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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2021

 

OR

 

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

 

For the transition period from ___________________________

 

000-54987

(Commission File Number)

 

Strategic Environmental & Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   02-0565834

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification Number)

 

370 Interlocken Blvd, Suite 680, Broomfield, CO 80021

(Address of principal executive offices including zip code)

 

303-277-1625

(Registrant’s telephone number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐

 

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

 

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

 

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

 

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

 

As of August 16, 2021, the Registrant had 65,088,575 shares outstanding of its $.001 par value common stock.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 3
     
  Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021, and 2020 (unaudited) 4
     
  Condensed Consolidated Statement of Changes in Stockholders’ Deficit as of June 30, 2021, and 2020 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021, and 2020 (unaudited) 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
     
Item 4. Controls and Procedures 27
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 27
     
Item 1A. Risk Factors 27
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
     
Item 3. Defaults Upon Senior Securities 27
     
Item 4. Mine Safety Disclosures 28
     
Item 5. Other Information 28
     
Item 6. Exhibits 29
     
SIGNATURES 30

 

2
 

 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30, 2021  

December 31, 2020

*

 
   June 30,   December 31, 
   2021   2020 
    (Unaudited)    * 
ASSETS          
Current Assets          
Cash and cash equivalents  $181,500   $47,300 
Accounts receivable, net of allowance for doubtful accounts of $800 and $11,800, respectively   535,900    375,600 
Inventory   99,000    250,200 
Costs and estimated earnings in excess of billings on uncompleted contracts   -    6,800 
Prepaid expenses and other current assets   223,200    110,600 
Total Current Assets   1,039,600    790,500 
           
Property and equipment, net   497,800    548,000 
Intangible Assets, net   431,300    447,300 
Right of use assets   326,600    380,400 
Other assets   50,500    50,500 
           
TOTAL ASSETS  $2,345,800   $2,216,700 
           
LIABILITIES AND STOCKHOLDER’S DEFICIT          
           
Current Liabilities          
Accounts payable  $816,000   $1,109,200 
Accrued liabilities   2,283,000    1,977,200 
Billings in excess of costs and estimated earnings on uncompleted contracts   616,300    323,900 
Deferred revenue   13,700    30,200 
Payroll taxes payable   1,074,000    1,085,400 
Customer deposits   16,400    16,400 
Paycheck protection program liabilities   720,400    590,300 
Short term notes   2,898,800    3,032,800 
Short term notes and accrued interest - related party   226,100    208,100 
Convertible notes   1,605,000    1,605,000 
Current portion of long-term debt and capital lease obligations   524,900    523,900 
Current portion of lease liabilities   48,900    78,100 
Total Current Liabilities   10,843,500    10,580,500 
           
Lease liabilities net of current portion   310,600    334,700 
Long term debt and capital lease obligations, net of current portion   881,300    30,300 
Total Liabilities   12,035,400    10,945,500 
           
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; 65,288,575 and 65,088,575 shares issued, issuable ** and outstanding June 30, 2020, and December 31, 2020, respectively  65,100    65,100 
Common stock issuable   25,000    25,000 
Additional paid-in capital   22,970,700    22,961,200 
Stock Subscription receivable   (25,000)   (25,000)
Accumulated deficit   (30,622,900)   (29,693,700)
Total stockholders’ deficit   (7,587,100)   (6,667,400)
Non-controlling interest   (2,102,500)   (2,061,400)
Total Deficit   (9,689,600)   (8,728,800)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $2,345,800   $2,216,700 

 

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, 2020.
**Includes 2,985,000 shares issuable as of June 30, 2021, and 3,185,000 shares issuable as of December 31, 2020, per terms of note agreements.

 

3
 

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2021   2020   2021   2020 
   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2021   2020   2021   2020 
Revenue:                    
Products  $862,700   $734,300   $1,725,900   $1,500,100 
Solid waste   58,300    58,300    116,500    116,500 
Total revenue   921,000    792,600    1,842,400    1,616,600 
                     
Operating expenses:                    
Products costs   674,200    502,100    1,342,700    1,125,600 
Solid waste costs   7,400    9,700    14,800    33,300 
General and administrative expenses   324,400    293,600    638,100    711,400 
Salaries and related expenses   372,000    389,100    537,400    797,500 
Total operating expenses   1,378,000    1,194,500    2,533,000    2,667,800 
                     
Loss from operations   (457,000)   (401,900)   (690,600)   (1,051,200)
                     
Other income (expense):                    
Interest expense   (189,200)   (200,800)   (391,700)   (394,800)
Other   6,400    1,500    112,000    191,400 
Total non-operating expense, net   (182,800)   (199,300)   (279,700)   (203,400)
                     
Net loss   (639,800)   (601,200)   (970,300)   (1,254,600)
                     
Less: Net loss attributable to non-controlling interest   (28,200)   (38,000)   (41,100)   (65,300)
                     
Net loss attributable to SEER common stockholders  $(611,600)  $(563,200)  $(929,200)  $(1,189,300)
                     
Net loss per share, basic and diluted  $(0.01)  $(0.01)  $(0.01)  $(0.02)
                     
Weighted average shares outstanding – basic and diluted   65,009,454    63,773,834    64,949,348    63,241,891 

 

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)

 

   Shares   Amount   Shares   Amount   Capital   Subscribed   Receivable   Deficit   Interest   Deficit 
   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, 2020   -   $-    65,088,600   $65,100   $22,961,200   $25,000   $(25,000)  $(29,693,700)  $(2,061,400)  $      (8,728,800)
                                                   
Issuance of common stock upon debt penalty   -    -    -    -    -    -    -    -    -    - 
                                                   
Stock-based compensation   -    -    -    -    4,700    -    -    -    -    4,700 
                                                   
Allocated value of common stock and warrants related to debt   -    -    -    -    -    -    -    -    -    - 
                                                   
Net loss   -    -    -    -    -    -    -    (317,600)   (12,900)   (330,500)
                                                   
Balances at March 31, 2021   -                 -    65,088,600    65,100    22,965,900    25,000    (25,000)   (30,011,300)   (2,074,300)   (9,054,600)
                                                   
Issuance of common stock upon debt penalty   -    -    -    -    -    -    -    -    -    - 
                                                   
Stock-based compensation   -    -    -    -    4,800    -    -    -    -    4,800 
                                                   
Net loss   -    -    -    -    -    -    -    (611,600)   (28,200)   (639,800)
                                                   
Balances at June 30, 2021   -    -    65,088,600    65,100    22,970,700    25,000    (25,000)   (30,622,900)   (2,102,500)   (9,689,600)

 

   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)
                                                   
Issuance of common stock upon debt penalty   -    -    390,000    400    41,200    -    -    -    -    41,600 
                                                   
Stock-based compensation   -    -    -    -    1,200    -    -    -    -    1,200 
                                                   
                                                   
Net loss   -    -    -    -    -    -    -    (563,200)   (38,000)   (601,200)
                                                   
Balances at June 30, 2020   -    -    63,333,600    63,300    22,740,100    25,000    (25,000)   (28,153,600)   (2,092,000)   (7,442,200)

 

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)

 

   2021   2020 
   For the six months ended June 30, 
  2021   2020 
Cash flows from operating activities:          
Net loss from continuing operations  $(970,300)  $(1,254,600)
           
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   69,200    90,000 
Stock-based compensation expense   9,500    9,500 
Non-cash expense for interest, common stock issued for debt penalty   -    74,700 
Provision for doubtful accounts receivable   (200)   (10,800)
Non-cash expense for interest, accretion of debt discount   28,700    31,400 
Gain on disposition of assets   (81,400)   - 
Changes in operating assets and liabilities:          
Accounts receivable   (160,100)   357,200 
Costs in excess of billings on uncompleted contracts   6,800    (144,500)
Inventory   (3,500)   (42,000)
Prepaid expenses and other assets   (6,400)   (56,600)
Accounts payable, accrued liabilities, and customer deposits   30,600    59,700 
Billings in excess of revenue on uncompleted contracts   292,400    (2,000)
Deferred revenue   (16,500)   67,700 
Payroll taxes payable   (11,400)   16,600 
Net cash used in operating activities   (812,600)   (803,700)
Cash flows from investing activities:          
Purchase of property and equipment   (3,000)   (131,600)
Proceeds from the sale of fixed assets   81,400    - 
Net cash provided by (used) in investing activities   78,400    (131,600)
Cash flows from financing activities:          
Payments of notes and capital lease obligations   (96,700)   (113,400)
Payments of short-term notes - related party   (10,000)   - 
Proceeds from short-term notes - related party   

10,000

    

-

 
Proceeds from short-term and long-term debt   835,000    262,200 
Proceeds from paycheck protection program   130,100    590,300 
           
Net cash provided by financing activities   868,400    739,100 
           
Net increase (decrease) in cash   134,200    (196,200)
Cash at the beginning of period   47,300    354,700 
Cash at the end of period  $181,500   $158,500 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $26,700   $8,300 
Financing of prepaid insurance premiums  $52,400   $94,700 
Non-cash repayment of debt  $154,700   $- 
Non-cash payment of interest  $22,500   $- 

 

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. After the industrial cleaning 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. The company expects to wind down REGS for all purposes and cease all operations in September 2021; 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 two majority-owned subsidiaries include 1) Paragon Waste Solutions, LLC (“PWS”), and 2) PelleChar, LLC (“PelleChar”). PWS is currently owned 54% by SEER and PelleChar is owned 51% 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.

 

PelleChar was established in September 2018 and is 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 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 six months ended June 30, 2021, PelleChar activity related to startup of operations that were interrupted by the pandemic in 2020, and a commencement to market its product. Revenue and expenses of PelleChar were not material for the six months then ended.

 

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 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 $30.6 million as of June 30, 2021, and $29.7 million as of December 31, 2020. For the six months ended June 30, 2021, and 2020, the Company incurred net losses from continuing operations of approximately $1.0 million and $1.3 million, respectively. The Company had a working capital deficit of approximately $9.8 million as of June 30, 2021, consistent with a working capital deficit of $9.8 million as of December 31, 2020. 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 June 30, 2021, 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 six months ended June 30, 2021, the Company raised approximately $1.0 million from the Payroll Protection Program, and 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, for a net cash provided by financing activities of approximately $0.9 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 April 15, 2021, for the year ended December 31, 2020.

 

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)

 

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 six months ended June 30, 2021, and 2020.

 

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:

 

   June 30, 2021   December 31, 2020 
   (Unaudited)     
Finished goods  $59,000   $158,100 
Work in process   36,100    88,800 
Raw materials   3,900    3,300 
           
Inventories  $99,000   $250,200 

 

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 six months ended June 30, 2021, and 2020 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 as of June 30, 2021, and 2020. The Company expects no material changes to unrecognized tax positions within the next twelve months.

 

The Company has filed federal and state tax returns through December 31, 2019. The tax periods for the years ending December 31, 2017, through 2019 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.

 

10
 

 

Disaggregation of Revenue (Unaudited)

 

   Three months ended June 30, 2021 
   Environmental Solutions   Solid Waste   Total 
             
Sources of Revenue               
Product sales  $675,100    -   $675,100 
Media sales   187,600    -    187,600 
Licensing fees   -    8,300    8,300 
Operating fees   -    -    - 
Management fees   -    50,000    50,000 
Total Revenue  $862,700   $58,300   $921,000 

 

   Three months ended June 30, 2020 
   Environmental Solutions   Solid Waste   Total 
             
Sources of Revenue               
Product sales   353,000    -    353,000 
Media sales   381,300    -    381,300 
Licensing fees   -    8,300    8,300 
Operating fees   -    -    - 
Management fees   -    50,000    50,000 
Total Revenue  $734,300   $58,300   $792,600 

 

   Six months ended June 30, 2021 
   Environmental Solutions   Solid Waste   Total 
             
Sources of Revenue               
Product sales  $1,283,900    -   $1,283,900 
Media sales   442,000    -    442,000 
Licensing fees   -    16,500    16,500 
Operating fees   -    -    - 
Management fees   -    100,000    100,000 
Total Revenue  $1,725,900   $116,500   $1,842,400 

 

   Six months ended June 30, 2020 
   Environmental Solutions   Solid Waste   Total 
             
Sources of Revenue               
Product sales  $977,700    -   $977,700 
Media sales   522,400    -    522,400 
Licensing fees   -    16,500    16,500 
Operating fees   -    -    - 
Management fees   -    100,000    100,000 
Total Revenue  $1,500,100   $116,500   $1,616,600 

 

11
 

 

Contract Balances

 

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

 

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

 

              Contract Liabilities 
    Accounts Receivable, net     Revenue Contract Assets    Revenue Contract Liabilities     

Deferred Revenue

(current)

    

Deferred Revenue

 (non-current)

 
                          

Balance as of June 30, 2021

(Unaudited)

  $535,900   $-   $616,300   $13,700   $- 
                          
Balance as of December 31, 2020   375,600    6,800    323,900    30,200    - 
                          
(Decrease) increase  $160,300   $(6,800)  $292,400   $(16,500)  $- 

 

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

 

Remaining Performance Obligations

 

As of June 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations was approximately $1.3 million, of which the Company expects to recognize approximately 75% 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 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets are assets and payments previously made, that benefit future periods. The balance as of June 30, 2021, includes Employee Retention Tax Credit (“ERTC”) program from the U.S Treasury, as part of the COVID-19 stimulus package. The ERTC program refunds a portion of taxes paid for payroll. We accrued the amounts that we qualify for, and this reduced our payroll expenses during the quarter applied for and approved. Prepaid and other current assets comprised of the following:

 

   June 30, 2021   December 31, 2020 
    (Unaudited)      
Prepaid expenses  $126,000   $110,600 
ERTC credits   97,200    - 
Total prepaid expenses and other current assets  $223,200   $110,600 

 

12
 

 

NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment was comprised of the following:

 

   June 30, 2021   December 31, 2020 
    (Unaudited)      
Field and shop equipment  $1,246,400   $1,282,700 
Vehicles   407,800    476,900 
Waste destruction equipment, placed in service   553,300    553,300 
Furniture and office equipment   348,700    345,700 
Leasehold improvements   36,200    36,200 
Building and improvements   21,200    21,200 
Land   162,900    162,900 
Property and equipment, gross   2,776,500    2,878,900 
Less: accumulated depreciation and amortization   (2,278,700)   (2,330,900)
Property and equipment, net  $497,800   $548,000 

 

Depreciation expense for the three months ended June 30, 2021, and 2020 was $26,600 and $37,900, respectively. For the three months ended June 30, 2021, and 2020, depreciation expense included in cost of goods sold was $20,300 and $24,600, respectively. For the three months ended June 30, 2021, and 2020, depreciation expense included in selling, general and administrative expenses was $6,500 and $13,300, respectively.

 

Depreciation expense for the six months ended June 30, 2021, and 2020 was $53,200 and $73,900, respectively. For the six months ended June 30, 2021, and 2020, depreciation expense included in cost of goods sold was $40,400 and $45,700, respectively. For the six months ended June 30, 2021, and 2020, depreciation expense included in selling, general and administrative expenses was $12,900 and $28,200, respectively.

 

Depreciation expense on leased CoronaLux™ units included in depreciation and amortization above is $0 and $19,400 as of June 30, 2021, and 2020, respectively.

 

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

 

   June 30, 2021   December 31, 2020 
    

(Unaudited)

      
Vehicles, field and shop equipment   $10,200   $10,200 
Less: accumulated amortization    (10,200)   (10,200)
Property and equipment for leases capitalized  $-   $- 

 

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NOTE 6 – INTANGIBLE ASSETS

 

Intangible assets were comprised of the following:

 

   June 30, 2021 (Unaudited) 
   Gross carrying amount   Accumulated amortization   Net carrying value 
             
Goodwill  $277,800   $-   $277,800 
Customer list   42,500    (42,500)   - 
Technology   1,021,900    (868,400)   153,500 
Trade name   54,900    (54,900)   - 
   $1,397,100   $(965,800)  $431,300 

 

   December 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    (852,400)   169,500 
Trade name   54,900    (54,900)   - 
   $1,397,100   $(949,800)  $447,300 

 

The estimated useful lives of the intangible assets range from seven to ten years. Amortization expense was $9,700 and $8,000 for the three months ended June 30, 2021, and 2020, respectively. Amortization expense was $16,100 for both six months ended June 30, 2021, and 2020.

 

NOTE 7 – LEASES

 

The Company has entered into operating leases primarily for real estate. These leases have terms which range from 1 to 8 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 “Right of use assets” on the Company’s June 30, 2021, 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 “Current portion of lease liabilities” and “Lease liabilities net of current portion” on the Company’s June 30, 2021, 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 $226,600 and lease liabilities for operating leases of approximately $246,100 on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019, are recognized at commencement date based on the present value of lease payments over the lease term. As of June 30, 2021, total right-of-use assets and operating lease liabilities were approximately $326,600 and $359,500, respectively. All operating lease expense is recognized on a straight-line basis over the lease term. In the six months ended June 30, 2021, the Company recognized approximately $72,900 in operating lease costs for right-of-use assets.

 

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

 

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

 

   Six Months Ended June 30, 
   2021   2020 
         
Cash paid for operating lease liabilities  $72,700   $108,200 
Right-of-use assets obtained in exchange for new operating lease obligations   -    118,100 
Weighted-average remaining lease term   62 months    62 months 
Weighted-average discount rate   10%   10%

 

Maturities of lease liabilities as of June 30, 2021 were as follows:

   June 30, 2021 
2022  $84,500 
2023   87,000
2024   89,600 
2025   92,300 
2026   95,000 
Thereafter   16,200 
Lease liabilities   464,600 
Less imputed interest   (105,300)
Total lease liabilities   359,300 
Current operating lease liabilities   48,900 
Non-current operating lease liabilities   310,400 
Total lease liabilities  $359,300 

 

NOTE 8 – ACCRUED LIABILITIES

 

Accrued liabilities were comprised of the following:

 

   June 30, 2021   December 31, 2020 
   (Unaudited)     
Accrued compensation and related taxes  $471,300   $486,400 
Accrued interest   1,472,200    1,170,500 
Accrued settlement/litigation claims   150,000    150,000 
Warranty and defect claims   37,500    34,000 
Other   152,000    136,300 
Total Accrued Liabilities  $2,283,000   $1,977,200 

 

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NOTE 9 – UNCOMPLETED CONTRACTS

 

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

 

   June 30, 2021   December 31, 2020 
   (Unaudited)     
Revenue recognized  $-   $102,700 
Less: billings to date   -    (95,900)
Costs and estimated earnings in excess of billings on uncompleted contracts   -    6,800 
           
Billings to date   2,895,000    1,716,800 
Revenue recognized   (2,278,700)   (1,392,900)
           
Revenue contract liabilities  $616,300   $323,900 

 

NOTE 10 – INVESTMENT IN PARAGON WASTE SOLUTIONS LLC

 

Since its inception through June 30, 2021, 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. The balance as of June 30, 2021, and December 31, 2020, are $13,700 and $30,200, respectively, and are being recognized as revenue ratably over the term of the contract.

 

NOTE 11 – 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.

 

In 2010 the IRS filed notices of federal tax liens against certain of REGS assets in order to secure certain tax obligations. The IRS is to release this lien if and when REGS pays the full amount due. Two of the officers of REGS also have liability exposure for a portion of the taxes if REGS does not pay the liability.

 

As of June 30, 2021, and December 31, 2020, the outstanding balance due to the IRS by REGS was $1,074,000, and $1,085,400, respectively.

 

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

 

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NOTE 12 – DEBT

 

Debt as of June 30, 2021 (Unaudited), and December 31, 2020, 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, 2020  $ 590,300   $ 3,032,800   $1,605,000   $523,900   $30,300 (5)  $5,782,300 
Increase in borrowing    130,100(1)  52,400(2)   -    -    835,000 (3)   1,017,500 
Principal reductions    -     (186,400)   -    -    (11,700 ) (5)   (198,100)
Long term debt to current    -     -    -    1,000    (1,000)    - 
Amortization of debt discount    -     -    -    -    28,700     28,700 
Balance June 30, 2021  $ 720,400   $ 2,898,800(4)  $1,605,000   $524,900   $881,300    $6,630,400 

 

  (1) Paycheck Protection Program (“PPP”) draw #2, received the first quarter of 2021.
  (2) Unsecured note payable insurance premium financing, interest at approximately 5.1% per annum, payable in 10 installments of $5,400, maturing on November 1, 2021.
  (3) A) Unsecured note payable dated January 19, 2021, interest at an annual rate of 8% simple interest and matures on January 18, 2026. This note is included as part of a series of anticipated notes, all of which will be converted into common equity of Paragon Waste Services, LLC., in accordance with the note’s provisions. For the six months ended June 30, 2021, the Company recorded interest expense of $5,400. Unpaid interest at June 30, 2021 was approximately $5,400.  B) Note payable dated February 2, 2021, interest at an annual rate of 8% simple interest and matures on January 18, 2026. This note is included as part of a series of anticipated notes, all of which will be converted into common equity of Paragon Waste Services, LLC., in accordance with the note’s provisions. For the six months ended June 30, 2021, the Company recorded interest expense of $16,200. Unpaid interest at June 30, 2021 was approximately $16,200.  C) Note payable dated May 25, 2021, interest at an annual rate of 8% simple interest and matures on January 18, 2026. This note is included as part of a series of anticipated notes, all of which will be converted into common equity of Paragon Waste Services, LLC., in accordance with the note’s provisions. For the six months ended June 30, 2021, the Company recorded interest expense of $2,200. Unpaid interest at June 30, 2021 was approximately $2,200.
  (4) The balance consists of $2,460,000 of secured notes, and $438,800 unsecured notes payable.
  (5) Secured notes.

 

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NOTE 13 – RELATED PARTY TRANSACTIONS

 

Notes payable and accrued interest, related parties

 

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

   June 30, 2021   December 31, 2020 
   (Unaudited)     
Short term notes  $155,000   $155,000 
Accrued interest   71,100    53,100 

Total short-term notes and accrued interest - Related parties

  $226,100   $208,100 

 

On January 6, 2021, the Company signed a $10,000 short-term note payable to the CEO. The note accrued interest at 8% interest per annum, with a $250 minimum interest to be paid. The loan and interest due was paid back within the first quarter, and $250 was recorded as interest expense.

 

NOTE 14 – EQUITY TRANSACTIONS

 

2021 Common Stock Transactions

 

During the six months ended June 30, 2021, no new equity transactions have occurred.

 

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2020 Common Stock Transactions

 

During the six months ended June 30, 2020, the Company recorded 742,500 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 $74,700 (See Note 12).

 

During the six months ended June 30, 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 six months ended June 30, 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.

 

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 five and one customers, for the six months ended June 30, 2021, and 2020 that surpassed the 10% threshold of total revenue, respectively. In total, these customers represented approximately 76% and 14% 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.

 

Potentially dilutive securities were comprised of the following (unaudited):

 

   Six Months Ended June 30, 
   2021   2020 
Warrants   271,000    721,000 
Options   1,590,000    1,665,000 
Convertible notes payable, including accrued interest   2,969,400    2,768,100 
    4,830,400    5,154,100 

 

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NOTE 17 – SEGMENT INFORMATION AND MAJOR CUSTOMERS

 

The Company currently has identified two segments as follows:

 

  MV, SEM, PelleChar, REGS 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.

 

Segment information for the three and six months ended June 30, 2021 (Unaudited), and 2020 is as follows:

 

Three Months Ended June 30,                
                 
2021   Environmental    Solid           
    Solutions    Waste    Corporate    Total 
                     
Revenue  $862,700   $58,300   $-   $921,000 
Depreciation and amortization (1)   17,100    8,500    9,000    34,600 
Interest expense   9,600    -    179,600    189,200 
Stock-based compensation   -    -    4,800    4,800 
Net income (loss)   (102,100)   (55,500)   (482,200