UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10 - Q

 

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________________

 

000-54987

(Commission File Number)

 

Strategic Environmental & Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 02-0565834
  (State or other jurisdiction of incorporation) (IRS Employer Identification Number)

 

370 Interlocken Blvd, Suite 680, Broomfield, CO 80021

(Address of principal executive offices including zip code)

 

303-277-1625

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A

  

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted 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 ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “small reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer                    ☐ Emerging growth company         ☐
     
Non-accelerated filer   ☐ Smaller reporting company   ☒  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

As of August 14, 2019, the Registrant had 61,003,575 shares outstanding of its $.001 par value common stock.

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 3
     
  Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited) 4
     
  Condensed Consolidated Statement of Changes in Stockholders’ Deficit as of June 30, 2019 and 2018 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited) 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
     
Item 4. Controls and Procedures 30
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 31
     
Item 1A. Risk Factors 31
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
     
Item 3. Defaults Upon Senior Securities 31
     
Item 4. Mine Safety Disclosures 31
     
Item 5. Other Information 31
     
Item 6. Exhibits 32
     
SIGNATURES 33

 

2

 

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30     December 31,  
    2019     2018  
    (Unaudited)      *  
ASSETS            
Current Assets                
Cash and cash equivalents   $ 107,000     $ 115,700  
Accounts receivable, net of allowance for doubtful accounts of $227,500 and $227,500, respectively     513,500       1,063,500  
Notes receivable, net     —       310,700  
Costs and estimated earnings in excess of billings on uncompleted contracts     92,300       314,300  
Prepaid expenses and other current assets     632,700       365,200  
Total Current Assets     1,345,500       2,169,400  
                 
Property and Equipment, net     722,400       831,900  
Intangible Assets, net     496,400       516,800  
Notes receivable, net of current portion     —       232,200  
Other Assets     453,200       29,800  
                 
TOTAL ASSETS   $ 3,017,500     $ 3,780,100  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current Liabilities                
Accounts payable   $ 1,651,900     $ 1,772,400  
Accrued liabilities     1,483,600       1,446,500  
Billings in excess of costs and estimated earnings on uncompleted contracts     231,200       470,200  
Deferred revenue     32,900       191,500  
Payroll taxes payable     1,039,000       1,022,500  
Customer deposits     10,900       1,600  
Short term notes     1,188,200       823,100  
Convertible notes     1,605,000       1,603,600  
Current portion of long term debt and capital lease obligations     250,700       179,200  
Accrued interest - related party     11,800       11,800  
Total Current Liabilities     7,505,200       7,522,400  
                 
Deferred revenue, non-current     46,700       63,200  
Other non-current liabilities     386,500       —  
Long term debt and capital lease obligations, net of current portion     328,900       432,800  
Total Liabilities     8,267,300       8,018,400  
                 
Commitments and contingencies     —       —  
                 
Stockholders’ deficit                
Preferred stock; $.001 par value; 5,000,000 shares authorized; -0- shares issued     —       —  
Common stock; $.001 par value; 70,000,000 shares authorized; 61,903,575 and 61,703,575 shares issued, issuable** and outstanding June 30, 2019 and December 31, 2018, respectively     62,000       61,700  
Common stock issuable     25,000       25,000  
Additional paid-in capital     22,559,800       22,531,000  
Stock Subscription receivable     (25,000 )     (25,000 )
Adoption of ASU 2016-02, Leases (Topic 842)     (20,800 )     —  
Accumulated deficit     (25,907,900 )     (24,405,500 )
Total stockholders’ deficit     (3,306,900 )     (1,812,800 )
Non-controlling interest     (1,942,900 )     (2,425,500 )
Total equity     (5,249,800 )     (4,238,300 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 3,017,500     $ 3,780,100  

 

See accompanying notes.

 

* These numbers were derived from the audited financial statements for the year ended December 31, 2018. See accompanying notes.

**Includes 100,000 and 3,200,000 shares issuable at June 30, 2019 and December 31, 2018, respectively, per terms of note agreements.

 

3

 

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    For the Three Months Ended
June 30, 		    For the Six Months Ended
June 30, 		 
    2019     2018     2019     2018  
Revenue:   (Unaudited)     (Unaudited)  
Products   $ 890,600     $ 1,543,700     $ 1,980,700     $ 2,419,200  
Services     505,200       796,800       725,400       1,720,000  
Solid waste     65,300       88,000       147,400       185,400  
Total revenue     1,461,100       2,428,500       2,853,500       4,324,600  
                                 
Operating expenses:                                
Products costs     565,600       953,000       1,211,900       1,467,800  
Services costs     753,100       802,000       1,155,400       1,593,100  
Solid waste costs     10,000       8,700       36,700       25,700  
General and administrative expenses     565,500       648,900       1,082,600       1,143,400  
Salaries and related expenses     439,400       502,700       850,700       995,400  
Total operating expenses     2,333,600       2,915,300       4,337,300       5,225,400  
                                 
Loss from operations     (872,500 )     (486,800 )     (1,483,800 )     (900,800 )
                                 
Other income (expense):                                
Interest income     —       11,800       9,800       21,700  
Interest expense     (112,400 )     (613,800 )     (262,200 )     (979,600 )
Other     (6,000 )     16,700       166,400       39,300  
Total non-operating expense, net     (118,400 )     (585,300 )     (86,000 )     (918,600 )
                                 
Loss from continuing operations     (990,900 )     (1,072,100 )     (1,569,800 )     (1,819,400 )
                                 
Gain on sale of rail operations     —       41,000       —       41,000  
Discontinued operations, net of tax     —       41,000       —       41,000  
                                 
Less:  Net loss attributable to non-controlling interest     (39,100 )     (4,200 )     (67,400 )     (20,800 )
    $ (951,800 )   $ (1,026,900 )   $ (1,502,400 )   $ (1,757,600 )
Net loss attributable to SEER common stockholders                                
                                 
Net loss from continuing operations   $ (0.02 )   $ (0.02 )   $ (0.03 )   $ (0.03 )
Discontinued operations     —       —       —       —  
Net loss per share, basic and diluted   $ (0.02 )   $ (0.02 )   $ (0.03 )   $ (0.03 )
                                 
Weighted average shares outstanding – basic and diluted     61,970,059       58,362,476       61,903,851       57,553,741  

 

See accompanying notes.

 

4

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

 

                            Additional     Common     Stock                 Total  
    Preferred Stock     Common Stock     Paid-in     Stock     Subscription     Accumulated     Non-controller     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Subscribed     Receivable     Deficit     Interest     Deficit  
Balances at December 31, 2018     —     $ —       61,703,600     $ 61,700     $ 22,531,000     $ 25,000     $ (25,000 )   $ (24,405,500 )   $ (2,425,500 )   $ (4,238,300 )
                                                                                 
Issuance of common stock upon debt penalty     —       —       200,000       200       18,800       —       —       —       —       19,000  
                                                                                 
Stock-based compensation     —       —       —       —       600       —       —       —       —       600  
                                                                                 
Adoption of ASU 2016-02, Leases (Topic 842)     —       —       —       —       —       —       —       (20,800 )     —       (20,800 )
                                                                                 
Investment in subsidiary     —       —       —       —       —       —       —       —       550,000       550,000  
                                                                                 
Net loss     —       —       —       —       —       —       —       (550,600 )     (28,300 )     (578,900 )
                                                                                 
Balances at March 31, 2019     —       —       61,903,600       61,900       22,550,400       25,000       (25,000 )     (24,976,900 )     (1,903,800 )     (4,268,400 )
                                                                                 
Issuance of common stock upon debt penalty     —       —       100,000       100       9,100       —       —       —       —       9,200  
                                                                                 
Stock-based compensation     —       —       —       —       400       —       —       —       —       400  
                                                                                 
Net loss     —       —       —       —       —       —       —       (951,800 )     (39,100 )     (990,900 )
                                                                                 
Balances at June 30, 2019     —     $ —       62,003,600     $ 62,000     $ 22,559,900     $ 25,000     $ (25,000 )   $ (25,928,700 )   $ (1,942,900 )   $ (5,249,700 )

 

                            Additional     Common     Stock                 Total  
    Preferred Stock     Common Stock     Paid-in     Stock     Subscription     Accumulated     Non-controller     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Subscribed     Receivable     Deficit     Interest     Deficit  
Balances at December 31, 2017     —     $ —       56,528,600     $ 56,500     $ 20,790,700     $ 25,000     $ (25,000 )   $ (21,471,900 )   $ (2,715,200 )   $ (3,339,900 )
                                                                                 
Issuance of common stock upon debt penalty     —       —       570,000       600       263,300       —       —       —       —       263,900  
                                                                                 
Stock-based compensation     —       —       —       —       35,500       —       —       —       —       35,500  
                                                                                 
Sale of common stock     —       —       250,000       200       119,800       —       —       —       —       120,000  
                                                                                 
Net loss     —       —       —       —       —       —       —       (730,700 )     (16,600 )     (747,300 )
                                                                                 
Balances at March 31, 2018     —       —       57,348,600       57,300       21,209,300       25,000       (25,000 )     (22,202,600 )     (2,731,800 )     (3,667,800 )
                                                                                 
Issuance of common stock upon debt penalty     —       —       1,440,000       1,400       517,000       —       —       —       —       518,400  
                                                                                 
Stock-based compensation     —       —       —       —       35,500       —       —       —       —       35,500  
                                                                                 
Issuance of common stock for services     —       —       75,000       100       57,900       —       —       —       —       58,000  
                                                                                 
Net loss     —       —       —       —       —       —       —       (1,026,900 )     (4,200 )     (1,031,100 )
                                                                                 
Balances at June 30, 2018     —     $ —       58,863,600     $ 58,800     $ 21,819,700     $ 25,000     $ (25,000 )   $ (23,229,500 )   $ (2,736,000 )   $ (4,087,000 )

 

See accompanying notes.

 

5

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

    For the Six Months Ended
June 30, 		 
    2019     2018  
Cash flows from operating activities:        
Net loss   $ (1,569,800 )   $ (1,778,400 )
Income from discontinued operations     —       41,000  
Net loss from continuing operations     (1,569,800 )     (1,819,400 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     194,400       281,800  
Stock-based compensation expense     900       59,500  
Note receivable discount     (9,900 )     —  
Stock issued for services     —       71,000  
Non-cash expense for interest, common stock issued for debt penalty     —       780,800  
Amortization of note discount     —       (19,800 )
Non-cash expense for interest, warrants – accretion of debt discount     8,300       4,000  
Non-cash expense for interest     29,300       —  
Changes in operating assets and liabilities:                
Accounts receivable     550,000       (570,200 )
Costs in Excess of billings on uncompleted contracts     222,000       —  
Prepaid expenses and other assets     (135,400 )     170,700  
Accounts payable and accrued liabilities     90,300       610,200  
Revenue contract liabilities     (239,000 )     322,800  
Deferred revenue     (175,100 )     (212,400 )
Payroll taxes payable     16,500       24,200  
Net cash used by operating activities     (1,017,500 )     (296,800 )
Cash flows from investing activities:                
Purchase of property and equipment     (64,500 )     —  
Proceeds (purchase) of intangibles     —       (100 )
Proceeds from outside minority investment in new subsidiary     226,000       —  
Proceeds from notes receivable     552,800       224,000  
Net cash provided by investing activities     714,300       223,900  
Cash flows from financing activities:                
Payments of notes and capital lease obligations     (205,500 )     (273,600 )
Proceeds from short-term notes     500,000       350,000  
Proceeds from the sale of common stock and warrants, net of expenses     —       120,000  
Net cash provided by financing activities     294,500       196,400  
Net cash flows from discontinued operations     —       41,000  
Net (decrease) increase in cash     (8,700 )     164,500  
Cash at the beginning of period     115,700       54,100  
Cash at the end of period   $ 107,000     $ 218,600  
                 
Supplemental disclosures of cash flow information:                
Cash paid for interest   $ 109,900     $ 41,900  
Financing of prepaid insurance premiums   $ 330,200     $ 373,900  

 

See accompanying notes.

 

6

 

 

NOTE 1 – ORGANIZATION AND FINANCIAL CONDITION

 

Organization and Going Concern

 

Strategic Environmental & Energy Resources, Inc. (“SEER,” “we,” or the “Company”), a Nevada corporation, is a provider of next-generation clean-technologies, waste management innovations and related services. SEER has three wholly owned subsidiaries in continuing operations, and three majority-owned subsidiaries; all of which together provide technology solutions and services to companies primarily in the oil and gas, refining, landfill, food, beverage & agriculture and renewable fuel industries. The three wholly-owned subsidiaries include: 1) REGS, LLC (d/b/a Resource Environmental Group Services (“REGS”)) provides industrial and proprietary cleaning services to refineries, oil fields and other private and governmental entities; 2) MV, LLC (d/b/a MV Technologies) (“MV”), designs and builds biogas conditioning solutions for the production of renewable natural gas and odor control systems primarily for landfill operations, waste-water treatment facilities, oil and gas fields, refineries, municipalities and food, beverage & agriculture operations throughout the U.S.; 3) SEER Environmental Materials, LLC,(“SEM”), a materials technology company focused on development of cost-effective chemical absorbents.

 

The three majority-owned subsidiaries are; 1) Paragon Waste Solutions, LLC (“PWS”); 2) ReaCH4Biogas (“Reach”) and 3) PelleChar, LLC (“PelleChar”). PWS is currently owned 54% by SEER (see Note 7), Reach is owned 85% by SEER and PelleChar is owned 51% by SEER.

 

PWS is developing specific opportunities to deploy and commercialize patented technologies for a non-thermal plasma-assisted oxidation process that makes possible the clean and efficient destruction of solid hazardous chemical and biological waste ( i.e ., regulated medical waste, chemicals, pharmaceuticals and refinery tank waste, etc .) without landfilling or traditional incineration and without harmful emissions. Additionally, PWS’ technology “cleans” and conditions emissions and gaseous waste streams ( i.e ., volatile organic compounds and other greenhouse gases) generated from diverse sources such as refineries, oil fields, and many others.

 

Reach (the trade name for BeneFuels, LLC) focuses specifically on developing renewable biomethane projects that convert raw biogas to pipeline quality gas and/or compressed natural gas (“CNG”) for fleet vehicle fuel. Reach had no operations for the quarters ended June 30, 2019 and 2018.

 

PelleChar was formed in September 2018 and recently has secured third-party pellet manufacturing capabilities from one of the nation’s premier pellet manufacturer.  Working closely with Biochar Now, LLC, PelleChar intends to commence sales in 2019 of its proprietary pellets containing the proven and superior Biochar Now product starting with the landscaping and big agriculture markets.  At this time, PelleChar is the only company able to offer a soil amendment pellet containing the Biochar Now product that is produced using the patented pyrolytic process. For the quarter ended June 30, 2019 PelleChar had minimal activity related to formation.

 

Principals of Consolidation

 

The accompanying consolidated financial statements include the accounts of SEER, its wholly owned subsidiaries, REGS, MV and SEM and its majority-owned subsidiaries PWS, Reach and PelleChar, since their respective acquisition or formation dates. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The Company has non-controlling interest in joint ventures, which are reported on the equity method.

 

Going Concern

 

As shown in the accompanying condensed consolidated financial statements, the Company has experienced recurring losses, and has accumulated a deficit of approximately $25.9 million as of June 30, 2019, and $24.4 million as of December 31, 2018. For the six months ended June 30, 2019 and 2018 we had net losses from continuing operations before adjustment for losses attributable to non-controlling interest of approximately $1.6 million and $1.8 million, respectively. As of June 30, 2019, and December 31, 2018 our current liabilities exceed our current assets by approximately $6.2 million and $5.4 million, respectively. The primary reason for the increase in negative working capital from December 31, 2018 to June 30, 2019 is due to a net increase in short term debt of approximately $0.4 million, and losses from operations. The Company has limited common shares available for issue which may limit the ability to raise capital or settle debt through issuance of shares. These factors raise substantial doubt about the ability of the Company to continue to operate as a going concern for a period of at least one year after the date of the issuance of our audited financial statements for the period ended December 31, 2018.

 

7

 

 

Realization of a major portion of our assets as of December 31, 2018, is dependent upon our continued operations. The Company is dependent on generating additional revenue or obtaining adequate capital to fund operating losses until it becomes profitable. In addition, we have undertaken a number of specific steps to continue to operate as a going concern. We continue to focus on developing organic growth in our operating companies, diversifying our service customer base and market concentrations and improving gross and net margins through increased attention to pricing, aggressive cost management and overhead reductions. Critical to achieving profitability will be our ability to license and or sell, permit and operate through our joint ventures and licensees our CoronaLux™ waste destruction units. We have increased our business development efforts to address opportunities identified in expanding domestic markets attributable to increased federal and state emission control regulations (particularly in the nation’s oil and gas fields) and a growing demand for energy conservation and renewable energies. In addition, the Company is evaluating various forms of financing that may be available to it. There can be no assurance that the Company will secure additional financing for working capital, increase revenues and achieve the desired result of net income and positive cash flow from operations in future years. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to report on a going concern basis.

 

Basis of presentation Unaudited Interim Financial Information

 

The accompanying interim condensed consolidated financial statements are unaudited. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position and results of operations as of and for the periods presented. The interim results are not necessarily indicative of the results to be expected for the full year or any future period .

 

Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company believes that the disclosures are adequate to make the interim information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Report on Form 10-K filed on April 16, 2019 for the years ended December 31, 2018 and 2017.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make a number of estimates and assumptions related to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of intangible assets; valuation allowances and reserves for receivables and inventory and deferred income taxes; revenue recognition related to contracts accounted for under the percentage of completion method; share-based compensation; and loss contingencies, including those related to litigation. Actual results could differ from those estimates.

 

Reclassifications

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net loss.

 

Revenue Recognition

 

In May 2014, the FASB issued guidance on revenue from contracts with customers that superseded most current revenue recognition guidance, including industry-specific guidance. The underlying principle of the guidance is to recognize revenue to depict the transfer of goods or services to customers at an amount to which the company expects to be entitled in exchange for those goods or services. The new guidance requires an evaluation of revenue arrangements with customers following a five-step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the company satisfies each performance obligation. Revenues are recognized when control of the promised services are transferred to the customers in an amount that reflects the expected consideration in exchange for those services. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the services. Other major provisions of the guidance include capitalization of certain contract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the provisions of this guidance effective January 1, 2018 as required under the guidance. The adoption of this guidance did not have any material impact on the Company’s consolidated condensed financial statements (see Note 3).

 

8

 

 

Research and Development

 

Research and development (“R&D”) costs are charged to expense as incurred. R&D expenses consist primarily of salaries, project materials, contract labor and other costs associated with ongoing product development and enhancement efforts. R&D expenses were $0 and $300 for the three months ended June 30, 2019 and 2018, respectively. R&D expenses were $0 and $600 for the six months ended June 30, 2019 and 2018, respectively.

 

Income Taxes

 

The Company accounts for income taxes pursuant to Accounting Standards Codification (“ASC”) 740, Income Taxes, which utilizes the asset and liability method of computing deferred income taxes. The objective of this method is to establish deferred tax assets and liabilities for any temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.

 

ASC 740 also provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized. During the three and six months ended June 30, 2019 and 2018 the Company recognized no adjustments for uncertain tax positions.

 

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were recognized at June 30, 2019 and December 31, 2018. The Company expects no material changes to unrecognized tax positions within the next twelve months.

 

The Company has filed federal and state tax returns through December 31, 2017. The tax periods for the years ending December 31, 2011 through 2017 are open to examination by federal and state authorities.

 

Recently issued accounting pronouncements

 

Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASU’s) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all new or revised ASU’s.

 

Leases

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under prior GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The Company adopted ASU 2016-02 in the first quarter of 2019 utilizing the modified retrospective transition method. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any existing leases as of the adoption date. The Company did not elect to apply the hindsight practical expedient when determining lease term and assessing impairment of right-to-use assets. The adoption of ASU 2016-02 on January 1, 2019 resulted in the recognition of right-of-use assets of approximately $225,300, lease liabilities of $246,100 on its Condensed Consolidated Balance Sheets and a cumulative-effect adjustment on retained earnings of $20,800 on its Condensed Consolidated Balance Sheets with no material impact to its Condensed Consolidated Statement of Operations.

 

9

 

 

NOTE 3 – REVENUE

 

The Company adopted the provisions of the guidance in the new revenue standard under ASC 606 effective January 1, 2018 applying the modified retrospective method to all contracts. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under previous revenue recognition guidance. The adoption of this guidance did not have any material impact on the Company’s consolidated condensed financial statements. There was no impact to net revenue for the year ended December 31, 2018 as a result of applying the new revenue recognition guidance.

 

Products Revenue

 

Product revenue generated from contracts with customers, for the manufacture of products for the removal and treatment of hazardous vapor and gasses. Total estimated revenue includes all of the following: (1) the basic contract price, (2) contract options, and (3) change orders. Once contract performance is underway, we may experience changes in conditions, client requirements, specifications, designs, materials and expectations regarding the period of performance. Such changes are “change orders” and may be initiated by us or by our clients. In many cases, agreement with the client as to the terms of change orders is reached prior to work commencing; however, sometimes circumstances require that work progress without obtaining client agreement. Revenue related to change orders is recognized as costs are incurred if it is probable that costs will be recovered by changing the contract price. The Company does not incur pre-contract costs. Under the new revenue recognition guidance, we found no change in the manner we recognize product revenue. Provisions for estimated losses on uncompleted contracts are recorded in the period in which the losses are identified and included as additional loss. Provisions for estimated losses on contracts are shown separately as liabilities on the balance sheet, if significant, except in circumstances in which related costs are accumulated on the balance sheet, in which case the provisions are deducted from the accumulated costs. A provision as a liability is reported as a current liability.

 

We include in current assets and current liabilities amounts related to contracts realizable and payable. Costs and estimated earnings in excess of billings on uncompleted contracts represent the excess of contract costs and profits recognized to date over billings to date and are recognized as a current asset. Revenue contract liabilities represent the excess of billings to date over the amount of contract costs and profits recognized to date and are recognized as a current liability.

 

Products revenue also includes media sales which are recognized as the product is shipped to the customer for use.

 

Services Revenue

Our services revenue is primarily comprised of services related to industrial cleaning and mobile railcar cleaning, which we recognize as services are rendered.

 

Solid Waste Revenue

The Company’s revenues from waste destruction licensing agreements are recognized as a single accounting unit over the term of the license. Revenue from joint venture operations of the Company’s CoronaLux™ units is recognized as the revenue is earned by the joint venture. Revenue from management services is recognized as services are performed.

 

10

 

 

Disaggregation of Revenue

 

    Three months ended June 30, 2019  
    Industrial Cleaning     Environmental Solutions     Solid Waste     Total  
Sources of Revenue                                
Industrial cleaning services   $ 505,200     $ —     $ —     $ 505,200  
Product sales     —       759,000       —       759,000  
Media sales     —       131,600       —       131,600  
Licensing fees     —       —       8,200       8,200  
Operating fees     —       —       7,100       7,100  
Management fees     —       —       50,000       50,000  
Total Revenue   $ 505,200     $ 890,600     $ 65,300     $ 1,461,100  

 

 

    Three months ended June 30, 2018  
    Industrial Cleaning     Environmental Solutions     Solid Waste     Total  
Sources of Revenue                                
Industrial cleaning services   $ 219,500     $ —     $ —     $ 219,500  
Mobile rail car cleaning services     577,300       —       —       577,300  
Product sales     —       716,200       —       716,200  
Media sales     —       827,500       —       827,500  
Licensing fees     —       —       33,700       33,700  
Operating fees     —       —       4,300       4,300  
Management fees     —       —       50,000       50,000  
Total Revenue   $ 796,800     $ 1,543,700     $ 88,000     $ 2,428,500  

 

 

    Six months ended June 30, 2019  
    Industrial Cleaning     Environmental Solutions     Solid Waste     Total  
Sources of Revenue                                
Industrial cleaning services   $ 727,400     $ —     $ —     $ 727,400  
Product sales     —       1,646,400       —       1,646,400  
Media sales     —       332,300       —       332,300  
Licensing fees     —       —       33,500       33,500  
Operating fees     —       —       13,900       13,900  
Management fees     —       —       100,000       100,000  
Total Revenue   $ 727,400     $ 1,979,700     $ 147,400     $ 2,853,500  

 

 

    Six months ended June 30, 2018  
    Industrial Cleaning     Environmental Solutions     Solid Waste     Total  
Sources of Revenue                                
Industrial cleaning services   $ 1,390,000     $ —     $ —     $ 1,390,000  
Product sales     —       2,888,100       —       2,888,100  
Media sales     —       663,400       —       663,400  
Licensing fees     —       —       94,300       94,300  
Management fees     —       —       49,600       49,600  
Total Revenue   $ 1,390,000     $ 3,551,500     $ 143,900     $ 5,085,400  

 

11

 

 

Contract Balances

 

Where a performance obligation has been satisfied but not yet invoiced at the reporting date, a contract asset is recognized on the balance sheet. Where a performance obligation has not yet been satisfied but an invoice has been raised at the reporting date, a contract liability is recognized on the balance sheet.

 

The opening and closing balances of the Company’s accounts receivables and contract liabilities (current and non-current) are as follows:

 

            Contract Liabilities  
    Accounts Receivable, net     Revenue Contract Liabilities      Deferred Revenue
(current) 		    Deferred Revenue 
(non-current) 		 
Balance as of June 30, 2019   $ 513,500     $ 92,300     $ 32,900     $ 46,700  
                                 
Balance as of December 31, 2018     1,063,500       470,200       191,500       63,200  
                                 
Increase (decrease)   $ (550,000 )   $ (377,900 )   $ (158,600 )   $ (16.500 )

 

The majority of the Company’s revenue is generally invoiced on a weekly or monthly basis, and the payments are generally received within approximately 30-60 days. Deferred revenue is recorded when cash payments are received or due in advance of the Company’s performance, including amounts that are refundable.

 

Remaining Performance Obligations

 

As of June 30, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligations was approximately $1,098,800, of which the Company expects to recognize revenue of approximately 99% over the next 24 months, including 96% over the next 12 months.

 

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected term of one year or less and (ii) contracts for which the Company recognizes revenue at the amounts to which it has the right to invoice for services performed.

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment was comprised of the following:

 

    June 30,
2019 		    December 31,
2018 		 
Field and shop equipment   $ 2,261,900     $ 2,272,100  
Vehicles     690,000       690,000  
Waste destruction equipment, placed in service     557,100       557,100  
Furniture and office equipment     350,900       312,400  
Leasehold improvements     46,200       10,000  
Building and improvements     21,200       21,200  
Land     162,900       162,900  
      4,090,200       4,025,700  
Less: accumulated depreciation and amortization     (3,367,800 )     (3,193,800 )
Property and equipment, net   $ 722,400     $ 831,900  

 

12

 

 

Depreciation expense for the three months ended June 30, 2019 and 2018 was $73,300 and $96,200, respectively. Depreciation expense for the six months ended June 30, 2019 and 2018 was $174,000 and $299,300, respectively. For the three months ended June 30, 2019 depreciation expense included in cost of goods sold and selling, general and administrative expenses was $53,200 and $20,100 respectively. For the three months ended June 30, 2018 depreciation expense included in cost of goods sold and selling, general and administrative expenses was $78,000 and $18,200 respectively. For the six months ended June 30, 2019 depreciation expense included in cost of goods sold and selling, general and administrative expenses was $136,600 and $37,400 respectively. For the six months ended June 30, 2018 depreciation expense included in cost of goods sold and selling, general and administrative expenses was $192,500 and $36,800 respectively.

 

Accumulated depreciation on leased CoronaLux™ units included in accumulated depreciation and amortization above is $326,300 and $298,100 as of June 30, 2019 and 2018, respectively.

 

Property and equipment included the following amounts for leases that have been capitalized at:

 

    June 30,
2019 		    December 31,
2018 		 
Vehicles, field and shop equipment   $ 407,100     $ 407,100  
Less: accumulated amortization     (326,300 )     (298,100 )
    $ 80,800     $ 109,000  

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible assets were comprised of the following:

 

    June 30, 2019  
    Gross carrying amount     Accumulated amortization     Net carrying
value 		 
Goodwill   $ 277,800     $ —     $ 277,800  
Customer list     42,500       (42,500 )     —  
Technology     1,021,900       (803,300 )     218,600  
Trade name     54,900       (54,900 )     —  
    $ 1,397,100     $ (900,700 )   $ 496,400  

 

 

    December 31, 2018  
    Gross carrying amount     Accumulated amortization     Net carrying
value 		 
Goodwill   $ 277,800     $ —     $ 277,800  
Customer list     42,500       (42,500 )     —  
Technology     1,021,900       (782,900 )     239,000  
Trade name     54,900       (54,900 )     —  
    $ 1,397,100     $ (880,300 )   $ 516,800  

 

The estimated useful lives of the intangible assets range from seven to ten years. Amortization expense was $8,800 and $24,800 for the three months ended June 30, 2019 and 2018, respectively. Amortization expense was $20,400 and $52,400 for the six months ended June 30, 2019 and 2018, respectively.

 

13

 

 

NOTE 6 – LEASES

 

The Company has entered into operating leases primarily for real estate. These leases have terms which range from 4 year to 6 years, and often include one or more options to renew. These renewal terms can extend the lease term from 1 year to month-to-month and are included in the lease term when it is reasonably certain that the Company will exercise the option. These operating leases are included in "Prepaid expenses and other current assets" and “Other assets” on the Company's June 30, 2019 Condensed Consolidated Balance Sheets and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are included in "Accrued liabilities" and “Other non-current liabilities” on the Company's June 30, 2019 Condensed Consolidated Balance Sheets.  Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets of approximately $225,300 and lease liabilities for operating leases of approximately $246,100 on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of June 30, 2019, total right-of-use assets and operating lease liabilities were approximately $531,200 and $548,100, respectively. All operating lease expense is recognized on a straight-line basis over the lease term. In the three months ended June 30, 2019, the Company recognized approximately $68,300 in operating lease costs for right-of-use assets. In the six months ended June 30, 2019, the Company recognized approximately $133,900 in operating lease costs for right-of-use assets.

 

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for real estate which may contain lease and non-lease components which it has elected to treat as a single lease component.

 

Information related to the Company’s right-of-use assets and related lease liabilities were as follows:

 

    Six Months Ended  
    June 30, 2019  
Cash paid for operating lease liabilities   $ 156,200  
Right-of-use assets obtained in exchange for new operating lease obligations (1)     117,800  
Weighted-average remaining lease term     10.8 months  
Weighted-average discount rate     10 %

 

(1)    Includes $225,300 for operating leases existing on January 1, 2019.

 

Maturities of lease liabilities as of June 30, 2019 were as follows:

 

Due in 12 month period ended June 30,

 

      2020   $ 196,500  
      2021     91,000  
      2022     84,500  
      2023     87,000  
      2024     89,600  
      Thereafter     203,500  
            752,100  
Less imputed interest           (204,000 )
      Total lease liabilities     548,100  
Current operating lease liabilities           161,600  
Non-current operating lease liabilities           386,500  
      Total lease liabilities   $ 548,100  

 

14

 

 

NOTE 7 – ACCRUED LIABILITIES

 

Accrued liabilities were comprised of the following:

 

   

June 30,

2019

    December 31,
2018 		 
Accrued compensation and related taxes   $ 561,400     $ 565,800  
Accrued interest     437,200       362,000  
Accrued settlement/litigation claims     150,000       150,000  
Warranty and defect claims     42,200       55,000  
Lease liabilities     161,600       —  
Other     131,200       293,300  
Total Accrued Liabilities   $ 1,483,600     $ 1,426,100  

 

NOTE 8 – UNCOMPLETED CONTRACTS

 

Costs, estimated earnings and billings on uncompleted contracts are as follows:

 

    June 30,     December 31,  
    2019     2018  
Revenue Recognized   $ 1,286,600     $ 499,600  
Less: Billings to date     (1,194,300 )     (185,300 )
Costs and estimated earnings in excess of billings on uncompleted contracts     92,300       314,300  
                 
Billings to date     1,681,300       1,642,600  
Revenue recognized     (1,450,100 )     (1,172,400 )
                 
Revenue contract liabilities   $ 231,200     $ 470,200  

 

NOTE 9 – INVESTMENT IN PARAGON WASTE SOLUTIONS LLC

 

Since its inception through June 30, 2019, we have provided approximately $6.6 million in funding to PWS for working capital and the further development and construction of various prototypes and commercial waste destruction units. No members of PWS have made capital contributions or other funding to PWS other than SEER. The intent of the operating agreement is that we will provide the funding as an advance against future earnings distributions made by PWS.

 

Payments received for non-refundable licensing and placement fees have been recorded as deferred revenue in the accompanying consolidated balance sheets at June 30, 2019 and December 31, 2018 and are recognized as revenue ratably over the term of the contract.

 

NOTE 10 – PAYROLL TAXES PAYABLE

 

In 2009 and 2010, REGS, a subsidiary of the Company, became delinquent for unpaid federal employer and employee payroll taxes, accrued interest and penalties were incurred related to these unpaid payroll taxes.

 

As of June 30, 2019, and December 31, 2018, the outstanding balance due to the IRS was $1,039,000, and $1,022,500, respectively.

 

Other than this outstanding payroll tax matter arising in 2009 and 2010, all state and federal taxes have been paid by REGS in a timely manner.

 

15

 

 

 

NOTE 11 – DEBT

 

Debt as of June 30, 2019 and December 31, 2018, was comprised of the following:

 

    June 30,
2019 		    December 31,
2018 		 
             
SHORT TERM NOTES                
                 
Secured short term note payable dated September 13, 2017 with principal and interest due 60 days from issuance.  The note requires a one-time fee in the amount of $15,000 to compensate for the first two weeks of the term and each week thereafter (weeks 3-8) a fee of $1,500 shall be due and owing accruing on the first day of the week.  The total one-time fee paid was $24,000. A fee of 100,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion of any month the note is outstanding past the original maturity date for months 3 through 6, and a fee of 200,000 shares of restricted common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of CoronaLux units and a personal guarantee of an officer of the Company. The penalty period for shares to be issued has been reached.  For the year ended December 31, 2018, the Company recorded 2,300,000 shares of its common stock as issuable under the terms of this agreement, valued at $667,800 and recorded as interest expense.  For the quarter ended March 31, 2019, the Company recorded an additional 200,000 shares of its common stock under the terms of this agreement, valued at $19,000 and recorded as interest expense.  This note was converted to minority investment in new subsidiary in February 2019.   $ —     $ 300,000  
                 
Secured short term note payable dated October 13, 2017 with principal and interest due 60 days from issuance.  The note requires a one-time fee in the amount of $4,000 to compensate for the first two weeks of the term and each week thereafter (weeks 3-8) a fee of $400 shall be due and owing accruing on the first day of the week.  The total one-time fee paid was $6,400. A fee of 40,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion of any month the note is outstanding past the original maturity date for months 3 through 6, and a fee of 80,000 shares of restricted common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of CoronaLux units and a personal guarantee of an officer of the Company. The penalty period for shares to be issued has been reached for the years ended December 31, 2018 and 2017, however, the debt holder agreed to a reduction and a fixed amount of penalty shares in 2018, and the Company recorded 310,000 shares and 40,000 shares of its common stock, respectively, as issuable under the terms of this agreement.  The shares were valued at $137,500 and $30,000 for the years ended December 31, 2018 and 2017, respectively, and were recorded as interest expense in the applicable period.  No additional shares will be issued by the Company.  The reduction of penalty shares was accounted for as debt extinguishment and a gain was recorded in 2018.     100,000       100,000  
                 
Secured short term note payable dated November 6, 2017 with principal and interest due 60 days from issuance.  The note requires a one-time fee in the amount of $5,000 to compensate for the first two weeks of the term and each week thereafter (weeks 3-8) a fee of $400 shall be due and owing accruing on the first day of the week.  The total one-time fee paid was $7,400. A fee of 50,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion of any month the note is outstanding past the original maturity date for months 3 through 6, and a fee of 100,000 shares of restricted common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of CoronaLux units and a personal guarantee of an officer of the Company. The penalty period for shares to be issued had not been reached as of December 31, 2017 but was reached as of December 31, 2018, however, the debt holder agreed to a reduced and fixed amount of penalty shares during 2018.  During the year ended December 31, 2018, the Company recorded 350,000 shares of its common stock as issuable under the terms of this agreement.  The shares were valued at $153,900 recorded as interest expense.  No additional shares will be issued by the Company.  The reduction of penalty shares was accounted for as debt extinguishment and a gain was recorded in 2018.     125,000       125,000  

 

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Note payable dated November 20, 2017, interest at 30% per annum, principal and accrued interest due on or before February 28, 2018.  Unpaid interest at December 31, 2018 is approximately $37,500.  The note is unsecured. During 2018, a verbal agreement was made to allow month-to-month extension of the due date as long as interest payments were made monthly.  The Company made interest payments totaling $84,100 of which $37,726 of interest and principal reduction of $1,900 was paid by the issuance of 140,000 shares of common stock during 2018 and the note holder has continued to extend the due date.   $ 298,100     $ 298,100  
                 
Secured short term note payable dated January 26, 2018 with principal and interest due 60 days from issuance.  The note required a one-time fee in the amount of $12,500 to compensate for the first two weeks of the term and each week thereafter (weeks 3-8) a fee of $1,250 accrued on the first day of the week.  The total one-time fee of $17,500 remains unpaid and accrues interest until paid. A fee of 100,000 shares of restricted common stock accrued as a penalty for each month or prorated for any two-week portion of any month the note was outstanding past the original maturity date for months 3 through 6, and a fee of 200,000 shares of restricted common stock accrued to the lender for each month or prorated for each two-week portion of any month the note was outstanding past the original maturity date beginning in month 7 until paid in full. The note was secured by the future sale of CoronaLux™ units and a personal guarantee of an officer of the Company. This note was paid in full during September 2018 and 700,000 of penalty shares were issued, valued at $200,000 recorded as interest. Unpaid interest at June 30, 2019 is approximately $19,000.     —       —  
                 
Note payable dated February 27, 2018 due on or before May 31, 2018 requiring a one-time fee in the amount of $25,000 to be paid as interest along with the principal on the due date. Because the note and interest were not paid on or before June 1, 2018, a fee of $5,000 accrued on the first day of each month commencing June 1, 2018.  The note was secured by all of the proceeds from the sale of SEM’s BioActive Media paid to or received by SEM or MV.  This note principal was paid in full in September 2018.  Unpaid interest at June 30, 2019 is approximately $44,400.     —       —  
                 
Secured short term note payable dated February 1, 2019 with principal and interest due 90 days from issuance.  The note requires a one-time fee in the amount of $15,000 to compensate for the first two weeks of the term and each week thereafter (weeks 3-12) a fee of $1,500 shall be due and owing accruing on the first day of the week.  The total one-time fee paid was $30,000. A fee of 50,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion of any month the note is outstanding past the original maturity date for months 4 through 6, and a fee of 100,000 shares of restricted common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of any and all PelleChar products and a personal guarantee of an officer of the Company. The penalty period for shares to be issued has been reached. For the quarter ended June 30, 2019, the Company recorded 100,000 shares of its common stock as issuable under the terms of this agreement value at $9,200 and recorded as interest expense.     500,000       —  
                 
Note payable insurance premium financing, interest at 2.12% per annum, payable in 10 installments of $33,000, due November 1, 2019.     165,100       —  
Total short-term notes   $ 1,188,200     $ 823,100  

 

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CONVERTIBLE NOTES                
                 
Convertible notes payable, interest at 8% per annum, unpaid principal and interest maturing 3 years from note date between August 2018 and October 2019, convertible into common stock at the option of the lenders at a rate of $0.70 per share; one convertible note for $250,000 has a personal guarantee of an officer of the Company.  The notes that matured in August 2018, were subsequently extended by one year to August 2019, all other terms remained the same.  The note that matured November 2018 was subsequently extended to May 2019 and the interest rate increased to 13% per annum. No default notice has been received from the noteholders.   $ 1,605,000     $ 1,605,000  
                 
Debt discount     —       (1,400 )
Total convertible notes     1,605,000       1,603,600  
Less:  current portion     (1,605,000 )     (1,603,600 )
Long term convertible notes, including debt discount   $ —     $ —  
                 
LONG TERM NOTES AND CAPITAL LEASE OBLIGATIONS                
                 
Note payable dated July 13, 2018, interest at 20% per annum, payable July 13, 2021.  No monthly payments are due for the first six months, commencing in month seven, principal and accrued interest will be amortized and payable over the remaining 30 months.  The note is secured by all assets of SEM and personally guaranteed by an officer of the Company.  A fee of 200,000 shares of restricted common stock was issuable at the time of funding.  During the year ended December 31, 2018, the Company recorded 200,000 shares of its common stock as issuable under the terms of this agreement.  The shares were valued at $44,000 recorded as debt discount.  Unpaid interest at June 30, 2019 was approximately $97,400.   $ 500,000     $ 500,000  
                 
Debt discount     (31,000 )     (37,900 )
                 
Note payable dated October 13, 2015, interest at 8% per annum, payable in 60 monthly installments of principal and interest $4,562, due October 1, 2020.   Secured by real estate and other assets of SEM and guaranteed by SEER and MV.     68,900       92,000  
                 
Capital lease obligations, secured by certain assets, maturing through Nov 2020
    41,800       57,900  
Total long-term notes and capital lease obligations     579,700       612,000  
Less:  current portion     (250,800 )     (71,200 )
Long term notes and capital lease obligations, long-term, including debt discount   $ 328,900     $ 540,800  

 

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NOTE 12 – RELATED PARTY TRANSACTIONS

 

Notes payable, related parties

 

Related parties accrued interest due to certain related parties are as follows:

 

    June 30,  
    2019     2018  
Accrued interest   $ 11,800     $ 11,800  
    $ 11,800     $ 11,800  

 

We believe the stated interest rates on the related party notes payable represent reasonable market rates based on the note payable arrangements we have executed with third parties.

 

In March 2012, the Company entered into an Irrevocable License & Royalty Agreement with PWS that grants PWS an irrevocable world-wide license to the IP in exchange for a 5% royalty on all revenues from PWS and its affiliates. The term commenced as of the date of the Agreement and shall continue for a period not to exceed the life of the patent or patents filed by the Company. PWS may sub license the IP and any revenue derived from sub licensing shall be included in the calculation of Gross Revenue for purposes of determining royalty payments due the Company. Royalty payments are due 30 days after the end of each calendar quarter. PWS generated licensing and unit sales revenues of approximately $8,200 and $33,500 for the three and six months ended June 30, 2019 and $134,800 for the years ended December 31, 2018, as such, royalties of $122,000 and $120,300 were due at June 30, 2019 and December 31, 2018, respectively.

 

In October 2014, PWS and Medical Waste Services, LLC (“MWS”) formed a contractual joint venture to exploit the PWS medical waste destruction technology. In 2015, MWS licensed and installed a CoronaLux™ unit at an MWS facility, and subsequently received a limited permit to operate. In November 2017 a full permit was issued, and the unit is now fully operating. Operations to date have included the destruction of medical waste. For the six months ended June 30, 2019 and the year ended December 31, 2018, PWS has recorded $13,900 and $34,400 in income which represents their 50% interest in the net income of the joint venture, respectively. PWS did not incur any costs incurred on behalf of the joint venture for the six months ended June 30, 2019 nor the year ended December 31, 2018.

 

NOTE 13 – EQUITY TRANSACTIONS

 

2019

 

During the six months ended June 30, 2019, the Company issued 300,000 shares of $0.001 par value common stock to short-term note holders as required under their respective agreements. (See Note 11)

 

2018

 

During the six months ended June 30, 2018, the Company recorded 2,010,000 shares of $.001 par value common stock as issuable to short-term note holders as required under their respective agreements. (See Note 10)

 

During the six months ended June 30, 2018, the Company sold 250,000 shares of $.001 par value common stock at $.48 per share in a private placement, receiving proceeds of $120,000.

 

During the six months ended June 30, 2018, the Company issued 75,000 shares of $.001 par value common stock at $.77 per share for services valued at approximately $58,000.

 

Non-controlling Interest

 

The non-controlling interest presented in our condensed consolidated financial statements reflects a 46% non-controlling equity interest in PWS and 49% non-controlling equity interest in PelleChar. Net losses attributable to non-controlling interest, as reported on our condensed consolidated statements of operations, represents the net loss of each entity attributable to the non-controlling equity interest. The non-controlling interest is reflected within stockholders’ equity on the condensed consolidated balance sheet.

 

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NOTE 14 – CUSTOMER CONCENTRATIONS

 

The Company had sales from operations to two customers for the six months ended June 30, 2019 and two customers for the six months ended June 30, 2018, that surpassed the 10% threshold of total revenue. In total, these customers represented approximately 32% and 43% of our total sales, respectively. The concentration of the Company’s business with a relatively small number of customers may expose us to a material adverse effect if one or more of these large customers were to experience financial difficulty or were to cease being customers for non-financial related issues.

 

NOTE 15 – NET LOSS PER SHARE

 

Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares. Potentially dilutive securities are excluded from the calculation when their effect would be anti-dilutive. For all years presented in the consolidated financial statements, all potentially dilutive securities have been excluded from the diluted share calculations as they were anti-dilutive as a result of the net losses incurred for the respective years. Accordingly, basic shares equal diluted shares for all years presented.

 

Potentially dilutive securities were comprised of the following:

 

    Six Months Ended
June 30, 		 
    2019     2018  
Warrants     2,128,900       7,658,400  
Options     125,000       1,572,500  
Convertible notes payable, including accrued interest     2,566,300       2,417,300  
      4,820,200       11,648,200  

 

NOTE 16 – ENVIRONMENTAL MATTERS AND REGULATION

 

Significant federal environmental laws affecting us are the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), also known as the “Superfund Act”, the Clean Air Act, the Clean Water Act and the Toxic Substances Control Act (“TSCA”).

 

Pursuant to the EPA’s authorization of the RCRA equivalent programs, a number of states have regulatory programs governing the operations and permitting of hazardous waste facilities. Our facilities are regulated pursuant to state statutes, including those addressing clean water and clean air. Our facilities are also subject to local siting, zoning and land use restrictions. We believe we are in substantial compliance with all federal, state and local laws regulating our business.

 

NOTE 17 – SEGMENT INFORMATION AND MAJOR CUSTOMERS

 

The Company currently has identified three segments as follows:

 

REGS Industrial Cleaning
  MV and SEM Environmental Solutions
  PWS  Solid Waste

 

Reach has had no operations and PelleChar had minimal operations through June 30, 2019.

 

The composition of our reportable segments is consistent with that used by our Chief Operating Decision Maker (“CODM”) to evaluate performance and allocate resources. All of our operations are located in the U.S. We have not allocated corporate selling, general and administrative expenses, and stock-based compensation to the segments. All intercompany transactions have been eliminated.

 

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Segment information for the three and six months ended June 30, 2019 and 2018 is as follows:

 

Three Months ended                              
                               
2019   Industrial     Environmental     Solid              
    Cleaning     Solutions     Waste     Corporate     Total  
Revenue   $ 505,200     $ 890,600     $ 65,300     $ —     $ 1,461,100  
Depreciation and amortization (1)     37,800       10,500       10,800       22,900       82,000  
Interest expense     9,500       1,800       —       101,100       112,400  
Stock-based compensation     —       —       —       400       400  
Net income (loss)     (478,200 )     139,100       (84,900 )     (527,800 )     (951,800 )
Capital expenditures (cash and noncash)     6,900       —       —       42,700       49,600  
Total assets   $ 665,000     $ 1,143,400     $ 344,200     $ 864,900     $ 3,017,500  

 

2018   Industrial     Environmental     Solid              
    Cleaning     Solutions     Waste     Corporate     Total  
Revenue   $ 796,800     $ 1,543,700     $ 88,000     $ —     $ 2,428,500  
Depreciation and amortization (1)     58,000       32,700       9,800       20,500       121,000  
Interest expense     11,900       2,400       —       599,500       613,800  
Stock-based compensation     —       —       —       35,500       35,500  
Net income (loss)     (232,300 )     336,800       (9,000 )     (1,126,600 )     (1,031,100 )
Capital expenditures (cash and noncash)     —       —       —       —       —  
Total assets   $ 1,086,800     $ 1,410,900     $ 520,800     $ 1,161,000     $ 4,179,500  

 

Six Months ended                              
                               
2019   Industrial     Environmental     Solid              
    Cleaning     Solutions     Waste     Corporate     Total  
Revenue   $ 725,400     $ 1,980,700     $ 147,400     $ —     $ 2,853,500  
Depreciation and amortization (1)     88,700       23,900       38,600       43,200       194,400  
Interest expense     20,200       3,700       1,600       236,700       262,200  
Stock-based compensation     —       —       —       900       900  
Net income (loss)     (791,400 )     359,100       (146,400 )     (923,700 )     (1,502,400 )
Capital expenditures (cash and noncash)     6,900       —       —       57,600       64,500  
Total assets   $ 665,000     $ 1,143,400     $ 344,200     $ 864,900     $ 3,017,500  

 

2018   Industrial     Environmental     Solid              
    Cleaning     Solutions     Waste     Corporate     Total  
Revenue   $ 1,720,000     $ 2,419,300     $ 185,300     $ —     $ 4,324,600  
Depreciation and amortization (1)     134,200       77,100       29,100       41,300       281,700  
Interest expense     27,100       5,000       —       947,500       979,600  
Stock-based compensation     —       —       —       71,000       71,000  
Net income (loss)     (309,800 )     457,500       (45,200 )     (1,880,900 )     (1,778,400 )
Capital expenditures (cash and noncash)     —       —       —       —       —  
Total assets   $ 1,086,800     $ 1,410,900     $ 520,800     $ 1,161,000     $ 4,179,500  

 

(1) Includes depreciation of property, equipment and leasehold improvement and amortization of intangibles

 

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NOTE 18 – LITIGATION

 

In January 2016, an employee of SEM was involved in a vehicle accident while on Company business. Various actions were filed by the claimants in both state and federal courts. In August 2016, an involuntary proceeding was commenced by one of the claimants against SEM under Chapter 7 of the Bankruptcy code. In September 2016, the case was converted to a Chapter 11 under the Bankruptcy code. During the pendency of all actions, SEM continued to manage its affairs and operate normally. In the fourth quarter of 2016, the parties reached a settlement concerning the distribution of insurance proceeds and all issues of liability. On March 27, 2017 the Bankruptcy Courts confirmed the dismissal of the SEM Chapter 11 case. As part of the bankruptcy proceedings, the Company reached a settlement with claimants and recorded an accrued litigation expense of $212,500 at December 31, 2016. It was agreed among the parties that all pending state and/or federal claims will be dismissed with prejudice. The accrued litigation outstanding at June 30, 2019 and December 31, 2018 was $133,333 and $133,333, respectively.

 

In October 2018, a complaint was filed by a contractor company of a mutual customer of MV, a subsidiary of the Company. The complaint claimed that in 2016 MV delivered defective and poorly manufactured treatment vessels to the project and that due to such delivery, the contractor company sustained $251,160 in damages in the effort to repair the error. At the same time, the mutual customer had an outstanding balance due MV of $224,000 and MV had an outstanding balance due the vessel manufacturer of $82,600. In the first quarter of 2019, the parties reached a settlement whereby MV paid the contractor company a total of $160,000, the joint customer paid the outstanding invoice amounts of $224,000 and the vessel manufacturer waived the $82,600 due from MV for the faultily manufactured vessel. The case was dismissed with prejudiced and the matter is closed.

 

NOTE 19 – SUBSEQUENT EVENTS

 

On July 2, 2019, the Company borrowed $100,000 under a short-term note, secured by all assets of Pellechar, LLC, a subsidiary of the Company. The note bears annual simple interest, at a rate of 12%. The Lender received a one-time stock option grant to purchase 500,000 shares of common stock, at $0.70 a share. The options have a contract term of three years.

On July 18, 2019, the Company borrowed $150,000 under a short-term note from a current lender. The Company paid a one-time fee of $5,000 and will accrue a fee of $500 for each week after August 1, 2019 the note is outstanding. If the note is not repaid on or before the seventh month the note is outstanding, 30,000 shares of restricted common stock of the Company shall be issued to the lender.

 

In August 2019, the Company collected a note receivable of $300,000, which was fully allowed for previously. The collection resulted in the recording of a gain for the entire amount, as the carrying value was $0.

 

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

 

The following discussion is intended to assist you in understanding our business and the results of our operations. It should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this report as well as our Report on Form 10K filed with the Securities and Exchange Commission on April 16, 2019. Certain statements made in our discussion may be forward looking. Forward-looking statements involve risks and uncertainties and a number of factors could cause actual results or outcomes to differ materially from our expectations. These risks, uncertainties, and other factors include, among others, the risks described in our Annual Report on Form 10K filed with the Securities and Exchange Commission, as well as other risks described in this Quarterly Report. Unless the context requires otherwise, when we refer to “we,” “us” and “our,” we are describing Strategic Environmental & Energy Resources, Inc. and its consolidated subsidiaries on a consolidated basis.

 

SEER BUSINESS OVERVIEW

 

Strategic Environmental & Energy Resources, Inc. (“the Company” or “SEER”) was originally organized under the laws of the State of Nevada on February 13, 2002 for the purpose of acquiring one or more businesses, under the name of Satellite Organizing Solutions, Inc (“SOZG”). In January 2008, SOZG changed its name to Strategic Environmental & Energy Resources, Inc., reduced its number of outstanding shares through a reverse stock split and consummated the acquisition of both, REGS, LLC and Tactical Cleaning Company, LLC. SEER is dedicated to assembling complementary service and environmental, clean-technology businesses that provide safe, innovative, cost effective, and profitable solutions in the oil & gas, environmental, waste management and renewable energy industries. SEER currently operates five companies with four offices in the western and mid-western U.S. Through these operating companies, SEER provides products and services throughout the U.S. and has licensed technologies with many customer installations throughout the U.S. Each of the five operating companies is discussed in more detail below. The Company also has non-controlling interests in joint ventures, some of which have no or minimal operations.

 

The Company’s domestic strategy is to grow internally through SEER’s subsidiaries that have well established revenue streams and, simultaneously, establish long-term alliances with and/or acquire complementary domestic businesses in rapidly growing markets for renewable energy, waste and water treatment and oil & gas services. The focus of the SEER family of companies, however is to increase margins by securing or developing proprietary patented and patent-pending technologies and then leveraging its 20 plus-year service experience to place these innovations and solutions into the growing markets of emission capture and control, renewable “green gas” capture and sale, compressed natural gas (“CNG”) fuel generation, as well as general solid waste and medical/pharmaceutical waste destruction. Many of SEER’s current operating companies share customer bases and each provides truly synergistic services, technologies and products as well as annuity type revenue streams.

 

The company now owns and manages four operating entities and two entities that has no significant operations to date.

 

Subsidiaries

 

REGS, LLC d/b/a Resource Environmental Group Services (“REGS”): (operating since 1994) provides general industrial cleaning services and waste management to many industry sectors focusing primarily on oil & gas production (upstream) and refineries (downstream).

 

MV, LLC (d/b/a MV Technologies), (“MV”) : (operating since 2003) MV designs and sells patented and/or proprietary, dry scrubber solutions for management of Hydrogen Sulfide (H 2 S) in biogas, landfill gas, and petroleum processing operations. These system solutions are marketed under the product names H2SPlus™ and OdorFilter™. The markets for these products include land fill operations, agricultural and food product processors, wastewater treatment facilities, and petroleum product refiners. MV also develops and designs proprietary technologies and systems used to condition biogas for use as renewable natural gas (“RNG”), for a number of applications, such as transportation fuel and natural gas pipeline injection.

 

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Paragon Waste Solutions, LLC (“PWS”): (formed late 2010) PWS is an operating company that has developed a patented waste destruction technology using a pyrolytic heating process combined with “non-thermal plasma” assisted oxidation. This technique involves gasification of solid waste by heating the waste in a low-oxygen environment, followed by complete oxidation at higher temperatures in the presence of plasma. The term “non-thermal plasma” refers to a low energy ionized gas that is generated by electrical discharges between two electrodes. This technology, commercially referred to as CoronaLux™, is designed and intended for the “clean” destruction of hazardous chemical and biological waste (i.e ., hospital “red bag” waste) thereby eliminating the need for costly segregation, transportation, incineration or landfill (with their associated legacy liabilities). PWS is a 54% owned subsidiary.

 

ReaCH4BioGas (“Reach”) (trade name for Benefuels, LLC): (formed February 2013) owned 85% by SEER. Reach develops renewable natural gas projects that convert raw biogas into pipeline quality gas and/or Renewable, “RNG”, for fleet vehicles. Reach had no operations as of June 30, 2019.

 

SEER Environmental Materials, LLC (“SEM”): (formed September 2015) is a wholly owned subsidiary established as a materials technology business with the purpose of developing advanced chemical absorbents and catalysts that enhance the capability of biogas produced from, landfill, wastewater treatment operations and agricultural digester operations.

 

PelleChar, LLC (“PelleChar”): (formed September 2018) owned 51% by SEER. PelleChar has secured third-party pellet manufacturing capabilities from one of the nation’s premier pellet manufacturer.  Working closely with Biochar Now, LLC, PelleChar intends to commence sales in 2019 of its proprietary pellets containing the proven and superior Biochar Now product starting with the landscaping and big agriculture markets.  At this time, PelleChar is the only company able to offer a soil amendment pellet containing the Biochar Now product that is produced using the patented pyrolytic process. PelleChar had minimal operations as of June 30, 2019.

 

Joint Ventures

 

MV RCM Joint Venture : In April 2013, MV Technologies, Inc (“MV”) and RCM International, LLC (“RCM”) entered into an Agreement to develop hybrid scrubber systems that employ elements of RCM Technology and MV Technology (the “Joint Venture”). RCM and MV Technologies will independently market the hybrid scrubber systems. The contractual Joint Venture has an initial term of five years and will automatically renew for successive one-year periods unless either Party gives the other Party one hundred and eighty (180) days’ notice prior to the applicable renewal date. Operations to date of the Joint Venture have been limited to formation activities.

 

Paragon Waste (UK) Ltd : In June 2014, PWS and PCI Consulting Ltd (“PCI”) formed Paragon Waste (UK) Ltd (“Paragon UK Joint Venture”) to develop, permit and exploit the PWS waste destruction technology within the territory of Ireland and the United Kingdom. PWS and PCI each own 50% of the voting shares of Paragon UK Joint Venture. Operations to date of the Paragon UK Joint Venture have been limited to formation, the delivery of a CoronaLux™ unit with a third party in the United Kingdom and application and permitting efforts with regulatory entities.

 

P&P Company : In February 2015, PWS and Particle Science Tech of Environmental Protection, Inc. (“Particle Science”) formed a joint venture, Particle & Paragon Environmental Solutions, Inc (“P&P”) to exploit the PWS technology in China, including Hong Kong, Macao and Taiwan. PWS and Particle Science each own 50% of P&P. Operations to date have been limited to formation of P&P and the sale and delivery of a CoronaLux™ unit to Particle Science in China.

 

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PWS MWS Joint Venture : In October 2014, PWS and Medical Waste Services, LLC (“MWS”) formed a contractual joint venture to exploit the PWS medical waste destruction technology. In 2015, MWS licensed and installed a CoronaLux™ unit at an MWS facility, and subsequently received a limited permit to operate from the South Coast Air Quality Management District (“SCAQMD”) and the California Department of Public Health. In November 2017, PWS received final air quality permit approval from SCAQMD allowing for full operations of the CoronaLux™ unit at the MWS facility.

 

Paragon Southwest Joint Venture : In December 2017, PWS and GulfWest Waste Solutions, LLC (“GWWS”) formed Paragon Southwest Medical Waste, LLC (“PSMW”) to exploit the PWS medical waste destruction technology. PSMW will have an exclusive license to the CoronaLux™ technology in a six-state area of the Southern United States. In addition to the equity position, PWS will be the operating partner for the business and sell a number of additional systems to the joint venture over the next five years.  In 2017, PSMW purchased and installed three CoronaLux™ units at an PSMW facility. Operations in the form of medical waste destruction began in the first quarter of 2018.

 

SEER’s Financial Condition and Liquidity

 

As shown in the accompanying consolidated financial statements, the Company has experienced recurring losses, and has accumulated a deficit of approximately $26 million as of June 30, 2019, and $24.4 million as of December 31, 2018. For the three months ended June 30, 2019 and 2018 we had net losses from continuing operations before adjustment for losses attributable to non-controlling interest of approximately $1 million and $1.1 million, respectively. For the six months ended June 30, 2019 and 2018 we had net losses from continuing operations before adjustments for losses attributable to non-controlling interest of approximately $1.6 million and $1.8 million, respectively. As of June 30, 2019, and December 31, 2018 our current liabilities exceed our current assets by approximately $6.2 million and $5.3 million, respectively. The primary reason for the increase in negative working capital from December 31, 2018 to June 30, 2019 is due to a net increase in short term debt of approximately $.4 million, and losses from operations. The Company has limited common shares available for issue which may limit the ability to raise capital or settle debt through issuance of shares. These factors raise substantial doubt about the ability of the Company to continue to operate as a going concern for a period of at least one year after the date of the issuance of our audited financial statements for the period ended December 31, 2018.

 

Realization of a major portion of our assets as of June 30, 2019, is dependent upon our continued operations. The Company is dependent on generating additional revenue or obtaining adequate capital to fund operating losses until it becomes profitable. In addition, we have undertaken a number of specific steps to continue to operate as a going concern. We continue to focus on developing organic growth in our operating companies, diversifying our service customer base and market concentrations and improving gross and net margins through increased attention to pricing, aggressive cost management and overhead reductions. Critical to achieving profitability will be our ability to license and or sell, permit and operate through our joint ventures and licensees our CoronaLux™ waste destruction units. We have increased our business development efforts to address opportunities identified in expanding domestic markets attributable to increased federal and state emission control regulations (particularly in the nation’s oil and gas fields) and a growing demand for energy conservation and renewable energies. In addition, the Company is evaluating various forms of financing that may be available to it. There can be no assurance that the Company will secure additional financing for working capital, increase revenues and achieve the desired result of net income and positive cash flow from operations in future years. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to report on a going concern basis.

 

Our primary need for liquidity is to fund working capital requirements of our businesses, capital expenditures and for general corporate purposes, including debt repayment. We have incurred losses and experienced negative operating cash flows for the past several years, and accordingly, the Company has taken a number of actions to continue to support its operations and meet its obligations. The sale of assets and liabilities of Tactical and certain locations within REGS provided the Company working capital in 2017 to repay short-term notes totaling $650,000 and accelerate growth of our high-margin technology divisions. We reduced selling, general and administrative (SG&A) expenses in 2018 as a result of the sale of those assets. We formed PelleChar and raised $1 million of minority interest investment to bring that product to market and add to the operating cash flows of the Company. We believe that the actions discussed above are probable of occurring and mitigating the substantial doubt raised by our historical operating results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned. If we continue to experience operating losses, and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other actions, while not expected, we might need to secure additional sources of funds, which may or may not be available to us. Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the operation of our business.

 

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Results of Operations for the Three Months Ended June 30, 2019 and 2018

 

Total revenues were approximately $1.5 million and $2.4 million for the three months ended June 30, 2019 and 2018, respectively. The decrease in revenue comparing Q2 2019 to Q2 2018 is driven by a decrease of approximately $.3 million or 37% in industrial cleaning revenue coupled by a decrease in revenue of $.7 million or 42% in environmental solutions revenue. The decrease in the industrial cleaning revenue is due largely to a lack of mobile rail car cleaning services further reduced by a decrease in overall utilization of assets. The decrease in environmental solutions revenue is due to a decrease in media sales revenue. Solid waste revenue also decreased when comparing Q2 2019 to Q2 2018 by $.2 million or 26% due to a decrease in joint venture operating revenue.

 

Operating costs, which include cost of products, cost of services, solid waste costs, general and administrative (G&A) expenses and salaries and related expenses, were $2.3 million for the three months ended June 30, 2019 compared to $2.9 million for the three months ended June 30, 2018. The decrease in operating costs between the quarters was primarily the result of a 1) a 42% decrease in environmental solutions revenue resulting in a 41% decrease in environmental solutions costs totaling approximately ($387,400), 2) a 37% decrease in industrial cleaning revenue resulting in a 6% decrease in industrial cleaning costs totaling approximately ($48,900), 3) an approximately ($83,400) decrease in general and administrative expenses primarily driven by a decrease in professional services of approximately $69,000 and 4) an approximately ($63,300) decrease in salaries and related expenses. Product costs as a percentage of product revenues were 64% for the quarter ended June 30, 2019 and 62% for the quarter ended June 30, 2018. The decrease in margin performance for the product sales is due to a decreased long-term project margin. Services costs as a percentage of services revenues were 149% for the quarter ended June 30, 2019 and 101% for the quarter ended June 30, 2018. The decrease in margin performance for the services sector is due to a decreased utilization of manpower and the ability to utilize and bill our own equipment versus renting third-party equipment. We also were not able to recapture all project startup costs during the quarter. Solid waste costs as a percentage of revenues were 15% for the quarter ended June 30, 2019 and 10% for the quarter ended June 30, 2018. The decrease in margin performance for the solid waste segment is related to a decrease in operating fee revenue.

 

Total non-operating other income (expense), net was ($118,400) for the three months ended June 30, 2019 compared to ($583,300) for the three months ended June 30, 2018. For the three months ended June 30, 2019 non-operating expenses were comprised of interest expense of ($112,400) and other expense of ($6,000). For the three months ended June 30, 2018 non-operating expenses were comprised of interest expense of ($613,800) offset by interest income of $11,800 and other income of $16,700. The decrease in interest expense in Q2 2019 compared to Q2 2018 was primarily the result of timing of short term debt and the Company having to issue common stock to note holders in accordance with penalty clauses included in the short term notes when the Company was unable to satisfy the notes when they came due.

 

There is no provision for income taxes for the quarter ended June 30, 2019 due to prior year losses and for the quarter ended June 30, 2019, year-to-date losses.

 

The Company had a net loss, before non-controlling interest, for the three months ended June 30, 2019 of ($990,900) compared to a net loss, before non-controlling interest, of ($1,072,100) for the three months ended June 30, 2018. Net loss attributable to SEER after deducting $39,100 for the non-controlling interest income was ($951,800) for the three months ended June 30, 2019 compared to a net loss attributable to SEER of ($1,026,900), after deducting $4,200 in non-controlling interest loss for the three months ended June 30, 2018. The decrease in net loss for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018 was largely related to the fact that interest expense decreased approximately $501,400 for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018.

 

Results of Operations for the Six Months Ended June 30, 2019 and 2018

 

Total revenues were approximately $2.9 million and $4.3 million for the six months ended June 30, 2019 and 2018, respectively. The decrease in revenue comparing the six months ending June 30, 2019 to the six months ending June 30, 2018 is driven by a decrease of approximately $1 million or 58% in industrial cleaning revenue and by a decrease of $.4 million or 18% in environmental solutions revenue. The decrease in the industrial cleaning revenue is due largely to a lack of mobile rail car cleaning services further reduced by a decrease in overall utilization of assets. The decrease in environmental solutions revenue is due to a decrease in media sales. Solid waste revenue decreased by $0.04 million or 20% for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.

 

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Operating costs, which include cost of products, cost of services, solid waste costs, general and administrative (G&A) expenses and salaries and related expenses, were $4.3 million for the six months ended June 30, 2019 compared to $5.2 million for the six months ended June 30, 2018. The decrease in operating costs between the six months ending June 30, 2019 compared to the six months ending June 30, 2018 was primarily the result of a 1) a 18% decrease in environmental solutions revenue resulting in a 17% decrease in environmental solutions costs totaling approximately ($255,900), 2) a 58% decrease in industrial cleaning revenue resulting in a 27% decrease in industrial cleaning costs totaling approximately ($437,700), 3) an approximately ($60,800) decrease in general and administrative expenses primarily driven by a decrease in depreciation of approximately ($31,000) coupled with a decrease in utilities and facilities expenses of approximately ($23,000) and 4) an approximately ($144,700) decrease in salaries and related expenses. Product costs as a percentage of product revenues were 61% for the six months ended June 30, 2019 and 61% for the six months ended June 30, 2018. Services costs as a percentage of services revenues were 159% for the six months ended June 30, 2019 and 93% for the six months ended June 30, 2018. The decrease in margin performance for the services sector is due to a decreased utilization of manpower and the ability to utilize and bill our own equipment versus renting third-party equipment. We also were not able to recapture all project startup costs during the six months ended. Solid waste costs as a percentage of revenues were 25% for the six months ended June 30, 2019 and 14% for the six months ended June 30, 2018. The decrease in margin performance for the solid waste segment is related to a decrease in joint venture operating revenue.

 

Total non-operating other income (expense), net was ($86,000) for the six months ended June 30, 2019 compared to ($918,600) for the six months ended June 30, 2018. For the six months ended June 30, 2019 non-operating expenses were comprised of interest expense of ($262,200) offset by interest income of $9,800 and other income of $166,400 primarily related to a reduction of aged accounts payable balances which have passed their statute of limitations for collections. For the six months ended June 30, 2018 non-operating expenses were comprised of interest expense of ($979,600) offset by interest income of $21,700 and other income of $39,300. The decrease in interest expense for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 was primarily the result of timing of short term debt and the Company having to issue common stock to note holders in accordance with penalty clauses included in the short term notes when the Company was unable to satisfy the notes when they came due.

 

There is no provision for income taxes for the six months ended June 30, 2019 due to prior year losses and for the six months ended June 30, 2019, year-to-date losses.

 

The Company had a net loss, before non-controlling interest, for the six months ended June 30, 2019 of ($1,569,800) compared to a net loss, before non-controlling interest, of ($1,819,400) for the six months ended June 30, 2018. Net loss attributable to SEER after deducting $67,400 for the non-controlling interest income was ($1,502,400) for the six months ended June 30, 2019 compared to a net loss attributable to SEER of ($1,757,600), after deducting $20,800 in non-controlling interest loss for the six months ended June 30, 2018. The decrease in net loss for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 was largely related to the fact that interest expense decreased approximately $717,400 for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.

 

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Changes in Cash Flow

 

Operating Activities

 

The Company had net cash used by operating activities for the six months ended June 30, 2019 of ($1,017,500) compared to net cash used by operating activities for the six months ended June 30, 2018 of ($296,800), a reduction of cash of approximately ($720,700). Cash used by operating activities is driven by our net loss and adjusted by non-cash items as well as changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets, stock-based compensation expense and non-cash interest expense. Non-cash adjustment totaled $223,000 and $1,177,300 for the six months ended June 30, 2019 and 2018, respectively, so non-cash adjustments had a larger impact on net cash used by operating activities for the six months ended June 30, 2018 when compared to the six months ended June 30, 2019 by approximately $954,300. For the six months ended June 30, 2018, the net positive change in operating assets and liabilities was $345,300 compared to the six months ended June 30, 2019 of $329,300. The minimal change in operating assets and liabilities had a lesser impact on net cash used by operating activities for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

 

Investing activities

 

Net cash provided by investing activities was $714,300 for the six months ended June 30, 2019 compared to $223,9000 for the six months ended June 30, 2018. The purchase of property and equipment was ($64,000) for the six months ended June 30, 2019 compared to no use of cash for the purchase of property and equipment for the six months ended June 30, 2018. During the six months ended June 30, 2019, the Company received $226,000 in proceeds from outside minority investment in PelleChar. The proceeds from notes receivable totaled $552,800 and $224,000 for the six months ended June 30, 2019 and 2018, respectively. The increase in notes receivable proceeds relates to the Company’s negotiation of an early earnout payment received in full.

 

Financing Activities

 

Net cash provided by financing activities was $294,500 for the six months ended June 30, 2019 compared to $196,400 for the six months ended June 30, 2018. The primary difference is that in the six months ended June 30, 2019, we had net proceeds related to debt of approximately $294,500 compared to net proceeds related to debt of approximately $76,400 in the six months ended June 30, 2018 and proceeds from the sale of common stock of $120,000 for the six months ended June 30, 2018, but no proceeds from the sale of common stock for the six months ended June 30, 2019.

 

28

 

 

Critical Accounting Policies, Judgments and Estimates

 

Use of Estimates

 

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make a number of estimates and assumptions related to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of intangible assets; valuation allowances and reserves for receivables, inventory and deferred income taxes; revenue recognition related to contracts accounted for under the percentage of completion method; share-based compensation; and loss contingencies, including those related to litigation. Actual results could differ from those estimates.

 

Accounts Receivable and Concentration of Credit Risk

 

Accounts receivable are recorded at the invoiced amounts less an allowance for doubtful accounts and do not bear interest. The allowance for doubtful accounts is based on our estimate of the amount of probable credit losses in our accounts receivable. We determine the allowance for doubtful accounts based upon an aging of accounts receivable, historical experience and management judgment. Accounts receivable balances are reviewed individually for collectability, and balances are charged off against the allowance when we determine that the potential for recovery is remote. An allowance for doubtful accounts of approximately $227,500 and $227,500 has been reserved as of June 30, 2019 and December 31, 2018, respectively.

 

We are exposed to credit risk in the normal course of business, primarily related to accounts receivable. Our customers operate primarily in the oil production and refining, rail transport, biogas generating and wastewater treatment industries in the United States. Accordingly, we are affected by the economic conditions in these industries as well as general economic conditions in the United States. To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance for doubtful accounts. As of June 30, 2019, and December 31, 2018, we do not believe that we have significant credit risk.

 

Fair Value of Financial Instruments

 

The carrying amounts of our financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value due to their short-term maturities. We believe that the carrying value of notes payable with third parties, including their current portion, approximate their fair value, as those instruments carry market interest rates based on our current financial condition and liquidity. We believe the amounts due to related parties also approximate their fair value, as their carried interest rates are consistent with those of our notes payable with third parties.

 

Long-lived Assets

 

We evaluate the carrying value of long-lived assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An asset is considered to be impaired when the anticipated undiscounted future cash flows of an asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing of estimated future cash flows. No impairment was determined as of June 30, 2019. As of December 31, 2018, the Company determined an impairment to one CoronaLux™ units of $70,700 incurred due to lack of use of the licensed unit.

 

Revenue Recognition

 

In May 2014, the FASB issued guidance on revenue from contracts with customers that superseded most current revenue recognition guidance, including industry-specific guidance. The underlying principle of the guidance is to recognize revenue to depict the transfer of goods or services to customers at an amount to which the company expects to be entitled in exchange for those goods or services. The new guidance requires an evaluation of revenue arrangements with customers following a five-step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the company satisfies each performance obligation. Revenues are recognized when control of the promised services are transferred to the customers in an amount that reflects the expected consideration in exchange for those services. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the services. Other major provisions of the guidance include capitalization of certain contract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the provisions of this guidance effective January 1, 2018 as required under the guidance. The adoption of this guidance did not have any material impact on the Company’s consolidated condensed financial statements (see Note 3).

 

29

 

 

Stock-based Compensation

 

We account for stock-based awards at fair value on the date of grant and recognize compensation over the service period that they are expected to vest. We estimate the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing model. The estimated value of the portion of a stock-based award that is ultimately expected to vest, taking into consideration estimated forfeitures, is recognized as expense over the requisite service periods. The estimate of stock awards that will ultimately vest requires judgment, and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted for as a cumulative adjustment to compensation expenses and recorded in the period that estimates are revised.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings with the Securities and Exchange Commission (SEC) are recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

As of the end of the period covered by this report, and under the supervision and with the participation of our management, including our Chief Executive Officer and the person performing the similar function as Chief Financial Officer, we evaluated the effectiveness of the design and operation of these disclosure controls and procedures. Based on this evaluation and subject to the foregoing, our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

30

 

 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business.  As of June 30, 2019, there were no other such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believes would be material to its business.

 

ITEM 1A. Risk Factors

 

Please review our report on Form 10K Part 1, Item 1A for a complete statement of “Risk Factors” that pertain to our business.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the six months ended June 30, 2019, the Company issued 300,000 shares of $.001 par value common stock to short-term note holders as required under their respective agreements. (See Note 11)

 

The issuance of the shares of our common stock described above was pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended and related state private offering exemptions. All of the investors were Accredited Investors as defined in the Securities Act who took their shares for investments purposes without a view to distribution and had access to information concerning the company and its business prospects, as required by the Securities Act.

 

In addition, there was no general solicitation or advertising for the purchase of these shares. All certificates for these shares issued pursuant to Section 4(2) contain a restrictive legend. Finally, our stock transfer agent has been instructed not to transfer any of such shares unless such shares are registered for resale or there is an exemption with respect to their transfer.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 

31

 

 

ITEM 6. EXHIBITS

 

EXHIBIT INDEX

 

  3.1 Articles of Incorporation, dated February 13, 2002 (1)
  3.2 Amendment to the Articles of Incorporation, dated December 19, 2007, changing the name and effecting a reverse (1)
  3.3 Bylaws of the corporation, effective February 13, 2002 (1)
  4.1 $225,000 Convertible Note and Note Agreement of the Corporation, issued February 14, 2012 (2)
  4.2 Form of Warrant, having a 3-year life with $0.50 exercise price (1)
  4.3 Form of Warrant, having a 5-year life with $0.50 exercise price (1)
10.1 Agreement for acquisition of MV, dated June 13, 2008 (1)
10.2 Agreement for acquisition of intellectual property from Black Stone Management Services, LLC, dated August 10, 2011 (1)
10.3 Agreement for Merger with Satellite Organizing Solutions, Inc. (1)
10.4 Consulting Agreement between the Company and Monty R. Lamirato, dated October 8, 2013 (3)
10.5 Irrevocable License and Royalty Agreement between the Company and Paragon Waste Solutions, LLC, dated March 21, 2012 (3)
10.6 SEER 2013 Equity Incentive Plan (4)
10.7 Form of Option Grant SEER 2013 Equity Incentive Plan (4)
10.8 Equity Purchase Agreement – Sterall LLC
14.1 Code of Ethics (1)
21.1 Subsidiaries of Registrant (1)
31.1* Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2* Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1** Certification of Principal Executive Officer ) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2** Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*** XBRL Instance Document
101.SCH*** XBRL Taxonomy Extension Schema Document
101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*** XBRL Taxonomy Extension Label Linkbase Document
101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document

 

(1) Incorporated by reference to the Company’s Report on Form 10 filed May 21, 2013.
(2) Incorporated by reference to the Company’s Report on Form 10 Amendment No. 1 filed July 23, 2013.
(3) Incorporated by reference to the Company’s Report on Form 10-Q filed November 14, 2013
(4) Incorporated by reference to the Company’s Report on Form 10-K filed March 27, 2014
* Filed herewith.
** This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.
*** Pursuant to applicable securities laws and regulations, these interactive data files will not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor will they be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections.

 

 

32

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: August 14, 2019 STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
       
    By /s/ J. John Combs III
      J. John Combs III
      Chief Executive Officer with
      Responsibility to sign on behalf of Registrant as a
      Duly authorized officer and principal executive officer
       
    By /s/ Heidi Anderson
      Heidi Anderson
      Interim Chief Financial Officer with
      responsibility to sign on behalf of Registrant as a
      duly authorized officer and principal financial officer

 

33

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