ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained within Item 1 – “Business” and this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) may be deemed “forward-looking statements” within the meaning of Section 27A of the Act, 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, on our audited consolidated financial statements and includes our accounts and the accounts of our wholly-owned subsidiaries.
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.
Overview
In 2025, we generated modest consolidated revenue growth year-over-year, while delivering improvements in gross profit and operating performance compared to the prior year, driven primarily by a rebound in the Treatment Segment. The Treatment Segment benefited from higher waste volumes and higher averaged price waste mix, which included higher revenue generated from international and commercial clients. In contrast, the Services Segment experienced lower revenue, due in part to delays in project mobilization and delays in procurements that resulted from changes to the current presidential administration that began in January 2025 (the “Administration”) and supporting policies that occurred in the first half of 2025. The partial government shutdown that occurred effective October 1, 2025, also negatively impacted our revenue as procurement timing cycles were impacted.
Overall revenue increased by $2,557,000 or 4.3% to $61,674,000 in 2025 as compared to $59,117,000 in 2024. The increase was entirely from our Treatment Segment where revenue increased by $10,144,000 or approximately 29.0% to $45,097,000 for the twelve months ended December 31, 2025, from $34,953,000 in the same period of 2024. Services Segment revenue decreased $7,587,000 or 31.4% to $16,577,000 for the twelve months ended December 31, 2025, from $24,164,000 for the same period of 2024. Gross profit increased by $5,971,000 or approximately 298,550% for the twelve months ended December 31, 2025, as compared to the corresponding period of 2024. Selling, General, and Administrative (“SG&A”) expenses increased by $1,925,000 or 13.3% for twelve months ended December 31, 2025, as compared to the corresponding period of 2024. In spite of the improvement in gross profit, we experienced a loss from continuing operations of approximately $10,665,000 in 2025. While the loss was disappointing, it reflected an improvement of approximately 45.5% from the 2024 loss from continuing operations of $19,569,000.
See “Results of Operations” below for discussions of certain financial metrics pertaining to our operations, which includes our two reportable segments.
We believe we are positioned for potential improvements in our financial results in 2026. These expectations are based on management’s current assumptions regarding the timing and execution of anticipated waste treatment volumes, including the commencement and ramp-up of activities associated with the Direct-Feed-Low-Activity Waste (“DFLAW”) program at Hanford, Washington, as well as our ability to convert existing Treatment Segment backlog into revenue. Treatment Segment backlog as of December 31, 2025, was approximately $11,861,000, representing an increase of approximately 50.9% from Treatment Segment backlog of $7,859,000 as of December 31, 2024. However, Treatment Segment backlog does not guarantee immediate revenue, as the timing of backlog processing may vary based on waste complexity, customer requirements, and operational considerations. As noted above, however, we believe that our Perma-Fix Northwest Richland, Inc. (“PFNWR”) treatment facility, immediately adjacent to the Hanford Nuclear Site, is positioned to support the U.S. Department of Energy’s (“DOE”) DFLAW program at Hanford, which began hot commissioning of the Low-Activity Waste Vitrification Facility in October 2025. The subsequent operational phase of the DFLAW program is anticipated to begin in 2026, which will include generation of several effluent waste streams expected to be treated by our PFNWR facility. However, the commencement, scope, and timing of DFLAW-related waste streams are controlled by the DOE and subject to appropriations, procurement processes, and operational considerations beyond our control. Delays in anticipated waste treatment volumes, including DFLAW-related waste streams, could impact our results of operations as we continue to incur fixed operating costs and capital expenditures in anticipation of waste treatment volumes and program activities.
We continue to focus on expansion into international markets which is reflected in revenue generated from foreign entities of approximately $6,440,000 in 2025, as compared to $2,452,000 in the corresponding period of 2024, an increase of $3,988,000 or 162.6%. Additionally, we continue our aggressive research and development (“R&D”), sales and marketing efforts and capital expenditures relating to our new patent-pending technology for the destruction of Per- and polyfluoroalkyl substances (“PFAS”), which activities adversely impacted our results of operations in 2025 (See “Known Trends and Uncertainties – New Processing Technology” for a discussion of our new PFAS-destruction technology).
Finally, our continuing initiatives include, among other things, positioning ourselves for further large and mid-size procurements within the DOE and U.S. Department of War (“DOW”) and waste treatment in support of DOE’s Hanford closure strategy, continuing investments in our facilities and capabilities to allow for broader waste treatment (including PFAS) and continuing expansion of our waste treatment offerings within the commercial market.
We are continually monitoring our operating costs to ensure alignment with our revenue levels.
See “Known Trends and Uncertainties – Federal Funding” within this MD&A for a discussion of factors that could impact our results of operations in 2026.
Business Environment
Our Treatment and Services Segments’ business continue to be heavily dependent on services that we provide to federal governmental clients, primarily as subcontractors for others who are contractors to government entities or directly as the prime contractor. 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, current economic and political conditions, government reductions, passage of government budgets and continuing resolutions (“CRs”), and the manner in which the applicable government authority will be required to spend funding to remediate various sites. In addition, our governmental contracts and subcontracts relating to activities at federal governmental sites are generally subject to termination for convenience at any time, at the government’s option. Significant reductions in the level of governmental funding, government shutdown 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, liquidity and cash flows.
Results of Operations
The reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment Segment and Services Segment.
Summary - Years Ended December 31, 2025 and 2024
Below are the results of continuing operations for years ended December 31, 2025, and 2024 (amounts in thousands):
(Consolidated)
Net revenues
Cost of goods sold
Gross profit
Selling, general and administrative
Research and development
Loss on disposal of property and equipment
Loss from operations
Interest income
Interest expense
Interest expense – financing fees
Other income
Loss from continuing operations before taxes
Income tax expense
Loss from continuing operations
Revenue
Consolidated revenues increased $2,557,000 for the year ended December 31, 2025, compared to the year ended December 31, 2024, as follows:
(In thousands)
Revenue
Revenue
Change
% Change
Treatment
Government waste
Hazardous/non-hazardous (1)
Other nuclear waste
Total
Services
Nuclear
Technical
Total
Total
1) Includes waste generated by government clients of $2,269,000 and $2,898,000 for the twelve months ended December 31, 2025, and 2024, respectively.
Treatment Segment revenue increased by $10,144,000 or 29.0% for the twelve-months ended December 31, 2025, over the same period in 2024. The overall increase in revenue in the Treatment Segment revenue was primarily due to higher waste volume and higher averaged price waste mix. Our Treatment Segment revenue was also positively impacted by our international initiatives, which generated an increase in revenue of approximately $3,832,000 or 201.7%, to $5,732,000, as compared to $1,900,000, for the same period of last year. Services Segment revenue decreased by approximately $7,587,000 or 31.4%. The decrease in revenue in the Services Segment was due to reasons as discussed in the “Overview” section. Additionally, our Services Segment revenues are project based; as such, the scope, duration, and completion of each project vary.
Cost of Goods Sold
Cost of goods sold decreased $3,414,000 for the year ended December 31, 2025, as compared to the year ended December 31, 2024, as follows:
(In thousands)
Revenue
Revenue
Change
Treatment
Services
Total
Cost of goods sold for the Treatment Segment increased by approximately $4,240,000 or 11.8%. Treatment Segment’s overall variable costs increased by approximately $1,675,000 primarily due to the following: overall material and supplies, lab, transportation, and outside services costs were higher by approximately $3,371,000; variable payroll costs (overtime) were higher by approximately $426,000 due to increased waste volume production; and disposal costs were lower by approximately $2,122,000. Within our Treatment Segment, variable cost categories can fluctuate based on waste mix. Treatment Segment’s overall fixed costs were higher by approximately $2,565,000 resulting from the following: salaries and payroll related expenses were higher by $2,130,000 due to higher headcount and cost-of-living adjustments (“COLA”) effected during the third quarter of 2025; general expenses were higher by $376,000, mostly due to higher utility costs; travel expenses were higher by approximately $123,000; maintenance expenses were higher by approximately $59,000 from overall general maintenance of equipment and updates to facility security; depreciation expenses were higher by $106,000 due to more finance leases and equipment purchases; and regulatory expenses were lower by approximately $229,000 from fewer regulatory matters. Services Segment cost of goods sold decreased $7,654,000 or 33.2% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to overall lower salaries/payroll related, outside services, and travel costs totaling approximately $7,180,000; lower depreciation expenses totaling approximately $44,000 as certain equipment became fully depreciated in 2025; lower general expenses of approximately $265,000 in various categories; and overall lower disposal, material and supplies and regulatory costs totaling approximately $165,000. Included within cost of goods sold is depreciation and amortization expense of $1,700,000 and $1,637,000 for the twelve months ended December 31, 2025, and 2024, respectively.
Gross Profit
Gross profit for the year ended December 31, 2025, was $5,971,000 higher than 2024 as follows:
(In thousands)
Revenue
Revenue
Change
Treatment
Services
Total
Treatment Segment gross profit increased by $5,904,000 or approximately 531.9% and gross margin increased to 10.6% % from (3.2)% primarily due to higher revenue from higher waste volume and higher averaged price waste mix. The increase in fixed costs within the Treatment Segment partially offset these improvements, negatively impacting gross profit and gross margin. Services Segment gross profit increased by $67,000 or approximately 6.0% and gross margin improved to 7.1% from 4.6%. The increases were attributed primarily to overall improved margin on projects and lower fixed costs which were offset by the impact of lower revenue. Our Services Segment gross margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.
SG& A expenses increased $1,925,000 for the year ended December 31, 2025, as compared to the corresponding period for 2024 as follows:
(In thousands)
% Revenue
% Revenue
Change
Administrative
Treatment
Services
Total
Administrative SG&A expenses were higher primarily due to higher salaries, payroll related expenses and stock option compensation expenses totaling approximately $558,000. The hiring of the Company’s COO in January 2025 and COLA increases to payroll effected during the third quarter of 2025 contributed to this increase. The remaining higher expenses in Administrative SG&A were primarily due to higher outside services expenses of approximately $425,000 from more legal and business-related matters and higher travel expenses of approximately $53,000 due to more travel by senior management. Treatment Segment SG&A expenses were higher primarily due to the following: salaries and payroll related expenses were higher by approximately $713,000 as more employee hours were allocated to marketing initiatives of our new PFAS technology and overall business development; general expense were higher by approximately $244,000 in various categories (which include higher tradeshow expenses of approximately $157,000); travel expenses were higher by $35,000; and outside services expenses were lower by approximately $14,000 from fewer consulting matters. Services Segment SG&A expenses were lower primarily due to the following: salaries and payroll related expenses were lower by approximately $57,000 as fewer employee hours were allocated in supporting administrative/marketing functions due to lower revenue; general expenses were lower by approximately $62,000 in various categories; outside services expenses were higher by approximately $10,000 due to more consulting matters; and travel expense were higher by approximately $20,000. Included in SG&A expenses is depreciation and amortization expense of $59,000 and $126,000 for the twelve months ended December 31, 2025 and 2024, respectively.
R&D expenses increased by $119,000 for the twelve months ended December 31, 2025, as compared to the corresponding period of 2024, primarily due to expenses incurred in connection with our new PFAS technology.
Interest Income
Interest income increased by approximately $202,000 for the twelve-months ended December 31, 2025, as compared to the corresponding period of 2024. The increase in interest income in 2025 as compared to 2024 was primarily due to higher interest income earned from funds deposited into our money market deposit account (“MMDA”) from the two equity raises that were completed in May 2024 and December 2024, offset by lower interest income earned from our finite risk sinking fund from lower interest rate.
Interest Expense
Interest expense decreased by approximately $243,000 for the twelve months ended December 31, 2025, as compared to the corresponding period of 2024. The decrease was primarily the result of capitalization of approximately $231,000 in interest costs incurred on debt on construction of projects for our use, particularly our PFAS reactors.
Income Taxes
We had income tax expenses of $0 and $4,435,000 for continuing operations for the twelve-months ended December 31, 2025 and 2024, respectively. Our effective tax rates were approximately 0% and (29.3%) for the twelve months ended December 31, 2025 and 2024, respectively. Our effective tax rate for the each of the periods above was impacted by our recognition of a full valuation allowance against our U.S federal and state deferred tax assets in the quarter ended September 30, 2024.
Backlog
Our Treatment Segment 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, 2025, our Treatment Segment had a backlog of approximately $11,861,000, as compared to approximately $7,859,000 as of December 31, 2024. Additionally, the time it takes to process waste from the time it arrives may increase due to the types and complexities of the waste we are currently receiving. We use our best efforts to increase treatment of our waste backlog during period of lower incoming waste receipts to optimize facility utilization, which historically has occurred in the first and fourth quarters.
Discontinued Operations and Environmental Liabilities
Our discontinued operations consist of all our subsidiaries included in our former Industrial Segment which encompasses subsidiaries divested in 2011 and earlier, as well as three previously closed locations.
Our discontinued operations had no revenue for the twelve months ended December 31, 2025 and 2024. We incurred net losses of $3,119,000 (net of tax expense of $0) and $410,000 (net of tax benefit of $149,000) for our discontinued operations for the twelve months ended December 31, 2025, and 2024, respectively. Our net loss for 2025 included an increase to the environmental remediation reserve of approximately $2,721,000 for our Perma-Fix of South Geogia, Inc. (“PFSG”) subsidiary as discussed below. The remaining net loss for 2025 and net loss for 2024 were primarily due to costs incurred in connection with management of administrative and regulatory matters related to our remediation projects.
We have three remediation projects, which are currently in progress relating to our Perma-Fix of Dayton, Inc. (“PFD”), Perma-Fix of Memphis (“PFM”) and PFSG subsidiaries, all within our discontinued operations. We divested PFD in 2008; however, the environmental liability of PFD was retained by us upon the divestiture of PFD. These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. The remediation activities are closely reviewed and monitored by the applicable state regulators.
As of December 31, 2025, we had total accrued environmental remediation liabilities of $3,485,000, an increase of $2,718,000 from the December 31, 2024, balance of $767,000. The net increase of approximately $2,718,000 reflects an increase of approximately $2,721,000 made to the reserve at our PFSG subsidiary following a reassessment of remediation cost estimates after clarification of the remediation plan from the state regulator, offset by payments of approximately $3,000 for our PFSG remediation project. As of December 31, 2025, approximately $76,000 of our total environmental remediation liabilities were recorded as current.
Liquidity and Capital Resources
Based on current operating conditions and the timing of anticipated waste receipts and program activities, we currently expect to incur a loss from operations during the first quarter of 2026. This expectation also reflects the timing of backlog processing, continued operating fixed costs and capital expenditures incurred in anticipation of program activities, including ongoing investments in new technology initiatives and with respect to the DFLAW program.
Despite the anticipated near-term operating loss, we believe that our existing cash, cash equivalents, borrowing availability under our Revolving Credit (see “Financing Activities – Credit Facility” below for a discussion of our Revolving Credit) and expected cash flows from operations will be sufficient to fund our operations for at least the next twelve months, based on management’s current assumptions regarding the timing and execution of anticipated waste treatment volumes.
Our cash flow requirements during the twelve months ended December 31, 2025, were financed by our Liquidity (defined under our Loan Agreement as borrowing availability under our Revolving Credit of our Credit Facility plus cash in our MMDA maintained with our lender). Our MMDA consists of cash received in connection with the sale of our Common Stock completed in 2024 as discussed below under “Financing Activities.”
We believe our cash flow requirements for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations, administration and monitoring of our discontinued operations, R&D related to our PFAS technology and capital expenditures, including expenditures related to our PFAS technology (see “Known Trends and Uncertainties – New Processing Technology” within this MD&A for a discussion of this technology). We plan to fund these requirements from our operations and our Liquidity.
We continually review operating costs and evaluate opportunities to reduce operating costs and non-essential expenditures in order to align spending levels with revenue levels. As of December 31, 2025, we had no outstanding borrowing under our Revolving Credit and our Liquidity was approximately $18,126,000, which included approximately $11,529,000 of cash held in our MMDA.
The following table reflects the cash flow activity for the year ended December 31, 2025, and the corresponding period of 2024:
(In thousands)
Cash used in operating activities of continuing operations
Cash used in operating activities of discontinued operations
Cash used in investing activities of continuing operations
Cash used in investing activities of discontinued operations
Cash (used in) provided by financing activities of continuing operations
Effect of exchange rate changes on cash
(Decrease) increase in cash and finite risk sinking fund (restricted cash)
As of December 31, 2025, we were in a positive cash position with no Revolving Credit balance. As of December 31, 2025, we had cash on hand of approximately $11,768,000, which included cash from our foreign subsidiaries of approximately $153,000. The decline in our cash from 2024 to 2025 of approximately $17,207,000 was primarily due to funding of our operating losses and capital investment.
Operating Activities
Cash used in operating activities of our continuing operations during 2025 consisted mostly of the net loss that we incurred of approximately $10,665,000, adjusted for certain non-cash items, such as $818,000 of stock-based compensation expenses and $1,759,000 of depreciation and amortization expenses. Cash flow decrease of approximately $2,921,000 resulting from net change in assets and liabilities reflects an increase in unbilled receivables of approximately $3,791,000, a net decrease in accounts payables, accrued expenses, deferred revenue and other accruals totaling approximately $1,660,000, offset by a decreased in accounts receivable (net of provision for credit losses) of approximately $216,000 and a net decrease in inventories, prepaids and other assets totaling approximately of $2,314,000. Our accounts receivables are impacted by timing of invoicing and collections. Our contracts with our customers are subject to various payment terms and conditions. Our unbilled receivables are impacted by differences between invoicing timing and our revenue recognition methodology.
Cash used in operating activities of our continuing operations during 2024 consisted mostly of the significant net loss that we incurred of approximately $19,569,000, adjusted for certain non-cash items, such as $656,000 of stock-based compensation expense, $1,763,000 of depreciation and amortization expense and the deferred income tax expense of $4,448,000. Cash flow decrease of approximately $2,229,000 resulting from net change in assets and liabilities reflects an increase in accounts receivable of approximately $2,076,000 (net of provision for credit losses), a net decrease in accounts payables, accrued expenses, deferred revenue and other accruals totaling approximately $6,667,000, offset by a decreased in unbilled receivables of approximately $3,442,000 and a net decrease in inventories, prepaids and other assets totaling approximately of $3,072,000.
Cash used in operating activities of our discontinued operations during 2025 and 2024 consisted primarily of expenses incurred in connection with management of administrative and regulatory matters related to our remediation projects.
We had working capital of $13,803,000 (which included working capital of our discontinued operations) as of December 31, 2025, as compared to working capital of $28,283,000 as of December 31, 2024. The decrease in our working capital was primarily driven by the losses incurred from our operations during 2025 as previously discussed and increase in capital expenditures as discussed below.
Investing Activities
Cash used in investing activities of our continuing operations during 2025 consisted mostly of our purchases of property and equipment totaling approximately $5,172,000, of which $464,000 was financed. Our capital expenditures for 2025 included expenditures made for our PFAS treatment systems, which include our second-generation unit. The remaining cash used in investing activities consisted of cash outlays of approximately $217,000 made in connection with our operating permits and certain intangible assets. Total cash used in investing activities of our continuing operations was partially offset by approximately $28,000 from our sale of idle equipment.
Cash used in investing activities of our continuing operations during 2024 consisted mostly of our purchases of property and equipment totaling approximately $3,811,000, of which $406,000 was financed. Our capital expenditures for 2024 included expenditures made for our prototype PFAS treatment unit. The remaining cash used in investing activities consisted of cash outlays made in connection with our operating permits and certain intangible assets.
Cash used in investing activities of our discontinued operations during 2025 consisted of payments made in connection with a certain regulatory permit at our Perma-Fix South Georgia, Inc. (“PFSG”) subsidiary and improvements made to the existing building. Cash used in investing activities of our discontinued operations in 2024 was primarily for roof replacement at our PFSG location.
Capital Expenditures
We anticipate making capital expenditures of approximately $3,000,000 to $5,000,000 in 2026 to maintain operations and regulatory compliance requirements and support revenue growth, including the completion of our second-generation unit for our PFAS technology. We plan to fund our capital expenditures for 2026 from cash from operations, Liquidity under our Credit Facility and/or financing. The initiation and timing of our capital expenditures are subject to a number of factors which include, among other things, cost/benefit analysis, the pace of our strategic project initiatives and improvement in our operations.
Financing Activities
Our cash used in financing during 2025 consisted mostly of principal payments of approximately $631,000 primarily for our Term and Capital Loans under our Credit Facility, principal payments of $308,000 for our finance leases and payments of $195,000 of offering costs from the equity raise that we completed in December 2024, partially offset by proceeds received from option exercises of approximately $172,000.
Our cash provided by financing during 2024 consisted mostly of net proceeds of $41,859,000 received from the sales of our Common Stock in May 2024 and December 2024 and proceeds received from option and warrant exercises totaling approximately $292,000, partially offset by principal payments of approximately $832,000 primarily for our Term Loans and Capital Loan under our Credit Facility and $291,000 for our finance leases.
Credit Facility
We entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020, which has since been amended, with PNC National Association (“PNC” and “lender”), acting as agent and lender (the “Loan Agreement”). The Loan Agreement provides us with a credit facility with a maturity date of May 15, 2027 (the “Credit Facility”) which consists of the following as of December 31, 2025: (a) up to $12,500,000 revolving credit (“Revolving Credit”), which borrowing capacity is subject to eligible receivables (as defined) and reduced by outstanding standby letters of credit ($3,350,000 as of December 31, 2025) and borrowing reductions that our lender may impose from time to time ($750,000 as of December 31, 2025); (b) a term loan (“Term Loan”) of $2,500,000, requiring monthly installments of $41,667, with a balance due under the Term Loan of approximately $1,333,000 as of December 31, 2025; and (c) a capital expenditure loan (“Capital Loan”) of approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, with a balance due under the Capital Loan of approximately $149,000 as of December 31, 2025.
On March 11, 2025, we entered into an amendment to our Loan Agreement with our lender which provided the following, among other things:
removed the quarterly fixed charge coverage ratio (“FCCR”) covenant testing requirement utilizing a twelve-month trailing basis; however, such FCCR testing requirement will be triggered on the day we fail to meet a minimum of $5,000,000 in daily Liquidity. If triggered, we will be required to show compliance with an FCCR ratio of not less than 1.15 to 1.00 utilizing a trailing twelve-month period ended starting with the most recently reported fiscal quarter and each fiscal quarter thereafter. The FCCR testing requirement can be removed again once we are able to achieve a minimum of $5,000,000 in daily Liquidity for a thirty-consecutive-day period from the trigger date;
revised the Facility Fee (as defined) from 0.375% to 0.500%. Such fee percentage will revert back to 0.375% at such time that we are able to achieve a minimum 1.15 to 1.00 ratio in FCCR on a twelve-month trailing basis; and
required payment by the Company of an amendment fee of $12,500, which is being amortized over the remaining term of the Loan Agreement as interest expense-financing fees.
As amended, our Loan Agreement with PNC contains certain financial covenant requirements, along with customary representations and warranties. A breach of any of these financial covenant requirements, unless waived by PNC, could result in a default under our Loan Agreement allowing our lender to immediately require the repayment of all outstanding debt under our Loan Agreement and terminate all commitments to extend further credit. We met all of our financial covenant requirements in 2025. We expect to meet our covenant requirements under our Loan Agreement for the next twelve months.
Off Balance Sheet Arrangements
From time to time, we are required to post standby letters of credit and various bonds to support contractual obligations to customers and other obligations, including facility closures. As of December 31, 2025, the total amount of standby letters of credit outstanding was approximately $3,350,000 and the total amount of bonds outstanding was approximately $11,556,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through American International Group, Inc. (“AIG”). As of December 31, 2025, the closure and post-closure requirements for these facilities were approximately $23,951,000.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared based upon the selection and application of US GAAP, which may require us to make estimates, judgments and assumptions that affect amounts reported in our financial statements and accompanying notes. The accounting policies below are those we believe affect the more significant estimates and judgments used in preparation of our financial statements. Our other accounting policies are described in the accompanying notes to our consolidated financial statements of this Form 10-K (see “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies”):
Revenues. Our revenues are generated from our two reportable segments, Treatment and Services. Certain contracts within our Services Segment are generated from long-term fixed price contracts. Under fixed price contracts, the objective of the project is not attained unless all scope items within the contract are completed and all of the services promised within fixed fee contracts constitute a single performance obligation. Transaction price is determined based on fixed price outline within the contract. Revenue from fixed price contracts is recognized over time primarily using the input method. For the input method, revenue is recognized based on costs incurred on the project relative to the total estimated costs of the project.
Contracts in our Treatment Segment primarily have a single performance obligation as the promise to receive, treat and dispose of waste is not separately identifiable in the contract and, therefore, not distinct. Revenue for Treatment Segment performance obligations are generally satisfied over time using the input method. For the input method, revenue is recognized based on the costs incurred. Transaction price for Treatment Segment contracts is determined by the stated fixed rate per unit price as stipulated in the contract.
Some of our contracts have multiple performance obligations, most commonly when we provide additional services to the customer under a waste treatment contract. For a contract with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Generally, we use the observable selling prices from an observable price list, but when a price list is not available, the standalone selling price is determined by the cost plus margin approach.
Within our Treatment Segment, we periodically enter into arrangements with customers for transportation of wastes to either our facility or to non-company owned disposal sites. Revenue from this arrangement is recognized at a point in time, upon the transfer of control. Control transfers when the waste is picked up by us.
Our contracts generally do not give rise to variable consideration. However, from time to time, we may submit requests for equitable adjustments under certain of our government contracts for price or other modifications that are determined to be variable consideration. We estimate the amount of variable consideration to include in the estimated transaction price based on historical experience with government contracts, anticipated performance and management’s best judgment at the time and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates are re-assessed each reporting period as required.
Intangible Assets . Intangible assets consist primarily of the recognized value of the permits required to operate our business. We continually monitor the propriety of the carrying amount of our permits to determine whether current events and circumstances warrant adjustments to the carrying value.
Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually as of October 1, or when events or changes in the business environment indicate that the carrying value may be impaired. We perform a quantitative test to determine if the fair value of the assets is less than the carrying value. The impairment loss, if any, is measured as the excess of the carrying value of the asset over its fair value. Significant judgments are inherent in these analyses and include assumptions for, among other factors, forecasted revenue, gross margin, growth rate, operating income, timing of expected future cash flows, and the determination of appropriate long-term discount rates.
Impairment testing of our permits related to our Treatment reporting unit as of October 1, 2025, and 2024 resulted in no impairment charges.
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 as of October 1. Intangible assets with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable.
Our future cash flow assumptions and conclusions with respect to asset impairments could be impacted by changes arising from (i) a sustained period of economic and industrial slowdowns (ii) inability to scale our operations and implement cost reduction efforts during reduced demand and/or (iii) a significant decline in our share price for a sustained period of time. These factors, among others, could significantly impact the impairment analysis and may result in future asset impairment charges that, if incurred, could have a material adverse effect on our financial condition and results of operations. We believe that the assumptions and estimates utilized for the reporting periods are appropriate based on the information available to management.
Accrued Closure Costs and Asset Retirement Obligations (“ARO”). Accrued closure costs represent our estimated environmental liability to clean up our facilities as required by our permits, in the event of closure. Accounting Standards Codification (“ASC”) 410, “Asset Retirement and Environmental Obligations” requires that the discounted fair value of a liability for an ARO be recognized in the period in which it is incurred with the associated ARO capitalized as part of the carrying cost of the asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors as estimated probabilities, timing of settlements, material and service costs, current technology, laws and regulations, and credit adjusted risk-free rate to be used. We develop estimates for the cost of these activities based on our evaluation of site-specific facts and circumstances, such as the existence of structures and other improvements that would need to be dismantled and the length of the post-closure period as determined by the applicable regulatory agency, among other things. Included in our cost estimates are our interpretation of current regulatory requirements and any proposed regulatory changes. These cost estimates may change in the future due to various circumstances including, but not limited to, permit modifications, changes in legislation or regulations, technological changes and results of environmental studies. Our cost estimates are calculated using internal sources as well as input from third-party experts. This estimate is inflated, using an inflation rate, to the expected time at which the will occur, and then discounted back, using a credit adjusted risk free rate, to the present value. AROs are included within buildings as part of property and equipment and are depreciated over the estimated useful life of the property. In periods subsequent to initial measurement of the ARO, we must recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flow. Increases in the ARO liability due to passage of time impact net income as accretion expense and are included in cost of goods sold in our Consolidated Statements of Operations. Changes in the estimated future cash flows costs underlying the obligations (resulting from changes or expansion at the facilities) require adjustment to the ARO liability calculated and are capitalized and charged as depreciation expense, in accordance with our depreciation policy.
Environmental Liabilities . We have three remediation projects in progress (all within discontinued operations). These remediation projects principally entail the removal/remediation of contaminated soil and, in most cases, the remediation of surrounding ground water. These remediation activities are closely reviewed and monitored by the applicable state regulators and often span multiple years. Remediation liabilities include costs for investigation, assessment, remediation, post-remediation monitoring, and related legal and consulting services. Estimates are developed using internal and third-party environmental studies, engineering cost analyses, remediation plans, and discussions with regulatory authorities. The current and long-term accrual amounts for our remediation projects are our best estimates based on proposed or approved processes for clean-up and are site-specific. Environmental remediation liabilities are estimated using the undiscounted method when the timing and/or pattern of expected cash outflows cannot be reliably determined. Under this approach, we record a liability equal to our best estimate of the total probable and reasonably estimable costs to remediate contaminated sites without reducing such amounts for the time value of money. In developing these estimates, we consider current site conditions, existing technology, present laws and regulations, prior experience in remediation of similar sites, and incorporates an estimated inflation factor to reflect anticipated increases in labor, material, and other project-related costs over the expected remediation period. These environmental remediation estimates are subject to revision as additional information becomes available or as conditions change. The circumstances that could affect the outcome range from new technologies that are being developed to reduce our overall costs, to increased contamination levels that could arise as we complete remediation which could increase our costs. In addition, significant changes in regulations could or affect our costs to remediate our sites. Our environmental remediation liabilities are reviewed and adjusted quarterly to reflect changes in projected expenditures and reductions as a result of actual expenditures incurred during each quarter. While we believe our accruals are reasonable based on information currently available, due to the significant uncertainties inherent in environmental remediation matters, future adjustments to these estimates could materially impact on our results of operations, financial position, and cash flows in the period in which such adjustments are recorded.
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.
We regularly review deferred tax assets by jurisdiction to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions could cause an increase or decrease to the valuation allowance which could materially impact our results of operations.
Recent Accounting Pronouncements
See “Item 8 – Financial Statements and Supplementary Data” – Notes to Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies” for accounting pronouncement that was adopted in 2025 and accounting pronouncements that will be adopted in future periods.
Known Trends and Uncertainties
Significant Customers . Our Treatment and Services Segments have significant relationships with federal government authorities. A significant amount of our revenues from our Treatment and Services Segments are generated indirectly as subcontractors for others who are contractors to federal government authorities, or directly as the prime contractor to federal government authorities. The contracts that we are a party to with others as subcontractors to federal government or directly with the federal government generally provide that the government may terminate the contract at any time for convenience at the government’s option. Our inability to continue under existing contracts that we have with federal government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of federal governmental funding in any given year could have a material adverse impact on our operations and financial condition. Our revenue derived from federal government entities, either directly as a prime contractor or indirectly for others as subcontractor to federal government entities, totaled $39,243,000, or 63.6% of total revenue in 2025, compared to $40,550,000, or 68.6% of total revenue in 2024.
Federal Funding. As discussed above, a significant portion of our revenue is generated through contracts entered into indirectly as subcontractors for others who are prime contractors or directly as the prime contractor to federal government authorities. The timeliness of annual appropriations for U.S. government departments and agencies remains a recurrent risk for us. Uncertainties exist regarding how future federal government budgets and program and policy decisions will unfold, which include, the spending priorities of Congress, passage of federal government fiscal year annual budgets and potential for enactment of continuing resolutions to keep government departments and agencies in operations. The full impact of these uncertainties could negatively impact our financial results by impairing our ability to perform work on existing contracts, delaying or cancelling procurement actions by government entities, and/or cause other disruptions or delays, including payment delays.
Market Trends and Uncertainties. Macroeconomic conditions which include recent government and policy changes implemented in the United States, government budget issues, tariff actions and uncertainties related to trade wars, ambiguity around interest rates, softening labor markets and geopolitical instability, including ongoing conflicts and unrest in the Middle East, have created significant uncertainty in the global economy, volatility in the capital markets and recessionary pressures. We continue to monitor potential effects from these conditions that could impact our revenue and profitability which include supply chain challenges, cost volatility in goods that we utilize in our revenue production, and economic pressures on our customers that may result in reduced and/or delayed spending. We continue to monitor, evaluate and implement a range of strategic options which we believe will assist us to manage potential impacts from these factors, including supply chain optimization, pricing strategies, sourcing adjustments and cost reduction measures in order to minimize impacts to our financial results.
New Processing Technology. With significant upgrades to our prototype Perma-FAS system (“System”) for PFAS destruction substantially completed in the latter part of 2025, our System has achieved commercial operational status at our PFF facility. PFAS, commonly known as “forever chemicals,” is the acronym for Perfluoroalkyl and Polyfluoroalkyl Substances, a diverse group of thousands of human-made chemical pollutants that have the potential to persist in both the environment and the human body. An increasing number of studies have documented adverse health risks that are associated with PFAS exposure, including increased risks of some cancers, reduced immune function, and developmental delays in children.
Federal and state actions addressing PFAS have accelerated in recent years, including restrictions and bans on the use of Aqueous Film-Foaming Foam (“AFFF”), an effective fire suppressant for petroleum-based fires but which contains high levels of PFAS, as well as requirements governing the collection, handling, and disposal of existing AFFF inventories. These measures have contributed to an increasing volume of PFAS-containing materials requiring treatment or destruction rather than reuse or conventional disposal.
We believe these regulatory developments may support increased demand over time for technologies capable of permanently destroying PFAS compounds, including technologies designed to address concentrated PFAS waste streams generated from AFFF phase-outs, remediation activities, and downstream treatment processes.
Accordingly, we believe that commercial destruction of PFAS offers a promising new source of revenue for us, as it complements our core waste remediation technologies. However, our PFAS technology remains in an early stage of commercialization, and we continue to incur operating, R&D and capital costs associated with scaling, market development, and regulatory acceptance. While we have filed patent applications relating to our System technology for PFAS destruction and are processing commercial quantities of PFAS-containing waste materials with our System, there can be no assurance that demand, pricing, or throughput levels will be sufficient in the near term to offset these costs.
Still, we believe that there are limited treatment options currently available that are intended to permanently destroy these materials, as opposed to managing them through storage or containment, which may be important to waste generators seeking to address potential long-term environmental liability. We believe that our System technology exceeds the performance of other current destruction-based methods; however, adoption and acceptance of any such technology remain subject to regulatory and market factors.
With commercial operation of our System, we anticipate deployment of our second-generation unit in the second half of 2026 at our Environmental Waste Operations Center (“EWOC”) facility in Oak Ridge, Tennessee, which we believe will allow us to triple our production capacity. We continue to market our System technology through various channels. In December 2025, we entered into a joint distribution agreement with a U.S.-based company that manufactures fluorine-free firefighting agents and compressed air foam system which will promote our PFAS destruction technology as a preferred treatment options for customers requiring, compliant, long-term destruction of legacy PFAS stockpiles. In the next several calendar quarters, we expect to further advance our Perma-FAS technology from demonstrated successful bench-scale testing to pilot-scale applications for soil, biosolids, and filter media, broadening the reach of our System’s PFAS destruction capabilities.
We continue to monitor evolving federal and state regulatory initiatives addressing PFAS-containing materials, including restrictions on the use of AFFF and requirements governing the disposition of legacy AFFF inventories. These developments may result in the generation of PFAS-impacted waste streams for which destruction-based treatment options are evaluated by customers.
While we believe our existing treatment capabilities may be applicable to certain PFAS-containing materials, the timing and magnitude of any related demand are uncertain and will depend on factors such as regulatory implementation and enforcement, customer selection among available treatment alternatives, contract awards, and our ability to obtain necessary permits, approvals, and operational capacity. As a result, any potential increase in PFAS-related service activity may not be immediate and may not have a material impact on results of operations in any particular period.
Related Party Transactions
See a discussion of our related party transactions in “Item 8 – Financial Statements and Supplementary Data – Notes to Consolidate Financial Statements – Note 15 – Related Party Transactions.”
