PERMA FIX ENVIRONMENTAL SERVICES INC (PESI)

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.

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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

We
were disappointed with our 2024 financial results, which were negatively impacted by a number of unexpected events and factors. These
events and factors included among other things,

As
a result of the aforementioned events and factors, overall revenue decreased by $30,618,000 or 34.1% to $59,117,000 for the twelve-months
ended December 31, 2024, from $89,735,000 for the corresponding period of 2023. Treatment Segment revenue decreased by $8,524,000 to
$34,953,000 or 19.6% from $43,477,000, and Services Segment revenue decreased by $22,094,000 or 47.8% to $24,164,000 from $46,258,000.
Total gross profit for the twelve-months ended December 31, 2024, decreased $16,367,000 or 100.0% due to decreased revenue generated
in both segments. Selling, general and administrative (“SG&A”) expenses decreased $484,000 or 3.2% for the twelve-months
ended December 31, 2024, as compared to the corresponding period of 2023.

During
2024, we provided a full valuation allowance against our deferred tax assets (see a discussion of this valuation allowance and the impact
to our financial statements in “Results of Operations – Income Taxes” below).

In
2024, we completed two public equity raises and sold an aggregate 4,581,282 shares of our Common Stock. See “Liquidity and Capital
Resources - Financing Activities” within this MD&A for discussions of these equity raises that occurred in May 2024 and December
2024.

Although
we are disappointed with our 2024 financial results, we believe our base business is positioned for improvement and that our results
of operations should improve in 2025. We continue to advance a number of initiatives which are discussed within this report on Form 10-K.
Some of these initiatives have been realized, with additional initiatives that are expected to be more fully realized in 2025. In December
2024, BWXT Technologies, Inc (“BWXT”) announced that the DOE had awarded BWXT and its team, which we are a member of, the
contract for the cleanup operations at the West Valley Development Project in West Valley, NY. As disclosed by BWXT, the contract has
a 10-year ordering period with a maximum value of up to $3 billion that can be performed for up to 15 years. The scope attributable to
us has not yet been defined and is subject to certain approvals. The West Valley Project is anticipated to begin transition in the first
quarter of 2025 and realize full operations in 120 days from initiation. As previously disclosed, in December 2023, we and our partner,
Campoverde Srl, each owning 50% of the partnership, were awarded a multi-year contract for the treatment of radioactive waste from the
Joint Research Center in Ispra, Italy. Revenue generated and to be generated by us from this contract has been and will be limited to
project management support through 2025. The scope of work in the initial phases of this contract is being performed predominantly by
our partner. We expect to generate an increase in revenue under this contract starting in 2026 when the waste treatment phases begin.

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Our
continuing initiatives include, among other things, positioning ourselves for further large and mid-size procurements within the DOE
and DOD and waste treatment in support of DOE’s Hanford closure strategy, continued investments in our facilities and capabilities
to allow for broader waste treatment (including PFAS) (see “Known Trends and Uncertainties - New Processing Technology” within
this MD&A for a discussion of our PFAS technology), and continued expansion of our waste treatment offerings within the international
and commercial markets (see “Part I, Item 1 – Business – Foreign Revenue and Initiatives” for a discussion of
our foreign revenue and initiatives).

See
“Known Trends and Uncertainties – Federal Funding” within this MD&A for a discussion of factors that could impacts
our results of operations in 2025.

Business
Environment

Our
Treatment and Services Segments’ business continues 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, the manner in which the applicable government authority will be required to spend
funding to remediate various sites and potential future federal budget issues. In addition, our governmental contracts and subcontracts
relating to activities at federal governmental sites in the United States are generally subject to termination for convenience at any
time at the government’s option. Significant reductions in the level of governmental funding or specifically mandated levels for
different programs that are important to our business could have a material adverse impact on our business, financial position, results
of operations, and cash flows.

Results
of Operations

The
reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment Segment and Services
Segment.

Summary
- Years Ended December 31, 2024 and 2023

Below
are the results of continuing operations for years ended December 31, 2024, and 2023 (amounts in thousands):

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Revenue

Consolidated
revenues decreased $30,618,000 for the year ended December 31, 2024, compared to the year ended December 31, 2023, as follows:

1)
Includes wastes generated by government clients of $2,898,000 and $2,943,000 for the twelve months ended December 31, 2024, and
2023, respectively.

Treatment
Segment revenue decreased by $8,524,000 or 19.6% for the twelve-months ended December 31, 2024, over the same period in 2023. The overall
decrease in revenue was primarily due to lower waste volume attributed from the factors as discussed in the “Overview” section
above. Overall lower averaged price from waste mix within the Treatment Segment also contributed to the revenue decrease. Services Segment
revenue decreased by approximately $22,094,000 or 47.8%. The decrease in revenue in the Services Segment was due to the reasons as discussed
in the “Overview” above. 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 $14,251,000 for the year ended December 31, 2024, as compared to the year ended December 31, 2023, as follows:

Cost
of goods sold for the Treatment Segment decreased by approximately $538,000 or 1.5%. Treatment Segment’s variable costs decreased
by approximately $1,467,000 primarily due to overall lower transportation, disposal, lab and bonus/incentive costs. Treatment Segment’s
overall fixed costs increased by approximately $929,000 resulting from the following: salaries and payroll related expenses were higher
by $1,717,000 due to higher headcount; regulatory costs were higher by approximately $101,000; depreciation expenses were lower by approximately
$626,000 due to fully depreciated AROs that occurred in the third quarter of 2023 in connection with our EWOC facility; maintenance costs
were lower by approximately $123,000; general expenses were lower by $111,000 in various categories; and travel expenses were lower by
approximately $29,000. Services Segment cost of goods sold decreased $13,713,000 or 37.3% 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
$13,565,000; lower depreciation expenses of approximately $220,000; lower general expenses of $49,000 in various categories; and higher
material and supplies expenses of approximately $121,000. Included within cost of goods sold is depreciation and amortization expense
of $1,637,000 and $2,484,000 for the twelve months ended December 31, 2024, and 2023, respectively.

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Gross
Profit

Gross
profit for the year ended December 31, 2024, was $16,367,000 lower than 2023 as follows:

Treatment
Segment gross profit decreased by $7,986,000 or approximately 116.1% and gross margin decreased to (3.2)% from 15.8% primarily due to
lower revenue from lower waste volume, overall lower averaged price from waste mix and the impact of our fixed cost structure. Services
Segment gross profit decreased by $8,381,000 or 88.3% primarily due to decreased revenue as discussed in the “Overview” above.
The decrease in gross margin from 20.5% to 4.6% was attributed to overall lower margin projects as the two large projects completed in
late 2023 were higher margin projects. Our overall Services Segment gross margin is impacted by our current projects which are competitively
bid on and will therefore have varying margin structures.

SG&A

SG&A
expenses decreased $484,000 for the year ended December 31, 2024, as compared to the corresponding period for 2023 as follows:

Administrative
SG&A expenses were lower primarily due to lower incentive expenses of approximately $540,000, which was offset by overall higher
expenses of $206,000 in various categories. Administrative SG&A expenses in 2023 included incentives earned in connection with the
Company’s management incentive plans (“MIPs”) and other employees’ bonus plans. Such incentives were not earned
in 2024. Treatment Segment SG&A expenses were higher primarily due to higher salaries and payroll related expenses of approximately
$420,000 which were offset by overall lower travel, outside services and general expenses totaling approximately $379,000. The decrease
in Services Segment SG&A was primarily due to lower outside services expenses of approximately $102,000 from fewer consulting and
legal matters and lower salaries and payroll related expenses of approximately $249,000. The overall lower SG&A expenses were offset
by higher credit loss expenses of approximately $160,000 as a certain account receivable was determined to be uncertain as to collectability
as of December 31, 2024. Included in SG&A expenses is depreciation and amortization expense of $126,000 and $84,000 for the twelve
months ended December 31, 2024 and 2023, respectively.

R&D

R&D
expenses increased by $611,000 for the twelve-months ended December 31, 2024, as compared to the corresponding period of 2023 primarily
due to expenses incurred in connection with our new PFAS technology.

Interest
Income

Interest
income increased by approximately $315,000 for the twelve-months ended December 31, 2024, as compared to the corresponding period of
2023. The increase was primarily due to higher interest income earned from our finite risk sinking fund from higher interest rates that
took effect starting in March 2023. Additionally, the increase in interest income resulted from more funds that we maintained in our
money market deposit accounts from the two equity raises that were complete in May 2024 and December 2024. The overall increase in interest
income from the above was reduced by interest income received in March of 2023 of approximately $60,000 in connection with the Employee
Retention Credit refund that we received.

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Interest
Expense

Interest
expense increased by approximately $150,000 for the twelve-months ended December 31, 2024, as compared to the corresponding period of
2023. The increase was attributed primarily to interest incurred on the $2,500,000 term loan dated July 31, 2023, under our credit facility
and the promissory note that we entered into on July 24, 2024, for the purchase of our EWOC facility. The higher interest expense was
also attributed to more finance leases.

Income
Taxes

We
record a valuation allowance against our net deferred tax asset to the extent we determine it is more likely than not that such asset
will not be realized in the future. We regularly evaluate the probability that our deferred tax assets will be realized and determines
whether valuation allowances or adjustments thereto are needed. This determination involves judgement and the use of estimates and assumptions,
including expectations of future taxable income and tax planning strategies. We apply judgment to consider the relative impact of negative
and positive evidence, and the weight given to negative and positive evidence is commensurate with the extent to which such evidence
can be objectively verified. Based on our evaluation of all available positive and negative evidence, and with greater weight placed
on the objectively verifiable evidence which primarily included our three-year cumulative losses, we determined that it was more likely
than not that our net U.S. deferred tax asset will not be realized. As a result, in 2024, we provided a full valuation allowance against
our U.S. federal and state deferred tax assets and recorded an income tax expense in the amount of approximately $8,194,000. We continue
to maintain a valuation allowance against foreign tax attributes that may not be realized.

We
had income tax expenses of $4,435,000 and $17,000 for continuing operations for the twelve-months ended December 31, 2024 and 2023, respectively.
Our effective tax rates were approximately 29.3% and 1.8% for the twelve-month ended December 31, 2024 and 2023, respectively. Our effective
tax rate for the twelve-months ended December 31, 2024, was impacted primarily by the income tax expense recorded in the amount of approximately
$8,194,000 as we provided for a full valuation allowance against our U.S. federal and state deferred tax assets. Our effective tax rate
for the twelve-months ended December 31, 2023, was impacted by non-deductible expenses and state taxes.

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, 2024, our Treatment Segment had a backlog of approximately $7,859,000, as compared to approximately $8,702,000 as of December 31,
2023. 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 typically process our backlog during periods of low waste receipts, which historically has been
in the first or fourth quarters.

Discontinued
Operations and Environmental Contingencies

Our
discontinued operations consist of all our subsidiaries included in our 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, 2024 and 2023. We incurred net losses of $410,000 (net
of tax benefit of $149,000) and $433,000 (net of tax benefit of $117,000) for our discontinued operations for the twelve-months ended
December 31, 2024, and 2023, respectively. Net losses for both years were primarily due to costs incurred in connection with management
of administrative and regulatory matters related to our remediation projects. 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.

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Liquidity
and Capital Resources

Our
cash flow requirements during the twelve-months ended December 31, 2024, were primarily financed by our Liquidity (defined as borrowing
availability under the revolving credit plus cash in our MMDA maintained with our lender). Our Liquidity included net proceeds received
from the sales of an aggregate 4,581,282 shares of our Common Stock pursuant to certain Securities Purchase and Underwriting Agreements
executed in May 2024 and December 2024 (see “Financing Activities” below for a discussion of these offerings, including the
planned usage of the proceeds). 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, remediation projects, R&D on our PFAS technology and capital
expenditures (which include 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 Liquidity under
our Credit Facility. We are continually reviewing operating costs and reviewing the possibility of further reducing operating costs and
non-essential expenditures to bring them in line with revenue levels. As of December 31, 2024, we had no outstanding borrowing under
our revolving credit and our Liquidity under our Credit Facility was approximately $33,905,000. We believe that our cash flows from operations
and our Liquidity should be sufficient to fund our operations for the next twelve months. Although we believe our operations should improve
in 2025, if we continue to incur losses such as in 2024, this could cause a reduction in our Liquidity.

The
following table reflects the cash flow activity for the year ended December 31, 2024, and the corresponding period of 2023:

As
of December 31, 2024, we were in a positive cash position with no revolving credit balance. As of December 31, 2024, we had cash on hand
of approximately $28,975,000.

Operating
Activities

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. The decrease in cash used in operating activities of our
continuing operations from 2023 to 2024 was driven primarily from the significant net loss that we incurred. Our cash used in operating
activities of our discontinued operations consisted primarily of expenses incurred in connection with management and administration of
regulatory matters for the Company’s remediation projects.

We
had working capital of $28,283,000 (which included working capital of our discontinued operations) as of December 31, 2024, as compared
to working capital of $4,613,000 as of December 31, 2023. The improvement in our in our working capital was primarily due to the increase
in our cash from the sales of our Common Stock in May 2024 and December 2024, which was offset by the significant losses incurred from
our results of operations attributed to the various factors as previously discussed.

Perma-Fix
Canada Inc. (“PF Canada”)

Our
cash used in operating activities in 2024 included receipt of certain outstanding receivables from Canadian Nuclear Laboratories, LTD
(“CNL”) as follows: During the fourth quarter of 2021, PF Canada received a Notice of Termination (“NOT”) from
CNL on a Task Order Agreement (“TOA”) that PF Canada entered into with CNL in May 2019 for remediation work within Ontario,
Canada (“Agreement”). The NOT was received after work under the TOA was substantially completed and work under the TOA has
since been completed. CNL may terminate the TOA at any time for convenience. At year-end 2023, PF Canada had approximately $2,389,000
in outstanding receivables due from CNL as a result of work performed under the TOA. A settlement agreement was reached between PF Canada
and CNL on the payment of the aforementioned amount by CNL, subject to certain conditions/terms precedents being met. PF Canada received
a partial payment from CNL of the outstanding receivables during the first quarter of 2024. In May 2024, PF Canada received the remaining
approximately $1,612,000 in outstanding receivables from CNL. As a result of the aforementioned payments received from CNL, no outstanding
receivables remain under the TOA from CNL.

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Investing
Activities

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. The remaining cash used in investing activities consisted of cash outlays made
in connection with our operating permits and certain intangible assets. The increase in cash used in investing activities of our continuing
operations in 2024 as compared to 2023 was primarily due to capital expenditures made in connection with our PFAS technology which included
the installation of our first unit in treating PFAS. Cash used in investing activities of our discontinued operations was primarily for
roof replacement at our PFSG location.

Capital
Expenditures

We
anticipate making capital expenditures of approximately $2,000,000 to $5,500,000 in 2025 to maintain operations and regulatory compliance
requirements and support revenue growth. We expect our capital expenditures to be higher in 2025 based on certain strategic project initiatives
which include the installation of our second generation unit for our PFAS technology. We plan to fund our capital expenditures for 2025
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 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 as discussed below and proceeds received from option and a warrant exercises totaling approximately $292,000,
partially offset by principal payments of approximately $832,000 primarily for our Terms Loans and Capital Loan under our Credit Facility
(see below for a discussion of 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 from time to time, with PNC National Association (“PNC” and “lender”), acting as agent and lender (the
“Loan Agreement”). The Loan Agreement provides us with the following credit facility with a maturity date of May 15, 2027
(the “Credit Facility): (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 ($3,200,000 as of December 31, 2024) and borrowing
reductions that our lender may impose from time to time ($750,000 as of December 31, 2024); (b) a term loan (“Term Loan 1”)
of approximately $1,742,000, requiring monthly installments of $35,547 (Term Loan 1 was paid off by us in June 2024); (c) a term loan
(“Term Loan 2”) of $2,500,000, requiring monthly installments of $41,667; and (d) a capital expenditure loan (“Capital
Loan”) of approximately $524,000, requiring monthly installments of principal of approximately $8,700 plus interest, that commenced
on June 1, 2022.

On
May 8, 2024 and November 12, 2024, we entered into amendments to our Loan Agreement with our lender which provided the following, among
other things:

In
connection with the amendments, we paid our lender fees totaling $37,500 which is being amortized over the remaining term of the Loan
Agreement as interest expense-financing fees.

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On
March 11, 2025, we entered into an amendment to our Loan Agreement with our lender which provided the following, among other things:

In
connection with the amendment, the Company paid its lender a fee of $12,500.

Our
Credit Facility under our Loan Agreement with PNC contains certain financial covenants, along with customary representations and warranties.
A breach of any of these financial covenants, unless waived by PNC, could result in a default under our Credit Facility allowing our
lender to immediately require the repayment of all outstanding debt under our Credit Facility and terminate all commitments to extend
further credit. We were not required to perform testing of our FCCR requirement for the first, second and third quarters of 2024 pursuant
to the amendments dated May 8, 2024, and November 12, 2024, to our Loan Agreement as discussed above. We were also not required to perform
testing of our FCCR requirement for the fourth quarter of 2024 pursuant to the amendment dated March 11, 2025, to our Loan Agreement,
as amended, as discussed above. Otherwise, we met all of our other financial covenant requirements in each of the quarters in 2024. We
expect to meet our quarterly financial covenant requirements for the next twelve months.

EWOC
Note

Our
financing activities for 2024 included monthly principal payments on a note that we entered into on July 24, 2024, to finance the balance
of the purchase price of the property where our EWOC facility operates. Pursuant to a Purchase and Sales Agreement dated April 30, 2024,
we acquired the property for a purchase price of $425,000, paying $63,750 in cash and financing the balance with a bank loan of $361,250
(the “Note”). The Note, which matures on July 24, 2044 (the “Note”), provides for monthly payments of $3,100
for the first five years commencing August 24, 2024, which payments includes interest at an annual fixed interest rate of 8.10%. Monthly
payments under the Note will then be adjusted at the end of years five, ten and fifteen, with interest calculated based on the weekly
average five-year US Treasury Securities Rate plus 3.0%. Under no circumstances will the variable interest rate on the Note be less than
4.0% per annum or more than (except in the case of default) the lesser of 20.5% per annum or the maximum rate allowed by applicable law.
We agreed to pay the lender 3.0% of the total outstanding principal balance under the Note in the event we pay off our obligations during
the first year of the Note. The prepayment penalty rate will be reduced by 1.0% at each subsequent annual anniversary of the Note. No
prepayment penalty will apply in the event we pay off the Note on the fourth anniversary of the Note or thereafter. The property was
previously accounted for under our operating leases.

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Sale
of Common Stock (May 2024)

On
May 21, 2024, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain institutional
and retail investors (the “Purchasers”), pursuant to which we sold and issued, in a registered direct public offering, an
aggregate of 2,051,282 shares of the Company’s Common Stock, at a negotiated purchase price per share of $9.75 (the “Shares”),
for aggregate gross proceeds to us of approximately $20,000,000, before deducting fees payable to the placement agents and other estimated
offering expenses payable by the Company (the “Offering”). The net proceeds from the Offering was utilized to fund (i) continued
R&D and business development relating to our patent-pending process for the destruction of PFAS, as well as the cost of installing
at least one commercial treatment unit; (ii) ongoing facility capital expenditures and maintenance costs; and (iii) general corporate
and working capital purposes. The Shares were offered and sold by the Company pursuant to the Company’s “shelf” registration
statement on Form S-3 and prospectus supplement relating thereto.

Craig-Hallum
Capital Group LLC (“Craig-Hallum”) and Wellington Shields & Co. LLC (“Wellington Shields”) (Wellington Shields
and Craig-Hallum together are known as the “Placement Agents”) served as the exclusive placement agents in connection with
the Offering. We paid the Placement Agents an aggregate cash fee of $1,200,000, which represented 6.00% of the gross proceeds of the
Offering. We also reimbursed the Placement Agents certain expenses in connection with the Offering in an aggregate amount of approximately
$80,000. As additional compensation to the Placement Agents in connection with the Offering, we also issued to the Placement Agents and
two (2) of their designees, warrants (the “Placement Agents’ Warrants”) to purchase an aggregate of 61,538 shares of
Common Stock (the “Warrant Shares”), an amount equal to 3.0% of the number of Shares sold in the registered direct offering.
The Placement Agents’ Warrants have an exercise price per share equal to $12.19, which is equal to approximately 125% of the price
per share of the Shares sold in the Offering. Neither the Placement Agents’ Warrants nor the Warrant Shares have been registered
under the Registration Statement or otherwise. The Placement Agents’ Warrants have a term of five years, are exercisable at any
time and from time to time, in whole or in part, during the four and one-half (4 ½) year period commencing 180 days from the last
date of closing of the Offering, which was May 24, 2024, and are exercisable via “cashless exercise” in certain circumstances.
The aggregate fair value of the “Placement Agents’ Warrants” was determined to be approximately $331,000 using the
Black-Scholes pricing model with the following assumptions: 58.78% volatility, risk free interest rate of 4.53%, an expected life of
five years and no dividend. The aggregate fair market value of the Placement Agent’s Warrants was recorded as an offset to gross
proceeds of the Offering and an increase to additional paid-in capital.

After
deducting costs incurred (which have all been paid) of approximately $1,544,000 (exclusive of the aggregate fair market value of the
Placement Agents’ Warrants as discussed above) which were recorded as a deduction to equity in connection with the Offering, net
cash proceeds to us totaled approximately $18,456,000.

Sale
of Common Stock (December 2024)

On
December 18, 2024, we entered into an underwriting agreement (the “Underwriting Agreement”) with Craig-Hallum Capital Group,
LLC (the “Underwriter”) to which we sold and issued pursuant to the terms and conditions of the Underwriting Agreement, 2,200,000
shares of the Company’s Common Stock. The shares of Common stock were sold at a negotiated price to the public of $10.00 per share.
The Underwriting Agreement also allowed the Underwriter a 30-day over-allotment option (the “Over-Allotment Option”) to purchase
up to an additional 330,000 shares of our Common Stock on the same terms and conditions, which option was exercised in its entirely on
December 18, 2024. The shares were offered and sold to the public pursuant to our “universal shelf” registration statement
on Form S-3 filed with the Commission on December 2, 2024, and declared effective by the Commission on December 12, 2024, and prospectus
supplement relating thereto. The aggregate gross proceeds received by us from the sale of the 2,530,000 shares sold totaled $25,300,000,
before deducting fees payable to the Underwriter and other estimated offering expenses payable by us (the “Offering”). The
net proceeds from the Offering is anticipated to fund (i) continued R&D and business development relating to our patent-pending process
for the destruction of PFAS, as well as the cost of installing at least one second-generation Perma-FAS commercial treatment unit; (ii)
ongoing facility capital expenditures and maintenance costs; and (iii) general corporate and working capital purposes.

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We
paid the Underwriter a total cash fee of 7.00% of the aggregate gross proceeds in the Offering, which totaled approximately $1,771,000.
We also reimbursed the Underwriter certain expenses in connection with the Offering in an aggregate amount of approximately $95,000.
As additional compensation to the Underwriter in connection with the Offering, we also issued to the Underwriter and three (3) of their
designees, warrants (the “Underwriters’ Warrant’s”) to purchase an aggregate of 126,500 shares of Common Stock
(the “Warrant Shares”), equal to 5.0% of the number of Shares sold in the offering, at an exercise price per share equal
to $11.50, which exercise price is equal to approximately 115% of the price per share of the shares sold in the Offering. The Underwriter’s
Warrants have a term of five years, are exercisable at any time and from time to time, in whole or in part, during the five (5) year
period commencing on December 19, 2024, the closing date of the Offering, and are exercisable via “cashless exercise” in
certain circumstances. The aggregate fair value of the “Underwriter’s Warrants” was determined to be approximately
$695,000 using the Black-Scholes pricing model with the following assumptions: 58.51% volatility, risk free interest rate of 4.43%, an
expected life of five years and no dividend. The aggregate fair market value of the Underwriter’s Warrants was recorded as an offset
to gross proceeds of the Offering and an increase to additional-paid-in capital.

After
deducting costs incurred of approximately $2,092,000 (exclusive of the aggregate fair market value of the Underwriter’s Warrants
as discussed above) which were recorded as a deduction to equity in connection with the Offering, net cash proceeds to us totaled approximately
$23,208,000. We have paid approximately $1,897,000 of the $2,092,000 costs incurred in connection with the Offering.

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, 2024, the total amount of standby letters of credit outstanding was
approximately $3,200,000 and the total amount of bonds outstanding was approximately $20,930,000. 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, 2024, the closure and post-closure requirements for these facilities were approximately
$23,379,000.

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 –

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

Certain
statements contained within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
(“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, our audited consolidated financial statements and includes our accounts and the
accounts of our wholly-owned subsidiaries. Our 2022 consolidated financial statements also included the accounts of a variable interest
entity (“VIE”) for which we were the primary beneficiary. During the fourth quarter of 2022, project work under this VIE
was completed.

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

We
experienced significant improvement in our 2023 financial results as the lingering effects of COVID-19 began to subside starting in the
early part of 2022. Our Treatment Segment continued to see steady improvements in waste receipts from certain customers who had previously
delayed waste shipments due, in part, from the impact of COVID-19. Within our Services Segment, certain projects which were delayed/curtailed
in first part of 2022 due, in part, from the lingering effects of the COVID-19, achieved full operational status and improved productivity
in 2023 which positively impacted revenue. Revenue from both of our Segments were also positively impacted from contracts won in 2023
as procurement and planning on behalf of our government clients continued to progress as the lingering effects of COVID-19 pandemic subsided.

19

Revenue
increased by $19,136,000 or 27.1% to $89,735,000 for the twelve-months ended December 31, 2023, from $70,599,000 for the corresponding
period of 2022. We saw increases in both Segments where Treatment Segment revenue increased by $10,119,000 or 30.3% to $43,477,000 from
$33,358,000 and Services Segment revenue increased by $9,017,000 or 24.2% to $46,258,000 from $37,241,000. The increase in revenue in
the Treatment Segment was primarily due to overall higher waste volume which was offset by lower averaged price from waste mix.
The increase in revenue in the Services Segment was primarily due to achievement of full operational status and improved productivity
on certain projects which had been delayed/curtailed in 2022 due, in part, from the lingering effects of the COVID-19 pandemic. Total
gross profit for 2023 increased $6,760,000 or 70.4% due to increased revenue. Selling, General, and Administrative (“SG&A”)
expenses increased $323,000 or 2.2% for the twelve-months ended December 31, 2023, as compared to the corresponding period of 2022.

In
March 2023, we received the Employee Retention Credit (“ERC”) of $1,975,000 that we applied for during the third quarter
of 2022 as permitted under the Coronavirus Aid, Relief and Economic Securities Act, as amended (the “CARES Act”). In addition
to the $1,975,000, we also received approximately $60,000 in interest (recorded within “Interest Income” on our Consolidated
Statements of Operations).

We
believe we have sufficient liquidity on hand to continue business operations during the next twelve months. See a discussion of our liquidity
overview within this MD&A – “Liquidity and Capital Resources.”

Heading
into 2024, we expect to see overall continue steady improvements in waste receipts and increases in project work from certain
existing contracts, contracts won in 2023, and bids submitted in both segments that are awaiting awards. However, due to our
operations which is subject to seasonal factor, we generally experience lower revenue in the first quarter due to overall reduced
activities by our customers from the usual slowdown in operations due, in part, from returning from the holiday periods and poorer
weather conditions. Additionally, due to Congress’s inability to timely approve FY 2024 budget and the extension of the
continuing resolution, certain of our government related customers have informed us that waste shipments will likely be delayed.
Although we expect to see overall improvements in revenue in 2024 as disclosed above, if Congress is unable to enact the full FY
2024 appropriation bills or further extend the continuing resolutions to fund government spending by the late March deadline, the
U.S. government will enter into a partial shutdown. The full impact of any additional continued resolution beyond March or a partial
government shutdown is uncertain. If a partial government shutdown were to occur and were to continue an extended period,
our financial results of operations could be negatively impacted by delays in procurement actions, waste shipments and project
delays on newly awarded projects.

Business
Environment

Our
Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental
clients, primarily as subcontractors for others who are prime 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, the economic conditions and the manner in which the applicable government will be required
to spend funding to remediate various sites and a potential partial government shutdown. In addition, our governmental
contracts and subcontracts relating to activities at governmental sites in the United States are generally subject to termination
for convenience at any time at the government’s option. Significant reductions in the level of governmental funding or
specifically mandated levels for different programs that are important to our business could have a material adverse impact on our
business, financial position, results of operations, and cash flows.

We
are continually reviewing methods to raise additional capital to supplement our liquidity requirements, when needed, and reducing our
operating costs. We continue to aggressively bid on various contracts, including potential contracts within the international markets.
On December 18, 2023, the JV where we and Campoverde Srl (“JV partner”) each owns 50% of the partnership, was awarded a multi-year
contract valued up to approximately EUR 50 million by the European Commission (the “Contracting Authority”) for the treatment
of radioactive waste from the Joint Research Center in Ispra, Italy. Work under this JV has not started as of December 31, 2023. The
scope of work to be performed in the initial phases of this contract will be performed predominately by our JV partner. Revenue generated
by us under the initial phases will be limited to project management support through 2025. We expect to generate an increase in revenue
under this contract starting in 2026 when the waste treatment phases begin. The Contracting Authority may terminate the contract under
certain conditions as set forth in the contract. Once activities commence under this JV, we will consolidate the operations of this JV
into our financial statements.

20

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, 2023 and 2022

Below
are the results of continuing operations for years ended December 31, 2023, and 2022 (amounts in thousands):

Revenue

Consolidated
revenues increased $19,136,000 for the year ended December 31, 2023, compared to the year ended December 31, 2022, as follows:

1)
Includes wastes generated by government clients of $2,943,000 and $2,380,000 for the twelve months ended December 31, 2023, and
2022, respectively.

21

Treatment
Segment revenue increased by $10,119,000 or 30.3% for the twelve-months ended December 31, 2023 over the same period in 2022. The overall
increase was primarily due to higher waste volume offset by lower averaged price from waste mix. As previously disclosed, starting
in the latter part of the second quarter of 2022, our Treatment Segment began to see steady improvements in waste receipts from certain
customers who had previously delayed waste shipments due, in part, from the lingering effects of COVID-19. Services Segment revenue increased
by approximately $9,017,000 or 24.2%. primarily due to achievement of full operational status and improved productivity on certain projects
which had been delayed/curtailed in the early part of 2022 due, in part, from the lingering effects of the COVID-19 pandemic. Our Services
Segment revenues are project-based; as such, the scope, duration, and completion of each project vary. As a result, our Services Segment
revenues are subject to differences relating to timing and project value. Revenues from both of our segments were also positively impacted
from contracts won in 2023.

Cost
of Goods Sold

Cost
of goods sold increased $12,376,000 for the year ended December 31, 2023, as compared to the year ended December 31, 2022, as follows:

Cost
of goods sold for the Treatment Segment increased by approximately $8,486,000 or 30.2%. Treatment Segment’s variable costs increased
by approximately $6,189,000 primarily due to higher material and supplies, disposal, lab, outside services costs and higher employee
incentives. Treatment Segment’s overall fixed costs were higher by approximately $2,297,000 resulting from the following: salaries
and payroll related expenses were higher by approximately $1,483,000 due to higher headcount; depreciation expenses were higher by approximately
$393,000 due to depreciation for asset retirement obligations in connection with our EWOC facility; general expenses were higher by approximately
$279,000 primarily due to higher utility costs; maintenance costs were higher by approximately $235,000; travel expenses were higher
by approximately $90,000; and regulatory expenses were lower by approximately $183,000. Services Segment cost of goods sold increased
$3,890,000 or 11.8% due to higher revenue. The overall increase in cost of goods sold was primarily due to the following: aggregated
higher salaries/payroll related, outside services, and travel costs totaling approximately $4,356,000; higher depreciation expenses of
$63,000; lower material and supplies, lab, regulatory and disposal expenses totaling approximately $444,000; and lower general expenses
by approximately $85,000 in various categories. Included within cost of goods sold is depreciation and amortization expense of $2,484,000
and $2,027,000 for the twelve months ended December 31, 2022, and 2021, respectively.

Gross
Profit

Gross
profit for the year ended December 31, 2023, was $6,760,000 higher than 2022 as follows:

Treatment
Segment gross profit increased by $1,633,000 or 31.1% primarily due to higher revenue as discussed previously. Despite the slight increase
in gross margin, Treatment Segment gross margin was negatively impacted by higher variable costs from waste mix and the impact of overall
increase in fixed costs. Services Segment gross profit increased by $5,127,000 or 117.4% and gross margin increased from 11.7% to 20.5%
primarily due to higher revenue and improved margin projects. Our overall Services Segment gross margin is impacted by our current projects
which are competitively bid and therefore have varying margin structures.

22

SG&A

SG&A
expenses increased $323,000 for the year ended December 31, 2023, as compared to the corresponding period for 2022 as follows:

Administrative
SG&A expenses were higher primarily due to the following: payroll-related expenses were higher by approximately $660,000 primarily
due to higher accrued employee incentives (including our management incentive plans (“MIPs”)) and higher 401(k) matching
expenses as payroll expenses in 2022 included more forfeitures of 401(k) plan matching funds contributed by us for former employees who
failed to meet the 401(k) plan vesting requirements; outside services expenses were lower by approximately $256,000 as a result of fewer
audit/consulting matters; and general expenses were lower by approximately $56,000 in various categories. Treatment Segment SG&A
expenses were lower primarily due to the following: outside services expenses were lower by approximately $110,000 due to fewer consulting
matters; salaries and payroll related expenses were lower by approximately $212,000; travel expenses were lower by approximately $24,000;
and general expenses were higher by approximately $176,000 in various categories. The increase in SG&A expenses within our Services
Segment was primarily due to the following: salaries/payroll-related expenses were higher by approximately $92,000 due to more administrative
support functions required as the result of higher revenue; travel expenses were higher by approximately $43,000; credit losses on accounts
receivable were higher by approximately $59,000, as in the first quarter of 2022 our Services Segment collected on certain accounts that
were previously deemed to be uncollectible; outside services expenses were lower by approximately $41,000 due to fewer consulting matters;
and general expenses were lower slightly by $8,000. Included in SG&A expenses is depreciation and amortization expense of $84,000
and $82,000 for the twelve months ended December 31, 2023 and 2022, respectively.

Interest
Income

Interest
income increased by approximately $507,000 for the twelve-months ended December 31, 2023, respectively, as compared to the corresponding
period of 2022 primarily due to higher interest earned from the finite risk sinking fund. Interest income for 2023 also included approximately
$60,000 received in March 2023 under the ERC program under the CARES Act.

Interest
Expense

Interest
expense increased by approximately $148,000 for the twelve-months ended December 31, 2023, as compared to the corresponding period of
2022 due to interest incurred on the new $2,500,000 term loan dated July 31, 2023, under our credit facility. Interest expense was also
higher in 2023 from higher interest rate on our term loan dated May 8, 2020, which was offset by the declining term loan balance. Additionally,
the increase in interest expense in 2023 was also the result of interest incurred from advances made in May of 2022 from the capital
line under our credit facility.

Income
Taxes

We
had income tax expense of $17,000 and income tax benefit of $378,000 for continuing operations for the twelve-months ended December 31,
2023 and 2022, respectively. Our effective tax rates were approximately 1.8% and 10.5% for the twelve- month ended December 31, 2023
and 2022, respectively. Our effective tax rates for the twelve-months ended December 31, 2023, and 2022 were impacted by non-deductible
expenses and state taxes.

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, 2023, our Treatment Segment had a backlog of approximately $8,702,000, as compared to approximately $9,156,000 as of December 31,
2022. 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 typically process our backlog during periods of low waste receipts, which historically has been
in the first or fourth quarters.

23

Discontinued
Operations and Environmental Contingencies

Our
discontinued operations consist of all our subsidiaries included in our 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, 2023 and 2022. We incurred net losses of $433,000 (net
of tax benefit of $117,000) and $605,000 (net of tax benefit of $199,000) for our discontinued operations for the twelve-months ended
December 31, 2023, and 2022, respectively. In 2022, we incurred additional costs in connection with management of administrative and
regulatory matters related to our remediation projects. 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.

Liquidity
and Capital Resources

Our
cash flow requirements during the twelve-months ended December 31, 2023, were primarily financed by our operations, cash on hand (which
included the ERC, along with interest, that we received in March 2023 and proceeds from a new term loan dated July 31, 2023, in the amount
of $2,500,000 provided to us under an amendment to our existing credit facility), and credit facility availability. Our cash flow requirements
for the next twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations,
remediation projects, and planned capital expenditures. We plan to fund these requirements from our operations, credit facility availability,
cash on hand and collections of unpaid receivables (See “Known Trends and Uncertainties – Perma-Fix Canada,
Inc. (“PF Canada”)” for a discussion of unpaid receivables due to our Perma-Fix Canada, Inc. subsidiary from a certain
customer in which a settlement agreement has been reached, subject to meeting certain conditions/terms precedent and a partial payment
received in January 2024). Our ability to utilize our credit facility from our lender is subject to meeting our quarterly financial covenant
requirements, among other things. We continue to explore all sources of increasing our capital and/or liquidity and
to improve our revenue and working capital, including, but not limited to entering into equity transactions. There are no assurances that
we will be successful in increasing our liquidity through our efforts. We are continually reviewing operating costs and reviewing the
possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue levels, when necessary.
As of December 31, 2023, our borrowing availability under our revolving part of our credit facility was approximately $10,622,000, which
included our cash (deposited with our lender) and was based on our eligible receivables and was net of approximately $3,950,000 in outstanding
standby letters of credit and a $750,000 indefinite reduction in borrowing availability that our lender imposed pursuant to the July
31, 2023 amendment of our Loan Agreement. We believe that our cash flows from operations, our available
liquidity from our credit facility, and our cash on hand should be sufficient to fund our operations for the next twelve months.

The
following table reflects the cash flow activity for the year ended December 31, 2023, and the corresponding period of 2022:

As
of December 31, 2023, we were in a positive cash position with no revolving credit balance. As of December 31, 2023, we had cash on hand
of approximately $7,500,000.

Operating
Activities

Accounts
receivable, net of credit losses, totaled $9,722,000 as of December 31, 2023, an increase of $358,000 from the December 31, 2022, balance
of $9,364,000. The increase was attributed to increased revenue, timing of invoicing, and our accounts receivable collection. Our contracts
with our customers are subject to various payment terms and conditions. Our accounts receivable at December 31, 2023, included invoices
for work performed for a certain Canadian project that remained outstanding which a settlement agreement has been reached, subject to
meeting certain conditions/terms precedent (See discussion under “Known Trends and Uncertainties - Perma-Fix Canada Inc. (“PF
Canada”)” below for a discussion of the accounts receivable and a partial payment made by the customer on January 22, 2024).

24

Prepaid
and other assets totaled $3,738,000 as of December 31, 2023, a decrease of $1,667,000 from the December 31, 2022, balance of $5,405,000.
The decrease was primarily due to receipt of the ERC of $1,975,000 in March 2023 that we applied for during the third quarter of 2022.

Accounts
payable totaled $9,582,000 as of December 31, 2023, a decrease of $743,000 from the December 31, 2022, balance of $10,325,000. Our accounts
payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position
throughout our segments.

Accrued
expenses totaled $6,560,000 as of December 31, 2023, an increase of $1,967,000 from the December 31, 2022, balance of $4,593,000. The
increase was primarily due to higher employee incentive and commission accruals totaling approximately $1,346,000. Our employee incentive
accruals included an aggregate of approximately $750,000 recorded under our 2023 Management Incentive Plans (“MIPs”) for
our executives.

We
had working capital of $4,613,000 (which included working capital of our discontinued operations) as of December 31, 2023, as compared
to working capital of $818,000 as of December 31, 2022. The improvement in our working capital was primarily due to increases in our
cash and unbilled receivables from improved operations. In 2023, our cash was also increased from the receipt of the ERC in March 2023
and the additional Term Loan 2 dated July 31, 2023, that we entered into with our lender under our Loan Agreement (see a discussion of
the Term Loan 2 below under “Financing Activities). The overall improvement in our working capital was offset by the increases
in our accrued expenses and deferred revenues.

See
discussion of a multi-year contract valued up to approximately EUR 50 million awarded to us and our JV partner by the European Commission
on December 18, 2023, for the treatment of radioactive waste from the Joint Research Center in Ispra, Italy under “Business Environment”
within this MD&A.

Investing
Activities

During
2023, our purchases of capital equipment totaled approximately $2,498,000, of which $784,000 was subject to financing, with the remaining
funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2024 capital expenditures primarily
for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain
of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from
cash from operations, collections of unpaid receivables, borrowing availability under our credit facility and/or financing. The initiation
and timing of projects are also determined by financing alternatives or funds available for such capital projects.

During
March 2022, we signed a non-binding joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”),
an affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”)
in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European
nuclear market. It is expected that upon finalization of a partnership agreement, SFL will have an ownership interest of fifty-five (55)
percent and our interest will be forty-five (45) percent. The finalization, form and capitalization of this unpopulated partnership is
subject to numerous conditions, including but not limited to, completion and execution of a definitive agreement and facility design,
granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based on current and forecast
future economic conditions. Upon finalization of this venture, we will be required to make an investment in this venture. The amount
of our investment, the period of which it is to be made and the method of funding are to be determined.

25

Financing
Activities

We
entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020 (“Loan Agreement”),
with PNC National Association (“PNC” and “lender”), acting as agent and lender. The Loan Agreement, as amended
(including the two amendments that we entered into with our lender in 2023 described below), provides us with the following credit facility
with a maturity date of May 15, 2027: (a) up to $12,500,000 revolving credit (“revolving credit”), with the maximum that
we can borrow under the revolving credit based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding
standby letters of credit and borrowing reductions that our lender may impose from time to time; (b) a term loan (“Term Loan 1”)
dated May 8, 2020, of approximately $1,742,000, requiring monthly installments of $35,547; (c) a term loan (“Term Loan 2”)
of $2,500,000 dated July 31, 2023, requiring monthly installments of $41,667; and (d) a capital expenditure line (“Capital Line”)
of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to twelve months starting May 4, 2021
(the “Borrowing Period”), with interest only payable on advances during the Borrowing Period. Amounts advanced under the
Capital Line at the end of the Borrowing Period totaled approximately $524,000, requiring monthly installments of principal of approximately
$8,700 plus interest, commencing June 1, 2022.

On
March 21, 2023, we entered into an amendment to our Loan Agreement, as amended, with our lender which provided, among other things, the
following:

In
connection with the March 2023 amendment, we paid our lender a fee of $25,000 which is being amortized over the remaining term of the
Loan Agreement, as amended, as interest expense-financing fees.

On
July 31, 2023, we entered into a further amendment of the Loan Agreement, as amended, with our lender which provided, among other things,
the following:

At
maturity of the Loan Agreement, as amended, any unpaid principal balance plus interest, if any, will become due.

26

Pursuant
to the amendment dated July 31, 2023, we have agreed to pay PNC 1.0% of the total financing under the Loan Agreement, as amended, in
the event we pay off our obligations on or before July 31, 2024, and 0.5% of the total financing if we pay off our obligations after
July 31, 2024, to and including July 31, 2025. No early termination fee shall apply if we pay off our obligations under the amended Loan
Agreement after July 31, 2025.

In
connection with amendment dated July 31, 2023, we paid our lender a fee of $100,000 which is being amortized over the remaining term
of the Loan Agreement, as amended, as interest expense-financing fees.

Pursuant
to the Loan Agreement, as amended, the annual rate of interest due on the revolving credit is at prime plus 2% or SOFR plus 3.00% plus
an SOFR Adjustment applicable for an interest period selected by us. The annual rate of interest due on Term Loan 1 and the Capital line
is at prime plus 2.50% or SOFR plus 3.50% plus an SOFR Adjustment applicable for an interest period selected by us. SOFR Adjustment rates
of 0.10% and 0.15% are applicable for a one-month interest period and three-month period, respectively, that may be selected by us. See
payment of annual rate of interest due on Term Loan 2 under the amendment dated July 31, 2023, as discussed above.

Our
credit facility under our Loan Agreement, as amended, contains certain financial covenants, along with customary representations and
warranties. A breach of any of these financial covenants, unless waived by our lender, could result in a default under our credit facility
allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments
to extend further credit. We were not required to perform testing of the FCCR requirement in the first quarter of 2023 pursuant to the
March 21, 2023, amendment as discussed above. We otherwise met all of our other financial covenant requirements. We met all of our covenant
requirements in each of the second to fourth quarters of 2023 and we expect to meet our covenant requirements in the next twelve months.

On
May 19, 2023, we filed a shelf registration statement on Form S-3 with the U.S Securities and Exchange Commission (the “Commission”),
which was declared effective by the Commission on June 1, 2023. The shelf registration statement gives us
the ability to sell up to 2,500,000 shares of our Common Stock from time to time and through one or more methods of distribution, subject
to market conditions and our capital needs at that time. The terms of any offering under the registration statement will be established
at the time of the offering and be set forth in an accompanying prospectus or prospectus supplement relating to the offering. At this
time, we do not have any immediate plans or current commitments to issue shares under the registration statement. This is not an offer
to sell or a solicitation of an offer to buy, nor shall there be a sale of securities in any state or jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction.

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. At December 31, 2023, the total amount of standby letters of credit outstanding totaled
approximately $3,950,000 and the total amount of bonds outstanding totaled approximately $36,674,000. 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”). At December 31, 2023, the closure and post-closure requirements for these facilities were approximately $22,461,000.

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 –

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

Certain
statements contained within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
(“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, our audited consolidated financial statements and includes our accounts, the accounts
of our wholly-owned subsidiaries and the account of a variable interest entity for which we were the primary beneficiary.

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.

COVID-19
and Other Impacts

Our
2022 financial results continued to be impacted by COVID-19, among other things. Our Treatment Segment began to see steady improvements
in waste receipts starting in the second quarter of 2022 from certain customers who had previously delayed waste shipments due, in part,
from the impact of COVID-19 which is reflective of our Treatment Segment’s backlog of approximately $9,156,000 at December 31,
2022, an increase of approximately $2,027,000 from the balance of $7,129,000 at December 31, 2021. This positive trend was negatively
impacted by occurrences of severe weather conditions which contributed to temporary delays in waste shipments from certain customers
and a temporary shortage in skilled production personnel which peaked through the fourth quarter of 2022 at one of our facilities. In
early part of 2022, our Services Segment continued to experience delays/curtailments in project work by certain customers since the award
of projects to us late in the second quarter of 2021 due to COVID-19 impact and/or administrative delays. However, starting in the second
quarter of 2022, work under these projects had resumed/increased as the pandemic impacts began to subside and has since reached full
operational status.

In
2022, we continued to realize delays in procurement and planning on behalf of our government clients that saw easing through the second
half of the year. Heading into 2023, we expect to see continued improvements in waste receipts and continued increases in project work
from contracts recently won and bids submitted in both segments that are awaiting awards, subject to potential impact of COVID-19 and
economic impacts.

18

Liquidity Overview

We
believe we have sufficient liquidity on hand to continue business operations during the next twelve months. At December 31, 2022, we
had borrowing availability under our revolving credit facility of approximately $4,290,000 which was based on a percentage of eligible
receivables and subject to certain reserves. Our borrowing availability of $4,290,000 at December 31, 2022 included a requirement from
our lender that we maintain a minimum of $3,000,000 in borrowing availability. As a result of an amendment to our Loan Agreement that
we entered into with our lender in March 2023, we are required to continue to maintain a minimum of $3,000,000 in borrowing availability
under our revolving credit until the minimum FCCR requirement for the quarter ended June 30, 2023 has been met and certified to our lender
(see “Financing Activities” within this MD&A for a discussion of this amendment). We continue to assess ways to improve
our liquidity and the need in reducing operating costs during this volatile time. Reducing operating costs may include curtailing certain
capital expenditures and eliminating non-essential expenditures. We continue to closely monitor any potential impact from the countries’
economic conditions and COVID-19 pandemic on all aspects of our business.

Although
we believe we have sufficient liquidity to support our operations over the next twelve months, due to losses incurred in 2022 and our
lender requiring us to maintain a minimum borrowing availability of $3,000,000 as discussed above, we are working toward improving our
liquidity by either amending our existing lines of credit, obtaining new term loans or entering into equity transactions. There are no
assurances that we will be successful in increasing our liquidity through these efforts.

Review

Revenue
decreased by $1,592,000 or 2.2% to $70,599,000 for the twelve-month ended December 31, 2022 from $72,191,000 for the corresponding period
of 2021. The decrease was entirely within our Services Segment where revenue decreased by $1,958,000 or 5.0% to $37,241,000 from $39,199,000.
As previously disclosed, work under certain of the new projects awarded to our Services Segment at the end of the second quarter of 2021
continued to be delayed/curtailed into most of the first quarter of 2022 due to COVID-19 impact and/or administrative delays experienced
by certain customers. However, work under these projects resumed/increased starting in the second quarter of 2022 and has since reached
full operational status. The lower revenue in 2022 was further exacerbated by the completion of a large project in the second quarter
of 2021 which was not replaced with a similar size contract because of delays in contract awards and procurement from COVID-19 impact
which continued into the first half of 2022 and eased through the second half of 2022. Our Treatment Segment revenue increased by $366,000
or 1.1% primarily due to overall higher waste volume which was offset by lower averaged price waste due to revenue mix. As disclosed
above, our Treatment Segment began to see steady improvements in waste receipts starting in the second quarter of 2022 from certain customers
who had previously delayed waste shipments due, in part, from the impact of COVID-19. This positive trend was negatively impacted by
occurrences of severe weather conditions which resulted in temporary delays in waste shipments from certain customers and a temporary
shortage in skilled production personnel which peaked through the fourth quarter of 2022 at one of our facilities.

Overall
gross profit for 2022 increased $2,785,000 or 40.8%. The increase was entirely from our Services Segment due to higher margin projects.
The decrease in Treatment Segment gross profit was impacted by overall lower averaged price waste from revenue mix and the impact of
the increase in fixed costs. SG&A expenses increased by approximately $1,807,000 or 14.1% for the year ended December 31, 2022 as
compared to the corresponding period of 2021.

During
the third quarter of 2022, we recorded approximately $1,975,000 in other income and other receivables (within current assets in our Consolidated
Balance Sheets), which represent an employee retention credit that we are eligible for under the Coronavirus Aid, Relief, and Economic
Security Act, as amended (the “CARES Act”) as result of the COVID-19 pandemic (see “Employee Retention Credit (“ERC”)”
within this MD&A for a discussion of this refund that we are expecting resulting from this tax credit).

19

Business
Environment

Our
Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients,
primarily as subcontractors for others who are prime 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, the economic conditions, the manner in which the applicable government will be required to spend funding to remediate various
sites, and/or potential further impact from COVID-19. In addition, our governmental contracts and subcontracts relating to activities
at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s
option, and our governmental contracts/TOAs with the Canadian government authorities also allow the authorities to terminate the contract/task
orders at any time for convenience. Work under all of our contracts/TOAs with Canadian government authorities has substantially been
completed. A significant account receivable due to PF Canada is subject to continuing negotiations. See “Known Trends and Uncertainties
– Perma-Fix Canada, Inc. (“PF Canada”)” within this MD&A for additional discussion as to a terminated Canadian
TOA. Significant reductions in the level of governmental funding or specifically mandated levels for different programs that are important
to our business could have a material adverse impact on our business, financial position, results of operations and cash flows.

We
are continually reviewing methods to raise additional capital to supplement our liquidity requirements, when needed, and reducing our
operating costs. We continue to aggressively bid on various contracts, including potential contracts within the international markets.

Results
of Operations

The
reporting of financial results and pertinent discussions are tailored to our two reportable segments: The Treatment Segment (“Treatment”)
and the Services Segment (“Services”). Our financial results for 2021 also included our Medical Segments. As previously disclosed,
we made the strategic decision to cease all R&D activities under the Medical Segment and sold 100% of our interest in Perma-Fix Medical
S.A. (“PFM Poland” - which comprised the Medical Segment) in December 2021. Our Medical Segment had not generated any revenue
and was involved in our medical isotope production technology. All costs previously incurred by the Medical Segment were included within
R&D.

Summary
- Years Ended December 31, 2022 and 2021

Below
are the results of continuing operations for years ended December 31, 2022 and 2021 (amounts in thousands):

20

Revenue

Consolidated
revenues decreased $1,592,000 for the year ended December 31, 2022 compared to the year ended December 31, 2021, as follows:

1)
Includes wastes generated by government clients of $2,380,000 and $2,299,000 for the twelve months ended December 31, 2022 and
2021, respectively.

Treatment
Segment revenue increased by $366,000 or 1.1% for the twelve months ended December 31, 2022 over the same period in 2021. The overall
increase was primarily due to higher waste volume as certain customers who had previously delayed waste shipments due to COVID-19 resumed
steady waste shipments starting in the latter part of the second quarter. This positive trend was negatively impacted by occurrences
of severe weather conditions which resulted in temporary delays in waste shipments from certain customers and a temporary shortage in
skilled production personnel which peaked through the fourth quarter of 2022 at one of our facilities. The higher revenue from higher
waste volume was offset by lower averaged price waste from revenue mix. Services Segment revenue decreased by approximately $1,958,000
or 5.0%. As previously disclosed, work under certain of the new projects awarded to our Services Segment at the end of the second quarter
of 2021 continued to be delayed/curtailed into most of the first quarter of 2022 due to COVID-19 impact and/or administrative delays
experienced by certain customers. However, since the second quarter of 2022, work under these projects had resumed/increased and has
since reached full operational status. The lower revenue in 2022 was further exacerbated by the completion of a large project in the
second quarter of 2021 which was not replaced with a similar size contract because of delays in contract awards and procurement from
COVID-19. Our Services Segment revenues are project based; as such, the scope, duration and completion of each project vary. As a result,
our Services Segment revenues are subject to differences relating to timing and project value. In 2022, our Segments continued to realize
delays in procurement and planning on behalf of our government clients which did not ease until the second half of 2022.

Cost
of Goods Sold

Cost
of goods sold decreased $4,377,000 for the year ended December 31, 2022, as compared to the year ended December 31, 2021, as follows:

Cost
of goods sold for the Treatment Segment increased by approximately $1,841,000 or 7.0%. Treatment Segment’s variable costs increased
by approximately $607,000 primarily due to higher material and supplies, transportation, and outside services costs. Treatment Segment’s
overall fixed costs were higher by approximately $1,234,000 resulting from the following: general expenses were higher by $483,000 primarily
due to higher utility costs; depreciation expenses were higher by approximately $392,000 due to depreciation for asset retirement obligations
in connection with our EWOC facility; regulatory expenses were higher by approximately $232,000 primarily due to additional closure costs
recorded for our EWOC facility due to change in estimated costs; maintenance costs were higher by approximately $109,000; salaries and
payroll related expenses were higher by $61,000; and travel expenses were lower by approximately $43,000. Services Segment cost of goods
sold decreased $6,218,000 or 15.9% primarily due to lower revenue. The decrease in cost of goods sold was primarily due to lower salaries/payroll
related, outside services, material and supplies and travel costs totaling approximately $6,863,000 which was offset by higher disposal,
transportation and general expenses totaling approximately $645,000. Included within cost of goods sold is depreciation and amortization
expense of $2,027,000 and $1,654,000 for the twelve months ended December 31, 2022, and 2021, respectively.

21

Gross
Profit

Gross
profit for the year ended December 31, 2022 was $2,785,000 higher than 2021 as follows:

Treatment
Segment gross profit decreased by $1,475,000 or approximately 22.0% and gross margin decreased to 15.7% from 20.4% primarily due to lower
averaged price waste from revenue mix and the impact of the increase in fixed costs. Services Segment gross profit increased by $4,260,000
or 4,018.9% and gross margin increased to 11.7% from 0.3% primarily due to higher margin projects. Our overall Services Segment gross
margin is impacted by our current projects which are competitively bid on and will therefore, have varying margin structures.

SG&A

SG&A
expenses increased $1,807,000 for the year ended December 31, 2022 as compared to the corresponding period for 2021 as follows:

Administrative
SG&A expenses were higher primarily due to the following: overall outside services expenses were higher by approximately $654,000
resulting from higher consulting/outside services/audit fees; travel expenses were higher by approximately $19,000; general expenses
were higher by approximately $13,000 in various categories; and salaries and payroll related expenses were higher by approximately $445,000
primarily due to higher stock-based compensation expenses from options granted to certain employees in October 2021 and higher 401(k)
plan matching expenses as our payroll expenses in 2021 included more forfeitures of 401(k) plan matching funds contributed by us for
former employees who failed to meet the 401(k) plan vesting requirements. Additionally, Administrative salaries and payroll related expenses
were higher as in 2021, resources were allocated in supporting Medical Segment’s R&D/administrative functions. Treatment Segment
SG&A expenses were higher primarily due to the following: outside services expense were higher by $120,000 due to more consulting/business
matters (including our ESG initiatives); salaries and payroll related expenses were higher by $46,000; travel expenses were higher by
approximately $59,000; and general expenses were higher by $164,000 which included higher tradeshow expenses and various other categories.
The increase in SG&A expenses within our Services Segment was primarily due to the following: travel expenses were higher by $32,000;
general expenses were higher by approximately $107,000 which included higher tradeshow expenses and various other categories; salaries/payroll
related and consulting expenses were higher by approximately $202,000, and credit loss expense on accounts receivable was lower by approximately
$54,000. Included in SG&A expenses is depreciation and amortization expense of $82,000 and $33,000 for the twelve months ended December
31, 2022 and 2021, respectively.

22

R&D

R&D
expenses decreased $410,000 for the year ended December 31, 2022 as compared to the corresponding period of 2021 as follows:

R&D
costs consist primarily of employee salaries and benefits, laboratory costs, third party fees, and other related costs associated with
the development of new technologies and technological enhancement of new potential waste treatment processes. The decrease was primarily
the result of the sale of PFM Poland in December 2021 which comprised of our Medical Segment and which previously was involved in the
R&D of our medical isotope technology.

Interest
Income

Interest
income increased by approximately $73,000 for the twelve months ended December 31 2022 as compared to the corresponding period of 2021
primarily due to higher interest earned from our finite risk sinking fund.

Interest
Expense

Interest
expense decreased by approximately $72,000 for the twelve months ended December 31, 2022 as compared to the corresponding period of 2021
primarily due to lower interest expense from our declining term loan balance outstanding. Also, interest expense for the first six months
of 2021 included interest accrued for our Paycheck Protection Program (“PPP”) Loan which was forgiven by the U.S. Small Business
Administration (“SBA”) effective June 15, 2021. The overall lower interest expense was offset by monthly interest incurred
starting in June of 2022 from the capital line under our credit facility.

Income
Taxes

We
had income tax benefits of $378,000 and $3,890,000 for continuing operations for the twelve months ended December 31, 2022 and 2021,
respectively. Our effective tax rates were approximately 10.5% and 139.0% for the twelve months ended December 31, 2022 and 2021, respectively.
Our effective tax rates for the twelve months ended December 31, 2022 were impacted by non-deductible expenses and state taxes. Our effective
tax rate for the twelve months ended December 31, 2021 was substantially impacted by the release of our valuation allowance on deferred
tax assets primarily related to U.S. Federal income taxes during the third quarter of 2021 of approximately $2,351,000. For the twelve
months ended December 31, 2021, the primary reasons for the differences between our effective tax rate and statutory tax rate were due
to the release of valuation allowance and the forgiveness of our PPP Loan which was included in our Consolidated Statement of Operations
as “Gain on extinguishment of debt” but is exempt from income taxes.

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. At December
31, 2022, our Treatment Segment had a backlog of approximately $9,156,000, as compared to approximately $7,129,000 at December 31, 2021.
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 typically process our backlog during periods of low waste receipts, which historically has been in the
first or fourth quarters.

23

Discontinued
Operations and Environmental Contingencies

Our
discontinued operations consist of all our subsidiaries included in our Industrial Segment which encompasses subsidiaries divested in
2011 and prior and three previously closed locations.

Our
discontinued operations had no revenue for the twelve months ended December 31, 2022 and 2021. We incurred net losses of $605,000 (net
of tax benefit of $199,000) and $421,000 (net of tax benefit of $139,000) for our discontinued operations for the twelve months ended
December 31, 2022 and 2021, respectively. The increase in net losses in 2022 as compared to 2021 was primarily due to costs incurred
in connection with management of administrative and regulatory matters within our discontinued operations. 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.

Liquidity
and Capital Resources

Our
cash flow requirements during the twelve months ended December 31, 2022 were primarily financed by our operations, cash on hand and
credit facility availability. Subject to COVID-19 and other impacts as discussed above, our cash flow requirements for the next
twelve months will consist primarily of general working capital needs, scheduled principal payments on our debt obligations,
remediation projects, and planned capital expenditures. We plan to fund these requirements from our operations, credit facility
availability, cash on hand and a refund that we expect to receive under the ERC program under the CARES Act (see a discussion of
this expected refund below – “Employee Retention Credit (“ERC”)”). We continue to explore all sources
of increasing our capital and/or liquidity and to improve our revenue and working capital (see our discussion contained in this
“MD&A – Liquidity Overview” above for further discussion as to liquidity. We are continually reviewing operating costs
and reviewing the possibility of further reducing operating costs and non-essential expenditures to bring them in line with revenue
levels, when necessary. At this time, we believe that our cash flows from operations, our available liquidity from our credit
facility, our cash on hand and the expected refund from the ERC program should be sufficient to fund our operations for the next
twelve months. However, due to the uncertainty of the countries’ current economic environment and the COVID-19 as disclosed in
“COVID-19 and Other Impacts” within this MD&A, there are no assurances such will be the case.

The
following table reflects the cash flow activity for the year ended December 31, 2022 and the corresponding period of 2021:

At
December 31, 2022, we were in a positive cash position with no revolving credit balance. At December 31, 2022, we had cash on hand of
approximately $1,866,000.

Operating
Activities

Accounts
receivable, net of credit losses, totaled $9,364,000 at December 31, 2022, a decrease of $2,008,000 from the December
31, 2021 balance of $11,372,000. The decrease was attributed to timing of invoicing and accounts receivable collection.
Our contracts with our customers are subject to various payment terms and conditions. Additionally, our contracts with our customers
may sometimes result in modifications which can cause delays in collections. Our accounts receivable at December 31, 2022 include invoices
for work performed which previously was in our unbilled account for a certain Canadian project that remain outstanding and subject to
negotiations (see unbilled receivables discussion below). See discussion under “Known Trends and Uncertainties – Perma-Fix
Canada, Inc. (“PF Canada”)” for a discussion as to this certain account receivable.

24

Unbilled
receivables totaled $6,062,000 at December 31, 2022, a decrease of $2,933,000 from the December 31, 2021 balance of $8,995,000. The decrease
in unbilled receivables was primarily within our Services Segment due to invoicing in connection with our Canadian projects.

Accounts
payable, totaled $10,325,000 at December 31, 2022, a decrease of $1,650,000 from the December 31, 2021 balance of $11,975,000. Our accounts
payable are impacted by the timing of payments as we are continually managing payment terms with our vendors to maximize our cash position
throughout all segments.

We
had working capital of $818,000 (which included working capital of our discontinued operations) at December 31, 2022, as compared to
working capital of $4,060,000 at December 31, 2021. Our working capital was negatively impacted primarily by our results of operations
which were heavily impacted from COVID-19 and other delays as discussed previously, especially in the first quarter of 2022. Our working
capital was positively impacted by the employee retention credit in the amount of approximately $1,975,000 recorded as current receivables
(within “Prepaid and other assets” on our Consolidated Balance Sheets. See a discussion of this credit below “Employee
Retention Credit (“ERC”)”).

Investing
Activities

During
2022, our purchases of capital equipment totaled approximately $1,137,000, of which $114,000 was subject to financing, with the remaining
funded from cash from operations and our credit facility. We have budgeted approximately $2,000,000 for 2023 capital expenditures primarily
for our Treatment and Services Segments to maintain operations and regulatory compliance requirements and support revenue growth. Certain
of these budgeted projects may either be delayed until later years or deferred altogether. We plan to fund our capital expenditures from
cash from operations and/or financing. The initiation and timing of projects are also determined by financing alternatives or funds available
for such capital projects.

During
March 2022, we signed a joint venture term sheet addressing plans to partner with Springfields Fuels Limited (“SFL”), an
affiliate of Westinghouse Electric Company LLC, to develop and manage a nuclear waste-materials treatment facility (the “Facility”)
in the United Kingdom. The Facility is for the purpose of expanding the partners’ waste treatment capabilities for the European
nuclear market. It is expected that upon finalization of a partnership agreement, SFL will have an ownership interest of fifty-five (55)
percent and our interest will be forty-five (45) percent. The finalization, form and capitalization of this unpopulated partnership is
subject to numerous conditions, including but not limited to, winning a certain contract, completion and execution of a definitive agreement
and facility design, granting of required regulatory, lender or permitting approvals and updated cost and profitability analysis based
on current and forecast future economic conditions. Upon finalization of this venture, we will be required to make an investment in this
venture. The amount of our investment, the period of which it is to be made and the method of funding are to be determined.

Financing
Activities

We
entered into a Second Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated May 8, 2020, (the “Loan Agreement”),
with PNC National Association (“PNC”), acting as agent and lender. The Loan Agreement provides us with the following credit
facility with a maturity date of March 15, 2024: (a) up to $18,000,000 revolving credit (“revolving credit”) (see discussion
below as to an amendment dated March 21, 2023 which reduced the revolving credit to $12,500,000) and (b) a term loan (“term loan”)
of approximately $1,742,000, requiring monthly installments of $35,547. The maximum that we can borrow under the revolving credit is
based on a percentage of eligible receivables (as defined) at any one time reduced by outstanding standby letters of credit and borrowing
reductions that our lender may impose from time to time. Our Loan Agreement, as amended (the “Amended Loan Agreement”), also
provides a capital expenditure line of up to $1,000,000 with advances on the line, subject to certain limitations, permitted for up to
twelve months starting May 4, 2021 (the “Borrowing Period”). Only interest is payable on advances during the Borrowing Period.
At the end of the Borrowing Period, the total amount advanced under the line will amortize equally based on a five-year amortization
schedule with principal payment due monthly plus interest. At the maturity date of the Amended Loan Agreement, any unpaid principal balance
plus interest, if any, will become due. At the end of the Borrowing Period, advance on the capital line totaled approximately $524,000.
We are required to make monthly principal installment payment of approximately $8,700 starting June 1, 2022 plus interest. At December
31, 2022, balance on the capital line was approximately $463,000. The advance made on the capital line was used to purchase the underlying
asset under a previous finance lease.

25

During
2022, we entered into further amendments to our Amended Loan Agreement with our lender, which provided the following, among other things
(with the amended terms set forth in a Revised Loan Agreement):

In
connection with the amendments, we paid our lender fees totaling $30,000 which is being amortized over the remaining term of the Revised
Loan Agreement as interest expense-financing fees.

Our
credit facility under our Revised Loan Agreement with PNC contains certain financial covenants, along with customary representations
and warranties. A breach of any of these financial covenants, unless waived by PNC, could result in a default under our credit facility
allowing our lender to immediately require the repayment of all outstanding debt under our credit facility and terminate all commitments
to extend further credit. We were not required to perform testing of the FCCR requirement in the first and third quarters of 2022 pursuant
to the amendments that we entered with our lender in 2022 as discussed above. Based on an amendment that we entered into with our lender
on March 21, 2023 as discussed below, we were not required to perform testing of the FCCR
requirement in the fourth quarter of 2022. We failed to meet our FCCR requirement in the second quarter of 2022; however, this non-compliance
was waived by our lender pursuant to an amendment that we entered into with our lender in 2022 as discussed above. Other than the above
discussion pertaining to our FCCR requirements, we met all of our other financial covenant requirements in each of the quarters of 2022.
We expect to meet our quarterly financial covenant requirements for the next twelve months under our Amended Loan Agreement.

On
March 21, 2023, we entered into an amendment to our
Revised Loan Agreement with our lender which provides, among other things, the following:

26

In
connection with the amendment, the Company paid its lender a fee of $25,000.

From
this point on, we may terminate our Revised Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations
under the Revised Loan Agreement with no early termination fees.

Employee
Retention Credit (“ERC”)

The
CARES Act, which was enacted on March 27, 2020, provides an ERC for qualifying businesses keeping employees on their payroll during the
COVID-19 pandemic. The ERC was subsequently amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, the Consolidated Appropriation
Act of 2021, and the American Rescue Plan Act of 2021, all of which amended and extended the ERC availability and guidelines under the
CARES Act. Following these amendments, we determined that we were eligible for the ERC, and as a result of the foregoing legislations,
are eligible to claim a refundable tax credit against our share of certain payroll taxes equal to 70% of the qualified wages paid to
employees between July 1, 2021 and September 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021
for a maximum allowable ERC per employee of $7,000 per calendar quarter in 2021. For purposes of the amended ERC, an eligible employer
is defined as having experienced a significant (20% or more) decline in gross receipts during one or more of the first three 2021 calendar
quarters when compared to 2019.

During
the third quarter of 2022, we determined we were eligible for the ERC and amended our third quarter 2021 employer payroll tax filings
claiming a refund from the U.S. Treasury in the amount of approximately $1,975,000. As there is no authoritative guidance under U.S.
GAAP on accounting for government assistance to for-profit business entities, we account for the ERC by analogy to International Accounting
Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20,
management determined it has reasonable assurance for receipt of the ERC and recorded the expected refund as other income (within “Other
income (expense)”) on our Consolidated Statements of Operations and other receivables (within “Prepaid and other assets”)
on our Consolidated Balance Sheets.

Payment
of Deferred Employment Tax Deposits

The
CARES Act provided employers the option to defer the payment of an employer’s share of social security taxes beginning on March
27, 2020 through December 31, 2020, with 50% of the amount of social security taxes deferred to become due on December 31, 2021 with
the remaining 50% due on December 31, 2022. Our deferment of such taxes totaled approximately $1,252,000 of which approximately $626,000
was paid in December 2021 with the remaining paid in December 2022 (previously included in “Accrued expenses” within current
liabilities in our Consolidated Balance Sheets).

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. At December 31, 2022, the total amount of standby letters of credit outstanding totaled
approximately $3,016,000 and the total amount of bonds outstanding totaled approximately $35,432,000. 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”). At December 31, 2022, the closure and post-closure requirements for these facilities were approximately $21,175,000.

27

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 –

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

Certain
statements contained within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
(“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, upon our audited consolidated financial statements and includes our accounts, the
accounts of our wholly-owned subsidiaries, the accounts of our majority-owned Polish subsidiary (which was sold in December 2021 –
see a discussion below “PF Medical” for a discussion of this sale), and the account of a variable interest entity for which
we are the primary beneficiary, after elimination of all significant intercompany balances and transactions.

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

18

COVID-19
Impact

Our
2021 financial results continued to be impacted by COVID-19 with the emergence of new COVID variants. Our Treatment Segment’s
revenue has been negatively impacted by continued waste shipment delays from certain customers since the latter part of the first quarter
of 2020 at the start of the pandemic. However, we expect to see a gradual return in waste receipts from these customers starting in the
second quarter of 2022 as we expect our customers to start easing up on COVID-19 restrictions, including reinstating return-to-work schedules
in the upcoming months. Additionally, as a result of the constraint in supply chain, we experienced a delay in the delivery of a new
technology waste processing unit from our supplier which negatively impacted our revenue as associated revenue was not able to be generated.
Delivery of this unit had been expected during the third quarter of 2021 but did not occur until the first quarter of 2022. Within our
Services Segment, we experienced delays in procurement actions and contract awards resulting primarily from the impact of COVID-19. However,
since the end of the second quarter of 2021, we were awarded a number of new contracts, including a fixed price contract awarded to us
at the end of the third quarter of 2021 with a value of approximately $40,000,000 for the decommissioning of a navy ship, with work expected
to be completed over an eighteen to twenty-four month period. Due to customer administrative delay and/or continued COVID-19 impact
experienced by certain customers, work under certain of our new awards was temporarily curtailed/delayed which negatively impacted
our revenue. We expect to see a ramp-up in activities from certain of these new projects starting in the second quarter
of 2022. Within our Treatment and Services Segments, we continue to have bids currently submitted and awaiting awards.

Our
management team continues to proactively update our ongoing business operations and safety plans in an effort to mitigate any potential
impact of COVID-19. We continue to monitor government mandates and recommendations and remain focused on protecting the health and well-being
of our employees and the communities in which we operate while assuring the continuity of our business operations.

At
this time, we believe we have sufficient liquidity on hand to continue business operations during the next twelve months. At December
31, 2021, we had borrowing availability under our revolving credit facility of approximately $8,692,000 which was based on a percentage
of eligible receivables and subject to certain reserves and included our cash on hand of approximately $4,440,000. As a result of a recent
amendment to our Loan Agreement, we are required to maintain a minimum of $3,000,000 in borrowing availability under our revolving credit
until the minimum FCCR requirement for the quarter ended June 30, 2022 has been met and certified to our lender (see “Financing
Activities” within this MD&A for a discussion of this amendment). We continue to assess the need in reducing operating costs
during this volatile time, which may include curtailing certain capital expenditures and eliminating non-essential expenditures.

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

As
the situations surrounding COVID-19 continues to remain fluid, the full impact and extent of the pandemic on our financial results and
liquidity cannot be estimated with any degree of certainty. We continue to closely monitor the impact of the COVID-19 pandemic on all
aspects of our business.

Review

Our overall revenue decreased $33,235,000
or 31.5% to $72,191,000 for the twelve months ended December 31, 2021 from $105,426,000 for the corresponding period
of 2020. The revenue decrease was entirely within our Services Segment where revenue decreased by approximately $36,084,000 or
47.9% to $39,199,000 for the twelve months ended December 31, 2021 from $75,283,000 for the corresponding period of 2020
primarily due to delays in contract awards resulting primarily from the impact of COVID-19 as discussed above which was further exacerbated
by the completion of a certain large project in the Services Segment in the second quarter of 2021 and the near completion of
another certain large project in 2021. As discussed above, although we were awarded a number of new contracts within
the Services Segment since the end of the second quarter of 2021, work under certain of these new awards was temporarily curtailed/delayed
due to customer administrative delay and/or COVID-19 impact experienced by the customer. However, we expect to see a ramp-up in
activities from certain of these new projects starting in the second quarter of 2022. Treatment Segment revenue increased by $2,849,000
or 9.5% to $32,992,000 for the twelve months ended December 31, 2021 from $30,143,000 for the corresponding period of 2020. Our Treatment
Segment revenue for the twelve months ended December 31, 2021 included approximately $1,286,000 recognized in the third quarter of 2021
from a request for equitable adjustment (“REA”) resulting from certain pricing provisions of a government related contract.
The increase in revenue within our Treatment Segment in 2021 was also attributed to higher waste volume from commercial waste generators.
Despite the increase in our Treatment Segment revenue, our Treatment Segment revenue has not returned to pre-pandemic level and has continued
to be impacted by delays in waste shipments from certain customers resulting from the shutdown of waste generating activities in
the field due to slow return-to-work schedules from the impact of COVID-19 since the start of the pandemic. However, we expect
to see a gradual return in waste receipts from these customers starting in the second quarter of 2022. Additionally, delayed delivery
of a new technology waste processing unit by our supplier due to supply chain issue as discussed above also negatively impacted our revenue
as processing of associated revenue did not occur. Gross profit decreased $9,069,000 or 57.1% primarily due to the revenue
decrease in the Services Segment. Selling, General, and Administrative (“SG&A”) expenses increased by approximately $1,071,000
or 9.1% for the twelve months ended December 31, 2021 as compared to the corresponding period of 2020.

19

PF
Medical

As
previously disclosed, our Medical Segment business, conducted through our majority-owned Polish subsidiary, Perma-Fix Medical S.A (“PFM
Poland”), and PFM Poland’s wholly-owned subsidiary, Perma-Fix Medical Corporation, a Delaware corporation (“PFMC”),
had not generated any revenue and had substantially reduced R&D activities of our medical isotope production technology due to the
need for capital to fund these activities. During December 2021, we made the strategic decision to cease all R&D activities under
the Medical Segment and sold 100% of our interest in PFM Poland for a nominal amount. As a condition precent to the sale of PFM Poland,
we acquired PFMC after its conversion to a Delaware limited liability company. Additionally, as further condition precedent to the sale
of PFM Poland, we released PFM Poland from unsatisfied trade payables owed by PFM Poland to us totaling approximately $2,537,000 (USD).
As a result of the sale of PFM Poland, we deconsolidated the entity from our consolidated financial statements and recorded a non-cash
“Loss on deconsolidation of subsidiary” of approximately $1,062,000 on our Consolidated Statement of Operations for the year
ended December 31, 2021.

Business
Environment

Our
Treatment and Services Segments’ business continues to be heavily dependent on services that we provide to governmental clients,
primarily as subcontractors for others who are prime 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, the economic conditions, the manner in which the applicable government will be required to spend funding to remediate various
sites, and/or the impact resulting from COVID-19 as discussed above. In addition, our governmental contracts and subcontracts relating
to activities at governmental sites in the United States are generally subject to termination for convenience at any time at the government’s
option, and our governmental contracts/task orders with the Canadian government authorities also allow the authorities to terminate the
contract/task orders at any time for convenience. Our work under contracts/task order agreements with Canadian government authorities
has substantially been completed. See “Known Trends
and Uncertainties – Perma-Fix Canada, Inc. (“PF Canada”)” for additional discussion as to a terminated Canadian
task order agreement. Significant reductions in the level of governmental funding or specifically mandated levels for different programs
that are important to our business could have a material adverse impact on our business, financial position, results of operations and
cash flows.

We
are continually reviewing methods to raise additional capital to supplement our liquidity requirements, when needed, and reducing our
operating costs. We continue to aggressively bid on various contracts, including potential contracts within the international markets.

Results
of Operations

The
reporting of financial results and pertinent discussions are tailored to our three reportable segments: The Treatment Segment (“Treatment”),
the Services Segment (“Services”), and the Medical Segment (“Medical”) (see “PF Medical” above for
a discussion of the cease of all R&D activities under the Medical Segment and the sale of 100% of PFM Poland which comprises the
Medical Segment).

20

Summary
- Years Ended December 31, 2021 and 2020

Below
are the results of continuing operations for years ended December 31, 2021 and 2020 (amounts in thousands):

Revenue

Consolidated
revenues decreased $33,235,000 for the year ended December 31, 2021 compared to the year ended December 31, 2020, as follows: