PERMA FIX ENVIRONMENTAL SERVICES INC (PESI) Business

ITEM 1. BUSINESS

Company
Overview and Principal Products and Services

Perma-Fix
Environmental Services, Inc. (the “Company,” which may be referred to as we, us, or our), a Delaware corporation
incorporated in December 1990, is a nuclear services company and leading provider of nuclear and mixed waste management services.
The Company’s nuclear waste services include treatment and management of radioactive and mixed waste (waste containing both
hazardous and low-level radioactive waste). The Company’s nuclear services group provides project management, environmental
restoration, decontamination and decommissioning (“D&D”), new build construction, and radiological protection, safety, and industrial hygiene (“IH”) capability to our clients. Through our research and development (“R&D”) laboratories, located within our licensed and permitted waste
treatment facilities, we develop solutions that are not only effective but also practical and economical for our customers. See
“—New Processing Technology,” below.

Headquartered
in Atlanta, Georgia, we also pursue waste projects in Canada, Mexico, the United Kingdom, and countries in the European Union (“EU”).
For waste generated by international customers, waste treatment is performed in our U.S. treatment facilities and returned to our international
customers. Our corporate office is located at 8302 Dunwoody Place, Suite 250, Atlanta, Georgia 30350.

Business
Update

In
2025, we generated modest consolidated revenue growth year-over-year, while delivering improvements in gross profit and operating performance
driven primarily by a rebound in our Treatment Segment. Treatment Segment benefited from higher waste volumes and higher averaged price
waste mix, which included higher revenue generated from international and commercial clients. In contrast, the Services Segment experienced
lower revenue, due in part to delays in project mobilization and delays in procurements that resulted from changes initiated by the current
presidential administration that began in January 2025 (the “Administration”) and supporting policies that occurred in the
first half of 2025. The partial federal government shutdown that occurred effective October 1, 2025, also negatively affected our revenue
as procurement timing cycles were impacted.

We
believe we are positioned for potential improvements in our financial results in 2026. These expectations are based on
management’s current assumptions regarding the timing and execution of anticipated waste treatment volumes, including the
commencement and ramp-up of activities associated with the Direct-Feed Low-Activity Waste (“DFLAW”) program at Hanford,
Washington, described below, as well as our ability to convert existing Treatment Segment backlog into processed revenue. Treatment
Segment backlog as of December 31, 2025, was approximately $11,861,000, representing an increase of approximately 50.9% from
Treatment Segment backlog of $7,859,000 as of December 31, 2024. However, Treatment Segment backlog does not guarantee immediate
revenue, as the timing of backlog processing may vary based on waste complexity, customer requirements, and operational
considerations. As noted above, however, we believe that our Perma-Fix Northwest Richland, Inc. (“PFNWR”) treatment
facility, located in Richland, Washington immediately adjacent to the Hanford Nuclear Site, is positioned to support the DFLAW
program at Hanford, which began hot commissioning of the Low-Activity Waste Vitrification Facility at Hanford in October 2025. The
subsequent operational phase of the DFLAW program is anticipated to begin in 2026, which will include generation of several effluent
waste streams expected to be treated by our PFNWR facility. We have made investments in expansion of treatment capacity, increases
in trained workforce, and infrastructure upgrades to support the increases in waste receipts anticipated to begin in the first half
of 2026. In December 2025, our PFNWR facility received its long-awaited permit renewal from state regulators which, among other
things, approximately triples the facility’s permitted liquid mixed waste processing capacity to approximately 1,200,000
gallons per year and authorizes the facility to process up to 175,000 tons of waste annually through macroencapsulation. This permit
renewal provides incremental capacity and operational flexibility beyond the prior permit and further enhances the facility’s
ability to address a broader range of complex waste treatment requirements. However, the commencement, scope, and timing of
DFLAW-related waste streams are controlled by the U.S. Department of Energy (“DOE”) and subject to appropriations,
procurement processes, and operational considerations beyond our control. As discussed in Management’s Discussion and Analysis
of Financial Condition and Results of Operations, our results of operations are expected to continue to reflect operating losses in
the near term as we incur fixed operating costs and make investments in anticipation of waste treatment volumes and program
activities.

We
continue to focus on expansion into international markets as well as on continued R&D, sales and marketing efforts and capital expenditures
relating to our patent-pending technology for the destruction of Per- and polyfluoroalkyl substances (“PFAS”) (see “Foreign
Revenue and Initiatives” below for a discussion of our foreign revenue and international initiatives and “New Processing
Technology” below for a discussion of our new PFAS technology).

Finally,
our continuing initiatives include, among other things, positioning ourselves for further large and mid-size procurements within the
DOE and U.S. Department of War (“DOW”) and waste treatment in support of DOE’s Hanford DFLAW program, continuing investments
in our facilities to allow for broader waste treatment (including PFAS) and continuing expansion of our waste treatment offerings within
the commercial market.

Although
we believe our financial results should show improvement in 2026 over 2025,
the timeliness of annual appropriations for U.S. government departments and agencies remains a recurrent risk for us. A significant amount
of our revenues are generated indirectly as subcontractors for others who are contractors to federal government authorities, which include
the DOE and DOW, or directly as the prime contractor to federal government authorities. Uncertainties exist regarding how future federal
government budgets and program and policy decisions will unfold, which include the spending priorities of Congress and the Administration,
passage of federal government fiscal year annual budgets and potential for enactment of continuing resolutions to keep federal government
departments and agencies in operations. The full impact of these uncertainties could negatively impact our financial results by impairing
our ability to perform work on existing contracts, delaying or cancelling procurement actions by government entities, and/or cause other
disruptions or delays, including payment delays.

Segment
Information

We
have two reporting segments:

TREATMENT
SEGMENT, which includes:

For
2025, the Treatment Segment accounted for $45,097,000, or 73.1%, of total revenue, as compared to $34,953,000, or 59.1%, of total revenue
for 2024.

SERVICES
SEGMENT, which includes:

For
2025, the Services Segment accounted for $16,577,000, or 26.9% of total revenue, as compared to $24,164,000, or 40.9% of total revenue
for 2024.

Our Treatment and Services Segments provide services to research institutions,
commercial companies, public utilities, and governmental entities, including the DOE and DOW. We have and continue to increase our services
into international markets. The distribution channels for our services are through direct sales to customers or via intermediaries.

The principal element of our business strategy consists of upgrading our
facilities within our Treatment Segment to increase efficiency and modernize and expand treatment capabilities to meet the changing markets
associated with the waste management industry. Within our Services Segment, we are attempting to increase competitive procurement effectiveness
and broaden the market penetration within both the commercial and government sectors. We have and continue to broaden our market into
both commercial and international sectors (see “Foreign Revenue and Initiatives” below for further discussion of our international
initiatives to supplement our domestic government customer base, from which a significant portion of our revenue is derived). This includes
new services, new customers and increased market share in our current markets.

Foreign
Revenue and Initiatives

We
have and continue to expand our presence in international markets. Our consolidated revenue for 2025 and 2024 included approximately
$6,440,000, or 10.4%, and $2,452,000, or 4.1%, respectively, from foreign customers (government related and commercial customers), reflecting
an increase of approximately $3,988,000, or 162.6%, from 2024 to 2025. We anticipate additional opportunities in 2026, including projects
in Canada, Mexico and Germany, supporting both existing commercial and government customers. To serve our international customers, we
offer unique treatment capabilities to incinerate certain waste forms, providing up to ninety percent reduction in volume and delivering
a stable waste form that can be returned to generators for long-term storage.

As
previously disclosed, in December 2023, we and our partner, Campoverde Srl, each owning 50% of the partnership, in connection with an
Italian project, were 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. Revenue generated and to be
generated by us from this contract has been and will be limited to project management support through the third quarter of 2026. 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 in late 2026 when the waste treatment phases begin. The Contracting Authority may terminate the contract
under certain conditions as set forth in the contract.

New
Processing Technology.

With
significant upgrades to our prototype Perma-FAS system (“System”) for PFAS destruction substantially completed in the latter
part of 2025, our System has achieved commercial operational status at our PFF facility. PFAS, commonly known as “forever chemicals,”
is the acronym for Perfluoroalkyl and Polyfluoroalkyl Substances, a diverse group of thousands of human-made chemical pollutants that
have the potential to persist in both the environment and the human body. An increasing number of studies have documented adverse health
risks that are associated with PFAS exposure, including increased risks of some cancers, reduced immune function, and developmental delays
in children.

Federal and state actions addressing PFAS have accelerated in recent years,
including restrictions and bans on the use of aqueous film-forming foam (“AFFF”) containing PFAS for firefighting and training,
as well as requirements governing the collection, handling, and disposal of existing AFFF inventories. These measures have contributed
to an increasing volume of PFAS-containing materials requiring treatment or destruction rather than reuse or conventional disposal.

We believe these regulatory developments may support increased demand over
time for technologies capable of permanently destroying PFAS compounds, including technologies designed to address concentrated PFAS waste
streams generated from AFFF phase-outs, remediation activities, and downstream treatment processes. Our thermal treatment and waste processing
capabilities are intended to address certain categories of PFAS-containing materials that may not be suitable for landfilling or other
disposal alternatives. The extent to which these regulatory trends translate into sustained commercial demand for PFAS destruction services
will depend on a number of factors, including the pace and scope of federal and state implementation, the availability and acceptance
of alternative disposal or treatment methods, customer adoption decisions, and our ability to secure regulatory approvals, contracts,
and operational capacity to meet market needs.

Accordingly, we believe that commercial destruction of PFAS offers a promising
new source of revenue for us, as it complements our core waste remediation technologies. However, our PFAS technology remains in an early
stage of commercialization, and we continue to incur operating, R&D and capital costs associated with scaling, market development,
and regulatory acceptance. While we have filed patent applications relating to our System technology for PFAS destruction and are processing
commercial quantities of PFAS-containing waste materials with our System, there can be no assurance that demand, pricing, or throughput
levels will be sufficient in the near term to offset these costs.

Still, we believe that there are limited treatment options currently available
that are intended to permanently destroy these materials, as opposed to managing them through storage or containment, which may be important
to waste generators seeking to address potential long-term environmental liability. We believe that our System technology exceeds the
performance of other currently available destruction-based methods; however, adoption and acceptance of any such technology remain subject
to regulatory and market factors.

With
commercial operation of our System, we anticipate deployment of our second-generation unit in the second half of 2026 at our EWOC facility in Oak Ridge, Tennessee, which we believe will allow us to triple
our production capacity. We continue to market our System technology through various channels. In December 2025, we entered into a joint
distribution agreement with a U.S.-based company that manufactures fluorine-free firefighting agents and compressed air foam system, to
promote our PFAS destruction technology as a preferred treatment options for customers requiring, compliant, long-term destruction of
legacy PFAS stockpiles. In the next several calendar quarters, we expect to further advance our Perma-FAS technology from demonstrated
successful bench-scale testing to pilot-scale applications for soil, biosolids, and filter media, broadening the reach of our System’s
PFAS destruction capabilities.

Seasonal
Factors of our Business

Our
operations are generally subject to seasonal factors. See “Risk Factors – Risks Related to our Business and Operations –
Our operations are subject to seasonal factors, which causes our revenues to fluctuate” for a discussion of our seasonal factors.

Permits
and Licenses

Waste
management service companies are subject to extensive, evolving and increasingly stringent federal, state, and local environmental laws
and regulations. Such federal, state and local environmental laws and regulations govern our activities regarding the treatment, storage,
processing, disposal and transportation of hazardous, non-hazardous and radioactive wastes, and require us to obtain and maintain permits,
licenses and/or approvals in order to conduct our waste activities. We are dependent on our permits and licenses discussed below in order
to operate our businesses. Failure to obtain and maintain our permits or approvals would have a material adverse effect on us, our operations,
and financial condition. The permits and licenses have terms ranging from one to ten years, and provide that we maintain certain level
of compliance, and renew with minimal effort. We believe that these permit and license requirements represent a potential barrier to
entry for possible competitors.

PFF,
located in Gainesville, Florida, operates its hazardous, mixed and low-level radioactive waste activities under a Resource Conservation
and Recovery Act (“RCRA”) Part B permit, Toxic Substances Control Act (“TSCA”) authorization, Restricted RX Drug
Distributor-Destruction license, biomedical, and a radioactive materials license issued by the State of Florida. Co-regulated TSCA Polychlorinated
Biphenyl (“PCB”) wastes are also managed for PCB under EPA Approval.

DSSI,
located in Kingston, Tennessee, conducts mixed and low-level radioactive waste storage and treatment activities under RCRA Part B permits
and a radioactive materials license issued by the State of Tennessee Department of Environment and Conservation, Division of radiological
health. Co-regulated TSCA PCB wastes are also managed for PCB destruction under EPA Approval.

PFNWR,
located in Richland, Washington, operates a low-level radioactive waste processing facility as well as a mixed waste processing facility.
Radioactive material processing is authorized under radioactive materials licenses issued by the State of Washington and mixed waste
processing is additionally authorized under a RCRA Part B permit. Co-regulated TSCA PCB wastes are also managed for PCB under EPA Approval.

EWOC,
located in Oak Ridge, Tennessee, operates a low-level radioactive waste material processing facility. Radioactive material processing
is authorized under radioactive material licenses issued by the State of Tennessee Department of Environmental and Conservation, Division
of Radiological Health.

The
combination of RCRA Part B hazardous waste permits, TSCA authorizations, and radioactive material licenses held by us and our subsidiaries
comprising our Treatment Segment are very difficult to obtain for a single facility and make this Segment unique.

We
believe that the permitting and licensing requirements, and the cost to obtain such permits, are barriers to entry for companies seeking to conduct hazardous waste and radioactive
and mixed waste activities as presently operated by our waste treatment subsidiaries. If the permit requirements for hazardous waste treatment,
storage, and disposal (“TSD”) activities and/or the licensing requirements for the handling of low-level radioactive matters
are eliminated or if such licenses or permits were made less rigorous to obtain, we believe we would face greater competition in this
segment.

Number
of Employees

As
of December 31, 2025, we employed approximately 307 employees, of whom 293 are full-time employees and 14 are part-time/temporary employees.

Sixty-eight
of our employees are covered under a Collective Bargaining Agreement (the “CBA”) dated September 25, 2025, that our wholly
owned subsidiary, PFNWR entered into with the United Association of Plumbers and Steamfitters Local Union 598 (the “Union”).
The CBA became effective October 1, 2025, and its purpose is to attempt to maintain a skilled and stabilized labor force for its waste
treatment operations.

The
term of the CBA is October 1, 2025, through October 1, 2030, and the CBA renews automatically on an annual basis thereafter, unless either
PFNW or the Union gives written notice at least sixty days prior to October 1, 2030, of its intent to modify or terminate the CBA.

Dependence
Upon a Single or Few Customers

Our
Treatment and Services Segments have significant relationships with federal government authorities. A significant amount of our revenues
from our Treatment and Services Segments are generated indirectly as subcontractors for others who are contractors to federal government
authorities, particularly the DOE and DOW, or directly as the prime contractor to federal government authorities. The contracts that
we are a party to with others as subcontractors to federal government or directly with the federal government generally provide that
the government may terminate the contract at any time for convenience at the government’s option. Our inability to continue under
existing contracts that we have with federal government authorities (directly or indirectly as a subcontractor) or significant reductions
in the level of federal governmental funding in any given year could have a material adverse impact on our operations and financial condition.
Our revenue derived from federal government entities, either directly as a prime contractor or indirectly for others as subcontractor
to federal government entities, totaled $39,243,000, or 63.6% of total revenue in 2025, compared to $40,550,000, or 68.6% of total revenue
in 2024.

Our
revenues are project/event based where the completion of one contract with a specific customer may be replaced by another contract with
a different customer from year to year.

Competitive
Conditions

The
Treatment Segment’s largest competitor is EnergySolutions which operates numerous treatment facilities and two treatment/disposal
facilities for low level radioactive waste. Waste Control Specialists is also a competitor in the treatment/disposal market of low-level
radioactive waste. These two competitors also provide us with options for disposal of our treated nuclear waste. The Treatment Segment
treats and disposes of DOE generated waste largely at DOE owned sites. Our Treatment Segment currently solicits business primarily on
a North American basis with both government and commercial clients; however, we continue to focus on emerging international markets for
additional work.

Our
Services Segment is engaged in highly competitive businesses in which a number of our government contracts and some of our commercial
contracts are awarded through competitive bidding processes. The extent of such competition varies according to the industries and markets
in which our customers operate as well as the geographic areas in which we operate. The degree and type of competition we face is also
often influenced by the project specification being bid on and the different specialty skill sets of each bidder for which our Services
Segment competes, especially projects subject to the governmental bid process. We also have the ability to directly bid on prime federal
government small business procurements (small business set asides). Based on past experience, we believe that large businesses are more
willing to team with small businesses in order to be part of these often-substantial procurements. There are a number of qualified small
businesses in our market that provide intense competition that may challenge our ability to maintain strong growth rates and acceptable
profit margins. For international business there are additional competitors, many from within the country the work is to be performed,
making winning work in foreign countries more challenging. If our Services Segment is unable to meet these competitive challenges, it
could lose market share and experience an overall reduction in its profits.

Certain
Environmental Expenditures and Environmental Liabilities

Environmental
Liabilities

We
have three remediation projects that are currently in progress relating to our Perma-Fix of Dayton, Inc. (“PFD”), Perma-Fix
of Memphis, Inc. (“PFM”), and Perma-Fix South Georgia, Inc. (“PFSG”) subsidiaries, which are all included within
our discontinued operations. These remediation projects principally entail the removal/remediation of contaminated soil and, in most
cases, the remediation of surrounding ground water. These remediation activities are closely reviewed and monitored by the applicable
state regulators.

As
of December 31, 2025, we had total environmental remediation liabilities of $3,485,000, an increase of $2,718,000 from the December
31, 2024, balance of $767,000. The net increase of approximately $2,718,000 reflects an increase of approximately $2,721,000 made to the
reserve at our PFSG subsidiary following a reassessment of remediation cost estimates after clarification of the remediation plan from
the state regulator, offset by payments of approximately $3,000 for our PFSG remediation project. As of December 31, 2025, approximately
$76,000 of our total environmental remediation liabilities were recorded as current.

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

R&D

Innovation
and technical know-how by our operations is very important to the success of our business. Our goal is to discover, develop and
bring to market innovative ways to process waste that address unmet environmental needs. We conduct research internally and through
collaborations with other third parties. The majority of our research activities are performed as we receive new and unique waste to
treat. Our competitors also devote resources to R&D and many such competitors have greater resources at their disposal. R&D
totaled $1,291,000 and $1,172,000 for 2025 and 2024, respectively. Our R&D expenses for each of the years 2025 and 2024
consisted primarily of R&D in connection with the development of our new technology in treating PFAS (See “New Processing
Technology” above for a discussion of this new technology).

Governmental
Regulation

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

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

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

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

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

Health
and Safety Regulations

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

Atomic
Energy Act

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

Other
Laws

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