Item
1. Financial Statements
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
June 30, 2018
|
|
|
|
December 31, 2017
|
|
ASSETS
|
|
|
Unaudited
|
|
|
|
*
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
218,600
|
|
|
$
|
54,100
|
|
Accounts receivable, net of allowance for doubtful accounts of $460,100 and $460,100,
respectively
|
|
|
1,262,600
|
|
|
|
692,400
|
|
Notes receivable, net
|
|
|
—
|
|
|
|
184,600
|
|
Prepaid expenses and other current assets
|
|
|
520,700
|
|
|
|
340,900
|
|
Total current assets
|
|
|
2,001,900
|
|
|
|
1,272,000
|
|
Property and equipment, net
|
|
|
1,067,100
|
|
|
|
1,296,400
|
|
Intangible assets, net
|
|
|
570,700
|
|
|
|
623,100
|
|
Notes receivable, net of current portion
|
|
|
523,300
|
|
|
|
542,900
|
|
Other assets
|
|
|
16,500
|
|
|
|
16,500
|
|
TOTAL ASSETS
|
|
$
|
4,179,500
|
|
|
$
|
3,750,900
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,996,400
|
|
|
$
|
1,436,900
|
|
Accrued liabilities
|
|
|
1,358,400
|
|
|
|
1,307,600
|
|
Revenue contract liabilities
|
|
|
550,100
|
|
|
|
227,300
|
|
Deferred revenue
|
|
|
128,000
|
|
|
|
304,200
|
|
Payroll taxes payable
|
|
|
1,021,900
|
|
|
|
997,700
|
|
Customer deposits
|
|
|
1,600
|
|
|
|
21,600
|
|
Current portion of notes payable and capital lease obligations
|
|
|
2,654,200
|
|
|
|
2,166,300
|
|
Notes payable - related parties, including accrued interest
|
|
|
11,800
|
|
|
|
11,800
|
|
Total current liabilities
|
|
|
7,722,400
|
|
|
|
6,473,400
|
|
Deferred revenue, non-current
|
|
|
76,900
|
|
|
|
113,100
|
|
Notes payable and capital lease obligations, net of current portion
|
|
|
467,200
|
|
|
|
504,300
|
|
Total liabilities
|
|
|
8,266,500
|
|
|
|
7,090,800
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock; $.001 par value; 5,000,000 shares authorized; -0- shares issued
|
|
|
|
|
|
|
|
|
Common stock; $.001 par value; 70,000,000 shares authorized; 58,863,575 and 56,528,575 shares issued, issuable** and outstanding 2018 and 2017, respectively
|
|
|
58,600
|
|
|
|
56,500
|
|
Common stock subscribed
|
|
|
25,000
|
|
|
|
25,000
|
|
Additional paid-in capital
|
|
|
21,819,900
|
|
|
|
20,790,700
|
|
Stock subscription receivable
|
|
|
(25,000
|
)
|
|
|
(25,000
|
)
|
Accumulated deficit
|
|
|
(23,229,500
|
)
|
|
|
(21,471,900
|
)
|
Total stockholders’ equity
|
|
|
(1,351,000
|
)
|
|
|
(624,700
|
)
|
Non-controlling interest
|
|
|
(2,736,000
|
)
|
|
|
(2,715,200
|
)
|
Total equity
|
|
|
(4,087,000
|
)
|
|
|
(3,339,900
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
4,179,500
|
|
|
$
|
3,750,900
|
|
*
These
numbers were derived from the audited financial statements for the year ended December 31, 2017. See accompanying notes.
**Includes
2,200,000 and 190,000 shares issuable at June 30, 2018 and December 31, 2017, respectively, per terms of short-term notes.
See
accompanying notes.
STRATEGIC
ENVIRONMENTAL & ENERGY RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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|
|
|
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For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
Revenue:
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Products
|
|
$
|
1,543,700
|
|
|
$
|
1,862,500
|
|
|
$
|
2,419,200
|
|
|
$
|
3,551,500
|
|
Services
|
|
|
796,800
|
|
|
|
555,500
|
|
|
|
1,720,000
|
|
|
|
1,390,000
|
|
Licensing
|
|
|
88,000
|
|
|
|
74,500
|
|
|
|
185,400
|
|
|
|
143,900
|
|
Total revenue
|
|
|
2,428,500
|
|
|
|
2,492,500
|
|
|
|
4,324,600
|
|
|
|
5,085,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products costs
|
|
|
953,000
|
|
|
|
1,227,700
|
|
|
|
1,467,800
|
|
|
|
2,406,100
|
|
Services costs
|
|
|
802,000
|
|
|
|
857,100
|
|
|
|
1,593,100
|
|
|
|
1,508,500
|
|
Solid waste costs
|
|
|
8,700
|
|
|
|
53,000
|
|
|
|
25,700
|
|
|
|
110,300
|
|
General and administrative expenses
|
|
|
648,900
|
|
|
|
750,200
|
|
|
|
1,143,400
|
|
|
|
1,293,700
|
|
Salaries and related expenses
|
|
|
502,700
|
|
|
|
534,400
|
|
|
|
995,400
|
|
|
|
1,039,200
|
|
Total operating expenses
|
|
|
2,915,300
|
|
|
|
3,422,400
|
|
|
|
5,225,400
|
|
|
|
6,357,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(486,800
|
)
|
|
|
(929,900
|
)
|
|
|
(900,800
|
)
|
|
|
(1,272,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
11,800
|
|
|
|
—
|
|
|
|
21,700
|
|
|
|
—
|
|
Interest expense
|
|
|
(613,800
|
)
|
|
|
(529,600
|
)
|
|
|
(979,600
|
)
|
|
|
(956,500
|
)
|
Other
|
|
|
16,700
|
|
|
|
(600
|
)
|
|
|
39,300
|
|
|
|
(5,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating expense, net
|
|
|
(585,300
|
)
|
|
|
(530,200
|
)
|
|
|
(918,600
|
)
|
|
|
(962,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,072,100
|
)
|
|
|
(1,460,100
|
)
|
|
|
(1,819,400
|
)
|
|
|
(2,234,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of tax
|
|
|
—
|
|
|
|
123,600
|
|
|
|
—
|
|
|
|
478,300
|
|
Gain on sale of rail operations
|
|
|
41,000
|
|
|
|
—
|
|
|
|
41,000
|
|
|
|
—
|
|
Discontinued operations, net of tax
|
|
|
41,000
|
|
|
|
123,600
|
|
|
|
41,000
|
|
|
|
478,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before earnings from equity method joint ventures
|
|
|
(1,031,100
|
)
|
|
|
(1,336,500
|
)
|
|
|
(1,778,400
|
)
|
|
|
(1,756,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity method joint ventures
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,031,100
|
)
|
|
|
(1,336,500
|
)
|
|
|
(1,778,400
|
)
|
|
|
(1,756,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to non-controlling interest
|
|
|
(4,200
|
)
|
|
|
(40,000
|
)
|
|
|
(20,800
|
)
|
|
|
(91,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to SEER common stockholders
|
|
$
|
(1,026,900
|
)
|
|
$
|
(1,296,500
|
)
|
|
$
|
(1,757,600
|
)
|
|
$
|
(1,665,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from continuing operations
|
|
$
|
(.02
|
)
|
|
$
|
(.03
|
)
|
|
$
|
(.03
|
)
|
|
$
|
(.04
|
)
|
Discontinued operations
|
|
$
|
—
|
|
|
$
|
.01
|
|
|
$
|
—
|
|
|
$
|
.01
|
|
Net income (loss) per share, basic and diluted
|
|
$
|
(.02
|
)
|
|
$
|
(.02
|
)
|
|
$
|
(.03
|
)
|
|
$
|
(.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted
|
|
|
58,362,476
|
|
|
|
54,708,905
|
|
|
|
57,553,741
|
|
|
|
54,621,302
|
|
See
accompanying notes.
STRATEGIC
ENVIRONMENTAL & ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
Cash flows from operating activities:
|
|
2018
|
|
|
2017
|
|
Net loss
|
|
$
|
(1,778,400
|
)
|
|
$
|
(1,756,500
|
)
|
Income from discontinued operations
|
|
|
41,000
|
|
|
|
478,300
|
|
Net loss from continuing operations
|
|
|
(1,819,400
|
)
|
|
|
(2,234,800
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
281,800
|
|
|
|
408,700
|
|
Stock-based compensation expense
|
|
|
59,500
|
|
|
|
56,800
|
|
Stock issued for services
|
|
|
71,000
|
|
|
|
—
|
|
Non-cash expense for interest, common stock issued for debt penalty
|
|
|
780,800
|
|
|
|
820,000
|
|
Amortization of note discount
|
|
|
(19,800
|
)
|
|
|
—
|
|
Non-cash expense for interest, warrants – accretion of debt discount
|
|
|
4,000
|
|
|
|
4,000
|
|
Non-cash expense for extension of warrants
|
|
|
—
|
|
|
|
83,600
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(570,200
|
)
|
|
|
446,100
|
|
Costs in Excess of billings on uncompleted contracts
|
|
|
—
|
|
|
|
(98,700
|
)
|
Prepaid expenses and other assets
|
|
|
170,700
|
|
|
|
281,400
|
|
Accounts payable and accrued liabilities
|
|
|
610,200
|
|
|
|
644,600
|
|
Revenue contract liabilities
|
|
|
322,800
|
|
|
|
(840,400
|
)
|
Deferred revenue
|
|
|
(212,400
|
)
|
|
|
(94,200
|
)
|
Payroll taxes payable
|
|
|
24,200
|
|
|
|
(7,000
|
)
|
Net cash used by operating activities
|
|
|
(296,800
|
)
|
|
|
(529,900
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
—
|
|
|
|
(61,700
|
)
|
Proceeds (purchase) of intangibles
|
|
|
(100
|
)
|
|
|
2,400
|
|
Proceeds from notes receivable
|
|
|
224,000
|
|
|
|
—
|
|
Net cash provided by (used in) investing activities
|
|
|
223,900
|
|
|
|
(59,300
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments of notes and capital lease obligations
|
|
|
(273,600
|
)
|
|
|
(557,000
|
)
|
Proceeds from short-term notes
|
|
|
350,000
|
|
|
|
450,000
|
|
Proceeds from warrant extensions
|
|
|
—
|
|
|
|
138,600
|
|
Proceeds from the sale of common stock and warrants, net of expenses
|
|
|
120,000
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
196,400
|
|
|
|
31,600
|
|
Net cash flows from discontinued operations
|
|
|
41,000
|
|
|
|
611,700
|
|
Net increase in cash
|
|
|
164,500
|
|
|
|
54,100
|
|
Cash at the beginning of period
|
|
|
54,100
|
|
|
|
233,200
|
|
Cash at the end of period
|
|
$
|
218,600
|
|
|
$
|
287,300
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
41,900
|
|
|
$
|
53,300
|
|
Financing of prepaid insurance premiums
|
|
$
|
373,900
|
|
|
$
|
175,300
|
|
Issuance of common stock for other assets
|
|
$
|
—
|
|
|
$
|
—
|
|
See
accompanying notes.
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 8) 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 June 30, 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 $23.2 million
as of June 30, 2018, and $21.5 million as of December 31, 2017. For the six months ended June 30, 2018 and 2017 we had net losses
from continuing operations before adjustment for losses attributable to non-controlling interest of approximately $1.8 million
and $1.8 million, respectively. As of June 30, 2018 and December 31, 2017 our current liabilities exceed our current assets by
approximately $5.7 million and $5.2 million, respectively. The primary reason for the increase in negative working capital from
December 31, 2017 to June 30, 2018 is due to an increase in accounts payable of approximately $560,000 and an increase in short
term debt of $488,000. 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.
NOTE
1 – ORGANIZATION AND FINANCIAL CONDITION, continued
Realization
of a major portion of our assets as of June 30, 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.
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 $600 and $3,900 for the six months ended June 30, 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 six months ended June 30, 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 June 30, 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 June 30, 2018 was approximately $311,000. 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 June
30, 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.
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 June 30, 2018
|
|
|
|
Industrial Cleaning
|
|
|
Environmental
Solutions
|
|
|
Solid Waste
|
|
|
Total
|
|
Sources of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial cleaning services
|
|
$
|
219,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
219,500
|
|
Mobile rail car cleaning services
|
|
|
577,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
577,300
|
|
Product sales
|
|
|
—
|
|
|
|
716,200
|
|
|
|
—
|
|
|
|
716,200
|
|
Media sales
|
|
|
—
|
|
|
|
827,500
|
|
|
|
—
|
|
|
|
827,500
|
|
Licensing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
33,700
|
|
|
|
33,700
|
|
Operating fees
|
|
|
—
|
|
|
|
—
|
|
|
|
4,300
|
|
|
|
4,300
|
|
Management fees
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Total Revenue
|
|
$
|
796,800
|
|
|
$
|
1,543,700
|
|
|
$
|
88,000
|
|
|
$
|
2,428,500
|
|
|
|
Three months ended June 30, 2017
|
|
|
|
Industrial Cleaning
|
|
|
Environmental
Solutions
|
|
|
Solid Waste
|
|
|
Total
|
|
Sources of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial cleaning services
|
|
$
|
555,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
555,500
|
|
Product sales
|
|
|
—
|
|
|
|
1,510,900
|
|
|
|
—
|
|
|
|
1,510,900
|
|
Media sales
|
|
|
—
|
|
|
|
351,600
|
|
|
|
—
|
|
|
|
351,600
|
|
Licensing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
47,100
|
|
|
|
47,100
|
|
Operating fees
|
|
|
—
|
|
|
|
—
|
|
|
|
27,400
|
|
|
|
27,400
|
|
Total Revenue
|
|
$
|
555,500
|
|
|
$
|
1,862,500
|
|
|
$
|
74,500
|
|
|
$
|
2,492,500
|
|
|
|
Six months ended June 30, 2018
|
|
|
|
Industrial Cleaning
|
|
|
Environmental Solutions
|
|
|
Solid Waste
|
|
|
Total
|
|
Sources of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial cleaning services
|
|
$
|
749,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
749,200
|
|
Mobile rail car cleaning services
|
|
|
970,800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
970,800
|
|
Product sales
|
|
|
—
|
|
|
|
1,098,300
|
|
|
|
—
|
|
|
|
1,098,300
|
|
Media sales
|
|
|
—
|
|
|
|
1,320,900
|
|
|
|
—
|
|
|
|
1,320,900
|
|
Licensing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
67,400
|
|
|
|
67,400
|
|
Operating fees
|
|
|
—
|
|
|
|
—
|
|
|
|
18,000
|
|
|
|
18,000
|
|
Management fees
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Total Revenue
|
|
$
|
1,720,000
|
|
|
$
|
2,419,200
|
|
|
$
|
185,400
|
|
|
$
|
4,324,600
|
|
|
|
Six months ended June 30, 2017
|
|
|
|
Industrial Cleaning
|
|
|
Environmental Solutions
|
|
|
Solid Waste
|
|
|
Total
|
|
Sources of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial cleaning services
|
|
$
|
1,390,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,390,000
|
|
Product sales
|
|
|
—
|
|
|
|
2,888,100
|
|
|
|
—
|
|
|
|
2,888,100
|
|
Media sales
|
|
|
—
|
|
|
|
663,400
|
|
|
|
—
|
|
|
|
663,400
|
|
Licensing fees
|
|
|
—
|
|
|
|
—
|
|
|
|
94,300
|
|
|
|
94,300
|
|
Operating fees
|
|
|
—
|
|
|
|
—
|
|
|
|
49,600
|
|
|
|
49,600
|
|
Total Revenue
|
|
$
|
1,390,000
|
|
|
$
|
3,551,500
|
|
|
$
|
143,900
|
|
|
$
|
5,085,400
|
|
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 June 30, 2018
|
|
$
|
1,262,600
|
|
|
$
|
550,100
|
|
|
$
|
128,000
|
|
|
$
|
76,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
|
692,400
|
|
|
|
227,300
|
|
|
|
304,200
|
|
|
|
113,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease)
|
|
$
|
570,200
|
|
|
$
|
322,800
|
|
|
($
|
176,200
|
)
|
|
($
|
36,200
|
)
|
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 June 30, 2018, the aggregate
amount of the transaction price allocated to the remaining performance obligations was approximately $731,000, of which the Company
expects to recognize revenue of approximately 94% over the next 24 months, including 89% 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:
|
|
June 30, 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
|
|
|
(2,969,000
|
)
|
|
|
(2,739,700
|
)
|
Property and equipment, net
|
|
$
|
1,067,100
|
|
|
$
|
1,296,400
|
|
Depreciation expense for the three months
ended June 30, 2018 and 2017 was $96,200 and $167,300, respectively and for the six months ended June 30, 2018 and 2017 was $229,300
and $323,700, respectively. For the three months ended June 30, 2018 depreciation expense included in cost of goods sold and selling,
general and administrative expenses was $78,000 and $18,200 respectively. For the six months ended June 30, 2018 depreciation expense
included in cost of goods sold and selling, general and administrative expenses was $192,500 and $36,800, respectively. For the
three months ended June 30, 2017 depreciation expense included in cost of goods sold and selling, general and administrative expenses
was $142,600 and $24,700 respectively. For the six months ended June 30, 2017 depreciation expense included in cost of goods sold
and selling, general and administrative expenses was $274,700 and $49,000, respectively.
Accumulated depreciation on leased CoronaLux™
units included in accumulated depreciation and amortization above is $249,400 and $381,900 as of June 30, 2018 and 2017, respectively.
Property and equipment included the following amounts for leases
that have been capitalized at:
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Vehicles, field and shop equipment
|
|
$
|
407,100
|
|
|
$
|
407,100
|
|
Less: accumulated amortization
|
|
|
(279,500
|
)
|
|
|
(232,200
|
)
|
|
|
$
|
127,600
|
|
|
$
|
174,900
|
|
NOTE 5 – INTANGIBLE ASSETS
Intangible assets were comprised of the following:
|
|
June 30, 2018
|
|
|
|
Gross carrying amount
|
|
|
Accumulated amortization
|
|
|
Net carrying value
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
277,800
|
|
|
$
|
—
|
|
|
$
|
277,800
|
|
Customer list
|
|
|
42,500
|
|
|
|
(42,500
|
)
|
|
|
—
|
|
Technology
|
|
|
1,090,500
|
|
|
|
(797,600
|
)
|
|
|
292,900
|
|
Trade name
|
|
|
54,900
|
|
|
|
(54,900
|
)
|
|
|
—
|
|
|
|
$
|
1,465,700
|
|
|
$
|
(895,000
|
)
|
|
$
|
570,700
|
|
|
|
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 $24,800 and $62,300 for the three months ended June 30, 2018 and
2017, respectively and $52,400 and $85,000 for the six months ended June 30, 2018 and 2017, respectively.
NOTE 6 – ACCRUED LIABILITIES
Accrued liabilities were comprised of the
following:
|
|
June 30,
2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Accrued compensation and related taxes
|
|
$
|
602,600
|
|
|
$
|
608,000
|
|
Accrued interest
|
|
|
233,000
|
|
|
|
105,700
|
|
Warranty and defect claims
|
|
|
55,100
|
|
|
|
71,700
|
|
Other
|
|
|
467,700
|
|
|
|
522,200
|
|
Total Accrued Liabilities
|
|
$
|
1,358,400
|
|
|
$
|
1,307,600
|
|
NOTE 7 – UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings
on uncompleted contracts are as follows:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Revenue Recognized
|
|
$
|
—
|
|
|
$
|
—
|
|
Less: Billings to date
|
|
|
—
|
|
|
|
—
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Billings to date
|
|
$
|
3,606,000
|
|
|
$
|
2,875,500
|
|
Revenue recognized
|
|
|
(3,055,900
|
)
|
|
|
(2,648,200
|
)
|
|
|
|
|
|
|
|
|
|
Revenue contract liabilities
|
|
$
|
550,100
|
|
|
$
|
227,300
|
|
NOTE 8 – INVESTMENT IN PARAGON WASTE SOLUTIONS
LLC
Since its inception through June 30, 2018,
we have provided approximately $6.3 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 June 30, 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 June 30, 2018, and December 31, 2017,
the outstanding balance due to the IRS was $1,021,900, 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.
NOTE 10 – DEBT
Debt as of June 30, 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
|
|
|
(3,200
|
)
|
|
|
(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 six months ended June 30, 2018 and the year ended December 31, 2017, the Company recorded 950,000 shares and 150,000 shares of its common stock as issuable under the terms of this agreement, respectively. The shares were valued at $375,400 and $100,000 for the six months ended June 30, 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 six months ended June 30, 2018 and the year ended December 31, 2017, the Company recorded 360,000 shares and 40,000 shares of its common stock, respectively, as issuable under the terms of this agreement. The shares were valued at $141,900 and $30,000 for the six months ended June 30, 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
|
|
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 June 30, 2018. During the six months ended June 30, 2018, the Company recorded 400,000 shares of its common stock as issuable under the terms of this agreement. The shares were valued at $156,900 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 June 30, 2018 is approximately $30,100. 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 had not been reached as of December 31, 2017 but was reached as of June 30, 2018. During the six months ended June 30, 2018, the Company recorded 300,000 shares of its common stock as issuable under the terms of this agreement. The shares were valued at $108,000 recorded as interest expense. Additional shares will be issued by the Company 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. Because the note and interest were not paid on or before June 1, 2018, a fee of $5,000 is 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. Unpaid interest and fees at June 30, 2018 is approximately $30,000.
|
|
|
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.
|
|
|
115,300
|
|
|
|
137,900
|
|
|
|
|
|
|
|
|
|
|
Note payable insurance premium financing, interest at 4.56% per annum, payable in 10 installments of $37,833, due November 1, 2018.
|
|
|
148,200
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, secured by certain assets, maturing through Nov 2020
|
|
|
81,100
|
|
|
|
109,900
|
|
Total notes payable and capital lease obligations
|
|
|
3,121,400
|
|
|
|
2,670,600
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
(2,654,200
|
)
|
|
|
(2,166,300
|
)
|
Notes payable and capital lease obligations, long-term, including debt discount
|
|
$
|
467,200
|
|
|
$
|
504,300
|
|
NOTE 11 – RELATED PARTY TRANSACTIONS
Notes payable, related parties
Related parties accrued interest due to
certain related parties as of June 30, 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 $67,400 for the six months ended June 30, 2018 and $161,500 for the year ended December 31, 2017, as such, royalties
of approximately $28,600 and $25,300 were due at June 30, 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 six months ended June 30, 2018 and the year
ended December 31, 2017, PWS has recorded $17,900 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 six months ended June 30, 2018.
NOTE
12 – DISCONTINUED OPERATIONS
During the third quarter of 2017, we sold
our fixed railcar cleaning division which included 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 six months ending June 30, 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. In May 2018, the buyer paid the
Company $224,000 as completion of the first guaranteed payment plus an additional $41,000 for exceeding performance benchmarks.
Major
classes of line items constituting pretax loss on discontinued operations:
|
|
For the three months ending
June 30,
|
|
|
For the six months ending
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services revenue
|
|
$
|
—
|
|
|
$
|
1,723,600
|
|
|
$
|
—
|
|
|
$
|
3,325,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services costs
|
|
|
—
|
|
|
|
1,442,300
|
|
|
|
—
|
|
|
|
2,580,400
|
|
General and administrative expenses
|
|
|
—
|
|
|
|
69,300
|
|
|
|
—
|
|
|
|
94,800
|
|
Salaries and related expenses
|
|
|
—
|
|
|
|
98,200
|
|
|
|
—
|
|
|
|
181,200
|
|
Other (income) expense
|
|
|
(41,000
|
)
|
|
|
(9,800
|
)
|
|
|
(41,000
|
)
|
|
|
(9,600
|
)
|
Total expenses
|
|
|
(41,000
|
)
|
|
|
1,600,000
|
|
|
|
(41,000
|
)
|
|
|
2,846,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
41,000
|
|
|
|
123,600
|
|
|
|
41,000
|
|
|
|
478,300
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from discontinued operations
|
|
$
|
41,000
|
|
|
$
|
123,600
|
|
|
$
|
41,000
|
|
|
$
|
478,300
|
|
NOTE
13 – EQUITY TRANSACTIONS
2018
During the six months ended June 30, 2018,
the Company recorded 2,010,000 shares of $.001 par value common stock as issuable to short-term note holders as required under
their respective agreements. (See Note 10)
During the six months ended June 30, 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.
During the six months ended June 30, 2018,
the Company issued 75,000 shares of $.001 par value common stock at $.77 per share for services valued at approximately $58,000.
2017
During the six months ended June 30, 2017,
the Company issued 500,000 shares of $.001 par value common stock valued at $350,000 in connection with the late payment penalty
due on short-term notes. (See Note 10)
During the six months ended June 30, 2017,
the Company recorded 700,000 shares of $.001 par value common stock valued at $470,000 as issuable to short-term note holders as
required under their respective agreements. (See Note 10)
During the six months ended June 30, 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 six months ended June 30, 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 installments of
56,250 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.
During the six months ended June 30, 2017,
the Company issued an option to purchase 1,000,000 shares of its $.001 par value common stock at a strike price of $0.70 to Don
Moorhead in connection with his agreement dated May 1, 2017. The options vest over a period of two years in a series of 8 successive
equal quarterly installments of 125,000 commencing July 1, 2017 and ending April 1, 2019. The Company used the Black Scholes option
pricing model to estimate the fair value of the options granted at $231,500. The assumptions used in calculating such value include
a risk-free interest rate of 1.84%, expected volatility of 39.17%, an expected life of 4.5 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
three customers and two customers for the three and six months ended June 30, 2018 that represented approximately 43% and 33% of
our total sales, respectively. For the three and six months ended June 30, 2017, the Company did not have sales representing more
than 10% to any one customer. 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.
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:
|
|
Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Warrants
|
|
|
6,558,400
|
|
|
|
9,415,430
|
|
Options
|
|
|
1,572,500
|
|
|
|
2,155,000
|
|
Convertible notes payable, including accrued interest
|
|
|
2,463,000
|
|
|
|
2,409,820
|
|
|
|
|
10,593,900
|
|
|
|
13,980,250
|
|
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.
NOTE 17 – SEGMENT INFORMATION AND MAJOR CUSTOMERS
The Company currently has identified
three segments as follows:
MV and SEM
|
Environmental Solutions
|
Reach has had minimal operations
through June 30, 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 June 30, 2018
and 2017 is as follows:
2018
|
|
Industrial
|
|
|
Environmental
|
|
|
Solid
|
|
|
|
|
|
|
|
|
|
Cleaning
|
|
|
Solutions
|
|
|
Waste
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
796,800
|
|
|
$
|
1,543,700
|
|
|
$
|
88,000
|
|
|
$
|
—
|
|
|
$
|
2,428,500
|
|
Depreciation and amortization (1)
|
|
|
58,000
|
|
|
|
32,700
|
|
|
|
9,800
|
|
|
|
20,500
|
|
|
|
121,000
|
|
Interest expense
|
|
|
11,900
|
|
|
|
2,400
|
|
|
|
—
|
|
|
|
599,500
|
|
|
|
613,800
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,500
|
|
|
|
35,500
|
|
Net income (loss)
|
|
|
(232,300
|
)
|
|
|
336,800
|
|
|
|
(9,000
|
)
|
|
|
(1,126,600
|
)
|
|
|
(1,031,100
|
)
|
Capital expenditures (cash and noncash)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
1,086,800
|
|
|
$
|
1,410,900
|
|
|
$
|
520,800
|
|
|
$
|
1,161,000
|
|
|
$
|
4,179,500
|
|
2017
|
|
Industrial
|
|
|
Environmental
|
|
|
Solid
|
|
|
|
|
|
|
|
|
|
Cleaning (2)
|
|
|
Solutions
|
|
|
Waste
|
|
|
Corporate
|
|
|
Total (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
555,500
|
|
|
$
|
1,862,500
|
|
|
$
|
74,500
|
|
|
$
|
—
|
|
|
$
|
2,492,500
|
|
Depreciation and amortization (1)
|
|
|
87,000
|
|
|
|
75,700
|
|
|
|
42,400
|
|
|
|
24,500
|
|
|
|
229,600
|
|
Interest expense
|
|
|
6,100
|
|
|
|
4,200
|
|
|
|
—
|
|
|
|
519,300
|
|
|
|
529,600
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,800
|
|
|
|
39,800
|
|
Net income (loss)
|
|
|
(445,900
|
)
|
|
|
243,000
|
|
|
|
(87,600
|
)
|
|
|
(1,169,600
|
)
|
|
|
(1,460,100
|
)
|
Capital expenditures (cash and noncash)
|
|
|
60,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
60,400
|
|
Total assets
|
|
$
|
1,046,600
|
|
|
$
|
1,678,400
|
|
|
$
|
1,758,700
|
|
|
$
|
558,400
|
|
|
$
|
5,042,100
|
|
Segment information for the six months ended June 30, 2018 and
2017 is as follows:
2018
|
|
Industrial
|
|
|
Environmental
|
|
|
Solid
|
|
|
|
|
|
|
|
|
|
Cleaning
|
|
|
Solutions
|
|
|
Waste
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,720,000
|
|
|
$
|
2,419,300
|
|
|
$
|
185,300
|
|
|
$
|
—
|
|
|
$
|
4,324,600
|
|
Depreciation and amortization (1)
|
|
|
134,200
|
|
|
|
77,100
|
|
|
|
29,100
|
|
|
|
41,300
|
|
|
|
281,700
|
|
Interest expense
|
|
|
27,100
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
947,500
|
|
|
|
979,600
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71,000
|
|
|
|
71,000
|
|
Net income (loss)
|
|
|
(309,800
|
)
|
|
|
457,500
|
|
|
|
(45,200
|
)
|
|
|
(1,880,900
|
)
|
|
|
(1,778,400
|
)
|
Capital expenditures (cash and
noncash)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
1,086,800
|
|
|
$
|
1,410,900
|
|
|
$
|
520,800
|
|
|
$
|
1,161,000
|
|
|
$
|
4,179,500
|
|
2017
|
|
Industrial
|
|
|
Environmental
|
|
|
Solid
|
|
|
|
|
|
|
|
|
|
Cleaning (2)
|
|
|
Solutions
|
|
|
Waste
|
|
|
Corporate
|
|
|
Total (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,390,000
|
|
|
$
|
3,551,500
|
|
|
$
|
143,900
|
|
|
$
|
—
|
|
|
$
|
5,085,400
|
|
Depreciation and amortization (1)
|
|
|
169,900
|
|
|
|
116,400
|
|
|
|
75,200
|
|
|
|
47,200
|
|
|
|
408,700
|
|
Interest expense
|
|
|
12,400
|
|
|
|
9,000
|
|
|
|
100
|
|
|
|
935,000
|
|
|
|
956,500
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56,800
|
|
|
|
56,800
|
|
Net income (loss)
|
|
|
(469,200
|
)
|
|
|
460,400
|
|
|
|
(198,900
|
)
|
|
|
(2,027,100
|
)
|
|
|
(2,234,800
|
)
|
Capital expenditures (cash and noncash)
|
|
|
60,400
|
|
|
|
1,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,700
|
|
Total assets
|
|
$
|
1,046,600
|
|
|
$
|
1,678,400
|
|
|
$
|
1,758,700
|
|
|
$
|
558,400
|
|
|
$
|
5,042,100
|
|
|
(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.
|
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 June 30, 2018 and December 31, 2017 was $133,333
and $133,333, respectively.
NOTE 19 – SUBSEQUENT EVENTS
As of August 14, 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 720,000 shares of its
common stock as issuable under the terms of those agreements. The shares were valued at approximately $151,200 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.
On July 11, 2018, the Company entered into a $500,000
note payable, interest at 20% per annum, unpaid principal and interest maturing 3 years from note date. A one-time payment of
200,000 shares of the Company’s common stock was required at signing. No principal nor interest is due or payable for the
first six months of the note, the fees shall accrue and commencing on month seven, the principal and interest shall be amortized
over the remaining 30 months. The note is secured by all assets of SEM, including all accounts receivable in favor of SEM and
a personal guarantee of an officer of the Company.
On July 12, 2018, the Company issued 140,000 shares of
$.001 par value common stock at $.295 per share for accrued interest on a short term note totaling approximately $37,700 and principal
totaling approximately $2,000, net of fees.
Effective August 8, 2018, Donald F. Moorehead resigned
as Chairman of SEER and CEO of Paragon Waste Solutions (“Paragon”). Mr. Moorehead will remain as an advisor
to the Board and J. John Combs III will resume the role as Chairman of the Board.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion is intended
to assist you in understanding our business and the results of our operations. It should be read in conjunction with the Condensed
Consolidated Financial Statements and the related notes that appear elsewhere in this report as well as our Report on Form 10K
filed with the Securities and Exchange Commission on April 17, 2018. Certain statements made in our discussion may be forward looking.
Forward-looking statements involve risks and uncertainties and a number of factors could cause actual results or outcomes to differ
materially from our expectations. These risks, uncertainties, and other factors include, among others, the risks described in our
Annual Report on Form 10K filed with the Securities and Exchange Commission, as well as other risks described in this Quarterly
Report. Unless the context requires otherwise, when we refer to “we,” “us” and “our,” we are
describing Strategic Environmental & Energy Resources, Inc. and its consolidated subsidiaries on a consolidated basis.
SEER BUSINESS OVERVIEW
Strategic Environmental
& Energy Resources, Inc. (“the Company” or “SEER”) was originally organized under the laws of the State
of Nevada on February 13, 2002 for the purpose of acquiring one or more businesses, under the name of Satellite Organizing Solutions,
Inc (“SOZG”). In January 2008, SOZG changed its name to Strategic Environmental & Energy Resources, Inc., reduced
its number of outstanding shares through a reverse stock split and consummated the acquisition of both, REGS, LLC and Tactical
Cleaning Company, LLC. SEER is dedicated to assembling complementary service and environmental, clean-technology businesses that
provide safe, innovative, cost effective, and profitable solutions in the oil & gas, environmental, waste management and renewable
energy industries. SEER currently operates five companies with four offices in the western and mid-western U.S. Through these operating
companies, SEER provides products and services throughout the U.S. and has licensed technologies with many customer installations
throughout the U.S. Each of the five operating companies is discussed in more detail below. The Company also has non-controlling
interests in joint ventures, some of which have no or minimal operations.
The Company’s
domestic strategy is to grow internally through SEER’s subsidiaries that have well established revenue streams and, simultaneously,
establish long-term alliances with and/or acquire complementary domestic businesses in rapidly growing markets for renewable energy,
waste and water treatment and oil & gas services. The focus of the SEER family of companies, however is to increase margins
by securing or developing proprietary patented and patent-pending technologies and then leveraging its 20 plus-year service experience
to place these innovations and solutions into the growing markets of emission capture and control, renewable “green gas”
capture and sale, compressed natural gas (“CNG”) fuel generation, as well as general solid waste and medical/pharmaceutical
waste destruction. Many of SEER’s current operating companies share customer bases and each provides truly synergistic services,
technologies and products as well as annuity type revenue streams.
The company now owns
and manages four operating entities and one entity that has no significant operations to date.
Subsidiaries
REGS, LLC
d/b/a Resource
Environmental Group Services (“REGS”):
(operating since 1994)
provides general industrial cleaning services and
waste management to many industry sectors focusing primarily on oil & gas production (upstream) and refineries (downstream).
MV, LLC (d/b/a MV Technologies),
(“MV”)
:
(operating since 2003)
MV designs and sells patented and/or proprietary, dry scrubber solutions for
management of Hydrogen Sulfide (H
2
S) in biogas, landfill gas, and petroleum processing operations. These system solutions
are marketed under the product names H2SPlus™ and OdorFilter™. The markets for these products include land fill operations,
agricultural and food product processors, wastewater treatment facilities, and petroleum product refiners. MV also develops and
designs proprietary technologies and systems used to condition biogas for use as renewable natural gas (“RNG”), for a
number of applications, such as transportation fuel and natural gas pipeline injection.
Paragon Waste Solutions,
LLC (“PWS”): (formed late 2010)
PWS is an operating company that has developed a patented waste destruction technology
using a pyrolytic heating process combined with “non-thermal plasma” assisted oxidation. This technique involves gasification
of solid waste by heating the waste in a low-oxygen environment, followed by complete oxidation at higher temperatures in the presence
of plasma. The term “non-thermal plasma” refers to a low energy ionized gas that is generated by electrical discharges
between two electrodes. This technology, commercially referred to as CoronaLux™, is designed and intended for the “clean”
destruction of hazardous chemical and biological waste
(i.e
., hospital “red bag” waste) thereby eliminating
the need for costly segregation, transportation, incineration or landfill (with their associated legacy liabilities). PWS is a
54% owned subsidiary.
ReaCH4BioGas (“Reach”)
(trade name for Benefuels, LLC): (formed February 2013)
owned 85% by SEER. Reach develops renewable natural gas projects that
convert raw biogas into pipeline quality gas and/or Renewable, “RNG”, for fleet vehicles. Reach has had minimal operations
as of December 31, 2017.
SEER Environmental Materials,
LLC (“SEM”): (formed September 2015)
is a wholly owned subsidiary established as a materials technology business
with the purpose of developing advanced chemical absorbents and catalysts that enhance the capability of biogas produced from,
landfill, wastewater treatment operations and agricultural digester operations.
Joint Ventures
MV RCM Joint Venture
:
In April 2013, MV Technologies, Inc (“MV”) and RCM International, LLC (“RCM”) entered into an Agreement to
develop hybrid scrubber systems that employ elements of RCM Technology and MV Technology (the “Joint Venture”). RCM
and MV Technologies will independently market the hybrid scrubber systems. The contractual Joint Venture has an initial term of
five years and will automatically renew for successive one-year periods unless either Party gives the other Party one hundred and
eighty (180) days’ notice prior to the applicable renewal date. Operations to date of the Joint Venture have been limited
to formation activities.
Paragon Waste (UK) Ltd
:
In June 2014, PWS and PCI Consulting Ltd (“PCI”) formed Paragon Waste (UK) Ltd (“Paragon UK Joint Venture”)
to develop, permit and exploit the PWS waste destruction technology within the territory of Ireland and the United Kingdom. PWS
and PCI each own 50% of the voting shares of Paragon UK Joint Venture. Operations to date of the Paragon UK Joint Venture have
been limited to formation, the delivery of a CoronaLux™ unit with a third party in the United Kingdom and application and
permitting efforts with regulatory entities.
P&P Company
: In
February 2015, PWS and Particle Science Tech of Environmental Protection, Inc. (“Particle Science”) formed a joint venture,
Particle & Paragon Environmental Solutions, Inc (“P&P”) to exploit the PWS technology in China, including Hong
Kong, Macao and Taiwan. PWS and Particle Science each own 50% of P&P. Operations to date have been limited to formation of
P&P and the sale and delivery of a CoronaLux™ unit to Particle Science in China.
PWS MWS Joint Venture
:
In October 2014, PWS and Medical Waste Services, LLC (“MWS”) formed a contractual joint venture to exploit the PWS medical
waste destruction technology. In 2015, MWS licensed and installed a CoronaLux™ unit at an MWS facility, and subsequently
received a limited permit to operate from the South Coast Air Quality Management District (“SCAQMD”) and the California
Department of Public Health. In November 2017, PWS received final air quality permit approval from SCAQMD allowing for full
operations of the CoronaLux™ unit at the MWS facility.
Paragon Southwest Joint
Venture
: In December 2017, PWS and GulfWest Waste Solutions, LLC (“GWWS”) formed Paragon Southwest Medical Waste,
LLC (“PSMW”) to exploit the PWS medical waste destruction technology. PSMW will have an exclusive license to the CoronaLux™
technology in a six-state area of the Southern United States. In addition to the equity position, PWS will be the operating partner
for the business and sell a number of additional systems to the joint venture over the next five years. In 2017, PSMW purchased
and installed three CoronaLux™ units at an PSMW facility. Operations in the form of medical waste destruction began in the
first quarter of 2018.
SEER’s Financial Condition and Liquidity
As shown in the accompanying
consolidated financial statements, the Company has experienced recurring losses, and has accumulated a deficit of approximately
$23.2 million as of June 30, 2018, and $21.5 million as of December 31, 2017. For the six months ended June 30, 2018 and 2017
we had net losses from continuing operations before adjustment for losses attributable to non-controlling interest of approximately
$1.8 million and $1.8 million, respectively. As of June 30, 2018 and December 31, 2017 our current liabilities exceed our current
assets by approximately $5.7 million and $5.2 million, respectively. The primary reason for the increase in negative working capital
from December 31, 2017 to June 30, 2018 is due to an increase in accounts payable of approximately $560,000 and 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.
Realization of a major portion of our assets as of June 30, 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.
Our primary need for liquidity is to fund
working capital requirements of our businesses, capital expenditures and for general corporate purposes, including debt repayment.
We have incurred losses and experienced negative operating cash flows for the past several years, and accordingly, the Company
has taken a number of actions to continue to support its operations and meet its obligations. The sale of assets and liabilities
of Tactical and certain locations within REGS provided the Company working capital in 2017 to repay short-term notes totaling $650,000
and accelerate growth of our high-margin technology divisions. We anticipate selling, general and administrative (SG&A) expenses
to be reduced somewhat in 2018 with expected annualized savings in SG&A in the range of $0.5 million to $0.7 million. We believe
that the actions discussed above are probable of occurring and mitigating the substantial doubt raised by our historical operating
results and satisfying our estimated liquidity needs 12 months from the issuance of the financial statements. However, we cannot
predict, with certainty, the outcome of our actions to generate liquidity, including the availability of additional debt financing,
or whether such actions would generate the expected liquidity as currently planned. If we continue to experience operating losses,
and we are not able to generate additional liquidity through the mechanisms described above or through some combination of other
actions, while not expected, we might need to secure additional sources of funds, which may or may not be available to us. Additionally,
a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the
operation of our business.
Results of Continuing Operations for the Three Months Ended
June 30, 2018 and 2017
Total revenues were
approximately $2.4 million and $2.5 million for the three months ended June 30, 2018 and 2017, respectively. The decrease in revenue
comparing Q2 2018 to Q2 2017 is driven by a decrease of approximately $.3 million or 17% in environmental solutions revenue offset
by an increase of $.2 million or 43% in industrial cleaning revenue. The decrease in the environmental solutions revenue is due
to a decline in long-term contract revenue in Q2 2018, offset somewhat by an increase in recurring media revenue in this segment.
The increase in industrial cleaning revenue is due to a mobile rail car cleaning contract in 2018.
Operating costs,
which include cost of products, cost of services, solid waste costs, general and administrative (G&A) expenses and salaries
and related expenses, were $2.9 million for the quarter ended June 30, 2018 compared to $3.4 million for the quarter ended June
30, 2017. The decrease in operating costs between the quarters was primarily the result of a 1) a 17% decrease in environmental
solutions revenue resulting in a 22% decrease in environmental solutions costs totaling approximately ($275,000), 2) a 43% increase
in industrial cleaning revenue and an improvement in industrial cleaning margin resulting in a 6% decrease in industrial cleaning
costs totaling approximately $55,000, 3) an improvement in solid waste margin resulting in a 84% decrease in solid waste costs
totaling approximately ($44,000), 4) an approximately $101,000 decrease in general and administrative expenses primarily driven
by an decrease in depreciation and amortization of approximately ($44,000), a decrease in warrant expense of approximately ($84,000),
offset by an increase in professional services of approximately $48,000 related to timing of annual audit, 5) an approximately
$32,000 decrease in salaries and related expenses. Product costs as a percentage of product revenues were 62% for the quarter
ended June 30, 2018 and 66% for the quarter ended June 30, 2017. The decrease in margin performance for the product sales is due
to a lesser mix of media and one time revenue. Services costs as a percentage of services revenues were 101% for the quarter ended
June 30, 2018 and 154% for the quarter ended June 30, 2017. The improvement in margin performance for the services sector is due
to an increased utilization of manpower and the ability to utilize and bill our own equipment versus renting third-party equipment.
Solid waste costs as a percentage of licensing revenues were 10% for the quarter ended June 30, 2018 and 71% for the quarter ended
June 30, 2017. The increase in margin performance for the solid waste segment is related to a change in the revenue mix to now
include management services revenue and an elimination of the Company paying any costs on behalf of the MWS joint venture.
Total non-operating
other income (expense), net was $(585,300) for the quarter ended June 30, 2018 compared to ($530,200) for the quarter ended June
30, 2017. For the quarter ended June 30, 2018 non-operating expenses were comprised of interest expense of $(613,800) offset by
interest income of $11,800 and other income of $16,700. For the quarter ended June 30, 2017 non-operating expenses were comprised
of interest expense of $(529,600) and other expense of $(600). The increase in interest expense in Q2 2018 compared to Q2 2017
was primarily the result of timing of short term debt and the Company having to issue common stock to note holders in accordance
with penalty clauses included in the short term notes when the Company was unable to satisfy the notes when they came due. The
increase in interest income and other income for the quarter ended June 30, 2018 compared to the quarter ended June 30, 2017 was
primarily the result of interest income and amortization of note discount from notes receivable and sublease income, respectively.
There
is no provision for income taxes for the quarter ended June 30, 2018 due to prior year losses and for the quarter ended June 30,
2018, year-to-date losses.
The Company had a
net loss, before non-controlling interest, for the quarter ended June 30, 2018 of ($1,031,100) compared to a net loss, before
non-controlling interest, of ($1,336,500) for the quarter ended June 30, 2017. Net loss attributable to SEER after deducting $4,200
for the non-controlling interest income was ($1,026,900) for the quarter ended June 30, 2018 compared to a net loss attributable
to SEER of ($1,296,500), after deducting $40,000 in non-controlling interest loss for the quarter ended June 30, 2017. The decrease
in net loss for the quarter ended June 30, 2018 as compared to the quarter ended June 30, 2017 was largely related to the fact
that continuing operations of the Company improved in Q2 2018 as compared to Q2 2017 as new revenue streams were identified and
SG&A expense decreased as anticipated.
Results of Continuing Operations for the Six Months Ended
June 30, 2018 and 2017
Total revenues were
approximately $4.3 million and $5.1 million for the six months ended June 30, 2018 and 2017, respectively. The decrease in revenue
comparing Q2 2018 to Q2 2017 is driven by a decrease of approximately $1.1 million or 32% in environmental solutions revenue offset
by an increase of $.3 million or 24% in industrial cleaning revenue. The decrease in the environmental solutions revenue is due
to a decline in long-term contract revenue in Q2 2018, offset somewhat by an increase in recurring media revenue in this segment.
The increase in industrial cleaning revenue is primarily due to a new mobile rail car cleaning contract in 2018.
Operating costs,
which include cost of products, cost of services, solid waste costs, general and administrative (G&A) expenses and salaries
and related expenses, were $5.2 million for the six months ended June 30, 2018 compared to $6.4 million for the six months ended
June 30, 2017. The decrease in operating costs between the quarters was primarily the result of a 1) a 32% decrease in environmental
solutions revenue resulting in a 39% decrease in environmental solutions costs totaling approximately ($938,000), 2) a 24% increase
in industrial cleaning revenue resulting in a 6% increase in industrial cleaning costs totaling approximately $85,000, 3) an improvement
in solid waste margin resulting in a 77% decrease in solid waste costs totaling approximately ($85,000), 4) an approximately $150,000
decrease in general and administrative expenses primarily driven by an decrease in depreciation and amortization of approximately
($44,000), a decrease in warrant expense of approximately ($84,000), a decrease in professional services of approximately ($68,000),
5) offset by an increase in business insurance costs related to continuing operations of approximately $59,000, and 6) an approximately
($44,000) decrease in salaries and related expenses. Product costs as a percentage of product revenues were 61% for the six months
ended June 30, 2018 and 68% for the six months ended June 30, 2017. The increase in margin performance for the product sales is
due to a greater mix of media and one time revenue. Services costs as a percentage of services revenues were 93% for the six months
ended June 30, 2018 and 109% for the six months ended June 30, 2017. The improvement in margin performance for the services sector
is due to an increased utilization of manpower and the ability to utilize and bill our own equipment versus renting third-party
equipment. Solid waste costs as a percentage of licensing revenues were 14% for the six months ended June 30, 2018 and 77% for
the six months ended June 30, 2017. The increase in margin performance for the solid waste segment is related to a change in the
revenue mix to now include management services revenue and an elimination of the Company paying any costs on behalf of the MWS
joint venture.
Total non-operating other
income (expense), net was $(918,600) for the six months ended June 30, 2018 compared to ($962,400) for the six months ended June
30, 2017. For the six months ended June 30, 2018 non-operating expenses were comprised of interest expense of $(979,600) offset
by interest income of $21,700 and other income of $39,300. For the six months ended June 30, 2017 non-operating expenses were comprised
of interest expense of $(956,500) and other expense of $(5,900). The increase in interest expense for the first half of 2018 compared
to the first half of 2017 was primarily the result of timing of short term debt and the Company having to issue common stock to
note holders in accordance with penalty clauses included in the short term notes when the Company was unable to satisfy the notes
when they came due. The increase in interest income and other income for the first half of 2018 compared to the first half of 2017
was primarily the result of interest income and amortization of note discount from notes receivable and sublease income, respectively.
There is no provision
for income taxes for the six months ended June 30, 2018 due to prior year losses and for the six months ended ended June 30, 2018,
year-to-date losses.
The Company had a net loss, before non-controlling interest, for the six months ended June 30, 2018 of ($1,778,400)
compared to a net loss, before non-controlling interest, of ($1,756,500) for the six months ended June 30, 2017. Net loss attributable
to SEER after deducting $20,800 for the non-controlling interest income was ($1,757,600) for the six months ended June 30, 2018
compared to a net loss attributable to SEER of ($1,665,300), after deducting $91,200 in non-controlling interest loss for the six
months ended June 30, 2017. The Company had a net loss from continuing operations for the six months ended June 30, 2018 of ($1,819,400)
compared to a net loss from continuing operations for the six months ended June 30, 2017 of ($2,234,800). The decrease in net loss
from continuing operations for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 was largely
related to the fact that continuing operations of the Company improved in the first half of 2018 as compared to the first half
of 2017 as new revenue streams were identified and SG&A expense decreased as anticipated.
Changes in Cash Flow
Operating Activities
The Company had net cash used by operating activities for the six months ended June 30, 2018 of ($296,800)
compared to net cash used by operating activities for the six months ended June 30, 2017 of ($529,900), an improvement to cash
of approximately $233,100. Cash used by operating activities is driven by our net loss and adjusted by non-cash items as well as
changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets
and note discounts, stock based compensation expense and non-cash interest expense related to issuable common stock shares as penalty
for delay in repayment of short-term notes. Non-cash adjustment totaled $1,177,300 and $1,373,100 for the six months ended June
30, 2018 and 2017, respectively, so non-cash adjustments had a larger impact on net cash used by operating activities for the six
months ended June 30, 2017 when compared to the six months ended June 30, 2018 by approximately $195,800. For the six months ended
June 30, 2018, the net positive change in operating assets and liabilities was $345,300 compared to the six months ended June 30,
2017 where the net positive change in operating assets and liabilities, as described above, was $331,800. The positive change in
operating assets and liabilities had a slightly greater impact on net cash used by operating activities for the six months ended
June 30, 2018 compared to the six months ended June 30, 2017.
Investing activities
There was no use of cash to purchase property and equipment during the six months ended June 30, 2018 compared
to a use of cash of $61,700 to purchase property and equipment during the six months ended June 30, 2017. During the six months
ended June 30, 2018, the Company received $224,000 of cash from notes receivable, compared to none for the six months ended June
30, 2017.
Financing Activities
Net cash provided by financing
activities was $196,400 for the six months ended June 30, 2018 compared to net cash provided by financing activities of $31,600
for the six months ended June 30, 2017. The primary differences for the six months ended June 30, 2018, as compared to the six
months ended June 30, 2017 are we had net cash provided related to debt of approximately $76,400 compared to net use of cash related
to debt of approximately ($107,000), respectively, and for the six months ended June 30, 2018 we had proceeds from the sale of
common stock of $120,000 as compared to proceeds of approximately $138,000 from the extension of warrants for the six months ended
June 30, 2017.
DISCONTINUED OPERATIONS
Results of Discontinuing Operations for the Three Months
Ended June 30, 2018 and 2017
Total revenues were approximately
$0 and $1,723,600 for the three months ended June 30, 2018 and 2017, respectively.
Operating costs, which
include cost of services, general and administrative (G&A) expenses and salaries and related expenses, were approximately $0
and $1,609,800 for the three months ended June 30, 2018 and 2017, respectively. Other incomes were $41,000 and $9,800 for the three
months ended June 30, 2018 and 2017, respectively.
Total net income from
discontinued operations was $41,000 and $123,600 for the three months ended June 30, 2018 and 2017, respectively. Income for the
quarter ended June 30, 2018 was a result of exceeding performance benchmarks for the sale of the rail operations.
There is no provision
for income taxes for the three months ended June 30, 2018 due to prior year consolidated losses and for the three months ended
June 30, 2017, due to year-to-date consolidated net loss for the period.
Results of Discontinuing Operations for the Six Months
Ended June 30, 2018 and 2017
Total revenues were approximately $0 and $3,325,100 for the six months ended June 30, 2018 and 2017,
respectively.
Operating costs, which
include cost of services, general and administrative (G&A) expenses and salaries and related expenses, were approximately $0
and $2,856,300 for the six months ended June 30, 2018 and 2017, respectively. Other incomes were $41,000 and $9,600 for the six
months ended June 30, 2018 and 2017, respectively.
Total net income from
discontinued operations was $41,000 and $478,300 for the six months ended June 30, 2018 and 2017, respectively. Income of $41,000
for the six months ended June 30, 2018 was a result of exceeding performance benchmarks for the sale of the rail operations.
There is no provision
for income taxes for the six months ended June 30, 2018 due to prior year consolidated losses and for the six months ended June
30, 2017, due to year-to-date consolidated net loss for the period.
Changes in Cash Flow
Operating Activities
The Company had
net cash provided by discontinued operations for the six months ended June 30, 2018 and 2017 of $41,000 and $611,700, respectively.
Critical Accounting Policies, Judgments
and Estimates
Use of Estimates
The preparation of
these consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S.
GAAP) requires management to make a number of estimates and assumptions related to the reported amount of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount
of intangible assets; valuation allowances and reserves for receivables, inventory and deferred income taxes; revenue recognition
related to contracts accounted for under the percentage of completion method; share-based compensation; and loss contingencies,
including those related to litigation. Actual results could differ from those estimates.
Accounts Receivable and Concentration of Credit Risk
Accounts receivable
are recorded at the invoiced amounts less an allowance for doubtful accounts and do not bear interest. The allowance for doubtful
accounts is based on our estimate of the amount of probable credit losses in our accounts receivable. We determine the allowance
for doubtful accounts based upon an aging of accounts receivable, historical experience and management judgment. Accounts receivable
balances are reviewed individually for collectability, and balances are charged off against the allowance when we determine that
the potential for recovery is remote. An allowance for doubtful accounts of approximately $460,100 and $460,100 has been reserved
as of June 30, 2018 and December 31, 2017, respectively.
We are exposed to
credit risk in the normal course of business, primarily related to accounts receivable. Our customers operate primarily in the
oil production and refining, rail transport, biogas generating and wastewater treatment industries in the United States. Accordingly,
we are affected by the economic conditions in these industries as well as general economic conditions in the United States. To
limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance
for doubtful accounts. As of June 30, 2018, and December 31, 2017, we do not believe that we have significant credit risk.
Fair Value of Financial
Instruments
The carrying amounts
of our financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their
fair value due to their short-term maturities. We believe that the carrying value of notes payable with third parties, including
their current portion, approximate their fair value, as those instruments carry market interest rates based on our current financial
condition and liquidity. We believe the amounts due to related parties also approximate their fair value, as their carried interest
rates are consistent with those of our notes payable with third parties.
Long-lived Assets
We evaluate the carrying
value of long-lived assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable. An asset is considered to be impaired when the anticipated undiscounted future cash flows of an
asset group are estimated to be less than its carrying value. The amount of impairment recognized is the difference between the
carrying value of the asset group and its fair value. Fair value estimates are based on assumptions concerning the amount and timing
of estimated future cash flows. No impairment was determined as of June 30, 2018. As of December 31, 2017, the Company determined
an impairment to three CoronaLux ™ units of $354,000 incurred due to lack of sale or license of the three units for a period
of more than 12 months since completion of the units.
Revenue Recognition
We recognize revenue
related to contract projects and services when all of the following criteria are met: (i) persuasive evidence of an agreement exists,
(ii) delivery has occurred or services have been rendered, (iii) the sales price is fixed or determinable, and (iv) collectability
is reasonably assured. Our revenue is primarily comprised of services related to industrial cleaning and railcar cleaning, which
we recognize as services are rendered.
Product revenue generated
from projects, which include the manufacturing of products, for removal and treatment of hazardous vapor and gasses is accounted
for under the percentage-of-completion method for projects with durations in excess of three months and the completed-contract
method for all other projects. 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 percentage-of-completion method, we recognize revenue primarily based on the ratio of costs incurred to date to total
estimated contract costs. 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.
For contracts accounted
for under the percentage-of-completion method, we include in current assets and current liabilities amounts related to construction
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. Billings in excess
of costs and estimated earnings on uncompleted contracts represents the excess of billings to date over the amount of contract
costs and profits recognized to date and are recognized as a current liability.
The Company’s
revenues from waste destruction licensing agreements are recognized as a single accounting unit over the term of the license.
In accordance with Accounting Standards Codification (“ASC”) 605, for revenues which contain multiple deliverables, the
Company separates the deliverables into separate accounting units if they meet the following criteria: (i) the delivered items
have a stand-alone value to the customer; (ii) the fair value of any undelivered items can be reliably determined; and (iii) if
the arrangement includes a general right of return, delivery of the undelivered items is probable and substantially controlled
by the seller. Deliverables that do not meet these criteria are combined with one or more other deliverables into one accounting
unit. Revenue from each accounting unit is recognized based on the applicable accounting literature, primarily ASC 605.
The Company has five-year
agreements with two companies in which the Company amortizes various fees on a straight-line basis over the initial five-year term
of the agreement.
Stock-based
Compensation
We account for stock-based
awards at fair value on the date of grant and recognize compensation over the service period that they are expected to vest. We
estimate the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing model. The estimated
value of the portion of a stock-based award that is ultimately expected to vest, taking into consideration estimated forfeitures,
is recognized as expense over the requisite service periods. The estimate of stock awards that will ultimately vest requires judgment,
and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted for as a cumulative
adjustment to compensation expenses and recorded in the period that estimates are revised.