a solid foundation for the continuing growth of
the Company, particularly within the Company’s Nuclear Segment
business.  Dr. Centofanti’s knowledge of all aspects of the company
and its history, combined with his drive for innovation and excellence, position
him well to serve as our Chairman of the Board and President and Chief Executive
Officer of the Company.




111


Mr.
Jon Colin


Mr. Colin
has served as a Director since December 1996.  Mr. Colin is currently
President and Chief Executive Officer of LifeStar Response Corporation, a
position he has held since April 2002.  Mr. Colin served as Chief
Operating Officer of LifeStar Response Corporation from October 2000 to April
2002, and a consultant for LifeStar Response Corporation from September 1997 to
October 2000.  From 1990 to 1996, Mr. Colin served as President and
Chief Executive Officer for Environmental Services of America, Inc., a publicly
traded environmental services company.  Mr. Colin has served as a
Director since July 2009 for Beacon Energy Corporation, a public traded company
specializing in development of alternative energy solutions.  Mr.
Colin is also a Director at LifeStar Response Corporation, Bamnet Inc, and
Environmental Quality Management, Inc., a full service environmental consulting,
engineering, and remediation company.  Mr. Colin has a B.S. in
Accounting from the University of Maryland.





As the
President and Chief Executive Officer of LifeStar Response Corporation, and
having held the position of Chief Operating Officer of LifeStar Response
Corporation, Mr. Colin offers a wealth of management and financial experiences
and business understanding in leading an innovative organization.  In
addition, Mr. Colin’s service as current Director of Environmental Quality
Management, Inc. and Beacon Energy Corporation, further augments his range of
knowledge, providing insight that he can contribute to the Company.





Mr.
Jack Lahav


Jack
Lahav has served as a Director since September 2001.  Mr. Lahav is a
private investor, specializing in launching and growing
businesses.  Mr. Lahav devotes much of his time to charitable
activities, serving as president, as well as, board member of several
charities.  Previously, Mr. Lahav founded Remarkable Products Inc. and
served as its president from 1980 to 1993.  Mr. Lahav was also
co-founder of Lamar Signal Processing, Inc., a digital signal processing
company; president of Advanced Technologies, Inc., a robotics company and
director of Vocaltech Communications, Inc.  Mr. Lahav served as
Chairman of Quigo Technologies from 2001 to 2004 and currently serves as
Chairman of Phoenix Audio Technologies and Doclix Inc, two privately held
companies.





Having
launched a number of businesses, Mr. Lahav provides the Board with his “know
how” of all aspects of developing and growing a company.  In addition,
his devotion to charitable organizations provides a valuable component of a well
rounded Board.





Honorable
Joe R. Reeder


Mr.
Reeder, a Director since April 2003, is a shareholder and served as the
Shareholder in Charge of the Mid-Atlantic Region from April 1999 to January 2008
for Greenberg Traurig LLP, one of the nation's largest law firms,
with 29 offices and over 1750 attorneys, worldwide, where he
continues his practice.  His clientele includes sovereign nations,
international corporations, and law firms throughout the U.S.  As
the 14th Undersecretary of the U.S. Army (1993-97), Mr.
Reeder also served for three years as Chairman of the Panama Canal
Commission's Board of Directors where he oversaw a multibillion-dollar
infrastructure program.   He sits on the Board of Governor’s
of the National Defense Industry Association (NDIA) (and chairs NDIA’s Ethics
Committee), the Armed Services YMCA, the USO, and many other private
companies and charitable organizations, and is a frequent television
commentator on legal and national security issues.   Mr.
Reeder has been a Director since September 2005 for ELBIT Systems of America,
LLC, a publicly traded company which provides product and system solutions
focusing on defense, homeland security, and commercial aviation. Mr. Reeder also
was a member of the Corporate Advisory Board for ICX Technologies, a publicly
traded company specializing in development and integration of advanced sensor
technologies for homeland security and commercial applications, from April 2007
to July 2008.  A graduate of West Point who served in the 82d Airborne
Division following Ranger School, Mr. Reeder also has a J.D. from
the University of Texas and an L.L.M. from Georgetown University.





Having
held the position of Shareholder in Charge for one the nation’s largest law
firms and current board directorship in numerous prominent government entities
and for both publicly and privately held companies, the Honorable Joe Reeder
brings an extensive wealth of knowledge of complex issues facing both domestic
and global companies.  His depth of experience in the government
sector provides valuable insight to the Company, particularly our Nuclear
Segment.  In addition, his extensive experience and knowledge in the
legal field brings valuable insight into legal matters that the Company
faces.


112





Mr.
Larry M. Shelton


Mr.
Shelton has served as a Director since July 2006.  Mr. Shelton is
currently the Chief Financial Officer of S K Hart Management, LC, an investment
holding company.  He has held this position since 1999.  Mr.
Shelton has over 18 years of experience as financial executive officer for
several waste management companies, including serving as the Chief Financial
Officer of Envirocare of Utah, Inc. from 1995 to 1999, and as the Chief
Financial Officer of USPCI, Inc. from 1982 to 1987.  Mr. Shelton has
served on the Board of Directors of Subsurface Technologies, Inc., a privately
held company specializing in providing environmentally sound innovative
solutions for water well rehabilitation and development, since July 1989, and
Pony Express Land Development, Inc. since December 2005.  Mr. Shelton
has a B.A. in accounting from the University of Oklahoma.





With an
accounting education and years of experience as Chief Financial Officer for
various companies, including a number of waste management companies, Mr. Shelton
offers our Board extensive knowledge and understanding of accounting principles,
financial reporting rules and regulations, evaluating financial results, and
overseeing financial reporting processes.





Dr.
Charles E. Young


Dr.
Charles E. Young has served as a Director since July 2003.  Dr. Young
is the Chief Executive Officer of the Los Angeles Museum of Contemporary Art, a
position he has held since December 2008.  Dr. Young was president of
the University of Florida, a position he held from November 1999 to January
2004.  Dr. Young also served as chancellor of the University of
California, Los Angeles (UCLA) for 29 years until his retirement in
1997.  Dr. Young was formerly the chairman of the Association of
American Universities and served on numerous commissions including the American
Council on Education, the National Association of State Universities and
Land-Grant Colleges, and the Business-Higher Education Forum.  Dr.
Young has served on the Board of Directors of I-MARK, Inc., a privately held
software and professional services company since 1997.  He previously
served on the Board of Directors of Intel Corp., Nicholas-Applegate Growth
Equity Fund, Inc., Fiberspace, Inc., Student Advantage, Inc., and AAFL
Enterprises, a sports development Company.   Dr. Young has a
Ph.D. and M.A. in political science from UCLA and a B.A. from the University of
California at Riverside.





Having
held the executive position in two major universities with multi-billion budgets
and for a number of educational foundations, and as a board member for a
publicly-held multi-billion dollar corporation, Dr. Charles E. Young brings a
unique point of view and extensive depth of experience to our Board of
Directors.  His experience provides the Board with valuable insight
into the process of policy makings and long term leadership
development.  Dr. Young’s perspective provides valuable component of a
well rounded Board.





Mr.
Mark A. Zwecker


Mark
Zwecker has served as a Director since the Company's inception in January 1991.
Mr. Zwecker assumed the position of Director of Finance in 2006 for
Communications Security and Compliance Technologies, Inc., a software company
developing security products for the mobile workforce, and also serves as an
advisor to Plum Combustion, Inc., an engineering and manufacturing company
developing high performance combustion technology.  Mr. Zwecker served
as president of ACI Technology, LLC, from 1997 until 2006, and was vice
president of finance and administration for American Combustion, Inc., from 1986
until 1998.   In 1983, Mr. Zwecker participated as a founder with
Dr. Centofanti in the start up of PPM, Inc. He remained with PPM, Inc.
until its acquisition in 1985 by USPCI. Mr. Zwecker has a B.S. in
Industrial and Systems Engineering from the Georgia Institute of Technology and
an M.B.A. from Harvard University.





With
years of experience in operations and finance for various companies, including a
number of waste management companies, Mr. Zwecker not only has extensive
knowledge dealing with accounting principles, financial reporting rules and
regulations, evaluating financial results, and overseeing financial reporting
processes but also extensive knowledge in operations for complex organizations
which positions him well to serve as a member of our Audit Committee as well as
a Board member.  As a Director since our inception, Mr. Zwecker’s
understanding of our business provides valuable insight to the
Board.




113


BOARD
LEADERSHIP STRUCTURE


Dr. Louis
Centofanti, the Company’s President and Chief Executive Officer, also holds the
position of the Chairman of the Board.  The Company believes such
structure currently promotes the best interests of our
stockholders.  Dr. Centofanti’s extensive knowledge of the history of
the Company, its customers, and his background in our complex and unique core
Nuclear Segment, enables him to provide guidance to our Board with day to day
and long-term strategic business recommendations and decisions which ultimately
enhance shareholder value.





Although
the Company’s by-laws does not formally require the designation of a independent
Lead Director when the positions of Chairman and Chief Executive Officer are
held by the same person, Mr. Mark Zwecker was appointed by our Board of
Directors on February 25, 2010, to serve as an independent Lead Director to
enhance the Board’s ability to fulfill its responsibilities independently in the
best interests of the Company’s stockholders.  As an independent Lead
Director, Mr. Zwecker’s role includes:





·
            convening
      and chairing meetings of the non-employee directors as necessary from time
      to time and Board meetings in the absence of the Chairman of the
      Board;


·
            acting
      as liaison between directors, committee chairs and
    management;


·
            serving
      as information sources for directors and management;
  and


·
            carrying
      out responsibilities as the Board may delegate from time to
      time.





AUDIT
COMMITTEE


We have a
separately designated standing Audit Committee of our Board of Directors. The
members of the Audit Committee are:  Mark A. Zwecker, Jon Colin, and
Larry M. Shelton.





Our Board
of Directors has determined that each of our Audit Committee members is an
“audit committee financial expert” as defined by Item 407(d)(5)(ii) of
Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).





BOARD
INDEPENDENCE


The Board
has determined that each director, other than Dr. Centofanti, is “independent”
within the meaning of the applicable NASDAQ Stock Market, Inc.
rules.  Dr. Centofanti is not deemed to be an “independent director”
because of his employment as a senior executive of the Company.  The
Board also did not consider Mr. Ferguson, who resigned as a director effective
February 27, 2010, to be “independent”.





CORPORATE
GOVERNANCE AND NOMINATING COMMITTEE


We have a
separately-designated standing Corporate Governance and Nominating Committee
(the “Nominating Committee”).  Members of the Nominating Committee
during 2009 were Dr. Charles E. Young (Chairperson), Jack Lahav, Joe Reeder, and
Larry Shelton.  All members of the Corporate Governance and Nominating
Committee are “independent” as that term is defined by the current NASDAQ
listing standards.





The
Corporate Governance and Nominating Committee recommends to the Board of
Directors candidates to fill vacancies on the Board, as well as, the nominees
for election as the Company’s Directors by the stockholders at each annual
meeting of stockholders.  In making such recommendation, the
Nominating Committee takes into account information provided to them from the
candidate, as well as the Nominating Committee’s own knowledge and information
obtained through inquiries to third parties to the extent the Nominating
Committee deems appropriate.  Although no formal criteria are
established in evaluating a candidate for board recommendation, each candidate’s
qualifications are reviewed to include:





·
            standards
      of integrity, personal ethics and value, commitment, and independence of
      thought and judgment;


·
            ability
      to represent the interests of the Company’s
  shareholders;


·
            ability
      to dedicate sufficient time, energy and attention to fulfill the
      requirements of the position;
and


114


·
            diversity
      of skills and experience with respect to accounting and finance,
      management and leadership, business acumen, vision and strategy,
      charitable causes, business operations, and industry
      knowledge.





The
Nominating Committee does not assign specific weights to any particular criteria
and no particular criterion is necessarily applicable to all perspective
nominees.  The Company believes that the backgrounds and
qualifications of the directors, considered as a group, should provide a
significant composite mix of experience, knowledge, and abilities that will
allow the Board to fulfill its responsibilities.





EXECUTIVE
OFFICERS





See Item
4A – “Executive Officers of the Registrant” in Part I of this report for
information concerning our executive officers, as of the date
hereof.





There are
no family relationships between any of the directors or executive
officers.





Section
16(a) Beneficial Ownership Reporting Compliance


Section
16(a) of the Exchange Act, and the regulations promulgated thereunder require
our executive officers and directors and beneficial owners of more than 10% of
our Common Stock to file reports of ownership and changes of ownership of our
Common Stock with the Securities and Exchange Commission, and to furnish us with
copies of all such reports.  Based solely on a review of the copies of
such reports furnished to us and written information provided to us, we believe
that during 2009 none of our executive officers, directors, or beneficial owners
of more than 10% of our Common Stock failed to timely file reports under Section
16(a), except Mr. Joe Reeder, who inadvertently failed to timely file a Form 4
to report one transaction.





Capital
Bank–Grawe Gruppe AG (“Capital Bank”) has advised us that it is a banking
institution regulated by the banking regulations of Austria, which holds shares
of our Common Stock as agent on behalf of numerous investors.  Capital
Bank has represented that all of its investors are accredited investors under
Rule 501 of Regulation D promulgated under the Act.  In addition,
Capital Bank has advised us that none of its investors, individually or as a
group, beneficially own more than 4.9% of our Common Stock.  Capital
Bank has further informed us that its clients (and not Capital Bank) maintain
full voting and dispositive power over such shares.  Consequently,
Capital Bank has advised us that it believes it is not the beneficial owner, as
such term is defined in Rule 13d-3 of the Exchange Act, of the shares of our
Common Stock registered in the name of Capital Bank because it has neither
voting nor investment power, as such terms are defined in Rule 13d-3, over such
shares.  Capital Bank has informed us that it does not believe that it
is required (a) to file, and has not filed, reports under Section 16(a) of the
Exchange Act or (b) to file either Schedule 13D or Schedule 13G in connection
with the shares of our Common Stock registered in the name of Capital
Bank.





If the
representations, or information provided, by Capital Bank are incorrect or
Capital Bank was historically acting on behalf of its investors as a group,
rather than on behalf of each investor independent of other investors, then
Capital Bank and/or the investor group would have become a beneficial owner of
more than 10% of our Common Stock on February 9, 1996, as a result of the
acquisition of 1,100 shares of our Preferred Stock that were convertible into a
maximum of 1,282,798 shares of our Common Stock.  If either Capital
Bank or a group of Capital Bank’s investors became a beneficial owner of more
than 10% of our Common Stock on February 9, 1996, or at any time thereafter, and
thereby required to file reports under Section 16(a) of the Exchange Act, then
Capital Bank has failed to file a Form 3 or any Forms 4 or 5 since February 9,
1996. (See “Item 12 - Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matter – Security Ownership of Certain
Beneficial Owners” for a discussion of Capital Bank’s current record ownership
of our securities).





Code
of Ethics


Our Code
of Ethics applies to all our executive officers and is available on our website
at www.perma-fix.com.  If
any amendments are made to the Code of Ethics or any grants of waivers are made
to any provision of the Code of Ethics to any of our executive officers, we will
promptly disclose the amendment or waiver and nature of such amendment of waiver
on our website.


115





ITEM
      11.
            EXECUTIVE
      COMPENSATION





Compensation
Discussion and Analysis


Our
long-term success depends on our ability to efficiently operate our facilities,
evaluate strategic acquisitions within our Nuclear Segment, and to continue to
research and develop innovative technologies in the treatment of nuclear waste,
mixed waste, and industrial waste.  To achieve these goals, it is
important that we be able to attract, motivate, and retain highly talented
individuals who are committed to our values and goals.





The
Compensation and Stock Option Committee (for purposes of this analysis, the
“Compensation Committee”) of the Board has responsibility for establishing,
implementing and continually monitoring adherence with our compensation
philosophy.  The Compensation Committee ensures that the total
compensation paid to the named executive officers is fair, reasonable and
competitive.  Generally, the types of compensation and benefits
provided to members of the named executive officers are similar to those
provided to other executive officers at similar sized companies and
industries.





Compensation
Philosophy and Objectives


The
Compensation Committee bases its executive compensation program on our
performance objectives.  The Compensation Committee evaluates both
executive performance and compensation to ensure that we maintain our ability to
attract superior employees in key positions and to remain competitive relative
to the compensation paid to similarly situated executives of our peer
companies.  The Compensation Committee believes executive compensation
packages provided to our executives, including the named executive officers,
should include both cash and equity-based compensation that provide rewards for
performance.  The Compensation Committee bases it executive
compensation program on the following philosophy:





·
            Compensation
      should be based on the level of job responsibility, executive performance,
      and company performance.





·
            Executive
      officers’ pay should be more closely linked to company performance than
      that of other employees because the executive officers have a greater
      ability to affect our results.





·
            Compensation
      should be competitive with compensation offered by other companies that
      compete with us for talented
individuals.





·
            Compensation
      should reward performance.





·
            Compensation
      should motivate executives to achieve our strategic and operational
      goals.





Employment
Agreements; Potential Payments


During
May 2009, the Company entered into employment agreements with each of Dr. Louis
F. Centofanti (the “CEO Agreement”), Larry McNamara (the “COO Agreement”), and
Ben Naccarato (the “CFO Agreement”) (together, the “Employment
Agreements”).





Pursuant
to the Employment Agreements, (a) Dr. Centofanti was entitled to receive an
annual base salary of $253,094 as the Company’s Chief Executive Officer and
President, (b) Mr. McNamara was entitled to receive an annual base salary of
$216,320 as the Company’s Chief Operating Officer, and (c) Mr. Naccarato was
entitled to receive an annual base salary of $200,000 as the Company’s Chief
Financial Officer.  The annual base salary is subject to adjustment
annually.  In addition, each such executive officer is entitled to
participate in the Company's benefits plans and to any performance compensation
payable under the Executive Management Incentive Plan (“MIP”) (see 2009 MIP
below) in effect for each fiscal year as adopted by the Company’s Compensation
Committee or Board of Directors.


116





On July
29, 2009, the Company accepted the resignation of Larry McNamara, as Vice
President and Chief Operating Officer of the Company.  Mr. McNamara’s
resignation as the Chief Operating Officer became effective September 1, 2009,
and as an employee of the Company effective September 30, 2009.  When
Mr. McNamara’s resignation as the Chief Operating Officer became effective, his
Employment Agreement and MIP also terminated.





The CEO
Agreement and the CFO Agreement are each effective for three years, unless
earlier terminated by the Company with or without “cause” (as defined below) or
by the executive officer for “good reason” (as defined below) or any other
reason.  If the executive officer’s employment is terminated due to
death, disability or for cause, the Company will pay to the executive officer or
to his estate a lump sum equal to the sum of any unpaid base salary through the
date of termination and any benefits due to the executive officer under any
employee benefit plan, excluding any severance program or policy (the “Accrued
Amounts”).





“Cause”
as noted above is generally defined in each of the Employment Agreements as
follows:





·
            the
      ultimate conviction (after all appeals have been decided) of the executive
      by a court of competent jurisdiction of, or a plea of nolo contendrere, or
      a plea of guilty by the executive to a felony involving a moral practice
      or act;





·
            willful
      or gross misconduct or gross neglect of duties by the executive, which is
      injurious to the Company.  Failure of the executive to perform
      his duties due to disability shall not be considered gross misconduct or
      gross neglect of duties;





·
            act
      of fraud or embezzlement against the Company;
  and





·
            willful
      breach of any material provision under the Employment
      Agreement.





“Good
reason” as noted above is generally defined in each of the Employment Agreements
as follow:





·
            assignment
      to the executive of duties inconsistent with his responsibilities as they
      existed during the 90 day period preceding the date of the employment
      agreement, including status, office, title, and reporting
      requirement;





·
            any
      other action by the Company which results in a reduction in the
      compensation payable to the executive, the position, authority, duties, or
      other responsibilities without the employee’s prior
    approval;





·
            the
      relocation of the executive from his base location on the date of the
      employment agreement, excluding travel required in order to perform the
      executive’s job responsibilities;





·
            any
      purported termination by the Company of the executive’s employment
      otherwise as permitted by the agreement;
and





·
            any
      material breach by the Company of any provision of the agreement, except
      that an insubstantial or inadvertent breach by the Company which is
      promptly remedied by the Company after receipt of notice by the executive
      is not considered a material
breach.




If the
executive officer terminates his employment for “good reason” or the Company
terminates the executive’s employment without cause, the Company will pay the
executive officer a sum equal to the total Accrued Amounts, plus one year of
full base salary.  If the executive terminates his employment for a
reason other than for good reason, the Company will pay to the executive the
amount equal to the Accrued Amounts.




If there
is a “Change in Control” (as defined below), all outstanding stock options to
purchase Common Stock held by the executive officer will immediately become
vested and exercisable in full.


117





The
following table sets forth the potential (estimated) payments and benefits to
which Dr. Centofanti and Mr. Naccarato would be entitled upon termination of
employment or following a change in control of the Company, as specified under
each Employment Agreement with the Company assuming each circumstance described
below occurred on December 31, 2009, last day of our fiscal year.  In
accordance with the COO Agreement, Mr. McNamara received only his accrued salary
along with the benefits due under our employee benefit plan, through September
30, 2009, his last day as an employee of the Company.





Termination
      byExecutive
      for GoodName
      and Principal Position
                                            
                                            Disability,
                                            
                                            
                                            Reason
      or byDeath,
                                            
                                            
                                            Company
      Without
                                            
                                            
                                            Change
      in ControlPotential Payment/Benefit
                                            
                                            or For Cause
                                            
                                            
                                            Cause
                                            
                                            
                                            of the CompanyDr.
      Louis CentofantiChairman
      of the Board,President
      and Chief ExecutiveOfficerSeverance
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            253,000
                                            
                                            
                                            $
                                            —Stock
      Options
                                            
                                            $
                                            172,400
                                            (1)
                                            
                                            $
                                            172,400
                                            (1)
                                            
                                            $
                                            172,400
                                            (2)MIP
      (3)
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —Ben
      NaccaratoChief
      Financial OfficerSeverance
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            200,000
                                            
                                            
                                            $
                                            —Stock
      Options
                                            
                                            $
                                            18,650
                                            (1)
                                            
                                            $
                                            18,650
                                            (1)
                                            
                                            $
                                            82,400
                                            (2)MIP
      (3)
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —
                                            
                                            
                                            $
                                            —





(1)
            Benefit
      is estimated based on the number of stock options vested as of December
      31, 2009 that are in-the-money. Amount represents the difference between
      the exercise price and the closing price of our Common Stock as reported
      on NASDAQ on December 31, 2009.





(2)
            Benefit
      is estimated based on the number of stock options outstanding as of
      December 31, 2009 that are in-the-money. Amount represents the difference
      between the exercise price and the closing price of our Common Stock as
      reported on NASDAQ on December 31,
2009.





(3)
            Represents
      performance compensation earned under the Company’s
      MIP.  Pursuant to the 2009 MIP, if the participant’s employment
      with the Company is voluntarily or involuntarily terminated prior to a
      regularly scheduled MIP compensation payment period, no MIP payment will
      be payable for and after such period (see “Executive Management Incentive
      Plan” for further discussion of the Company 2009 MIP)
  .




A “Change
in Control” under the Employment Agreements is generally deemed to have occurred
if:  (a) a transaction in which any person, entity, corporation, or
group (as such terms are defined in Sections 13(d)(3) and 14(d)(2) of the
Exchange (other than the Company, or a profit sharing, employee ownership or
other employee benefit plan sponsored by the Company or any subsidiary of the
Company): (i) will purchase any of the Company’s voting securities (or
securities convertible into such voting securities) for cash, securities or
other consideration pursuant to a tender offer, or (ii) will become the
“beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange
Act, directly or indirectly (in one transaction or a series of transactions), of
securities of the Company representing 50% or more of the total voting power of
the then outstanding securities of the Company ordinarily having the right to
vote in the election of directors; or (b) a change, without the approval of at
least two-thirds of the Board of Directors then in office, of a majority of the
Company’s Board of Directors; or (c) the Company’s execution of an agreement for
the sale of all or substantially all of the Company’s assets to a purchaser
which is not a subsidiary of the Company; or (d) the Company’s adoption of a
plan of dissolution or liquidation; or (e) the Company’s closure of the
Company’s facility where the executive works; or (f) the Company’s execution of
an agreement for a merger or consolidation or other business combination
involving the Company in which the Company is not the surviving corporation, or,
if immediately following such merger or consolidation or other business
combination, less than fifty percent (50%) of the surviving corporation’s
outstanding voting stock is held by persons who are stockholders of the Company
immediately prior to such merger or consolidation or other business combination;
or (f) such event that is of a nature that is required to be reported in
response to Item 5.01 of Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange Act.


118





The
amounts payable with respect to a termination (other than base salary and
amounts otherwise payable under any Company employee benefit plan) are payable
only if the termination constitutes a “separation from service” (as defined
under Treasury Regulation Section 1.409A-1(h)).





Role
of Executive Officers in Compensation Decisions


The
Compensation Committee makes all compensation decisions for the named executive
officers and equity awards to all of our officers.  Decisions
regarding the non-equity compensation of other officers are made by the
Compensation Committee, based on the recommendations of Chief Executive
Officer.





The Chief
Executive Officer annually reviews the performance of each of the named
executive officers (other than the Chief Executive Officer whose performance is
reviewed by the Compensation Committee).  Based on such reviews, the
Chief Executive Officer presents a recommendation to the Compensation Committee,
which may include salary adjustments, bonus and equity based awards, and annual
award.  The Compensation Committee considers such recommendation in
light of the compensation philosophy and objectives described above and the
process described below.  Based on its analysis, the Compensation
Committee exercises its discretion in accepting or modifying all such
recommendations. The Chief Executive Officer is not present during the voting or
deliberations of the Compensation Committee with respect to the Chief Executive
Officer’s compensation.  Beginning in 2009, the compensation for our
Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer is
set forth in their respective Employment Agreements.





The
Compensation Committee’s Processes


The
Compensation Committee has established certain processes designed to achieve our
executive compensation objectives.  These processes include the
following:





·
            Company Performance
      Assessment.  The Compensation Committee assesses our
      performance in order to establish compensation ranges and, as described
      below, to establish specific performance measures that determine incentive
      compensation under the Company’s Executive Management Incentive
      Plan.  For this purpose, the Compensation Committee considers
      numerous measures of performance of both us and industries with which we
      compete, including but not limited to revenue, net income, and unbilled
      receivables.





·
            Individual Performance
      Assessment.  Because the Compensation Committee believes
      that an individual’s performance should effect an individual’s
      compensation, the Compensation Committee evaluates each named executive
      officer’s performance.  With respect to the named executive
      officers, other than the Chief Executive Officer, the Compensation
      Committee considers the performance analysis provided by the Chief
      Executive Officer.  With respect to all named executive
      officers, the Compensation Committee exercises its judgment based on its
      interactions with the executive officer, such officer’s contribution to
      our performance and other leadership achievements.  This process
      was undertaken with respect to our Chief Executive Officer, Chief
      Financial Officer, and Chief Operating Officer in setting the base salary
      for each such officer set forth in the Employment
    Agreements.





·
            Peer Group
      Assessment.  The Compensation Committee benchmarks our
      compensation program with a group of companies against which the
      Compensation Committee believes we compete for talented individuals (the
      “Peer Group”).  The composition of the Peer Group is
      periodically reviewed and updated by the Compensation
      Committee.  The companies currently comprising the Peer Group
      are Clean Harbors, Inc., American Ecology Corporation, and
      EnergySolutions, Inc., each of which is a waste disposal/management
      company.  The Compensation Committee considers the Peer Group’s
      executive compensation programs as a whole and the compensation of
      individual officers in the Peer Group, if job responsibilities are
      meaningfully similar.  The Compensation Committee also considers
      individual factors such as experience level of the individual and market
      conditions.  The Compensation Committee believes that the Peer
      Group comparison helps insure that our executive compensation program is
      competitive with other companies in the industry.  This process
      was undertaken with respect to our Chief Executive Officer, Chief
      Financial Officer, and Chief Operating Officer in setting the base salary
      for each such officer set forth in the Employment
    Agreements.




119


2009
Executive Compensation Components


For the
fiscal year ended December 31, 2009, the principal components of
compensation for executive officers were:





·
            base
      salary;


·
            performance-based
      incentive compensation;


·
            long
      term incentive compensation;


·
            retirement
      and other benefits; and


·
            perquisites
      and other personal benefits.





Based on
the Summary Compensation Table in this section, salary accounted for
approximately 59.9% of the total compensation of the executive officers while
non-equity incentive, option award, and other compensation accounted for
approximately 40.1% of the total compensation of the executive
officers.





Base
Salary


The named
executive officers, other officers, and other employees of the Company receive a
base salary during the fiscal year.  Base salary ranges for executive
officers are determined for each executive based on his or her position and
responsibility by using market data and comparisons to the Peer
Group.





During
its review of base salaries for executives, the Compensation Committee primarily
considers:





·
            market
      data and Peer Group comparisons;





·
            internal
      review of the executive’s compensation, both individually and relative to
      other officers; and





·
            individual
      performance of the executive.





Salary
levels are typically considered annually as part of the performance review
process as well as upon a promotion or other change in job
responsibility.  Merit based salary increases for executives are based
on the Committee’s assessment of the individual’s
performance.  Beginning in 2009, the base salary for the Chief
Executive Officer, Chief Financial Officer and Chief Operating Officer is set
forth in the Employment Agreements. The annual base salary is subject to
adjustment annually pursuant to the Employment Agreements.





Performance-Based
Incentive Compensation


The
Compensation Committee has the latitude to design cash and equity-based
incentive compensation programs to promote high performance and achievement of
our corporate objectives by Directors and the named executives, encourage the
growth of stockholder value and enable employees to participate in our long-term
growth and profitability. The Compensation Committee may grant stock options
and/or performance bonuses.  In granting these awards, the
Compensation Committee may establish any conditions or restrictions it deems
appropriate.  In addition, the Chief Executive Officer has
discretionary authority to grant stock options to certain high-performing
executives or officers, with the approval of the Compensation
Committee.





All
awards of stock options are made at or above the market price at the time of the
award.  Stock options may be awarded to newly hired or promoted
executives at the discretion of the Compensation Committee, following the hiring
or promotion.  Grants of stock options to newly hired executive
officers who are eligible to receive them are generally made at the next
regularly scheduled Compensation Committee meeting following their hire
date.




120




Executive
Management Incentive Plan


During
May 2009, the Compensation Committee approved individual MIPs for fiscal year
2009 for Dr. Louis F. Centofanti, our Chief Executive Officer, Larry McNamara,
our Chief Operating Officer, and Ben Naccarato, our Chief Financial
Officer.  The MIPs were effective as of January 1,
2009.  Mr. McNamara resigned as the Company’s Chief Operating Officer,
effective September 1, 2009 and remained as an employee of the Company through
September 30, 2009.  Upon Mr. McNamara’s resignation as the Chief
Operating Officer, effective September 1, 2009, his MIP also
terminated.  The MIP provides guidelines for the calculation of annual
cash incentive based compensation, subject to the Compensation Committee
oversight and modification.  Each MIP awards cash compensation is
based on achievement of performance thresholds, with the amount of such
compensation established as a percentage of base salary.  The
potential target performance compensation ranged from 25% to 44% of the 2009
base salary for the Chief Financial Officer and 50% to 87% of the base salary
for each of the Chief Operating Officer and Chief Executive
Officer.





The
performance compensation for 2009 for the Chief Operating Officer and Chief
Executive Officer was based upon achievement of corporate financial net income
and revenue, health, safety, and environmental compliance objectives during
fiscal year 2009.  Of the total potential performance compensation,
55% was based on net income goals, 15% was based on revenue goals, 15% was based
on the number of health and safety claim incidents that occurred during fiscal
year 2009, and the remaining 15% was based on the number of notices alleging
violations relating to environmental, health or safety requirements under our
permit or license violations that occur during the fiscal year.  The
revenue and net income components were based on our board approved 2009
budget.





The
performance compensation for the Chief Financial Officer was based upon
achievement of net income, administrative expense, financial oversight,
centralization of accounting and information technology functions objectives, as
well as the timely filing with the SEC of the Company’s annual and quarterly
reports and Form 8-Ks.  Of the total potential performance compensation,
25% is based on net income goals, 15% is based on maintaining or reducing our
budgeted administrative expense, 10% is based on the timeliness of the Company’s
annual, quarterly, and Form 8-K report filings with the SEC, 10% is based on
financial oversight, 10% is based on compliance with the requirements of the
Sarbanes-Oxley Act of 2002, and 30% is based on accounting centralization and
information technology objectives.  The net income and administrative
expense components were based on our board approved 2009 budget.





Performance
compensation earned under each MIP by the Chief Executive Officer, Chief
Operating Officer, and Chief Financial Officer are reduced by 15% if the
Company’s unbilled trade receivable balance older than December 31, 2006, is not
reduced by $4.0 million or more as of December 31, 2009, from the unbilled
balance as of December 31, 2008.  The minimum performance compensation
becomes payable upon achieving between 85% to 100% of corporate financial
objectives, with the maximum performance compensation becoming payable upon
achieving 161% of such objectives, except the Chief Financial Officer’s minimum
performance compensation for achieving administrative expense goals is based on
maintaining the Company’s administrative expense at 100% of the objective, with
the maximum performance compensation payable if administrative expense is 88% of
the objective.





If the
MIP participant’s employment with the Company is voluntarily or involuntarily
terminated prior to a regularly scheduled MIP compensation payment period, no
MIP payment will be payable for and after such period.  The
Compensation Committee retains the right to modify, change or terminate each MIP
at any time and for any reason.





In 2009,
the Chief Executive Officer and Chief Financial Officer achieved above the
minimum performance compensation level but below the maximum performance
compensation level.  No MIP was earned by the Chief Operating Officer
due to his resignation.  In 2008 and 2007, none of the named executive
officers met the minimum performance compensation level.





121




The
annual MIP compensation is calculated and prepaid on a quarterly
basis.  The following table sets forth the MIP compensation earned in
fiscal year 2009 under the 2009 MIP:





MIP
                  
                  
                  MIP
                  
                  
                  MIP
                  
                  
                  MIPCompensation
                  
                  
                  Compensation
                  
                  
                  Compensation
                  
                  
                  CompensationName
                  
                  1st Qtr 2009
                  
                  
                  2nd Qtr 2009
                  
                  
                  3rd Qtr 2009
                  
                  
                  4th Qtr 2009
                  
                  
                  TotalDr.
      Louis Centofanti
                  
                  $
                  29,888
                  
                  
                  $
                  ─
                  
                  
                  $
                  ─
                  
                  
                  $
                  105,152
                  
                  
                  $
                  135,040
                  (3)Larry
      McNamara (1)
                  
                  $
                  26,567
                  (4)
                  
                  $
                  ─
                  
                  
                  $
                  ─
                  
                  
                  $
                  (26,567
                  )(4)
                  
                  $
                  ─Ben
      Naccarato (2)
                  
                  $
                  8,775
                  
                  
                  $
                  ─
                  
                  
                  $
                  2,025
                  
                  
                  $
                  44,258
                  
                  
                  $
                  55,058
                  (3)





(1)Resigned
as Chief Operating Officer, effective September 1, 2009 and as an employee of
the Company effective September 30, 2009.





(2)Named as
Chief Financial Officer and Secretary of the Board of Directors by the Company’s
Board of Directors on February 26, 2009.  Mr. Naccarato was named as
Interim Chief Financial Officer and Secretary of the Board of Directors
effective November 1, 2008 by the Company’s Board of Directors on October 24,
2008.





(3)Of the
amount noted, $105,152 for Dr. Centofanti and $44,527 for Mr. Naccarato remains
to be paid.  We anticipate paying these amounts by the end of the
first quarter of 2010.





(4)Amount
was estimated and prepaid for the first quarter of 2009, pursuant to the
MIP.  Amount is being paid back to the Company by Mr. McNamara as no
amount was earned by Mr. McNamara under the 2009 MIP upon his
resignation.





2010
MIP


On
February 25, 2010, the Company’s Compensation and Stock Option Committee
(“Compensation Committee”) approved individual management incentive plans for
fiscal year 2010 for Dr. Louis F. Centofanti, our Chief Executive Officer
(“CEO”), and Ben Naccarato, our Chief Financial Officer (“CFO”).  The
MIPs are effective as of January 1, 2010.  Each MIP provides that, in
addition to base salary, our CEO and CFO will receive cash compensation based on
achievement of performance thresholds, with the amount of such compensation
established as a percentage of base salary.  If all of the potential
target performance levels are met or exceeded, payment of cash compensation
under the 2010 MIP would range from 25% to 44% or $52,000 to $91,000 of the 2010
base salary for the CFO and 50% to 87% or $131,609 to $230,316 of the base
salary for the CEO.





The performance compensation for the
CEO is based upon achievement of corporate financial net income and revenue,
health and safety, and environmental compliance objectives during fiscal year
2010.  Of the total potential performance compensation, 55% is based
on net income goals, 15% is based on revenue goals, 15% is based on the number
of health and safety claim incidents that occur during fiscal year 2010, and the
remaining 15% is based on the number of notices alleging violationsthat occur during 2010relating to environmental, health or
safety requirements under our permitsor licenses. The revenue and net income components
are based on our board approved 2010 budget.





The
performance compensation for the CFO is based upon achievement of net income,
administrative expense, financial oversight, centralization of accounting and
information technology functions objectives, internal control compliance, as
well as the timely filing with the Securities and Exchange Commission (“SEC”) of
the Company’s annual and quarterly reports and Form 8-Ks. Of the total potential
performance compensation, 25% is based on net income goals, 15% is based on
maintaining or reducing our budgeted administrative expense, 10% is based on the
timeliness of the Company’s annual, quarterly, and Form 8-K report filings with
the SEC, 10% is based on financial oversight, 10% is based on compliance with
the requirements of the Sarbanes-Oxley Act of 2002, and 30% is based on
accounting centralization and information technology objectives.  The
net income and administrative expense components are based on our board approved
2010 budget.





122




Performance
compensation earned under each MIP by the CEO and CFO will be reduced by 15% if
the Company’s unbilled trade receivable balance older than December 31, 2007, is
not reduced by $2.5 million or more as of December 31, 2010, from the unbilled
balance as of December 31, 2009.  The minimum performance compensation
becomes payable upon achieving between 85% to 100% of corporate financial
objectives, with the maximum performance compensation becoming payable upon
achieving 161% of such objectives, except the CFO’s minimum performance
compensation for achieving administrative expense goals is based on maintaining
the Company’s administrative expense at 100% of the objective, with the maximum
performance compensation payable if administrative expense is 88% of the
objective.





The
annual MIP compensation is payable on or about 90 days after year end, or
sooner, based on the Company’s final audited Form 10-K financial
statements.





If the
MIP participant’s employment with the Company is voluntarily or involuntarily
terminated prior to the scheduled MIP compensation payment, no MIP payment will
be payable for and after such period.  The Compensation Committee
retains the right to modify, change or terminate each MIP at any time and for
any reason.





Long-Term
Incentive Compensation





Employee
Stock Option Plan


The 2004
Stock Option Plan (the “2004 Option Plan”) encourages participants to focus on
long-term performance and provides an opportunity for executive officers and
certain designated key employees to increase their stake in the Company. Stock
options succeed by delivering value to the executive only when the value of our
stock increases.  The 2004 Option Plan authorizes the grant of
Non-Qualified Stock Options (“NQSO”) and Incentive Stock Options (“ISOs”) for
the purchase of Common Stock.





The 2004
Option Plan assists the Company to:





·
            enhance
      the link between the creation of stockholder value and long-term executive
      incentive compensation;





·
            provide
      an opportunity for increased equity ownership by executives;
      and





·
            maintain
      competitive levels of total
compensation.





Stock
option award levels are determined based on market data, vary among participants
based on their positions with us and are granted generally at the Compensation
Committee’s regularly scheduled July or August meeting. Newly hired or promoted
executive officers who are eligible to receive options are generally awarded
such options at the next regularly scheduled Compensation Committee meeting
following their hire or promotion date.





Options
are awarded with an exercise price equal to or not less than the closing price
of the Company’s Common Stock on the date of the grant as reported on the
NASDAQ.  In certain limited circumstances, the Compensation Committee
may grant options to an executive at an exercise price in excess of the closing
price of the Company’s Common Stock on the grant date.  The
Compensation Committee will not grant options with an exercise price that is
less than the closing price of the Company’s Common Stock on the grant
date.





On
February 26, 2009, the Compensation Committee, with the approval of our Board of
Directors authorized the grant of 75,000 ISOs to our newly named Chief Financial
Officer, which allows for the purchase of up to 75,000 shares of our Common
Stock under the Company’s 2004 Option Plan.  The options have a six
year term with staggered vesting of 33.3% each year for three years (see “Grant
of Plan-Based Award” for further information regarding this
award).  No other options were granted to any other named executives
in 2009.





123




On August
5, 2008, we granted 150,000, 150,000, and 40,000 ISOs to our Chief Executive
Officer, Chief Operating Officer, and Chief Financial Officer, respectively
under the 2004 Option Plan.  The options granted in 2008 also have a
six year term with staggered vesting of 33.3% each year for three
years.  All of the 150,000 options granted to our previous Chief
Operating Officer in 2008, were forfeited by him as of December 31, 2009,
pursuant to the terms of the options.  The Company did not grant any
options in 2007 due to timing constraints resulting from our acquisition of our
PFNWR facility and the divestiture efforts of our Industrial Segment
facilities.





Vesting
of option awards ceases upon termination of employment and exercise right of the
vested option amount ceases upon three months from termination of employment
except in the case of death or retirement (subject to a six month limitation),
or disability (subject to a one year limitation).  Prior to the
exercise of an option, the holder has no rights as a stockholder with respect to
the shares subject to such option.





In the
event of a change of control (as defined in the “1993 Non-Qualified Stock Option
Plan” and “2004 Stock Option Plan”) of the Company, each outstanding option and
award granted under the plans shall immediately become exercisable in full
notwithstanding the vesting or exercise provisions contained in the stock option
agreement.





Accounting
for Stock-Based Compensation


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





We
recognize stock-based compensation expense using a straight-line amortization
method over the requisite period, which is the vesting period of the stock
option grant.  As ASC 718 requires that stock-based compensation
expense be based on options that are ultimately expected to vest, our
stock-based compensation expense is reduced at an estimated forfeiture
rate.  Our estimated forfeiture rate is generally based on historical
trends of actual forfeitures.  Forfeiture rates are evaluated, and
revised as necessary.    See impact of ASC 718 on our
operating results in “Note 3 – Stock-Based Compensation” to “Notes to
Consolidated Financial Statements”.





Retirement
and Other Benefits





401(k)
Plan


We
adopted the Perma-Fix Environmental Services, Inc. 401(k) Plan (the “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 have matched 25% of our employees’ contributions since
inception of the Plan.  Effective March 1, 2009, the Company suspended
its matching contribution in an effort to reduce costs in light of the slowdown
in the economy.  We contributed $85,000 in matching funds during 2009,
approximately $4,236 of which was for our named executive
officers.  Effective January 1, 2010, the Company reinstated this
matching contribution (See the Summary Compensation Table in this section for
information about our matching contributions to the named executive
officers).




124




Perquisites
and Other Personal Benefits


The
Company provides executive officers with limited perquisites and other personal
benefits that the Company and the Committee believe are reasonable and
consistent with its overall compensation program to better enable the Company to
attract and retain superior employees for key positions.  The Committee
periodically reviews the levels of perquisites and other personal benefits
provided to executive officers. The executive officers are provided an auto
allowance.





Compensation
Committee Report


The
Committee of the Company has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and,
based on such review and discussions, the Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this Form
10-K.





THE
COMPENSATION AND STOCK OPTION COMMITTEE


Jack
Lahav, Chairman


Jon
Colin


Joe
Reeder


Dr.
Charles E. Young




125


Summary
Compensation Table


The
following table summarizes the total compensation paid or earned by each of the
executive officers for the fiscal years ended December 31, 2009, 2008, and
2007.





Name and Principal Position
                                      
                                      Year
                                      
                                      Salary
                                      
                                      
                                      Bonus
                                      
                                      
                                      Option
                                        Awards
                                      
                                      
                                      Non-Equity
      Incentive Plan Compensation
                                      
                                      
                                      All other
                                        Compensation
                                      
                                      
                                      Total
                                        Compensation($)
                                      
                                      
                                      ($)(3)
                                      
                                      
                                      ($)(4)
                                      
                                      
                                      ($)(5)
                                      
                                      
                                      ($) (7)
                                      
                                      
                                      ($)Dr.
      Louis Centofanti
                                      
                                      2009
                                      
                                      
                                      253,094
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      135,040
                                      (6)
                                      
                                      
                                      10,217
                                      
                                      
                                      
                                      398,351Chairman
      of the Board,
                                      
                                      2008
                                      
                                      
                                      251,410
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      174,891
                                      
                                      
                                      
                                      15,514
                                      
                                      
                                      
                                      12,875
                                      
                                      
                                      
                                      454,690President
      and Chief
                                      
                                      2007
                                      
                                      
                                      241,560
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      17,550
                                      
                                      
                                      
                                      12,875
                                      
                                      
                                      
                                      271,985Executive
      OfficerBen
      Naccarato (1)
                                      
                                      2009
                                      
                                      
                                      196,110
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      59,475
                                      
                                      
                                      
                                      55,058
                                      (6)
                                      
                                      
                                      8,492
                                      
                                      
                                      
                                      319,135Vice
      President and Chief
                                      
                                      2008
                                      
                                      
                                      176,136
                                      
                                      
                                      
                                      25,000
                                      
                                      
                                      
                                      46,638
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      3,875
                                      
                                      
                                      
                                      251,649Financial
      Officer
                                      
                                      2007
                                      
                                      
                                      166,610
                                      
                                      
                                      
                                      25,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      3,125
                                      
                                      
                                      
                                      194,735Larry McNamara(2)
                                      
                                      2009
                                      
                                      
                                      174,949
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      144,000
                                      (2)
                                      
                                      
                                      —
                                      (6)
                                      
                                      
                                      56,900
                                      
                                      
                                      
                                      375,849Chief
      Operating Officer
                                      
                                      2008
                                      
                                      
                                      214,720
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      174,891
                                      
                                      
                                      
                                      13,790
                                      
                                      
                                      
                                      12,875
                                      
                                      
                                      
                                      416,2762007
                                      
                                      
                                      206,769
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      15,000
                                      
                                      
                                      
                                      12,875
                                      
                                      
                                      
                                      234,644Robert
      Schreiber, Jr.
                                      
                                      2009
                                      
                                      
                                      191,894
                                      
                                      
                                      
                                      69,130
                                      (8)
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      8,400
                                      
                                      
                                      
                                      269,424President
      of SYA
                                      
                                      2008
                                      
                                      
                                      184,588
                                      
                                      
                                      
                                      88,386
                                      
                                      
                                      
                                      29,148
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      12,676
                                      
                                      
                                      
                                      314,7982007
                                      
                                      
                                      197,000
                                      
                                      
                                      
                                      35,204
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      18,114
                                      
                                      
                                      
                                      250,318





(1)
            Named
      as Chief Financial Officer and Secretary of the Board of Directors by the
      Company’s Board of Directors on February 26, 2009.  Mr.
      Naccarato was named as Interim Chief Financial Officer and Secretary of
      the Board of Directors effective November 1, 2008. Mr. Naccarato served as
      the Vice President, Corporate Controller/Treasurer prior to being named
      Interim Chief Financial Officer and Secretary of the Board of
      Directors.





(2)
            Resigned
      as Chief Operating Officer effective September 1, 2009 and as an employee
      of the Company effective September 30, 2009.  Prior to Mr.
      McNamara’s resignation, the Company amended and extended 270,000
      fully-vested outstanding non-qualified stock options held by Mr. McNamara
      until the earlier of 5:00 p.m. on March 31, 2010, or termination of Mr.
      McNamara under a consulting agreement entered into by the Company with Mr.
      McNamara (see footnote 7 below for additional information on the
      consulting agreement).  The 270,000 amended non-qualified stock
      options are reflected in this table as a new grant of options based on the
      fair value of $144,000 as of the date of the amendment, computed in
      accordance with ASC 718, “Compensation – Stock Compensation”, excluding
      the effect of forfeitures.





(3)
            Amount
      earned by Mr. Naccarato for 2008 and 2007 represents bonus earned as Vice
      President, Corporate Controller/Treasurer, prior to being named as Chief
      Financial Officer.   Amounts earned by Mr. Schreiber for
      each year  represent discretionary bonuses approved by our Chief
      Executive Officer with respect to our Engineering Segment.  See
      footnotes (5) and (6) for bonus earned by the named executive officers
      under the Company’s MIP.





(4)
            This
      amount reflects the aggregate grant date fair value of awards computed in
      accordance with ASC 718, “Compensation – Stock Compensation”, excluding
      the effect of forfeitures.  No options were granted to any
      employees and named executives in
2007.





(5)
            Represents
      performance compensation earned under the Company’s MIP.  The
      MIP is described under the heading “Executive Management Incentive
      Plan.





(6)
            Represents
      2009 performance compensation earned in 2009 under the Company’s
      MIP.  $105,152 for Dr. Centofanti and $44,527 for Mr. Naccarato
      remains to be paid.  We anticipate paying these amounts by the
      end of the first quarter of 2010.  No MIP was earned by Mr.
      McNamara in 2009.




126




(7)
            The
      amount shown includes a monthly automobile allowance of $750 or the use of
      a company car, and where applicable, our 401(k) matching
      contribution.  Effective October 1, 2009, Mr. McNamara entered
      into a six month consulting agreement with us, subject to renewal upon
      agreement by Mr. McNamara and us.  Pursuant to the terms of the
      consulting agreement, Mr. McNamara earned $49,500, which is included in
      “Other” below, for consulting services rendered to the Company from
      October 1, 2009 through December 31,
2009.





Auto Allowance orName
                      
                      401(k) match
                      
                      
                      Company Car
                      
                      
                      Other
                      
                      
                      TotalDr.
      Louis Centofanti
                      
                      $
                      1,217
                      
                      
                      $
                      9,000
                      
                      
                      $
                      —
                      
                      
                      $
                      10,217Ben
      Naccarato
                      
                      $
                      992
                      
                      
                      $
                      7,500
                      
                      
                      $
                      —
                      
                      
                      $
                      8,492Larry
      McNamara
                      
                      $
                      650
                      
                      
                      $
                      6,750
                      
                      
                      $
                      49,500
                      
                      
                      $
                      56,900Robert
      Schreiber, Jr.
                      
                      $
                      1,377
                      
                      
                      $
                      7,023
                      
                      
                      $
                      —
                      
                      
                      $
                      8,400




(8)
            Of
      that amount, $700 was paid in 2009 and $68,430 was paid in February
      2010.




The
compensation plan under which the awards in the following table were made are
generally described in the Compensation Discussion and Analysis in this
section and include the Company’s MIP, which is a non-equity incentive
plan, and the Company’s 2004 Stock Option Plan, which provides for grant of
stock options to our employees.





Grant of Plan-Based Awards
Table





All otherOptionEstimated Future Payouts
                                    
                                    
                                    Awards:
                                    
                                    
                                    ExerciseUnder Non-Equity Incentive
                                    
                                    
                                    Number of
                                    
                                    
                                    or Base
                                    
                                    
                                    Grant DatePlan Awards
                                    
                                    
                                    Securities
                                    
                                    
                                    Price of
                                    
                                    
                                    Fair Value ofName
                                    
                                    Grant Date
                                    
                                    
                                    Threshold
                                      $
                                    
                                    
                                    Target
                                      $ (1)
                                    
                                    
                                    Maximum
                                      $ (1)
                                    
                                    
                                    Underlying
                                      Options
                                      (#)
                                    
                                    
                                    Option
                                        Awards
                                      ($/Sh)
                                    
                                    
                                    Option
                                      Awards
                                      ($)Dr.
      Louis Centofanti
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    126,547
                                    
                                    
                                    
                                    221,455
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Ben
      Naccarato (2)
                                    
                                    2/26/2009
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    75,000
                                    
                                    
                                    
                                    1.42
                                    
                                    
                                    
                                    59,475
                                    (4)N/A
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    87,500
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Larry
      McNamara (3)
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    108,160
                                    
                                    
                                    
                                    189,278
                                    
                                    
                                    
                                    50,000
                                    (3)
                                    
                                    
                                    1.25
                                    
                                    
                                    
                                    46,000
                                    (3)120,000
                                    (3)
                                    
                                    
                                    1.75
                                    
                                    
                                    
                                    65,500
                                    (3)100,000
                                    (3)
                                    
                                    
                                    2.19
                                    
                                    
                                    
                                    32,500
                                    (3)Robert
      Schreiber, Jr.
                                    
                                    
                                    N/A
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —




(1)
              The
      amounts shown in column titled “Target” reflects the minimum payment
      level under the Company’s 2009 Executive Management Incentive Plan
      which is paid with the achievement of 85% to 100% of the target amount.
      The amount shown in column titled “Maximum” reflects the maximum payment
      level of reaching 161% of the target amount. These amounts are based on
      the individual’s current salary and
position.





(2)
              Named
      as Chief Financial Officer and Secretary of the Board of Directors by the
      Company’s Board of Directors on February 26, 2009.  Options were
      granted upon being named as Chief Financial
  Officer.





(3)
              Resigned
      as Chief Operating Officer effective September 1, 2009 and as an employee
      of the Company effective September 30, 2009.  No amount was
      earned by Mr. McNamara under the 2009 Executive Management Incentive
      Plan.  On September 28, 2009, the Company amended and extended
      Mr. McNamara’s fully vested non-qualified stock options until the earlier
      of 5:00 p.m. on March 31, 2010, or termination of Mr. McNamara under the
      consulting agreement between Mr. McNamara and the Company.  The
      amended non-qualified stock options are reflected in this table as new
      grants of options based on the fair value as of the date of amendment,
      computed in accordance with ASC 718, “Compensation – Stock Compensation”,
      excluding the effect of
forfeitures.





(4)
              Calculated
      using the fair value of $.793 per share as determined on the date of grant
      in accordance with ASC 718, “Compensation – Stock
      Compensation”.




127




Outstanding
Equity Awards at Fiscal Year




The
following table sets forth unexercised options held by the named executive
officers as of the fiscal year-end.





Outstanding Equity Awards at
December 31, 2009




Option AwardsName
                                    
                                    Number of
                                      Securities
                                      Underlying
                                      Unexercised
                                      Options
                                      (#)
                                      Exercisable
                                    
                                    
                                    Number of
                                      Securities
                                      Underlying
                                      Unexercised
                                      Options
                                      (#) (1)
                                      Unexercisable
                                    
                                    
                                    Equity
                                      Incentive Plan
                                      Awards:
                                      Number of
                                      Securities
                                      Underlying
                                      Unexercised
                                      Unearned
                                      Options
                                      (#)
                                    
                                    
                                    Option
                                      Exercise
                                      Price
                                      ($)
                                    
                                    
                                    Option
                                      Expiration DateDr.
      Louis Centofanti
                                    
                                    
                                    70,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.25
                                    
                                    
                                    4/10/2010100,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.75
                                    
                                    
                                    5/10/2011100,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2.19
                                    
                                    
                                    2/27/2013100,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.86
                                    
                                    
                                    3/2/201250,000
                                    
                                    
                                    
                                    100,000
                                    (2)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2.28
                                    
                                    
                                    8/5/2014Ben
      Naccarato
                                    
                                    
                                    20,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.44
                                    
                                    
                                    10/28/20145,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.86
                                    
                                    
                                    3/2/201213,333
                                    
                                    
                                    
                                    26,667
                                    (2)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2.28
                                    
                                    
                                    8/5/2014—
                                    
                                    
                                    
                                    75,000
                                    (3)
                                    
                                    
                                    
                                    
                                    
                                    
                                    1.42
                                    
                                    
                                    2/26/2015Larry
      McNamara
                                    
                                    
                                    50,000
                                    (4)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.25
                                    
                                    
                                    
                                    
                                    (4)120,000
                                    (4)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.75
                                    
                                    
                                    
                                    
                                    (4)100,000
                                    (4)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2.19
                                    
                                    
                                    
                                    
                                    (4)Robert
      Schreiber, Jr.
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.75
                                    
                                    
                                    5/10/201150,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2.19
                                    
                                    
                                    2/27/201325,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1.86
                                    
                                    
                                    3/2/20128,333
                                    
                                    
                                    
                                    16,667
                                    (2)
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2.28
                                    
                                    
                                    8/5/2014




(1)
              In
      the event of a change in control (as defined in the Option Plan) of the
      Company, each outstanding option and award shall immediately become
      exercisable in full notwithstanding the vesting or exercise provisions
      contained in the stock option
agreement.





(2)
              Incentive
      stock option granted on August 5, 2008 under the Company’s Option
      Plan.  The option is for a six year term and vests over a three
      year period, at one third increments per
year.





(3)
              Incentive
      stock option granted on February 26, 2009 under the Company’s Option
      Plan.  The option is for a six year term and vests over a three
      year period, at one third increments per
year.





(4)
              Resigned
      as Chief Operating Officer effective September 1, 2009 and as an employee
      of the Company effective September 30, 2009.  After Mr.
      McNamara’s resignation as the Chief Operating Officer but prior to his
      resignation as an employee of the Company became effective, the Company
      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 and extended the fully vested outstanding
      non-qualified stock options until the earlier of 5:00 p.m on March 31,
      2010 or termination of Mr. McNamara as a consultant under the consulting
      agreement.




128


The
following table sets forth the number of options exercised by the named
executive officers in 2009:





Option Exercises and Stock
Vested Table





Option AwardsName
                    
                    Number of Shares
                      Acquired on Exercises
                      (#)
                    
                    
                    Value RealizedOn
                      Exercise
                      ($) (1)Dr.
      Louis F. Centofanti
                    
                    
                    —
                    
                    
                    
                    —Ben
      Naccarato
                    
                    
                    —
                    
                    
                    
                    —Larry
      McNamara (2)
                    
                    
                    250,000
                    
                    
                    
                    147,500Robert
      Schreiber, Jr.
                    
                    
                    15,000
                    
                    
                    
                    14,400





(1)
            Based on the difference between
      the closing price of our Common Stock reported on the NASDAQ Capital
      Market on the exercise date and the exercise price of the
      option.





(2)
            Resigned as Chief Operating
      Officer effective September 1, 2009 and as an employee of the Company
      effective September 30,
2009.





Compensation
of Directors


Directors
who are employees receive no additional compensation for serving on the Board of
Directors or its committees.  In 2009, we provided the following
annual compensation to directors who are not employees:





·
            on
      the date of our 2009 Annual Meeting, each of our continuing non-employee
      directors was awarded options to purchase 12,000 shares of our Common
      Stock.   The grant date fair value of each option award
      received by our non-employee directors was $1.97 per share, based on the
      date of grant, pursuant to ASC 718, “Compensation – Stock
      Compensation”;


·
            a
      monthly director fee of $2,167;


·
            an
      additional monthly fee of $1,833 to our Audit Committee Chair;
      and


·
            a
      fee of $1,000 for each board meeting attendance and a $500 fee for each
      telephonic conference call
attendance.





Each
director may elect to have 65% or 100% payable in Common Stock under the 2003
Outside Director Plan, with the remaining payable in cash.





The table
below summarizes the director compensation expenses recognized by the Company
for the director option and stock (resulting from fees earned)
awards.  The terms of the 2003 Outside Directors Plan are further
described below under “2003 Outside Directors Plan”.




129




Director Compensation
Table




Name
                  
                  Fees
                    Earned or
                    Paid
                    In Cash
                  
                  
                  Stock
                    Awards
                  
                  
                  Option
                    Awards
                  
                  
                  Non-Equity
                    Incentive Plan
                    Compensation
                  
                  
                  Change in
                    Pension Value
                    and
                    Nonqualified
                    Deferred
                    Compensation
                    Earnings
                  
                  
                  All Other
                    Compensation
                  
                  
                  Total($)(1)
                  
                  
                  ($)(2)
                  
                  
                  ($)
      (3)
                  
                  
                  ($)
                  
                  
                  ($)
                  
                  
                  ($)
                  
                  
                  ($)Mark
      Zwecker
                  
                  
                  18,725
                  
                  
                  
                  46,366
                  
                  
                  
                  23,640
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  88,730Jon
      Colin
                  
                  
                  —
                  
                  
                  
                  41,331
                  
                  
                  
                  23,640
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  64,971Robert
      L. Ferguson (4)
                  
                  
                  10,675
                  
                  
                  
                  26,435
                  
                  
                  
                  23,640
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  60,750Jack
      Lahav
                  
                  
                  —
                  
                  
                  
                  39,999
                  
                  
                  
                  23,640
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  63,639Joe
      R. Reeder
                  
                  
                  —
                  
                  
                  
                  40,665
                  
                  
                  
                  23,640
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  64,305Charles
      E. Young
                  
                  
                  10,325
                  
                  
                  
                  25,566
                  
                  
                  
                  23,640
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  59,532Larry
      M. Shelton
                  
                  
                  11,025
                  
                  
                  
                  27,300
                  
                  
                  
                  23,640
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  61,965





(1)
            Under
      the 2003 Outside Directors Plan, each director elects to receive 65% or
      100% of the director’s fees in shares of our Common Stock.  The
      amounts set forth below represent the portion of the director’s fees paid
      in cash and excludes the value of the director’s fee elected to be paid in
      Common Stock under the 2003 Outside Director Plan, which value is included
      under “Stock Awards”.





(2)
            The
      number of shares of Common Stock comprising stock awards granted under the
      2003 Outside Directors Plan is calculated based on 75% of the closing
      market value of the Common Stock as reported on the NASDAQ on the business
      day immediately preceding the date that the quarterly fee is
      due.  Such shares are fully vested on the date of
      grant.  The value of the stock award is based on the market
      value of our Common Stock at each quarter end times the number of shares
      issuable under the award.  The amount shown is the fair value of
      the Common Stock on the date of the
award.





(3)
            Options
      granted under the Company’s 2003 Outside Director Plan resulting from
      reelection to the Board of Directors on July 29, 2009.  Options
      are for a 10 year period with an exercise price of $2.67 per share and are
      fully vested in six months from grant date.  The value of the
      option award for each outside director is calculated based on the fair
      value of the option per share ($1.97) on the date of grant times the
      number of options granted, which was 12,000, pursuant to ASC 718,
      “Compensation – Stock
Compensation”.





(4)
            Resigned
      as a member of our Board of Directors effective February 27,
      2010.





2003
Outside Directors Plan


We
believe that it is important for our directors to have a personal interest in
our success and growth and for their interests to be aligned with those of our
stockholders.  Therefore, under our 2003 Outside Directors Stock Plan
(“2003 Directors Plan”), each outside director is granted a 10 year option to
purchase up to 30,000 shares of Common Stock on the date such director is
initially elected to the Board of Directors, and receives on each reelection
date an option to purchase up to another 12,000 shares of Common Stock, with the
exercise price being the fair market value of the Common Stock preceding the
option grant date.  No option granted under the 2003 Directors Plan is
exercisable until after the expiration of six months from the date the option is
granted and no option shall be exercisable after the expiration of ten years
from the date the option is granted.  Options to purchase 594,000
shares of Common Stock have been granted and are outstanding under the 2003
Directors Plan.





We
periodically review compensation paid to our outside directors against
compensation paid by our Peer Group (see Companies comprising the Peer Group in
“Item 11 – Executive Compensation – The Committee’s Process – Peer Group
Assessment”) to its outside directors to insure that our outside directors are
adequately compensated.  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 the 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 2009, the fees earned by our outside directors totaled
$298,000.  Reimbursements of expenses for attending meetings of the
Board are paid in cash at the time of the applicable Board
meeting.  Although Dr. Centofanti is not compensated for his services
provided as a director, Dr. Centofanti is compensated for his services rendered
as an officer of the Company.  See “EXECUTIVE COMPENSATION — Summary
Compensation Table.”





130




As of
December 31, 2009, we have issued 667,852 shares of our Common Stock in payment
of director fees since the inception of the 2003 Directors Plan.





In the
event of a change of control (as defined in the 2003 Outside Directors Stock
Plan), each outstanding stock option and stock award shall immediately become
exercisable in full notwithstanding the vesting or exercise provisions contained
in the stock option agreement.





Compensation
Committee Interlocks and Insider Participation


During
2009, the Compensation and Stock Option Committee for our Board of Directors was
composed of Jack Lahav, Jon Colin, Joe Reeder, and Dr. Charles E.
Young.  None of the members of the Compensation and Stock Option
Committee has been an officer or employee of the Company or has had any
relationship with the Company requiring disclosure under the SEC
regulations.





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





Security
Ownership of Certain Beneficial Owners


The table
below sets forth information as to the shares of Common Stock beneficially owned
as of February 26, 2010, by each person known by us to be the beneficial owners
of more than 5% of any class of our voting securities.




Name of Beneficial Owner
                      
                      Title
                        Of Class
                      
                      Amount and
                        Nature of
                        Ownership
                      
                      
                      Percent
                        Of
                        Class(1)Heartland
      Advisors, Inc.(2)
                      
                      Common
                      
                      
                      4,620,458
                      
                      
                      
                      8.45
                      %Rutabaga
      Capital Management (3)
                      
                      Common
                      
                      
                      3,999,027
                      
                      
                      
                      7.32
                      %BlackRock,
      Inc. (4)
                      
                      Common
                      
                      
                      3,131,222
                      
                      
                      
                      5.73
                      %Oberweis
      Asset Management, Inc. (5)
                      
                      Common
                      
                      
                      3,022,400
                      
                      
                      
                      5.53
                      %




(1)The
number of shares and the percentage of outstanding Common Stock beneficially
owned by a person are based upon 54,654,410 shares of Common Stock issued and
outstanding on February 26, 2010, and the number of shares of Common Stock which
such person has the right to acquire beneficial ownership of within 60 days.
Beneficial ownership by our stockholders has been determined in accordance with
the rules promulgated under Section 13(d) of the Exchange Act.





(2) This
information is based on the Schedule 13G/A, filed with the Securities and
Exchange Commission (“SEC”) on February 10, 2010, which provides that Heartland
Advisors, Inc., an investment advisor, shares voting power over 4,228,790 of
such shares and share dispositive power over all of the shares, and no sole
voting or sole dispositive power over any of the shares.  The address
of Heartland Advisors, Inc. is 789 North Water Street, Suite 500, Milwaukee, WI
53202.





(3) This
information is based on the Schedule 13G/A, filed with the SEC on February 8,
2010, which provides that Rutabaga Capital Management, an investment advisor,
has sole voting power over 2,455,938 shares and shared voting power over
1,543,089 shares and sole dispositive power over all of these
shares.  The address of Rutabaga Capital Management is 64 Broad
Street, 3rd Floor,
Boston, MA  02109.





(4) This
information is based on the Schedule G filed with the SEC on January 29, 2010,
which provides that BlackRock, Inc., an investment manager, has sole dispositive
power and sole voting power over all of the shares.  The address of
BlackRock, Inc. is 40 East 52nd Street,
New York, NY 10022.





(5) This
information is based on the Schedule G filed with the SEC on February 12, 2010,
which provides that Oberweis Asset Management, Inc., an investment advisor,
along with James D. Oberweis and James W. Oberweis, as principal shareholders of
Oberweis Asset Management, Inc., share voting power over 2,186,200 of such
shares and share dispositive power over all of the shares, and no sole voting or
sole dispositive power over any of the shares.  The address of
Oberweis Asset Management is 3333 Warrenville Road, Suite 500, Lisle, IL
60532.





131




Capital
Bank represented to us that:


·
            As
      of January 25, 2010, Capital Bank holds of record as a nominee for, and as
      an agent of, certain accredited investors, 3,804,196 shares of our Common
      Stock.;


·
            All
      of the Capital Bank's investors are accredited
  investors;


·
            None
      of Capital Bank's investors beneficially own more than 4.9% of our Common
      Stock and to its best knowledge, none of Capital Bank’s investors act
      together as a group or otherwise act in concert for the purpose of voting
      on matters subject to the vote of our stockholders or for purpose of
      dispositive or investment of such
stock;


·
            Capital
      Bank's investors maintain full voting and dispositive power over the
      Common Stock beneficially owned by such investors;
  and


·
            Capital
      Bank has neither voting nor investment power over the shares of Common
      Stock owned by Capital Bank, as agent for its
  investors.


·
            Capital
      Bank believes that it is not required to file reports under Section 16(a)
      of the Exchange Act or to file either Schedule 13D or Schedule 13G in
      connection with the shares of our Common Stock registered in the name of
      Capital Bank.


·
            Capital
      Bank is not the beneficial owner, as such term is defined in Rule 13d-3 of
      the Exchange Act, of the shares of Common Stock registered in Capital
      Bank’s name because (a) Capital Bank holds the Common Stock as a nominee
      only and (b) Capital Bank has neither voting nor investment power over
      such shares.





Notwithstanding
the previous paragraph, if Capital Bank's representations to us described above
are incorrect or if Capital Bank's investors are acting as a group, then Capital
Bank or a group of Capital Bank's investors could be a beneficial owner of more
than 5% of our voting securities.  If Capital Bank is deemed the
beneficial owner of such shares, the following table sets forth information as
to the shares of voting securities that Capital Bank may be considered to
beneficially own on January 25, 2010.





Name of
                        Record Owner
                      
                      Title
                        Of Class
                      
                      Amount and
                        Nature of
                        Ownership
                      
                      
                      Percent
                        Of
                        Class (1)Capital
      Bank Grawe Gruppe (2)
                      
                      Common
                      
                      
                      3,804,196
                      (2)
                      
                      
                      6.96
                      %





(1)This
calculation is based upon 54,654,410 shares of Common Stock issued and
outstanding on February 26, 2010 plus the number of shares of Common Stock which
Capital Bank, as agent for certain accredited investors has the right to acquire
within 60 days, which is none.





(2) This
amount is the number of shares that Capital Bank has represented to us that it
holds of record as nominee for, and as an agent of, certain of its accredited
investors.  As of the date of this report, Capital Bank has no
warrants or options to acquire, as agent for certain investors, additional
shares of our Common Stocks.  Although Capital Bank is the record
holder of the shares of Common Stock described in this note, Capital Bank has
advised us that it does not believe it is a beneficial owner of the Common Stock
or that it is required to file reports under Section 16(a) or Section 13(d) of
the Exchange Act.  Because Capital Bank (a) has advised us that it
holds the Common Stock as a nominee only and that it does not exercise voting or
investment power over the Common Stock held in its name and that no one investor
of Capital Bank for which it holds our Common Stock holds more than 4.9% of our
issued and outstanding Common Stock and (b) has not nominated, and has not
sought to nominate, and does not intend to nominate in the future, any person to
serve as a member of our Board of Directors, we do not believe that Capital Bank
is our affiliate.  Capital Bank's address is Burgring 16, A-8010 Graz,
Austria.





132




Security
Ownership of Management


The
following table sets forth information as to the shares of voting securities
beneficially owned as of February 26, 2010, by each of our Directors and named
executive officers and by all of our directors and executive officers as a
group.  Beneficial ownership has been determined in accordance with
the rules promulgated under Section 13(d) of the Exchange Act.  A
person is deemed to be a beneficial owner of any voting securities for which
that person has the right to acquire beneficial ownership within 60
days.





Number
      of Shares of
                  
                  
                  Percentage
      ofName
      of Beneficial Owner (2)
                  
                  Common
      Stock
                  
                  
                  Common
      Stock (1)Dr.
      Louis F. Centofanti (3)
                  
                  
                  1,332,934
                  (3)
                  
                  
                  2.42
                  %Jon
      Colin (4)
                  
                  
                  246,228
                  (4)
                  
                  
                  *Robert
      L. Ferguson(5)
                  
                  
                  430,359
                  (5)
                  
                  
                  *Jack
      Lahav (6)
                  
                  
                  862,762
                  (6)
                  
                  
                  1.58
                  %Joe
      Reeder (7)
                  
                  
                  967,151
                  (7)
                  
                  
                  1.77
                  %Larry
      Shelton (8)
                  
                  
                  108,057
                  (8)
                  
                  
                  *Dr.
      Charles E. Young (9)
                  
                  
                  140,181
                  (9)
                  
                  
                  *Mark
      A. Zwecker (10)
                  
                  
                  418,093
                  (10)
                  
                  
                  *Robert
      Schreiber, Jr. (11)
                  
                  
                  238,625
                  (11)
                  
                  
                  *Ben
      Naccarato (12)
                  
                  
                  63,333
                  (12)
                  
                  
                  *Larry
      McNamara (13)
                  
                  
                  324,220
                  (13)
                  
                  
                  *Directors
      and Executive Officers as a Group (10 persons)
                  
                  
                  4,807,723
                  (14)
                  
                  
                  8.60
                  %





*Indicates
beneficial ownership of less than one percent (1%).





(1)  See
footnote (1) of the table under “Security Ownership of Certain Beneficial
Owners”.





(2)  The
business address of each person, for the purposes hereof, is c/o Perma-Fix
Environmental Services, Inc., 8302 Dunwoody Place, Suite 250, Atlanta, Georgia
30350.





(3)  These
shares include (i) 598,934 shares held of record by Dr. Centofanti; (ii) options
to purchase 420,000 shares which are immediately exercisable; and (iii) 314,000
shares held by Dr. Centofanti's wife.  Dr. Centofanti has sole voting
and investment power of these shares, except for the shares held by Dr.
Centofanti's wife, over which Dr. Centofanti shares voting and investment
power.





(4)Mr.
Colin has sole voting and investment power over these shares which include: (i)
147,228 shares held of record by Mr. Colin, and (ii) options to purchase 99,000
shares of Common Stock, which are immediately exercisable.





(5)Mr.
Ferguson has sole voting and investment power over these shares which include:
(i) 325,295 shares of Common Stock held of record by Mr. Ferguson, (ii) 27,046
shares held in Mr. Ferguson’s individual retirement account, (iii) 24,018 shares
held by Ferguson Financial Group LLC (“FFG LLC”), of which Mr. Ferguson is the
manager; and (iv) options to purchase 54,000 shares, which are immediately
exercisable.  Mr. Ferguson resigned as a director effective February
27, 2010.





(6)Mr.
Lahav has sole voting and investment power over these shares which include: (i)
758,762 shares of Common Stock held of record by Mr. Lahav; (ii) options to
purchase 104,000 shares, which are immediately exercisable.





(7)Mr.
Reeder has sole voting and investment power over these shares which include: (i)
868,151 shares of Common Stock held of record by Mr. Reeder, and (ii) options to
purchase 99,000 shares, which are immediately exercisable.





133




(8)Mr.
Shelton has sole voting and investment power over these shares which include:
(i) 42,057 shares of Common Stock held of record by Mr. Shelton, and (ii)
options to purchase 66,000 shares, which are immediately
exercisable.





(9)Dr.
Young has sole voting and investment power over these shares which include: (i)
38,181 shares held of record by Dr. Young; and (ii) options to purchase 102,000
shares, which are immediately exercisable.





(10)Mr.
Zwecker has sole voting and investment power over these shares which include:
(i) 319,093 shares of Common Stock held of record by Mr. Zwecker; and (ii)
options to purchase 99,000 shares, which are immediately
exercisable.





(11)Mr.
Schreiber has joint voting and investment power, with his spouse, over 105,292
shares of Common Stock beneficially held and sole voting and investment power
over options to purchase 133,333 shares, which are immediately
exercisable.





(12)Mr.
Naccarato has sole voting and investment power over these shares which include:
options to purchase 38,333 shares, which are immediately exercisable and options
to purchase 25,000 shares, which are exercisable on February 26,
2010.





(13)Mr.
McNamara has sole voting and investment power over these shares which include:
(i) 54,220 shares of Common Stock held of record by Mr. McNamara; and (ii)
options to purchase 270,000 shares, which are immediately exercisable (see
“Outstanding Equity Awards at December 31, 2009” table in Item 11 - “Executive
Compensation” (footnote 4)), regarding the 270,000 options extended to Mr.
McNamara.





(14)Shares do not reflect shares held of record by Mr. McNamara as Mr.
McNamara resigned as Chief Operating Officer, of the Company effective September
1, 2009.  Amount includes 1,214,666 options, which are immediately
exercisable to purchase 1,214,666 shares of Common Stock and 25,000 options,
which became exercisable on February 26, 2010, to purchase 25,000 shares of
Common Stock.





Equity
Compensation Plans


The
following table sets forth information as of December 31, 2008, with respect to
our equity compensation plans.





Equity Compensation PlanPlan Category
                
                Number of securities to
                  be issued upon exercise
                  of outstanding options
                  warrants and rights
                
                
                Weighted average
                  exercise price of
                  outstanding
                  options, warrants
                  and rights
                
                
                Number of securities
                  remaining available for
                  future issuance under
                  equity compensation
                  plans (excluding
                  securities reflected in
                  column (a)(a)
                
                
                (b)
                
                
                (c)Equity
      compensation plans
                  Approved
      by stockholders
                
                
                3,109,525
                
                
                $
                2.05
                
                
                
                889,147Equity
      compensation plans not
                  Approved
      by stockholders
                
                
                —
                
                
                
                —
                
                
                
                —Total
                
                
                3,109,525
                
                
                $
                2.05
                
                
                
                889,147




134




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





Mr.
Robert L. Ferguson


On June
13, 2007, we acquired Nuvotec and Nuvotec's wholly owned subsidiary, PEcoS
(n/k/a our “PFNWR” facility), pursuant to the terms of the Merger Agreement,
between us, Nuvotec, PEcoS, and our wholly owned subsidiary.  At the
time of the acquisition, Robert L. 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.  In
connection with the acquisition, Mr. Ferguson was nominated to serve as a
Director and subsequently elected as a Director at our Annual Meeting of
Stockholders held in August 2007 and each Annual Meeting of Shareholders since
August 2007.





As
consideration for the acquisition, Mr. Ferguson: (a) received a total of
$224,560 cash and 192,783 shares of Perma-Fix Common Stock in July 2007 as a
former shareholder of Nuvotec who is “accredited” under the rules of Regulation
D under the Act, (b) is entitled to receive a portion of a certain earn-out
amount payable to all former shareholders of Nuvotec (n/ka/ “PFNW”) at the time
of our acquisition not to exceed $4,552,000, over a four year period ending June
30, 2011, pursuant to the Merger Agreement, as amended.  Earn-out
amounts are payable by the Company if certain annual revenue targets are met by
the Company’s consolidated Nuclear Segment.  We were not required to
pay any earn-out amount for the fiscal period ended June 30, 2008.  We
paid $734,000 in earn-out amount for the fiscal period ended June 30, 2009, on
September 30, 2009.  As of the date of this report, any remaining
future earn-out amount required to be paid by the Company will be deducted by
approximately $93,000, which represents indemnification obligations payable to
the Company by Nuvotec, PEcoS, and the former shareholders prior to our
acquisition of PFNW and PFNWR.  Mr. Ferguson, individually or through
entities controlled by him, is entitled to receive 21.29% of the total earn-out
amounts, (c) had guaranteed $4,000,000 of bank debt, which was paid off by
Perma-Fix in December 2008, and a $1,750,000 line of credit assumed by us in the
acquisition, which the $1,750,000 line of credit was released when we replaced
the financial assurance of PEcoS deposited with the State of Washington with our
financial assurance, and (d) as a former shareholder of Nuvotec, who qualified
as an “accredited investor” at the time of our acquisition, is due his share of
a $2,500,000 note payable by the Company to the former shareholders of
Nuvotec.  Mr. Ferguson is entitled to receive his proportionate share
of 27.18% of the note payments.  In June 2009, the Company paid the
first of three principal installments of $833,333 on the note, along with
accrued interests.





Mr.
Ferguson resigned as a director of the Company effective February 27,
2010.





Lawrence
Properties LLC


During
February 2006, our Board of Directors approved and we entered into a lease
agreement, whereby we lease property from Lawrence Properties LLC, a company
jointly owned by the president of Schreiber, Yonley and Associates, Robert
Schreiber, Jr. and his spouse.  Mr. Schreiber is a member of our
executive management team.  The lease is for a term of five years from
June 1, 2006.  We pay monthly rent expense of $10,000, which we
believe is lower than costs charged by unrelated third party
landlords.  Additional rent will be assessed for any increases over
the initial lease commencement year for property taxes or assessments and
property and casualty insurance premiums.





Mr.
David Centofanti


Mr. David
Centofanti serves as our Director of Information Services.  For such
services, he received total compensation in 2009 of approximately $166,000. Mr.
David Centofanti is the son of our Chief Executive Officer and Chairman of our
board, Dr. Louis F. Centofanti.  We believe the compensation received
by Mr. Centofanti for his technical expertise which he provides to the Company
is competitive and comparable to compensation we would have to pay to an
unaffiliated third party with the same technical expertise.





The
Company’s Audit Committee acts under its Audit Committee Charter and reviews all
related party transactions involving our directors and executives.





Director
Independence


See “Item
10 of Part III – Directors, Executive Officers and Corporate Governance”
regarding the independence of our Directors.




135




ITEM
      14.
            PRINCIPAL ACCOUNTING FEES AND
      SERVICES





Audit
Fees


The
aggregate fees and expenses billed by BDO Seidman, LLP (“BDO”) for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal years ended December 31, 2009 and 2008, for the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for those fiscal years, and for review of documents filed with the Securities
and Exchange Commission for those fiscal years were approximately $537,000 and
$548,000, respectively.  Audit fees for 2009 and 2008 include
approximately $135,000 and $179,000, respectively, in fees related to the audit
of internal control over financial reporting.





Audit-Related
Fees


The
aggregate fees and expenses billed by BDO for audit related services for the
fiscal years ended December 31, 2009 and 2008 totaled $40,000 and $55,000,
respectively.  Fees for 2009 and 2008 included consulting on various
accounting and reporting matters and audit of the Company’s 401(K)
Plan.





Tax
Services


BDO was
not engaged to provide tax services to the Company for the fiscal years ended
December 31, 2009 and 2008.





The Audit
Committee of the Company's Board of Directors has considered whether BDO’s
provision of the services described above for the fiscal years ended December
31, 2009 and 2008, is compatible with maintaining its independence.





Engagement
of the Independent Auditor


The Audit
Committee is responsible for approving all engagements with BDO and any members
of the BDO Alliance network of firms to perform audit or non-audit services for
us, prior to engaging these firms to provide those services.  All of
the services under the headings Audit Fees, Audit Related Fees, and Tax Services
were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X of the Exchange Act.  The Audit Committee's
pre-approval policy provides as follows:





·
            The
      Audit Committee will review and pre-approve on an annual basis any known
      audit, audit-related, tax and all other services, along with acceptable
      cost levels, to be performed by BDO and any members of the BDO Alliance
      network of firms. The Audit Committee may revise the pre-approved services
      during the period based on subsequent determinations. Pre-approved
      services typically include: Audits, quarterly reviews, regulatory filing
      requirements, consultation on new accounting and disclosure standards,
      employee benefit plan audits, reviews and reporting on management's
      internal controls and specified tax
matters.


·
            Any
      proposed service that is not pre-approved on the annual basis requires a
      specific pre-approval by the Audit Committee, including cost level
      approval.


·
            The
      Audit Committee may delegate pre-approval authority to one or more of the
      Audit Committee members. The delegated member must report to the Audit
      Committee, at the next Audit Committee meeting, any pre-approval decisions
      made.




136


PART
IV





ITEM
15.               EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES





The
following documents are filed as a part of this report:





(a)(1)
            Consolidated
      Financial StatementsSee
      Item 8 for the Index to Consolidated Financial
  Statements.(a)(2)
            Financial
      Statement SchedulesSee
      Item 8 for the Index to Consolidated Financial Statements (which includes
      the Index to Financial Statement Schedules)(a)(3)
            ExhibitsThe
      Exhibits listed in the Exhibit Index are filed or incorporated by
      reference as a part of this report.




137


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





Perma-Fix
Environmental Services, Inc.





By
            /s/
      Dr. Louis F. Centofanti
            
            Date
            March
      12, 2010Dr.
      Louis F. CentofantiChairman
      of the BoardChief
      Executive OfficerBy
            /s/
      Ben Naccarato
            
            Date
            March
      12, 2010Ben
      NaccaratoChief
      Financial Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in
capacities and on the dates indicated.





By
              /s/
      Dr. Louis F. Centofanti
              
              Date
              March
      12, 2010Dr.
      Louis F. Centofanti, DirectorBy
              /s/
      Jon Colin
              
              Date
              March
      12, 2010Jon
      Colin, DirectorBy
              /s/
      Jack Lahav
              
              Date
              March
      12, 2010Jack
      Lahav, DirectorBy
              /s/
      Joe R. Reeder
              
              Date
              March
      12, 2010Joe
      R. Reeder, DirectorBy
              /s/
      Larry M. Shelton
              
              Date
              March
      12, 2010Larry
      M. Shelton, DirectorBy
              /s/
      Charles E. Young
              
              Date
              March
      12, 2010Charles
      E. Young, DirectorBy
              /s/
      Mark A. Zwecker
              
              Date
              March
      12, 2010Mark
      A. Zwecker, Director




138


SCHEDULE
II





PERMA-FIX
ENVIRONMENTAL SERVICES, INC.





VALUATION
AND QUALIFYING ACCOUNTS


For the
years ended December 31, 2009, 2008, and 2007


(Dollars
in thousands)





Description
                                          
                                          Balanceat
                                            Beginning
                                            of Year
                                          
                                          
                                          Additions
                                            Chargedto
                                            Costs,
                                            Expenses
                                            and Other
                                          
                                          
                                          Deductions
                                          
                                          
                                          Balanceat
                                            End ofYearYear
      ended December 31, 2009:Allowance
      for doubtful accounts-continuing
      operations
                                          
                                          $
                                          333
                                          
                                          
                                          $
                                          352
                                          
                                          
                                          $
                                          389
                                          
                                          
                                          $
                                          296Allowance
      for doubtful accounts-discontinued
      opertions
                                          
                                          $
                                          ─
                                          
                                          
                                          $
                                          ─
                                          
                                          
                                          $
                                          ─
                                          
                                          
                                          $
                                          ─Year
      ended December 31, 2008:Allowance
      for doubtful accounts-continuing
      operations
                                          
                                          $
                                          203
                                          
                                          
                                          $
                                          187
                                          
                                          
                                          $
                                          57
                                          
                                          
                                          $
                                          333Allowance
      for doubtful accounts-discontinued
      opertions
                                          
                                          $
                                          204
                                          
                                          
                                          $
                                          (28
                                          )
                                          
                                          $
                                          176
                                          
                                          
                                          $
                                          ─Year
      ended December 31, 2007:Allowance
      for doubtful accounts-continuing
      operations
                                          
                                          $
                                          250
                                          
                                          
                                          $
                                          165
                                          
                                          
                                          $
                                          212
                                          
                                          
                                          $
                                          203Allowance
      for doubtful accounts-discontinued
      opertions
                                          
                                          $
                                          165
                                          
                                          
                                          $
                                          41
                                          
                                          
                                          $
                                          2
                                          
                                          
                                          $
                                          204




139


EXHIBIT
INDEX




Exhibit
              No.
            
            Description2.1
            
            Agreement
      and Plan of Merger dated April 27, 2007, by and among Perma-Fix
      Environmental Services, Inc., Nuvotec USA, Inc., Pacific EcoSolutions,
      Inc. and PESI Transitory, Inc., which is incorporated by reference from
      Exhibit 2.1 to the Company’s Form 8-K, filed May 3, 2007.  The
      Company will furnish supplementally a copy of any omitted exhibits or
      schedule to the Commission upon request.2.2
            
            First
      Amendment to Agreement and Plan of Merger, dated June 13, 2007, by and
      among Perma-Fix Environmental Services, Inc., Nuvotec USA, Inc., Pacific
      EcoSolutions, Inc., and PESI Transitory, Inc., which is incorporated by
      reference from Exhibit 2.2 to the Company’s Form 8-K, filed June 19,
      2007.  The Company will furnish supplementally a copy of any
      omitted exhibits or schedule to the Commission upon
    request.2.3
            
            Asset
      Purchase Agreement by and among Triumvirate Environmental Services, Inc.,
      Triumvirate Environmental (Baltimore), LLC, Perma-Fix Environmental
      Services, Inc., and Perma-Fix of Maryland, Inc. dated January 18, 2008,
      which is incorporated by reference from Exhibit 2.3 to the Company’s Form
      10-K for year ended December 31, 2007, filed with the SEC on April 1,
      2008.  Schedules and exhibits to the Agreement are listed in the
      Agreement, and the Company will furnish supplementally a copy of any
      omitted exhibits or schedule to the Commission upon
    request.2.4
            
            Asset
      Purchase Agreement by and among Perma-Fix of Dayton, Inc., Perma-Fix
      Environmental Services, Inc., and OGM, Ltd., dated March 14, 2008, as
      incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K,
      filed March 20, 2008.  The Company will furnish supplementally a
      copy of any omitted exhibits or schedule to the Commission upon
      request.2.4
            
            Asset
      Purchase Agreement by and among Perma-Fix of Treatment Services, Inc.,
      Perma-Fix Environmental Services, Inc., and A Clean Environmental
      Services, Inc., dated May 14, 2008, as incorporated by reference from
      Exhibit 99.1 to the Company’s Form 8-K, filed May 20, 2008.  The
      Company will furnish supplementally a copy of any omitted exhibits or
      schedule to the Commission upon request.3(i)
            
            Restated
      Certificate of Incorporation, as amended, is incorporated by reference
      from Exhibit 3(i) to the Company’s 2008 Form 10-K filed on March 31,
      2009.3(ii)
            
            Bylaws
      of Perma-Fix Environmental Services, Inc., as amended on October 30, 2007,
      as incorporated by reference from Exhibit 3(ii) to the Company’s Form 10-Q
      for the quarter ended September 30, 2007.4.1
            
            Specimen
      Common Stock Certificate as incorporated by reference from Exhibit 4.3 to
      the Company's Registration Statement, No. 33-51874.4.2
            
            Loan
      and Security Agreement by and between the Company, subsidiaries of the
      Company as signatories thereto, and PNC Bank, National Association, dated
      December 22, 2000, as incorporated by reference from Exhibit 99.1 to the
      Company's Form 8-K dated December 22, 2000.4.3
            
            First
      Amendment to Loan Agreement and Consent, dated January 30, 2001, between
      the Company and PNC Bank, National Association as incorporated by
      reference from Exhibit 99.7 to the Company's Form 8-K dated January 31,
      2001.4.4
            
            Amendment
      No. 1 to Revolving Credit, Term Loan and Security Agreement, dated as of
      June 10, 2002, between the Company and PNC Bank is incorporated by
      reference from Exhibit 4.3 to the Company's Form 10-Q for the quarter
      ended September 30, 2002.4.5
            
            Amendment
      No. 2 to Revolving Credit, Term Loan and Security Agreement, dated as of
      May 23, 2003, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 4.4 to the Company's Form 10-Q for the quarter
      ended June 30, 2003, and filed on August 14, 2003.4.6
            
            Amendment
      No. 3 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      October 31, 2003, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 4.5 to the Company's Form 10-Q for the quarter
      ended September 30, 2003, and filed on November 10,
  2003.




140





4.7
            
            Amendment
      No. 4 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      March 25, 2005, between the Company and PNC Bank as incorporated by
      reference from Exhibit 4.12 to the Company's Form 10-K for the year ended
      December 31, 2004.4.8
            
            Letter
      from PNC Bank regarding intent to waive technical default on the Loan and
      Security Agreement with PNC Bank due to resignation of Chief Financial
      Officer.4.9
            
            Amendment
      No. 6 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      June 12, 2007, between the Company and PNC Bank as incorporated by
      reference from Exhibit 4.1 to the Company's Form 10-Q for the quarter
      ended June 30, 2007.4.10
            
            Amendment
      No. 7 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      July 18, 2007, between the Company and PNC Bank as incorporated by
      reference from Exhibit 4.2 to the Company's Form 10-Q for the quarter
      ended June 30, 2007.4.11
            
            Amendment
      No. 8 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      November 2, 2007, between the Company and PNC Bank as incorporated by
      reference from Exhibit 4.1 to the Company's Form 10-Q for the quarter
      ended September 30, 2007.4.12
            
            Amendment
      No. 9 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      December 18, 2007, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 4.14 to the Company’s Form 10-K for the year ended
      December 31, 2007.4.13
            
            Amendment
      No. 10 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      March 26, 2008, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 4.15 to the Company’s Form 10-K for the year ended
      December 31, 2007.4.14
            
            Amendment
      No. 11 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      July 25, 2008, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 4.1 to the Company’s Form 10-Q for the quarter
      ended June 30, 2008 filed on August 11, 2008.4.15
            
            Amendment
      No. 12 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      July 25, 2008, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 4.2 to the Company’s Form 10-Q for the quarter
      ended June 30, 2008 filed on August 11, 2008.4.16
            
            Amendment
      No. 13 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      March 5, 2009, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 99.1 to the Company’s Form 8-K filed on March 11,
      2009.4.17
            
            Rights
      Agreement dated as of May 2, 2008 between the Company and Continental
      Stock Transfer & Trust Company, as Rights Agent, as incorporated by
      reference from Exhibit 4.1 to the Company’s Form 8-K filed on May 8,
      2008.4.18
            
            Letter
      Agreement dated September 29, 2008, between the Company and Continental
      Stock Transfer & Trust Company, as incorporated by reference from
      Exhibit 4.3 to the Company’s Form 8-A/A filed on October 2,
      2008.4.19
            
            Loan
      and Securities Purchase Agreement, dated May 8, 2009 between William N.
      Lampson, Diehl Rettig, and Perma-Fix Environmental Services, Inc. as
      incorporated by reference from Exhibit 4.1 to the Company Form 10-Q filed
      on May 11, 2009.4.19
            
            Promissory
      Note dated May 8, 2009 between William N. Lampson, Diehl Rettig, and
      Perma-Fix Environmental Services, Inc. as incorporated by reference from
      Exhibit 4.2 to the Company Form 10-Q filed on May 11,
  2009.4.20
            
            Common
      Stock Purchase Warrant, dated May 8, 2009, for William N. Lampson, as
      incorporated by reference from Exhibit 4.3 to the Company Form 10-Q filed
      on May 11, 2009.4.21
            
            Common
      Stock Purchase Warrant, dated May 8, 2009, for Diehl Rettig, as
      incorporated by reference from Exhibit 4.4 to the Company Form 10-Q filed
      on May 11, 2009.4.22
            
            Amendment
      No. 14 to Revolving Credit, Term Loan, and Security Agreement, dated as of
      January 25, 2010, between the Company and PNC Bank, as incorporated by
      reference from Exhibit 99.1 to the Company’s Form 8-K filed on January 28,
      2010.10.1
            
            1992
      Outside Directors' Stock Option Plan of the Company as incorporated by
      reference from Exhibit 10.4 to the Company's Registration Statement, No.
      33-51874.10.2
            
            First
      Amendment to 1992 Outside Directors' Stock Option Plan as incorporated by
      reference from Exhibit 10.29 to the Company's Form 10-K for the year ended
      December 31, 1994.




141




10.3
            
            Second
      Amendment to the Company's 1992 Outside Directors' Stock Option Plan, as
      incorporated by reference from the Company's Proxy Statement, dated
      November 4, 1994.10.4
            
            Third
      Amendment to the Company's 1992 Outside Directors' Stock Option Plan as
      incorporated by reference from the Company's Proxy Statement, dated
      November 8, 1996.10.6
            
            Fourth
      Amendment to the Company's 1992 Outside Directors' Stock Option Plan as
      incorporated by reference from the Company's Proxy Statement, dated April
      20, 1998.10.5
            
            1993
      Non-qualified Stock Option Plan as incorporated by reference from the
      Company's Proxy Statement, dated October 12, 1993.10.6
            
            401(K)
      Profit Sharing Plan and Trust of the Company as incorporated by reference
      from Exhibit 10.5 to the Company's Registration Statement, No.
      33-51874.10.7
            
            Subcontract
      Change Notice between East Tennessee Materials and Energy Corporation and
      Bechtel Jacobs Company, LLC, No. BA-99446/7 and 8F, dated July 2, 2002,
      are incorporated by reference from Exhibit 10.24 to the Company's
      Registration Statement No. 333-70676.10.8
            
            Option
      Agreement, dated July 31, 2001, among the Company, AMI, and BEC is
      incorporated by reference from Exhibit 99.8 to the Company's Form 8-K,
      dated July 30, 2001.10.9
            
            Promissory
      Note, dated June 7, 2001, issued by M&EC in favor of Performance
      Development Corporation is incorporated by reference from Exhibit 10.1 to
      the Company's Form 8-K, dated June 15, 2001.10.10
            
            First
      Amendment to East Tennessee Material & Energy Corporation Promissory
      Note, dated December 29, 2008, as incorporated by reference from Exhibit
      10.1 to the Company’s Form 8-K filed on December 30,
  2008.10.11
            
            2003
      Outside Directors' Stock Plan of the Company as incorporated by reference
      from Exhibit B to the Company's 2003 Proxy Statement.10.12
            
            First
      Amendment to 2003 Outside Directors Stock Plan, as incorporated by
      reference from Appendix “A” to the Company’s 2008 Proxy Statement dated
      July 3, 2008.10.13
            
            2004
      Stock Option Plan of the Company as incorporated by reference from Exhibit
      B to the Company's 2004 Proxy Statement.10.14
            
            Basic
      agreement between East Tennessee Materials and Energy Corporation and
      Bechtel Jacobs Company, LLC No. BA-99446F, dated September 20, 2005, as
      incorporated by reference from Exhibit 10.1 to our Form 10-Q for the
      quarter ended September 30, 2005.  Attachments to this extended
      agreement will be provided to the Commission upon
  request.10.15
            
            Basic
      agreement between East Tennessee Materials and Energy Corporation and
      Bechtel Jacobs Company, LLC No. BA-99447F, dated September 20, 2005, as
      incorporated by reference from Exhibit 10.2 to our Form 10-Q for the
      quarter ended September 30, 2005.  Attachments to this extended
      agreement will be provided to the Commission upon
  request.10.16
            
            Settlement
      Agreement, dated December 19, 2007, by and between Barbara Fisher
      (“Fisher”) and Perma-Fix of Dayton, Inc, as incorporated by reference from
      Exhibit 10.28 to the Company’s Form 10-K for the year ended December 31,
      2007 filed with the SEC on April 1, 2008.10.17
            
            Consent
      Decree, dated December 12, 2007, between United States of America and
      Perma-Fix of Dayton, Inc., as incorporated by reference from Exhibit 10.29
      to the Company’s Form 10-K for the year ended December 31, 2007 filed with
      the SEC on April 1, 2008.10.18
            
            Shared
      Resource Agreement (Subcontract) between an environmental engineering firm
      and East Material & Energy Corp. Inc. dated May 27, 2008, as
      incorporated by reference from Exhibit 10.1 to the company’s Form 10-Q for
      the quarter ended June 30, 2008 filed on August 11,
  2008.10.19
            
            Consent
      Agreement dated September 26, 2008 between Perma-Fix Northwest Richland,
      Inc. and the U.S. Environmental Protection Agency, as incorporated by
      reference from Exhibit 10.1 to the Company’s Form 10-Q for the quarter
      ended September 30, 2008 filed on November 10, 2008.10.20
            
            Second
      Amendment to Agreement and Plan of Merger, dated November 18, 2008 by and
      among Perma-Fix Northwest, Inc., Perma-Fix Northwest Richland, Inc.,
      Perma-Fix Environmental Services, Inc., and Robert L. Ferguson, an
      individual, and William N. Lampson, an individual, as Representatives, as
      incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K
      filed with the SEC on November 21,
2008.




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10.21
            
            2008
      Incentive Compensation Plan for Vice President, Chief Financial Officer,
      effective January 1, 2008, as incorporated by reference from Exhibit 10.1
      to the Company’s Form 8-K filed on August 11, 2008.10.22
            
            2008
      Incentive Compensation Plan for Chief Operating Officer, effective January
      1, 2008, as incorporated by reference from Exhibit 10.2 to the Company’s
      Form 8-K filed on August 11, 2008.10.23
            
            2008
      Incentive Compensation Plan for Chief Executive Officer, effective January
      1, 2008, as incorporated by reference from Exhibit 10.3 to the Company’s
      Form 8-K filed on August 11, 2008.10.24
            
            2009
      Incentive Compensation Plan for Vice President, Chief Financial Officer,
      effective January 1, 2009, as incorporated by reference from Exhibit 10.3
      to the Company’s Form 8-K filed on May 7, 2009.10.25
            
            2009
      Incentive Compensation Plan for Chief Operating Officer, effective January
      1, 2009, as incorporated by reference from Exhibit 10.2 to the Company’s
      Form 8-K filed on May 7, 2009.10.26
            
            2009
      Incentive Compensation Plan for Chief Executive Officer, effective January
      1, 2009, as incorporated by reference from Exhibit 10.1 to the Company’s
      Form 8-K filed on May 7, 2009.10.27
            
            Employment
      Agreement dated May 6, 2009 between Louis Centofanti, Chief Executive
      Officer, and Perma-Fix Environmental Services, Inc., which is incorporated
      by reference from Exhibit 10.4 to the Company’s Form 8-K filed on May 7,
      2009.10.28
            
            Employment
      Agreement dated May 6, 2009 between Larry McNamara, Chief Operating
      Officer, and Perma-Fix Environmental Services, Inc., which is incorporated
      by reference from Exhibit 10.5 to the Company’s Form 8-K filed on May 7,
      2009.10.29
            
            Employment
      Agreement dated May 6, 2009 between Ben Naccarato, Chief Financial
      Officer, and Perma-Fix Environmental Services, Inc., which is incorporated
      by reference from Exhibit 10.6 to the Company’s Form 8-K filed on May 7,
      2009.10.30
            
            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/n/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 on October 5, 2009.10.31
            
            2010
      Incentive Compensation Plan for Vice President, Chief Financial Officer,
      effective January 1, 2010, as incorporated by reference from Exhibit 10.2
      to the Company’s Form 8-K filed on March 3, 2010.10.32
            
            2010
      Incentive Compensation Plan for Chief Executive Officer, effective January
      1, 2010, as incorporated by reference from Exhibit 10.1 to the Company’s
      Form 8-K filed on March 3, 2010.21.1
            
            List
      of Subsidiaries23.1
            
            Consent
      of BDO Seidman, LLP31.1
            
            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.




143