Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 - ORGANIZATION AND FINANCIAL CONDITION
Organization
and Going Concern
Strategic
Environmental & Energy Resources, Inc. (“SEER,” “we,” or the “Company”), a Nevada corporation,
is a provider of next-generation clean-technologies, waste management innovations and related services. SEER has three wholly-owned
subsidiaries in continuing operations, and two majority-owned subsidiaries; all of which together provide technology solutions
and services to companies primarily in the oil and gas, refining, landfill, food, beverage & agriculture and renewable fuel
industries. The three wholly-owned subsidiaries include: 1) REGS, LLC (d/b/a Resource Environmental Group Services (“REGS”))
provides industrial and proprietary cleaning services to refineries, oil fields and other private and governmental entities; 2)
MV, LLC (d/b/a MV Technologies) (“MV”), designs and builds biogas conditioning solutions for the production of renewable
natural gas and odor control systems primarily for landfill operations, waste-water treatment facilities, oil and gas fields,
refineries, municipalities and food, beverage & agriculture operations throughout the U.S.; 3) SEER Environmental Materials,
LLC,(“SEM”), a materials technology company focused on development of cost-effective chemical absorbents.
The
two majority-owned subsidiaries are; 1) Paragon Waste Solutions, LLC (“PWS”) and 2) ReaCH4Biogas (“Reach”).
PWS is currently owned 54% by SEER (see Note 7) and Reach is owned 85% by SEER.
PWS
is developing specific opportunities to deploy and commercialize patented technologies for a non-thermal plasma-assisted oxidation
process that makes possible the clean and efficient destruction of solid hazardous chemical and biological waste (
i.e
.,
regulated medical waste, chemicals, pharmaceuticals and refinery tank waste,
etc
.) without landfilling or traditional incineration
and without harmful emissions. Additionally, PWS’ technology “cleans” and conditions emissions and gaseous waste
streams (
i.e
., volatile organic compounds and other greenhouse gases) generated from diverse sources such as refineries,
oil fields, and many others.
Reach
(the trade name for BeneFuels, LLC), is currently owned 85% by SEER and focuses specifically on developing renewable biomethane
projects that convert raw biogas to pipeline quality gas and/or compressed natural gas (“CNG”) for fleet vehicle fuel.
Reach had minimal operations for the quarter ended March 31, 2018 and 2017.
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 Reach, 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 $22.2 million as of March
31, 2018, and $21.5 million as of December 31, 2017. For the three months ended March 31, 2018 and 2017 we had net losses from
continuing operations before adjustment for losses attributable to non-controlling interest of approximately $0.7 million and $0.8
million, respectively. As of March 31, 2018 and December 31, 2017 our current liabilities exceed our current assets by approximately
$5.4 million and $5.2 million, respectively. The primary reason for the increase in negative working capital from December 31,
2017 to March 31, 2018 is due to an increase in short term debt of $350,000. The Company has limited common shares available for
issue which may limit the ability to raise capital or settle debt through issuance of shares. These factors raise substantial doubt
about the ability of the Company to continue to operate as a going concern for a period of at least one year after the date of
the issuance of our audited financial statements for the period ended December 31, 2017.
STRATEGIC
ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 - ORGANIZATION AND FINANCIAL CONDITION, continued
Realization
of a major portion of our assets as of March 31, 2018 and December 31, 2017, is dependent upon our continued operations. The Company
is dependent on generating additional revenue or obtaining adequate capital to fund operating losses until it becomes profitable.
In addition, we have undertaken a number of specific steps to continue to operate as a going concern. We continue to focus on
developing organic growth in our operating companies, diversifying our service customer base and market concentrations and improving
gross and net margins through increased attention to pricing, aggressive cost management and overhead reductions. Critical to
achieving profitability will be our ability to license and or sell, permit and operate through our joint ventures and licensees
our CoronaLux™ waste destruction units. We have increased our business development efforts to address opportunities identified
in expanding domestic markets attributable to increased federal and state emission control regulations (particularly in the nation’s
oil and gas fields) and a growing demand for energy conservation and renewable energies. In addition, the Company is evaluating
various forms of financing that may be available to it. There can be no assurance that the Company will secure additional financing
for working capital, increase revenues and achieve the desired result of net income and positive cash flow from operations in
future years. These financial statements do not give any effect to any adjustments that would be necessary should the Company
be unable to report on a going concern basis.
Basis
of presentation Unaudited Interim Financial Information
The
accompanying interim condensed consolidated financial statements are unaudited. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly
the financial position and results of operations as of and for the periods presented. The interim results are not necessarily
indicative of the results to be expected for the full year or any future period.
Certain
information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). The Company believes that the disclosures are adequate to make the interim
information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s
audited consolidated financial statements and the notes thereto included in the Company’s Report on Form 10-K filed on April
17, 2018 for the years ended December 31, 2017 and 2016.
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.
STRATEGIC
ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue
Recognition
In May 2014, the FASB issued guidance
on revenue from contracts with customers that superseded most current revenue recognition guidance, including industry-specific
guidance. The underlying principle of the guidance is to recognize revenue to depict the transfer of goods or services to customers
at an amount to which the company expects to be entitled in exchange for those goods or services. The new guidance requires an
evaluation of revenue arrangements with customers following a five-step approach: (1) identify the contract with a customer; (2)
identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price
to the performance obligations; and (5) recognize revenue when (or as) the company satisfies each performance obligation. Revenues
are recognized when control of the promised services are transferred to the customers in an amount that reflects the expected
consideration in exchange for those services. A customer obtains control when it has the ability to direct the use of and obtain
the benefits from the services. Other major provisions of the guidance include capitalization of certain contract costs, consideration
of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies
are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and
uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the provisions of this guidance
effective January 1, 2018 as required under the guidance. The adoption of this guidance did not have any material impact on the
Company’s consolidated condensed financial statements (see Note 3).
Research
and Development
Research
and development (“R&D”) costs are charged to expense as incurred. R&D expenses consist primarily of salaries,
project materials, contract labor and other costs associated with ongoing product development and enhancement efforts. R&D
expenses were $300 and $600 for the three months ended March 31, 2018 and 2017, respectively.
Income Taxes
The Company accounts for income taxes pursuant
to
Accounting Standards Codification
(“ASC”) 740,
Income Taxes,
which utilizes the asset and liability
method of computing deferred income taxes. The objective of this method is to establish deferred tax assets and liabilities for
any temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities
at enacted tax rates expected to be in effect when such amounts are realized or settled.
ASC 740 also provides detailed guidance
for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements.
Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized. During
the three months ended March 31, 2018 and 2017 the Company recognized no adjustments for uncertain tax positions.
The Company recognizes interest and penalties
related to uncertain tax positions in income tax expense. No interest and penalties related to uncertain tax positions were recognized
at March 31, 2018 and December 31, 2017. 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, 2016. The tax periods for the years ending December 31, 2010 through 2016 are open to examination
by federal and state authorities.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, continued
Recently issued accounting pronouncements
Changes to accounting principles generally
accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the
form of accounting standards updates (ASU’s) to the FASB’s Accounting Standards Codification. The Company considers
the applicability and impact of all new or revised ASU’s.
Leases
In February 2016, the FASB issued guidance
on lease accounting that supersedes the current guidance on leases. The new guidance establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense
recognition in the statement of operations. The new guidance is applicable to the Company for interim and annual reporting periods
beginning after December 15, 2018. A modified retrospective transition approach is required for lessees for capital and operating
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
Early adoption of the amendments in the guidance is permitted. The Company’s minimum lease commitments for operating leases
as of March 31, 2018 was approximately $370,000. The Company is currently evaluating the impact of the guidance on its consolidated
condensed financial statements.
NOTE 3 – REVENUE
The Company adopted the provisions of the guidance in the new revenue standard under ASC 606 effective January 1, 2018 applying the modified retrospective method to all contracts. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue recognition guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under previous revenue recognition guidance. The adoption of this guidance did not have any material impact on the Company's consolidated condensed financial statements. There was no impact to net revenue for the quarter ended March 31, 2018 as a result of applying the new revenue recognition guidance.
Products Revenue
Product revenue generated
from contracts with customers, for the manufacture of products for the removal and treatment of hazardous vapor and gasses. Total
estimated revenue includes all of the following: (1) the basic contract price, (2) contract options, and (3) change orders.
Once
contract performance is underway, we may experience changes in conditions, client requirements, specifications, designs, materials
and expectations regarding the period of performance. Such changes are "change orders" and may be initiated by us or
by our clients. In many cases, agreement with the client as to the terms of change orders is reached prior to work commencing;
however, sometimes circumstances require that work progress without obtaining client agreement. Revenue related to change orders
is recognized as costs are incurred if it is probable that costs will be recovered by changing the contract price. The Company
does not incur pre-contract costs.
Under the new revenue recognition guidance, we found no change in the manner we recognize
product revenue. Provisions for estimated losses on uncompleted contracts are recorded in the period in which the losses are identified
and included as additional loss. Provisions for estimated losses on contracts are shown separately as liabilities on the balance
sheet, if significant, except in circumstances in which related costs are accumulated on the balance sheet, in which case the
provisions are deducted from the accumulated costs. A provision as a liability is reported as a current liability.
We include in current assets and current liabilities
amounts related to contracts realizable and payable. Costs and estimated earnings in excess of billings on uncompleted contracts
represent the excess of contract costs and profits recognized to date over billings to date and are recognized as a current asset.
Revenue contract liabilities represent the excess of billings to date over the amount of contract costs and profits recognized
to date and are recognized as a current liability.
Products revenue also includes media sales which are recognized as the product
is shipped to the customer for use.
NOTE 3 - REVENUE, continued
Services Revenue
Our services revenue is primarily comprised
of services related to industrial cleaning and mobile railcar cleaning, which we recognize as services are rendered.
Solid Waste Revenue
The Company’s revenues from waste destruction
licensing agreements are recognized as a single accounting unit over the term of the license. Revenue from joint venture operations
of the Company’s CoronaLux™ units is recognized as the revenue is earned by the joint venture. Revenue from management
services is recognized as services are performed.
Disaggregation of Revenue
|
|
Three months ended March 31, 2018
|
|
|
Industrial Cleaning
|
|
Environmental
Solutions
|
|
Solid Waste
|
|
Total
|
Sources of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial cleaning services
|
|
$
|
529,700
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
529,700
|
|
Mobile
rail car cleaning services
|
|
|
393,500
|
|
|
|
–
|
|
|
|
–
|
|
|
|
393,500
|
|
Product
sales
|
|
|
–
|
|
|
|
382,100
|
|
|
|
–
|
|
|
|
382,100
|
|
Media
sales
|
|
|
–
|
|
|
|
493,400
|
|
|
|
–
|
|
|
|
493,400
|
|
Licensing
fees
|
|
|
–
|
|
|
|
–
|
|
|
|
33,700
|
|
|
|
33,700
|
|
Operating
fees
|
|
|
–
|
|
|
|
–
|
|
|
|
13,700
|
|
|
|
13,700
|
|
Management
fees
|
|
|
–
|
|
|
|
–
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Total Revenue
|
|
$
|
923,200
|
|
|
$
|
875,500
|
|
|
$
|
97,400
|
|
|
$
|
1,896,100
|
|
|
|
Three months ended March 31, 2017
|
|
|
Industrial Cleaning
|
|
Environmental
Solutions
|
|
Solid Waste
|
|
Total
|
Sources of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial cleaning services
|
|
$
|
834,500
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
834,500
|
|
Product
sales
|
|
|
–
|
|
|
|
1,377,200
|
|
|
|
–
|
|
|
|
1,377,200
|
|
Media
sales
|
|
|
–
|
|
|
|
311,800
|
|
|
|
–
|
|
|
|
311,800
|
|
Licensing
fees
|
|
|
–
|
|
|
|
–
|
|
|
|
47,100
|
|
|
|
47,100
|
|
Operating
fees
|
|
|
–
|
|
|
|
–
|
|
|
|
22,200
|
|
|
|
22,200
|
|
Total Revenue
|
|
$
|
834,500
|
|
|
$
|
1,689,000
|
|
|
$
|
69,300
|
|
|
$
|
2,592,800
|
|
Contract Balances
Where a performance obligation
has been satisfied but not yet invoiced at the reporting date, a contract asset is recognized on the balance sheet. Where a performance
obligation has not yet been satisfied but an invoice has been raised at the reporting date, a contract liability is recognized
on the balance sheet.
The opening and closing balances of the Company’s
accounts receivables and contract liabilities (current and non-current) are as follows:
|
|
|
|
Contract Liabilities
|
|
|
Accounts
Receivable, net
|
|
Revenue Contract
Liabilities
|
|
Deferred
Revenue
(current)
|
|
Deferred
Revenue
(non-current)
|
Balance as of March 31, 2018
|
|
$
|
695,900
|
|
|
$
|
213,900
|
|
|
$
|
325,400
|
|
|
$
|
87,900
|
|
Balance as of December 31, 2017
|
|
|
692,400
|
|
|
|
227,300
|
|
|
|
304,200
|
|
|
|
113,100
|
|
Increase (decrease)
|
|
$
|
3,500
|
|
|
($
|
13,400
|
)
|
|
$
|
21,200
|
|
|
($
|
25,200
|
)
|
The majority of the Company’s
revenue is generally invoiced on a weekly or monthly basis, and the payments are generally received within approximately 30-60
days. Deferred revenue is recorded when cash payments are received or due in advance of the Company’s performance, including
amounts that are refundable.
Remaining Performance Obligations
As of March 31, 2018, the aggregate amount
of the transaction price allocated to the remaining performance obligations was approximately $416,000, of which the Company expects
to recognize revenue of approximately 87% over the next 24 months, including 79% over the next 12 months.
The Company does not disclose the value of
unsatisfied performance obligations for (i) contracts with an original expected term of one year or less and (ii) contracts for
which the Company recognizes revenue at the amounts to which it has the right to invoice for services performed.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment was comprised of
the following:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Field and shop equipment
|
|
$
|
2,213,200
|
|
|
$
|
2,213,200
|
|
Vehicles
|
|
|
690,000
|
|
|
|
690,000
|
|
Waste destruction equipment, placed in service
|
|
|
627,800
|
|
|
|
627,800
|
|
Furniture and office equipment
|
|
|
311,000
|
|
|
|
311,000
|
|
Leasehold improvements
|
|
|
10,000
|
|
|
|
10,000
|
|
Building and improvements
|
|
|
21,200
|
|
|
|
21,200
|
|
Land
|
|
|
162,900
|
|
|
|
162,900
|
|
|
|
|
4,036,100
|
|
|
|
4,036,100
|
|
Less: accumulated depreciation and amortization
|
|
|
(2,872,700
|
)
|
|
|
(2,739,700
|
)
|
Property and equipment, net
|
|
$
|
1,163,400
|
|
|
$
|
1,296,400
|
|
Depreciation expense for the three months
ended March 31, 2018 and 2017 was $133,000 and $156,300, respectively. For the three months ended March 31, 2018 depreciation expense
included in cost of goods sold and selling, general and administrative expenses was $114,500 and $18,500 respectively. For the
three months ended March 31, 2017 depreciation expense included in cost of goods sold and selling, general and administrative expenses
was $132,000 and $24,300 respectively.
Accumulated depreciation on leased CoronaLux™
units included in accumulated depreciation and amortization above is $247,000 and $335,900 as of March 31, 2018 and 2017, respectively.
Property and equipment included the following amounts for leases
that have been capitalized at:
|
|
March 31,
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
Vehicles, field and shop equipment
|
|
$
|
407,100
|
|
|
$
|
407,100
|
|
Less: accumulated amortization
|
|
|
(255,900
|
)
|
|
|
(232,200
|
)
|
|
|
$
|
151,200
|
|
|
$
|
174,900
|
|
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 5 – INTANGIBLE ASSETS
Intangible assets were comprised of the following:
|
|
March 31, 2018
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
value
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
277,800
|
|
|
|
—
|
|
|
$
|
277,800
|
|
Customer list
|
|
|
42,500
|
|
|
|
(42,500
|
)
|
|
|
—
|
|
Technology
|
|
|
1,090,500
|
|
|
|
(772,800
|
)
|
|
|
317,700
|
|
Trade name
|
|
|
54,900
|
|
|
|
(54,900
|
)
|
|
|
—
|
|
|
|
$
|
1,465,700
|
|
|
$
|
(870,200
|
)
|
|
$
|
595,500
|
|
|
|
December 31, 2017
|
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Net carrying
value
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
277,800
|
|
|
|
—
|
|
|
$
|
277,800
|
|
Customer list
|
|
|
42,500
|
|
|
|
(42,500
|
)
|
|
|
—
|
|
Technology
|
|
|
1,090,500
|
|
|
|
(745,200
|
)
|
|
|
345,300
|
|
Trade name
|
|
|
54,900
|
|
|
|
(54,900
|
)
|
|
|
—
|
|
|
|
$
|
1,465,700
|
|
|
$
|
(842,600
|
)
|
|
$
|
623,100
|
|
The estimated useful lives of the intangible
assets range from seven to ten years. Amortization expense was $27,600 and $25,100 for the three months ended March 31, 2018 and
2017, respectively.
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities were comprised of the
following:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Accrued compensation and related taxes
|
|
$
|
588,200
|
|
|
$
|
608,000
|
|
Accrued interest
|
|
|
157,100
|
|
|
|
105,700
|
|
Warranty and defect claims
|
|
|
46,100
|
|
|
|
71,700
|
|
Other
|
|
|
416,200
|
|
|
|
522,200
|
|
Total Accrued Liabilities
|
|
$
|
1,207,600
|
|
|
$
|
1,307,600
|
|
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 7 - UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings
on uncompleted contracts are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
Revenue Recognized
|
|
$
|
—
|
|
|
|
$
|
—
|
|
Less: Billings to date
|
|
|
—
|
|
|
|
—
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Billings to date
|
|
$
|
2,973,000
|
|
|
$
|
2,875,500
|
|
Revenue recognized
|
|
|
(2,759,100
|
)
|
|
|
(2,648,200
|
)
|
Revenue contract liabilities
|
|
$
|
213,900
|
|
|
$
|
227,300
|
|
NOTE 8– INVESTMENT IN PARAGON WASTE SOLUTIONS LLC
Since its inception through March 31, 2018,
we have provided approximately $6.2 million in funding to PWS for working capital and the further development and construction
of various prototypes and commercial waste destruction units. No members of PWS have made capital contributions or other funding
to PWS other than SEER. The intent of the operating agreement is that we will provide the funding as an advance against future
earnings distributions made by PWS.
Payments received for non-refundable licensing
and placement fees have been recorded as deferred revenue in the accompanying consolidated balance sheets at March 31, 2018 and
December 31, 2017 and are recognized as revenue ratably over the term of the contract.
NOTE 9 - PAYROLL TAXES PAYABLE
In 2009 and 2010, REGS, a subsidiary of the
Company, became delinquent for unpaid federal employer and employee payroll taxes, accrued interest and penalties were incurred
related to these unpaid payroll taxes.
As of March 31, 2018, and December 31, 2017,
the outstanding balance due to the IRS was $1,011,700, and $997,700, respectively.
Other than this outstanding payroll tax matter
arising in 2009 and 2010, all state and federal taxes have been paid by REGS in a timely manner.
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 10 – DEBT
Debt as of March 31, 2018 and December
31, 2017, was comprised of the following:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
Convertible notes payable, interest at 8% per annum, unpaid principal and interest maturing 3 years from note date between August 2018 and October 2019, convertible into common stock at the option of the lenders at a rate of $0.70 per share; one convertible note for $250,000 has a personal guarantee of an officer of the Company.
|
|
|
1,605,000
|
|
|
|
1,605,000
|
|
|
|
|
|
|
|
|
|
|
Debt discount
|
|
|
(5,200
|
)
|
|
|
(7,200
|
)
|
|
|
|
|
|
|
|
|
|
Secured short term note payable dated September 13, 2017 with principal and interest due 60 days from issuance.
The note requires a one-time fee in the amount of $15,000 to compensate for the first two weeks of the term and each week thereafter
(weeks 3-8) a fee of $1,500 shall be due and owing accruing on the first day of the week. The total one time fee paid was $24,000.
A fee of 100,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion
of any month the note is outstanding past the original maturity date for months 3 through 6, and a fee of 200,000 shares of restricted
common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding
past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of CoronaLux™
units and a personal guarantee of an officer of the Company. The penalty period for shares to be issued has been reached and for
the three months ended March 31, 2018 and the year ended December 31, 2017, the Company recorded 300,000 shares and 150,000 shares
of its common stock as issuable under the terms of this agreement, respectively. The shares were valued at $138,900 and $100,000
for the three months ended March 31, 2018 and the year ended December 31, 2017, respectively, and were recorded as interest expense
in the applicable period. Additional shares will be issued by the Company under the terms of the agreement (see Note 19).
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Secured short term note payable dated October 13, 2017 with principal and interest due 60 days from issuance.
The note requires a one-time fee in the amount of $4,000 to compensate for the first two weeks of the term and each week thereafter
(weeks 3-8) a fee of $400 shall be due and owing accruing on the first day of the week. The total one time fee paid was $6,400.
A fee of 40,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion
of any month the note is outstanding past the original maturity date for months 3 through 6, and a fee of 80,000 shares of restricted
common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding
past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of CoronaLux™
units and a personal guarantee of an officer of the Company. The penalty period for shares to be issued
has been reached and for the three months ended March 31, 2018 and the year ended December 31, 2017, the Company recorded 120,000
shares and 40,000 shares of its common stock, respectively, as issuable under the terms of this agreement. The shares were valued
at $55,500 and $30,000 for the three months ended March 31, 2018 and the year ended December 31, 2017, respectively, and were recorded
as interest expense in the applicable period. Additional shares will be issued by the Company under the terms of the agreement
(see Note 19).
|
|
|
100,000
|
|
|
|
100,000
|
|
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Secured short term note payable dated November 6, 2017 with principal and interest due 60 days from issuance.
The note requires a one-time fee in the amount of $5,000 to compensate for the first two weeks of the term and each week thereafter
(weeks 3-8) a fee of $400 shall be due and owing accruing on the first day of the week. The total one time fee paid was $7,400.
A fee of 50,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion
of any month the note is outstanding past the original maturity date for months 3 through 6, and a fee of 100,000 shares of restricted
common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding
past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of CoronaLux™
units and a personal guarantee of an officer of the Company. The penalty period for shares to be issued had not been reached as
of December 31, 2017 but was reached as of March 31, 2018. During the three months ended March 31, 2018, the Company recorded 150,000
shares of its common stock as issuable under the terms of this agreement. The shares were valued at $64,500 recorded as interest
expense. Additional shares will be issued by the Company under the terms of the agreement (see Note 19).
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
Note payable dated November 20, 2017, interest at 30% per annum, principal and accrued interest due on or before February 28, 2018. Unpaid interest at March 31, 2018 is approximately $7,600. The note is unsecured. During 2018, a verbal agreement was made to allow month-to-month extension of the due date as long as interest payments were made monthly.
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Secured short term note payable dated January 26, 2018 with principal and interest due 60 days from issuance.
The note requires a one-time fee in the amount of $12,500 to compensate for the first two weeks of the term and each week thereafter
(weeks 3-8) a fee of $1,250 shall be due and owing accruing on the first day of the week. The total one time fee paid was $17,500.
A fee of 100,000 shares of restricted common stock shall be issued as a penalty for each month or prorated for any two-week portion
of any month the note is outstanding past the original maturity date for months 3 through 6, and a fee of 200,000 shares of restricted
common stock shall be issued to lender for each month or prorated for each two-week portion of any month the note is outstanding
past the original maturity date beginning in month 7 until paid in full. The note is secured by the future sale of CoronaLux™
units and a personal guarantee of an officer of the Company. The penalty period for shares to be issued has been reached and the
Company will issue shares under the terms of the agreement (see Note 19).
|
|
|
250,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Note payable dated February 27, 2018 due on or before May 31, 2018 requiring a one-time fee in the amount of $25,000 to be paid as interest along with the principal in the due date. In the event the note and interest are not paid on or before June 1, 2018, a fee of $5,000 shall be due and owing accruing on the first day of each month commencing June 1, 2018. The note is secured by all of the proceeds from the sale of SEM’s BioActive Media paid to or received by SEM or MV.
|
|
|
100,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Note payable dated October 13, 2015, interest at 8% per annum, payable in 60 monthly installments of principal and interest $4,562, due October 1, 2020. Secured by real estate and other assets of SEM and guaranteed by SEER and MV.
|
|
|
126,800
|
|
|
|
137,900
|
|
|
|
|
|
|
|
|
|
|
Note payable insurance premium financing, interest at 4.56% per annum, payable in 10 installments of $37,833, due November 1, 2018.
|
|
|
258,400
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, secured by certain assets, maturing through Nov 2020
|
|
|
95,500
|
|
|
|
109,900
|
|
Total notes payable and capital lease obligations
|
|
|
3,255,500
|
|
|
|
2,670,600
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(2,769,600
|
)
|
|
|
(2,166,300
|
)
|
Notes payable and capital lease obligations, long-term, including debt discount
|
|
$
|
485,900
|
|
|
$
|
504,300
|
|
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
NOTE 11 – RELATED PARTY TRANSACTIONS
Notes payable, related parties
Related parties accrued interest due to
certain related parties as of March 31, 2018 and December 31, 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
$
|
11,800
|
|
|
$
|
11,800
|
|
|
|
$
|
11,800
|
|
|
$
|
11,800
|
|
We believe the stated interest rates on the
related party notes payable represent reasonable market rates based on the note payable arrangements we have executed with third
parties.
In March 2012, the Company entered into an
Irrevocable License & Royalty Agreement with PWS that grants PWS an irrevocable world-wide license to the IP in exchange for
a 5% royalty on all revenues from PWS and its affiliates. The term shall commence as of the date of this Agreement and shall continue
for a period not to exceed the life of the patent or patents filed by the Company. PWS may sub license the IP and any revenue derived
from sub licensing shall be included in the calculation of Gross Revenue for purposes of determining royalty payments due the Company.
Royalty payments are due 30 days after the end of each calendar quarter. PWS generated licensing revenues of approximately $33,700
for the three months ended March 31,2 018 and $168,100 for the year ended December 31, 2017, as such, royalties of approximately
$26,900 and $25,600 were due at March 31, 2018 and December 31, 2017, respectively.
In October 2014, PWS and Medical Waste Services,
LLC (“MWS”) formed a contractual joint venture to exploit the PWS medical waste destruction technology. In 2015, MWS
licensed and installed a CoronaLux™ unit at an MWS facility, and subsequently received a limited permit to operate. Operations
to date have included the destruction of medical waste. For the three months ended March 31, 2018 and the year ended December 31,
2017, PWS has recorded $13,700 and $19,800 in income which represents their 50% interest in the net income of the joint venture,
respectively. In addition, for the year ended December 31, 2017, PWS billed the joint venture approximately $57,000 in costs incurred
on behalf of the joint venture. PWS did not incur any costs incurred on behalf of the joint venture for the three months ended
March 31, 2018.
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
NOTE
12 – DISCONTINUED OPERATIONS
During the third quarter of 2017, we sold
our fixed railcar cleaning division which includes substantially all assets and liabilities of Tactical (except for cash) as well
as three locations in REGS including Illinois, Maryland and Pennsylvania for a sales price of $2.4 million of proceeds received
at the close on July 31, 2017, subject to an adjustment for working capital changes, and guaranteed payments of $1.1 million over
the next three years. In addition, the Company is entitled to receive another $1.5 million based on the performance of the fixed
railcar cleaning locations, also over the next three years. Accordingly, the revenue and expenses associated with the railcar cleaning
locations are presented as “Discontinued operations” on our consolidated statement of operations and on our consolidated
statement of cash flows for the three months ending March 31, 2017. The sale was completed on July 31, 2017.
In December 2017, the Company and the buyer
signed Amendment No. 1 to the Asset Purchase Agreement which modified certain terms in the original asset purchase agreement providing
for a reduction to the first guaranteed payment in the amount of $276,000 in exchange for immediate release of certain liabilities
arising from the collection by the Company of certain trade receivables included in the sale.
Major classes of line items constituting
pretax loss on discontinued operations:
|
|
For the three months ending
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Services revenue
|
|
$
|
—
|
|
|
$
|
1,601,500
|
|
|
|
|
|
|
|
|
|
|
Services costs
|
|
|
—
|
|
|
|
1,138,100
|
|
General and administrative expenses
|
|
|
—
|
|
|
|
25,400
|
|
Salaries and related expenses
|
|
|
—
|
|
|
|
83,100
|
|
Other (income) expense
|
|
|
—
|
|
|
|
200
|
|
Total expenses
|
|
|
—
|
|
|
|
1,246,800
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
—
|
|
|
|
354,700
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
$
|
—
|
|
|
$
|
354,700
|
|
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
NOTE
13 – EQUITY TRANSACTIONS
2018
During the three months ended March 31,
2018, the Company recorded 570,000 shares of $.001 par value common stock as issuable to short-term note holders as required under
their respective agreements. (See Note 9)
During the three months ended March 31,
2018, the Company sold 250,000 shares of $.001 par value common stock at $.48 per share in a private placement, receiving proceeds
of $120,000.
2017
During the three months ended March 31,
2017, the Company recorded 500,000 shares of $.001 par value common stock as issuable to short-term note holders as required under
their respective agreements. (See Note 9)
During the three months ended March 31,
2017, the Company issued 13,496 shares of its $.001 par value common stock upon the cashless exercise of 166,666 common stock options.
During the three months ended March 31,
2017, the Company issued an option to purchase 1,000,000 shares of its $.001 par value common stock at a strike price of $1.00
to Richard Robertson in connection with his employment agreement dated January 9, 2017. At the date of issuance 100,000 shares
vested immediately and the remaining 900,000 options vest over a period of four years in a series of 16 successive equal quarterly
vesting of 56,250 options commencing March 31, 2017 and ending December 31, 2020. The Company used the Black Scholes option pricing
model to estimate the fair value of the options granted at $102,354. The assumptions used in calculating such value include a risk-free
interest rate of 1.89%, expected volatility of 36.87%, an expected life of 5.5 years and a dividend rate of 0.
Non-controlling Interest
The non-controlling interest presented
in our condensed consolidated financial statements reflects a 46% non-controlling equity interest in PWS (see Note 7). Net loss
attributable to non-controlling interest, as reported on our condensed consolidated statements of operations, represents the net
loss of PWS attributable to the non-controlling equity interest. The non-controlling interest is reflected within stockholders’
equity on the condensed consolidated balance sheet.
NOTE 14 – CUSTOMER
CONCENTRATIONS
The Company had sales from operations to
two customers for the three months ended March 31, 2018 and 2017 that represented approximately 31% and 25% 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
customer for non-financial related issues.
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
NOTE 15 – NET LOSS PER SHARE
Basic net loss per share is computed by
dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted net
loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares
outstanding plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common
shares. Potentially dilutive securities are excluded from the calculation when their effect would be anti-dilutive. For all years
presented in the consolidated financial statements, all potentially dilutive securities have been excluded from the diluted share
calculations as they were anti-dilutive as a result of the net losses incurred for the respective years. Accordingly, basic shares
equal diluted shares for all years presented.
Potentially dilutive securities were comprised of the following:
|
|
Three Months Ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Warrants
|
|
|
7,658,400
|
|
|
|
9,665,400
|
|
Options
|
|
|
1,572,500
|
|
|
|
1,190,000
|
|
Convertible notes payable, including accrued interest
|
|
|
2,417,300
|
|
|
|
2,384,300
|
|
|
|
|
11,648,200
|
|
|
|
13,239,700
|
|
NOTE 16 - ENVIRONMENTAL MATTERS AND
REGULATION
Significant federal environmental laws
affecting us are the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive Environmental Response, Compensation
and Liability Act (“CERCLA”), also known as the “Superfund Act”, the Clean Air Act, the Clean Water Act and
the Toxic Substances Control Act (“TSCA”).
Pursuant to the EPA’s authorization
of the RCRA equivalent programs, a number of states have regulatory programs governing the operations and permitting of hazardous
waste facilities. Our facilities are regulated pursuant to state statutes, including those addressing clean water and clean air.
Our facilities are also subject to local siting, zoning and land use restrictions. We believe we are in substantial compliance
with all federal, state and local laws regulating our business.
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
NOTE 17 - SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company currently has identified
three segments as follows:
REGS
|
Industrial Cleaning
|
MV and SEM
|
Environmental Solutions
|
PWS
|
Solid Waste
|
Reach has had minimal operations
through March 31, 2018.
The composition of our reportable segments
is consistent with that used by our Chief Operating Decision Maker (“CODM”) to evaluate performance and allocate resources.
All of our operations are located in the U.S. We have not allocated corporate selling, general and administrative expenses, and
stock-based compensation to the segments. All intercompany transactions have been eliminated.
Segment information for the three months ended March 31, 2018
and 2017 is as follows:
2018
|
|
Industrial
|
|
Environmental
|
|
Solid
|
|
|
|
|
|
|
Cleaning
|
|
Solutions
|
|
Waste
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
923,200
|
|
|
$
|
875,500
|
|
|
$
|
97,400
|
|
|
$
|
—
|
|
|
$
|
1,896,100
|
|
Depreciation and amortization (1)
|
|
|
76,200
|
|
|
|
44,400
|
|
|
|
19,300
|
|
|
|
20,700
|
|
|
|
160,600
|
|
Interest expense
|
|
|
15,200
|
|
|
|
2,600
|
|
|
|
—
|
|
|
|
348,000
|
|
|
|
365,800
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,500
|
|
|
|
35,500
|
|
Net income (loss)
|
|
|
(77,500
|
)
|
|
|
120,600
|
|
|
|
(36,100
|
)
|
|
|
(754,300
|
)
|
|
|
(747,300
|
)
|
Capital expenditures (cash and noncash)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
982,100
|
|
|
|
1,008,400
|
|
|
$
|
526,400
|
|
|
$
|
1,546,400
|
|
|
$
|
4,063,300
|
|
2017
|
|
Industrial
|
|
Environmental
|
|
Solid
|
|
|
|
|
|
|
Cleaning (2)
|
|
Solutions
|
|
Waste
|
|
Corporate
|
|
Total (3)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
834,500
|
|
|
$
|
1,689,000
|
|
|
$
|
69,300
|
|
|
$
|
—
|
|
|
$
|
2,592,800
|
|
Depreciation and amortization (1)
|
|
|
83,000
|
|
|
|
40,700
|
|
|
|
32,800
|
|
|
|
25,000
|
|
|
|
181,500
|
|
Interest expense
|
|
|
6,300
|
|
|
|
4,800
|
|
|
|
100
|
|
|
|
415,700
|
|
|
|
426,900
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,000
|
|
|
|
17,000
|
|
Net income (loss)
|
|
|
(23,400
|
)
|
|
|
217,400
|
|
|
|
(111,300
|
)
|
|
|
(857,300
|
)
|
|
|
(774,600
|
)
|
Capital expenditures (cash and noncash)
|
|
|
—
|
|
|
|
1,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,300
|
|
Total assets
|
|
$
|
1,041,700
|
|
|
$
|
2,114,000
|
|
|
$
|
1,795,100
|
|
|
$
|
1,011,000
|
|
|
$
|
5,961,800
|
|
|
(1)
|
Includes depreciation of property, equipment and leasehold
improvement and amortization of intangibles
|
|
(2)
|
Includes mobile rail car cleaning and excludes locations classified as discontinued operations
|
|
(3)
|
Excludes discontinued operations
|
STRATEGIC ENVIRONMENTAL & ENERGY
RESOURCES, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
NOTE 18 – LITIGATION
In January 2016, an employee of SEM was
involved in a vehicle accident while on Company business. Various actions were filed by the claimants in both state and federal
courts. In August 2016, an involuntary proceeding was commenced by one of the claimants against SEM under Chapter 7 of the Bankruptcy
code. In September 2016, the case was converted to a Chapter 11 under the Bankruptcy code. During the pendency of all actions,
SEM continued to manage its affairs and operate normally. In the fourth quarter of 2016, the parties reached a settlement concerning
the distribution of insurance proceeds and all issues of liability. On March 27, 2017 the Bankruptcy Courts confirmed the dismissal
of the SEM Chapter 11 case. As part of the bankruptcy proceedings, the Company reached a settlement with claimants and recorded
an accrued litigation expense of $212,500 at December 31, 2016. It was agreed among the parties that all pending state and/or
federal claims will be dismissed with prejudice. The accrued litigation outstanding at March 31, 2018 and December 31, 2017 was
$133,333 and $133,333, respectively.
NOTE 19 - SUBSEQUENT EVENTS
During April 2018, the Company issued 75,000 shares of $.001
par value common stock for services provided and to be provided through May 31, 2018 totaling approximately $58,000.
As of May 15, 2018, the Company’s four short term notes
for which the penalty period for shares to be issued has been reached. The Company has recorded 435,000 shares of its common stock
as issuable under the terms of those agreements. The shares were valued at approximately $178,400 and are recorded as interest
expense. Additional shares will be issued by the Company under the terms of the agreements.
In anticipation of a larger on-going funding program, on May 8, 2018, the Company entered into a $1 million secured promissory note with a third-party lender. The note provides for interest accruing at 6.5% per annum due May 8, 2025. For the first six months of the loan, no payments will be made but interest will accrue. For months seven through twenty-four, interest only payments will be due monthly and commencing on the 25th month of the loan, the remaining unpaid principal and interest will be amortized over the remaining five-year period with equal monthly principal and interest payments. This note is part of a larger financing arrangement with an international lender who has proposed a second $1 million convertible loan to take place within the next month. This second note is convertible at $0.80 per share at the election of lender. As of the date of issuance of this report, the initial funds had not been received by the Company and all documents related to the entire agreement that stipulate details to the loan program will be executed by the parties upon initial proceeds being received by the Company.