XNAS:PESI Perma-Fix Environmental Services Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
Form 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended   
March 31, 2012
 
 
Or
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   
 
to
   
 
Commission File No.
111596
 
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
 
58-1954497
(IRS Employer Identification Number)
     
8302 Dunwoody Place, Suite 250, Atlanta, GA
(Address of principal executive offices)
 
30350
(Zip Code)

(770) 587-9898
(Registrant's telephone number)

N/A
 
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes x    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large accelerated filer o Accelerated Filer x Non-accelerated Filer o   Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o    No  x
 
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the close of the latest practical date.
 
Class
 
Outstanding at May 2, 2012
Common Stock, $.001 Par Value
 
56,094,975
   
shares of registrant’s
   
Common Stock
 


 
 

 

PERMA-FIX ENVIRONMENTAL SERVICES, INC.

 
 
Page No.
 
PART I
FINANCIAL INFORMATION
 
 
Item 1.
 
     
  1
     
  3
     
  4
     
  5
     
  6
     
  7
       
 
Item 2.
24
       
 
Item 3.
44
       
 
Item 4.
44

PART II
OTHER INFORMATION
 
 
Item 1.
45
       
 
Item 1A.
45
       
 
Item 6.
45
 
 
 

 
PART I - FINANCIAL INFORMATION

PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
 
   
March 31,
   
December 31,
 
(Amount in Thousands, Except for Share and per Share Amounts)
 
2012
   
2011
 
   
 
   
 
 
ASSETS
 
 
   
 
 
Current assets:
 
 
   
 
 
Cash
  $ 2,697     $ 12,055  
Restricted cash
    35       1,535  
Accounts receivable, net of allowance for doubtful accounts of $304 and $228, respectively
    20,419       19,106  
Unbilled receivables - current
    11,732       9,871  
Retainage receivable
    1,015       912  
Inventories
    479       573  
Prepaid and other assets
    3,984       4,604  
Deferred tax assets - current
    2,954       2,426  
Current assets related to discontinued operations
    744       693  
Total current assets
    44,059       51,775  
                 
Property and equipment:
               
Buildings and land
    26,026       26,026  
Equipment
    34,414       34,283  
Vehicles
    823       818  
Leasehold improvements
    11,529       11,529  
Office furniture and equipment
    2,120       2,081  
Construction-in-progress
    795       764  
      75,707       75,501  
Less accumulated depreciation and amortization
    (36,885 )     (35,666 )
Net property and equipment
    38,822       39,835  
                 
Property and equipment related to discontinued operations
    1,614       1,650  
                 
Intangibles and other long term assets:
               
Permits
    16,841       16,854  
Goodwill
    27,385       27,063  
Other intangible assets - net
    4,019       4,258  
Unbilled receivables – non-current
    233       424  
Finite risk sinking fund
    21,246       19,354  
Deferred tax asset, net of liabilities
    1,295       1,295  
Other assets
    1,660       1,595  
Total assets
  $ 157,174     $ 164,103  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
1


PERMA-FIX ENVIRONMENTAL SERVICES, INC.
Consolidated Balance Sheets, Continued
(Unaudited)

   
March 31,
   
December 31,
 
(Amount in Thousands, Except for Share and per Share Amounts)
 
2012
   
2011
 
   
 
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
   
 
 
Current liabilities:
 
 
   
 
 
Accounts payable
  $ 12,078     $ 13,117  
Accrued expenses
    8,647       9,533  
Disposal/transportation accrual
    2,141       1,957  
Unearned revenue
    3,333       6,260  
Billing in excess of costs and estimated earning
    2,512       3,226  
Current liabilities related to discontinued operations
    1,974       2,197  
Current portion of long-term debt
    3,709       3,936  
Total current liabilities
    34,394       40,226  
                 
Accrued closure costs
    11,982       11,937  
Other long-term liabilities
    974       610  
Deferred tax liability
    27       ¾  
Long-term liabilities related to discontinued operations
    2,024       1,775  
Long-term debt, less current portion
    14,092       15,007  
Total long-term liabilities
    29,099       29,329  
                 
Total liabilities
    63,493       69,555  
                 
Commitments and Contingencies
               
                 
Preferred Stock of subsidiary, $1.00 par value; 1,467,396 shares authorized, 1,284,730 shares issued and outstanding, liquidation value $1.00 per share plus accrued and unpaid dividends
    1,285       1,285  
                 
Stockholders' Equity:
               
Preferred Stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding
    ¾       ¾  
Common Stock, $.001 par value; 75,000,000 shares authorized,56,101,129 and 56,068,248 shares issued, respectively; 56,062,919 and 56,030,038 shares outstanding, respectively
    56       56  
Additional paid-in capital
    102,526       102,411  
Accumulated deficit
    (10,555 )     (9,505 )
Accumulated other comprehensive income (loss)
    9       (3 )
Less Common Stock in treasury at cost; 38,210 shares
    (88 )     (88 )
Total Perma-Fix Environmental Services, Inc. stockholders' equity
    91,948       92,871  
Noncontrolling interest
    448       392  
Total stockholders' equity
    92,396       93,263  
                 
Total liabilities and stockholders' equity
  $ 157,174     $ 164,103  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
2

 
PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)

   
Three Months Ended
March 31,
 
(Amounts in Thousands, Except for Per Share Amounts)
 
2012
   
2011
 
   
 
       
Net revenues
  $ 38,073     $ 23,615  
Cost of goods sold
    33,772       20,585  
Gross profit
    4,301       3,030  
                 
Selling, general and administrative expenses
    5,038       3,372  
Research and development
    364       266  
Loss from operations
    (1,101 )     (608 )
                 
Other income (expense):
               
Interest income
    15       13  
Interest expense
    (221 )     (176 )
Interest expense-financing fees
    (34 )     (102 )
Loss from continuing operations before taxes
    (1,341 )     (873 )
Income tax benefit
    (485 )     (340 )
Loss from continuing operations, net of taxes
    (856 )     (533 )
                 
(Loss) income from discontinued operations, net of taxes
    (138 )     212  
Net loss
    (994 )     (321 )
                 
Less: net income attributable to noncontrolling interest
    56        
                 
Net loss attributable to Perma-Fix Environmental Services, Inc.common stockholders
  $ (1,050 )   $ (321 )
                 
Net (loss) income per common share attributable to Pema-Fix Environmental Services, Inc. stockholders - basic:
               
                 
Continuing operations
  $ (.02 )   $ (.01 )
Discontinued operations
           
Net (loss) income per common share
  $ (.02 )   $ (.01 )
                 
Net (loss) income per common share attributable to Pema-Fix Environmental Services, Inc. stockholders - diluted:
               
                 
Continuing operations
  $ (.02 )   $ (.01 )
Discontinued operations
           
Net (loss) income per common share
  $ (.02 )   $ (.01 )
                 
Number of common shares used in computing net (loss) income per share:
               
Basic
    56,062       55,100  
Diluted
    56,062       55,100  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
3


PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)
 
   
Three Months Ended 
March 31,
 
(Amounts in Thousands)
 
2012
   
2011
 
   
 
       
Net loss
  $ (994 )   $ (321 )
Other comprehensive income:
               
Foreign currency translation gain
    12        
Total other comprehensive income
    12        
                 
Comprehensive loss
    (982 )     (321 )
Comprehensive income attributable to non-controlling interest
    56        
Comprehensive loss attributable to Perma-Fix Environmental Services, Inc. stockholders
  $ (1,038 )   $ (321 )

The accompanying notes are an integral part of these consolidated financial statements.
 
 
4


PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited)

   
Three Months Ended
 
   
March 31,
 
(Amounts in Thousands)
 
2012
   
2011
 
Cash flows from operating activities:
 
 
       
Net loss
  $ (994 )   $ (321 )
Less: (loss) income from discontinued operations
    (138 )     212  
                 
Loss from continuing operations
    (856 )     (533 )
Adjustments to reconcile net loss to cash used in operations:
               
Depreciation and amortization
    1,608       1,156  
Amortization of debt discount
    10       83  
Amortization of fair value of customer contracts
    (853 )      
Deferred tax (benefit) expense
    (555 )     (220 )
Provision (benefit) for bad debt and other reserves
    42       (28 )
Foreign exchange gain
    12        
Issuance of common stock for services
    51       54  
Stock-based compensation
    64       116  
Changes in operating assets and liabilities of continuing operations, net of effect from business acquisitions:
               
Accounts receivable
    (1,460 )     (5,043 )
Unbilled receivables
    (1,670 )     583  
Prepaid expenses, inventories and other assets
    (137 )     112  
Accounts payable, accrued expenses and unearned revenue
    (4,234 )     2,958  
Cash used in continuing operations
    (7,978 )     (762 )
Cash used in discontinued operations
    (187 )     (61 )
Cash used in operating activities
    (8,165 )     (823 )
                 
Cash flows from investing activities:
               
Purchases of property and equipment, net
    (206 )     (717 )
Change in restricted cash, net
    1,500        
Payment to finite risk sinking fund
    (1,892 )     (1,892 )
Cash used in investing activities of continuing operations
    (598 )     (2,609 )
Cash used in investing activities of discontinued operations
          (21 )
Cash used in investing activities
    (598 )     (2,630 )
                 
Cash flows from financing activities:
               
Net borrowing of revolving credit
          3,371  
Principal repayments of long term debt
    (1,152 )     (649 )
Proceeds from finite risk financing
    565       685  
Cash (used in) provided by financing activities of continuing operations
    (587 )     3,407  
Principal repayments of long term debt for discontinued operations
    (8 )     (27 )
Cash (used in) provided by financing activities
    (595 )     3,380  
                 
Decrease in cash
    (9,358 )     (73 )
Cash at beginning of period
    12,055       101  
Cash at end of period
  $ 2,697     $ 28  
                 
Supplemental disclosure:
               
Interest paid
  $ 219     $ 163  
Income taxes paid
    470       27  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
5


PERMA-FIX ENVIRONMENTAL SERVICES, INC.
(Unaudited, for the three months ended March 31, 2012)
 
   
Common Stock
    Additional     Common     Accumulated Other     Noncontolling          
Total
 
   
Shares
   
Amount
   
Paid-In
Capital
   
Stock Held
In Treasury
   
Comprehensive
(Loss) Income
   
Interest in
Subsidiary
   
Accumulated
Deficit
   
Stockholders'
Equity
 
Balance at December 31, 2011
    56,068,248     $ 56     $ 102,411     $ (88 )   $ (3 )   $ 392     $ (9,505 )   $ 93,263  
                                                                 
Net income (loss)
    ¾       ¾       ¾       ¾       ¾       56       (1,050 )     (994 )
Foreign currency adjustment
    ¾       ¾       ¾       ¾       12       ¾       ¾       12  
Issuance of Common Stock for services
    32,881       ¾       51       ¾       ¾       ¾       ¾       51  
Stock-Based Compensation
    ¾       ¾       64       ¾       ¾       ¾       ¾       64  
Balance at March 31, 2012
    56,101,129     $ 56     $ 102,526     $ (88 )   $ 9     $ 448     $ (10,555 )   $ 92,396  

The accompanying notes are an integral part of these consolidated financial statements.
 
 
6

 
PERMA-FIX ENVIRONMENTAL SERVICES, INC.

March 31, 2012
(Unaudited)

Reference is made herein to the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.
 
1.
Basis of Presentation

The consolidated financial statements included herein have been prepared by the Company (which may be referred to as we, us or our), without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“the Commission”).  Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures which are made are adequate to make the information presented not misleading.  Further, the consolidated financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated.  The results of operations for the three months ended March 31, 2012, are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2012.

We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
 
2.
Summary of Significant Accounting Policies

Our accounting policies are as set forth in the notes to consolidated financial statements referred to above.

Recently Adopted Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04 (“ASU 2011-04”), “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”.  ASU 2011-04 improves comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards (“IFRSs”). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements.  The amendments in this guidance are to be applied prospectively, and are effective for interim and annual periods beginning after December 15, 2011.  ASU 2011-04 did not have a material effect on our financial position, results of operations, or cash flow.
 
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income”, and in December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income".  Both ASUs amend guidance for the presentation of comprehensive income. The amended guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements.  Although the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under existing guidance. Both ASUs were effective for interim and annual periods beginning after December 15, 2011 with early adoption permitted.  These ASUs changed our financial statement presentation of comprehensive income but did not impact our net income, financial position, or cash flows. Upon adoption on January 1, 2012, we elected to present comprehensive income in two separate but consecutive statements as part of the condensed financial statements included in this Quarterly Report on Form 10-Q.
 
 
7

 
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment” that gives companies the option of performing a qualitative assessment before calculating the fair value of a reporting unit in Step 1 of the goodwill impairment test.  If entities determine, on the basis of qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required.  Otherwise, further testing would not be needed.  ASU 2011-08 is effective for fiscal and interim reporting periods within those years beginning after December 15, 2011.  ASU No. 2011-08 did not have a material effect on our financial position, results of operations, or cash flow.
 
3.
Business Acquisition
 
On October 31, 2011, we completed the acquisition of all of the issued and outstanding shares of capital stock of Safety and Ecology Holdings Corporation (“SEHC”) and its subsidiaries, Safety & Ecology Corporation (“Safety & Ecology”), SEC Federal Services Corporation, Safety and Ecology Corporation Limited (“SECL” – a United Kingdom operation) and SEC Radcon Alliance, LLC (“SECRA”, which we own 75%), (collectively, “SEC”) pursuant to that certain Stock Purchase Agreement, dated July 15, 2011 (“Purchase Agreement”), between the Company, Homeland Capital Security Corporation (“Homeland”) and SEHC.  SEC is an international provider of environmental, hazardous and radiological remediation infrastructure upgrades and nuclear energy services.  SEC provides remediation of nuclear materials for the U.S. government and other commercial customers.  We acquired SEC for a total consideration of approximately $17,885,000 determined as follows:

(i)
cash consideration of approximately $14,885,000, after certain working capital closing adjustments. This cash consideration was reduced by approximately $1,000,000 total consideration for our Common Stock purchased from us by certain security holders of Homeland as discussed below;

(ii)
$2,500,000 unsecured, non-negotiable promissory note (the “Note”), bearing an annual rate of interest of 6%, payable in 36 monthly installments, which Note provides that we have the right to prepay such at any time without interest or penalty.  We prepaid $500,000 of the principal amount of the Note within 10 days of closing of the acquisition.  The Note may be subject to offset of amounts Homeland owes us for indemnification for breach of, or failure to perform, certain terms and provisions of the Purchase Agreement if the Escrow Agreement has terminated pursuant to its terms or the amount held in escrow has been exhausted pursuant to the terms of the Purchase Agreement.   Under the terms of the Note, in the event of a continuing event of default under the Note, Homeland has the option to convert the unpaid portion of the Note into our restricted shares of Common Stock equal to the quotient determined by dividing the principal amount owing under the Note and all accrued and unpaid interest thereon, plus certain expenses, by the average of the closing prices per share of our Common Stock as reported by the primary national securities exchange or automatic quotation system on which our Common Stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by us of Homeland’s written notice of its election to receive our Common Stock as a result of the event of default that is continuing; provided that the number of shares of our Common Stock to be issued to Homeland under the Note in the event of a continuing event of default plus the number of shares of our Common Stock issued to the Management Investors, as discussed below, shall not exceed 19.9% of the voting power of all of our voting securities issued and outstanding as of the date of the Purchase Agreement; and
 
 
8

 
(iii)
the sum of $2,000,000 deposited in an escrow account to satisfy any claims that we may have against Homeland for indemnification pursuant to the Purchase Agreement and the Escrow Agreement, dated October 31, 2011 (“Escrow Agreement”).  On January 3, 2012, we received $1,500,000 of the amount deposited in the escrow account as certain terms pursuant to an agreement entered into by Homeland, SEHC and us at closing of the acquisition were not met by December 31, 2011.

Pursuant to the terms of the Purchase Agreement, upon closing of the Purchase Agreement, certain security holders of Homeland (“Management Investors”) purchased 813,007 restricted shares of our Common Stock for a total consideration of approximately $1,000,000, or $1.23 a share, which was the average of the closing prices of our Common Stock as quoted on the Nasdaq during the 30 trading days ending on the trading day immediately prior to the closing of the acquisition.  The purchase of the Company’s Common Stock was pursuant to a private placement under Section 4(2) of the Securities Act of 1933, as amended (the “Act”) or Rule 506 of Regulation D promulgated under the Act.
 
The acquisition was accounted for using the purchase method of accounting, in accordance with FASB ASC 805 – “Business Combinations”. The consideration for the acquisition was attributed to net assets on the basis of the fair values of assets acquired and liabilities assumed as of October 31, 2011.  The excess of the cost of the acquisition over the estimated fair values of the net tangible assets and intangible assets on the acquisition date, which amounted to $11,215,000 (of which $322,000 was recorded during the first quarter of 2012), was allocated to goodwill which is not amortized but subject to an annual impairment test.  The Company has not yet finalized the allocation of the purchase price to the net assets acquired in this acquisition. As such the estimated purchase price allocation is preliminary and subject to further revision.  The following table summarizes the preliminary purchase price allocation of the fair values of the assets acquired and liabilities assumed as of March 31, 2012:

(Amounts in thousands)
 
 
 
   
 
 
Current assets
  $ 22,174  
Property, plant and equipment
    2,135  
Intangible assets
    4,084  
Goodwill
    11,215  
Total assets acquired
    39,608  
Current liabilities
    (15,797 )
Customer contracts
    (3,465 )
Non-current liabilities
    (2,091 )
Total liabilities acquired
    (21,353 )
Non Controlling Interest
    (370 )
Total consideration
  $ 17,885  
 
 
9


The following table summarizes the preliminary components of tangible assets acquired:
 
       
Weighted
       
Average
   
Preliminary
 
Estimated
(Amounts in thousands)
 
Fair Value
 
Useful Life
         
Vehicles
  $ 583  
5.0 years
Lab equipment
    1,235  
7.0 years
Office furniture and equipment
    317  
4.0 years
  Total tangible assets
  $ 2,135    
 
The results of operations of SEC have been included in the Company’s consolidated financial statements from the date of the closing of the acquisition, which was October 31, 2011.  SEC contributed revenues of approximately $18,602,000 and net loss of $1,264,000 for the three months ended March 31, 2012.  The Company has incurred $632,000 in acquisition-related costs, of which approximately $20,000 was incurred in the first quarter of 2012.  These costs are included in selling, general and administrative expenses in the Company’s consolidated statement of operations. The following unaudited pro forma financial information presents the combined results of operations of combining SEC and Perma Fix as though the acquisition had occurred as of the beginning of the periods presented below, which is January 1, 2011.  The pro forma financial information does not necessarily represent the results of operations that would have occurred had SEC and Perma Fix been a single company during the periods presented, nor does Perma Fix believe that the pro forma financial information presented is necessarily representative of future operating results.   As the acquisition was a stock transaction, none of the goodwill related to SEC is deductible for tax purposes.

(Amounts in Thousands, Except per Share Data)
 
 
 
 
 
Three Months Ended
 
   
March 31, 2011
   
(unaudited)
 
Net revenues
  $ 48,094  
Net income from continuing operations
  $ 442  
Net income per share from continuing operations- basic
  $ .01  
Net income per share from continuing operations- diluted
  $ .01  

4.
Other Intangible Assets

The following table summarizes information relating the Company’s Other intangible assets:

 
 
 
   
March 31, 2012
   
December 31, 2011
 
 
 
Useful
   
Gross
   
 
   
Net
   
Gross
   
 
   
Net
 
 
 
Lives
   
Carrying
   
Accumulated
   
Carrying
   
Carrying
   
Accumulated
   
Carrying
 
 
 
(Years)
   
Amount
   
Amortization
   
Amount
   
Amount
   
Amortization
   
Amount
 
Intangibles (amount in thousands)
 
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Patent
    8-18     $ 402     $ (84 )   $ 318     $ 402     $ (77 )   $ 325  
Software
    3       296       (79 )     217       158       (66 )     92  
Non-compete agreement
    5       265       (22 )     243       265       (9 )     256  
Customer contracts
    0.5       445       (361 )     84       445       (144 )     301  
Customer relationships
    12       3,370       (213 )     3,157       3,370       (86 )     3,284  
Total
          $ 4,778     $ (759 )   $ 4,019     $ 4,640     $ (382 )   $ 4,258  
 
 
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Intangible assets recorded as a result of the acquisition of SEC on October 31, 2011 included a non-compete agreement, customer relationships, customer contracts, and software ($4,000) which were recorded at fair market value of approximately $4,084,000 (see “Note 3 –Business Acquisition” for the purchase price allocation of SEC).  The intangible assets acquired are amortized on a straight-line basis over their useful lives with the exception of customer relationships which are being amortized using an accelerated method.  The following table summarizes the expected amortization over the next five years for our definite-lived intangible assets noted above and includes the only one definite-lived permit, which is at our DSSI facility.  This permit of approximately $545,000 was capitalized in 2009 in connection with the authorization issued by the U.S. EPA to commercially store and dispose of radioactive PCBs.  This permit is being amortized over a ten year period in accordance with its estimated useful life.
 
   
Amount
 
Year
 
(In thousands)
 
   
 
 
2012 (remaining)
  $ 550  
2013
    575  
2014
    519  
2015
    471  
2016
    429  
    $ 2,544  

Amortization expense relating to intangible assets for the Company was $390,000 and $21,000 for the three months ended March 31, 2012 and 2011, respectively.

5.
Stock Based Compensation

We follow FASB ASC 718, “Compensation – Stock Compensation” (“ASC 718”) to account for stock-based compensation.  ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.

The Company has certain stock option plans under which it awards incentive and non-qualified stock options to employees, officers, and outside directors.  Stock options granted to employees have either a ten year contractual term with one-fifth yearly vesting over a five year period or a six year contractual term with one-third yearly vesting over a three year period.  Stock options granted to outside directors have a ten year contractual term with vesting period of six months.

No stock options were granted during the first quarter of 2012 or 2011.

As of March 31, 2012, we had an aggregate of 1,821,000 employee stock options outstanding (from the 1993 Non-Qualified Stock Option Plan, 2004 and 2010 Stock Option Plans, and a Non-Qualified Stock Option Agreement noted below), of which 1,271,000 are vested.  The weighted average exercise price of the 1,271,000 outstanding and fully vested employee stock options is $2.13 with a remaining weighted contractual life of 2.04 years.  Additionally, we had an aggregate of 796,000 outstanding director stock options (from the 1992 and 2003 Outside Directors Stock Plans), all of which are vested. The weighted average exercise price of the 796,000 outstanding and fully vested director stock options is $2.13 with a remaining weighted contractual life of 5.14 years.

The Company granted a non-qualified stock option (the “Option”) which allows for the purchase of up to 250,000 shares of the Company’s Common Stock at $1.35 per share by Mr. Christopher Leichtweis, who was appointed a Senior Vice President of the Company and the President of SEC upon the closing of the acquisition of SEC on October 31, 2011.  The Option was granted in accordance with, and is subject to, the Non-Qualified Stock Option Agreement, dated October 31, 2011.  The Option has a term of 10 years from grant date, with 25% yearly vesting over a four-year period.
 
 
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The Company estimates fair value of stock options using the Black-Scholes valuation model.  Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield.
 
The following table summarizes stock-based compensation recognized for the three months ended March 31, 2012 and 2011 for our employee and director stock options.
 
   
Three Months Ended
 
Stock Options
 
March 31,
 
   
2012
   
2011
 
Employee Stock Options
  $ 38,000     $ 76,000  
Director Stock Options
    26,000       40,000  
Total
  $ 64,000     $ 116,000  

We recognized stock-based compensation expense using a straight-line amortization method over the requisite period, which is the vesting period of the stock option grant.  ASC 718 requires that stock based compensation expense be based on options that are ultimately expected to vest.  ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  We have generally estimated forfeiture rates based on historical trends of actual forfeitures.  When actual forfeitures vary from our estimates, we recognize the difference in compensation expense in the period the actual forfeitures occur or when options vest.  As of March 31, 2012, we have approximately $370,000 of total unrecognized compensation cost related to unvested options, of which $101,000 is expected to be recognized in 2012, $135,000 in 2013, $96,000 in 2014, with the remaining in $38,000 in 2015.
 
6.
Capital Stock and Stock Plans

During the first quarter of 2012, we issued 32,881 shares of our Common Stock under our 2003 Outside Directors Stock Plan to our outside directors as compensation for serving on our Board of Directors.  We paid each of our outside directors $6,500 in fees quarterly for serving as a member of our Board of Directors.  The Audit Committee Chairman receives an additional quarterly fee of $5,500 due to the position’s additional responsibility.  In addition, our Research and Development Committee Chairman receives an additional quarterly fee of $1,000 due to the additional time commitment to the position.   Each board member is also paid $1,000 for each board meeting attendance as well as $500 for each telephonic conference call.  As a member of the Board of Directors, each director elects to receive either 65% or 100% of the director’s fee in shares of our Common Stock.  The number of shares received is calculated based on 75% of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due.  The balance of each director’s fee, if any, is payable in cash.

 
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The summary of the Company’s total Stock Plans as of March 31, 2012 as compared to March 31, 2011, and changes during the periods then ended, are presented below.  The Company’s Plans consist of the 1993 Non-Qualified Stock Option Plan, the 2004 and 2010 Stock Option Plans, and the 1992 and 2003 Outside Directors Stock Plans:

   
Shares
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Options outstanding Janury 1, 2012
    2,789,833     $ 2.03              
Granted
 
   
             
Exercised
 
   
          $
 
Forfeited
    (422,833 )     1.90              
Options outstanding End of Period (1)
    2,367,000       2.06       3.5     $ 47,100  
Options Exercisable at March 31, 2012(1)
    2,067,000     $ 2.13       3.2     $ 41,100  
Options Vested and expected to be vested at March 31, 2012
    2,367,000     $ 2.06       3.5     $ 47,100  
 
   
Shares
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Options outstanding Janury 1, 2011
    2,755,525     $ 2.09                  
Granted
 
   
                 
Exercised
 
   
            $
 
Forfeited
    (3,359 )     2.19                  
Options outstanding End of Period (2)
    2,752,166       2.09       3.1     $ 12,900  
Options Exercisable at March 31, 2011 (2)
    2,440,333     $ 2.08       3.0     $ 9,300  
Options Vested and expected to be vested at March 31, 2011
    2,736,134     $ 2.09       3.1     $ 12,900  

(1)
Options with exercise prices ranging from $1.41 to $2.95
(2)
Options with exercise prices ranging from $1.42 to $2.98

 
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7.
Earnings (Loss) Per Share

Basic earnings (loss) per share excludes any dilutive effects of stock options, warrants, and convertible preferred stock.  In periods where they are anti-dilutive, such amounts are excluded from the calculations of dilutive loss per share.

The following is a reconciliation of basic net income (loss) per share to diluted net income (loss) per share for the three months ended March 31, 2012 and 2011:

   
Three Months Ended
 
   
March 31,
 
(Amounts in Thousands, Except for Per Share Amounts)
 
2012
   
2011
 
Loss per share from continuing operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
 
 
       
Loss from continuing operations
  $ (912 )   $ (533 )
Basic loss per share
  $ (.02 )   $ (.01 )
Diluted loss per share
  $ (.02 )   $ (.01 )
                 
(Loss) income per share from discontinued operations attributable to Perma-Fix Environmental Services, Inc. common stockholders
               
(Loss) income from discontinued operations
  $ (138 )   $ 212  
Basic (loss) income per share   $
 ─
    $
 ─
 
Diluted (loss) income per share   $
 ─
    $
 ─
 
                 
Weighted average common shares outstanding – basic
    56,062       55,100  
Potential shares exercisable under stock option plans
 
   
 
Potential shares upon exercise of Warrants
 
   
 
Weighted average common shares outstanding – diluted
    56,062       55,100  
                 
                 
Potential shares excluded from above weighted average share calculations due to their anti-dilutive effect include:
               
Upon exercise of options
    1,827       2,602  
Upon exercise of Warrants
 
   
 

 
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8.
Long Term Debt

Long-term debt consists of the following at March 31, 2012 and 2011:

(Amounts in Thousands)
 
March 31,
2012
   
December 31,
2011
 
Revolving Credit facility dated October 31, 2011, borrowings based upon eligible accounts receivable, subject to monthly borrowing base calculation, variable interest paid monthly at option of prime rate (3.25% at March 31, 2012) plus 2.0% or London InterBank Offer Rate ("LIBOR") plus 3.0%, balance due October 31, 2016.  Effective interest  rate for first quarter of 2012 was 0%. (1) (2)
  $     $  
Term Loan dated October 31, 2011, payable in equal monthly installments of principal of $190, balance due in October 31, 2016, variable interest paid monthly at option of prime rate plus 2.5% or LIBOR plus 3.5%. Effective interest rate for first quarter 2012 was 4.0%. (1) (2)
    15,238       15,810  
Promissory Note dated April 18, 2011, payable in monthly installments of principal of $83 starting May 8, 2011, balance due April 8, 2012, variable interest paid monthly at LIBOR plus 4.5%, with LIBOR at least 1.5%.(3) (4) (5)
    81       318  
Promissory Note dated September 28, 2010, payable in 36 monthly equal installments of $40, which includes interest and principal, beginning October 15, 2010, interest accrues at annual rate of 6.0% (5)
    689       798  
Promissory Note dated October 31, 2011, payable in monthly installments of $76, which includes interest and principal, starting November 15, 2011, interest accrues at annual rate of 6.0%, balance due May 15, 2014. (5) (6)
    1,662       1,863  
Various capital lease and promissory note obligations, payable 2012 to 2015, interest at rates ranging from 5.0% to 8.3%.
    228       259  
      17,898       19,048  
Less current portion of long-term debt
    3,709       3,936  
Less long-term debt related to assets held for sale
    97       105  
    $ 14,092     $ 15,007  

 (1) Our Revolving Credit facility is collateralized by our accounts receivable and our Term Loan is collateralized by our property, plant, and equipment.

(2)  On October 31, 2011, the Company entered into an “Amended and Restated Revolving Credit, Term Loan and Security Agreement” with PNC Bank.  Under the original credit facility with PNC dated December 22, 2000, as amended, variable interest was determined based on the options as noted; however, variable interest under the LIBOR option provided for a minimum floor base of 1.0% for both our Revolving Credit and Term Loan from January 1, 2011 to October 30, 2011.

(3) Original promissory note dated May 8, 2009 of $3,000,000 was modified on April 18, 2011, with principal balance of approximately $990,000.  See “Promissory Notes and Installment Agreements” below for terms of original and amended promissory notes.

(4)  Net of debt discount of ($2,000) and ($117,000) for March 31, 2012 and December 31, 2011, respectively. See “Promissory Notes and Installment Agreements” below for additional information.   

(5)  Uncollateralized note.

(6)  Promissory note entered into in connection with acquisition of SEC on October 31, 2011.  See “Promissory Notes and Installment Agreements” below.
 
 
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Revolving Credit and Term Loan Agreement
On October 31, 2011, in connection with the acquisition of SEC, we entered into an Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated October 31, 2011 (“Amended Loan Agreement”), with PNC, replacing our previous Loan Agreement with PNC.  The Amended Loan Agreement provides us with the following credit facilities:

 
up to $25,000,000 revolving credit facility (“Revolving Credit”), subject to the amount of borrowings based on a percentage of eligible receivables.  The revolving credit advances are subject to limitations of an amount up to the sum of (a) up to 85% of Commercial Receivables aged 90 days or less from invoice date, (b) up to 85% of Commercial Broker Receivables aged up to 120 days from invoice date, (c) up to 85% of acceptable Government Agency Receivables aged up to 150 days from invoice date, and (d) up to 50% of acceptable unbilled amounts aged up to 60 days, less (e) reserves the Agent reasonably deems proper and necessary;
 
 
a term loan (“Term Loan”) of $16,000,000, which requires monthly installments of approximately $190,000 (based on a seven-year amortization); and

 
equipment line of credit up to $2,500,000, subject to certain limitations.

The Amended Loan Agreement terminates as of October 31, 2016, unless sooner terminated.

We have the option of paying an annual rate of interest due on the revolving credit facility at prime plus 2% or London Inter Bank Offer Rate (“LIBOR”) plus 3% and the term loan and equipment credit facilities at prime plus 2.5% or LIBOR plus 3.5%.

As a condition of the Amended Loan Agreement, we paid the remaining balance due under the term loan under our previous Loan Agreement totaling approximately $3,833,000 using our credit facilities under the Amended Loan Agreement.  In connection with the Amended Loan Agreement, we paid PNC a fee of $217,500 and incurred other direct costs of approximately $289,000 (of which $24,000 was incurred during the first quarter of 2012), which are being amortized over the term of the Amended Loan Agreement as interest expense – financing fees.  As a result of the termination of the original Loan Agreement with PNC, we recorded approximately $91,000 during the fourth quarter of 2011, in loss on extinguishment of debt in accordance with ASC 470-50, “Debt – Modifications and Extinguishments”.  As of March 31, 2012, the excess availability under our revolving credit was $15,056,000 based on our eligible receivables.

Pursuant to the Amended Loan Agreement, we may terminate the Amended Loan Agreement upon 90 days’ prior written notice upon payment in full of our obligations under the Amended Loan Agreement.  We agreed to pay PNC 1.0% of the total financing in the event we pay off our obligations on or before October 31, 2012 and 1/2% of the total financing if we pays off our obligations after October 31, 2012 but prior to or on October 31, 2013. No early termination fee shall apply if we pay off our obligations under the Amended Loan Agreement after October 31, 2013.
 
Promissory Notes and Installment Agreements
The Company has a promissory note dated May 8, 2009, with William N. Lampson and Diehl Rettig (collectively, the “Lenders”) for $3,000,000. The Lenders were formerly shareholders of Nuvotec USA, Inc. (“Nuovtec”) (n/k/a Perma-Fix Northwest, Inc. (“PFNW”)) prior to our acquisition of PFNW and Pacific EcoSolution, Inc. (“PEcoS”) (n/k/a Perma-Fix Northwest Richland, Inc. (“PFNWR”)) and are also stockholders of the Company, having received shares of our Common Stock in connection with our acquisition of PFNW and PFNWR.  The promissory note provided for monthly principal repayment of approximately $87,000 plus accrued interest, starting June 8, 2009, with interest payable at LIBOR plus 4.5%, with LIBOR at least 1.5%. Any unpaid principal balance along with accrued interest was due May 8, 2011. We paid approximately $22,000 in closing costs on the promissory note which was being amortized over the term of the note. The promissory note may be prepaid at any time by the Company without penalty. As consideration of the Company receiving this loan, we issued a Warrant to Mr. Lampson and a Warrant to Mr. Diehl to purchase up to 135,000 and 15,000 shares, respectively, of the Company’s Common Stock at an exercise price of $1.50 per share. The Warrants were exercisable six months from May 8, 2009 and were to expire on May 8, 2011. We also issued an aggregate of 200,000 shares of the Company’s Common Stock, with Mr. Lampson receiving 180,000 shares and Mr. Rettig receiving 20,000 shares of the Company’s Common Stock.  The fair value of the Common Stock and Warrants on the date of issuance was estimated to be $476,000 and $190,000, respectively.  The fair value of the Common Stock and Warrants was recorded as a debt discount and was being amortized over the term of the loan as interest expense – financing fees. On April 18, 2011, we entered into an amendment to the promissory note whereby the remaining principal balance on the promissory note of approximately $990,000 is to be repaid in twelve monthly principal payments of approximately $82,500 plus accrued interest, starting May 8, 2011, with interest payable at the same rate of the original loan.  As consideration of the amended loan, the original Warrants issued to Mr. Lampson and to Mr. Rettig which were to expire on May 8, 2011, were extended to May 8, 2012 at the same exercise price (Mr. Rettig is now deceased; accordingly, the amended Warrant and the remaining portion of the note payable to Mr. Rettig is now held by and payable to his personal representative or estate).  Also, as previously disclosed, Mr. Robert Ferguson, a member of our Board of Directors acquired one-half of Mr. Lampson’s Warrant during 2011 to purchase up to 65,000 shares of the Company’s Common Stock.  We accounted for the amended loan as a modification in accordance with ASC 470-50, “Debt – Modifications and Extinguishments”. At the date of the loan modification, unamortized debt discount and fees on the original loan and the fair value of the modified Warrants were determined to be approximately $42,000, which is being amortized as a debt discount over the term of the modified loan as interest expense-financing fees in accordance to ASC 470-50.
 
 
16

 
The promissory note also includes an embedded Put Option (“Put”) that can be exercised upon default, whereby the lender has the option to receive a cash payment equal to the amount of the unpaid principal balance plus all accrued and unpaid interest, or the number of whole shares of our Common Stock equal to the outstanding principal balance.  The maximum number of payoff shares is restricted to less than 19.9% of the outstanding equity. We concluded that the Put should have been bifurcated at inception; however, the Put Option had and continues to have nominal value as of March 31, 2012.  We will continue to monitor the fair value of the Put until expiration.

In connection with the acquisition of SEC, we entered into a $2,500,000 unsecured, non-negotiable promissory note (the “Note”) on October 31, 2011, bearing an annual rate of interest of 6%, payable in 36 monthly installments, with Homeland.  The Note provides that we have the right to prepay such at any time without interest or penalty.  We prepaid $500,000 of the principal amount of the Note within 10 days of closing of the acquisition.  The Note is subject to offset of amounts Homeland owes us under certain terms and provisions of the Purchase Agreement and the Note.  Our monthly payments consist of approximately $76,000 (which includes interest) starting November 15, 2011.  As a result of the $500,000 prepayment, the final payment of approximately $15,500 will be due on March 15, 2014.

The promissory note payable to SEC also includes an embedded conversion option (“Conversion Option”) that can be exercised upon default, whereby Homeland has the option to convert the unpaid portion of the Note into a number of whole shares of our restricted Common Stock.  The number of shares of our restricted Common Stock to be issuable under the Conversion Option is determined by the principal amount owing under the Note at the time of default plus all accrued and unpaid interest divided by the average of the closing prices per share of our Common Stock as reported by the primary national securities exchange on which our Common Stock is traded during the 30 consecutive trading day period ending on the trading day immediately prior to receipt by us of Homeland’s written notice of its election to receive our Common Stock as a result of the event of default by us, with the number of shares of our Common Stock issuable upon such default subject to certain limitations.  We concluded that the Conversion Option had and continues to have nominal value as of March 31, 2012.  We will continue to monitor the fair value of the Conversion Option on a regular basis.
 
 
17


On September 28, 2010, the Company entered into a promissory note in the principal amount of $1,322,000, with the former shareholders of Nuvotec  in connection with an earn-out amount that we are required to pay upon meeting certain conditions for each earn-out measurement year ending June 30, 2008 to June 30, 2011, as a result of our acquisition of PFNW and PFNWR.  Interest is accrued at an annual interest rate of 6%. The promissory note provides for 36 equal monthly payments of approximately $40,000, consisting of interest and principal, starting October 15, 2010. The promissory note may be prepaid at any time without penalty. See further details of the earn-out amount in “Note 9 - Commitments and Contingencies - Earn-Out Amount.”
 
9.
Commitments and Contingencies

Hazardous Waste
In connection with our waste management services, we handle both hazardous and non-hazardous waste, which we transport to our own, or other facilities for destruction or disposal. As a result of disposing of hazardous substances, in the event any cleanup is required, we could be a potentially responsible party (“PRP”) for the costs of the cleanup notwithstanding any absence of fault on our part.

Legal Matters
In the normal course of conducting our business, we are involved in various litigations. We are not a party to any litigation or governmental proceeding which our management believes could result in any judgments or fines against us that would have a material adverse effect on our financial position, liquidity or results of future operations.

Earn-Out Amount
In connection with the acquisition of PFNW and PFNWR in June 2007, we were required to pay to those former shareholders of Nuvotec an earn-out amount upon meeting certain conditions for each measurement year ended June 30, 2008 to June 30, 2011, with the aggregate of the full earn-out amount not to exceed $4,552,000, pursuant to the Merger Agreement, as amended (“Agreement”).  As of March 31, 2012, an aggregate earn-out amount of $3,896,000 has been paid as follows: (i) $2,574,000 in cash; and (ii) we issued a promissory note, dated September 28, 2010, in the principal amount of $1,322,000, as discussed above. The total $3,896,000 in earn-out amount paid to date or to be paid pursuant to the promissory note excludes approximately an aggregate $656,000 in Offset Amount, which represents an indemnification obligation (as defined by the Merger Agreement) which is payable or may be payable to the Company by the former shareholders of Nuvotec.  Pursuant to the Merger Agreement, the aggregate amount of any Offset Amount may total up to $1,000,000, except an Offset Amount is unlimited as to indemnification relating to liabilities for taxes, misrepresentation or inaccuracies with respect to the capitalization of Nuvotec or PEcoS or for willful or reckless misrepresentation of any representation, warranty or covenant. The $656,000 Offset Amount represents approximately $93,000 relating to an excise tax issue and a refund request from a PEcoS customer in connection with services for waste treatment prior to our acquisition of PFNWR and PFNW and an anticipated Offset Amount of $563,000 in connection with the receipt of nonconforming waste at the PFNWR facility prior to our acquisition of PFNWR and PFNW. We are currently involved in litigation with the party that delivered the nonconforming waste to the facility prior to our acquisition of PFNWR and PFNW.

Insurance
The Company has a 25-year finite risk insurance policy entered into in June 2003 with Chartis, a subsidiary of American International Group, Inc. (“AIG”), which provides financial assurance to the applicable states for our permitted facilities in the event of unforeseen closure. Prior to obtaining or renewing operating permits, we are required to provide financial assurance that guarantees to the states that in the event of closure, our permitted facilities will be closed in accordance with the regulations. The policy, as amended, provides for a maximum allowable coverage of $39,000,000 and has available capacity to allow for annual inflation and other performance and surety bond requirements. This finite risk insurance policy, as amended, requires the following payments:
 
 
18


 
an upfront payment of $4,000,000, of which $2,766,000 represents the full premium for the 25-year term of the policy, and the remaining $1,234,000 is to be deposited in a sinking fund account representing a restricted cash account;
 
eight annual installments of $1,004,000 starting February 2004, of which $991,000 is to be deposited in a sinking fund account, with the remaining $13,000 representing a terrorism premium;
 
a payment of $2,000,000 due on March 6, 2009, of which approximately $1,655,000 is to be deposited into a sinking fund account, with the remaining representing a fee payable to Chartis;
 
three yearly payments of approximately $1,073,000 payable starting December 31, 2009 (the final $1,073,000 payment was made in January 2012), of which $888,000 is be deposited into a sinking fund account, with the remaining representing a fee payable to Chartis; and
 
a final payment of $1,054,000 (paid in March 2012) of which $991,000 is to be deposited in a sinking fund account, $13,000 representing a terrorism premium, and the remaining $50,000 representing a fee payable to Chartis.

We have made all of the payments above. As of March 31, 2012, our financial assurance coverage amount under this policy totaled approximately $37,496,000.  We have recorded $15,361,000 in our sinking fund related to the policy noted above on the balance sheet, which includes interest earned of $889,000 on the sinking fund as of March 31, 2012.  Interest income for the three months ended March 31, 2012, was approximately $8,000.  On the fourth and subsequent anniversaries of the contract inception, we may elect to terminate this contract. If we so elect, Chartis is obligated to pay us an amount equal to 100% of the sinking fund account balance in return for complete releases of liability from both us and any applicable regulatory agency using this policy as an instrument to comply with financial assurance requirements.

In August 2007, we entered into a second finite risk insurance policy for our PFNWR facility with Chartis.  The policy provided an initial $7,800,000 of financial assurance coverage with an annual growth rate of 1.5%, which at the end of the four year term policy, provides maximum coverage of $8,200,000.  We have the option to renew this policy at the end of the four year term. The policy requires total payments of $7,158,000, consisting of an initial payment of $1,363,000 ($1,106,000 represented premium on the policy and the remaining was deposited into a sinking fund account), two annual payments of $1,520,000 (for each annual payment, $1,344,000 was deposited into a sinking fund and the remaining represented premium), and an additional $2,755,000 payment (paid quarterly and all deposited into a sinking fund).  We have made all of the payments.  As of March 31, 2012, we have recorded $5,885,000 in our sinking fund related to this policy on the balance sheet, which includes interest earned of $185,000 on the sinking fund as of March 31, 2012. Interest income for the three months ended March 31, 2012 totaled approximately $4,000.  On July 31, 2011, the policy was renewed for an additional year which required a $46,000 fee.  We have the option to renew this policy annually going forward with a similar fee which will be determined at the time of renewal.  All other terms of the policy remain substantially unchanged.
 
10.
Discontinued Operations and Divestitures

Our discontinued operations consist of our Perma-Fix of South Georgia, Inc. (“PFSG”) facility which met the held for sale criteria under ASC 360, “Property, Plant, and Equipment” on October 6, 2010.  Our discontinued operations also encompass our Perma-Fix of Fort Lauderdale, Inc. (“PFFL”), Perma-Fix of Orlando, Inc. (“PFO”), Perma-Fix of Maryland, Inc. (“PFMD”), Perma-Fix of Dayton, Inc. (“PFD”), and Perma-Fix Treatment Services, Inc. (“PFTS”) facilities, which were divested on August 12, 2011, October 14, 2011,  January 8, 2008, March 14, 2008, and May 30, 2008, respectively.  Our discontinued operations also includes three previously shut down locations, Perma-Fix of Pittsburgh, Inc. (“PFP”), Perma-Fix of Michigan, Inc. (“PFMI”), and Perma-Fix of Memphis, Inc. (“PFM”), which were approved as discontinued operations by our Board of Directors effective November 8, 2005, October 4, 2004, and March 12, 1998, respectively.
 
 
19


On August 12, 2011, we completed the sale of our wholly-owned subsidiary, PFFL, pursuant to the terms of a Stock Purchase Agreement, dated June 13, 2011.  In consideration for the sale of 100% of the capital stock of PFFL, the buyer paid us $5,500,000 in cash at closing.  The cash consideration is subject to certain working capital adjustments after closing.  As of March 31, 2012, expenses related to the sale of PFFL totaled approximately $160,000, of which all have been paid ($3,000 was paid during the first quarter of 2012).  As of March 31, 2012, the gain on the sale of PFFL totaled approximately $1,707,000 (net of taxes of $1,067,000), which included a working capital adjustment of $185,000 to be received from the buyer.  The gain was recorded during the twelve months ended December 31, 2011.

On October 14, 2011, we completed the sale of our wholly-owned subsidiary, PFO, pursuant to the terms of an Asset Purchase Agreement, dated August 12, 2011.  In consideration for such assets, the buyer paid us $2,000,000 in cash at the closing and assumed certain liabilities of PFO.  The cash consideration is subject to certain working capital adjustments after closing.  As of March 31, 2012, expenses related to the sale of PFO totaled approximately $37,000, of which all have been paid ($17,000 was paid during the first quarter of 2012).  As of March 31, 2012, loss on the sale of PFO totaled approximately $198,000 (net of taxes of $209,000), which was recorded during the fourth quarter of 2011.  No working capital adjustment has been made on the sale of PFO.

We continue to market our PFSG facility for sale.  As required by ASC 360, based on our internal financial valuations, we concluded that no tangible asset impairments existed for PFSG as of March 31, 2012. No intangible asset exists at PFSG.

The following table summarizes the results of discontinued operations for the three months ended March 31, 2012, and 2011.  The operating results of discontinued operations are included in our Consolidated Statements of Operations as part of our “(Loss) income from discontinued operations, net of taxes”.

   
Three Months Ended
 
   
March 31,
 
(Amounts in Thousands)
 
2012
   
2011
 
Net revenues
  $ 616     $ 2,629  
Interest expense
    (9 )     (19 )
Operating (loss) income from discontinued operations
    (208 )     322  
Income tax (benefit) expense
    (70 )     110  
(Loss) income from discontinued operations
    (138 )     212  
 
Assets related to discontinued operations total $2,358,000 and $2,343,000 as of March 31, 2012, and December 31, 2011, respectively, and liabilities related to discontinued operations total $3,998,000 and $3,972,000 as of March 31, 2012 and December 31, 2011, respectively.

The following table presents the major classes of asset and liabilities of discontinued operations that are classified as held for sale as of March 31, 2012 and December 31, 2011.  The held for sale assets and liabilities may differ at the closing of a sale transaction from the reported balances as of March 31, 2012:
 
 
20


   
March 31,
   
December 31,
 
(Amounts in Thousands)
 
2012
   
2011
 
   
 
   
 
 
Accounts receivable, net (1)
  $ 438     $ 385  
Inventories
    31       25  
Other assets
    17       22  
Property, plant and equipment, net (2)
    1,614       1,650  
Total assets held for sale
  $ 2,100     $ 2,082  
Accounts payable
  $ 258     $ 190  
Accrued expenses and other liabilities
    544       577  
Note payable
    97       105  
Environmental liabilities
    1,496       1,497  
Total liabilities held for sale
  $ 2,395     $ 2,369  

(1) net of allowance for doubtful accounts of $39,000 and $48,000 as of March 31, 2012 and December 31, 2011, respectively.

(2) net of accumulated depreciation of $62,000 for each period noted.

The following table presents the major classes of assets and liabilities of discontinued operations that are not held for sale as of March 31, 2012 and December 31, 2011:

   
March 31,
   
December 31,
 
(Amounts in Thousands)
 
2012
   
2011
 
   
 
   
 
 
Other assets
  $ 258     $ 261  
Total assets of discontinued operations
  $ 258     $ 261  
Accrued expenses and other liabilities
  $ 1,092     $ 1,083  
Accounts payable
    15       15  
Environmental liabilities
    496       505  
Total liabilities of discontinued operations
  $ 1,603     $ 1,603  

The environmental liabilities for our discontinued operations consist of remediation projects currently in progress at PFMI, PFM, PFD, and PFSG. These remediation projects principally entail the removal/remediation of contaminated soil, and in some cases, the remediation of surrounding ground water.  All of the remedial clean-up projects were an issue for years prior to our acquisition of the facility and were recognized pursuant to a business combination and recorded as part of the purchase price allocation to assets acquired and liabilities assumed.  The environmental liability for PFD was retained by the Company upon the sale of PFD in March 2008 and pertains to the remediation of a leased property which was separate and apart from the property on which PFD’s facility was located.  The reduction of approximately $10,000 in environmental liabilities from the December 31, 2011 balance of $2,002,000 reflects payment on remediation projects.

“Accrued expenses and other liabilities” (not held for sale) for our discontinued operations include a pension payable at PFMI of $468,000 as of March 31, 2012.  The pension plan withdrawal liability is a result of the termination of the union employees of PFMI.  The PFMI union employees participated in the Central States Teamsters Pension Fund ("CST"), which provides that a partial or full termination of union employees may result in a withdrawal liability, due from PFMI to CST.  The recorded liability is based upon a demand letter received from CST in August 2005 that provided for the payment of $22,000 per month over an eight year period.  This obligation is recorded as a long-term liability, with a current portion of $232,000 that we expect to pay over the next year.
 
 
21

 
11.
Operating Segments

In accordance to ASC 280, “Segment Reporting”, we define an operating segment as a business activity:
 
 
from which we may earn revenue and incur expenses;
 
whose operating results are regularly reviewed by the Chief Operating Officer to make decisions about resources to be allocated to the segment and assess its performance; and
 
for which discrete financial information is available.
 
We currently have two reporting segments, which are based on a service offering approach.  This however, excludes corporate headquarters, which does not generate revenue, and our discontinued operations, which includes all facilities as discussed in “Note 10 – Discontinued Operations and Divestitures”.

Our reporting segments are defined as follows:

TREATMENT SEGMENT which includes:
 
-
nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous waste treatment, processing and disposal services primarily through four uniquely licensed and permitted treatment and storage facilities; and
 
-
research and development activities to identify, develop and implement innovative waste processing techniques for problematic waste streams.

SERVICES SEGMENT which includes:
 
-
On-site waste management services to commercial and government customers;
 
-
Technical services which includes:
 
o
professional radiological measurement and site survey of large government and commercial installations using advance methods, technology and engineering;
 
o
integrated Occupational Safety and Health services including industrial hygiene (“IH”) assessments; hazardous materials surveys, e.g., exposure monitoring; lead and asbestos management/abatement oversight; indoor air quality evaluations; health risk and exposure assessments; health & safety plan/program development, compliance auditing and training services; and Occupational Safety and Health Administration (“OSHA”) citation assistance;
 
o
global technical services providing consulting, engineering, project management, waste management, environmental, and decontamination and decommissioning field, technical, and management personnel and services to commercial and government customers; and
 
o
augmented engineering services (through our Schreiber, Yonley & Associates subsidiary – “SYA”) providing consulting environmental services to industrial and government customers:
 
§
including air, water, and hazardous waste permitting, air, soil and water sampling, compliance reporting, emission reduction strategies, compliance auditing, and various compliance and training activities; and
 
§
engineering and compliance support to other segments.
 
-
A company owned equipment calibration and maintenance laboratory that services, maintains, calibrates, and sources (i.e.rental) of health physics, IH and customized nuclear, environmental, and occupational safety and health (“NEOSH”) instrumentation.

 
22


The table below presents certain financial information of our operating segments as of and for the three months ended March 31, 2012 and 2011 (in thousands).
 
Segment Reporting as of and for the Quarter Ended March 31, 2012
     
Treatment
   
Services
   
Segments
Total
   
Corporate 
And Other
  (2)  
Consolidated
Total
 
Revenue from external customers (3)
    $ 12,842     $ 25,231     $ 38,073     $       $ 38,073  
Intercompany revenues
      609       68       677       ¾         ¾  
Gross profit
      2,721       1,580       4,301       ¾         4,301  
Interest income
      ¾       ¾       ¾       15         15  
Interest expense
      2       5       7       214         221  
Interest expense-financing fees
      ¾       ¾       ¾       34         34  
Depreciation and amortization
      1,130       460       1,590       18         1,608  
Segment profit (loss)
      1,093       56       1,149       (2,005 )       (856 )
Segment assets(1)
      79,171       45,262       124,433       32,741   (4)     157,174  
Expenditures for segment assets
      166       38       204       2         206  
Total debt
      120       10       130       17,671   (5)     17,801  
 
Segment Reporting as of and for the Quarter Ended March 31, 2011
     
Treatment
   
Services
   
Segments
Total
   
Corporate 
And Other
  (2)  
Consolidated
Total
 
Revenue from external customers (3)
    $ 12,335     $ 11,280     $ 23,615     $       $ 23,615  
Intercompany revenues
      418       69       487       ¾         ¾  
Gross profit
      960       2,070       3,030       ¾         3,030  
Interest income
      ¾       ¾       ¾       13         13  
Interest expense
      33       1       34       142         176  
Interest expense-financing fees
      ¾       ¾       ¾       102         102  
Depreciation and amortization
      1,141       10       1,151       5         1,156  
Segment profit (loss)
      119       1,127       1,246       (1,779 )       (533 )
Segment assets(1)
      95,655       2,871       98,526       32,726   (4)     131,252  
Expenditures for segment assets
      712       1       713       4         717  
Total debt
      1,072       16       1,088       11,965   (5)     13,053  

(1)   Segment assets have been adjusted for intercompany accounts to reflect actual assets for each segment.

(2)   Amounts reflect the activity for corporate headquarters, not included in the segment information.
 
(3)   The following customers accounted for 10% or more of the total revenues generated from continuing operations for the three months ended March 31, 2012 and the corresponding period of 2011: (1) Revenues from CH Plateau Remediation Company (“CHPRC”) totaled 6,311,000 or 16.6% and 13,662,000 or 57.9% for the three months ended March 31, 2012 and 2011, respectively; and (2) Revenues generated directly from the U.S. Department of Energy (“DOE”) accounted for $7,679,000 or 20.2% and $0 and 0% for the three months ended March 31, 2012 and 2011, respectively.  The increase in revenue generated directly from the DOE was attributable to the acquisition of SEC in October 31, 2011.

(4)   Amount includes assets from our discontinued operations of $2,358,000 and $7,512,000 as of March 31, 2012 and 2011, respectively.

(5)   Net of debt discount of ($2,000) and ($34,000) as of March 31, 2012 and 2011, respectively, based on the estimated fair value at issuance of two Warrants and 200,000 shares of the Company’s Common Stock issued on May 8, 2009 in connection with a $3,000,000 promissory note entered into by the Company and Mr. William Lampson and Mr. Diehl Rettig.  The promissory note and the Warrants were modified on April 18, 2011.  See “Note 8 – Long-Term Debt – Promissory Notes and Installment Agreements” for additional information.
 
12.
Income Taxes

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.
 
 
23

 
We had a tax benefit of $485,000 for continuing operations for the three months ended March 31, 2012, as compared to a tax benefit of $340,000 for the corresponding period of 2011.  The Company’s effective tax rates were approximately 36.2% and 38.9% for the three months ended March 31, 2012 and 2011, respectively.  We recognized a tax benefit in the first quarter of 2012 based on the taxable loss that is more likely than not to be realized during 2012.

The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”.  Deferred income tax assets and liabilities are recognized for future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company regularly assesses the likelihood that the deferred tax asset will be recovered from future taxable income.  The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred income tax assets to an amount that is more likely than not to be realized.

13. 
Subsequent Event

As discussed in “Note 8 – Long Term Debt”, we have three Warrants outstanding (held by Mr. Lampson, the estate of Mr. Rettig, and Mr. Ferguson, a member of our Board of Directors) which expired on May 8, 2012. The Warrants provided for the purchases of up to an aggregate of 150,000 shares of the Company’s Common Stock at $1.50 per share.  Each of the Warrants were not exercised and expired on May 8, 2012.
Forward-looking Statements
Certain statements contained within this report may be deemed "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the "Private Securities Litigation Reform Act of 1995").  All statements in this report other than a statement of historical fact are forward-looking statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance of the Company to differ materially from such statements.  The words "believe," "expect," "anticipate," "intend," "will," and similar expressions identify forward-looking statements.  Forward-looking statements contained herein relate to, among other things,
 
 
demand for our services subject to fluctuations;
 
funding by the federal government;
 
goals;
 
ability to improve operations;
 
receivables are normally considered collectible within twelve month;
 
we anticipate meeting our financial covenants in remaining 2012;
 
ability to close and remediate certain contaminated sites for projected amounts over the projected periods;
 
ability to fund expenses to remediate sites from funds generated internally;
 
collectability of our receivables;
 
ability to fund budgeted capital expenditures during 2012 through our operations and lease financing;
 
our cash flows from operations and our available liquidity from our line of credit are sufficient to service the Company’s current obligations and current obligations resulting from the acquisition of SEC;
 
 
24

 
 
continue to take steps to improve our operations and liquidity and to invest working capital into our facilities to fund capital additions to our segments;
 
due to the continued uncertainty in the economy and changes within the environmental insurance market, we have no guarantee that we will be able to obtain similar insurance in future years, or that the cost of such insurance will not increase materially;
 
we could be subject to fines, penalties or other liabilities or could be adversely affected by existing or subsequently enacted laws or regulations;
 
as our operations and activities expand, there could be an increase in potential litigation;
 
our inability to continue under existing contracts that we have with the federal government (directly or  indirectly as a subcontractor) could have a material adverse effect on our operations and financial condition;
 
demand for our services will be subject to fluctuations due to a variety of factors beyond our control;
 
investment of working capital;
 
seasonality and the government’s budget process;
 
process backlog;
 
funding of any repurchases of our common stock;
 
contracts with the federal government;
 
we do not believe that SEHC’s subsidiary’s prior deficiencies on this project will affect our ability to obtain additional contracts with the DOE;
 
treatment processes we utilize offer a cost saving alternative to more traditional remediation and disposal methods offered by certain of our competitors;
 
despite our aggressive compliance and auditing procedure for disposal of wastes, we could further be notified, in the future, that we are a PRP at a remedial action site, which could have a material adverse effect; and
 
we could be deemed responsible for part for the cleanup of certain properties and be subject to fines and civil penalties in connection with violations of regulatory requirements.
 
While the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations will prove to have been correct.  There are a variety of factors, which could cause future outcomes to differ materially from those described in this report, including, but not limited to:
 
general economic conditions;
material reduction in revenues;
ability to meet PNC covenant requirements;
inability to collect in a timely manner a material amount of receivables;
increased competitive pressures;
the ability to maintain and obtain required permits and approvals to conduct operations;
the ability to develop new and existing technologies in the conduct of operations;
the ability to maintain and obtain closure and operating insurance requirements;
ability to retain or renew certain required permits;
discovery of additional contamination or expanded contamination at any of the sites or facilities leased or owned by us or our subsidiaries which would result in a material increase in remediation expenditures;
delays at our third party disposal site can extend collection of our receivables greater than twelve months;
changes in federal, state and local laws and regulations, especially environmental laws and regulations, or in interpretation of such;
potential increases in equipment, maintenance, operating or labor costs;
management retention and development;
financial valuation of intangible assets is substantially more/less than expected;
the requirement to use internally generated funds for purposes not presently anticipated;
inability to continue to be profitable on an annualized basis;
 
 
25

 
the inability of the Company to maintain the listing of its Common Stock on the NASDAQ;
terminations of contracts with federal agencies or subcontracts involving federal agencies, or reduction in amount of waste delivered to the Company under the contracts or subcontracts;
renegotiation of contracts involving the federal government;
disposal expense accrual could prove to be inadequate in the event the waste requires re-treatment; and
factors set forth in “Special Note Regarding Forward-Looking Statements” contained in our 2011 Form 10-K.
 
The Company undertakes no obligations to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview
As previously reported, as a result of the acquisition on October 31, 2011 of all of the issued and outstanding shares of capital stock of Safety and Ecology Holdings Corporation (“SEHC”) and its subsidiaries, Safety & Ecology Corporation (“Safety & Ecology”), SEC Federal Services Corporation, Safety and Ecology Corporation Limited (“SECL” – a United Kingdom operation) and SEC Radcon Alliance, LLC (“SECRA”, which we own 75%), (collectively, “SEC”) pursuant to that certain Stock Purchase Agreement, dated July 15, 2011 (“Purchase Agreement”), between the Company, Homeland Capital Security Corporation (“Homeland”) and SEHC, we made structure and reporting changes to our  internal organization and changes to our operating segments to create better consistency, greater coordination and enhanced communication.  This restructuring aligns the internal management and functional support assets based on company service offerings.  Such restructuring also provides a functionally supported matrix management approach which better supports resource allocation by our chief operating decision maker and optimizes performance assessment.   These changes resulted in our new reporting segments:  Treatment Segment (“Treatment”) and the Services Segment (“Services”).  The Treatment Segment comprises of treatment, processing, and disposal services of nuclear, low-level radioactive, mixed (waste containing both hazardous and low-level radioactive constituents), hazardous and non-hazardous waste. The Services Segment comprises of on-site waste management, technical, and consulting services.  As such, the reporting of financial results and pertinent discussions below are tailored to the two newly re-aligned reportable segments.  All of the historical segment numbers presented in the Form 10-Q have been recast to conform to this change in reportable segments.

Revenue increased $14,458,000 or 61.2% to $38,073,000 for the three months ended March 31, 2012 from $23,615,000 for the corresponding period of 2011.  The revenue increase included revenue of $18,602,000 from the acquisition of SEC on October 31, 2011.  Excluding revenue from this acquisition, revenue decreased $4,144,000 or 17.5% from the three months ended March 31, 2011 to March 31, 2012.  Treatment Segment revenue increased $507,000 or 4.1% primarily due to higher waste volume which was reduced by lower average priced waste.  Services Segment revenue decreased $4,651,000 or 41.2% primarily due to reduced revenue from the CH Plateau Remediation Company (“CHPRC”) subcontract (“CHPRC subcontract”), a cost plus award fee subcontract.  We were awarded the CHPRC subcontract in the second quarter of 2008 by CHPRC, a general contractor to the U.S. Department of Energy (“DOE”).  This subcontract entails performing a portion of facility operations and waste management activities for the DOE Hanford, Washington Site.  The revenue reduction was the result of a reduction in workforce which occurred during September 30, 2011 under the CHPRC subcontract.

Gross profit increased $1,271,000 or 41.9%, which included gross profit of $286,000 from the SEC acquisition.  Excluding gross profit from SEC, remaining gross profit increased approximately $985,000 or 32.5% primarily due to increased gross profit from our Treatment Segment.  Selling, General, and Administrative (SG&A) expenses increased $1,666,000 which included SG&A expenses of $1,327,000 of SEC. Excluding SG&A expense of SEC, remaining SG&A increased $339,000 or 10.1%.

 
26


Outlook
We believe demand for our services will be subject to fluctuations due to a variety of factors beyond our control, including the current economic conditions, and the manner in which the government will be required to spend funding to remediate federal sites. Our operations depend, in large part, upon governmental funding, particularly funding levels at the DOE.  In addition, our governmental contracts and subcontracts relating to activities at governmental sites are generally subject to termination or renegotiation on 30 days notice at the government’s option.  Significant reductions in the level of governmental funding due to the completion of most stimulus funded projects and federal budgets driven by temporary continuing resolutions 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 two reportable segments: The Treatment and Services Segments.

    Three Months Ended  
    March 31,  
Consolidated (amounts in thousands)
 
2012
   
%
   
2011
   
%
 
Net revenues
  $ 38,073       100.0     $ 23,615       100.0  
Cost of good sold
    33,772       88.7       20,585       87.2  
Gross profit
    4,301       11.3       3,030       12.8  
Selling, general and administrative
    5,038       13.2       3,372       14.3  
Research and development
    364       1.0       266       1.1  
Loss from operations
  $ (1,101 )     (2.9 )   $ (608 )     (2.6 )
Interest income
    15       ¾       13       ¾  
Interest expense
    (221 )     (.5 )     (176 )     (.7 )
Interest expense-financing fees
    (34 )     (.1 )     (102 )     (.4 )
Loss from continuing operations before taxes
    (1,341 )     (3.5 )     (873 )     (3.7 )
Income tax benefit
    (485 )     (1.3 )     (340 )     (1.4 )
Loss from continuing operations
  $ (856 )     (2.2 )   $ (533 )     (2.3 )

Summary – Three Months Ended March 31, 2012 and 2011

Consolidated revenues increased $14,458,000 for the three months ended March 31, 2012, compared to the three months ended March 31, 2011, as follows:
 
(In thousands)
 
2012
   
%
Revenue
   
2011
   
%
Revenue
   
Change
   
% Change
 
Treatment
 
 
   
 
                         
Government waste
  $ 9,710       25.5     $ 8,857       37.5     $ 853       9.6  
Hazardous/non-hazardous
    855       2.2       1,127       4.8       (272 )     (24.1 )
Other nuclear waste
    2,277       6.0       2,351       9.9       (74 )     (3.1 )
Total
    12,842       33.7       12,335       52.2       507       4.1  
                                                 
Services
                                               
Nuclear services
    5,949       15.6       10,694       45.3       (4,745 )     (44.4 )
Technical services
    680       1.8       586       2.5       94       16.0  
Acquisition 10/31/11 (SEC) (1)
    18,602       48.9       ¾       ¾       18,602       100.0  
Total
    25,231       66.3       11,280       47.8       13,951       123.7  
                                                 
Total
  $ 38,073       100.0     $ 23,615       100.0     $ 14,458       61.2  

 (1) Includes approximately $17,034,000 relating to services generated by the federal government, either directly (as prime contractor) or indirectly as a subcontractor to the federal government.
 
Net Revenue
The Treatment Segment realized revenue growth of $507,000 or 4.1% for the three months ended March 31, 2012 over the same period in 2011. Revenue from government generators increased $853,000 or 9.6% primarily due to higher waste volume which was partially reduced by lower averaged priced waste.  Revenue from hazardous and non-hazardous waste was down $272,000 or 24.1% primarily due to lower waste volume.  Other nuclear waste revenue decreased approximately $74,000 or 3.1% primarily due to lower waste volume.  Services Segment revenue increased $13,951,000 or 123.7% in the three months ended March 31, 2012 from the corresponding period of 2011 primarily due to the revenue of $18,602,000 generated by SEC which was acquired on October 31, 2011.  Excluding the revenue of SEC, Services Segment revenue decreased $4,651,000 or 41.2% primarily due to reduced revenue in the nuclear services area.  This decrease was primarily from the CHPRC subcontract which is a cost plus award fee subcontract.  The reduction in revenue of $4,745,000 or 44.4% under this subcontract from $10,694,000 for the three month ended March 31, 2011 to $5,949,000 for the three months ended March 31, 2012, was primarily the result of reduced headcount resulting from a reduction in workforce which occurred in September 2011 under this subcontract.  The remaining revenue increase of $94,000 within the Services Segment resulted from higher billing rate in our technical services area.
 
 
27

 
Cost of Goods Sold
Cost of goods sold increased $13,187,000 for the quarter ended Ma