Perma Fix Environmental Services : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

About this update from Perma-fix Environmental Services, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking Statements Certain statements contained within this report may be deemed "forward-looking statements" within the meaning of 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; ● reductions in the level of government funding in future years; ● spending priorities of Congress; ● passage of U.S. fiscal year government budgets or enactment of CRs to keep government departments and agencies in operations; ● improvement in financial results in remainder of 2026; ● advancement of our Perma-FAS technology to support long-term growth; ● demand, pricing, or throughput levels for PFAS waste volumes are sufficient to offset costs incurred from PFAS initiatives; ● waste receipt related to DFLAW program in the second quarter of 2026; ● increase in Hanford waste receipts in 2026; ● delays in anticipated treatment waste volumes; ● reducing operating costs and non-essential expenditures; ● ability to meet our quarterly financial covenant requirements under our PNC Loan Agreement; ● expansion into international and commercial markets; ● cash flow requirements; ● expects to either enter into a new loan agreement or amend our existing PNC Loan Agreement with our lender; ● sufficient cash flow and liquidity to fund operations for the next twelve months; ● projected cash flows from operations subject to timing and uncertainty, including those resulting from ongoing federal spending constraints; ● amount and funding of capital expenditures; ● funding of operating and capital expenditures from existing cash from operations, Liquidity under our Credit Facility, and/or financing; ● ability to continue to operate as a going concern; ● improvement in operating margin from absorption of fixed costs with waste volume increase; ● pursue additional sources of liquidity, include raising capital through equity or other financing arrangements or disposing of certain assets; ● obtain additional liquidity on acceptable terms, or at all; ● the efficacy of our PFAS technology process compared to other PFAS destruction or treatment methods; ● adoption and acceptance of our PFAS technology are subject to regulatory and market factors; ● limited current treatment destruction options for these materials to eliminate generator liabilities; ● deployment of the second generation PFAS destruction unit in second half of 2026; ● expectation that the second generation PFAS destruction unit will triple our production capacity; ● funding of remediation expenditures for sites from funds generated internally; ● compliance with environmental regulations; ● positioning for procurements from DOE and other government agencies; ● remediation of material weakness identified; ● potential effect of being a PRP; ● material adverse effect on financial condition, results of operations, or cash flow from NOV at the PFNWR facility; ● favorable resolution of the NOV at the PFNWR facility; ● potential violations of environmental laws and attendant remediation at our facilities. ● result of contract with Lawrence Livermore National Laboratory; and ● results of strategic operations. 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 and uncertainties; ● inability to process waste at our facilities; ● inability to properly bid contracts; ● reduction in or inability to obtain new contracts with federal, state and local governments, agencies and departments, resulting in a reduction in revenue; ● changes in federal government budgeting and spending priorities; ● failure by Congress or other governmental bodies to approve budgets and debt ceiling increases in a timely fashion and related reductions in government spending; ● tariff actions and uncertainties related to trade wars; ● 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; ● inability to develop new and existing technologies in the conduct of operations; ● inability to maintain and obtain closure and operating insurance requirements; ● 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; ● 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; ● material adjustments to environmental remediation reserves; ● new or additional requirements to handle low-level radioactive and hazardous waste materials; ● management retention and development; ● financial valuation of intangible assets is substantially more/less than expected; ● the need to use internally generated funds for purposes not presently anticipated; ● inability of the Company to maintain the listing of its Common Stock on the Nasdaq; ● terminations of contracts with government agencies or subcontracts involving government agencies or reduction in amount of waste delivered to the Company under the contracts or subcontracts; ● failure of our Italian team partner to perform its requirements in connection with the Italian project; ● changes in the scope of work relating to existing contracts; ● occurrence of a health pandemic having adverse effects on the U.S. and world economics; ● renegotiation or termination of contracts involving government agencies; ● 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; ● risks resulting from expanding our service offerings and client base; ● non-acceptance of our new technology; ● adjustments to our valuation allowance; ● supply chain difficulties; ● pricing adjustments; ● cost reduction measures; ● new governmental regulations; and ● risk factors and other factors set forth in "Special Note Regarding Forward-Looking Statements" contained in the Company's 2025 Form 10-K and the "Forward-Looking Statements" contained in the MD&A of this first quarter 2026 Form 10-Q. Our forward-looking statements are based on the beliefs and assumptions of our management and the information available to our management at the time these statements were prepared. Although we believe the expectations reflected in these statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K. We undertake no obligation to update these forward-looking statements, even if our situation changes in the future. Overview Our results from operations for the first quarter of 2026 were significantly impacted by lower revenues than anticipated due to reduced receipts in conjunction with planned efforts to reduce waste inventories in support of second quarter anticipated receipts and program starts. Our prioritization of processing existing waste inventories, particularly at the PFNWR facility, and the associated timing of these activities deferred revenue recognition into the second quarter. The decrease in activity in the first quarter of 2026 was driven in part by deferred receipts now expected in the second quarter associated with the commencement and ramp-up of the operational phase of DOE's DFLAW program at Hanford Washington. 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. Additionally, seasonal factors, including winter weather and typical post-holiday slowdowns, reduced field activity and delayed waste shipments at each of our plants. In anticipation of increased waste treatment volumes, including those under the DFLAW program, we have made investments to expand treatment capacity, increase our trained workforce, and upgrade infrastructure. As previously disclosed, in December 2025, our PFNWR facility received its long-awaited permit renewal from state regulators. Among other enhancements, this renewal approximately triples the facility's permitted liquid mixed waste processing capacity to approximately 1,200,000 gallons per year and authorizes the processing of up to 175,000 tons of waste annually through macroencapsulation. This expanded permit provides additional capacity and operational flexibility, enhancing our ability to manage a broader range of complex waste treatment requirements. As waste volumes increase, we expect improved absorption of our fixed operating costs, which we believe should positively impact operating margins. As a result of the combined foregoing factors, revenue for the first quarter of 2026 decreased by approximately $2,793,000, or 20.1%, to $11,126,000, compared to $13,919,000, for the first quarter of 2025, reflecting lower revenue in both the Treatment and Services segments. Overall cost of goods sold increased by $745,000 or approximately 5.6% for the first quarter of 2026, compared to the corresponding period of 2025. Overall gross profit decreased by approximately $3,538,000 or 538.5% for the first quarter of 2026, compared to the corresponding period of 2025, due to lower revenue, changes in waste and project mix across our segments and overall higher fixed costs. Our overall SG&A increased by $284,000 or 7.1% for the three months ended March 31, 2026, compared to the corresponding period of 2025. See below "Results of Operations" for further discussions of our financial results for our two segments. As a result of our recurring losses and negative operating cash flows, our liquidity has declined, which raises substantial doubt about our ability to continue as a going concern (See "Liquidity and Capital Resources" within this MD&A for a discussion of factors and conditions that raises substantial doubt about our ability to continue as a going concern). We believe we are positioned for potential improvements in our financial results for the remainder of 2026. We anticipate that our continuing initiatives include positioning ourselves for further large and mid-size procurements within the DOE and DOW and waste treatment in support of DOE's Hanford closure strategy. During the first quarter of 2026, our Services Segment was awarded a two-year master task agreement which we believe to be valued at approximately $24 million for demolition and disposal at Lawrence Livermore National Laboratory. Additionally, we continue to focus on expansion into commercial and international markets. Furthermore, we are continuing our aggressive R&D, sales and marketing efforts and capital expenditures related to our new patent-pending technology for the destruction of PFAS. These activities adversely impacted our results of operations for the first quarter of 2026 but are expected to support long-term growth (See "Known Trends and Uncertainties - New Processing Technology" for a discussion of our new PFAS-destruction technology). We are continually monitoring our operating costs to ensure alignment with our revenue levels. See "Federal Funding" and "Market Trends and Uncertainties" in "Known Trends and Uncertainties" within this MD&A for a discussion of factors that could negatively impact our results of operations for the remainder of 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, government shutdowns and 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 and Services. Summary - Three Months Ended March 31, 2026 and 2025 Three Months Ended March 31, Consolidated (amounts in thousands) 2026 % 2025 % Revenues $ 11,126 100.0 $ 13,919 100.0 Cost of good sold 14,007 125.9 13,262 95.3 Gross (loss) profit (2,881 ) (25.9 ) 657 4.7 Selling, general and administrative 4,299 38.6 4,015 28.8 Gain on disposal of property and equipment - - (5 ) - Research and development 303 2.8 383 2.7 Loss from operations $ (7,483 ) (67.3 ) $ (3,736 ) (26.8 ) Other income (expense): Interest income 180 1.6 335 2.4 Interest expense (59 ) (.5 ) (112 ) (.8 ) Interest expense-financing fees (21 ) (.2 ) (20 ) (.1 ) Other 8 .1 33 .2 Loss from continuing operations before taxes (7,375 ) (66.3 ) (3,500 ) (25.1 ) Income tax expense - - - - Loss from continuing operations $ (7,375 ) (66.3 ) $ (3,500 ) (25.1 ) Revenues Consolidated revenues decreased $2,793,000 for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, as follows: (In thousands) 2026 % Revenue 2025 % Revenue Change % Change Treatment Government waste $ 4,782 43.0 $ 7,017 50.4 $ (2,235 ) (31.9 ) Hazardous/non-hazardous (1) 1,332 12.0 1,067 7.7 265 24.8 Other nuclear waste 1,764 15.8 1,102 7.9 662 60.1 Total 7,878 70.8 9,186 66.0 (1,308 ) (14.2 ) Services Nuclear services 2,061 18.5 3,375 24.2 (1,314 ) (38.9 ) Technical services 1,187 10.7 1,358 9.8 (171 ) (12.6 ) Total 3,248 29.2 4,733 34.0 (1,485 ) (31.4 ) Total $ 11,126 100.0 $ 13,919 100.0 $ (2,793 ) (20.1 ) (1) Includes wastes generated by government clients of $512,000 and $440,000 for the three months ended March 31, 2026, and the corresponding period of 2025, respectively. Treatment Segment revenue decreased by $1,308,000 or 14.2%, for the three months ended March 31, 2026, compared to the same period in 2025. The decline was due to lower waste volume from government- related customers, partially offset by increased waste volume from commercial clients, reflecting efforts to expand our commercial customer base. Treatment Segment revenue was also negatively impacted from lower averaged price waste mix. 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, and therefore subject to variability in project scope, duration, and timing of completion. Cost of Goods Sold Cost of goods sold increased $745,000 for the quarter ended March 31, 2026, compared to the quarter ended March 31, 2025, as follows: % % (In thousands) 2026 Revenue 2025 Revenue Change Treatment $ 10,711 136.0 $ 8,936 97.3 $ 1,775 Services 3,296 101.5 4,326 91.4 (1,030 ) Total $ 14,007 125.9 $ 13,262 95.3 $ 745 Cost of goods sold for the Treatment Segment increased by approximately $1,775,000, or 19.9%. Variable costs rose by approximately $1,209,000, driven primarily by higher disposal costs of approximately $1,235,000, partially offset by lower transportation, materials and supplies, and laboratory costs totaling approximately $26,000. Within our Treatment Segment, variable cost categories can fluctuate based on waste mix. Treatment Segment's overall fixed costs increased by approximately $566,000 resulting from the following: fixed salaries and payroll related expenses were higher by $313,000 due to COLA implemented in July 2025; maintenance costs were higher by approximately $81,000 due to general equipment upkeep and facility security enhancements; depreciation expenses were higher by $74,000 due to increased capitalized equipment, including our prototype PFAS reactor; regulatory expenses were higher by approximately $117,000 due to increased regulatory activities and higher fees from regulatory agencies; and overall general expenses were lower by $19,000 primarily due to lower utility costs. Services Segment cost of goods sold decreased by $1,030,000, or 23.8%, primarily due to lower revenue. The decrease was largely driven by reduced subcontract and outside services costs of approximately $931,000. Additional decreases included lower general expenses of approximately $39,000 across various categories, reduced depreciation expense of approximately $20,000 as certain equipment became fully depreciated in 2025, and an overall reduction in material and supplies, disposal, laboratory, and regulatory expenses totaling approximately $275,000. These decreases were partially offset by higher salaries and payroll-related expenses of approximately $115,000 due to COLA implemented in July 2025, as well as increased travel expenses of approximately $120,000. Within our Services Segment, fluctuations in expense categories are influenced by the type and scope of projects performed during the period. Certain projects require greater reliance on subcontractors, specialized materials, regulatory compliance efforts, or travel, while others are more labor-driven or utilize in-house resources. As a result, the mix of project work can significantly impact the composition and level of costs incurred. Included within cost of goods sold is depreciation and amortization expense of $475,000 and $421,000 for the three months ended March 31, 2026, and 2025, respectively. Gross (loss) profit Gross profit decreased $3,538,000 for the quarter ended March 31, 2026, compared to the quarter ended March 31, 2025, as follows: % % (In thousands) 2026 Revenue 2025 Revenue Change Treatment $ (2,833 ) (36.0 ) $ 250 2.7 $ (3,083 ) Services (48 ) (1.5 ) 407 8.6 (455 ) Total $ (2,881 ) (25.9 ) $ 657 4.7 $ (3,538 ) Treatment Segment gross profit decreased by $3,083,000 or approximately 1,233.2% and gross margin declined to (36.0%) from 2.7% primarily due to lower revenue driven by lower waste volume and a less favorable waste mix. The increase in fixed costs within the Treatment Segment also negatively impacted gross margin and contributed to the gross loss. Services Segment gross profit decreased by $455,000 or 111.8% and gross margin decreased to (1.5%) from 8.6% mainly due to lower revenue, partially offset by reduced fixed costs. Additionally, overall Services Segment gross margin is impacted by the nature of its projects, which are competitively bid and therefore have varying margin structures. SG&A SG& A increased $284,000 for the three months ended March 31, 2026, as compared to the corresponding period for 2025, as follows: (In thousands) 2026 % Revenue 2025 % Revenue Change Administrative $ 2,043 - $ 1,923 - $ 120 Treatment 1,439 18.3 1,356 14.8 83 Services 817 25.2 736 15.6 81 Total $ 4,299 38.6 $ 4,015 28.8 $ 284 Administrative SG&A increased primarily due to approximately $65,000 in higher salaries and payroll-related costs, driven by the addition of one employee and COLA implemented in July 2025 for employees and January 2026 for executives. The remaining increase was attributable to higher outside services costs associated with increased legal and business activities. Treatment Segment SG&A rose mainly due to higher outside services costs of approximately $60,000 from increased consulting and business activities, as well as higher travel expenses of about $23,000. In the Services Segment, SG&A increased primarily due to approximately $72,000 in higher salaries and payroll-related costs, reflecting additional hours spent supporting bids and proposals. Outside services expenses also increased by about $20,000 due to more consulting activities. These increases were partially offset by a reduction of approximately $11,000 in general expenses across various categories. Included in SG&A is depreciation and amortization expense of $15,000 for the three months ended March 31, 2026, and the corresponding period of 2025. Interest Income Interest income decreased by approximately $155,000 in the first quarter of 2026 over to the corresponding period of 2025 primarily due less interest income earned from reducing balances in the MMDA. Additionally, less interest income was earned from the finite sinking funds from lower interest rates. Interest Expense Interest expense decreased by approximately $53,000 for the first quarter of 2026 compared to the same period in 2025. The decrease was primarily due to the capitalization of approximately $34,000 of interest related to debt incurred for construction projects, including the Company's second PFAS reactor. Income Taxes We had income tax expense for continuing operations of $0 for both the three months ended March 31, 2026, and 2025. The effective tax rate was 0% in both periods, primarily due to the full valuation allowance recorded in 2024 against the Company's U.S. federal and state deferred tax assets. 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 March 31, 2026, our Treatment Segment had a backlog of approximately $12,248,000, as compared to approximately $11,861,000 as of December 31, 2025. 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. Liquidity and Capital Resources Our cash flow requirements during the three months ended March 31, 2026, were primarily financed by our Liquidity, defined under our PNC Loan Agreement as borrowing availability under the Revolving Credit portion of our Credit Facility plus cash in our MMDA maintained with our lender. As of March 31, 2026, we had no outstanding borrowing under our Revolving Credit and our Liquidity was approximately $10,720,000, which included approximately $6,545,000 of cash held in our MMDA. 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. We incurred losses from continuing operations before tax of $15,134,000 during 2024, $10,665,000 during 2025, and $7,375,000 during the first quarter of 2026. We also experienced cash used in continuing operations of $14,146,000 during 2024, $10,311,000 during 2025, and $3,648,000 during the first quarter of 2026, which contributed to declines in cash balances as we continued to fund operations and investments. These results were due in part to delays in the passage of a Federal Budget and the continued use of continuing resolutions by Congress, as well as increased investments in PFAS technology (see "Known Trends and Uncertainties - New Processing Technology" within this MD&A for a discussion of our new technology), expansion of treatment capacity, workforce growth, and infrastructure enhancements intended to support anticipated waste treatment volumes, including those related to the DFLAW program. Our expected cash requirements over the next twelve months include working capital needs, scheduled principal payments on debt, costs associated with the administration and monitoring of discontinued operations, R&D expenditures related to PFAS technology, and capital expenditures. These conditions and events, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern within one year after the date our condensed consolidated financial statements contained within this Form 10-Q are issued. We expect to fund our anticipated cash requirements from cash on hand, expected cash flows from operations, and borrowing availability under our Revolving Credit facility. However, borrowing availability under the Revolving Credit facility is subject to compliance with applicable financial covenants and other conditions, and projected cash flows from operations are subject to timing and uncertainty, including those resulting from ongoing federal spending constraints. Accordingly, if our current funding sources are negatively impacted by these uncertainties or are otherwise insufficient, additional liquidity would be required to continue operations over the next twelve months. Additionally, continuing losses may require us to consider various reductions to operations, including, but not limited to, reduction in R&D activities. We continue to evaluate strategies intended to supplement our current funding sources and support future operations and investments. Such strategies may include obtaining equity financing, entering into additional financing arrangements, and disposing of certain assets. However, the successful execution of these strategies is dependent on factors outside of our control, and there can be no assurance that we will be able to obtain additional liquidity on acceptable terms, or at all. The following table reflects the cash flow activities during the first three months of 2026 and 2025: Three months ended March 31, (In thousands) 2026 2025 Cash used in operating activities of continuing operations $ (3,648 ) $ (2,048 ) Cash used in operating activities of discontinued operations (136 ) (56 ) Cash used in investing activities of continuing operations (964 ) (571 ) Cash used in investing activities of discontinued operations (1 ) (15 ) Cash used in financing activities of continuing operations (227 ) (396 ) Effect of exchange rate on cash (3 ) - Decrease in cash and finite risk sinking fund (restricted cash) $ (4,979 ) $ (3,086 ) As of March 31, 2026, we had cash on hand of approximately $6,664,000. Operating Activities Cash used in operating activities of our continuing operations during the first quarter of 2026 consisted mostly of the net loss that we incurred of approximately $7,375,000, adjusted for certain non-cash items, such as $216,000 of stock-based compensation expenses and $490,000 of depreciation and amortization expenses. Cash flow increase of approximately $2,860,000 resulting from net change in assets and liabilities reflects decreases in unbilled and accounts receivables (net of provision for credit losses) totaling approximately $2,772,000, a net increase in accounts payables, accrued expenses, deferred revenue and other accruals totaling approximately $440,000, offset by a net increase in inventories, prepaids and other assets totaling approximately of $352,000. Our accounts receivables are impacted by timing of invoicing and collections. 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 the first quarter of 2025 consisted mostly of the net loss that we incurred of approximately $3,500,000, adjusted for certain non-cash items, such as $196,000 of stock-based compensation expenses and $436,000 of depreciation and amortization expenses. Cash flow increase of approximately $668,000 resulting from net change in assets and liabilities included a decrease in accounts receivables (net of provision for credit losses) of $2,248,000, offset by an increase in unbilled receivables of $178,000, a net increase in inventories, prepaids and other assets totaling approximately $30,000 and a net decrease in accounts payables, accrued expenses, deferred revenue and other accruals totaling approximately $1,372,000 Cash used in operating activities of our discontinued operations in the first quarter of 2026 and 2025 consisted primarily of expenses incurred in connection with management of administrative and regulatory matters related to our remediation projects. We had working capital of $5,894,000 (which included working capital of our discontinued operations) as of March 31, 2026, compared to working capital of $13,803,000 as of December 31, 2025. The decrease in our working capital was primarily driven by the net loss incurred from our operations as previously discussed and increase in capital expenditures discussed below. Investing Activities Cash used in investing activities from continuing operations during the first quarter of 2026 primarily consisted of purchases of property and equipment totaling approximately $859,000. The remaining cash outflows related to expenditures for operating permits and certain intangible assets. Cash used in investing activities from continuing operations during the first quarter of 2025 primarily consisted of purchases of property and equipment totaling approximately $655,000, of which $132,000 was financed. The remaining cash outflows related to expenditures for operating permits and certain intangible assets. Capital expenditures in the first quarter of 2026 and 2025 included investments in our second and prototype generators, respectively, related to our PFAS technology. Cash used in investing activities of our discontinued operations in the first quarter of 2026 and 2025 consisted of payments made in connection with a certain regulatory permit at our PFSG subsidiary. Capital Expenditures We anticipate making capital expenditures of approximately $3,000,000 to $5,500,000 in 2026 to maintain operations and regulatory compliance requirements and support revenue growth. In 2025, we made capital expenditure for our continuing operations of approximately $5,172,000, which included our PFAS reactors. Our anticipated capital expenditures for 2026 include certain strategic project initiatives which include expenditures to complete our second generation reactor for our PFAS technology. We plan to fund our capital expenditures for 2026 from cash from operations, Liquidity and/or financing. The initiation and timing of our capital expenditures in 2026 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. However, continuing losses may require us to consider various reductions to operations, including, but not limited to, reduction in R&D activities. Financing Activities Our cash used in financing during the first quarter of 2026 consisted mostly of principal payments of approximately $162,000 primarily for our Term and Capital Loans under our Credit Facility (see below for a discussion of our Credit Facility), principal payments of $81,000 for our finance leases, partially offset by proceeds received from option exercises of approximately $16,000. Our cash used in financing during the first quarter of 2025 consisted mostly of principal payments of approximately $157,000 primarily for our Term and Capital Loans under our Credit Facility, principal payments of $71,000 for our finance leases, payments of $194,000 of offering costs from the equity raise that we completed in December 2024, partially offset by proceeds received from option exercises of approximately $41,000. Credit Facility Our Credit Facility, established pursuant to our PNC Loan Agreement, and maturing on May 15, 2027, consists of a Revolving Credit facility with a maximum borrowing capacity of $12,500,000. Availability under the Revolving Credit facility is subject to a borrowing base comprised of eligible receivables (as defined in the agreement) and is reduced by (i) outstanding standby letters of credit ($3,350,000 as of March 31, 2026) and (ii) discretionary reserves imposed by the lender ($750,000 as of March 31, 2026). The Credit Facility also includes a Term Loan and a Capital Loan with outstanding balances of approximately $1,208,000 and $122,000, respectively, as of March 31, 2026. We have initiated discussions with our lender regarding our Credit Facility and expect to either enter into a new loan agreement or amend our existing PNC Loan Agreement with our lender. See discussion in Note 8 of the Financial Statements, "Long Term Debt - Credit Facility" included herein as to the Company's Credit Facility. Our PNC Loan Agreement contains certain financial covenant requirements, along with customary representations and warranties. A breach of any of these financial covenant requirements, unless waived by our lender, could result in a default under our PNC Loan Agreement allowing our lender to immediately require the repayment of all outstanding debt under our PNC Loan Agreement and terminate all commitments to extend further credit. We met all of our financial covenant requirements in the first quarter of 2026, including maintenance of a minimum of $5,000,000 in daily Liquidity. We expect to meet our financial covenant requirements 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 March 31, 2026, the total amount of standby letters of credit outstanding totaled approximately $3,350,000 and the total amount of bonds outstanding totaled approximately $12,296,000. We also provide closure and post-closure requirements through a financial assurance policy for certain of our Treatment Segment facilities through AIG. As of March 31, 2026, the closure and post-closure requirements for these facilities were approximately $24,550,000. Critical Accounting Policies and Estimates There were no significant changes in our accounting policies or critical accounting estimates that are discussed in our Annual Report on Form 10-K for the year ended December 31, 2025. Recent Accounting Pronouncements See "Note 2 - Summary of Significant Accounting Policies" in the "Notes to Condensed Consolidated Financial Statements" for the recent accounting pronouncement that was adopted in the first quarter of 2026 and recent accounting pronouncements that will be adopted in future periods. Known Trends and Uncertainties Significant Customers . The contracts that we are a party to with others as subcontractors to the 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 the federal government authorities (directly or indirectly as a subcontractor) or significant reductions in the level of governmental funding in any given year could have a material adverse impact on our operations and financial condition. We performed services relating to waste generated by federal government clients, either indirectly as a subcontractor or directly as a prime contractor to federal government entities, representing approximately $6,836,000 or 61.4% of our total revenue during the three months ended March 31, 2026, as compared to $8,404,00 or 60.4% of our total revenue during the corresponding period of 2025. 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 CRs 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 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. 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 have processed limited 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. Some of the sizable markets for PFAS include Aqueous Film-Foaming Foam ("AFFF") firefighting foams, both expired concentrate and flushing liquids, contaminated liquids from PFAS systems, and other water-based separation products from a variety of industrial systems. With commercial operation of our System, we anticipate deployment of our second-generation unit in the second half of 2026 at our 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, to 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. 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. On April 30, 2026, we received an NOV from the Washington State Department of Ecology (the "Department of Ecology") following a June 24, 2025 inspection of our PFNWR facility in Richland, Washington. The NOV is based on an inspection report identifying alleged non-compliance with certain Department of Ecology waste regulations and permit requirements and requires us to implement specified corrective actions and provide documentation of its compliance within prescribed timeframes. No administrative order has been issued and no monetary penalties have been assessed as of the date of this report. We are actively responding to the NOV and implementing corrective measures. Based on information currently available and our ongoing response, we do not expect this matter to result in a material adverse effect on our financial condition, results of operations, or cash flows. The outcome of this matter remains subject to regulatory review. While the Department of Ecology may pursue escalated enforcement action in accordance with Washington State Dangerous (Hazardous) Waste Regulations, we currently expect a favorable resolution of the NOV and is not able to reasonably estimate the amount or range of any potential loss, if any, associated with this matter. 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. 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 potentially responsible party ("PRP") at a remedial action site, which could have a material adverse effect. We have three environmental remediation projects, all within our discontinued operations, which principally entail the removal/remediation of contaminated soil, and, in most cases, the remediation of surrounding ground water. We expect to fund the expenses to remediate these sites from funds generated from operations. As of March 31, 2026, we had total environmental remediation liabilities of $3,472,000, a decrease of approximately $13,000 from the December 31, 2025 balance of $3,485,000. The decrease reflects payments for our PFSG remediation project. As of March 31, 2026, approximately $63,000 of the total environmental remediation liabilities were recorded as current. Litigation We are involved in certain litigation currently pending in Delaware. See discussion in Note 9 of the Financial Statements, "Commitments and Contingencies - Legal Matters - Michael O'Neill," contained herein for a discussion of said litigation, which is incorporated herein by reference.

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