David Waldman - Crescendo Communications Lou Centofanti - Chairman & CEO Ben Naccarato - CFO.

Al Kaschalk - Wedbush Securities Doug Dyer - Heartland Advisors Bill Nasgovitz - Heartland Funds Robert Manning - Private Investor Charles Dickenson - Private Investor.

Greetings, and welcome to the Perma-Fix Environmental Services Second Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like the turn the conference over to your host today, David Waldman with Crescendo Communications. Thank you, sir. You may begin..

Thank you. Good morning, everyone, and welcome to Perma-Fix Environmental Services second quarter conference call. On the call with us this morning are Dr. Lou Centofanti, Chairman and CEO; and Ben Naccarato, Chief Financial Officer.

The company issued a press release this morning containing second quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1021.

I'd also like to remind everyone that certain statements contained within this conference call may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements on this conference call, other than the statements 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.

These risks and uncertainties are detailed in the company's filings with the U.S. Securities and Exchange Commission. The company makes no commitment to disclose any revisions to forward-looking statements or any facts, events or circumstances after the date hereof that bear upon forward-looking statements. I'd now like to turn the call over to Dr.

Lou Centofanti. Please go ahead, Lou..

Thank you, David. As we forecasted last quarter conference call we saw modest improvement in the second quarter. Our results would have gone stronger, however, were affected by timing at several large shipments we expected before the end of June which then arrived first two weeks of July.

As we said many times and as you all know, our treatment business is lumpy. But late shipments arrived in the third quarter and will result in a very significant increase in revenue and profitability in the third quarter.

In addition to that things are steadily improving as we head into the second half of the year with September being government's year-end. So their strong motivation you get things done this quarter. For the next six months we have very good visibility and should have good backlog heading into the fourth quarter as well.

We attribute this improvement to several factors. First, government contracts are finally being awarded on the service side of the business. And also pent up the man with -- in DOE on the way to treatment side. The DOE is beginning to ship now that there is greatest certainly as related to the DOE budget.

And lastly, we have been successfully expanding our commercial and international business. First turning to the Service segment, we are now receiving notifications on contract awards that were previously delay. We have been awarded several contracts that we have not been able to announce.

We were also awarded a recent commercial contract valued up to $8 million to perform environmental remediation at a site in New Jersey. This large commercial contract is further evident of our strategy to diversify revenue is beginning to pay off.

We are actively bidding on a number of sizable projects both domestically and internationally and look forward announcing these contracts in the near future. On the Waste Treatment side, we are seeing not only greater volumes of waste coming into the facility but also an improvement in the mix of the waste.

As a result, we're beginning to rebuild our waste backlog. And in the mean time we have taken significant steps in '13 and the first half of the '14 to streamline the organization and lower our fixed cost threshold. As a result, we believe that we are well-positioned to the benefit from incremental improvement in revenue.

Those of you that followed us for a while know that key to our success on the treatment side is improving the throughput of our facilities. Once we exceed the fixed cost threshold we have a historically very high incremental margin. Lastly, we are continuing to make significant progress on advancing our new process for production of Tc-99m.

As we discuss the last call, we fully validated the technology through tests at POLATOM in Warsaw and the University in Missouri reactor in the U.S. We are also pleased to announce we raised $2 million to invest in Perma-Fix medical on the NewConnect market at the Warsaw exchange.

Given the success of our test with Paul Adam and with strong interest European investors and the desire of the European countries to find a way to lower the cost of tc-99 production, we felt that the Warsaw exchange was a good fit for Perma-Fix Medical at this stage.

At some point of future we plan up with Medical to the main board of the Warsaw exchange. We appreciate the strong support from the European investors that have participated in the transaction including our lead investor a multi-billion dollar mutual fund in Central Europe.

With this funding in hand and commitments for additional funding we look forward to accelerating our plans to commercialize this technology. By separating our medical business we have minimized dilution and added resources that will help us maximize value for shareholders.

For those of you interested in following Perma-Fix Medical on the Warsaw exchange, the ticker symbol is PFM and is currently trading at a $30 million market cap. In addition, we witnessed growing interest in our technology from within the industry and we are in active discussion to establish strategic partnerships.

We are excited about the new process which we believe has the potential to reshape the entire supply chain for these isotopes in Europe, North America and around the world. We believe our process can meet global market needs of Tc-99m without using uranium.

Our process will also help reduce environmental concerns with the current production method including issues around reprocessing the material and production of high level waste requiring permanent disposal.

More importantly, the process is less expensive and can be performed in most standard research reactors which should help solve concerns regarding global shortages of Tc-99 at a reasonable cost. So as to wrap up we're encouraged by the outlook for the second half of '14.

Our service pipeline continues to improve and DOE has slowly begun awarding contracts. On the treatment side we remain focused on expanding into higher activity waste, more compact waste, commercial waste and international waste. And our backlog is steadily improving.

We continue to diversify revenue streams and cut significant operating expenses out of the business. As a result, we believe we're well-positioned for the second half of '14. At this point, I like to turn the call over to Mr.

Ben who will go into more details on the members and I'll get back to answers questions at the conclusion of the formal remarks..

Thank you, Lou. Beginning with revenue, out total revenue from continuing operations for first quarter was $12.7 million compared to last year's second quarter of $22.8 million, a decrease of $10.1 million or 44%. The largest impact of this decrease in revenue came from our services segment where our total revenue fell by $9.4 million.

The completion of the Hanford contract in September of 2013 accounted for $5.7 million of this drop and the remainder was due to the lack of new projects to replace the completed projects from last year.

Our revenue from the treatment segment decreased $712,000 or 7% as our waste received in the quarter were lower than prior year due to, as Lou mentioned, the timing of shipments.

For the six months ended June 30, our revenue was down $19.4 million, again $11.3 million of this amount was due to the Hanford contact expiring while the timing of the waste received in the treatment segment and also the lack of new projects on the services side accounted for the remaining of the revenue drop.

On the cost of goods sold side, the costs were $11.1 million compared to $18.8 million in the prior year. Our treatment segment cost of sales was $275,000 or 3.5% compared to prior year. Fixed cost at the treatment segment was consistent with prior year while variable expenses were up slightly due to wage mix.

Cost of sales on the services segment was down $7.9 million; the Hanford portion of that was approximately of $4.6 million while the remainder was due to lower variable and fixed costs associated with this project revenue. Our gross profit for the quarter was $1.6 million compared to $4 million in 2013, a reduction of $2.6 million or 61%.

Our gross profit in the treatment segment was down $987,000 compared to prior year. Lower revenue and lower margin waste stream contributed to this decrease. On the service side, gross profit was below prior year by $1.5 million; the Hanford portion of that was $974,000, and again lower project revenue contributed to the remainder of the drop.

Our gross profit for six months ended June 30 was down $2.9 million. $2.2 million of this again coming from the Hanford contract while treatment segment gross profit was down approximately $700,000. On the G&A side, our costs were $3.0 million, down from $3.4 million last year.

Lower labor expenses and primarily from the Hanford contract contributed to the reduction. For six months ended our G &A was down $1.4 million which is a result of our cost cutting initiatives. Our loss from continuing operations before taxes for the quarter was $2.3 million compared to $1.1 million last year.

Income applicable to common shareholders was a positive 11,000 compared to last year’s net loss of $876,000. The income was the result of gain on our insurance settlement of $3.5 million. This gain was the result of a settlement reached with our property insurer in our Georgia property.

Our total income per share for the quarter was zero compared to a loss per share of $0.08 last year. Our adjusted EBITDA from continuing operations was a loss of $609,000 compared to an income of $1.9 million last year.

Turning to the balance sheet, our cash was down $297,000 as we were in a net borrowing position on our revolver at the end of the quarter.

Our receivables increased approximately $2 million total receivables due to general timing of collection, our cash spending was $333,000, our waste backlog was $6.1 million which was down approximately $1.6 million from prior year end. Our total debt was $14.5 million, P&C making up $11.5 million of that debt.

And our working capital deficit stood at $3.7 million at quarter end.

Our cash flow side, for the first six months of the year, our cash used in continuing operations was $4.3 million; cash used by discontinued ops was $1.5 million; cash used for investing was $350,000; cash provided from investing in discontinued ops was $5.7 million; and cash received from financing was $137,000.

I'll now turn the call over to questions..

Thank you all for participating in second quarter conference call. As I mentioned earlier, we are very encouraged by the outlook. Things are beginning to turn around in the second half as we are seeing long delayed contracts being awarded; our backlog is improving. We're seeing significant growth opportunities ahead on the treatment side.

We've had a -- I'd also add in July, we had a very dramatic turnaround on our balance sheet from the existing business. And we remain very excited about our new process to produce Tc-99m. Thank you all and look forward with the discussion..

(Operator Instructions). Our first question comes from the line of Al Kaschalk with Wedbush Securities. Please proceed with your question..

I want to start first on the service side. You've had a couple of new announcements or new contract wins.

How do we view the $3.2 million or $3.3 million in Q2 in terms of the baseline of the business? And how do these contracts then reflected in that number as we look out over the next 12 months?.

I want to start first on the service side. You've had a couple of new announcements or new contract wins.

How do we view the $3.2 million or $3.3 million in Q2 in terms of the baseline of the business? And how do these contracts then reflected in that number as we look out over the next 12 months?.

I think you can look at that as kind of the baseline, if you will, that’s a good term for it. It's kind of the lower kind of continuation projects that we've had and what you've seen announced more recently is incremental to that..

Okay. And then further on the quarter had a $1 million loss on the operating side.

I don't know if there is some one-time items in there if you could adjust that, but how is the profitability expectations of these new contracts in terms of what they expect to contribute to the operating income?.

Okay. And then further on the quarter had a $1 million loss on the operating side.

I don't know if there is some one-time items in there if you could adjust that, but how is the profitability expectations of these new contracts in terms of what they expect to contribute to the operating income?.

Yes. There is about $380,000 impact from goodwill in that number I guess from the SYA deal. After that, the projects all should bring in pretty much what we talked about 10% to 15% on the growth side. So with the projects kicking in in the third and fourth quarter, we expect that segment to start becoming profitable.

Now it needs a little more revenue to really start adding to the bottom significantly, but the makeup this shortfall, as you know, we have gotten a certain fixed threshold again on the service side from an administrative standpoint and bidding and proposal side of things.

But I think you can take the $380,000 from goodwill out and then try to work up incrementally using 15% to 18% gross profit..

Lou, can you talk strategically about why they sale of the engineering firm now, has that been in the works? And what does it do for shareholders other than maybe get you a little more focused on some of the segments?.

Lou, can you talk strategically about why they sale of the engineering firm now, has that been in the works? And what does it do for shareholders other than maybe get you a little more focused on some of the segments?.

Yes, the main that was already seen as we've tried to bring it into nuclear over time and it always remained very focused on the cement industry, and we received a pretty good offer at that point and thought it was appropriate to move ahead with divesting it..

So collectively, we've had a lot of ins and outs here on the cash side since the June quarter end, right? Can you or Ben maybe walk us through where we stand maybe to-date on that so and that proceeds from the sale and the insurance proceeds I believe?.

So collectively, we've had a lot of ins and outs here on the cash side since the June quarter end, right? Can you or Ben maybe walk us through where we stand maybe to-date on that so and that proceeds from the sale and the insurance proceeds I believe?.

Yes. We have very strong balance sheet right now. I'll let Ben talk about that. .

Yes, our availability at quarter end was pretty flat or consistent with first quarter about $3.3 million. What the settlement of the Georgia provided was a pretty dramatic reduction in our revolver.

As you said, I mentioned on the cash flow side, our receivables were little inflated because of the timing and we had seen that correct itself in the third quarter. And then of course there is the cash from the acquisition -- or the divestiture. So I think where you are heading is our liquidity position is much improved today.

I won't give you direct numbers but it's quite worth more than twice of the amount in availability and we don't have a revolver at this time..

Is there plan to pay down that or are you going to run with the $14 million?.

Is there plan to pay down that or are you going to run with the $14 million?.

Well, we will say down that only as scheduled. Most of our debt right now is our revolver, our term loan and the one in shareholder note which is a two years scheduled payment. So we won't accelerate in any way, but I think the focus is to maintain debt payments.

And as we've talked about cash flow can be kind of inconsistent and because of the way projects are structured. So we anticipate a much improved position for the rest of this year..

Okay. And then finally you're setting yourself again for a positive build backlog and a strong second half. But could you help us maybe bracket what that means? Backlog I think was down since the year end $6.1 million..

Okay. And then finally you're setting yourself again for a positive build backlog and a strong second half. But could you help us maybe bracket what that means? Backlog I think was down since the year end $6.1 million..

Yes, and $6.1 million has been where it's been plus or minus $1 million for the past probably six to nine months. We see a going into the fourth quarter in the $10 million to $11 million range which is always kind of when we've got most of a quarter in backlog that usually bodes well.

When the numbers down in the $5 million or $6 million then we are really depending on the shipments that come in that quarter and that impacts the result. So we think that number is going to start pushing north of 10 and that bodes well for fourth quarter..

But maybe on the third quarter here, a building backlog doesn't convert to revenue necessarily, maybe in the future it does, but are we trending towards north of $10 million on the revenue side for treatment?.

But maybe on the third quarter here, a building backlog doesn't convert to revenue necessarily, maybe in the future it does, but are we trending towards north of $10 million on the revenue side for treatment?.

Yes..

Our next question comes from Doug Dyer with Heartland Advisors. Please proceed with your question..

(inaudible) you made reference to regulations for fracing in Pennsylvania.

Where has that gone in these last few months?.

Well, we have continued to do service work for fracing industry and for the state of Pennsylvania, and we are continuing to focus in that area and as part of our technical service. So that is continuing and we've added some smaller contracts to that area.

So we continue to see a opportunity there which is immediate on the service side, immediate on the regulatory side where the clients there that are the frackers and the regulators..

It seems like it's a very large market. What else can you do to kind of move this along into other states? Pennsylvania has got some activity but certainly there is more activity elsewhere.

What are we doing to get into some new geographies?.

Yes, our greatest strength has been in the Pennsylvania and the Marcellus Shale. We have a variety of work there and our well expertise is there. And at this point we have looked at expanding in some of the other deposits such as -- at this point almost all of our work is in the Marcellus Shale regions.

And it's -- and that’s -- in one way that’s the Marcellus Shale is leading the way in terms of what's going to happen from a regulatory point of view.

So we see that as somewhat normal and a couple of the clients we have are larger oil companies that are looking then to try to extend our efforts in some of the other plays but right now it's pretty much focused on the Marcellus Shale because of the regulatory drives that are going on there..

(Operator Instructions). Our next question comes from Bill Nasgovitz with Heartland Funds. Please proceed with your question..

So just getting back to the first question, we've settled with an insurance company.

How much did that bring in?.

$3.8 million..

$3.8 million? And the sale of the engineering firm?.

$1.3 million..

Okay.

And just again, the revolver is how large?.

At quarter end, it was $1.3 million, today its 0..

Okay.

And the upper limit is we can borrow at (inaudible)?.

We have $12 million of capacity on it; our availability today is north of $7 million..

Okay. Lou, could you put a little color around this Polish sub now in terms of what the opportunity might be here to commercialize and look forward to accelerating our plans to commercialize the medical isotope.

So when might that occur and how much is it going to cost us?.

Well, the reason again -- the major question I get is why Poland. And I think that partly answers your question is that what we have seen in Poland we have one of our major partners at this point, POLATOM, which is a large nuclear institute with a fairly large reactor that makes generators, Tc-99 generators today using uranium.

We will continue to work very closely with POLATOM in developing our technology because of the tremendous expertise they have in building generators, selling generators and distributing generators, and also because of the base assets that are there.

The other is European community is much more into assisting and we think we have opportunities there to grant money to assist us because when you really look at this is, we did a very small placement intentionally; we think we have, we are really going to need to get to a commercial generator probably a number say around $10 million if we continue to do it inexpensively like we have been doing.

We can accelerate that with more money and that it may cost a little more also if we try to speed it up. So as we sit today, we don't have enough capital to do the project to completion. So we are really looking at the grant market for assistance both in the U.S. but mostly in Europe.

We're also very focused on strategic partners and that's really our next goal is bringing in strategic partners that better understand this market from a medical point of view than we do. We understand the production method, we understand the chemistry and the physics involved but we would like some strategic partners helping in this.

And we think between those two we can find the money to complete the project to get it to a commercial stage. As a backup we always have the -- we have more investors in Warsaw who are very interested in coming in in the second phase if we have to do that. At this point, though, that is a second choice, not first option.

So we are, as we look ahead, and Ben can talk more about the actual numbers here, but we think we have got a very good plan for moving ahead with Europe and Poland being our main base in expanding the operations, so..

Well, Lou, we spun this off more or less, so what was this costing us in terms of what losses were we incurring in this effort previous to the spin off more less?.

About a $0.5 million a year..

Okay. Does it –.

That's a $0.5 million but we have to increase that number. So it was going to increase in terms of the next couple of phases and the amount of money we need in the research or the development work that needs to be done here in both in the next couple of stages..

So just assuming that we were blessed with $10 million worth of financing how long might this take to commercialize? Assuming grants, partner, whatever we got the money, how long would this take?.

We have some preliminary numbers, Bill, that suggests it's about pending, would be around $1 million a year for the next couple of years and that includes the grant money coming in probably early in year two.

We think profitable EBITDA in the 25% range by year three, cap spending about $0.5 million and positive cash flow in year three including equity and everything, we wouldn't be spending much of our own money in year one, may be a little bit of that money in year two. So those are some preliminary numbers and some modeling we have done.

That’s all based on certain assumption today that are evolving and moving quickly so..

Okay. Just moving back to our core business.

So our total backlog today, did I hear this right $6.1 million?.

At June 30..

Okay.

So it's up a little bit from there?.

Correct.

Yes, what happened in second quarter was our backlog will swing significantly with a couple of big shipments coming in and things that were expected in June and would have then added to the backlog came in the first two weeks of July and that's not in that number, but we anticipate about $10 million to $11 million at the end of third quarter..

Okay.

And what do we need to breakeven this core business on a quarterly basis?.

Well, normally on an annual because quarterly it's tough, but $40 million usually in the treatment side. That’s your kind of average $10 million a month.

We have seen $6 million and $6 million in the first two quarters and that’s really what cause the quarter results went in that low, but we anticipate catch up in the third and fourth to sort of balance that out..

So do you anticipate breakeven in the second half of the year?.

We anticipate positive EBITDA might be a little bit late because of the significant losses in the first two quarters, but we think we're going to start in pretty close to breakeven for the year..

So for the second half of the year we will be positive..

Yes, second half will be more than breakeven, we will be positive..

Will be positive, we are not sure of the enough to make up for the first half of the year..

Understand.

So this Hanford contract which expired, could you just tell us what the potential there is or is this - are we out of that business?.

Well, not it was a project it was a very large project it had since 2008 with CH; it was a 5 and 5 option in the five year option period CH chose to self-perform which kind of caught everybody off guard. We had anticipated this would be a 10-year contract originally and in it's specifying it was doing $40 million of revenue.

Even in the last couple of years, it was about $24 million a year with strong 16% to 20% gross margin. So it's a big reason for the big variances when comparing to prior year.

Those kind of contracts are few and far between brought from a department of energy standpoint but there is a lot of other types of projects similar but probably more competitive on the bidding side that we are pursuing to make up that revenue..

And overall headcount, where is it today versus a year ago?.

It probably in the 260 range today and it was over 500 --.

600, 700 up..

It was 600 or 700, but about 200 was in that Hanford contract..

(Operator Instructions). Our next question comes from Robert Manning, a private investor. Please proceed with your question..

From the question, I wasn't clear whether you were expecting close to positive EBITDA for the a year or positive P&L for the year..

From the question, I wasn't clear whether you were expecting close to positive EBITDA for the a year or positive P&L for the year..

For the 12-month ended December, we expect to be positive EBITDA. We are not sure we're going to make to positive net income just because of the high losses in the first quarter..

Okay.

So does that include the $3 million plus for the insurance settlement or do we expect positive EBITDA from operations?.

Okay.

So does that include the $3 million plus for the insurance settlement or do we expect positive EBITDA from operations?.

Now, that would be including the settlement..

We have a follow-up question from Bill Nasgovitz with Heartland Funds. Please proceed with your question..

Yes, Lou, could you just give us with a general broad idea what the landscape looks like in terms of potential new business? I mean is this a dog eat dog business here that is going to remain tough or do you see perhaps some of the clouds breaking here for us?.

Well, I think that the landscape has changed significantly over the last year or two. One, you had DOE really go into a shut down and you've seen a lot of companies fall by the wayside. So we've seen a changing landscape. We are very much focused.

What we saw is one way to try to get out of this dependence on DOE is really focusing on the commercial and the international. And that’s working. It's still not enough to makeup what we were doing at DOE, but we're seeing tremendous progress on several international projects and we see some real light at the end of the tunnel here on commercial.

So the landscape has changed. There has been a tremendous change in the whole business. One has been the weakness of DOE that has knocked out some competitors. And the key to this is really being the survivor.

Second is you've seen a new landfill open that has provided competition on the landfilling of waste, which we are very focused on right now and working that system. This could make some of our processes more competitive, especially in the commercial field.

We've -- and we see DOE now reaching a more steady state on generating material, which hopefully will continue into the future. And for the next -- as far as we can see, the next six months look very positive. So we're now very focused on those periods after that to make sure we don't go through quietly ups and downs we have had in the past.

So we're working the base business very hard. We still see tremendous opportunity in the nuclear business. And we're seem to be making at least some of the right decisions here in terms of the business as you could see by our numbers improving. At least full charge we can see right now.

So we're backing back a little bit of our optimism about the business. And we see a lot of opportunities and we're working hard to keep our structure and our cost in line so that any improvement will immediately show some impact overall on the bottom-line. And I think you'll see that over the next six months as we move forward here.

So feeling a lot better, just don't want to let up because I think there will be continued change in this business over the next six months to a year and work hard to position ourselves for that change..

Well, I think that the landscape has changed significantly over the last year or two. One, you had DOE really go into a shut down and you've seen a lot of companies fall by the wayside. So we've seen a changing landscape. We are very much focused.

What we saw is one way to try to get out of this dependence on DOE is really focusing on the commercial and the international. And that’s working. It's still not enough to makeup what we were doing at DOE, but we're seeing tremendous progress on several international projects and we see some real light at the end of the tunnel here on commercial.

So the landscape has changed. There has been a tremendous change in the whole business. One has been the weakness of DOE that has knocked out some competitors. And the key to this is really being the survivor.

Second is you've seen a new landfill open that has provided competition on the landfilling of waste, which we are very focused on right now and working that system. This could make some of our processes more competitive, especially in the commercial field.

We've -- and we see DOE now reaching a more steady state on generating material, which hopefully will continue into the future. And for the next -- as far as we can see, the next six months look very positive. So we're now very focused on those periods after that to make sure we don't go through quietly ups and downs we have had in the past.

So we're working the base business very hard. We still see tremendous opportunity in the nuclear business. And we're seem to be making at least some of the right decisions here in terms of the business as you could see by our numbers improving. At least full charge we can see right now.

So we're backing back a little bit of our optimism about the business. And we see a lot of opportunities and we're working hard to keep our structure and our cost in line so that any improvement will immediately show some impact overall on the bottom-line. And I think you'll see that over the next six months as we move forward here.

So feeling a lot better, just don't want to let up because I think there will be continued change in this business over the next six months to a year and work hard to position ourselves for that change..

Our next question is a follow-up question from Al Kaschalk with Wedbush Securities. Please proceed with your question..

Lou, could you elaborate on more specifically on the commercial and international side? What -- I know Canada has always been referenced in the international, but specifically on commercial, what's driving your success there? And what's the market opportunity? Where are you focusing?.

Well, as a tremendous -- the world is, nuclear is growing dramatically in the world. And we see an opportunity there and we see a lot of legacy projects that have not the legacy waste where our technologies or our services can be of great help. We are very focused on Canada as a market. I have said many times.

We're also very focused on variety of waste generation projects mostly in Europe. And I really don’t like to elaborate on that. But where we see both service and waste in Europe that needs a home or need process to be able to treat it, and over the last two years we've been very focused on expanding our business in those areas.

In Europe, on project basis were going to work on service side and Canada on an actual market basis in playing a bigger role. So we think with the technologies we have with the services side being very focused on technical services and health physics, we have a lot of offer in throughout the industry right now.

And it's working but this is a industry where things don’t happen fast. The clients, the customers want to make sure you know what you're doing and you think we have such a good resume they right away recognize that but it still takes time to go through the process and the approval so.

I don’t know if that quite answers to your questions but that’s we are very focused in those areas. I don’t like to elaborate on our basic strategy here in terms of how we're doing and where we're going..

Understand.

Could you comment on the nature of the what your customers are looking for? In other words, are you having the go through more prime contractors now and subcontracted the work or you see more direct proposal opportunities where you can convert based on your own merits?.

Well, this industry always had partnerships and in it all we see that way. These projects are so large and complex. And so we have all the above.

We have a small business we are leaving a variety of projects at the small business that we're going after and at the same time we where variant goals with primes larger engineering firms that are going after large projects and we're teamed with them. So it's really all the above.

It's very hard to say anything other than we see using our technical expertise technical services and health physics that we acquired and the tremendous expertise we have in treading waste. Those are two major drivers. And those are valuable to primes and also we go by our selves.

If it is a large project we don’t have project management experience to manage real large projects. When we get above $50 million we must bring in a larger firm that has project management controls and ops experience to satisfy clients and also do a better job..

Another way to get out at them maybe is to think what other firms are provided let us call it a base and event mix of revenue. Is that a helpful metric for us to understand or is it not relevant to the point of --.

It is very complicated because, like I said, we do all the above. So it’s hard to give you a set number or a set way we do it. We do all the above. We prime on significant contract and especially when we bid a small business which gives us a tremendous advantage or we deal with larger firms when there are open competitions..

If you're not willing to share maybe specifics are able to share directionally what has become more prominent here recently or you expect to become more prominent?.

I think we got some very unique opportunities right now that is very difficult to share the details openly..

Our next question comes from Charles Dickenson, a private investor. Please proceed with your question.

Good morning. So it looks like descent better than descent visibility for the next six months. I guess you could advance an argument that you mentioned maybe a year out of you're looking at late 2015 or at least the end of the government's fiscal spending year end again next year in the September quarter so you may probably get another prop in.

And my concern it comes with how you can manage a business over a longer time frame and I'm concerned about 2016.

And I know probably no body is looking at that but the last time you were ran into a brick wall here was because of sequestration, it was because of what was going on politically, you had a change in congress, a change over in energy secretary, all of that is going to do a rear its head again in 2016 with a new presidential election, a new administration coming in, a new congress, probably a new energy secretary, and if you want to ahead another element there sequestration could potentially rear its head because my understanding is that that’s basically then set aside for couple of years here.

That’s what producing the government spending to work out into late next year but that could beyond the table with all these other variables. So how do you position for that? You've lowered your cost structure.

If business gets better you probably have to hire some more people down the road, but you really don’t want to be in the same situation having gone through this one where to end up with a big land mine here in terms of political side of the business what happens with DOE and congress?.

I think you are right on. And we realized that. Our whole approach here is one attempt to reduce our dependency on the department of energy. It will never go away; it will never be a small part of our business. They generate a base load of waste that it is significant that under the regulation we have a certain amount of time we have to get rid of this.

But we want it to be much smaller piece of our basis. So very focused on commercial very focused on international and also looking for one and add here a comment is we're continuing to work very hard at trying to reinvent how we treat waste in terms of our cost structure.

We've make tremendous progress in reducing our breakeven, but we would like to even do that -- continue to do that even further. So continue to look at our cause structure and how we treat ways continuing to reduce that cause and then diversify the revenue streams and those are the primary areas we're focused on. Go ahead..

I was going to say if you have decent visibility going forward here I would think that you want to husband a fair amount of cash and working capitol just in an anticipation what might happen in 2016 you mentioned you had no intention of accelerating the debt pay down, that doesn’t mean that you can't still continue to raise cash to the best of your ability and be in a situation where you just not having to move around the whole debt issue and renegotiate covenants and get waivers and all about that.

You don’t want be in the same situation in 2016. Admittedly with only about $14 million $15 million of long term debt you're not in the same situation as some of these folks who got hundreds of millions of dollars of debt and that some didn’t make it as you know.

But getting either if you are not going to pay that debt, economically diffusing it by having not enough cash on hand and basically offset would be a great comfort level for us investors..

And for ourselves. I don’t disagree at all. We are very focused on cash, very focused on trying to keep our back log on significant side so during a slow quarter it will feed the facilities and not get us to the point of major loss. So it is one of our top priorities especially in the intermediate term.

We have you might say a little bit of a breathing room now with the way business is going in that we've got to prepare to make sure we don’t go through this again..

Our next question is from Doug Dyer follow-up question from Heartland Advisors. Please proceed with your question..

Yes, maybe if I could I realized that you had some revenue forced out of the second quarter into the third but looking at the second half of the year, how much of your business would be coming for the new sources in commercial and international that you dint have a year ago?.

Well, they have been fairly steady for the year. So the good thing that we have seen is that it has been steady.

We've seen a change in commercial market that are commercial clients the-- we've seen a change but we think that is very good because we're on the commercial side we're moving towards some commercial work that we think would be a lot steadier over time, where our present commercial work was a little more project oriented.

And so we're continuing to push the commercial side. I can't really, as I said today, break it down but I could probably the future try to give a little better read on that. And the problem is like you say is that we were initially successful in commercial with projects.

And you saw that with this announcement of large projects we won, an $8 million in New Jersey was a project, and that’s going to get us through six to eight months with a pretty good project there. But the other thing we're seeing is we're switching more to some business line there that will help us grow the commercial side.

So, I can't give you the real numbers at this point to feel comfortable. We have them, but I don’t have it in my fingertips here..

At this time, I would like to turn the call back over to the management for closing comments..

Well, thank you. We appreciate all your support and interest. We think over the next six months we should have some nicer things to report to you and we appreciate your patience and look forward to the next call. Thank you all..

This concludes today’s teleconference. You may disconnect your lines at this time and have a great day..