PERMA FIX ENVIRONMENTAL SERVICES INC (PESI)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking
Statements

Certain
statements contained within this report may be deemed “forward-looking statements” within the meaning of the “Private
Securities Litigation Reform Act of 1995”. All statements in this report other than a statement of historical fact are forward-looking
statements that are subject to known and unknown risks, uncertainties and other factors, which could cause actual results and performance
of the Company to differ materially from such statements. The words “believe,” “expect,” “anticipate,”
“intend,” “will,” and similar expressions identify forward-looking statements. Forward-looking statements contained
herein relate to, among other things,

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While
the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance such expectations
will prove to be correct. There are a variety of factors which could cause future outcomes to differ materially from those described
in this report, including, but not limited to:

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Our
forward-looking statements are based on the beliefs and assumptions of our management and the information available to our management
at the time these statements were prepared. Although we believe the expectations reflected in these statements are reasonable, we cannot
guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on the forward-looking
statements as noted above, which apply only to as of the date of this Form 10-Q. We undertake no obligation to update these forward-looking
statements, even if our situation changes in the future.

Overview

Our
operating results for the second quarter of 2026 were below management’s expectations, primarily due to the timing of anticipated
waste receipts, processing delays due to customer-directed changes in treatment protocols and continued strategic investments in support
of future growth initiatives within our Treatment Segment. In addition, delays in the commencement of several new projects within our
Services Segment and the continued processing of previously stored waste inventories to prepare for anticipated increases in certain
Hanford-related waste volumes negatively impacted our revenues during the quarter, as described below. Despite these near-term impacts,
the quarter marked an important operational milestone as our PFNW facility received certain Hanford-related waste streams as anticipated.
These receipts contributed to an increase in our Treatment Segment backlog to approximately $15,733,000 at June 30, 2026, up approximately
28.5% from $12,248,000 at March 31, 2026. Subsequent to quarter-end, in early July, PFNW also began receiving liquid effluent wastes
from the DFLAW facility, representing another significant operational milestone for the Company.

Although
these operational milestones were achieved, our second quarter financial results did not reflect the benefit of the waste receipts discussed
above. Customer-directed changes in treatment protocols delayed the processing of certain Hanford-related waste streams received during
the second quarter into the third quarter. We expect to commence treatment of these wastes during the third quarter of 2026. At the same
time, we incurred increased personnel and other operating expenses in anticipation of increases of these waste receipts; thus, while the
revenue shifted to the second half, associated costs were incurred in the second quarter, which contributed to our losses for the period.
In addition, as noted above, delays in the commencement of several new projects within our Services Segment and the continued processing
of previously stored waste inventories to prepare for anticipated increases in certain Hanford-related waste volumes negatively impacted
our revenues during the quarter. Certain of these previously stored waste inventories carried lower margins, which adversely affected
our results of operations. These lower-margin previously stored waste inventories have now been substantially processed and are not expected
to have a material effect on operating results during the next twelve months.

We
believe the investments we have made in personnel, operational readiness, facility upgrades, capacity enhancements, as well as the
acquisition of the rail-line land parcel that connects the PFNW property to the Port of Benton short-line railroad (see “Note
8 – Long-Term Debt – Promissory Note” to the accompanying Condensed Consolidated Financial Statements for further
discussion of rail-line land parcel) have positioned us to support increasing Hanford-related activity. The commencement of
Hanford-related waste receipts during the second quarter, the start of DFLAW liquid effluent waste receipts subsequent to
quarter-end, the H2C contract award in August 2026 discussed below, and the growth in our Treatmen

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

Certain
statements contained within Item 1 – “Business” and this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” (“MD&A”) may be deemed “forward-looking statements” within the
meaning of Section 27A of the Act, and Section 21E of the Securities Exchange Act of 1934, as amended (collectively, the “Private
Securities Litigation Reform Act of 1995”). See “Special Note regarding Forward-Looking Statements” contained in this
report.

Management’s
discussion and analysis is based, among other things, on our audited consolidated financial statements and includes our accounts and
the accounts of our wholly-owned subsidiaries.

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

Overview

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

Overall
revenue increased by $2,557,000 or 4.3% to $61,674,000 in 2025 as compared to $59,117,000 in 2024. The increase was entirely from our
Treatment Segment where revenue increased by $10,144,000 or approximately 29.0% to $45,097,000 for the twelve months ended December 31,
2025, from $34,953,000 in the same period of 2024. Services Segment revenue decreased $7,587,000 or 31.4% to $16,577,000 for the twelve
months ended December 31, 2025, from $24,164,000 for the same period of 2024. Gross profit increased by $5,971,000 or approximately 298,550%
for the twelve months ended December 31, 2025, as compared to the corresponding period of 2024. Selling, General, and Administrative
(“SG&A”) expenses increased by $1,925,000 or 13.3% for twelve months ended December 31, 2025, as compared to the corresponding
period of 2024. In spite of the improvement in gross profit, we experienced a loss
from continuing operations of approximately $10,665,000 in 2025. While the loss was disappointing, it reflected an improvement of approximately
45.5% from the 2024 loss from continuing operations of $19,569,000.

See
“Results of Operations” below for discussions of certain financial metrics pertaining to our operations, which includes our
two reportable segments.

We
believe we are positioned for potential improvements in our financial results in 2026. These expectations
are based on management’s current assumptions regarding the timing and execution of anticipated waste treatment volumes, including
the commencement and ramp-up of activities associated with the Direct-Feed-Low-Activity Waste (“DFLAW”) program at Hanford,
Washington, as well as our ability to convert existing Treatment Segment backlog into revenue. Treatment Segment backlog as of December
31, 2025, was approximately $11,861,000, representing an increase of approximately 50.9% from Treatment Segment backlog of $7,859,000
as of December 31, 2024. However, Treatment Segment backlog does not guarantee immediate revenue, as the timing of backlog processing
may vary based on waste complexity, customer requirements, and operational considerations. As noted above, however, we believe that our
Perma-Fix Northwest Richland, Inc. (“PFNWR”) treatment facility, immediately adjacent to the Hanford Nuclear Site, is positioned
to support the U.S. Department of Energy’s (“DOE”) DFLAW program at Hanford, which began hot commissioning of the Low-Activity
Waste Vitrification Facility in October 2025. The subsequent operational phase of the DFLAW program is anticipated to begin in 2026, which
will include generation of several effluent waste streams expected to be treated by our PFNWR facility. However, the commencement, scope,
and timing of DFLAW-related waste streams are controlled by the DOE and subject to appropriations, procurement processes, and operational
considerations beyond our control. Delays in anticipated waste treatment volumes, including DFLAW-related waste streams, could impact
our results of operations as we continue to incur fixed operating costs and capital expenditures in anticipation of waste treatment volumes
and program activities.

We continue to focus on expansion into international markets which is reflected
in revenue generated from foreign entities of approximately $6,440,000 in 2025, as compared to $2,452,000 in the corresponding period
of 2024, an increase of $3,988,000 or 162.6%. Additionally, we continue our aggressive research and development (“R&D”),
sales and marketing efforts and capital expenditures relating to our new patent-pending technology for the destruction of Per- and polyfluoroalkyl
substances (“PFAS”), which activities adversely impacted our results of operations in 2025 (See “Known Trends and Uncertainties
– New Processing Technology” for a discussion of our new PFAS-destruction technology).

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

We
are continually monitoring our operating costs to ensure alignment with our revenue levels.

See
“Known Trends and Uncertainties – Federal Funding” within this MD&A for a discussion of factors that could impact
our results of operations in 2026.

Business
Environment

Our
Treatment and Services Segments’ business continue to be heavily dependent on services that we provide to federal governmental
clients, primarily as subcontractors for others who are contractors to government entities or directly as the prime contractor. We believe
demand for our services will continue to be subject to fluctuations due to a variety of factors beyond our control, including, without
limitation, current economic and political conditions, government reductions, passage of government budgets and continuing resolutions
(“CRs”), and the manner in which the applicable government authority will be required to spend funding to remediate various
sites. In addition, our governmental contracts and subcontracts relating to activities at federal governmental sites are generally subject
to termination for convenience at any time, at the government’s option. Significant reductions in the level of governmental funding,
government shutdown or specifically mandated levels for different programs that are important to our business could have a material adverse
impact on our business, financial position, results of operations, liquidity and cash flows.

Results
of Operations

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

Summary
- Years Ended December 31, 2025 and 2024

Below
are the results of continuing operations for years ended December 31, 2025, and 2024 (amounts in thousands):

Revenue

Consolidated
revenues increased $2,557,000 for the year ended December 31, 2025, compared to the year ended December 31, 2024, as follows:

1)
Includes waste generated by government clients of $2,269,000 and $2,898,000 for the twelve months ended December 31, 2025, and 2024,
respectively.

Treatment
Segment revenue increased by $10,144,000 or 29.0% for the twelve-months ended December 31, 2025, over the same period in 2024. The overall
increase in revenue in the Treatment Segment revenue was primarily due to higher waste volume and higher averaged price waste mix. Our
Treatment Segment revenue was also positively impacted by our international initiatives, which generated an increase in revenue of approximately
$3,832,000 or 201.7%, to $5,732,000, as compared to $1,900,000, for the same period of last year. Services Segment revenue decreased
by approximately $7,587,000 or 31.4%. The decrease in revenue in the Services Segment was due to reasons as discussed in the “Overview”
section. Additionally, our Services Segment revenues are project based; as such, the scope, duration, and completion of each project
vary.

Cost
of Goods Sold

Cost
of goods sold decreased $3,414,000 for the year ended December 31, 2025, as compared to the year ended December 31, 2024, as follows:

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