PERMA FIX ENVIRONMENTAL SERVICES : Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


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,




? demand for our services;
? continue to focus on expansion into both commercial and international markets
  to increase revenues;
? full implementation of our strategic plan;
? improve revenue and liquidity and increase shareholder values upon full
  implementation of strategic plan;
? reductions in the level of government funding in future years;
? R&D activity of our Medical Segment;
? reducing operating costs;
? expect to meet our loan covenant requirements in the next twelve months;
? cash flow requirements;
? sufficient liquidity to continue business;
? apply for forgiveness on PPP Loan subject to approval by our lender;
? furlough or layoff eligible employees;
? curtail capital expenditures;
? government funding for our services;
? may not have liquidity to repay debt if our lender accelerates payment of our

borrowings;

? manner in which the applicable government will be required to spend funding to

  remediate various sites;
? funding operations;




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? fund capital expenditures from cash from operations and/or financing;
? supply chain impact;
? accounts receivable and collection impact from COVID-19;
? fund remediation expenditures for sites from funds generated internally;
? compliance with environmental regulations;
? potential effect of being a PRP;
? potential sites for violations of environmental laws and remediation of our

facilities;

? continuation of contracts with federal government;
? loss of contracts;
? second quarter and further financial results due to impact of COVID-19;
? partial or full shutdown of any of our facilities;
? future results of operations and liquidity impact from COVID-19;
? impact of CARES ACT;
? delay/halt project work and waste shipments by clients; and
? necessary capital for Medical Segment




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;
 ?   inability to meet PNC covenant requirements;
 ?   inability to collect in a timely manner a material amount of receivables;
 ?   increased competitive pressures;
 ?   inability to maintain and obtain required permits and approvals to conduct
     operations;
 ?   public not accepting our new technology;
 ?   inability to develop new and existing technologies in the conduct of
     operations;
 ?   inability to maintain and obtain closure and operating insurance
     requirements;
 ?   inability 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;
 ?   delays at our third-party disposal site can extend collection of our
     receivables greater than twelve months;
 ?   refusal of third-party disposal sites to accept our waste;
 ?   changes in federal, state and local laws and regulations, especially
     environmental laws and regulations, or in interpretation of such;
 ?   requirements to obtain permits for TSD activities or licensing requirements
     to handle low level radioactive materials are limited or lessened;
 ?   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;
 ?   inability of the Company to maintain the listing of its Common Stock on the
     NASDAQ;
 ?   terminations of contracts with government agencies (domestic and foreign) or
     subcontracts involving government agencies (domestic or foreign), or
     reduction in amount of waste delivered to the Company under the contracts or
     subcontracts;
 ?   renegotiation of contracts involving government agencies (domestic and
     foreign);
 ?   federal government's inability or failure to provide necessary funding to
     remediate contaminated federal sites;




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 ?   disposal expense accrual could prove to be inadequate in the event the waste
     requires re-treatment;
 ?   inability to raise capital on commercially reasonable terms;
 ?   inability to increase profitable revenue;
 ?   impact of the COVID-19;
 ?   audit of our PPP Loan (as discussed below);
 ?   lender refuses to waive non-compliance or revise our covenant so that we are
     in compliance; and
 ?   risk factors and other factors set forth in "Special Note Regarding
     Forward-Looking Statements" contained in the Company's 2019 Form 10-K and
     the "Forward-Looking Statements" contained in the "Management's Discussion
     and Analysis of Financial Condition and Results of Operations" ("MD&A") of
     this first quarter 2020 Form 10-Q.




COVID-19 Impact



With the global outbreak of COVID-19 and the declaration of a pandemic by the
World Health Organization on March 11, 2020, the U.S. governmental has deemed
the Company an “essential critical infrastructure workforce” in accordance with
government guidelines. As a provider of critical infrastructure, we have an
obligation to keep our employees working and at the same time, remain focused on
protecting the health and wellbeing of our employees and the communities in
which we operate while assuring the continuity of our business operations.

Our management team has proactively implemented our business continuity plans
and has taken a variety of measures to ensure the ongoing availability of our
waste treatment and remediation services, while taking health and safety
measures, including separating employee and customer contact, implementing
enhanced cleaning and hygiene protocols in all of our facilities, and
implementing remote work policies, where possible. To date, as a result of these
business continuity measures, we have not experienced material disruptions in
the Company’s operations. Additionally, we have experienced minimal impact to
our supply chain.

We believe we have sufficient liquidity on hand to continue business operations
during the next twelve months. At March 31, 2020, we have cash on hand of
$1,859,000 and borrowing availability under our credit facility of $8,537,000,
based on our eligible receivables as of that date. Additionally, we received a
$5,666,300 loan in April 2020 (“PPP Loan”) under the Paycheck Protection Program
(“PPP”) that was established under the recently enacted Coronavirus Aid, Relief,
and Economic Security Act (the “CARES Act”). We expect to apply for forgiveness
on a portion of the loan as permitted under program, which is subject to the
approval of our lender. We currently intend that proceeds from the PPP Loan will
allow us to avoid having to furlough or layoff any eligible employees as a
result of the COVID-19 pandemic, although there are no assurances that such will
not be required (see further discussion of our PPP Loan under “Liquidity and
Capital Resources” below). We remain committed to reducing operating costs
during this volatile time, which have included curtailing capital expenditures
and implementing a hiring freeze, among other things. We have elected to defer
payment of our share of social security taxes as permitted under the CARES Act,
which is subject to certain limitations (see “CARES Act – Deferral of Employment
Tax Deposits” within this MD&A for a discussion of this deferral).

We are closely monitoring our customers’ payment performance. However, since a
significant portion of our revenues is derived from government related
contracts, we do not expect our accounts receivable collections to be materially
impacted, subject to the impact of COVID-19.

The COVID-19 pandemic presents potential new risks to the Company’s business. We
are closely monitoring the impact of the COVID-19 pandemic on all aspects of our
business. Although there have been logistical and other challenges to date,
there was no material adverse impact on the Company’s first quarter 2020 results
of operations. The Company began to see the impacts of COVID-19 from delayed
waste shipments from certain customers and suspended project work in late March
2020
which is expected to impact our results of operations beginning with the
second quarter of 2020 and potentially further. The situation surrounding
COVID-19 remains fluid and the potential for a material impact on the Company
increases the longer COVID-19 impacts the level of economic activities in the
United States
and globally as our customer may continue to delay/halt waste
shipments and project work. For this reason, we cannot reasonably estimate with
any degree of certainty the future impact COVID-19 may have on our results of
operations, financial position, and liquidity during the next twelve months. As
of the date of this report, we believe that our cash on hand, our credit
facility and the PPP Loan should provide sufficient liquidity to continue
business operations during the next twelve months. Based on our current
projection, we believe that during 2020, we will be able to meet the current
covenant requirements under our loan agreement despite the impact of COVID-19.



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Overview


Revenue increased by $13,152,000 or 112.3% to $24,860,000 for the three months
ended March 31, 2020 from $11,708,000 for the corresponding period of 2019. The
increase was entirely within our Services Segment where revenue increased
$13,494,000 or 748.4% primarily due to the continuation of awards of several
contracts/task orders for project work starting in the latter part of the first
quarter of 2019 resulting from the success of our implemented strategic plan in
winning contract bids. Revenue from our Treatment Segment decreased by $342,000
or 3.5%. Gross profit increased $2,139,000 or 85.5% primarily due to the
increase in revenues in the Services Segment. Selling, General, and
Administrative (“SG&A”) expenses increased $30,000 or 1.0% for the three months
ended March 31, 2020 as compared to the corresponding period of 2019.



Business Environment


Our Treatment and Services Segments’ business continues to be heavily dependent
on services that we provide to governmental clients directly as the contractor
or indirectly as a subcontractor. We believe demand for our services will
continue to be subject to fluctuations due to a variety of factors beyond our
control, including, without limitation, the economic conditions, the manner in
which the applicable government will be required to spend funding to remediate
various sites, and/or the impact resulting from COVID-19 as discussed above. In
addition, our governmental contracts and subcontracts relating to activities at
governmental sites in the United States are generally subject to termination or
renegotiation on 30 days’ notice at the government’s option, and our
governmental contracts/task orders with the Canadian government authorities
allow the authorities to terminate the contract/task orders at any time for
convenience. 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. As previously disclosed, our
Medical Segment continues to evaluate strategic options to commercialize its
medical isotope production technology. These options generally require
substantial capital to fund research and development (“R&D”) requirements, in
addition to start-up and production costs. The Company’s Medical Segment has
substantially reduced its R&D costs and activities due to the need for capital
to fund such activities. The Company anticipates that its Medical Segment will
not resume full R&D activities until it obtains the necessary funding through
obtaining its own credit facility or additional equity raise or obtaining new
partners willing to fund its R&D activities. If the Medical Segment is unable to
raise the necessary capital, the Medical Segment could be required to further
reduce, delay or eliminate its R&D program.

We are continually reviewing methods to raise additional capital to supplement
our liquidity requirements, when needed, and reducing our operating costs. We
are committed in furthering our implemented strategic plan, which includes
continually increasing our overall contract bid/win ratio and expansion into
both commercial and international markets to increase revenues in our Treatment
and Services Segments to offset the uncertainties of government spending in the
United States
. Subject to the impact of COVID-19 as discussed above, we believe
that the full implementation of our strategic plan should be accomplished over
the next few years, and when fully implemented, we believe it should improve our
revenue and liquidity and increase our shareholder values.



Results of Operations


The reporting of financial results and pertinent discussions are tailored to our
three reportable segments: The Treatment, Services, and Medical Segments. Our
Medical Segment has not generated any revenue and all costs incurred are
included within R&D. Our results of operations for the balance of 2020 could be
subject to the impact of COVID-19 as discussed above under “COVID-19 Impact.”

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