Strategic Environmental & Energy Resources, Inc. 10-K

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for Common Stock The Company’s common stock is quoted on the OTCQB marketplace, operated by OTC Markets Group, under the symbol “SENR.” The following table sets forth the range of high and low bid prices for the periods indicated. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions. Quarter Ended High Low December 31, 2020 $ 0.58 $ 0.11 September 30, 2020 $ 0.17 $ 0.05 June 30, 2020 $ 0.12 $ 0.06 March 31, 2020 $ 0.13 $ 0.05 December 31, 2019 $ 0.07 $ 0.05 September 30, 2019 $ 0.12 $ 0.07 June 30, 2019 $ 0.13 $ 0.07 March 31, 2019 $ 0.16 $ 0.07 Stockholders As of April 14, 2021, there were approximately 80 recordholders holding 65,088,575 common shares issued and outstanding. There are no preferred shares issued or outstanding. Dividends We have not declared or paid a cash dividend on our common stock. We currently intend to retain future earnings, if any, to finance the growth and development of our business and, therefore, do not anticipate paying cash dividends in the foreseeable future. There can be no assurance that our operations will prove profitable to the extent necessary to pay cash dividends. Moreover, even if such profits are achieved, the future dividend policy will depend upon our earnings, capital requirements, financial condition, and other factors considered relevant by our board of directors. 22 Recent Sales of Unregistered Securities From January 1, 2020 to December 31, 2020, we had the following sales and issuances of unregistered equity securities: Date of Sale Title of Security Number Sold Consideration Consideration Received and Description of Underwriting or Other Discounts to Market Price or Convertible Security Afforded to Purchases Exemption from Registration Claimed If Option, Warrant or Convertible Security, Terms of Exercise or Conversion Security Holder January 2020 Common Stock 115,000 $ 8,050 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual February 2020 Common Stock 115,000 $ 10,350 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual March 2020 Common Stock 122,500 $ 14,700 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual April 2020 Common Stock 130,000 $ 14,300 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual May 2020 Common Stock 130,000 $ 14,300 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual June 2020 Common Stock 130,000 $ 13,000 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual July 2020 Common Stock 130,000 $ 16,900 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual August 2020 Common Stock 130,000 $ 18,200 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual September 2020 Common Stock 130,000 $ 15,600 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual September 2020 Common Stock 250,000 $ 16,300 Shares issued with short term note maturing June 11, 2020; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual September 2020 Common Stock 125,000 $ 11,300 Shares issued with short term note maturing December 7, 2020; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual September 2020 Common Stock 200,000 $ 13,000 Shares issued with short term note, originally maturing April 16, 2020, and extended; no commissions paid Section 4(2); and/or Rule 506 Not applicable Steven Wallit, an individual September 2020 Common Stock 200,000 $ 20,000 Shares issued for debenture extension; no commissions paid Section 4(2); and/or Rule 506 Not applicable Steven Wallit, an individual October 2020 Common Stock 130,000 $ 20,800 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual October 2020 Common Stock 200,000 $ 30,000 Shares issued for debenture extension; no commissions paid Section 4(2); and/or Rule 506 Not applicable Steven Wallit, an individual November 2020 Common Stock 130,000 $ 26,000 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual December 2020 Common Stock 130,000 $ 54,600 Shares issued as penalty for not meeting short term note maturity date; no commissions paid Section 4(2); and/or Rule 506 Not applicable Clyde Berg, an individual These transactions were conducted in reliance on the exemptions from the registration requirements of the Securities Act of 1933, as amended, based on the private sale of the securities and the Company’s relationships with the security holders. ITEM 6. SELECTED FINANCIAL DATA Not Applicable. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist in understanding our business and the results of our operations. It should be read in conjunction with the Consolidated Financial Statements and the related footnotes and “Risk Factors” that appear elsewhere in this Report. Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Unless the context requires otherwise, when we refer to “we,” “us” and “our,” we are describing SEER and its consolidated subsidiaries on a consolidated basis. 23 Overview SEER was formed as a publicly traded company in early 2008 through a reverse merger. 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 and owned 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 industrial services. The focus of the SEER family of companies, however, is to increase margins by securing or developing proprietary, patented and patent-pending technologies, and then leveraging its 20 plus-year service experience to place these innovations and solutions into the growing markets of emission capture and control, renewable “green gas” capture and sale, compressed natural gas fuel generation, as well as general solid waste and medical/pharmaceutical waste destruction. Many of SEER’s current operating companies share customer bases and each provides truly synergistic services, technologies and products as well as annuity type revenue streams. Financial Condition As of December 31, 2020, we had approximately $9.8 million in negative working capital, which represents a decrease of approximately $2.7 million from $7.1 million in negative working capital as of December 31, 2019. The decrease in our working capital results primarily from the net loss, before non-controlling interest, of $2.7 million for 2020. In May 2013, REGS filed an Offer in Compromise with the IRS. REGS received a letter from the IRS, dated March 27, 2014, rejecting its Offer in Compromise and in accordance with the rejection letter REGS has submitted a written appeal. As a result of the IRS rejection of the Offer in Compromise, the Installment Plan, mentioned in Part 1, Item 1, was terminated. In June 2014, REGS received notices of intent to levy property or rights to property from the IRS for the amounts owed for the past due payroll taxes, penalty, and interest. The appeal submitted by REGS was denied by the IRS, however, the IRS has not taken any current action. As of December 31, 2020, the outstanding balance due to the IRS was $1,085,400 and REGS continues to be represented by tax counsel specializing in federal tax matters. As shown in the accompanying consolidated financial statements, the Company has experienced recurring losses, and has accumulated a deficit of approximately $29.7 million as of December 31, 2020, and $27.0 million as of December 31, 2019. For the years ended December 31, 2020, and 2019, we incurred net losses of approximately $2.7 million and $2.5 million, respectively. Realization of a major portion of our assets as of December 31, 2020, is dependent upon our continued operations. The Company is dependent on generating additional revenue or obtaining adequate capital to fund operating losses until it becomes profitable. In addition, we have undertaken a number of specific steps to continue to operate as a going concern. We continue to focus on developing organic growth in our operating companies, diversifying our service customer base and market concentrations and improving gross and net margins through increased attention to pricing, aggressive cost management and overhead reductions, including discontinuing a line of business with insufficient margins. Critical to achieving profitability will be our ability to license and or sell, permit and operate through our joint ventures and licensees our CoronaLux™ waste destruction units. We have increased our business development efforts to address opportunities identified in expanding domestic markets attributable to increased federal and state emission control regulations and a growing demand for energy conservation and renewable energies. In addition, the Company is evaluating various forms of financing that may be available to it. There can be no assurance that the Company will secure additional financing for working capital on favorable terms or at all, increase revenues and achieve the desired result of net income and positive cash flow from operations in future years. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to report on a going concern basis. 24 Results of Continuing Operations for the Years Ended December 31, 2020 and 2019 Total revenues were $2.9 million and $4.3 million for the years ended December 31, 2020 and 2019, respectively. The decrease of approximately $1.4 million or 32% in revenues comparing the year ended December 31, 2020 to the year ended December 31, 2019 is primarily attributable to the decreases in revenues from our products segment revenue, which includes our environmental solutions segment, which decreased from $4.1 million for the year ended December 31, 2019 to $2.7 million for the year ended December 31, 2020, a decrease of approximately $1.4 million or approximately 34%. Environmental solutions segment generated less revenue as the volume of media sales decreased, primarily due to a shortage of capital to produce the media internally, and the general slowdown of our construction contracts due to the slowdown in the economy, and the reduced capacity of current employees of both the Company and its customers, attributable to the COVID-19 pandemic. The decline was partially offset by the completion of 10 internally built kilns that were delivered. Our Solid Waste segment remained consistent at $0.2 million for both 2020 and 2019. Operating expenses, which include cost of products, cost of solid waste and general and administrative (G&A) expenses, salaries and related expenses, were approximately $5.1 million for the year ended December 31, 2020 compared to $5.1 million for the year ended December 31, 2019. In total operating expenses were consistent, but individual components did change throughout the year. The decrease in product costs of approximately $0.2 million for the year ended December 31, 2020 from the year ended December 31, 2019, which coincides with the reduction in product revenue above, although the margins were reduced due to the production of kilns for PWS, therefore the costs were reduced less than the revenue, proportionately. Also contributing to the reduced operating expenses was a decrease in general and administrative expenses of approximately $0.3 million in the year ended December 31, 2020 from the year ended December 31, 2019, which was a result of reduced insurance expenses, and professional services during 2020. This was partially offset by an increase of $0.4 million in salaries and related expenses, as a large amount of payroll related expenses were allocated to discontinued operations in 2019, but those expenses are now in continuing operations in our subsidiary building kilns. Total non-operating other expense, net, was $0.6 million for the year ended December 31, 2020 compared to $0.1 for the year ended December 31, 2019. The increase in expense in 2020 compared to 2019 is primarily due to the reduced other income, which in 2019 included the collection of a $0.3 million note receivable that had previously been written off, and an increase in interest expense of $0.4 million as a result of the increase overall debt outstanding. There is no provision for income taxes for both the years ended December 31, 2020 and 2019, due to our net losses for both periods and we continue to maintain full allowances covering our net deferred tax benefits as of December 31, 2020 and 2019. Net loss, before non-controlling interest, for the year ended December 31, 2020 was $2.7 million, consistent with December 31, 2019 net loss, before non-controlling interest, of $2.7 million. The net loss attributable to SEER after deducting $34,700 for the non-controlling interest was $2.7 million for the year ended December 31, 2020 as compared to $2.5 million, after deducting $151,200 in non-controlling interest, and $1.8 million for discontinued operations for the year ended December 31, 2019. 25 Results of Discontinued Operations for the Years Ended December 31, 2020 and 2019 During the fourth quarter of 2019, the Company ceased bidding on, and accepting contracts for the services division of its REGS subsidiary. All revenue and expenses of our REGS subsidiary for 2019 are classified as discontinued operations. Commencing in 2020, all REGS operations involve the building of kilns for PWS and other customers. All discontinued operations consist of our industrial cleaning operations, reported during 2019. We are presenting these in a table form, as the industrial cleaning business operations did not have results in 2020. For the year ended December 31, 2020 2019 Services revenue $ - $ 1,661,500 Services costs - (2,481,400 ) General and administrative expenses - (502,400 ) Salaries and related expenses - (512,400 ) Other income (expense) - 49,300 Total expenses - (3,446,900 ) Operating income - (1,785,400 ) Income tax benefit - - Total income from discontinued operations $ - $ (1,785,400 ) There is no provision for income taxes for both the years ended December 31, 2020 and 2019, due to our net losses for both periods and we continue to maintain full allowances covering our net deferred tax benefits as of December 31, 2020 and 2019. Liquidity and Capital Resources The following table summarizes the net cash provided by (used in) operating, investing and financing activities for the periods indicated: Year Ended December 31, 2020 2019 Operating activities $ (1,690,100 ) $ (2,100,800 ) Investing activities 160,500 708,700 Financing activities $ 1,222,200 $ 1,631,100 Operating Activities Net cash used in operating activities during the year ended December 31, 2020 was $1.7 million compared to $2.1 million during the year ended December 31, 2019. Cash used in operating activities is driven by our net loss and adjusted by non-cash items and changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation and amortization of property & equipment and intangible assets, stock-based compensation expense, asset impairment expense, non-cash interest expense related to the issuance of common stock for short-term debt penalty, a change in the provision for doubtful accounts. In 2020, net non-cash adjustments totaled approximately $0.2 million and in 2019, net non-cash adjustments totaled $0.3 million. In addition to the non-cash adjustments to net income, changes in assets and liabilities include: a) changes in accounts receivable provided $0.3 million in cash in 2020, compared to $0.6 million in 2019, a net decrease in cash provided of $0.3 million, b) increase in accounts payable and accrued expenses provided $0.4 million in 2020, compared to using $0.3 million in 2019, a net increase in cash of $0.7 million, c) decrease in billings in excess of revenue on uncompleted contracts provided $0.2 million in 2020, compared to $0.1 million in 2019, a net decrease in cash of $0.1 million, d) increase in inventory used $0.3 million in 2020, compared to $0 in 2019, a net decrease in cash of $0.3 million. 26 Investing activities Net cash provided by investing activities is primarily attributable to the purchase of property and equipment, and the proceeds from notes receivable. Our net cash flow provided by investing activities was $0.2 million for the year ended December 31, 2020 and $0.7 million for the year ended December 31, 2019. During 2020, we had additions to property and equipment of $0.1 million, and proceeds of $0.3 million from the sale of fixed assets. During 2019, we had additions to property and equipment of $0.1 million, proceeds from a minority interest in a new subsidiary of $0.2 million, and proceeds of $0.6 million from a notes receivable that includes a previously impaired note. Financing Activities Net cash provided by financing activities was approximately $1.2 million for 2020 and net cash used in financing activities was approximately $1.6 million for 2019. Proceeds from the issuance of convertible and short-term debt, including the payroll protection program and notes from related parties, was $1.5 million and $2.0 million in 2020 and 2019, respectively. Payments on notes payable and capital lease obligations was $0.3 million in 2020 and $0.4 million in 2019. 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 $1,000 and $11,800 had been reserved as of December 31, 2020 and 2019, 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 December 31, 2020, and 2019, 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. 27 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 the 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. For the year ended December 31, 2020 the Company did not have any impairment charges. The Company incurred $32,800 in impairment charges in 2019. 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. 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable