Company Quick10K Filing
Strategic Environmental & Energy Resources
Price0.21 EPS-0
Shares62 P/E-7
MCap13 P/FCF-8
Net Debt0 EBIT-1
TEV13 TEV/EBIT-9
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-06-25
10-K 2019-12-31 Filed 2020-05-15
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-04-16
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-04-18
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-04-14
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-04-14
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-14
10-Q 2015-03-31 Filed 2015-05-14
10-K 2014-12-31 Filed 2015-04-14
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-12
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-27
10-Q 2013-09-30 Filed 2013-11-14
8-K 2020-05-14
8-K 2020-03-30
8-K 2019-08-16
8-K 2018-08-13
8-K 2018-01-25

SENR 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Organization and Financial Condition
Note 2 - Summary of Significant Accounting Policies
Note 3 - Revenue
Note 4 - Property and Equipment
Note 5 - Intangible Assets
Note 6 - Leases
Note 7 - Accrued Liabilities
Note 8 - Uncompleted Contracts
Note 9 - Investment in Paragon Waste Solutions Llc
Note 10 - Payroll Taxes Payable
Note 11 - Debt
Note 12 - Related Party Transactions
Note 14 - Equity Transactions
Note 15 - Customer Concentrations
Note 16 - Net Loss per Share
Note 17 - Environmental Matters and Regulation
Note 18 - Segment Information and Major Customers
Note 19 - Litigation
Note 20 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Strategic Environmental & Energy Resources Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1511730-32012201420172020
Assets, Equity
10.07.55.02.50.0-2.52012201420172020
Rev, G Profit, Net Income
2.92.01.10.1-0.8-1.72012201420172020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2020

 

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 [X] 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 [X] 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 [X]  

 

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 [X]

 

As of June 25, 2020, the Registrant had 63,203,575 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 March 31, 2020 (unaudited) and December 31, 2019 3
     
  Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited) 4
     
  Condensed Consolidated Statement of Changes in Stockholders’ Deficit as of March 31, 2020 and 2019 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited) 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
     
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 32
     
Item 6. Exhibits 32
     
SIGNATURES 33

 

2

 

 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)   * 
ASSETS          
Current Assets          
Cash and cash equivalents  $149,400   $354,700 
Accounts receivable, net of allowance for doubtful accounts of $11,700 and $11,800, respectively   302,200    686,800 
Inventory   180,400    104,100 
Costs and estimated earnings in excess of billings on uncompleted contracts   485,600    242,500 
Prepaid expenses and other current assets   426,800    225,500 
Total Current Assets   1,544,400    1,613,600 
           
Property and Equipment, net   545,100    561,800 
Intangible Assets, net   471,400    479,500 
Other Assets   396,400    407,000 
           
TOTAL ASSETS  $2,957,300   $3,061,900 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities          
Accounts payable  $1,244,300   $1,189,400 
Accrued liabilities   1,616,600    1,592,900 
Billings in excess of costs and estimated earnings on uncompleted contracts   463,100    327,100 
Deferred revenue   117,100    32,900 
Payroll taxes payable   1,060,400    1,052,200 
Customer deposits   10,900    10,900 
Short term notes   2,633,900    2,408,100 
Short term notes - related party   155,000    155,000 
Convertible notes   1,605,000    1,605,000 
Current portion of long term debt and capital lease obligations   225,700    258,100 
Accrued interest - related party   36,100    27,100 
Total Current Liabilities   9,168,100    8,658,700 
           
Deferred revenue, non-current   22,000    30,200 
Other non-current liabilities   370,900    381,900 
Long term debt and capital lease obligations, net of current portion   280,100    268,400 
Total Liabilities   9,841,100    9,339,200 
           
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; 62,943,575 and 62,591,075 shares issued, issuable ** and outstanding March 31, 2020 and December 31, 2019, respectively   62,900    62,600 
Common stock issuable   25,000    25,000 
Additional paid-in capital   22,697,700    22,651,100 
Stock Subscription receivable   (25,000)   (25,000)
Accumulated deficit   (27,590,400)   (26,964,300)
Total stockholders’ deficit   (4,829,800)   (4,250,600)
Non-controlling interest   (2,054,000)   (2,026,700)
Total Deficit   (6,883,800)   (6,277,300)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $2,957,300   $3,061,900 

 

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

 

*These numbers were derived from the audited financial statements for the year ended December 31, 2019.

**Includes 1,240,000 and 887,500 shares issuable at March 31, 2020 and December 31, 2019, respectively, per terms of note agreements.

 

3

 

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   For the Three Months Ended March 31, 
    2020    2019 
Revenue:          
Products  $765,800   $1,090,100 
Solid waste   58,200    82,100 
Total revenue   824,000    1,172,200 
           
Operating expenses:          
Products costs   623,500    646,300 
Solid waste costs   23,600    26,700 
General and administrative expenses   417,800    394,700 
Salaries and related expenses   408,400    306,800 
Total operating expenses   1,473,300    1,374,500 
           
Loss from operations   (649,300)   (202,300)
           
Other income (expense):          
Interest income   -    9,800 
Interest expense   (194,000)   (139,100)
Other   189,900    89,400 
Total non-operating expense, net   4,100    (39,900)
           
Loss from continuing operations   (653,400)   (242,200)
           
Net loss from discontinued operations   -    (336,700)
Discontinued operations, net of tax   -    (336,700)
           
Less: Net loss attributable to non-controlling interest   (27,300)   (28,300)
           
Net loss attributable to SEER common stockholders  $(626,100)  $(550,600)
           
Net loss from continuing operations  $(0.01)  $(0.01)
Discontinued operations   -    - 
Net loss per share, basic and diluted  $(0.01)  $(0.01)
           
Weighted average shares outstanding – basic and diluted   62,709,949    61,836,908 

 

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

 

4

 

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

 

    Preferred Stock     Common Stock     Additional Paid-in     Common Stock     Stock Subscription     Accumulated     Non-controller     Total Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Subscribed     Receivable     Deficit     Interest     Deficit  
                                                             
Balances at December 31, 2019        -     $     -       62,591,100     $ 62,600     $ 22,651,100     $ 25,000     $ (25,000 )   $ (26,964,300 )   $ (2,026,700 )   $ (6,277,300 )
                                                                                 
Issuance of common stock upon debt penalty     -       -       352,500       300       32,800       -       -       -       -       33,100  
                                                                                 
Stock-based compensation     -       -       -       -       8,300       -       -       -       -       8,300  
                                                                                 
Allocated value of common stock and warrants related to debt    -        -        -       -        5,500       -       -       -       -       5,500  
                                                                                 
Net loss     -       -       -       -       -       -       -       (626,100 )     (27,300 )     (653,400 )
                                                                                 
Balances at March 31, 2020     -       -       62,943,600       62,900       22,697,700       25,000       (25,000 )     (27,590,400 )     (2,054,000 )     (6,883,800 )

 

   Preferred Stock   Common Stock   Additional Paid-in   Common Stock   Stock Subscription   Accumulated   Non-controller   Total 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)

 

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

 

5

 

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

   For the Three Months Ended March 31, 
   2020   2019 
Cash flows from operating activities:      
Net loss from continuing operations  $(653,400)  $(242,200)
Loss from discontinued operations   -    (336,700)
Net loss   (653,400)   (578,900)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   44,000    112,400 
Stock-based compensation expense   8,300    600 
Note receivable discount   -    (9,900)
Non-cash expense for interest, common stock issued for debt penalty   33,100    20,100 
Non-cash expense for interest, warrants – accretion of debt discount   18,400    4,100 
Non-cash relief of aged accounts payable   (35,700)   (171,300)
Changes in operating assets and liabilities:          
Accounts receivable   384,600    (234,200)
Costs in excess of billings on uncompleted contracts   (243,100)   253,000 
Inventory   (76,300)   - 
Prepaid expenses and other assets   (96,000)   77,600 
Accounts payable and accrued liabilities   112,300    (155,300)
Billings in excess of revenue on uncompleted contracts   136,000    177,300 
Deferred revenue   76,000    (120,800)
Payroll taxes payable   8,300    8,300 
Net cash used by operating activities   (283,500)   (617,000)
Cash flows from investing activities:          
Purchase of property and equipment   (19,300)   (15,000)
Proceeds from notes receivable   -    226,000 
Net cash (used) provided by investing activities   (19,300)   211,000 
Cash flows from financing activities:          
Payments of notes and capital lease obligations   (52,500)   (119,400)
Proceeds from short-term notes   150,000    500,000 
           
Net cash provided by financing activities   97,500    380,600 
Net decrease in cash   (205,300)   (25,400)
Cash at the beginning of period   354,700    115,700 
Cash at the end of period  $149,400   $90,300 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $3,300   $105,200 
Financing of prepaid insurance premiums  $94,700   $330,200 

 

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

 

6

 

 

NOTE 1 – ORGANIZATION AND FINANCIAL CONDITION

 

Organization and Going Concern

 

Strategic Environmental & Energy Resources, Inc. (“SEER,” 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 operating subsidiaries 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”)) provided industrial and proprietary cleaning services to refineries, oil fields and other private and governmental entities, which is included in discontinued operations for fiscal years 2019. REGS is solely engaged in building kilns after the industrial cleaning has been discontinued; 2) MV, LLC (d/b/a MV Technologies) (“MV”), designs and builds biogas conditioning solutions for the production of renewable natural gas, odor control systems and natural gas vapor capture primarily for landfill operations, waste-water treatment facilities, oil and gas fields, refineries, municipalities and food, beverage & agriculture operations throughout the U.S.; 3) Strategic Environmental Materials, LLC,(“SEM”), a materials technology company focused on development of cost-effective chemical absorbents.

 

The three majority-owned subsidiaries include 1) Paragon Waste Solutions, LLC (“PWS”), 2) ReaCH4Biogas (“Reach”), and 3) PelleChar, LLC (“PelleChar”). PWS is currently owned 54% by SEER, Reach is owned 85% by SEER and PelleChar is owned 90% by SEER.

 

PWS has and continues to develop 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), is currently owned 85% by SEER and focuses specifically on treating biogas for conversion to pipeline quality gas and/or compressed natural gas (“CNG”) for fleet vehicle fuel. Reach had minimal operations for the quarter ended March 31, 2020.

 

PelleChar was established in September 2018 and is owned 90% by SEER as of December 31, 2019. Pellechar has secured third-party pellet manufacturing capabilities from one of the nation’s premier pellet manufacturer. Working closely with Biochar Now, LLC, Pellechar commenced sales in late 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 three months ended March 31, 2020 PelleChar had minimal activity related to formation, and an increasing sales effort.

 

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 consolidated financial statements, the Company has experienced recurring losses, and has accumulated a deficit of approximately $27.6 million as of March 31, 2020, and $27.0 million as of December 31, 2019. For the three months ended March 31, 2020, and 2019, the Company incurred net losses from continuing operations of approximately $0.7 million and $0.2 million, respectively. The Company had a working capital deficit of approximately $7.6 million at March 31, 2020, a increase of $0.6 million in working capital deficit from $7.0 million at December 31, 2019. These factors raise substantial doubt about the ability of the Company to continue to operate as a going concern.

 

7

 

 

Realization of a major portion of the Company’s assets as of March 31, 2020, is dependent upon continued operations. The Company is dependent on generating additional revenue or obtaining adequate capital to fund operating losses until it becomes profitable. For the three months ended March 31, 2020 the Company raised approximately $0.2 million from the issuance of short-term and long-term debt, offset by payments of principal on short term notes and capital leases of $0.1 million. In addition, the Company has undertaken a number of specific steps to continue to operate as a going concern. The Company continues to focus on developing organic growth in our operating companies and improving gross and net margins through increased attention to pricing, aggressive cost management and overhead reductions, including discontinuing a line of business with insufficient margins. Critical to achieving profitability will be the ability to license and or sell, permit and operate though the Company’s joint ventures and licensees the CoronaLux™ waste destruction units. The Company has increased business development efforts to address opportunities identified in expanding markets attributable to increased interest in energy conservation and emission control regulations. In addition, the Company is evaluating various forms of financing which 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 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 May 15, 2020 for the year ended December 31, 2019.

 

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.

 

8

 

 

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).

 

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 for both the three months ended March 31, 2020 and 2019.

 

Inventories

 

Inventories are stated at the lower of cost or market and maintained on a first in, first out basis and includes the following amounts at March 31:

 

   March 31,
2020
   December 31, 2019 
         
Finished goods  $1,600   $60,400 
Work in process   84,900    15,800 
Raw materials   93,900    27,900 
   $180,400   $104,100 

 

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 months ended March 31, 2020 and 2019 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 March 31, 2020 and December 31, 2019. The Company expects no material changes to unrecognized tax positions within the next twelve months.

 

9

 

 

The Company has filed federal and state tax returns through December 31, 2018. The tax periods for the years ending December 31, 2016 through 2019 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.

 

New Accounting Pronouncements Implemented

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) 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 current 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. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company adopted ASU 2016-02 in the first quarter of 2019. (See Note 6).

 

NOTE 3 – REVENUE

 

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, the Company 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, the Company found no change in the manner product revenue is recognized. 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.

 

The Company includes 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

 

Services revenue is primarily comprised of services related to industrial cleaning and mobile railcar cleaning, which is recognized as services are rendered.

 

10

 

 

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.

 

Disaggregation of Revenue

 

   Three months ended March 31, 2020 
   Environmental Solutions   Solid Waste   Total 
             
Sources of Revenue               
Product sales  $624,700   $-   $624,700 
Media sales   141,100    -    141,100 
Licensing fees   -    8,200    8,200 
Operating fees   -    -    - 
Management fees   -    50,000    50,000 
Total Revenue  $765,800   $58,200   $824,000 

 

   Three months ended March 31, 2019 
   Environmental Solutions   Solid Waste   Total 
             
Sources of Revenue               
Product sales  $889,400   $-   $889,400 
Media sales   200,700    -    200,700 
Licensing fees   -    25,200    25,200 
Operating fees   -    6,900    6,900 
Management fees   -    50,000    50,000 
Total Revenue  $1,090,100   $82,100   $1,172,200 

 

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:

 

11

 

 

   Contract Liabilities 
   Accounts
Receivable,
net
   Revenue
Contract
Liabilities
   Revenue
Contract
Assets
   Deferred
Revenue
(current)
   Deferred
Revenue
(non-current)
 
                          
Balance as of March 31, 2020  $302,200   $485,600   $463,100   $117,100   $22,000 
                          
Balance as of December 31, 2019   686,800    242,500    327,100    32,900    30,200 
                          
(Decrease) increase  $(384,600)  $243,100   $136,000   $84,200   $(8,200)

 

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 March 31, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations was approximately $1.1 million, of which the Company expects to recognize 100% of this revenue 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:

 

   March 31,
2020
   December 31,
2019
 
Field and shop equipment  $2,017,800   $2,240,700 
Vehicles   828,400    689,700 
Waste destruction equipment, placed in service   557,100    557,100 
Furniture and office equipment   346,300    346,300 
Leasehold improvements   36,300    36,300 
Building and improvements   21,200    21,200 
Land   162,900    162,900 
    3,970,000    4,054,200 
Less: accumulated depreciation and amortization   (3,424,900)   (3,492,400)
Property and equipment, net  $545,100   $561,800 

 

Depreciation expense for the three months ended March 31, 2020 and 2019 was $35,900 and $100,700, respectively. For the three months ended March 31, 2020 and 2019, depreciation expense included in cost of goods sold was $21,000 and $83,400, respectively. For the three months ended March 31, 2020 and 2019, depreciation expense included in selling, general and administrative expenses was $14,900 and $17,300, respectively.

 

Depreciation expense on leased CoronaLux™ units included in accumulated depreciation and amortization above is $9,700 and $26,700 as of March 31, 2020 and 2019, respectively.

 

12

 

 

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

 

   March 31,   December 31, 
   2020   2019 
Vehicles, field and shop equipment  $157,900   $370,900 
Less: accumulated amortization   (140,400)   (316,300)
   $17,500   $54,600 

 

NOTE 5 – INTANGIBLE ASSETS

 

Intangible assets were comprised of the following:

 

   March 31, 2020 
   Gross carrying amount   Accumulated amortization   Net carrying value 
             
Goodwill  $277,800   $-   $277,800 
Customer list   42,500    (42,500)   - 
Technology   1,021,900    (828,300)   193,600 
Trade name   54,900    (54,900)   - 
   $1,397,100   $(925,700)  $471,400 

 

   December 31, 2019 
   Gross carrying amount   Accumulated amortization   Net carrying value 
             
Goodwill  $277,800   $-   $277,800 
Customer list   42,500    (42,500)   - 
Technology   1,021,900    (820,200)   201,700 
Trade name   54,900    (54,900)   - 
   $1,397,100   $(917,600)  $479,500 

 

The estimated useful lives of the intangible assets range from seven to ten years. Amortization expense was $8,000 and $11,700 for the three months ended March 31, 2020 and 2019, respectively.

 

NOTE 6 – LEASES

 

The Company has entered 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 “Other assets” on the Company’s March 31, 2020 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 March 31, 2020 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 March 31, 2020, and December 31, 2019, total right-of-use assets were $396,400 and $437,300, respectively. As of March 31, 2020, and December 31, 2019, total operating lease liabilities were $426,800 and $437,300, respectively. All operating lease expense is recognized on a straight-line basis over the lease term. In the three months ended March 31, 2020 and 2019, the Company recognized approximately $52,300 and $65,600, respectively, in operating lease costs for right-of-use assets.

 

13

 

 

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:

 

   Three Months Ended March 31, 
   2020   2019 
         
Cash paid for operating lease liabilities  $73,600   $70,900 
Right-of-use assets obtained in exchange for new operating lease obligations   13,900    168,200 
Weighted-average remaining lease term   8.0 months    12.4 months 
Weighted-average discount rate   10%   10%

 

Maturities of lease liabilities in 12-month period ended March 31, 2020 were as follows:     
      
2020  $95,900 
2021   83,800 
2022   86,300 
2023   88,900 
2024   91,600 
Thereafter   134,700 
    581,200 
Less imputed interest   (154,400)
Total lease liabilities   426,800 
Current operating lease liabilities   55,900 
Non-current operating lease liabilities   370,900 
Total lease liabilities  $426,800 

 

14

 

 

NOTE 7 – ACCRUED LIABILITIES

 

Accrued liabilities were comprised of the following:

 

   March 31,
2020
   December 31,
2019
 
Accrued compensation and related taxes  $485,900   $498,000 
Accrued interest   770,300    648,600 
Accrued settlement/litigation claims   150,000    150,000 
Warranty and defect claims   52,700    48,200 
Lease liabilities   55,900    86,100 
Other   101,800    162,000 
Total Accrued Liabilities  $1,616,600   $1,592,900 

 

NOTE 8 – UNCOMPLETED CONTRACTS

 

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

 

   March 31,   December 31, 
   2020   2019 
Revenue recognized  $1,405,800   $1,074,800 
Less: billings to date   (920,200)   (832,300)
Costs and estimated earnings in excess of billings on uncompleted contracts   485,600    242,500 
           
Billings to date   878,600    2,707,200 
Revenue recognized   (415,500)   (2,380,100)
Revenue contract liabilities  $463,100   $327,100 

 

NOTE 9 – INVESTMENT IN PARAGON WASTE SOLUTIONS LLC

 

Since its inception through March 31, 2020, the Company has provided approximately $6.9 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 to 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 March 31, 2020 and December 31, 2019 and are being 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 March 31, 2020 and December 31, 2019, the outstanding balance due to the IRS by REGS was $1,060,400, and $1,052,200, respectively.

 

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

 

15

 

 

NOTE 11 – DEBT

 

Debt as of March 31, 2020 and December 31, 2019, was comprised of the following:

 

   March 31,   December 31, 
   2020   2019 
         
SHORT TERM NOTES          
           
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 and was recorded as interest. 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, however, the debt holder agreed to a reduction and a fixed amount of penalty shares in 2018, as issuable under the terms of this agreement. 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. No interest accrues on the unpaid balance.  $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 and was recorded as interest. 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 has been reached, however, the debt holder agreed to a reduced and fixed amount of penalty shares during 2018. 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. No interest accrues on the unpaid balance.   125,000    125,000 
           
Note payable dated November 20, 2017, interest at 30% per annum, principal and accrued interest due on or before February 28, 2018. 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. Unpaid interest at March 31, 2020 is approximately $129,500.   298,100    298,100 
           
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 totals $30,000 and was recorded as interest. 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 three months ended March 31, 2020, the Company recorded 300,000 shares of its common stock as issuable under the terms of this agreement value at $28,000 and recorded as interest expense. Unpaid one-time fees at March 31, 2020 is approximately $30,000.   500,000    500,000 
           
Secured short term note payable dated July 2, 2019 with principal and interest due 60 days from issuance. The note requires a one-time issuance of 500,000 options, which the company recorded the fair value of $37,300 as debt discount, amortized over the life of the note. The note accrues interest at 12% annually. The note is past due as the date of this filing. The Company has not received notice from the lender and continue to accrue interest. For the three months ended March 31, 2020, the Company recorded interest expense of $3,000. Unpaid interest at December 31, 2019 is approximately $9,000.   100,000    100,000 
           
Secured short term note payable dated July 18, 2019 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 3-12) a fee of $500 shall be due and owing accruing on the first day of the week and was recorded as interest. A fee of 15,000 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 30,000 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 MV Technology, LLC products. The penalty period for shares to be issued has been reached. For the period ended March 31, 2020, the Company recorded 52,500 shares of its common stock as issuable under the terms of this agreement value at $5,100 and recorded as interest expense. Unpaid interest at March 31, 2020 is approximately $10,000.   150,000    150,000 

 

16

 

 

Secured short term note payable dated October 1, 2019 with principal and interest due 6 months from issuance. On April 24, 2020, this note was extended to October 15, 2020. The note requires a one-time issuance of 200,000 common shares of the Company upon the maturity date of the note, which the company recorded the fair value of $13,000 as debt discount, amortized over the life of the note. The note accrues interest at 15% annually. For the three months ended March 31, 2020, the Company recorded interest expense of $11,200, and $6,500 of interest related to debt discount. Unpaid interest at March 31, 2020 is approximately $20,600.   300,000    300,000 
           
Secured short term note payable dated December 14, 2019 with principal and interest due 6 months from issuance. The note requires a one-time issuance of 250,000 common shares of the Company upon the maturity date of the note, which the company recorded the fair value of $16,300 as debt discount, amortized over the life of the note. The note accrues interest at 15% annually. For the three months ended March 31, 2020, the Company recorded interest expense of $16,800, and $8,200 of interest related to debt discount. Unpaid interest at March 31, 2020 is approximately $20,000.   450,000    450,000 
           
Secured short term note payable dated September 18, 2019 with no stated maturity date. The note accrues interest at 6% annually for the first 18 months, and 12% thereafter if not paid in full. Payments will be offset by SEER building and delivering 20 kilns for BIOCHAR to the debtor. For the three months ended March 31, 2020, the Company recorded interest expense of $4,500. Unpaid interest at March 31, 2020 is approximately $9,700.   300,000    300,000 
           
Secured short term note payable dated October 1, 2019 with no stated maturity date. The note accrues interest at 6% annually for the first 18 months, and 12% thereafter if not paid in full. Payments will be offset by SEER building and delivering 20 kilns for BIOCHAR to the debtor. For the three months ended March 31, 2020, the Company recorded interest expense of $1,300. Unpaid interest at March 31, 2020 is approximately $2,600.   85,000    85,000 
           
Secured short term note payable dated March 16, 2020, maturing on March 15, 2021. The note bears annual simple interest, at a rate of 14%, and matures on March 15, 2021. The Lender receives a one-time option grant to purchase 60,000 shares of the Company’s common stock for $0.10 per share for a period of 3 years from grant date, on the maturity date, with payment of principal and interest. These options were value at approximately $3,500, and are recorded as debt discount, and amortized over the life of the loan. For the three months ended March 31, 2020, the Company recorded interest expense of $600. Unpaid interest at March 31, 2020 is approximately $600.   100,000    - 
           
Secured short term note payable dated March 17, 2020, maturing on March 16, 2021. The note bears annual simple interest, at a rate of 14%, and matures on March 16, 2021. The Lender receives a one-time option grant to purchase 30,000 shares of the Company’s common stock for $0.10 per share for a period of 3 years from grant date, on the maturity date, on the maturity date, with payment of principal and interest. These options were value at approximately $2,000, and are recorded as debt discount, and amortized over the life of the loan. For the three months ended March 31, 2020, the Company recorded interest expense of $300. Unpaid interest at March 31, 2020 is approximately $300.   50,000    - 
           
Note payable insurance premium financing, interest at approximately 5.1% per annum, payable in 10 installments of $9,700, due November 1, 2020.   75,800    - 
           
Total Short-term notes  $2,633,900   $2,408,100 

 

17

 

 

Unsecured short term note payable dated August 21, 2019 with principal and interest due 60 days from issuance. The note requires a one-time fee in the amount of $500 to compensate for the first two weeks of the term and each week thereafter (weeks 3-8) a fee of $50 shall be due and owing accruing on the first day of the week, after which the fee is $75 per week, which is recorded as interest expense. The note is from the CEO, and thus classified as a related party note. For the three months ended March 31, 2020, the Company recorded interest expense of $900. Unpaid interest at March 31, 2020 is approximately $2,500.  $15,000   $15,000 
           
Unsecured short term note payable dated August 21, 2019 with principal and interest due 60 days from issuance. The note requires a one-time fee in the amount of $4,150 to compensate for the first two weeks of the term and each week thereafter (weeks 3-8) a fee of $415 shall be due and owing accruing on the first day of the week, after which the fee is $600 per week, which is recorded as interest expense. The note is from a family member of the CEO, and thus classified as a related party note. For the three months ended March 31, 2020, the Company recorded interest expense of $7,200. Unpaid interest at March 31, 2020 is approximately $19,800.   125,000    125,000 
           
Unsecured short term note payable dated October 7, 2019 with principal and interest due 60 days from issuance. The note requires a one-time fee in the amount of $500 to compensate for the first two weeks of the term and each week thereafter (weeks 3-8) a fee of $50 shall be due and owing accruing on the first day of the week, after which the fee is $75 per week, which is recorded as interest expense. The note is from the CEO, and thus classified as a related party note. For the three months ended March 31, 2020, the Company recorded interest expense of $900. Unpaid interest at March 31, 2020 is approximately $2,000.   15,000    15,000 
           
Total short-term notes - related party  $155,000   $155,000 
           
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. For the three months ended March 31, 2020, the Company recorded interest expense of $35,100. Unpaid interest at March 31, 2020 is approximately $297,300.  $1,605,000   $1,605,000 
           
Total convertible notes   1,605,000    1,605,000 
Less: current portion   (1,605,000)   (1,605,000)
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. Monthly payments of principal and accrued interest did not commence in 2019. 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. For the three months ended March 31, 2020, the Company recorded interest expense of $24,900. Unpaid interest at March 31, 2020 was approximately $178,400.  $500,000   $500,000 
           
Debt discount   (32,700)   (45,700)
           
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.   30,700    43,700 
           
Capital lease obligations, secured by certain assets, maturing through November 2020   7,800    28,500 
Total long-term notes and capital lease obligations   505,800    526,500 
Less: current portion   (225,700)   (258,100)
Long term notes and capital lease obligations, long-term, including debt discount  $280,100   $268,400 

 

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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:

 

   March 31,   December 31, 
   2020   2019 
Accrued interest  $36,100   $27,100 
   $36,100   $27,100 

 

NOTE 13 –DISCONTINUED OPERATIONS

 

2019 REGS services division

 

During the fourth quarter of 2019, the Company ceased bidding on, and accepting contracts for the services division of its REGS subsidiary. No contracts have been uncompleted; therefore, the division does not have any performance obligations at December 31, 2019. Fifteen employees in the division were terminated at December 31, 2019. The Company is investigating the sale of REGS services division assets as of December 31, 2019. Accordingly, the revenue and expenses associated with the services division are presented as “Discontinued operations” on our consolidated statement of operations and on our consolidated statement of cash flows for the three months ended March 31, 2020, and corresponding 2019 results were reclassified from the reporting classification in fiscal year 2019 for comparative purposes. For the three months ended March 31, 2020 and 2019 we recorded net loss from discontinued operations equal to $0 and $336,700, respectively.

 

Major classes of line items constituting pretax loss on discontinued operations:

 

   For the three months ended 
   March 31, 
   2020   2019 
         
Services revenue  $-   $220,200 
           
Services costs   -    (402,300)
General and administrative expenses   -    (122,400)
Salaries and related expenses   -    (104,500)
Other income (expense)   -    72,300 
Total expenses   -    (556,900)
           
Operating income    -    (336,700)
Income tax benefit   -    - 
Total income from discontinued operations  $-   $(336,700)

 

NOTE 14 – EQUITY TRANSACTIONS

 

2020

 

During the three months ended March 31, 2020, the Company recorded 352,500 shares of $.001 par value common stock as issued and issuable to short-term note holders as required under their respective short-term notes valued at approximately $33,100. (See Note 11)

 

During the three months ended March 31, 2020, the Company issued options to purchase 60,000 shares of $0.001 par value common stock to a short-term note holder of the Company, at $0.10 per share. The options were in connection with a new short-term note, and therefore recorded as debt discount. The Company valued the options using the Black-Sholes model, using a volatility of 134%, a risk-free rate of 0.29%, and an expected term, using the simplified method, of 3.0 years. The fair value at grant date of $3,500 will be amortized over the vesting period and recorded as interest expense.

 

During the three months ended March 31, 2020, the Company issued options to purchase 30,000 shares of $0.001 par value common stock to a short-term note holder of the Company, at $0.10 per share. The options were in connection with a new short-term note, and therefore recorded as debt discount. The Company valued the options using the Black-Sholes model, using a volatility of 134%, a risk-free rate of 0.30%, and an expected term, using the simplified method, of 3.0 years. The fair value at grant date of $2,000 will be amortized over the vesting period and recorded as interest expense.

 

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2019

 

During the three months ended March 31, 2019, the Company issued 200,000 shares of $.001 par value common stock to short-term note holders as required under their respective agreements. (See Note 11)

 

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.

 

NOTE 15 – CUSTOMER CONCENTRATIONS

 

The Company had sales from operations to three customers for the three months ended March 31, 2020 and 2019, that surpassed the 10% threshold of total revenue. In total, these customers represented approximately 50% and 74% 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 16 – 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 periods presented in the condensed 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.

 

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Potentially dilutive securities were comprised of the following:

 

   Three Months Ended March 31, 
   2020   2019 
Warrants   1,221,000    2,268,900 
Options   1,665,000    125,000 
Convertible notes payable, including accrued interest   3,957,900    2,516,100 
    6,843,900    4,910,000 

 

NOTE 17 – 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. The Company believes it is in substantial compliance with all federal, state and local laws regulating our business.

 

NOTE 18 – SEGMENT INFORMATION AND MAJOR CUSTOMERS

 

The Company currently has identified two segments as follows:

 

  MV, SEM, PelleChar, REGS in FY20 (1) Environmental Solutions
  PWS Solid Waste

 

  (1)

REGS industrial cleaning was discontinued in 2019 and is reported in discontinued operations. REGS in 2020 is reported in environmental solutions.

 

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. The Company has 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 months ended March 31, 2020 and 2019 is as follows:

  

  Discontinued   Environmental   Solid         
2020  Operations   Solutions   Waste   Corporate   Total 
                     
Revenue  $      -   $765,800   $58,200   $-   $824,000 
Depreciation and amortization (1)   -    11,900    9,700    14,400    36,000 
Interest expense   -    13,100    -    180,900    194,000 
Stock-based compensation   -    -    -    8,300    8,300 
Net income (loss)   -    (46,700)   (71,000)   (535,700)   (653,400)
Capital expenditures (cash and noncash)   -    19,300    -    -    19,300 
Total assets  $-   $1,849,300   $308,300   $799,700   $2,957,300 

 

  Discontinued   Environmental   Solid         
2019  Operations   Solutions   Waste   Corporate   Total 
                     
Revenue  $220,200   $1,090,100   $82,100   $-   $1,392,400 
Depreciation and amortization (1)   50,900    13,400    27,800    20,300    112,400 
Interest expense   10,700    1,900    1,600    135,600    149,800 
Stock-based compensation   -    -    -    500    500 
Net income (loss)   (336,700)   243,500    (60,200)   (425,500)   (578,900)
Capital expenditures (cash and noncash)   -    -    -    15,000    15,000 
Total assets  $586,200   $1,946,200   $380,400   $1,213,500   $4,126,300 

 

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

 

NOTE 19 – 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 March 31, 2020 and December 31, 2019 was $150,000 and $150,000, respectively.

 

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NOTE 20 – SUBSEQUENT EVENTS

 

On April 29, 2020, the Company borrowed $10,000 under a short-term note, from a related party. The note bears interest at an annual rate of 8% and matured on June 1, 2020. This note was subsequently paid on May 11, 2020.

 

On May 4, 2020, the Company borrowed $140,000 under a short-term note, from a related party. The note bears interest at an annual rate of 15% and matured on June 3, 2020. This note was subsequently paid on May 11, 2020.

 

Under the Small Business Administration (“SBA”), the Company applied for the Paycheck Protection Program (“PPP”) loan. These loans are forgiven if used for payroll, payroll benefits, including health insurance and retirement plans, as well as certain rent payments, leases, and utility payments, which are limited to 40% of the loan proceeds, all of which if paid within either 8 weeks or 24 weeks of the receipt of the loan proceeds. At the time of this filing, we have been funded for $590,300 in loans through SEER and our subsidiaries. At the time of this filing, we anticipate having a significant amount of this loan forgiven, however the forgiveness application process is not yet complete. If we do have a portion of these loans not being forgiven, the unqualified portion is to be repaid over 5 years, accruing interest at 1% per annum.

 

The Company owes two notes to a lender, that accrue penalty shares until the notes are paid in full. The aggregate principal of these notes is $650,000, and shares accrued after April 1, 2020, to the date of this filing total 160,000 shares.

 

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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 10-K filed with the Securities and Exchange Commission on May 14, 2020. 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 10-K 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 and owned 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 industrial 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 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) designs and manufactures environmental systems and provides general industrial cleaning services and waste management consulting to many industry sectors. During the fourth quarter of 2019, the Company ceased bidding on, and accepting contracts for the services division of its REGS subsidiary. The results from the subsidiary are included in discontinued operations for the years ended 2019 and 2018. No contracts have been uncompleted; therefore, the division does not have any performance obligations at December 31, 2019. Fifteen employees in the division were terminated at December 31, 2019. Subsequent to January 1, 2020, REGS is engaged solely to build kilns for PWS, and other customers. The Company is investigating the sale of REGS assets as of December 31, 2019.

 

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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 (H2S) 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.

 

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 minimal operations as of March 31, 2020.

 

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 commenced 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.

 

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.

 

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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.

 

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.

 

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 $27.6 million as of March 31, 2020, and $27.0 million as of December 31, 2019. For the three months ended March 31, 2020 and 2019 we had net losses from continuing operations before adjustment for losses attributable to non-controlling interest of approximately $0.7 million and $0.6 million, respectively. As of March 31, 2020, and December 31, 2019 our current liabilities exceed our current assets by approximately $7.6 million and $7.0 million, respectively. The primary reason for the increase in negative working capital from December 31, 2019 to March 31, 2020 is due to a net increase in short term debt of approximately $0.2 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, 2019.

 

Realization of a major portion of our assets as of March 31, 2020, 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, including discontinuing a line of business with insufficient margins. 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 on favorable terms or at all, 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.

 

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Results of Operations for the Three Months Ended March 31, 2020 and 2019

 

Total revenues were $0.8 million and $1.2 million for the three months ended March 31, 2020 and 2019, respectively. The decrease of approximately $0.4 million or 33% in revenues comparing the three months ended March 31, 2020 to the three months ended March 31, 2019 is primarily attributable to the decreases in revenues from our products segment revenue, which includes our environmental solutions segment, which decreased from $1.1 million for the three months ended March 31, 2019 to $0.8 million for the three months ended March 31, 2020, a decrease of approximately $0.3 million or approximately 30%. Environmental solutions segment generated less revenue as the volume of media sales decreased, primarily due to a shortage of capital to produce the media internally.

 

Operating expenses, which include cost of products, cost of solid waste and general and administrative (G&A) expenses, and salaries and related expenses, were approximately $1.5 million for the three months ended March 31, 2020 compared to $1.4 million for the three months ended March 31, 2019. The increase primarily consists of an increase in salaries and related expenses of approximately $0.1 million in the first quarter of 2020 from the first quarter of 2019, which was a result of classifying most REGS employees in the first quarter of 2019 in discontinued operations, resulting in less comparable employees remaining in continuing operations in 2019. Also contributing, was an increase in stock-based compensation in 2020. Product costs as a percentage of product revenues was 81% in 2020 compared to 59% in 2019. The decrease in margin is primarily due to more media being produced internally in 2019, and REGS costs, related to building kilns, being included in product costs in 2020, which did not exist in 2019. Solid waste costs remained consistent in 2020 and 2019.

 

Total non-operating other expense, net was a $400 benefit for the three months ended March 31, 2020 compared to $39,900 expense for the three months ended March 31, 2019. The decrease in expense in 2020 compared to 2019 is primarily due to an increase in other income of $0.1 million due to a gain on sale of disposed assets. This was offset by an increase in interest expense of $0.1 million as a result of the increase overall debt outstanding.

 

There is no provision for income taxes for both the three months ended March 31, 2020 and 2019, due to our net losses for both periods and we continue to maintain full allowances covering our net deferred tax benefits as of March 31, 2020 and 2019.

 

Net loss, before non-controlling interest, for the three months ended March 31, 2020 was $0.7 million compared to a net loss, before non-controlling interest, of $0.6 million for the three months ended March 31, 2019. The net loss attributable to SEER after deducting $27,300 for the non-controlling interest was $0.6 million for the three months ended March 31, 2020 as compared to $0.6 million, after deducting $28,300 in non-controlling interest, and $0.3 million for discontinued operations for the three months ended March 31, 2019. As noted above, the 30% decrease in revenue in 2020 compared to 2019 and an increase of operating expenses of 8% and offset by non-operating expenses during 2020 of 101% was the primary reason for the increase in the net loss.

 

Results of Discontinued Operations for the Three Months Ended March 31, 2020 and 2019

 

During the fourth quarter of 2019, the Company ceased bidding on, and accepting contracts for the services division of its REGS subsidiary. All revenue and expenses of our REGS subsidiary for 2019 are classified as discontinued operations. Commencing in 2020, all REGS operations involve the building of kilns for PWS and other customers. All discontinued operations consist of our industrial cleaning operations, reported during 2019. We are presenting these in a table form, as the industrial cleaning business operations did not have results in 2020.

 

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   For the three months ended 
   March 31, 
   2020   2019 
         
Services revenue  $-   $220,200 
           
Services costs   -    (402,300)
General and administrative expenses   -    (122,400)
Salaries and related expenses   -    (104,500)
Other income (expense)   -    72,300 
Total expenses   -    (556,900)
           
Operating income   -    (336,700)
Income tax benefit   -    - 
Total income from discontinued operations  $-   $(336,700)

 

There is no provision for income taxes for both the three months ended March 31, 2020 and 2019, due to our net losses for both periods and we continue to maintain full allowances covering our net deferred tax benefits as of March 31, 2020 and 2019.

 

Changes in Cash Flow

 

Operating Activities

 

The Company had net cash used by operating activities for the three months ended March 31, 2020 of $0.3 million compared to net cash used by operating activities for the three months ended March 31, 2019 of $0.6, an decrease of cash used of approximately $0.3 million. 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 adjustments were consistent and totaled $0.1 million for both the three months ended March 31, 2020 and 2019. Changes in account receivable provided $0.6 million more cash in the first quarter of 2020. Increase in account payable and accrued expenses provided $0.4 million, and the increase in deferred revenue provided $0.2 million more in 2020. These were offset by increase in costs in excess of billing using $0.5 more cash in 2020, the increase in prepaid expenses using $0.2 million in 2020, and the increase in inventory used $0.1 million more in cash in the three months ended March 31, 2020.

 

Investing activities

 

Net cash used by investing activities was $19,300 for the three months ended March 31, 2020 compared to $211,000 of cash provided for the three months ended March 31, 2019. The purchase of property and equipment was $19,300 for the three months ended March 31, 2020 compared to $15,000 for the purchase of property and equipment for the three months ended March 31, 2019. The proceeds from notes receivable totaled $0.0 million and $0.2 million for the three months ended March 31, 2020 and 2019, 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 $0.1 million for the three months ended March 31, 2020 compared to $0.4 million for the three months ended March 31, 2019. The net proceeds related to debt of approximately $150,000 in the three months ended March 31, 2020 compared to approximately $500,000 in the three months ended March 31, 2019 and principal payments on debt of $52,500 for the three months ended March 31, 2020 compared to $119,400 for the three months ended March 31, 2019.

 

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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 $11,700 and $11,800 has been reserved as of March 31, 2020 and December 31, 2019, 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 March 31, 2020, and December 31, 2019, 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 impairments were determined as of March 31, 2020.

 

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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.

 

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 were no significant changes in our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

Not Applicable.

 

ITEM 1A. Risk Factors

 

Please review our report on Form 10-K 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.

 

From January 1, 2020 to March 31, 2020, we had the following sales and issuances of unregistered equity securities:

 

Date of Sale  Title of Security  Number Sold  Consideration   Consideration Received and Description of Underwriting or Other Discounts to Market Price or Convertible Security Afforded to Purchases  Exemption from Registration Claimed  If Option, Warrant or Convertible Security, Terms of Exercise or Conversion  Security Holder
January 2020  Common Stock   115,000  $8,050   Shares issued as penalty for not meeting short term note maturity date; no commissions paid  Section 4(2); and/or Rule 506  Not applicable  Clyde Berg, an individual
February 2020  Common Stock   115,000  $10,350   Shares issued as penalty for not meeting short term note maturity date; no commissions paid  Section 4(2); and/or Rule 506  Not applicable  Clyde Berg, an individual
March 2020  Common Stock   122,500  $14,700   Shares issued as penalty for not meeting short term note maturity date; no commissions paid  Section 4(2); and/or Rule 506  Not applicable  Clyde Berg, an individual

 

These transactions were conducted in reliance on the exemptions from the registration requirements of the Securities Act of 1933, as amended, based on the private sale of the securities and the Company’s relationships with the security holders.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The $500,000 secured short-term note issued on February 1, 2019 was past due at March 31, 2020. We are accruing 100,000 shares of Company stock per month, recorded as interest, as penalty shares per agreement with the lender, until paid. 300,000 shares were recorded as penalty interest during the three months ended March 31, 2020, which was valued at $28,000 based on the date of issuance.

 

The $100,000 secured short-term note issued on July 2, 2019 was past due at March 31, 2020. We are continuing to accrue interest at the stated rate of 12% until the loan is paid in full, or an extension agreement is reached with the lender. We are currently in discussions with the lender regarding these matters, although we have not obtained a written waiver or entered into an amendment revising these terms.

 

The $150,000 secured short-term note issued on July 18, 2019 was past due at March 31, 2020. We are accruing 15,000 shares of Company stock per month, which increased to 30,000 shares of common stock per month March 16, 2020, recorded as interest, as penalty shares per agreement with the lender, until paid. 52,500 shares were recorded as penalty interest during the three months ended March 31, 2020, which was valued at $5,100 based on the date of issuance.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

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ITEM 5. OTHER INFORMATION

 

The Company is filing this Form 10-Q after the May 15, 2020 deadline in reliance on the Commission’s Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) (the “Order”) to delay the filing of the Form 10-Q due to circumstances related to the coronavirus disease 2019 (“COVID-19”).

 

On May 14, 2020, the Company filed a Current Report on Form 8-K to indicate its intention to rely on the Order for such extension. The disruption imposed on the Company and the Company’s auditors by COVID-19, closures and shelter in place orders in Colorado, Texas, and Illinois caused the Company to experience a delay in its ability to complete and file this Form 10-Q. Consequently, the Company was unable to timely file this Form 10-Q and relied on the Order for the filing of this Form 10-Q.

 

ITEM 6. EXHIBITS

 

EXHIBIT INDEX

 

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

 

* 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.

 

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SIGNATURES

 

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

 

Dated: June 25, 2020

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/ Clark Knopik
      Clark Knopik
      Interim Chief Financial Officer with
      responsibility to sign on behalf of Registrant as a
      duly authorized officer and principal financial officer

 

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