| PERMA FIX ENVIRONMENTAL SERVICES INC Item 1A Risk Factors |
| 13 ITEM 1A RISK FACTORS The following are certain risk factors that could affect our business, financial performance, and results of operations |
| These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Form 10-K, as the forward-looking statements are based on current expectations, and actual results and conditions could differ materially from the current expectations |
| Investing in our securities involves a high degree of risk, and before making an investment decision, you should carefully consider these risk factors as well as other information we include or incorporate by reference in the other reports we file with the Securities and Exchange Commission ( "e SEC "e ) |
| Our Industrial segment has sustained losses in each year since 2000 |
| The Industrial segment represented approximately 44dtta9prca of our consolidated net revenues in 2005, as compared to 44dtta4prca in 2004, and 24dtta2prca of our total assets as of December 31, 2005 |
| During 2005, we restructured the management of this segment by replacing most of its operating officers and in 2005 we appointed a chief operating officer to 13 oversee this segment, as well as, the Nuclear segment, in an effort to return this segment to profitability |
| If our Industrial segment fails to become profitable on an annualized basis in the foreseeable future, this could have a material adverse effect on our results of operations, liquidity and our potential growth |
| The Industrial segmentapstas failure to become profitable could also result in further facility closures or the sale of certain facilities with this segment, as well as possible future impairments of permits or fixed assets |
| THE INABILITY TO MAINTAIN EXISTING GOVERNMENT CONTRACTS OR WIN NEW GOVERNMENT CONTRACTS OVER AN EXTENDED PERIOD COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS AND ADVERSELY AFFECT OUR FUTURE REVENUES Most of our government contracts or our subcontracts granted under government contracts are awarded through a regulated competitive bidding process |
| Some government contracts are awarded to multiple competitors, which increases overall competition and pricing pressure and may require us to make sustained post-award efforts to realize revenues under these government contracts |
| In addition, government clients can generally terminate or modify their contracts at their convenience |
| Currently, a material amount of our Nuclear segmentapstas revenues are generated through various US government contracts or subcontracts involving the US government |
| Our revenues from government sources were approximately dlra33cmam899cmam000 and dlra31cmam791cmam000, representing 37dtta4prca and 38dtta5prca, respectively, of our consolidated revenues for 2005 and 2004 |
| If we fail to maintain or replace these relationships, our revenues and future operations could be adversely affected |
| IF WE CANNOT MAINTAIN OUR GOVERNMENTAL PERMITS OR CANNOT OBTAIN REQUIRED PERMITS, WE MAY NOT BE ABLE TO CONTINUE OR EXPAND OUR OPERATIONS We are a waste management company |
| Our business is 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, recycling, disposal, and transportation of hazardous and non-hazardous waste and low-level radioactive waste |
| We must obtain and maintain permits, licenses and/or approvals to conduct these activities in compliance with such laws and regulations |
| Failure to obtain and maintain the required permits, licenses and/or approvals would have a material adverse effect on our operations and financial condition |
| If we are unable to maintain our currently held permits, licenses, and/or approvals or obtain any additional permits, licenses and/or approvals which may be required as we expand our operations, we may not be able to continue certain of our operations |
| THE SIGNIFICANT AMOUNT OF OUTSTANDING WARRANTS AND OPTIONS COULD AFFECT OUR STOCK PERFORMANCE As of December 31, 2005, we had outstanding Warrants to purchase 10cmam267cmam780 shares of Common Stock at exercise prices from dlra1dtta44 to dlra2dtta92 per share, and outstanding Options to purchase 2cmam846cmam750 shares of our Common Stock at exercise prices of dlra1dtta00 to dlra3dtta00 per share |
| The existence of this quantity of rights to purchase our Common Stock could result in a significant dilution in the percentage ownership interest of our stockholders and the dilution in ownership value |
| Future sales of the shares issuable could also depress the market price of our Common stock |
| THE PRICE OF OUR COMMON STOCK IS VOLATILE The trading price of our Common Stock has historically been volatile, and subject to large swings over short periods of time |
| We believe that the changes in our stock price are affected by our lack of operating results and the failure to meet expectations of our investors, as well as the publicapstas perception of the impact of economic events related to our business and other factors beyond our control |
| Public perception can change quickly and without any developments or changes in our business |
| As a result of the volatility of our Common Stock, an investment in our stock holds significant risk |
| 14 THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK MAY ALSO RESULT IN A CHANGE IN CONTROL The exercise of our currently outstanding warrants could result in a substantial number of shares being held by one or more groups acting in concert |
| In that event, such group or groups may have the ability to cause a change in control under our Credit Agreement |
| Our Credit Facility provides that a change of control will occur if (a) Dr |
| Louis F Centofanti, our Chairman, President, and Chief Executive Officer, or Richard T Kelecy, our Chief Financial Officer, ceases to serve as a senior executive officer in substantially the same capacity as served on the date of the Credit Facility or (b) the persons who were members of our Board on the closing of the Credit Facility cease to constitute 50prca of our Board |
| Each of these events could be an event of default under the terms of the Credit facility |
| If anyone or a group were to successfully attempt to cause any of these changes in our management or Board, we could be in default under our loan agreement |
| As discussed in Part III, Item 10 - Directors and Executive Officers of the Registrant, our Chief Financial Officer, Richard T Kelecy resigned his executive officer positions with the Company |
| We have been in contact with the holders of our credit facility, and they have informed us of their intent to waive the technical default that was created by Mr |
| Kelecyapstas resignation |
| LOSS OF CERTAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON US Our success depends on the contributions of our key management, environmental and engineering personnel, especially Dr |
| Centofanti could have a material adverse effect on our operations, revenues, prospects, and our ability to raise additional funds |
| Our future success depends on our ability to retain and expand our staff of qualified personnel, including environmental specialists and technicians, sales personnel, and engineers |
| Without qualified personnel, we may incur delays in rendering our services or be unable to render certain services |
| We cannot be certain that we will be successful in our efforts to attract and retain qualified personnel as their availability is limited due to the demand for hazardous waste management services and the highly competitive nature of the hazardous waste management industry |
| We do not maintain key person insurance on any of our employees, officers, or directors |
| GOVERNMENTAL AGENCIES ARE ASSERTING THAT TWO OF OUR TSD FACILITIES WERE AND ARE REQUIRED TO HAVE OBTAINED A TITLE V AIR PERMIT TO OPERATE, WHICH, IF CORRECT, MAY HAVE A MATERIAL ADVERSE EFFECT ON US The EPA has asserted that the Dayton, Ohio TSD facility owned by one of our subsidiaries has been for several years required to have obtained a Title V air permit in order to operate the facility |
| The ODEQ is asserting that the TSD facility located in Tulsa, Oklahoma, owned by another subsidiary of ours is required to have complied with certain air regulations under certain environmental laws and regulations, which, if correct, would require this facility to have obtained a Title V air permit in order to operate |
| These facilities have not obtained a Title V air permit |
| The EPA has referred the matter regarding the Dayton facility to the DOJ for enforcement |
| If either facility, was or is required to have obtained a Title V air permit in order to operate, that facility would be required to perform substantial modifications in order to comply with Title V air permit requirements and the failure to have obtained this permit by one or both of these facilities could subject that facility to substantial penalties and may have a material adverse effect on that facilityapstas operations and on us |
| WE BELIEVE OUR PROPRIETARY TECHNOLOGY IS IMPORTANT TO US We believe that it is important that we maintain our proprietary technologies |
| There can be no assurance that the steps taken by us to protect our proprietary technologies will be adequate to prevent misappropriation of these technologies by third parties |
| Misappropriation of our proprietary technology could have an adverse effect on our operations and financial condition |
| Changes to current environmental laws and regulations also could limit the use of our proprietary technology |
| 15 CHANGES IN ENVIRONMENTAL REGULATIONS AND ENFORCEMENT POLICIES COULD SUBJECT US TO ADDITIONAL LIABILITY AND ADVERSELY AFFECT OUR ABILITY TO CONTINUE CERTAIN OPERATIONS We cannot predict the extent to which our operations may be affected by future governmental enforcement policies as applied to existing laws, by changes to current environmental laws and regulations, or by the enactment of new environmental laws and regulations |
| Any predictions regarding possible liability under such laws are complicated further by current environmental laws which provide that we could be liable, jointly and severally, for certain activities of third parties over whom we have limited or no control |
| A CLOSURE OF THE END DISPOSAL SITE THAT OUR NUCLEAR SEGMENT UTILIZES TO DISPOSE OF OUR WASTE COULD SUBJECT US TO SIGNIFICANT RISK AND LIMIT OUR OPERATIONS Our Nuclear segment has limited options available for disposal of its waste |
| If this disposal site ceases to accept waste or closes for any reason or refuses to accept the waste of our nuclear segment, we could have nowhere to dispose of our Nuclear waste or have significantly increased costs from disposal alternatives |
| With nowhere to dispose of our nuclear waste, we would be subject to significant risk from the implications of storing the waste on our site, and we would have to limit our operations to accept only waste that we can dispose of |
| OUR INDUSTRIAL SEGMENT AND NUCLEAR SEGMENT SUBJECT US TO SUBSTANTIAL POTENTIAL ENVIRONMENTAL LIABILITY Our business of rendering services in connection with management of waste, including certain types of hazardous waste, low-level radioactive waste, and mixed waste (waste containing both hazardous and low-level radioactive waste), subjects us to risks of liability for damages |
| Such liability could involve, without limitation: o claims for clean-up costs, personal injury or damage to the environment in cases in which we are held responsible for the release of hazardous or radioactive materials; o claims of employees, customers, or third parties for personal injury or property damage occurring in the course of our operations; and o claims alleging negligence or professional errors or omissions in the planning or performance of our services |
| Our operations are subject to numerous environmental laws and regulations |
| We have in the past, and could in the future, be subject to substantial fines, penalties, and sanctions for violations of environmental laws and substantial expenditures as a responsible party for the cost of remediating any property which may be contaminated by hazardous substances generated by us and disposed at such property, or transported by us to a site selected by us, including properties we own or lease |
| AS OUR OPERATIONS EXPAND, WE MAY BE SUBJECT TO INCREASED LITIGATION, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR FUTURE FINANCIAL RESULTS Our operations are highly regulated and we are subject to numerous laws and regulations regarding procedures for waste treatment, storage, recycling, transportation, and disposal activities, all of which may provide the basis for litigation against us |
| In recent years, the waste treatment industry has experienced a significant increase in so-called "e toxic-tort "e litigation as those injured by contamination seek to recover for personal injuries or property damage |
| We believe that, as our operations and activities expand, there will be a similar increase in the potential for litigation alleging that we have violated environmental laws or regulations or are responsible for contamination or pollution caused by our normal operations, negligence or other misconduct, or for accidents, which occur in the course of our business activities |
| Such litigation, if significant and not adequately insured against, could adversely affect our financial condition and our ability to fund our operations |
| Protracted litigation would likely cause us to 16 spend significant amounts of our time, effort, and money |
| This could prevent our management from focusing on our operations and expansion |
| IF WE CANNOT MAINTAIN ADEQUATE INSURANCE COVERAGE, WE WILL BE UNABLE TO CONTINUE CERTAIN OPERATIONS Our business exposes us to various risks, including claims for causing damage to property and injuries to persons that may involve allegations of negligence or professional errors or omissions in the performance of our services |
| We believe that our insurance coverage is presently adequate and similar to, or greater than, the coverage maintained by other companies in the industry of our size |
| If we are unable to obtain adequate or required insurance coverage in the future, or if our insurance is not available at affordable rates, we would violate our permit conditions and other requirements of the environmental laws, rules, and regulations under which we operate |
| Such violations would render us unable to continue certain of our operations |
| These events would have a material adverse effect on our financial condition |
| OUR OPERATIONS ARE SUBJECT TO SEASONAL FACTORS, WHICH CAUSE OUR REVENUES TO FLUCTUATE We have historically experienced reduced revenues and losses during the first and fourth quarters of our fiscal years due to a seasonal slowdown in operations from poor weather conditions and overall reduced activities during these periods |
| During our second and third fiscal quarters there has historically been an increase in revenues and operating profits |
| If we do not continue to have increased revenues and profitability during the second and third fiscal quarters, this will have a material adverse effect on our results of operations and liquidity |
| OUR INDUSTRIAL SEGMENT OPERATES IN A HIGHLY COMPETITIVE MARKET AND FACES SIGNIFICANT COMPETITION FROM VARIOUS COMPANIES THAT MAY HAVE GREATER FINANCIAL, HUMAN AND OTHER RESOURCES THAN WE DO, INHIBITING US FROM COMPETING EFFECTIVELY Certain waste services within our Industrial segment are extremely competitive, and many of our competitors have substantially greater resources than we do |
| We could experience further reduced revenues and gross margin levels, as a result of price reductions in order to retain customers and remain competitive |
| IF ENVIRONMENTAL REGULATION OR ENFORCEMENT IS RELAXED, THE DEMAND FOR OUR SERVICES WILL DECREASE The demand for our services is substantially dependent upon the publicapstas concern with, and the continuation and proliferation of, the laws and regulations governing the treatment, storage, recycling, and disposal of hazardous, non-hazardous, and low-level radioactive waste |
| A decrease in the level of public concern, the repeal or modification of these laws, or any significant relaxation of regulations relating to the treatment, storage, recycling, and disposal of hazardous waste and low-level radioactive waste would significantly reduce the demand for our services and could have a material adverse effect on our operations and financial condition |
| We are not aware of any current federal or state government or agency efforts in which a moratorium or limitation has been, or will be, placed upon the creation of new hazardous or radioactive waste regulations that would have a material adverse effect on us; however, no assurance can be made that such a moratorium or limitation will not be implemented in the future |
| OUR AMOUNT OF DEBT AND FLOATING RATES OF INTEREST COULD ADVERSELY AFFECT OUR OPERATIONS At December 31, 2005, our aggregate consolidated debt was approximately dlra13cmam375cmam000 |
| If our floating rates of interest experienced an upward increase of 1prca, our debt service would increase by approximately dlra134cmam000 annually |
| Our secured revolving credit facility (the "e Credit Facility "e ) provides for an aggregate commitment of dlra25 million, consisting of an dlra18 million revolving line of credit and a term loan of dlra7 million |
| The maximum we can borrow under the revolving part of the Credit Facility is based on a percentage of the amount of our eligible receivables outstanding at any one time |
| The Credit Facility is due May, 2008 |
| As of December 31, 2005, we had borrowings under the revolving part of our Credit 17 Facility of dlra2cmam447cmam000 and borrowing availability of up to an additional dlra12cmam964cmam000 based on our outstanding eligible receivables |
| Although we have reduced our overall indebtedness significantly, a lack of operating results could have material adverse consequences on our ability to operate our business |
| Our ability to make principal and interest payments, or to refinance indebtedness, will depend on both our and our subsidiaries &apos future operating performance and cash flow |
| Prevailing economic conditions, interest rate levels, and financial, competitive, business, and other factors affect us |
| WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE Since our inception, we have not paid cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future |
| Our credit facility prohibits us from paying cash dividends on our common stock |
| WE MAY BE UNABLE TO UTILIZE LOSS CARRYFORWARDS IN THE FUTURE We have approximately dlra21dtta0 million in net operating loss carryforwards which will expire from 2007 to 2024 if not used against future federal income tax liabilities |
| Our net loss carryforwards are subject to various limitations |
| We anticipate the net loss carryforwards will be used to reduce the federal income tax payments which we would otherwise be required to make with respect to income, if any, generated in future years |
| DELAWARE LAW, CERTAIN OF OUR CHARTER PROVISIONS, OUR STOCK OPTION PLANS AND OUTSTANDING WARRANTS AND OUR PREFERRED STOCK MAY INHIBIT A CHANGE OF CONTROL UNDER CIRCUMSTANCES THAT COULD GIVE YOU AN OPPORTUNITY TO REALIZE A PREMIUM OVER PREVAILING MARKET PRICES We are a Delaware corporation governed, in part, by the provisions of Section 203 of the General Corporation Law of Delaware, an anti-takeover law |
| In general, Section 203 prohibits a Delaware public corporation from engaging in a "e business combination "e with an "e interested stockholder "e for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business contribution is approved in a prescribed manner |
| As a result of Section 203, potential acquirers may be discouraged from attempting to effect acquisition transactions with us, thereby possibly depriving our security holders of certain opportunities to sell, or otherwise dispose of, such securities at above-market prices pursuant to such transactions |
| Further, certain of our option plans provide for the immediate acceleration of, and removal of restrictions from, options and other awards under such plans upon a "e change of control "e (as defined in the respective plans) |
| Such provisions may also have the result of discouraging acquisition of us |
| We have authorized and unissued (including shares held in treasury) 30cmam174cmam084 shares of Common Stock and 2cmam000cmam000 shares of preferred stock as of December 31, 2005 |
| These unissued shares could be used by our management to make it more difficult, and thereby discourage, an attempt to acquire control of us |