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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 September 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 November 15, 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 September 30, 2021 (unaudited) and December 31, 2020 3
     
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021, and 2020 (unaudited) 4
     
  Condensed Consolidated Statement of Changes in Stockholders’ Deficit as of September 30, 2021, and 2020 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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 29
     
Item 5. Other Information 29
     
Item 6. Exhibits 29
     
SIGNATURES 30

 

2
 

 

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,  

December 31

*

 
   September 30,   December 31, 
   2021   2020 
   (Unaudited)   * 
ASSETS          
Current Assets          
Cash and cash equivalents  $122,900   $47,300 
Accounts receivable, net of allowance for doubtful accounts of $800 and $11,800, respectively   534,400    375,600 
Inventory   117,400    250,200 
Costs and estimated earnings in excess of billings on uncompleted contracts   123,700    6,800 
Prepaid expenses and other current assets   153,400    110,600 
Total Current Assets   1,051,800    790,500 
           
Property and equipment, net   471,000    548,000 
Intangible Assets, net   424,900    447,300 
Right of use assets   314,600    380,400 
Other assets   40,600    50,500 
           
TOTAL ASSETS  $2,302,900   $2,216,700 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities          
Accounts payable  $697,500   $1,109,200 
Accrued liabilities   2,099,900    1,977,200 
Billings in excess of costs and estimated earnings on uncompleted contracts   227,100    323,900 
Deferred revenue   5,500    30,200 
Payroll taxes payable   -    1,085,400 
Customer deposits   6,300    16,400 
Paycheck protection program liabilities   96,600    590,300 
Short term notes   2,849,000    3,032,800 
Short term notes and accrued interest - related party   188,600    208,100 
Convertible notes   1,605,000    1,605,000 
Current portion of long term debt and capital lease obligations   525,200    523,900 
Current portion of lease liabilities   52,700    78,100 
           
Total Current Liabilities   8,353,400    10,580,500 
           
Lease liabilities net of current portion   294,700    334,700 
Long term debt and capital lease obligations, net of current portion   1,376,000    30,300 
Total Liabilities   10,024,100    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; 65,088,575 and 65,088,575 shares issued, issuable ** and outstanding September 30, 2021 and December 31, 2020, respectively   65,100    65,100 
Common stock issuable   25,000    25,000 
Additional paid-in capital   22,973,800    22,961,200 
Stock Subscription receivable   (25,000)   (25,000)
Accumulated deficit   (28,908,600)   (29,693,700)
Total stockholders’ deficit   (5,869,700)   (6,667,400)
Non-controlling interest   (1,851,500)   (2,061,400)
Total Deficit   (7,721,200)   (8,728,800)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $2,302,900   $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 September 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)

 

                     
   For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
Revenue:        
Products  $1,176,100   $849,700   $2,724,800   $2,320,700 
Solid waste   58,200    58,200    174,700    174,700 
Total revenue   1,234,300    907,900    2,899,500    2,495,400 
                     
Operating expenses:                    
Products costs   802,300    623,400    1,885,900    1,573,200 
Solid waste costs   7,400    9,700    22,200    43,000 
General and administrative expenses   198,400    224,100    818,600    881,800 
Salaries and related expenses   170,700    342,800    608,500    958,700 
Total operating expenses   1,178,800    1,200,000    3,335,200    

3,456,700

 
                     
Income (loss) from operations   55,500   (292,100)   (435,700)   (961,300)
                     
Other income (expense):                    
Interest expense   (181,500)   (225,800)   (556,600)   (599,300)
Gain on abandonment   1,458,000    -    1,458,000    - 
Gain on debt extinguishment   213,200    -    213,200    - 
Other   

(5,800

)   (1,200)   24,000    (4,900

)

Total non-operating income (expense), net   1,483,900    (227,000)   1,138,600    (604,200)
                     
Income (loss) from continuing operations   1,539,400    

(519,100

)   702,900    (1,565,500)
                     
Income (loss) from discontinued operations, net of tax   425,900    (136,600)   292,100    

(344,800

)
Net income (loss)   1,965,300    (655,700)   995,000    (1,910,300)
                     
Less: Net income (loss) attributable to non-controlling interest   251,000    (30,700)   210,000    (96,000)
                     
Net income (loss) attributable to SEER common stockholders  $1,714,300   $(625,000)  $785,000   $(1,814,300)
                     
Basic earnings per share                    
Income (loss) from continuing operations, per share 

$

0.02  

$

(0.01) 

$

0.01  

$

(0.02)
Income (loss) from discontinued operations, per share   

0.01

    

(0.00

)   

0.00

    (0.01)
Net income (loss) per share, basic   $0.03   $(0.01)  $0.01   $(0.03)
                     
Fully diluted earnings per share                    
Income (loss) from continuing operations, per share   0.02    

(0.01

)   

0.01

    

(0.02

)
Income (loss) from discontinued operations, per share   0.01    

(0.00

)   

0.00

    

(0.01

)
Net income (loss) per share, diluted   $0.03    $(0.01)  $

0.01

    $

(0.03

)
                     
Weighted average shares outstanding – basic    65,088,575    64,200,640    64,996,267    63,865,814 
Weighted average shares outstanding – diluted   65,178,575    64,200,640    65,086,267    63,865,814 

 

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)
                                                   
Issuance of common stock upon debt penalty   -    -    -    -    -    -    -    -    -    - 
                                                   
Stock-based compensation   -    -    -    -    3,100    -    -    -    -    3,100 
                                                  
Allocated value of common stock and warrants related to debt   -    -    -    -    -    -    -    -    -    - 
                                                   
Net income   -    -    -    -    -    -    -    1,714,300    251,000    1,965,300 
                                                   
Balances at September 30, 2021   -   $-    65,088,600   $65,100   $22,973,800   $25,000   $(25,000)  $(28,908,600)  $(1,851,500)  $(7,721,200)

 

 

   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)
                                                   
Issuance of common stock upon debt penalty   -    -    390,000    400    50,300    -    -    -    -    50,700 
                                                   
Stock-based compensation   -    -    -    -    4,700    -    -    -    -    4,700 
                                                   
Allocated value of common stock and warrants related to debt   -    -    775,000    800    30,500    -    -    -    -    31,300 
                                                   
Net loss   -    -    -    -    -    -    -    (625,000)   (30,700)   (655,700)
                                                   
Balances at September 30, 2020   -   $-    64,498,600   $64,500   $22,825,600   $25,000   $(25,000)  $(28,778,600)  $(2,122,700)  $(8,011,200)

 

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)

 

           
   For the nine months ended September 30, 
   2021   2020 
Cash flows from operating activities:        
Income (loss) from continuing operations  $702,900   $(1,565,500)
Income (loss) from discontinued operations   292,100    (344,800)
Net income (loss)   995,000    (1,910,300)
           
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   102,400    131,700 
Stock-based compensation expense   12,600    14,200 
Non-cash expense for interest, common stock issued for debt penalty   -    125,400 
Provision for doubtful accounts receivable   (200)   (10,800)
Gain on abandonment of subsidiary   (1,458,000)   - 
Non-cash expense for interest, accretion of debt discount   29,900    60,100 
Gain on debt distinguishment – PPP Loan   (623,800)   - 
Gain on disposition of assets   (229,300)   - 
Changes in operating assets and liabilities:          
Accounts receivable   (158,700)   223,900 
Costs in excess of billings on uncompleted contracts   (116,900)   (67,100)
Inventory   (21,900)   (136,300)
Prepaid expenses and other assets   66,500    39,500 
Accounts payable, accrued liabilities, and customer deposits   105,700    220,000 
Billings in excess of revenue on uncompleted contracts   (96,800)   (15,000)
Deferred revenue   (24,700)   (24,700)
Payroll taxes payable   -    24,900 
Net cash used in operating activities   (1,418,200)   (1,324,500)
Cash flows from investing activities:          
Purchase of property and equipment   (3,000)   (131,600)
Proceeds from the sale of fixed assets   192,100    - 
Net cash provided (used) by investing activities   189,100    (131,600)
Cash flows from financing activities:          
Payments of notes and capital lease obligations   (130,400)   (173,900)
Payments of short-term notes - related party   (40,000)   - 
Proceeds from short-term notes - related party   10,000    - 
Proceeds from short-term and long-term debt   1,335,000    882,200 
Proceeds from paycheck protection program   130,100    590,300 
           
Net cash provided by financing activities   1,304,700    1,298,600 
           
Net increase (decrease) in cash   75,600    (157,500)
Cash at the beginning of period   47,300    354,700 
Cash at the end of period  $122,900   $197,200 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $47,700   $21,200 
Financing of prepaid insurance premiums  $52,400   $94,700 
Non-cash repayment of debt  $188,900   $- 
Non-cash repayment of debt - PPP Loan  $213,200  $- 
Non-cash repayment of debt – PPP Loan, discontinued operations  $410,600   $- 
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 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 included in discontinued operations (See Note 17).

 

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 nine months ended September 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 nine months then ended.

 

Principals of Consolidation

 

The accompanying consolidated financial statements include the accounts of SEER, its wholly owned subsidiaries, SEM, MV and REGS (no longer operational), 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 $28.9 million as of September 30, 2021, and $29.7 million as of December 31, 2020. For the nine months ended September 30, 2021, the Company incurred net income approximately $1.0 million and 2020, the Company incurred a net loss of approximately $1.9 million. The Company had a working capital deficit of approximately $7.3 million as of September 30, 2021, and 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 September 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 nine months ended September 30, 2021, the Company raised approximately $1.5 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 $0.2 million, for a net cash provided by financing activities of approximately $1.3 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 nine months ended September 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:

 

   September 30,
2021
   December 31,
2020
 
   (Unaudited)     
Finished goods  $106,800   $158,100 
Work in process   8,600    88,800 
Raw materials   2,000    3,300 
           
Inventories  $117,400   $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 nine months ended September 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 September 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, 2020. The tax periods for the years ending December 31, 2017, through 2020 are open to examination by federal and state authorities.

 

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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.

 

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Disaggregation of Revenue (Unaudited)

 

   Environmental Solutions   Solid Waste   Total 
   Three months ended September 30, 2021 
   Environmental Solutions   Solid Waste   Total 
Sources of Revenue               
Product sales  $918,700    -   $918,700 
Media sales   257,400    -    257,400 
Licensing fees   -    8,200    8,200 
Operating fees   -    -    - 
Management fees   -    50,000    50,000 
Total Revenue  $1,176,100   $58,200   $1,234,300 

 

   Environmental Solutions   Solid Waste   Total 
   Three months ended September 30, 2020 
   Environmental Solutions   Solid Waste   Total 
Sources of Revenue               
Product sales (1)   698,900    -    698,900 
Media sales   293,100    -    293,100 
Licensing fees   -    8,200    8,200 
Operating fees   -    -    - 
Management fees   -    50,000    50,000 
Total Revenue  $992,000   $58,200   $1,050,200 

 

(1)Includes $142,300 of revenue included in discontinued operations.

 

   Environmental Solutions   Solid Waste   Total 
   Nine months ended September 30, 2021 
   Environmental Solutions   Solid Waste   Total 
Sources of Revenue               
Product sales (2)  $2,202,600    -   $2,202,600 
Media sales   699,400    -    699,400 
Licensing fees   -    24,700    24,700 
Operating fees   -    -    - 
Management fees   -    150,000    150,000 
Total Revenue  $2,902,000   $174,700   $3,076,700 

 

(2)Includes $177,200 of revenue included in discontinued operations.

 

   Environmental Solutions   Solid Waste   Total 
   Nine months ended September 30, 2020 
   Environmental Solutions   Solid Waste   Total 
Sources of Revenue               
Product sales (3)  $1,676,600    -   $1,676,600 
Media sales   815,500    -    815,500 
Licensing fees   -    24,700    24,700 
Operating fees   -    -    - 
Management fees   -    150,000    150,000 
Total Revenue  $2,492,100   $174,700   $2,666,800 

 

(3) Includes $171,400 of revenue included in discontinued operations.

 

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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 September 30, 2021  $534,400   $123,700   $227,100   $5,500   $ -  
                            
Balance as of December 31, 2020   375,600    6,800    323,900    30,200     -  
                            
Increase (Decrease)  $158,800   $116,900   $(96,800)  $(24,700)  $ -  

 

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 September 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations was approximately $1.0 million, of which the Company expects to recognize 100% of this revenue over the next 12 months.

 

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

 

NOTE 4 – 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 September 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 salaries and related expenses during the quarter applied for and approved. Prepaid and other current assets comprised of the following:

 

   September 30,   December 31, 
   2021   2020 
    (Unaudited)      
Prepaid expenses  $75,100   $110,600 
ERTC credits   78,300    - 
           
Total prepaid expenses and other current assets  $153,400   $110,600 

 

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NOTE 5 – PROPERTY AND EQUIPMENT

 

Property and equipment was comprised of the following:

 

   September 30, 2021   December 31, 2020 
   (Unaudited)     
Field and shop equipment  $599,600   $1,282,700 
Vehicles   72,500    476,900 
Waste destruction equipment, placed in service   553,300    553,300 
Furniture and office equipment   342,400    345,700 
Leasehold improvements   36,200    36,200 
Building and improvements   21,200    21,200 
Land   162,900    162,900 
Property and equipment, gross   1,788,100    2,878,900 
Less: accumulated depreciation and amortization   (1,317,100)   (2,330,900)
Property and equipment, net  $471,000   $548,000 

 

Depreciation expense for the three months ended September 30, 2021, and 2020 was $26,800 and $33,700, respectively. For the three months ended September 30, 2021, and 2020, depreciation expense included in cost of goods sold was $20,400 and $26,500, respectively. For the three months ended September 30, 2021, and 2020, depreciation expense included in selling, general and administrative expenses was $6,400 and $7,200, respectively.

 

Depreciation expense for the nine months ended September 30, 2021, and 2020 was $80,000 and $107,600, respectively. For the nine months ended September 30, 2021, and 2020, depreciation expense included in cost of goods sold was $60,700 and $72,200, respectively. For the nine months ended September 30, 2021, and 2020, depreciation expense included in selling, general and administrative expenses was $19,300 and $35,300, respectively.

 

Depreciation expense on leased CoronaLux™ units included in depreciation and amortization above is $0 and $29,200 as of September 30, 2021, and 2020, respectively.

 

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

 

   September 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:

 

   September 30, 2021 (Unaudited) 
   Gross carrying amount   Accumulated amortization   Net carrying value 
Goodwill  $277,800   $-   $