SENR 10-Q
Strategic Environmental & Energy Resources, Inc. (SENR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________________________
(Commission File Number)
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(IRS Employer Identification Number) |
(Address of principal executive offices including zip code)
(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.
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).
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 | ||
| Smaller
reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 21, 2022, the Registrant had shares outstanding of its $.001 par value common stock.
TABLE OF CONTENTS
| 2 |
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | * | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventory | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible Assets, net | ||||||||
| Right of use assets | ||||||||
| Investments | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Contract liabilities | ||||||||
| Deferred revenue | ||||||||
| Paycheck protection program liabilities | ||||||||
| Short term notes | ||||||||
| Short term notes and accrued interest - related party | ||||||||
| Convertible notes | ||||||||
| Current portion of long term debt and capital lease obligations | ||||||||
| Current portion of lease liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Lease liabilities net of current portion | ||||||||
| Long term debt and capital lease obligations, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock; $ par value; shares authorized; -- shares issued | ||||||||
| Common stock; $par value; shares authorized; shares issued, issuable ** and outstanding September 30, 2022 and December 31, 2021 | ||||||||
| Common stock issuable | ||||||||
| Additional paid-in capital | ||||||||
| Stock Subscription receivable | ( | ) | ( | ) | ||||
| Accumulated Other Comprhensive Income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| * | |
| ** |
| 3 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Solid waste | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Products costs | ||||||||||||||||
| Solid waste costs | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Salaries and related expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on abandonment | ||||||||||||||||
| Gain on debt extinguishment | ||||||||||||||||
| Other | ( | ) | ||||||||||||||
| Total non-operating expense, net | ( | ) | ( | ) | ||||||||||||
| Income (loss) from continuing operations | ( | ) | ( | ) | ||||||||||||
| Income from discontinued operations, net of tax | ||||||||||||||||
| Net lncome (loss) | ( | ) | ( | ) | ||||||||||||
| Less: Net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to SEER common stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Basic earnings per share attributable to SEER common stockholders | ||||||||||||||||
| Loss from continuing operations, per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Loss from discontinued operations, per share | ||||||||||||||||
| Net income (loss) per share, basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Fully diluted earnings per share attributable to SEER common stockholders | ||||||||||||||||
| Loss from continuing operations, per share | ( | ) | ( | ) | ||||||||||||
| Loss from discontinued operations, per share | ||||||||||||||||
| Net income (loss) per share, basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average shares outstanding – basic | ||||||||||||||||
| Weighted average shares outstanding – diluted | ||||||||||||||||
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)
| Additional | Common | Stock | Non- | Total | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Stock | Subscription | Accumulated |
controller | Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Subscribed | Receivable | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock upon debt penalty | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Allocated value of common stock and warrants related to debt | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon debt penalty | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon debt penalty | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Allocated value of common stock and warrants related to debt | - | - | ||||||||||||||||||||||||||||||||||||||
| Net income | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Additional | Common | Stock | Non- | Total | ||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Stock | Subscription | Accumulated | controller | Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Subscribed | Receivable | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock upon debt penalty | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Allocated value of common stock and warrants related to debt | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon debt penalty | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon debt penalty | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Allocated value of common stock and warrants related to debt | - | - | ||||||||||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
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 nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Loss from continuing operations | $ | ( | ) | $ | ||||
| Loss from discontinued operations | ||||||||
| Net income (loss) | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Gain on abandoment of subsidiary | ( | ) | ||||||
| Non-cash expense for interest, accretion of debt discount | ||||||||
| Gain on debt distinguishment | ( | ) | ( | ) | ||||
| Gain on disposition of assets | ( | ) | ||||||
| Bad debt | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Contract assets | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable, accrued liabilities, and customer deposits | ||||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from the sale of fixed assets | ||||||||
| Net cash (used) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Payments of notes and capital lease obligations | ( | ) | ( | ) | ||||
| Payments of short-term notes - related party | ( | ) | ||||||
| Proceeds from short-term notes - related party | ||||||||
| Proceeds from short-term and long-term debt | ||||||||
| Proceeds from paycheck protection program | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at the beginning of period | ||||||||
| Cash at the end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Investment in PSMW | $ | $ | ||||||
| Financing of prepaid insurance premiums | $ | $ | ||||||
| Non-cash repayment of debt | $ | $ | ||||||
| Non-cash repayment of debt - PPP Loan | $ | $ | ||||||
| Non-cash repayment of debt - PPP Loan, discontinued operations | $ | $ | ||||||
| Non-cash payment of interest | $ | $ | ||||||
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 two 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 two wholly owned subsidiaries include: 1) 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.; 2) Strategic Environmental Materials, LLC, (“SEM”), a materials technology company focused on development of cost-effective chemical absorbents. The Company had a third wholly owned subsidiary, REGS, LLC (d/b/a Resource Environmental Group Services (“REGS”)), which was discarded and abandoned September 1, 2021, and all operations are included in discontinued operations (See Note 15).
The
two majority-owned subsidiaries include 1) Paragon Waste Solutions, LLC (“PWS”), and 2) PelleChar, LLC (“PelleChar”).
PWS is currently owned
PWS has developed 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.
PelleChar
was established in September 2018 and is owned
Principals of Consolidation
The accompanying consolidated financial statements include the accounts of SEER, its wholly owned subsidiaries, SEM, MV and REGS (through September 1, 2021, as discontinued operations), and its majority-owned subsidiaries PWS 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 $
| 7 |
Realization
of a major portion of the Company’s assets as of September 30, 2022, 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 nine months
ended September 30, 2022, the Company raised approximately $
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 April 15, 2022, for the year ended December 31, 2021.
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
Revenue is recognized under FASB guidelines, which 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. (See Note 3)
Sequencing
On December 31, 2021, the Company adopted a sequencing policy under ASC 815-40-35 whereby in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.
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
$
Inventories
Inventories are stated at the lower of cost or net realizable value on a first in, first out basis and includes the following amounts:
| September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| $ | $ | |||||||
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 nine months ended September 30, 2022, and 2021 the Company recognized
The
Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
The Company has filed federal and state tax returns through December 31, 2020. The tax periods for the years ending December 31, 2018, through 2021 are open to examination by federal and state authorities.
| 9 |
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.
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 (Unaudited)
| Three months ended September 30, 2022 | ||||||||||||
Environmental Solutions | Solid Waste | Total | ||||||||||
| Sources of Revenue | ||||||||||||
| Product sales | $ | $ | $ | |||||||||
| Media sales | ||||||||||||
| Management fees | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| 10 |
| Three months ended September 30, 2021 | ||||||||||||
Environmental Solutions | Solid Waste | Total | ||||||||||
| Sources of Revenue | ||||||||||||
| Product sales | ||||||||||||
| Media sales | ||||||||||||
| Licensing fees | ||||||||||||
| Management fees | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Nine months ended September 30, 2022 | ||||||||||||
Environmental Solutions | Solid Waste | Total | ||||||||||
| Sources of Revenue | ||||||||||||
| Product sales | $ | $ | $ | |||||||||
| Media sales | ||||||||||||
| Management fees | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| Nine months ended September 30, 2021 | ||||||||||||
Environmental Solutions | Solid Waste | Total | ||||||||||
| Sources of Revenue | ||||||||||||
| Product sales (1) | $ | $ | ||||||||||
| Media sales | ||||||||||||
| Licensing fees | ||||||||||||
| Management fees | ||||||||||||
| Total Revenue | $ | $ | $ | |||||||||
| (1) |
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.
| 11 |
The opening and closing balances of the Company’s accounts receivables and contract liabilities (current and non-current) are as follows:
| Contract Liabilities | ||||||||||||||||||||
| Accounts Receivable, net | Contract Assets | Contract Liabilities | Deferred Revenue (current) | Deferred Revenue (non-current) | ||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||
| Balance as of December 31, 2021 | ||||||||||||||||||||
| Increase (decrease) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
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. Contract liabilities and deferred revenue are 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 September 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations was approximately
$
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:
September 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | * | |||||||
| Field and shop equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Waste destruction equipment, placed in service | ||||||||
| Furniture and office equipment | ||||||||
| Leasehold improvements | ||||||||
| Building and improvements | ||||||||
| Land | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| 12 |
Depreciation
expense for the three months ended September 30, 2022, and 2021 was $
Depreciation
expense for the nine months ended September 30, 2022, and 2021 was $
Depreciation
expense on leased CoronaLux™ units included in depreciation and amortization above is $
Property and equipment included the following amounts for leases that have been capitalized at:
| September 30, 2022 | December 31, 2021 | |||||||
| Vehicles, field and shop equipment | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
NOTE 5 – INTANGIBLE ASSETS
| September 30, 2022 (unaudited) | ||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying value | ||||||||||
| Goodwill | $ | $ | $ | |||||||||
| Customer list | ( | ) | ||||||||||
| Technology | ( | ) | ||||||||||
| Trade name | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
| December 31, 2021 | ||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying value | ||||||||||
| Goodwill | $ | $ | $ | |||||||||
| Customer list | ( | ) | ||||||||||
| Technology | ( | ) | ||||||||||
| Trade name | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
The
estimated useful lives of the intangible assets range from to
NOTE 6 – LEASES
The
Company has entered into operating leases primarily for real estate. These leases have terms which range from
| 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 (Unaudited):
| Nine months ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease obligations | ||||||||
| Weighted-average remaining lease term | ||||||||
| Weighted-average discount rate | % | % | ||||||
Maturities of lease liabilities as of September 30, 2022 were as follows:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Less imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| Current operating lease liabilities | ||||
| Non-current operating lease liabilities | ||||
| Total lease liabilities | $ |
NOTE 7 – ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | * | |||||||
| Accrued compensation and related taxes | $ | $ | ||||||
| Accrued interest | ||||||||
| Accrued settlement/litigation claims | ||||||||
| Warranty and defect claims | ||||||||
| Other | ||||||||
| Total Accrued Liabilities | $ | $ | ||||||
| 14 |
NOTE 8 – UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Revenue recognized | $ | $ | ||||||
| Less: billings to date | ( | ) | ( | ) | ||||
| Contract assets | ||||||||
| Billings to date | ||||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Contract liabilities | $ | $ | ||||||
NOTE 9 – INVESTMENTS
Paragon Waste Solutions LLC
Since
its inception through September 30, 2022, the Company has provided approximately $
Paragon Southwest Medical Waste
On
July 20, 2022, PWS transferred all patents owned covering medical waste destruction, and related technology, to its joint venture, Paragon
Southwest Medical Waste (“PSMW”), in exchange for units in PSMW. The units in PSMW transferred in connection with this transaction
increased SEER’s equity in PSMW to approximately
| 15 |
NOTE 10 – DEBT
Debt as of September 30, 2022 (Unaudited), and December 31, 2021, was comprised of the following:
Paycheck protection program | Short term notes | Convertible notes, unsecured | Current portion of long- term debt and capital lease obligations | Long term debt and capital lease obligations | Total | ||||||||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | $ | (4) | $ | ||||||||||||||||||
| Increase in borrowing | (2) | (2) | |||||||||||||||||||||||
| Principal reductions | ( | ) | (1) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Long term debt to current | |||||||||||||||||||||||||
| Amortization of debt discount | |||||||||||||||||||||||||
| Balance September 30, 2022 | $ | $ | (3) | $ | $ | $ | $ | ||||||||||||||||||
| (1) | |
| (2) | |
| (3) | The balance consists of $ |
| (4) | |
| (5) | There were two new notes entered into
during the three months ended September 30, 2022. A) A secured note payable of $ |
NOTE 11 – RELATED PARTY TRANSACTIONS
Notes payable and accrued interest, related parties
Related parties accrued interest due to certain related parties are as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Short term notes | $ | $ | ||||||
| Accrued interest | ||||||||
| Total short-term notes and accrued interest - Related parties | $ | $ | ||||||
NOTE 12 – EQUITY TRANSACTIONS
2022 Common Stock Transactions
During the nine months ended September 30, 2022, no new equity transactions have occurred.
2021 Common Stock Transactions
During the nine months ended September 30, 2021, no new equity transactions have occurred.
Non-controlling Interest
| 16 |
NOTE 13 – CUSTOMER CONCENTRATIONS
The
Company had sales from operations to three and two customers, for the nine months ended September 30, 2022, and 2021, respectively,
that surpassed the 10% threshold of total revenue, respectively. In total, these customers represented approximately
Basic net gain or loss per share is computed by dividing net gain or loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted net gain or 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 nine months ended September 30, 2022, all potentially dilutive securities have been excluded from the diluted share calculations because they were anti-dilutive as a result of the net losses incurred for the respective period, or were dilutive, but the exercise prices were above the stock price for the entire period, deeming them not to be converted, or exercised during the period. Accordingly, basic shares equal diluted shares for all periods presented.
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Convertible notes payable, including accrued interest | ||||||||
NOTE 15 – ABANDONMENT OF SUBSIDIARY
On
September 1, 2021, the Company’s board of directors, by unanimous consent, adopted a resolution to abandon the Company’s
wholly owned subsidiary, REGS, LLC. The abandonment resulted in a gain to the Company of approximately $
| 17 |
Major classes of line items constituting pretax income on discontinued operations (unaudited):
| For the nine months ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Services revenue | $ | $ | ||||||
| Services costs | ( | ) | ||||||
| General and administrative expenses | ( | ) | ||||||
| Salaries and related expenses | ( | ) | ||||||
| Other income | ||||||||
| Gain on debt extinguishment | ||||||||
| Total expenses | ||||||||
| Operating income | ||||||||
| Income tax benefit | ||||||||
| Total income from discontinued operations | $ | $ | ||||||
NOTE 16 – SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company currently has identified two segments as follows:
| MV, SEM, PelleChar | Environmental Solutions | |
| PWS | Solid Waste |
The composition of our reportable segments is consistent with that used by our chief decision makers 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.
| 18 |
Segment information for the three and nine months ended September 30, 2022 (unaudited), and 2021 is as follows:
Three Months ended September 30,
| 2022 | Environmental | Solid | ||||||||||||||
| Solutions | Waste | Corporate | Total | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Capital expenditures (cash and noncash) | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| 2021 | Environmental | Solid | ||||||||||||||
| Solutions | Waste | Corporate | Total | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Net income (loss) | ||||||||||||||||
| Capital expenditures (cash and noncash) | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
Nine months ended September 30,
| 2022 | Environmental | Solid | ||||||||||||||
| Solutions | Waste | Corporate | Total | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Capital expenditures (cash and noncash) | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| 2021 | Environmental | Solid | ||||||||||||||
| Solutions | Waste | Corporate | Total | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization (1) | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Capital expenditures (cash and noncash) | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| (1) | ||
| (2) |
| 19 |
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 April 15, 2022. 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 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, which includes our majority owned entities, is discussed in more detail below.
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 synergistic services, technologies and products.
The Company now owns and manages three operating entities and two entities that have no significant operations to date. The Company’s REGS subsidiary was abandoned during the third fiscal quarter of 2021. References in this report to abandoned or abandonment refer to the Company’s determination not to provide financial support to, or conduct operations in or through, REGS.
Subsidiaries
Wholly owned
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 landfill 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.
| 20 |
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.
REGS, LLC d/b/a Resource Environmental Group Services (“REGS”): (operated from 1994 to September 2021) previously designed and manufactured environmental systems and provided 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 2021 and 2020. No contracts have been uncompleted relating to the services division; therefore, the services division did not have any performance obligations as of December 31, 2020, nor thereafter. After the industrial cleaning services division was discontinued as of 2019, REGS continued with its manufacturing and assembly operations during 2020 and into 2021. These operations consisted primarily of building kilns and related equipment. As of September 2021, the Company wound down REGS, ceased all operations, and abandoned the entity as a subsidiary. REGS operations for the periods reported were included in discontinued operations. Assets and liabilities were stranded and written off in accordance with GAAP; however, the Company cannot provide any assurance as to the treatment of such assets or liabilities or the abandonment by third parties, including governmental authorities.
Majority owned
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.
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 manufacturers. 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. PelleChar activity to date relates to startup of operations, and an increasing sales effort. Revenue and expenses of PelleChar were not material for the nine months ended September 30, 2022.
Joint Ventures
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.
| 21 |
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 has an exclusive license to the CoronaLux™ technology in a six-state area of the Southern United States. In addition to the equity position, PWS is the operating partner for the business and intends to sell a number of additional systems to the joint venture. 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 operating losses, and has accumulated a deficit of approximately $30.9 million as of September 30, 2022, and $29.4 million as of December 31, 2021. For the nine months ended September 30, 2022, and 2021 we incurred a net loss of approximately $1.5 million, and earned net income of $1.0 million, respectively. As of September 30, 2022, and December 31, 2021, our current liabilities exceed our current assets by approximately $8.8 million and $7.5 million, respectively. The primary reason for that working capital deficit increased from December 31, 2021, to September 30, 2022, is due to a net loss fiscal year 2022. 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 interim unaudited financial statements for the period ended September 30, 2022.
Realization of a major portion of our assets as of September 30, 2022, 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 focus to address opportunities identified in domestic markets attributable to increased federal and state emission control regulations 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.
Results of Operations for the Three Months Ended September 30, 2022, and 2021
Total revenues were $1.1 million and $1.2 million for the three months ended September 30, 2022, and 2021, respectively. Our products segment revenue, which includes our environmental solutions segment, remained relatively flat with revenues of approximately $1.1 million for the three months ended September 30, 2021 and for the three months ended September, 2022. Our solid waste segment revenue decreased from approximately $0.1 million to $0 for the three months ended September 30, 2021 compared with the three months ended September 30, 2022.
Operating expenses, which include cost of products, cost of solid waste, general and administrative (G&A) expenses, and salaries and related expenses, were approximately $1.5 million for the three months ended September 30, 2022, an increase of approximately $0.2 million from $1.2 million for the three months ended September 30, 2021. Product costs increased $0.2 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to increased job costs connected to our percent complete contracts, as percent complete contract activity has increased, and the increased costs for freight was material for the quarter. Salaries and related expenses increased to $0.3 million for the three months ended September 30, 2022 from $0.2 million for the three months ended September 30, 2021. General and administrative expenses were consistent at $0.2 million for the three months ended September 30, 2022, and 2021.
Total non-operating expense, net was $0.2 million for the three months ended September 30, 2022, compared to non-operating income, net of approximately $1.5 million for the three months ended September 30, 2021. This decrease is due to a gain on abandonment of $1.5 million and gain on debt extinguishment of $0.2 million recognized in the three months ended September 30, 2021.
| 22 |
There is no provision for income taxes for both the three months ended September 30, 2022, and 2021, and we continue to maintain full allowances covering our net deferred tax benefits as of September 30, 2022, and 2021.
Loss from continuing operations was approximately $0.6 million for the three months ended September 30, 2022 compared to a gain from continuing operations of approximately $1.5 million for the three months ended September 30, 2021. The net loss attributable to SEER after deducting $10,700 for the non-controlling interest was $0.6 million for the three months ended September 30, 2022, as compared to a net income of $1.7 million, after adding back $251,000 in non-controlling interest and $425,900 income from discontinued operations, for the three months ended September 30, 2021.
Results of Operations for the Nine Months Ended September 30, 2022, and 2021
Total revenues were $3.2 million and $2.9 million for the nine months ended September 30, 2022, and 2021, respectively. The increase of approximately $0.3 million or 9% in revenues comparing the nine months ended September 30, 2022, to the nine months ended September 30, 2021, is attributable to the increases in revenues from our products revenue, of our environmental solutions segment, which increased from approximately $2.7 million for the nine months ended September 30, 2021, to approximately $3.1 million for the nine months ended September 30, 2022, an increase of approximately $0.3 million or approximately 13%. Environmental solutions segment generated more revenue as activity increased in our construction contracts, due to the recovery from the slowdown in the economy attributable to the COVID-19 pandemic the prior year period.
Operating expenses, which include cost of products, cost of solid waste, general and administrative (G&A) expenses, and salaries and related expenses, were approximately $4.3 million for the nine months ended September 30, 2022, an increase of approximately $0.9 million from $3.3 million for the nine months ended September 30, 2021. Product costs increased $0.6 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to increased job costs connected to our percent complete contracts, as percent complete contract activity has increased, and the increased costs for freight was material for the first half of the fiscal year. Salaries and related expenses increased from $0.6 million for the nine months ended September 30, 2021, to approximately $1.0 million for the nine months ended September 30, 2022. The prior year period included ERTC Tax credits, reducing the amount of payroll taxes during the period. General and administrative expenses were consistent at $0.8 million for the nine months ended September 30, 2022, and 2021.
Total non-operating expense, net was $0.4 million for the nine months ended September 30, 2022, compared to non-operating income of $1.1 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, the Company recorded $0.1 million in gain on debt extinguishment, which resulted from the forgiveness of the Company’s PPP Loans from the US Treasury.
There is no provision for income taxes for both the nine months ended September 30, 2022, and 2021 and we continue to maintain full allowances covering our net deferred tax benefits as of September 30, 2022, and 2021.
Loss from continuing operations was approximately $1.5 million, for the nine months ended September 30, 2022 compared to income of $0.7 million for the nine months ended September 30, 2021. The net income attributable to SEER after adding back $33,000 for the non-controlling interest was $1.5 million for the nine months ended September 30, 2022, as compared to a net income of $0.8 million, after adding back $210,000 in non-controlling interest and deducting $292,100 loss from discontinued operations, for the nine months ended September 30, 2021.
| 23 |
Results of Discontinued Operations for the Nine months ended September 30, 2022, and 2021
As of September 1, 2021, the Company abandoned its REGS subsidiary. All revenue and expenses of our REGS subsidiary for 2021 are classified as discontinued operations.
| For the nine months ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Services revenue | $ | - | $ | 177,200 | ||||
| Services costs | - | (314,900 | ) | |||||
| General and administrative expenses | - | (40,800 | ) | |||||
| Salaries and related expenses | - | (150,800 | ) | |||||
| Other income | - | 210,800 | ||||||
| Gain on debt extinguishment | - | 410,600 | ||||||
| Total expenses | - | 114,900 | ||||||
| Operating income | - | 292,100 | ||||||
| Income tax benefit | - | - | ||||||
| Total income from discontinued operations | $ | - | $ | 292,100 | ||||
There is no provision for income taxes for both the nine months ended September 30, 2022, and 2021, due to our net loss carryforwards and we continue to maintain full allowances covering our net deferred tax benefits as of September 30, 2022, and 2021.
Changes in Cash Flow
Operating Activities
The Company had net cash used by operating activities for the nine months ended September 30, 2022, and 2021 of $0.9 million and $1.4 million, respectively. 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, provision for bad debt, non-cash interest expense, gain on debt extinguishment, and gain on extinguishment of debt. Net income decreased from the nine months ended September 30, 2021, of approximately $1.0 million, to a net loss of $1.5 million for the nine months ended September 30, 2022. Non-cash adjustments were nominal for the nine months ended September 30, 2022, compared to net non-cash adjustments of $2.1 million for the nine months ended September 30, 2021.
In addition to the non-cash adjustments to net income, changes in assets and liabilities include: a) changes in accounts payable, accrued liabilities, and customer deposits provided $893,900 during the nine months ended September 30, 2022, compared to providing $105,700 during the same period in 2021, a net increase in cash provided of approximately $0.8 million, b) changes in accounts receivable used approximately $351,100 in the nine months ended September, 30, 2022, compared to using $158,700 in the same period in 2021, a net decrease in cash of approximately $192,400, c) changes in contract liabilities used $5,500 in the nine months ended September 30, 2022, compared to using $96,800 in the same period in 2021, a net increase in cash provided of approximately $0.1 million, d) changes in contract assets used $72,800 in the nine months ended September 30, 2022, compared to using $116,900 during the same period in 2021, a net increase in cash provided of approximately $44,100.
Investing activities
Net cash used by investing activities was $31,800 for the nine months ended September 30, 2022, compared to providing $189,100 of cash for the nine months ended September 30, 2021. The purchase of property and equipment was $31,800 for the nine months ended September 30, 2022, and $3,000 for the nine months ended September 30, 2021. The proceeds from sale of fixed assets totaled $192,100 for the nine months ended September 30, 2021, while $0 for the nine months ended September 30, 2022.
| 24 |
Financing Activities
Net cash provided by financing activities was approximately $0.8 million for the nine months ended September 30, 2022, compared with providing $1.3 million for the nine months ended September 30, 2021. The net of proceeds and payments related to debt accounted for the difference, providing approximately $0.8 million in the nine months ended September 30, 2022, compared to approximately $1.2 million in the nine months ended September 30, 2021, and the net proceeds related to paycheck protection program of approximately $0.1 in the nine months ended September 30, 2021.
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 $19,800 and $0 has been reserved as of September 30, 2022, and December 31, 2021, respectively.
Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable. Our customers operate primarily in the 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 September 30, 2022, and December 31, 2021, 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
The Company evaluates 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 September 30, 2022.
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Revenue Recognition
Revenue is recognized under FASB guidelines, which 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We carried out an assessment, under the supervision and with the participation of our management, including our CEO and Acting CFO, of the effectiveness of the design and operation of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of September 30, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on that assessment and on those criteria, our CEO and Acting CFO concluded that our internal control over financial reporting was not effective as of September 30, 2022. The principal basis for this conclusion is (i) failure to engage sufficient resources regarding our accounting and reporting obligations during our startup and (ii) failure to fully document our internal control policies and procedures.
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the management’s report in this quarterly report.
The Company’s management, including the Company’s CEO and Acting CFO, does not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
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.
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.
None.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The $500,000 secured short-term note issued on February 1, 2019, was past due as of September 30, 2022. We have accrued 100,000 shares of Company stock per month, recorded as interest, as penalty shares per agreement with the lender, until paid, through December 31, 2020, in accordance with a verbal agreement with the lender. No further share accrual is being made. A total of 1,850,000 penalty shares are accrued, and due on demand, in accordance with this borrowing. Unpaid interest is approximately $30,000 as of the date of this report.
The $100,000 secured short-term note issued on July 2, 2019, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 12% per annum, which is a total of approximately $36,000 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
The $150,000 secured short-term note issued on July 18, 2019, was past due as of September 30, 2022. We have accrued 15,000 shares of Company stock per month, which increased to 30,000 shares of common stock per month beginning March 16, 2020, recorded as interest, as penalty shares per agreement with the lender, until paid, through December 31, 2020, in accordance with a verbal agreement with the lender. A total of 360,000 penalty shares are accrued and due on demand, in accordance with this borrowing. Unpaid interest is approximately $10,000 as of the date of this report.
The $300,000 secured short-term note issued on October 17, 2019, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 15% per annum, which is a total of approximately $133,000 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
The $450,000 secured short-term note issued on December 14, 2019, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 15% per annum, which is a total of approximately $188,300 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
The $100,000 secured short-term note issued on March 16, 2020, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 14% per annum, which is a total of approximately $36,000 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
The $50,000 secured short-term note issued on March 17, 2020, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 14% per annum, which is a total of approximately $17,800 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
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The $220,000 secured short-term note issued on July 8, 2020, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 15% per annum, which is a total of approximately $73,600 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
The $120,000 secured short-term note issued on August 18, 2020, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 15% per annum, which is a total of approximately $38,000 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
The $280,000 secured short-term note issued on September 3, 2020, was past due as of September 30, 2022. We are continuing to accrue interest at the stated rate of 15% per annum, which is a total of approximately $87,100 as of the date of this report, until the loan is paid in full, or an extension agreement is reached with the lender. We are in on-going discussions with our lenders regarding the terms and conditions of the respective loans. Although we have not obtained a written waiver(s) or entered into an amendment(s) formally extending or revising debt terms in all instances, the lenders, most of whom are also shareholders, have and are continuing to cooperate with the company in order to resolve the matters in the best interest of all parties.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
EXHIBIT INDEX
| * | 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: November 21, 2022 | 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/ George Smith | |
| George Smith | ||
| 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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