Strategic Environmental & Energy Resources, Inc. 10-Q

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 10-K filed with the Securities and Exchange Commission on April 16, 2024. 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 10-K 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. SEER is dedicated to assembling complementary service and environmental, clean-technology businesses that provide safe, innovative, cost-effective, and profitable solutions in the environmental, waste management, and renewable energy industries. SEER currently operates four companies with its headquarters in Broomfield, Colorado. Through its operating companies, SEER provides environmental products and solutions throughout North America and is pursuing international markets for its technologies and products. SEER’s operating companies are discussed in more detail below. 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 management/treatment, emissions capture and conditioning, and environmental soil amendments and organic fertilizers. 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 25-plus-year service experience to place these innovations and solutions into the growing markets of renewable biogas, emission capture and control, renewable “green gas” capture and sale, organic soil amendments and fertilizers, as well as general solid waste and medical/pharmaceutical waste destruction. Many of SEER’s current operating companies share customer bases and each provides synergistic services, technologies and products. Subsidiaries Wholly owned 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 (H2S) 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 landfill 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. SEER Environmental Materials, LLC (“SEM”): (formed September 2015) is a wholly owned Colorado limited liability company registered to do business in Texas. It was established as a materials technology development business with its sole operating facility in central Texas. Initially, its primary purpose was developing advanced chemical absorbents and catalysts that enhance the capability of biogas produced from landfills, wastewater treatment operations, and agricultural digester operations. SEM’s central Texas media operations were discontinued during the year ended December 31, 2023. SEM’s current objective is to arrange the manufacturing and sale of biochar production kilns and related equipment, as well as own and operate a biochar production facility in northeast Texas under a joint venture license agreement from Biochar Now, LLC. 19 Majority owned 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. This technology, commercially referred to as CoronaLux™, is designed and intended for the “clean” destruction of hazardous chemical and biological waste (i.e ., medical waste) thereby eliminating the need for costly segregation, transportation, incineration or landfill (with their associated legacy liabilities). In 2023 SEER sold its North American patent rights in a stock transaction and now holds a small, minority interest in Amlon Holdings. SEER continues to have the rights to develop the technology internationally (outside of North America) and continues to promote and market the CoronaLux technology in international markets. PelleChar, LLC (“PelleChar”): (formed September 2018) owned 51% by SEER. PelleChar has secured third-party pellet manufacturing capabilities from one of the nation’s premier pellet manufacturers. Working closely with Biochar Now, LLC, PelleChar commenced sales in 2019 of its proprietary pellets containing the proven and superior Biochar Now product starting with the landscaping and big agriculture markets. At this time, PelleChar is the only company able to offer a soil amendment pellet containing the Biochar Now product that is produced using the patented pyrolytic process. PelleChar activity to date relates to promoting both domestic and international sales. Revenue and expenses of PelleChar were not material for the period ended September 30, 2024. Joint Ventures Eco SEER Saudi : On December 17, 2022, SEER and Eco Tadweer (“ET”), a business entity incorporated in the Kingdom of Saudi Arabia (“KSA”) entered into a joint venture with SEER owning a minority, non-controlling 49% interest in the joint venture. The purpose of the joint venture is to market and monetize SEER’s technologies in and around the KSA. While SEER is entitled to appoint one of three managers, ET is responsible for funding, operation and management of the joint venture. Eco SEER has had minimal operations as of September 30, 2024. 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 $35.9 million as of September 30, 2024, and $33.7 million as of September 30, 2023. For the nine months ended September 30, 2024, the Company incurred a net loss from continuing operations of approximately $1.5 million. The Company had a working capital deficit of approximately $13.1 million as of September 30, 2024. These factors raise substantial doubt about the ability of the Company to continue to operate as a going concern. Realization of a major portion of the Company’s assets as of September 30, 2024, is dependent upon continued operations. The Company is dependent on generating additional revenue or obtaining adequate capital to fund operating losses until it becomes profitable. For the nine months ended September 30, 2024, the Company raised approximately $0.8 million from the issuance of short-term, for a net cash provided by financing activities of approximately $0.6 million. In addition, the Company has undertaken a number of specific steps to continue to operate as a going concern. The Company continues to focus on developing organic growth in our operating companies and improving gross and net margins through increased attention to pricing, aggressive cost management and overhead reductions, including discontinuing the media production of SEM, a specific line of business with historically insufficient margins. The Company has limited common shares available for issue which may limit the ability to raise capital or settle debt through issuance of shares. The Company continues to own a small amount of equity in Biochar Now, LLC (less than 1%) which it intends to leverage or sell back. The Company has increased business development efforts to address opportunities identified in expanding markets attributable to increased interest in energy conservation and emission control regulations. In addition, the Company is evaluating various forms of financing which may be available to it. There can be no assurance that the Company will secure additional financing for working capital, increase revenues and achieve the desired result of net income and positive cash flow from operations in future years. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to report on a going concern basis. 20 Results of Operations for the Three Months Ended September 30, 2024, and 2023 Total revenues were consistent at $0.9 million for the three months ended September 30, 2024, and 2023, respectively. Operating expenses, which include cost of products, general and administrative (G&A) expenses, and salaries and related expenses, were consistent at approximately $1.1 million for both the three months ended September 30, 2024 and 2023. Total other income and expense was a net expense of approximately $0.2 million for the three months ended September 30, 2024 and approximately $0.2 million for the three months ended September 30, 2023. The majority of other income and expense is interest expense, which was consistent at $0.2 million for both the three months ended September 30, 2024 and 2023. There is no provision for income taxes for both the three months ended September 30, 2024, and 2023, due to our net losses for both periods and we continue to maintain full allowances covering our net deferred tax benefits as of September 30, 2024, and 2023. Loss from continuing operations was approximately $0.5 million and $0.6 million, for the three months ended September 30, 2024 and 2023, respectively. The net loss attributable to SEER after deducting $800 for the non-controlling interest was approximately $0.5 million for the three months ended September 30, 2024, which was consistent compared to a net loss of approximately $0.5 million, after adding $2,200 in non-controlling interest and deducting $400 loss from discontinued operations, for the three months ended September 30, 2023. Results of Operations for the Nine Months Ended September 30, 2024, and 2023 Total revenues were $2.6 million and $2.2 million for the nine months ended September 30, 2024, and 2023, respectively. The increase of approximately $0.4 million, or 18% in revenues comparing the nine months ended September 30, 2024, to the nine months ended September 30, 2023, is attributable to our product percent-complete contract revenue increasing due to several material projects being postponed from prior periods due to site preparation delays, coming online, and the delivery of ordered kilns to BioChar. Operating expenses, which include cost of products, general and administrative (G&A) expenses, and salaries and related expenses, were approximately $3.6 million for the nine months ended September 30, 2024 and approximately $3.4 million for the nine months ended September 30, 2023. Product costs increased $0.2 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, due to above mentioned kiln deliveries in the second quarter of 2024, and increased activity in our percent-complete contracts. G&A expenses decreased $0.1 million, primarily due to reduced professional and accounting fees. Total other income and expense was a net expense of approximately $0.5 million for the nine months ended September 30, 2024 and approximately $0.6 million for the nine months ended September 30, 2023. The majority of other income and expense is interest expense, which was consistent at $0.7 million for both the nine months ended September 30, 2024 and 2023. During the nine months ended September 30, 2024 we also had approximately $0.2 million in other income, a result of selling equity units the Company owned in Biochar Now, LLC. There is no provision for income taxes for both the nine months ended September 30, 2024, and 2023, due to our net losses for both periods and we continue to maintain full allowances covering our net deferred tax benefits as of September 30, 2024, and 2023. 21 Loss from continuing operations was approximately $1.5 million and $1.8 million, for the nine months ended September 30, 2024 and 2023, respectively. The net loss attributable to SEER after deducting $3,200 for the non-controlling interest, and adding a gain from discontinued operations of $3,700 was approximately $1.5 million for the nine months ended September 30, 2024, as compared to a net loss of approximately $1.7 million, after adding $1,500 in non-controlling interest and adding $159,900 gain from discontinued operations, for the nine months ended September 30, 2023. Results of Discontinued Operations for the Nine Months Ended September 30, 2024 and 2023 As of January 1, 2023, the Company abandoned its media production operations of its SEM subsidiary. All revenue and expenses of our SEM subsidiary for 2023 are classified as discontinued operations. For the nine months ended September 30, 2024 2023 Services revenue $ - $ - Services costs - - General and administrative expenses - (14,700 ) Salaries and related expenses - - Other income (expense) - 174,600 Gain on sale of assets held for sale 3,700 - Total income (expense) 3,700 159,900 Operating income (loss) 3,700 159,900 Income tax benefit - - Total income (loss) from discontinued operations $ 3,700 $ 159,900 There is no provision for income taxes for both the nine months ended September 30, 2024, and 2023, due to our net loss carryforwards and we continue to maintain full allowances covering our net deferred tax benefits as of September 30, 2024 and 2023. Changes in Cash Flow Operating Activities The Company had net cash used by operating activities for the nine months ended September 30, 2024 of $0.7 million, and for the nine months ended September 30, 2023 of $0.9 million. 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 and amortization of intangible assets, and gain on the sale of fixed assets, bad debt, as well as fixed assets held for sale. Net loss of $1.7 million for the nine months ended September 30, 2023 decreased to $1.5 million for the nine months ended September 30, 2024. Non-cash adjustments increased cash provided of $6,600 for the nine months ended September 30, 2024, compared to cash used of $0.2 million for the nine months ended September 30, 2023. In addition to the non-cash adjustments to net income, changes in assets and liabilities include: a) changes in accounts payable, accrued liabilities, and customer deposits provided $1.1 million in the first nine months of 2024, compared to providing $0.4 million in the first nine months of 2023, b) changes in deferred revenue provided $0.2 million in the first nine months of 2024, compared to providing $14,600 in the first nine months of 2023, c) changes in accounts receivable used $0.1 million in the first nine months of 2024, compared to providing $0.3 million in the first nine months of 2023, 22 d) changes in prepaid expenses and other assets used $0.2 million in the first nine months of 2024, compared to providing $0.1 million in the first nine months of 2023, e) changes in contract liabilities used $0.1 million in the first nine months of 2024, compared to providing $14,600 in the first nine months of 2023, and f) changes in contract assets used $17,300 in the first nine months of 2024, compared to providing $0.1 million in the first nine months of 2023. Investing activities Net cash provided by investing activities was $36,800 for the nine months ended September 30, 2024, compared to providing $0.3 million for the nine months ended September 30, 2023. The Company sold fixed assets held for sale during the nine months ended September 30, 2024, collecting $0.1 million. The Company sold fixed assets held for sale during the nine months ended September 30, 2023, collecting $0.3 million. Purchase of property and equipment during the nine months ended September 30, 2024 amounted to $22,700. Financing Activities Net cash provided by financing activities was approximately $0.6 million for the nine months ended September 30, 2024, consistent with providing $0.6 million for the nine months ended September 30, 2023. The Company’s financing activities for both periods consist of new borrowing, net of any principal payments made during the period. 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 forecasted cash flows used in the impairment testing of goodwill and intangible assets. The carrying amount of intangible assets; valuation allowances and reserves for receivables; revenue recognition related to contracts accounted for under the percentage of completion method; and the Company’s ability to continue as a going concern. 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 $24,200 has been reserved as of both September 30, 2024, and December 31, 2023. The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable. Our customers operate primarily in the food, beverage, and agricultural space, as well as water treatment and landfill 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 September 30, 2024, and December 31, 2023, 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. 23 Long-lived Assets The Company evaluates 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 impairments were determined as of September 30, 2024. Revenue Recognition Revenue is recognized under FASB guidelines, which requires an evaluation of revenue arrangements with customers following a five-step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) the company satisfies each performance obligation. Revenues are recognized when control of the promised services are transferred to the customers in an amount that reflects the expected consideration in exchange for those services. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the services. Other major provisions of the guidance include capitalization of certain contract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable.