UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________________________
000-54987
(Commission File Number)
Strategic Environmental & Energy Resources, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 02-0565834 | |||||
| (State or other jurisdiction of incorporation) | (IRS Employer Identification Number) | |||||
751 Pine Ridge Road, Golden, CO 80403
(Address of principal executive offices including zip code)
720-460-3522
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2016 the Registrant had 54,525,079 shares outstanding of its $.001 par value common stock.
Strategic Environmental & Energy Resources, Inc.
Quarterly Report on FORM 10-Q For The Period Ended
September 30, 2016
TABLE OF CONTENTS
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STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2016 | December 31, 2015 | |||||||
| Unaudited | * | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 142,300 | $ | 257,100 | ||||
| Accounts receivable, net of
allowance for doubtful accounts of $250,400 and $246,500, respectively | 1,929,600 | 1,298,900 | ||||||
| Costs and estimated earnings in excess billings on uncompleted contracts | — | 204,000 | ||||||
| Prepaid expenses and other current assets | 520,500 | 534,000 | ||||||
| Total current assets | 2,592,400 | 2,294,000 | ||||||
| Property and equipment, net | 3,972,600 | 4,331,300 | ||||||
| Intangible assets, net | 755,800 | 786,600 | ||||||
| Asset related to pending settlement (Note 10) | 720,000 | — | ||||||
| Other assets | 25,600 | 37,500 | ||||||
| TOTAL ASSETS | $ | 8,066,400 | $ | 7,449,400 | ||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,776,800 | $ | 1,382,200 | ||||
| Accrued liabilities | 938,100 | 889,500 | ||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | 700,400 | 587,900 | ||||||
| Deferred revenue | 188,300 | 133,900 | ||||||
| Payroll taxes payable | 987,600 | 970,500 | ||||||
| Customer deposits | 330,000 | 330,000 | ||||||
| Current portion of notes payable and capital lease obligations | 825,500 | 660,100 | ||||||
| Related party payable, including accrued interest | 46,400 | 31,800 | ||||||
| Total current liabilities | 5,793,100 | 4,985,900 | ||||||
| Deferred revenue, non-current | 330,600 | 337,200 | ||||||
| Notes payable and capital lease obligations, net of current portion | 1,296,700 | 1,161,400 | ||||||
| Total liabilities | 7,420,400 | 6,484,500 | ||||||
| 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; 54,525,079 and 52,375,079 shares issued and outstanding 2016 and 2015, respectively | 54,500 | 52,400 | ||||||
| Common stock subscribed | 25,000 | 50,000 | ||||||
| Additional paid-in capital | 19,074,700 | 17,690,900 | ||||||
| Stock subscription receivable | (25,000 | ) | (25,000 | ) | ||||
| Accumulated deficit | (16,843,800 | ) | (15,387,100 | ) | ||||
| Total stockholders’ equity | 2,285,400 | 2,381,200 | ||||||
| Non-controlling interest | (1,639,400 | ) | (1,416,300 | ) | ||||
| Total equity | 646,000 | 964,900 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 8,066,400 | $ | 7,449,400 | ||||
*These numbers were derived from the audited financial statements for the year ended December 31, 2015.
See accompanying notes
| 3 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenue: | ||||||||||||||||
| Products | $ | 1,749,100 | $ | 965,500 | $ | 3,454,500 | $ | 2,796,000 | ||||||||
| Services | 1,045,400 | 1,891,200 | 5,277,900 | 6,461,700 | ||||||||||||
| Solid waste | 42,000 | 111,500 | 170,100 | 183,400 | ||||||||||||
| Total revenue | 2,836,500 | 2,968,200 | 8,902,500 | 9,441,100 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Products costs | 1,323,100 | 674,600 | 2,388,600 | 1,929,300 | ||||||||||||
| Services costs | 1,193,100 | 1,423,800 | 4,254,400 | 5,030,900 | ||||||||||||
| Solid waste costs | 79,800 | 194,900 | 245,400 | 490,400 | ||||||||||||
| General and administrative expenses | 532,200 | 668,800 | 1,582,800 | 2,093,500 | ||||||||||||
| Salaries and related expenses | 445,700 | 685,600 | 1,817,900 | 2,012,600 | ||||||||||||
| Total operating expenses | 3,573,900 | 3,647,700 | 10,289,100 | 11,556,700 | ||||||||||||
| Income (loss) from operations | (737,400 | ) | (679,500 | ) | (1,386,600 | ) | (2,115,600 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (56,000 | ) | (5,500 | ) | (258,300 | ) | (45,000 | ) | ||||||||
| Gain on debt settlement | — | 42,400 | — | 42,400 | ||||||||||||
| Loss contingency | (48,000 | ) | — | (48,000 | ) | — | ||||||||||
| Other | (32,400 | ) | (1,900 | ) | (2,600 | ) | 1,000 | |||||||||
| Total non-operating expense, net | (136,400 | ) | 35,000 | (308,900 | ) | (1,600 | ) | |||||||||
| Net loss before earnings from equity method joint ventures | (873,800 | ) | (644,500 | ) | (1,695,500 | ) | (2,117,200 | ) | ||||||||
| Income from equity method joint ventures | — | — | 15,700 | — | ||||||||||||
| Net income (loss) | (873,800 | ) | (644,500 | ) | (1,679,800 | ) | (2,117,200 | ) | ||||||||
| Less: Net loss attributable to non-controlling interest | (83,600 | ) | (107,700 | ) | (223,100 | ) | (380,500 | ) | ||||||||
| Net income (loss) attributable to SEER common stockholders | $ | (790,200 | ) | $ | (536,800 | ) | $ | (1,456,700 | ) | $ | (1,736,700 | ) | ||||
| Net loss per share, basic and diluted | $ | (.02 | ) | $ | .(01 | ) | $ | (.03 | ) | $ | (.04 | ) | ||||
| Weighted average shares outstanding – basic and diluted | 54,525,079 | 52,362,015 | 54,263,765 | 52,304,573 | ||||||||||||
See accompanying notes.
| 4 |
See accompanying notes.
| 5 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND FINANCIAL CONDITION
Organization and Going Concern
Strategic Environmental & Energy Resources, Inc. (“SEER,” “we,” or the “Company”), a Nevada corporation, is a provider of next-generation clean-technologies, waste management innovations and related services. SEER has four wholly-owned operating subsidiaries 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 four 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) Tactical Cleaning Company, LLC (“Tactical”), provides proprietary cleaning services related to railcar tankers, tank trucks and frac tanks to customers from its sites in Colorado and Kansas; 3) 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.; 4) SEER Environmental Materials, LLC,(“SEM”), a materials technology company focused on development of cost-effective chemical absorbents.
The two majority-owned subsidiaries include; 1) Paragon Waste Solutions, LLC (“PWS”) and 2) ReaCH4Biogas (“Reach”). PWS is currently owned 54% by SEER (see Note 7) and Reach is owned 85% by SEER.
PWS is developing specific opportunities to deploy and commercialize patented technologies for a non-thermal plasma-assisted oxidation process that makes possible the clean and efficient destruction of solid hazardous chemical and biological waste (i.e., regulated medical waste, chemicals, pharmaceuticals and refinery tank waste, etc.) without landfilling or traditional incineration and without harmful emissions. Additionally, PWS’ technology “cleans” and conditions emissions and gaseous waste streams (i.e., volatile organic compounds and other greenhouse gases) generated from diverse sources such as refineries, oil fields, and many others.
Reach (the trade name for BeneFuels, LLC), is currently owned 85% by SEER and focuses specifically on developing renewable biomethane projects that convert raw biogas to pipeline quality gas and/or compressed natural gas (“CNG”) for fleet vehicle fuel. Reach had minimal operations for the three months and nine months ended September 30, 2016 and 2015.
Principals of Consolidation
The accompanying consolidated financial statements include the accounts of SEER, its wholly-owned subsidiaries, REGS, TCC, 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 $16.8 million as of September 30, 2016, and $15.4 million as of December 31, 2015. For the nine months ended September 30, 2016 we had net loss before adjustment for losses attributable to non-controlling interest of approximately $1.7 million and for the years ended December 31, 2015, and 2014, we incurred net losses before adjustment for losses attributable to non-controlling interest of approximately $3.4 million and $726,000, respectively. The Company had a working capital deficit of approximately $3.2 million at September 30, 2016, an increase of approximately $500,000 in the working capital deficit of $2.7 million at December 31, 2015. REGS, a wholly owned subsidiary, was notified that effective April 1, 2016 it would no longer be providing routine maintenance services to its largest customer but would still be eligible to provide other industrial cleaning services. The projected loss of revenue from this customer is estimated to be between $2.5 and $3 million annually, but, as discussed below, the Company has implemented remedial measures to offset some of this loss in revenue. These factors raise substantial doubt about the ability of the Company to continue to operate as a going concern.
| 6 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND FINANCIAL CONDITION, continued
Going Concern, continued
Realization of a major portion of our assets as of September 30, 2016 and December 31, 2015, 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. The Company opened an additional rail car cleaning facility in the Midwest (Illinois) in April 2016 and operations have commenced and revenue is being generated. The revenue from this facility has offset some of the lost service revenue previously derived from the oil refinery sector. Additionally, on August 30, 2016 the Company was awarded a permit for its flaring equipment at its Kansas rail facility and this new service offering is projected to offset some of the lost service revenue previously derived from the oil refinery sector. Revenue from flaring operations commenced in September 2016. For the nine months ended September 30, 2016 we raised $425,000 from the sale of common stock and exercise of warrants and another $29,900 from the extension of warrants. In September 2016, we raised $250,000 in convertible debt financing. In addition, we have undertaken a number of specific steps to improve operating efficiencies, revenues and income to continue to operate as a going concern. We continue 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. Critical to achieving profitability will be our ability to license and or sell, permit and operate our CoronaLux™ waste destruction units either though our joint ventures and/or licensees. We have increased our business development efforts to address opportunities identified in expanding markets attributable to increased interest in energy conservation and emission control regulations, particularly the landfill gas and oil field emissions sectors. In addition, the Company is evaluating various forms of financing which may be available to it, i.e., debt and/or equity financing while carefully evaluating the impact on share dilution. 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 14, 2016 for the years ended December 31, 2015 and 2014.
| 7 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
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 income (loss).
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 $49,100 and $80,900 for the three months ended September 30, 2016 and 2015, respectively and $149,100 and $279,700 for the nine months ended September 30, 2016 and 2015, respectively.
Income Taxes
The Company accounts for income taxes pursuant to Accounting Standards Codification (“ASC”) 740, Income Taxes, which utilizes the asset and liability method of computing deferred income taxes. The objective of this method is to establish deferred tax assets and liabilities for any temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.
ASC 740 also provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized. During the three months and nine months ended September 30, 2016 and 2015 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 September 30, 2016 and December 31, 2015. 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, 2015. The tax periods for the years ending December 31, 2008 through 2015 are open to examination by federal and state authorities.
| 8 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
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.
New Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued guidance creating Accounting Standards Codification (“ASC”) Section 606, “Revenue from Contracts with Customers”. The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance was effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. On July 9, 2015, the FASB approved a one year delay of the effective date. The Company will now adopt the new provisions of this accounting standard at the beginning of fiscal year 2018, unless it choose to early adopt in 2017. The Company will further study the implications of this statement in order to evaluate the expected impact on the consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Management is evaluating the provisions of this statement, including which period to adopt, and has not determined what impact the adoption of ASU 2015-11 will have on the Company’s financial position or results of operations.
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2015-17, “Balance Sheet Classification of Deferred Taxes”. The new guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. The amendments will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The updated guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted, and the amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company is in the process of evaluating this guidance.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. Additionally, the ASU 2016-01 changes the disclosure requirements for financial instruments. The new standard will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted for certain provisions. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt certain provisions early.
| 9 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
In February 2016, the FASB issued new guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt the new guidance early.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which amends ASC Topic 718, Compensation – Stock Compensation. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. ASU 2016-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is evaluating the impact of this standard on its financial statements.
Recently Adopted Accounting Standards
In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments when the terms of an award provide that a performance target could be achieved after the requisite service period,” (“ASU 2014-12”). Current U.S. GAAP does not contain explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award. The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The updated guidance was effective January 1, 2016 and did not have a material effect on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, ”Simplifying the Presentation of Debt Issuance Costs,” (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for the first interim period for fiscal years beginning after December 15, 2015. The guidance was effective January 1, 2016 and it did not have a material effect on the consolidated financial statements.
In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”. The new guidance eliminates the requirement to retrospectively account for adjustments to provisional amounts recognized in a business combination. Under the ASU, the adjustments to the provisional amounts will be recognized in the reporting period in which the adjustment amounts are determined. The updated guidance will be effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance was effective January 1, 2016 and did not have a material effect on the consolidated financial statements.
| 10 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| Field and shop equipment | $ | 2,319,400 | $ | 2,188,500 | ||||
| Vehicles | 689,900 | 750,800 | ||||||
| Waste destruction equipment, placed in service | 1,288,700 | 1,276,600 | ||||||
| Waste destruction equipment, not placed in service | 1,521,100 | 1,521,100 | ||||||
| Furniture and office equipment | 322,800 | 321,400 | ||||||
| Leasehold improvements | 65,400 | 65,400 | ||||||
| Building and improvements | 21,200 | 18,600 | ||||||
| Land | 162,900 | 162,900 | ||||||
| 6,391,400 | 6,305,300 | |||||||
| Less: accumulated depreciation and amortization | (2,418,800 | ) | (1,974,000 | ) | ||||
| Property and equipment, net | $ | 3,972,600 | $ | 4,331,300 | ||||
| Three Month Ended | Nine months ended | |||||||||||||||
| September 30, 2016 | September 30, 2015 | September 30, 2016 | September 30, 2015 | |||||||||||||
| Cost of Goods Sold | $ | 141,400 | $ | 106,900 | $ | 430,100 | $ | 320,800 | ||||||||
| General & Administrative | 24,200 | 19,600 | 72,500 | 58,900 | ||||||||||||
| Total Depreciation Expense | $ | 165,600 | $ | 126,500 | $ | 502,600 | $ | 379,700 | ||||||||
Accumulated depreciation on leased CoronaLux™ units included in accumulated depreciation and amortization above is $271,700 and $149,500 as of September 30, 2016 and 2015, respectively.
Property and equipment included the following amounts for leases that have been capitalized at:
| September 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Vehicles, field and shop equipment | $ | 462,700 | $ | 462,700 | ||||
| Less: accumulated amortization | (199,400 | ) | (127,800 | ) | ||||
| $ | 263,300 | $ | 334,900 | |||||
| 11 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 4 – INTANGIBLE ASSETS
Intangible assets were comprised of the following:
| September 30, 2016 | ||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying value | ||||||||||
| Goodwill | $ | 277,800 | $ | — | $ | 277,800 | ||||||
| Customer list | 42,500 | (42,500 | ) | — | ||||||||
| Technology and Patents | 1,064,600 | (586,600 | ) | 478,000 | ||||||||
| Trade name | 54,600 | (54,600 | ) | — | ||||||||
| $ | 1,439,500 | $ | (683,700 | ) | $ | 755,800 | ||||||
| December 31, 2015 | ||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying value | ||||||||||
| Goodwill | $ | 277,800 | $ | — | $ | 277,800 | ||||||
| Customer list | 42,500 | (42,500 | ) | — | ||||||||
| Technology and Patents | 1,027,100 | (518,300 | ) | 508,800 | ||||||||
| Trade name | 54,600 | (54,600 | ) | — | ||||||||
| $ | 1,402,000 | $ | (615,400 | ) | $ | 786,600 | ||||||
The estimated useful lives of the intangible assets range from seven to ten years. Amortization expense was $25,200 and $20,000 for the three months ended September 30, 2016 and 2015, respectively and $68,200 and $60,100 for the nine months ended September 30, 2016, respectively.
NOTE 5 - ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
| September 30, 2016 | December 31, 2015 | |||||||
| Accrued compensation and related taxes | $ | 641,800 | $ | 579,800 | ||||
| Accrued interest | 37,100 | 58,800 | ||||||
| Other | 259,200 | 250,900 | ||||||
| Total Accrued Liabilities | $ | 938,100 | $ | 889,500 | ||||
| 12 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 6 - UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are as follows:
| September 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Revenue Recognized | — | $ | 1,814,300 | |||||
| Less: Billings to date | — | (1,610,300 | ) | |||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | — | $ | 204,000 | |||||
| Billings to date | $ | 2,430,100 | $ | 2,273,400 | ||||
| Revenue recognized | (1,729,700 | ) | (1,685,500 | ) | ||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | $ | 700,400 | $ | 587,900 | ||||
NOTE 7– INVESTMENT IN PARAGON WASTE SOLUTIONS LLC
In 2010, the Company and Black Stone Management Services, LLC (“Black Stone”) formed PWS, whereby a total of 1,000,000 membership units were issued, 600,000 membership units to the Company and 400,000 membership units to Black Stone. Fortunato Villamagna, who serves as President of our PWS subsidiary, is a managing member and Chairman of Black Stone. In June 2012, the Company and Blackstone each allocated 10% of their respective membership units in PWS to Mr. J John Combs III, an officer and shareholder of the Company and Mr. Michael Cardillo, a shareholder of the Company and an officer of a subsidiary. There was no value attributable to the units at the time of the allocation. On August 31, 2016 Blackstone entered into a settlement agreement with a third party to rescind a stock exchange agreement dated July 1, 2013 between Blackstone and the third party and consideration exchanged by the parties in the July 1, 2013 agreement were returned by each party resulting in Blackstone getting back 10% membership units in PWS. At September 30, 2016 the Company owned 54% of the membership units, Black Stone owned 36% of the membership units and two related parties (as noted above), each owned 5% of the membership units.
In August, 2011, we acquired certain intellectual property in regards to waste destruction technology (the “IP”) from Black Stone in exchange for 1,000,000 shares of our common stock valued at $100,000. We estimated the useful life of the IP at ten years, which was consistent with the useful life of other technology included in our intangible assets, and management’s initial assessment of the potential marketability of the IP.
In April 2016, the Company received Notice of Allowance of its application for a continuation patent. This patent continuation application incorporates all original and prior claims and will provide expanded and additional protection of the underlying and core waste destruction technology.
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 commenced as of the date of the 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 and sales of CoronaLux™ units of approximately $125,100 for the nine months ended September 30, 2016 and $890,100 for the year ended December 31, 2015, as such, royalties of $54,700 and $48,400 were due at September 30, 2016 and December 31, 2015, respectively.
Since its inception through September 30, 2016, we have provided approximately $5.5 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.
| 13 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 7– INVESTMENT IN PARAGON WASTE SOLUTIONS LLC, continued
The intent of the operating agreement is that we will provide the funding as an advance against future earnings distributions made by PWS.
Licensing Agreements
In September 2013, PWS entered into an Exclusive Use License and Joint Operations Agreement (“License Agreement”) with Sterall Inc. (“Sterall”). The License Agreement granted Sterall the use of the PWS Technology and the CoronaLux™ waste destruction units for an initial five year term in the State of Florida and renewable for two additional five year terms, for the treatment and/or destruction of any and all regulated medical waste from any sources. The agreement required Sterall to pay a $300,000 License Initiation Fee and in order for Sterall to maintain its exclusive license for the State of Florida, a total of $200,000 was to be paid to PWS by May 23, 2014, regardless of net operating profits of Sterall (“NOP”). During the initial 5-year term, a minimum of $500,000 of total royalty payments to PWS must be made either from NOP or otherwise (in addition to the $300,000 Initial Fee, set forth below), in order for the second-phase five-year term to be exclusive. During the second-phase five-year term, a minimum of $750,000 of royalty must be paid, out of NOP or otherwise, in order for the third phase five-year term to be exclusive. PWS will receive a one-time license initiation fee of $300,000 payable from NOP of Sterall as a priority payment before any other distributions or payouts. Sterall can take delivery of additional CoronaLux™ waste destruction units upon payment of a placement fee per unit of either $168,000 or $207,000 depending upon the size of the unit. The unit placement fees do not include freight, start-up and commissioning costs, which shall be borne by the facility. PWS, at its sole discretion will select the installation, startup and commissioning teams. Sterall has not generated any NOP and has not paid any licensing fees to PWS as required by the License Agreement, including the minimum payments required under the agreement. Black Stone is a minority shareholder of Sterall.
During the year ended December 31, 2014, Sterall ordered a total of six CoronaLux™ units, of which one unit was delivered after payment of a non-refundable placement fee of $236,250. The remaining five units have not been delivered as of September 30, 2016 as Sterall has defaulted on their purchase order for payment of the units ordered. The Company still retains a non-refundable deposit of $330,000 against the five units ordered.
On February 22, 2014, SEER and PWS entered into an Agreement with Daniel McAteer & Associates (“DMA”) to develop, permit and exploit the PWS waste destruction technology in Ireland and United Kingdom (“Limited Territory”). The Agreement called for the formation of a Joint Venture to be owned 50% by SEER and 50% by DMA. In accordance with the agreement, DMA was to pay a one-time license fee of $350,000 for an exclusive license for the limited purpose of medical waste destruction in the Limited Territory. On June 10, 2014 Paragon Waste (UK) Ltd (“Paragon UK”, “UK Joint Venture”), was formed in accordance with the laws of Northern Ireland. A total of 300,100 shares were issued upon formation, 100 Ordinary A voting shares were issued, of which PWS received 50 Ordinary A shares and 300,000 Ordinary B non-voting shares were issued. In 2015, the Agreement with DMA was amended to where Paragon UK purchased the CoronaLux™ unit from PWS for $350,000. 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.
On March 4, 2014, PWS entered into a Licensing and Equipment Lease Agreement with eCycling International of South Carolina, LLC (“eCycling”). The License Agreement grants to eCycling the use of the PWS Technology and the CoronaLux™ waste destruction units for an initial term of five years and requires a payment of $176,875 as a non-refundable initial licensing fee and distributions of 50% of net operating profits, as defined in the agreement, in lieu of continuing royalty payments for the use of the licensed technology. As of September 30, 2016, eCycling is still in the process of permitting the unit, and therefore, has not yet generated any NOP. As a result of eCycling not generating any NOP, their licensing contract was amended to provide for an additional $176,875 to be paid as licensing fees, all of which has been paid as of September 30, 2016.
| 14 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 7– INVESTMENT IN PARAGON WASTE SOLUTIONS LLC, continued
On November 17, 2014, PWS entered into an Exclusive Licensing and Equipment Lease Agreement, for a limited license territory, with Medical Waste Services, LLC (“MWS”). The License Agreement grants to MWS the use of the PWS Technology and the CoronaLux™ waste destruction units for an initial term of seven years and requires a payment of $225,000 as a non-refundable initial licensing fee and distributions of 50% of net operating profits, as defined in the agreement, in lieu of continuing royalty payments for the use of the licensed technology. PWS and Medical Waste Services, LLC (“MWS”) formed a contractual joint venture to exploit the PWS medical waste destruction technology. MWS has received approval from the California Department of Public Health and a restricted permit from the South Coast Air Quality Management District (“SCAQMD”) to operate the CoronaLux™ unit licensed by MWS at its facility in Southern California. Operations to date have included the destruction of medical waste under this temporary operating permit issued by SCAQMD since May 2015. All required testing directed by SCAQMD has been successfully completed in 2016 and all required filings have been made to obtain a full operating permit from SCAQMD. The final issuance is pending.
In February 2015, PWS entered into a License Agreement with Particle Science Tech of Environmental Protection, Inc (“Particle”) a US subsidiary of Xinhua Energy Environmental Technology Co., Ltd (“Xinhua”), a large multi-national environmental company based in China. The agreement provides for the exclusive rights to distribute PWS’s patented technology in China, Hong Kong, Macau and the Taiwan territories (“Territory”). The grant was for both the medical waste, as well as the refinery vertical markets within the Territory. The Agreement calls for, among other things, the formation of a U.S. joint venture company, (“P&P Company”), to be owned 50/50 by PWS and Particle) and an obligation by Xinhua to fund all necessary and reasonable capital requirements to permit and roll out the PWS technology in the Territory as well as staff and manage the JV Entity’s operations. In 2015, PWS sold a CoronaLux™ unit to Xinhua for $430,500.
Upon the occurrence of certain events and timely performance by Xinhua, a second placement fee of $350,000 is required to be paid and, upon that second payment, it will then be granted exclusive manufacturing rights to produce the units to be deployed in the Territory.
Payments received for non-refundable licensing and placement fees have been recorded as deferred revenue in the accompanying consolidated balance sheets at September 30, 2016 and December 31, 2015 and are recognized as revenue ratably over the term of the contract.
NOTE 8 - 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.
In or around 2010, REGS retained Washington D.C.-based legal counsel specializing in resolving federal tax matters. REGS has been represented by this firm throughout all phases of this tax matter and related proceedings. In September 2011, REGS received approval from the Internal Revenue Service (“IRS”) to begin paying the outstanding federal payroll tax liability plus the related incurred interest and penalties totaling approximately $971,000 in installments (the “Installment Plan”). Under the Installment Plan, REGS was required to pay minimum monthly installments of $12,500 commencing September 2011, which increased to $25,000 per month in September 2012, until the liability was paid in full. Through the duration of the Installment Plan, the IRS continues to charge penalties and interest at statutory rates. If the conditions of the Installment Plan were not met, the IRS could cancel the installment plan and could demand the outstanding liability to be repaid through traditional enforcement proceedings available to the IRS. Additionally, the IRS has filed a notice of federal tax lien against certain of REGS assets in order to secure the obligation. The IRS is to release this lien if and when we pay the full amount due.
Two of the officers of REGS also have personal liability exposure for a portion of the taxes if REGS does not pay them. For the tax periods 2009 through 2014, one of the officers of REGS has had personal income tax refunds totaling $34,262 seized by the IRS and applied to REGS IRS obligation.
| 15 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 8 - PAYROLL TAXES PAYABLE, continued
In May 2013, REGS filed an Offer in Compromise (“OIC”) with the IRS. While the OIC was under review by the IRS, the requirement to pay $25,000 a month under the Installment Plan was suspended. REGS was informed by its legal counsel that the IRS had accepted REGS’ OIC. However by a letter dated March 27, 2014, REGS was notified that the OIC had been rejected. REGS then appealed that rejections decision. However that appeal has been denied. As a result, the Installment Plan is 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 IRS has not taken any current action against REGS and REGS continues to be represented by its legal counsel.
As of September 30, 2016 and December 31, 2015, the outstanding balance due to the IRS was $987,600, and $970,500, respectively.
Other than this outstanding payroll tax matter arising in 2009, all state and federal taxes have been paid by REGS in a timely manner.
NOTE 9 – DEBT
In June 2011, we issued an unsecured promissory note to a third party in the amount of $40,000 (the “June 2011 Note”) bearing interest at a rate of 10% per annum and a three year warrant to purchase 13,000 shares of our common stock at an exercise price of $1.00 per share. In addition, a second note payable, to the same third party, in the amount of $25,000 plus $3,000 of accrued interest was also converted into the June 2011 Note, resulting in a new principal balance of $68,000. We valued the warrant at $170 using the Black-Scholes model and recorded this amount as a debt discount. The debt discount was fully amortized during 2011. In August 2016, the note and all accrued interest was paid by an offset to trade accounts receivable from the note holder.
| September 30, 2016 | December 31, 2015 | |||||||
| June 2011 Note - In Default | $ | — | $ | 68,000 | ||||
| Convertible notes payable, interest at 8% per annum, $400,000 principal payment due December 31, 2016, remaining unpaid principal and interest due August 20, 2018 and September 29, 2019, convertible into common stock at the option of the lenders at a rate ranging from $.70 to $1.10 per share | 1,500,000 | 1,250,000 | ||||||
| Debt discount (see Note 13) | (16,800 | ) | (16,600 | ) | ||||
| Note payable dated October 13, 2015, interest at 8% per annum, payable in 24 monthly installments of principal and interest $4,523, due October 1, 2017. Secured by certain assets of SEM and guaranteed by SEER and MV | 56,100 | 92,300 | ||||||
| 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 | 190,200 | 218,900 | ||||||
| Note payable insurance premium financing, interest at 4.25% per annum, payable in 10 installments of $28,417, due November 1, 2016 | 56,500 | — | ||||||
| Short term note payable dated August 23, 2016 due October 23, 2016. Interest is $10,000 for the first two weeks and $1,000 per week thereafter. Note is secured by certain trade accounts receivables. (Note was paid in October 2016) | 200,000 | — | ||||||
| Capital lease obligations, secured by certain assets, maturing through March 2019 | 136,200 | 208,900 | ||||||
| Total notes payable and capital lease obligations | 2,122,200 | 1,821,500 | ||||||
| Less: current portion | (825,500 | ) | (660,100 | ) | ||||
| Notes payable and capital lease obligations, long-term, including debt discount | $ | 1,296,700 | $ | 1,161,400 | ||||
| 16 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 9 – DEBT, continued
In May 2016, the Company borrowed $200,000 in a short term financing arrangement. As an inducement to enter into the transaction the Company issued 500,000 warrants exercisable at $.50 per share for a period of four years. The warrants were valued at $97,200 and were recorded as additional interest. The short term debt was repaid in cash in June 2016 along with interest of $12,000.
In connection with the issuance of convertible debt on September 30, 2016, the Company issued 50,000 warrants as an inducement to enter into the transaction. The warrants are exercisable for five years at $.85 per share and were valued at $4,900 using the Black Scholes valuation method and are being amortized over the term of the debt.
NOTE 10 – RELATED PARTY TRANSACTIONS
Notes payable, related parties
Related parties payable and accrued interest due to certain related parties as of September 30, 2016 and December 31, 2015 are as follows:
| 2016 | 2015 | |||||||
| Unsecured note payable dated February 2004, bearing interest at 8% per annum, originally due January 2008; assigned to CEO by a third party in 2010; due June 1, 2016 | $ | — | $ | 5,000 | ||||
| Accrued interest, unsecured note payable | 11,800 | 26,800 | ||||||
| Payable due officer for payment of IRS obligation (See Note 8 above) | 34,600 | — | ||||||
| $ | 46,400 | $ | 31,800 | |||||
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 and sales of CoronaLux™ units of approximately $125,100 for the nine months ended September 30, 2016 and $890,500 for the year ended December 31, 2015, as such, royalties of $54,700 and $48,400 were due at September 30, 2016 and December 31, 2015, respectively.
In August 2014, the Company entered into a second Exchange and Acquisition Agreement ("New Technologies Agreement") with Black Stone for the acquisition of additional intellectual property ("IP") from Black Stone in exchange for 1,000,000 shares of common stock valued at $1,050,000. In 2015 the Company and Black Stone executed a rescission agreement of the New Technologies Agreement noted above that was effective December 31, 2014. The shares issued by the Company in accordance with the agreement were returned and all acquired IP returned to Black Stone.
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 nine months ended September 30, 2016 PWS have recorded $15,700 in income which represents their 50% interest in the net income of the joint venture. In addition, for the nine months ended September 30, 2016, PWS billed the joint venture approximately $90,600 in costs incurred on behalf of the joint venture.
| 17 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 10 – RELATED PARTY TRANSACTIONS, continued
In September 2014, the Company entered into an Equity Purchase Agreement ("Equity Agreement") with a third party ("Seller") whereby the Company issued 1,200,000 shares of the Company’s common stock, valued at $1,212,000, in exchange for 22.5 membership interest units, representing 15% ownership interest in Sterall, LLC, a Delaware corporation. In March 2015 the Company and the Seller entered into a revised agreement whereby the 1,200,000 shares issued by the Company would be held by the Seller until the completion of an independent third party valuation. The determination of fair value shall occur by December 31, 2015. Based on the fair market value of the Purchased Units from the valuation obtained by the Company, an amount of Consideration Shares will be returned to the Company to the extent that the fair market value of the Consideration Shares issued (see below) are greater than the fair market value of the Purchased Units. In no event shall the Company be obligated to issue additional shares as consideration for the Purchased Units. For purposes of this amendment, the fair market value of each Consideration Share as determined to be $0.83333. In the event the parties are unwilling to accept the fair market value of the Purchased Units, as determined by the independent valuation specialist, on or before the Closing Date (December 31, 2015) this Agreement, the transaction covered by this Agreement (the “Contemplated Transaction”) may be rescinded by either Party in writing. Due to the ability of the Company to rescind the shares issued at the commencement of the transaction the shares were considered contingently issuable shares and as such the 1,200,000 share not considered issued and outstanding at December 31, 2015. The 15% ownership interest in Sterall was considered contingently held until the conclusion of this transaction.
As of December 31, 2015 an independent appraisal was not performed and the Amended Equity Agreement expired by its terms. The 1,200,000 shares subject to the original Equity Agreement and the Amended Equity Agreement became unrestricted in 2016 and are now considered issued and outstanding. The shares were valued at $720,000 and have been recorded as a long term other asset pending resolution of claims by the parties involved related to the Sterall licensing agreement from September 2013, Sterall equipment deposits of $330,000 from 2014 and the equity purchase agreement noted above. The ultimate resolution of the various claims by the parties and the ultimate disposition of the $720,000 are expected to be resolved no later than December 31, 2016.
NOTE 11 – EQUITY TRANSACTIONS
2016
During the nine months ended September 30, 2016, the Company sold 600,000 shares of $.001 par value common stock at $.50 per share in a private placement, receiving proceeds of $300,000.
During the nine months ended September 30, 2016 the Company (i) issued 100,000 shares of $.001 par value common stock in connection with the payment of a common stock subscription of $25,000.
During the nine months ended September 30, 2016, the Company issued 250,000 shares of its $.001 par value common stock upon exercise of common stock warrants receiving proceeds of $125,000.
During the nine months ended September 30, 2016, the Company treated as issued 1,200,000 shares of its $.001 par value common stock valued at $720,000 in connection with the Sterall transaction (see Note 10).
During the nine months ended September 30, 2016, the Company issued 60,000 common stock options to employees exercisable at $.60 per share.
In the third quarter of 2016, the Company issued $250,000 in convertible debt that is convertible into 357,142 shares of its $.001 par value common stock.
In May 2016, the Company issued 500,000 warrants, in connection with a short term financing, exercisable at $.50 per share for a period of four years.
On September 30, 2016, the Company issued 50,000 warrants, in connection with a convertible debt issuance, exercisable for five years at $.85 per share and were valued at $4,900 using the Black Scholes valuation method.
| 18 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 11 – EQUITY TRANSACTIONS, continued
2015
During the nine months ended September 30, 2015, the Company issued 120,949 shares of $.001 par value common stock upon the cashless exercise of 200,000 warrants.
As noted in Note 9, in January 2015 a convertible promissory note and accrued interest totaling $257,400 was converted into 514,750 shares on common stock in accordance with the terms on the original convertible note.
In the fourth quarter of 2015, the Company issued $1,250,000 in convertible debt that is convertible into 1,136,363 shares of its $.001 par value common stock.
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 12 – CUSTOMER CONCENTRATIONS
The Company had sales from operations to two customers for the three months ended September 30, 2016 and 2015 that represented approximately 38% and 49%, respectively of our total sales and sales from operations to one customer for the nine months ended September 30, 2016 that represented approximately 22% and sales from operations to two customers for the nine months ended September 30, 2015 that represented approximately 49%, respectively, of our total sales. 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. REGS, a wholly owned subsidiary, was notified that effective April 1, 2016 it would no longer be providing routine maintenance services to its largest customer but would still be eligible to provide other industrial cleaning services. The projected loss of revenue from this customer is estimated to be between $2.5 and $3 million annually.
NOTE 13 – 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:
| Nine months ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| Warrants | 9,964,430 | 9,689,430 | ||||||
| Options | 990,000 | 1,974,950 | ||||||
| Convertible notes payable, including accrued interest | 1,493,505 | 909,091 | ||||||
| Contingently issuable shares, Sterall LLC | — | 1,200,000 | ||||||
| 12,447,935 | 13,773,471 | |||||||
| 19 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 14 - 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 15 – LITIGATION
In March 2016, a complaint was filed by a lessor of property leased by REGS, a subsidiary of the Company. The month-to-month lease expired February 29, 2016, when REGS vacated the property. The landlord has made certain claims including property damage, and loss of rents, attorney fees and other costs totaling approximately $97,000. REGS has engaged defense counsel and intends to zealously oppose the claims. While the Company’s management believes the claims are without merit, the Company has accrued $48,400 as a loss against this claim.
In January 2016, an employee of SEM was involved in a vehicle accident while on Company business. The accident resulted in one fatality and injuries to another party. The two parties filed lawsuits against SEM as a result of the accident and the claims were turned over to our insurance carrier. Defense counsel was provided for and appointed by the Company’s insurance carrier. In August 2016, both claimants each filed a claim with our insurance carrier for the full amount of our insurance coverage, approximately $6 million. Later in August 2016, an involuntary proceeding was commenced by one of the claimants against SEM under Chapter 7 of the Bankruptcy code by one claimant as a result of both claimants filing for the $6 million in insurance available under our policies. SEM engaged bankruptcy counsel who filed certain motions on behalf of SEM. In September, the case was converted to a Chapter 11 under the Bankruptcy code and the Bankruptcy court granted SEM’s motion and ordered that the $6 million in insurance proceeds under our policy would be an asset of the estate of SEM. In October 2016, the Company filed a plan of reorganization with the court that allows for an equitable split of the $6 million in insurance proceeds, as determined by the two claimants, and allows for all creditors of SEM, both secured and unsecured, to be paid in full if the two claimants can come to terms with an equitable allocation of the $6 million in insurance proceeds. At this time SEM continues to manage its affairs and is currently operating normally. The ultimate outcome of this Chapter 11 proceeding is uncertain at this time. Management does not currently believe that any assets of SEM are impaired as of September 30, 2016. Operations and production are continuing uninterupted.
| 20 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 16 - SEGMENT INFORMATION
The Company currently has identified four segments as follows:
| REGS | Industrial Cleaning | |
| Tactical | Rail Car Cleaning | |
| MV and SEM | Environmental Solutions | |
| PWS | Solid Waste |
Reach has had minimal operations through June 30, 2016.
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 September 30, 2016 and 2015 is as follows:
| 2016 | Industrial | Railcar | Environmental | Solid | ||||||||||||||||||||
| Cleaning | Cleaning | Solutions | Waste | Corporate | Total | |||||||||||||||||||
| Revenue | $ | 416,000 | $ | 629,400 | $ | 1,749,100 | $ | 42,000 | $ | — | $ | 2,836,500 | ||||||||||||
| Depreciation and amortization (1) | 81,800 | 10,000 | 42,700 | 31,500 | 24,800 | 190,800 | ||||||||||||||||||
| Interest expense | 7,600 | 300 | 5,300 | — | 42,800 | 56,000 | ||||||||||||||||||
| Stock-based compensation | — | — | — | — | 10,900 | 10,900 | ||||||||||||||||||
| Net income (loss) | (535,600 | ) | 34,200 | 217,000 | (198,000 | ) | (391,400 | ) | (873,800 | ) | ||||||||||||||
| Capital expenditures (cash and noncash) | 6,300 | 9,700 | — | 5,200 | — | 21,200 | ||||||||||||||||||
| Total assets | $ | 1,118,400 | $ | 601,100 | $ | 2,349,300 | $ | 2,914,500 | $ | 1,083,100 | $ | 8,066,400 | ||||||||||||
| 2015 | Industrial | Railcar | Environmental | Solid | ||||||||||||||||||||
| Cleaning | Cleaning | Solutions | Waste | Corporate | Total | |||||||||||||||||||
| Revenue | $ | 1,049,100 | $ | 842,100 | $ | 965,500 | $ | 111,500 | $ | — | $ | 2,968,200 | ||||||||||||
| Depreciation and amortization (1) | 65,700 | 6,400 | 30,300 | 25,500 | 18,700 | 146,600 | ||||||||||||||||||
| Interest expense | 6,400 | (5,100 | ) | — | 300 | 3,900 | 5,500 | |||||||||||||||||
| Stock-based compensation | — | — | — | — | 27,300 | 27,300 | ||||||||||||||||||
| Net income (loss) | (74,900 | ) | 172,600 | (61,900 | ) | (234,000 | ) | (446,300 | ) | (644,500 | ) | |||||||||||||
| Capital expenditures (cash and noncash) | 10,500 | 15,500 | 11,400 | 60,100 | — | 97,500 | ||||||||||||||||||
| Total assets | $ | 1,741,800 | $ | 635,700 | $ | 1,418,800 | $ | 3,766,400 | $ | 1,151,200 | $ | 8,713,900 | ||||||||||||
____________________
| (1) | Includes depreciation of property, equipment and leasehold improvement and amortization of intangibles. |
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STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 16 - SEGMENT INFORMATION, continued
Segment information for the nine months ended September 30, 2016 and 2015 is as follows:
| 2016 | Industrial | Railcar | Environmental | Solid | ||||||||||||||||||||
| Cleaning | Cleaning | Solutions | Waste | Corporate | Total | |||||||||||||||||||
| Revenue | $ | 2,844,000 | $ | 2,433,900 | $ | 3,454,500 | $ | 170,100 | $ | — | $ | 8,902,500 | ||||||||||||
| Depreciation and amortization (1) | 251,200 | 30,700 | 125,400 | 96,300 | 67,300 | 570,900 | ||||||||||||||||||
| Interest expense | 25,100 | 3,100 | 17,500 | 500 | 212,100 | 258,300 | ||||||||||||||||||
| Stock-based compensation | — | — | — | — | 83,400 | 83,400 | ||||||||||||||||||
| Net income (loss) | (517,000 | ) | 444,500 | 307,800 | (501,400 | ) | (1,413,900 | ) | (1,679,800 | ) | ||||||||||||||
| Capital expenditures (cash and noncash) | 129,400 | 22,900 | 12,900 | 12,100 | — | 177,300 | ||||||||||||||||||
| Total assets | $ | 1,118,400 | $ | 601,100 | $ | 2,349,300 | $ | 2,914,500 | $ | 1,083,100 | $ | 8,066,400 | ||||||||||||
| 2015 | Industrial | Railcar | Environmental | Solid | ||||||||||||||||||||
| Cleaning | Cleaning | Solutions | Waste | Corporate | Total | |||||||||||||||||||
| Revenue | $ | 4,198,300 | $ | 2,263,400 | $ | 2,796,000 | $ | 183,400 | $ | — | $ | 9,441,100 | ||||||||||||
| Depreciation and amortization (1) | 197,100 | 19,200 | 91,000 | 76,400 | 56,100 | 439,800 | ||||||||||||||||||
| Interest expense | 29,000 | 5,100 | 500 | 300 | 10,100 | 45,000 | ||||||||||||||||||
| Stock-based compensation | — | — | — | — | 176,100 | 176,100 | ||||||||||||||||||
| Net income (loss) | 195,600 | 201,000 | (78,800 | ) | (824,400 | ) | (1,610,600 | ) | (2,117,200 | ) | ||||||||||||||
| Capital expenditures (cash and noncash) | 313,100 | 45,000 | 43,600 | 179,400 | 81,600 | 662,700 | ||||||||||||||||||
| Total assets | $ | 1,741,800 | $ | 635,700 | $ | 1,418,800 | $ | 3,766,400 | $ | 1,151,200 | $ | 8,713,900 | ||||||||||||
_____________________
(1) Includes depreciation of property, equipment and leasehold improvement and amortization of intangibles.
NOTE 17 - SUBSEQUENT EVENTS
Management has evaluated the impact of events occurring after September 30, 2016 up to the date of the filing of these interim unaudited condensed consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation.
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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 14, 2016. 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 six companies with five 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 six 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 five 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).
Tactical Cleaning Company, LLC ("Tactical"): (operating since 2005) provides cleaning services to the tanker rail car industry with offices in two states and a focus on both food-grade and petroleum based products, i.e., fuel oil and asphalt. Tactical has recently been permitted to operate a flare at its Kansas facility and will be expanding its operations in 2016 to include the cleaning of gas and propane rail cars.
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 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.
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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 September 30, 2016
SEER Environmental Materials, LLC ("SEM") formed September 2015. SEM 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. Operations to date have included the destruction of medical waste while demonstrating the ultralow emissions necessary for application of a more expansive operating permit, submitted to SCAQMD in March 2016.
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SEER’s Financial Condition
As shown in the accompanying consolidated financial statements, the Company has experienced recurring losses, and has an accumulated deficit of approximately $16.8 million $15.4 million as of September 30, 2016 and December 31, 2015. For the nine months ended September 30, 2016 we had net loss before non-controlling interest of $1.7 million. As of September 30, 2016 and December 31, 2015 our current liabilities exceed our current assets by approximately $3.2 million and $2.7 million, respectively. Our total assets exceed total liabilities at September 30, 2016 by approximately $646,000 and at December 31, 2015 our total assets exceeded our total liabilities by approximately $1 million. The Company raised $425,000 through the sale of common stock and exercise of common stock warrants for the period January 1, 2016 thru September 30, 2016. In Q1 2016, REGS, a wholly owned subsidiary, was notified that effective April 1, 2016 it would no longer be providing routine maintenance services to its largest customer but would still be eligible to provide other industrial cleaning services. The projected loss of revenue from this customer is estimated to be between $2.5 and $3 million annually. The Company opened an additional rail car cleaning facility in the Midwest (Illinois) in April 2016 to offset some of the lost service revenue previously derived from the refinery sector.
Realization of a major portion of our assets as of September 30, 2016, 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 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 though 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 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.
Results of Operations for the Three Months Ended September 30, 2016 and 2015
Total revenues were approximately $2.83 million and $2.96 million for the three months ended September 30, 2016 and 2015, respectively, a decrease of approximately$132,000, or 4%, in revenues. Service segment revenues, which include industrial cleaning and railcar cleaning was approximately $1 million for the three months ended September 30, 2016 compared to $1.9 million for the three months ended September 30, 2015, a decrease of approximately $846,000 or 45%. Railcar cleaning revenues decreased approximately $213,000 or 25% comparing Q3 2016 to Q3 2015and industrial cleaning services revenues decreased approximately$633,000 or 60% comparing 2016 to 2015. The decline in railcar cleaning services was a reduction in the number of railcars available for servicing. The primary reason for the decline in industrial cleaning revenue was the loss of routine maintenance services with our largest customer on April 1, 2016. In Q3 2015 this customer accounted for $649,100 in industrial cleaning services revenue whereas in Q3 2016 this customer accounted for only $19,700. In April 2016 our industrial cleaning services segment commenced opening a railcar facility in Illinois and revenue generating operations commenced May 2016, generating revenues of $249,200 in Q3 2016 to partially offset the loss of industrial service revenues from our customer noted above. Our environmental solutions segment generated revenue of approximately $1.7 million in 2016 compared to approximately $1 million in 2015, an increase of approximately $784,000 or 81%. The increase is primarily the result of increased media replacement sales comparing Q3 2016 to Q3 2015 of approximately $100,000 but mostly attributable to project revenues which increased approximately $662,000. Our solid waste segment generated $42,000 in revenue, mostly licensing fees, in Q3 2016 compared to $111,500 in Q3 2015. The solid waste disposal segment receives non-refundable licensing fees which are being recognized as revenue ratably over the initial term of the agreements of between 5-7 years.
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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 approximately $3.57 million for the quarter ended September 30, 2016 compared to approximately $3.65 million for the quarter ended September 30, 2015. The decrease in operating costs of approximately $74,000 is primarily the result of a 1) a 45% decrease in service revenues resulting in a corresponding decrease in service costs of $230,700, 2) a decrease in solid waste costs of $115,100 primarily attributable to a reduction in labor, travel, freight and other costs incurred in Q3 2015 related to the startup and commissioning costs of a Coronalux™ unit in Paramount, California that stopped once the unit commenced operations in May 2015, 3) a decrease in general and administrative cost of $136,600, comparing 2016 to 2015, primarily from a decrease in professional fees, travel and research and development costs, 4) a decrease in salary related costs of $184,000, comparing 2016 to 2015, primarily attributable to a reduction is G&A salaries and wages due to a reduction in headcount, offset by, 5) an increase in product costs of $648,500 as a result of an 81% increase in product revenues. Service costs as a percentage of service revenues were essentially 114% for the quarter ended September 30, 2016 and 75% for the quarter ended September 30, 2015. The increase in the percentage of service costs to service revenues is the result of the loss in industrial cleaning service revenues effective April 1, 2016 without a corresponding reduction in overhead and other operating costs. Some resources previously allocated to servicing our significant customer were reallocated to the opening of the new rail facility in Illinois which started in April 2016. Product costs as a percentage of product revenues was 76% for the quarter ended September 30, 2016 compared to 70% for the quarter ended September 30, 2015. The primary reasons for the increase in product costs were unexpected costs overruns on one project for the quarter ended September 30, 2016.
Total non-operating other income (expense), net was $(136,400) for the quarter ended September 30, 2016 compared to $35,000 for the quarter ended September 30, 2015. For the quarter ended September 30, 2016 non-operating expenses were comprised of interest expense of $56,000, a litigation loss accrual of $48,000 and other expenses of $32,400. For the quarter ended September 30, 2015 non-operating income (expense) of $35,000 was comprised of interest expense of $5,500 offset, other expense of $1,900 offset by gain on debt settlement of $42,400. The increase in interest expense in Q3 2016 compared to Q3 2015 is due to an increase in short term financing of $200,000 and convertible debt financing of $1.25 million which increased interest costs by approximately $39,000 per quarter. This additional interest cost was not incurred in Q3 2015.
There is no provision for income taxes for the quarter ended September 30, 2016 due to prior year losses and for the quarter ended September 30, 2015, due to our net loss for the period.
The Company had a net loss, before non-controlling interest, for the quarter ended September 30, 2016 of $873,800 compared to a net loss, before non-controlling interest, of $644,500 for the quarter ended September 30, 2015. The net loss attributable to SEER after deducting $83,600 for the non-controlling interest loss was $790,200 for the quarter ended September 30, 2016 compared to net loss attributable to SEER of $536,800, after deducting $107,700 in non-controlling interest loss for the quarter ended September 30, 2015. As noted above while revenues declined $131,700 comparing Q3 2016 to Q3 2015, operating expenses also declined $73,800 comparing Q3 2016 to Q3 2015. The reduction in operating expenses was partially offset by an increase in interest expense as noted above of $50,500 and litigation loss accrual of $48,000.
Results of Operations for the Nine months ended September 30, 2016 and 2015
Total revenues were approximately $8.9 million for the nine months ended September 30, 2016 compared to approximately $9.4 million for the nine months ended September 30, 2015, a decline of $538,600 or 6%. Product revenues, comprising environmental solutions were approximately $3.45 million for the nine months ended September 30, 2016 compared to $2.80 million for the nine months ended September 30, 2015. The 24% increase in environmental solutions revenue was due to additional long term contracts and from increased sales of bioactive media. Long term contract revenue increased approximately $57,000 comparing Q3 2016 to Q3 2015. Bioactive media revenues from the environmental solutions segment increased from $421,900 for the nine months ended September 30, 2015 to $839,000, and increase of $417,000. Services revenue includes industrial cleaning services and railcar cleaning services. Our railcar cleaning service revenues increased from approximately $2.26 million for the nine months ended September 30 2015 to $2.43 million for the nine months ended September 30, 2016, an increase of approximately $170,500, or 8%. The increase in the number of railcars serviced is a result of the downturn in the oil and gas market and the railcar industry transition to transporting other liquid products thus increasing railcar service opportunities. Industrial cleaning services revenues declined approximately $1.35 million, or 32%, from $4.2 million for the nine months ended September 30, 2015 to $2.8 million for the nine months ended September 30, 2016. The primary reason for the decline in industrial cleaning revenue was the loss of routine maintenance services with our largest customer effective April 1, 2016. For the nine months ended September 30, 2016 this customer accounted for $2 million in revenues whereas for the nine months ended September 30, 2015 this customer accounted for $3.6 million in industrial cleaning services revenue, a decrease of approximately $1.6 million. In April 2016 our industrial cleaning services segment commenced opening a railcar facility in Illinois and revenue generating operations commenced May 2016 generating revenues of $422,200 through September 30, 2016 to partially offset the loss of industrial service revenues from our customer noted above. Our solid waste segment generated licensing, placement fees and joint venture billings of $170,100 for the nine months ended September 30, 2016 compared to $183,400 for the nine months ended September 30, 2015. Billings to the PWS-MWS joint ventures are for costs incurred on behalf of the joint venture and in 2016 our solid waste disposal segment also generated $15,700 in income, representing our portion of the net income generated by the PWS-MWS joint ventures operations in Paramount, California where one of our CoronaLux™ units has been operating under the terms of a temporary permit issued by SCADMD since May 2015. The solid waste disposal segment receives non-refundable licensing fees which are being recognized as revenue ratably over the initial term of the agreements of between 5-7 years.
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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 approximately $10.3 million for the nine months ended September 30, 2016 compared to $11.6 million for the nine months ended September 30, 2015. The decrease in operating costs of approximately $1.3 is primarily the result of a 1) an increase in product revenue (environmental solutions) of $658,500 or 24% resulting in a corresponding increase in product costs of $459,300 or 24%, offset by 2) a decrease in industrial and railcar cleaning services costs of $776,500 or 15% with revenue decreasing 18%, 3) a decrease in solid waste costs of $245,000, 4) a decrease in general and administrative costs of $510,700, and 5) a decrease in salary and related costs of $51,000. Product costs as a percentage of product revenues were 69% for the nine months ended September 30, 2016 and 69% for the nine months ended September 30, 2015. Service costs as a percentage of service revenues were 81% for the nine months ended September 30, 2016 and 78% for the nine months ended September 30, 2015. Service costs include both industrial cleaning and railcar cleaning. Industrial cleaning service costs as a percentage of revenue was 90% for the nine months ended September 30, 2016 compared to 77% for the nine months ended September 30, 2015. Due to the loss of industrial services revenue from a significant customer, effective April 1, 2016, overhead costs in industrial services were not reduced relative to the reduction in industrial services revenue and resources previously allocated to servicing our significant customer were not fully utilized and were partially reallocated to the opening of a new rail facility in Illinois which started in April 2016. The month of April 2016 generated no revenue at the new rail facility as it took the entire month to get the site ready for use. Railcar cleaning services costs relative to revenues decreased from 80% for the nine months ended September 30, 2015 to 70% for the nine months ended September 30, 2016. As a result of the increase in railcars available for servicing in 2016, manpower efficiency was improved resulting in improved margins. Solid waste costs decrease from 2015 to 2016 by approximately $245,000. In 2015 startup and commissioning costs including, labor, travel, freight, supplies were incurred to get a Coronalux™ unit ready for use in Paramount California. Once operations commenced in May 2015, these costs were not incurred again so they did not repeat in 2016. In addition, the solid waste segment reduced its headcount to correspond with the level of activity thus also reducing costs in 2016. G&A expenses decreased $510,700 from approximately $2.1 million for the nine months ended September 30, 2015, to approximately $1.6 million for the nine months ended September 30, 2016. The primary reasons for the decrease in G&A expense are; 1) a reduction in travel expenses of approximately $61,000, 2) a reduction in marketing of approximately $63,000, 3) a reduction of professional fees of approximately $209,000, 4) a reduction of direct R&D expenses of approximately $108,000 offset by, 5) increase in depreciation and amortization of approximately $22,000 and 6) increase in liability insurance of approximately $29,000. Salaries and related expenses were $1.8 million for the nine months ended September 30, 2016 compared to $2.0 million for the nine months ended September 30, 2015 and decrease of approximately $195,000 is attributable to a reduction in engineering and officer salaries due to reduced headcount.
Total non-operating other income (expense), net was $(308,900) for the nine months ended September 30, 2016 compared to $(1,600) for the nine months ended September 30, 2015. For the nine months ended September 30, 2016 non-operating expenses were comprised of interest expense of $(258,300), loss contingency accrual of $(48,000) and other expense of $(2,600). For the nine months ended September 30, 2015 non-operating expenses of (1,600) was comprised of interest expense of $(45,000) offset by gain on debt settlement of $42,400 and other income of $1,000. The increase in interest expense in 2016 compared to 2015 is due to, 1) the issuance of warrants, valued at approximately $97,000, as an inducement to enter into a short term financing in Q2 2016 whereby the value of the warrants is considered additional interest costs and 2) in Q4 2015 and Q1 2016 we incurred additional convertible debt financing of $1.25 million which increased interest costs by approximately $25,000 per quarter. This additional interest cost was not incurred during the nine months ended September 30, 2015 as this convertible debt financing was net yet outstanding. In addition, we incurred interest on short term financing of $30,000 in 2016 that was not incurred in 2015.
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There is no provision for income taxes for the nine months ended September 30, 2016 due to current period and prior year losses and for the nine months ended September 30, 2015, due to our net loss for the period.
The Company had a net loss, before non-controlling interest, for the nine months ended September 30, 2016 of $(1,679,800) compared to a net loss, before non-controlling interest, of $(2,117,200) for the nine months ended September 30, 2015. Net loss attributable to SEER after deducting $223,100 for the non-controlling interest loss was $(1,456,700) for the nine months ended September 30, 2016 compared to net loss attributable to SEER of $(1,736,700), after deducting $380,500 in non-controlling interest loss for the nine months ended September 30, 2015. As noted above, overall revenues declined approximately 6% comparing the nine months ended September 30, 2016 to the nine months ended September 30, 2015 but virtually every category of operating expenses declined, with a total reduction of approximately $1,268,000 or 11% from 2015 to 2016. As noted above interest expense increased as a result of the increase in interest bearing debt if Q42015 and Q1 2016.
Changes in Cash Flow
Operating Activities
The Company had net cash used in operating activities for the nine months ended September 30, 2016 of $(484,300) compared to net cash provided by operating activities for the nine months ended September 30, 2015 of $229,700, a change of $714,000. Cash provided 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, stock based compensation expense and gain on extinguishment of debt. Non-cash adjustment totaled $734,900 and $553,600 for the nine months ended September 30, 2016 and 2015, respectively, so non-cash adjustments had a greater impact on net cash provided by operating activities for the nine months ended September 30, 2016 than 2015. The net positive change in operating assets and liabilities was $460,600 and $1,793,300 for the nine months ended September 30, 2016 and 2015, respectively. The primary drivers for net cash provided by operating activities for the nine months ended September 30, 2016, despite a net loss of $(1,679,800), was an increase in accounts receivable offset by decreases in prepaid and other assets of $304,000 and costs and estimated earnings in excess of billings of $204,000. There was an increase in accounts payable and other accrued liabilities of $509,400, an increase in billings in excess of costs and estimated earnings on uncomplete projects of $112,500, an increase in deferred revenue of $47,800 and an increase in payroll taxes payable. The primary drivers for net cash provided by operating activities for the nine months ended September 30, 2015, despite a net loss of $(2,117,200), was an decrease in accounts receivable of $1,389,500, an decrease in prepaid and other assets of $150,500, an increase in deferred revenue of $620,500 which primarily represents payments from PWS licensees for which revenue has not yet been recognized, an increase in billings in excess of revenue on uncompleted contracts of $93,000, offset by a decrease of accounts payable and accrued liabilities of $118,500 and increase in costs in excess of billings on uncompleted contracts. The net positive change in operating assets and liabilities had a much greater impact on net cash provided by operating activities for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2016.
Investing activities
The increase in intangibles for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was $37,500 in 2016 compared to additions of $58,900 in 2015. The purchase of property and equipment was $177,300 for the nine months ended September 30, 2016 compared to $448,300 for the nine months ended September 30, 2015. For the nine months ended September 30, 2016 we received insurance proceeds of $59,000 from property damage and there were no such proceeds in 2015.
Financing Activities
Net cash provided by financing activities was $525,300 for the nine months ended September 30, 2016 compared to $603,200 for nine months ended September 30, 2015. The primary difference is that in 2016, we had proceeds for the sale of stock, short term debt financing, exercise of warrants and warrant extensions totaling $854,900 and in 2015 there were none of these proceeds. In 2016, we had proceeds of $250,000 from convertible debt whereas in 2015 we had proceeds of $1 million in convertible debt. Debt repayments were approximately $183,000 higher from the repayment of the short term debt for the nine months ended September 30, 2016 when compared to September 30, 2015.
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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 $250,400 and $246,500 has been reserved as of September 30, 2016 and December 31, 2015, 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 September 30, 2016 and December 31, 2015, 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 September 30, 2016 and December 31, 2015.
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.
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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.
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.
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.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
| 30 |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings with the Securities and Exchange Commission (SEC) are recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
As of the end of the period covered by this report, and under the supervision and with the participation of our management, including our Chief Executive Officer and the person performing the similar function as Chief Financial Officer, we evaluated the effectiveness of the design and operation of these disclosure controls and procedures. Based on this evaluation and subject to the foregoing, our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, the Company may become a party to legal actions or proceedings in the ordinary course of its business. As of September 30, 2016, there were no other such actions or proceedings, either individually or in the aggregate, that, if decided adversely to the Company’s interests, the Company believes would be material to its business.
In March 2016, a complaint was filed by a lessor of property leased by REGS, a subsidiary of the Company. The month-to-month lease expired February 29, 2016, when REGS vacated the property. The landlord has made certain claims including property damage, and loss of rents, attorney fees and other costs totaling approximately $97,000. REGS has engaged defense counsel and intends to zealously oppose the claims. While the Company’s management believes the claims are without merit, the Company has accrued $48,400 as a loss against this claim.
In January 2016, an employee of SEM was involved in a vehicle accident while on Company business. The accident resulted in one fatality and injuries to another party. The two parties filed lawsuits against SEM as a result of the accident and the claims were turned over to our insurance carrier. Defense counsel was provided for and appointed by the Company’s insurance carrier. In August 2016, both claimants each filed a claim with our insurance carrier for the full amount of our insurance coverage, approximately $6 million. Later in August 2016, an involuntary proceeding was commenced by one of the claimants against SEM under Chapter 7 of the Bankruptcy code by one claimant as a result of both claimants filing for the $6 million in insurance available under our policies. SEM engaged bankruptcy counsel who filed certain motions on behalf of SEM. In September, the case was converted to a Chapter 11 under the Bankruptcy code and the Bankruptcy court granted SEM’s motion and ordered that the $6 million in insurance proceeds under our policy would be an asset of the estate of SEM. In October 2016, the Company filed a plan of reorganization with the court that allows for an equitable split of the $6 million in insurance proceeds, as determined by the two claimants, and allows for all creditors of SEM, both secured and unsecured, to be paid in full if the two claimants can come to terms with an equitable allocation of the $6 million in insurance proceeds. At this time SEM continues to manage its affairs and is currently operating normally. The ultimate outcome of this Chapter 11 proceeding is uncertain at this time. Management does not currently believe that any assets of SEM are impaired as of September 30, 2016. Operations and production are continuing uninterrupted.
| 31 |
Please review our report on Form 10K Part 1, Item 1A for a complete statement of “Risk Factors” that pertain to our business.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended September 30, 2016, the Company issued 60,000 common stock options to employees exercisable at $.60 per share.
In the third quarter of 2016, the Company issued $250,000 in convertible debt that is convertible into 357,142 shares of its $.001 par value common stock.
In May 2016, the Company issued 500,000 warrants, in connection with a short term financing, exercisable at $.50 per share for a period of four years.
On September 30, 2016, the Company issued 50,000 warrants, in connection with a convertible debt issuance, exercisable for five years at $.85 per share and were valued at $4,900 using the Black Scholes valuation method.
The issuance of the shares of our common stock described above was pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended and related state private offering exemptions. All of the investors were Accredited Investors as defined in the Securities Act who took their shares for investments purposes without a view to distribution and had access to information concerning the company and its business prospects, as required by the Securities Act.
In addition, there was no general solicitation or advertising for the purchase of these shares. All certificates for these shares issued pursuant to Section 4(2) contain a restrictive legend. Finally, our stock transfer agent has been instructed not to transfer any of such shares unless such shares are registered for resale or there is an exemption with respect to their transfer.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None
| 32 |
EXHIBIT INDEX
| 3.1 | Articles of Incorporation, dated February 13, 2002 (1) |
| 3.2 | Amendment to the Articles of Incorporation, dated December 19, 2007, changing the name and effecting a reverse (1) |
| 3.3 | Bylaws of the corporation, effective February 13, 2002 (1) |
| 4.1 | $225,000 Convertible Note and Note Agreement of the Corporation, issued February 14, 2012 (2) |
| 4.2 | Form of Warrant, having a 3-year life with $0.50 exercise price (1) |
| 4.3 | Form of Warrant, having a 5-year life with $0.50 exercise price (1) |
| 10.1 | Agreement for acquisition of MV, dated June 13, 2008 (1) |
| 10.2 | Agreement for acquisition of intellectual property from Black Stone Management Services, LLC, dated August 10, 2011 (1) |
| 10.3 | Agreement for Merger with Satellite Organizing Solutions, Inc. (1) |
| 10.4 | Consulting Agreement between the Company and Monty R. Lamirato, dated October 8, 2013 (3) |
| 10.5 | Irrevocable License and Royalty Agreement between the Company and Paragon Waste Solutions, LLC, dated March 21, 2012 (3) |
| 10.6 | SEER 2013 Equity Incentive Plan (4) |
| 10.7 | Form of Option Grant SEER 2013 Equity Incentive Plan (4) |
| 10.8 | Equity Purchase Agreement – Sterall LLC |
| 14.1 | Code of Ethics (1) |
| 21.1 | Subsidiaries of Registrant (1) |
| 31.1* | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
| 31.2* | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
| 32.1** | Certification of Principal Executive Officer ) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2** | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS*** | XBRL Instance Document |
| 101.SCH*** | XBRL Taxonomy Extension Schema Document |
| 101.CAL*** | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF*** | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB*** | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE*** | XBRL Taxonomy Extension Presentation Linkbase Document |
| (1) | Incorporated by reference to the Company’s Report on Form 10 filed May 21, 2013. |
| (2) | Incorporated by reference to the Company’s Report on Form 10 Amendment No. 1 filed July 23, 2013. |
| (3) | Incorporated by reference to the Company’s Report on Form 10-Q filed November 14, 2013. |
| (4) | Incorporated by reference to the Company’s Report on Form 10-K filed March 27, 2014. |
| * | Filed herewith. |
| ** | This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act. |
| *** | Pursuant to applicable securities laws and regulations, these interactive data files will not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor will they be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections. |
| 33 |
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: November 14, 2016 |
STRATEGIC ENVIRONMENTAL & ENERGY RESOURCES, INC.
By /s/ J. John Combs III | |
|
J. John Combs III Chief Executive Officer with Responsibility to sign on behalf of Registrant as a duly authorized officer and principal executive officer
| ||
| By | /s/ Monty Lamirato | |
| Monty Lamirato | ||
| Chief Financial Officer with | ||
| responsibility to sign on behalf of Registrant as a | ||
| duly authorized officer and principal financial officer | ||
| 34 |
Strategic Environmental & Energy Resources, Inc. 10-Q
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, J. John Combs III, certify that:
1. I have reviewed this Form 10-Q for the period ended September 30, 2016, of Strategic Environmental & Energy Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Dated: November 14, 2016 | ||
| /s/ J. John Combs III | ||
| J. John Combs III | ||
| Chief Executive Officer |
| 1 |
Strategic Environmental & Energy Resources, Inc. 10-Q
EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Monty Lamirato, certify that:
1. I have reviewed this Form 10-Q for the period ended September 30, 2016, of Strategic Environmental & Energy Resources, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and have:
(e) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated Subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(f) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(g) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(h) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| Dated: November 14, 2016 | ||
| /s/ Monty Lamirato | ||
| Monty Lamirato | ||
| Chief Financial Officer |
| 1 |
Strategic Environmental & Energy Resources, Inc. 10-Q
EXHIBIT 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the Strategic Environmental & Energy Resources, Inc. (the “Company”) Quarterly Report on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. John Combs III, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.
Dated: November 14, 2016
| /s/ J. John Combs III | ||
| J. John Combs III | ||
| President and Chief Executive Officer |
| 1 |
Strategic Environmental & Energy Resources, Inc. 10-Q
EXHIBIT 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the Strategic Environmental & Energy Resources, Inc. (the “Company”) on Report on Form 10-Q for the period ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Monty Lamirato, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.
Dated: November 14, 2016
| /s/ Monty Lamirato | ||
| Monty Lamirato | ||
| Chief Financial Officer |
| 1 |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Oct. 31, 2016 |
|
| Document And Entity Information | ||
| Entity Registrant Name | Strategic Environmental & Energy Resources, Inc. | |
| Entity Central Index Key | 0001576197 | |
| Document Type | 10-Q | |
| Trading Symbol | SENR | |
| Document Period End Date | Sep. 30, 2016 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity a Well-known Seasoned Issuer | No | |
| Entity a Voluntary Filer | No | |
| Entity's Reporting Status Current | Yes | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 54,525,079 | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2016 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
[1] | ||
|---|---|---|---|---|---|
| Statement of Financial Position [Abstract] | |||||
| Allowance for doubtful accounts | $ 250,400 | $ 246,500 | |||
| Preferred stock, par value (in dollars per shares) | $ 0.001 | $ 0.001 | |||
| Preferred stock, authorized | 5,000,000 | 5,000,000 | |||
| Preferred stock, issued | 0 | 0 | |||
| Common stock, par value (in dollars per shares) | $ 0.001 | $ 0.001 | |||
| Common stock, authorized | 70,000,000 | 70,000,000 | |||
| Common stock, issued | 54,525,079 | 52,375,079 | |||
| Common stock, outstanding | 54,525,079 | 52,375,079 | |||
| |||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Revenue: | ||||
| Products | $ 1,749,100 | $ 965,500 | $ 3,454,500 | $ 2,796,000 |
| Services | 1,045,400 | 1,891,200 | 5,277,900 | 6,461,700 |
| Solid waste | 42,000 | 111,500 | 170,100 | 183,400 |
| Total revenue | 2,836,500 | 2,968,200 | 8,902,500 | 9,441,100 |
| Operating expenses: | ||||
| Products costs | 1,323,100 | 674,600 | 2,388,600 | 1,929,300 |
| Services costs | 1,193,100 | 1,423,800 | 4,254,400 | 5,030,900 |
| Solid waste costs | 79,800 | 194,900 | 245,400 | 490,400 |
| General and administrative expenses | 532,200 | 668,800 | 1,582,800 | 2,093,500 |
| Salaries and related expenses | 445,700 | 685,600 | 1,817,900 | 2,012,600 |
| Total operating expenses | 3,573,900 | 3,647,700 | 10,289,100 | 11,556,700 |
| Income (loss) from operations | (737,400) | (679,500) | (1,386,600) | (2,115,600) |
| Other income (expense): | ||||
| Interest expense | (56,000) | (5,500) | (258,300) | (45,000) |
| Gain on debt settlement | 42,400 | 42,400 | ||
| Loss contingency | (48,000) | (48,000) | ||
| Other | (32,400) | (1,900) | (2,600) | 1,000 |
| Total non-operating expense, net | (136,400) | 35,000 | (308,900) | (1,600) |
| Net loss before earnings from equity method joint ventures | (873,800) | (644,500) | (1,695,500) | (2,117,200) |
| Income from equity method joint ventures | 15,700 | |||
| Net income (loss) | (873,800) | (644,500) | (1,679,800) | (2,117,200) |
| Less: Net loss attributable to non-controlling interest | (83,600) | (107,700) | (223,100) | (380,500) |
| Net income (loss) attributable to SEER common stockholders | $ (790,200) | $ (536,800) | $ (1,456,700) | $ (1,736,700) |
| Net loss per share, basic and diluted (in dollars per share) | $ (0.02) | $ (0.01) | $ (0.03) | $ (0.04) |
| Weighted average shares outstanding - basic and diluted (in shares) | 54,525,079 | 52,362,015 | 54,263,765 | 52,304,573 |
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) - USD ($) |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
||||||
| Cash flows from operating activities: | |||||||
| Net income (loss) | $ (1,679,800) | $ (2,117,200) | |||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
| Provision for doubtful accounts receivable | 3,900 | (17,100) | |||||
| Depreciation and amortization | [1] | 570,900 | 439,900 | ||||
| Stock-based compensation expense | 84,000 | 175,800 | |||||
| Non-cash expense for interest, warrants - accretion of debt discount | 101,700 | 400 | |||||
| Gain on disposition of assets | (25,600) | (45,400) | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | (734,200) | 1,389,500 | |||||
| Costs in Excess of billings on uncompleted contracts | 204,000 | (358,400) | |||||
| Prepaid expenses and other assets | 304,000 | 150,500 | |||||
| Accounts payable and accrued liabilities | 509,400 | (118,900) | |||||
| Billings in excess of revenue on uncompleted contracts | 112,500 | 93,000 | |||||
| Deferred revenue | 47,800 | 620,500 | |||||
| Payroll taxes payable | 17,100 | 17,100 | |||||
| Net cash (used in) provided by operating activities | (484,300) | 229,700 | |||||
| Cash flows from investing activities: | |||||||
| Insurance proceeds from property damage | 59,000 | ||||||
| Purchase of property and equipment | (177,300) | (448,300) | |||||
| Purchase of intangibles | (37,500) | (58,900) | |||||
| Net cash used in investing activities | (155,800) | (507,200) | |||||
| Cash flows from financing activities: | |||||||
| Payments of notes, short term financing and capital lease obligations | (559,600) | (354,800) | |||||
| Payments of related party notes payable and accrued interest | (20,000) | (42,000) | |||||
| Proceeds from convertible debt | 250,000 | 1,000,000 | |||||
| Proceeds from short term financing | 400,000 | ||||||
| Proceeds from exercise of warrants | 25,000 | ||||||
| Proceeds from warrant extensions | 29,900 | ||||||
| Proceeds from the sale of common stock and warrants, net of expenses | 400,000 | ||||||
| Net cash provided by (used in) financing activities | 525,300 | 603,200 | |||||
| Net increase (decrease) in cash | (114,800) | 325,700 | |||||
| Cash at the beginning of period | 257,100 | [2] | 443,000 | ||||
| Cash at the end of period | 142,300 | 768,700 | |||||
| Supplemental disclosures of cash flow information: | |||||||
| Cash paid for interest | 207,600 | 32,400 | |||||
| Discount on convertible debt | 4,900 | 14,600 | |||||
| Conversion of debt and accrued interest to equity | 257,400 | ||||||
| Financing of prepaid insurance premiums | 278,600 | 273,900 | |||||
| Capital lease additions | $ 214,400 | ||||||
| Issuance of common stock for other asset | $ 720,000 | ||||||
| |||||||
ORGANIZATION AND FINANCIAL CONDITION |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND FINANCIAL CONDITION | 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 four wholly-owned operating subsidiaries 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 four 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) Tactical Cleaning Company, LLC (“Tactical”), provides proprietary cleaning services related to railcar tankers, tank trucks and frac tanks to customers from its sites in Colorado and Kansas; 3) 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.; 4) SEER Environmental Materials, LLC,(“SEM”), a materials technology company focused on development of cost-effective chemical absorbents.
The two majority-owned subsidiaries include; 1) Paragon Waste Solutions, LLC (“PWS”) and 2) ReaCH4Biogas (“Reach”). PWS is currently owned 54% by SEER (see Note 7) and Reach is owned 85% by SEER.
PWS is developing specific opportunities to deploy and commercialize patented technologies for a non-thermal plasma-assisted oxidation process that makes possible the clean and efficient destruction of solid hazardous chemical and biological waste (i.e., regulated medical waste, chemicals, pharmaceuticals and refinery tank waste, etc.) without landfilling or traditional incineration and without harmful emissions. Additionally, PWS’ technology “cleans” and conditions emissions and gaseous waste streams (i.e., volatile organic compounds and other greenhouse gases) generated from diverse sources such as refineries, oil fields, and many others.
Reach (the trade name for BeneFuels, LLC), is currently owned 85% by SEER and focuses specifically on developing renewable biomethane projects that convert raw biogas to pipeline quality gas and/or compressed natural gas (“CNG”) for fleet vehicle fuel. Reach had minimal operations for the three months and nine months ended September 30, 2016 and 2015.
Principals of Consolidation
The accompanying consolidated financial statements include the accounts of SEER, its wholly-owned subsidiaries, REGS, TCC, 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 $16.8 million as of September 30, 2016, and $15.4 million as of December 31, 2015. For the nine months ended September 30, 2016 we had net loss before adjustment for losses attributable to non-controlling interest of approximately $1.7 million and for the years ended December 31, 2015, and 2014, we incurred net losses before adjustment for losses attributable to non-controlling interest of approximately $3.4 million and $726,000, respectively. The Company had a working capital deficit of approximately $3.2 million at September 30, 2016, an increase of approximately $500,000 in the working capital deficit of $2.7 million at December 31, 2015. REGS, a wholly owned subsidiary, was notified that effective April 1, 2016 it would no longer be providing routine maintenance services to its largest customer but would still be eligible to provide other industrial cleaning services. The projected loss of revenue from this customer is estimated to be between $2.5 and $3 million annually, but, as discussed below, the Company has implemented remedial measures to offset some of this loss in revenue. 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 our assets as of September 30, 2016 and December 31, 2015, 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. The Company opened an additional rail car cleaning facility in the Midwest (Illinois) in April 2016 and operations have commenced and revenue is being generated. The revenue from this facility has offset some of the lost service revenue previously derived from the oil refinery sector. Additionally, on August 30, 2016 the Company was awarded a permit for its flaring equipment at its Kansas rail facility and this new service offering is projected to offset some of the lost service revenue previously derived from the oil refinery sector. Revenue from flaring operations commenced in September 2016. For the nine months ended September 30, 2016 we raised $425,000 from the sale of common stock and exercise of warrants and another $29,900 from the extension of warrants. In September 2016, we raised $250,000 in convertible debt financing. In addition, we have undertaken a number of specific steps to improve operating efficiencies, revenues and income to continue to operate as a going concern. We continue 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. Critical to achieving profitability will be our ability to license and or sell, permit and operate our CoronaLux™ waste destruction units either though our joint ventures and/or licensees. We have increased our business development efforts to address opportunities identified in expanding markets attributable to increased interest in energy conservation and emission control regulations, particularly the landfill gas and oil field emissions sectors. In addition, the Company is evaluating various forms of financing which may be available to it, i.e., debt and/or equity financing while carefully evaluating the impact on share dilution. 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 14, 2016 for the years ended December 31, 2015 and 2014. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | ||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 income (loss).
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 $49,100 and $80,900 for the three months ended September 30, 2016 and 2015, respectively and $149,100 and $279,700 for the nine months ended September 30, 2016 and 2015, respectively.
Income Taxes
The Company accounts for income taxes pursuant to Accounting Standards Codification (“ASC”) 740, Income Taxes, which utilizes the asset and liability method of computing deferred income taxes. The objective of this method is to establish deferred tax assets and liabilities for any temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.
ASC 740 also provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized. During the three months and nine months ended September 30, 2016 and 2015 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 September 30, 2016 and December 31, 2015. 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, 2015. The tax periods for the years ending December 31, 2008 through 2015 are open to examination by federal and state authorities.
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.
New Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued guidance creating Accounting Standards Codification (“ASC”) Section 606, “Revenue from Contracts with Customers”. The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance was effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. On July 9, 2015, the FASB approved a one year delay of the effective date. The Company will now adopt the new provisions of this accounting standard at the beginning of fiscal year 2018, unless it choose to early adopt in 2017. The Company will further study the implications of this statement in order to evaluate the expected impact on the consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Management is evaluating the provisions of this statement, including which period to adopt, and has not determined what impact the adoption of ASU 2015-11 will have on the Company’s financial position or results of operations.
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2015-17, “Balance Sheet Classification of Deferred Taxes”. The new guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. The amendments will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The updated guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted, and the amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company is in the process of evaluating this guidance.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. Additionally, the ASU 2016-01 changes the disclosure requirements for financial instruments. The new standard will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted for certain provisions. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt certain provisions early.
In February 2016, the FASB issued new guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt the new guidance early.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which amends ASC Topic 718, Compensation – Stock Compensation. ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. ASU 2016-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is evaluating the impact of this standard on its financial statements.
Recently Adopted Accounting Standards In June 2014, the FASB issued Accounting Standards Update No. 2014-12, “Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments when the terms of an award provide that a performance target could be achieved after the requisite service period,” (“ASU 2014-12”). Current U.S. GAAP does not contain explicit guidance on whether to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting or as a nonvesting condition that affects the grant-date fair value of an award. The new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. The updated guidance was effective January 1, 2016 and did not have a material effect on the consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, ”Simplifying the Presentation of Debt Issuance Costs,” (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for the first interim period for fiscal years beginning after December 15, 2015. The guidance was effective January 1, 2016 and it did not have a material effect on the consolidated financial statements.
In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”. The new guidance eliminates the requirement to retrospectively account for adjustments to provisional amounts recognized in a business combination. Under the ASU, the adjustments to the provisional amounts will be recognized in the reporting period in which the adjustment amounts are determined. The updated guidance will be effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance was effective January 1, 2016 and did not have a material effect on the consolidated financial statements. |
PROPERTY AND EQUIPMENT |
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| PROPERTY AND EQUIPMENT | NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following:
Accumulated depreciation on leased CoronaLux™ units included in accumulated depreciation and amortization above is $271,700 and $149,500 as of September 30, 2016 and 2015, respectively.
Property and equipment included the following amounts for leases that have been capitalized at:
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INTANGIBLE ASSETS |
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| INTANGIBLE ASSETS | NOTE 4 – INTANGIBLE ASSETS
Intangible assets were comprised of the following:
The estimated useful lives of the intangible assets range from seven to ten years. Amortization expense was $25,200 and $20,000 for the three months ended September 30, 2016 and 2015, respectively and $68,200 and $60,100 for the nine months ended September 30, 2016, respectively. |
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ACCRUED LIABILITIES |
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| ACCRUED LIABILITIES | NOTE 5 - ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
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UNCOMPLETED CONTRACTS |
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| UNCOMPLETED CONTRACTS | NOTE 6 - UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are as follows:
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INVESTMENT IN PARAGON WASTE SOLUTIONS LLC |
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| Business Combinations [Abstract] | |
| INVESTMENT IN PARAGON WASTE SOLUTIONS LLC | NOTE 7– INVESTMENT IN PARAGON WASTE SOLUTIONS LLC
In 2010, the Company and Black Stone Management Services, LLC (“Black Stone”) formed PWS, whereby a total of 1,000,000 membership units were issued, 600,000 membership units to the Company and 400,000 membership units to Black Stone. Fortunato Villamagna, who serves as President of our PWS subsidiary, is a managing member and Chairman of Black Stone. In June 2012, the Company and Blackstone each allocated 10% of their respective membership units in PWS to Mr. J John Combs III, an officer and shareholder of the Company and Mr. Michael Cardillo, a shareholder of the Company and an officer of a subsidiary. There was no value attributable to the units at the time of the allocation. On August 31, 2016 Blackstone entered into a settlement agreement with a third party to rescind a stock exchange agreement dated July 1, 2013 between Blackstone and the third party and consideration exchanged by the parties in the July 1, 2013 agreement were returned by each party resulting in Blackstone getting back 10% membership units in PWS. At September 30, 2016 the Company owned 54% of the membership units, Black Stone owned 36% of the membership units and two related parties (as noted above), each owned 5% of the membership units.
In August, 2011, we acquired certain intellectual property in regards to waste destruction technology (the “IP”) from Black Stone in exchange for 1,000,000 shares of our common stock valued at $100,000. We estimated the useful life of the IP at ten years, which was consistent with the useful life of other technology included in our intangible assets, and management’s initial assessment of the potential marketability of the IP.
In April 2016, the Company received Notice of Allowance of its application for a continuation patent. This patent continuation application incorporates all original and prior claims and will provide expanded and additional protection of the underlying and core waste destruction technology.
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 commenced as of the date of the 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 and sales of CoronaLux™ units of approximately $125,100 for the nine months ended September 30, 2016 and $890,100 for the year ended December 31, 2015, as such, royalties of $54,700 and $48,400 were due at September 30, 2016 and December 31, 2015, respectively.
Since its inception through September 30, 2016, we have provided approximately $5.5 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.
Licensing Agreements
In September 2013, PWS entered into an Exclusive Use License and Joint Operations Agreement (“License Agreement”) with Sterall Inc. (“Sterall”). The License Agreement granted Sterall the use of the PWS Technology and the CoronaLux™ waste destruction units for an initial five year term in the State of Florida and renewable for two additional five year terms, for the treatment and/or destruction of any and all regulated medical waste from any sources. The agreement required Sterall to pay a $300,000 License Initiation Fee and in order for Sterall to maintain its exclusive license for the State of Florida, a total of $200,000 was to be paid to PWS by May 23, 2014, regardless of net operating profits of Sterall (“NOP”). During the initial 5-year term, a minimum of $500,000 of total royalty payments to PWS must be made either from NOP or otherwise (in addition to the $300,000 Initial Fee, set forth below), in order for the second-phase five-year term to be exclusive. During the second-phase five-year term, a minimum of $750,000 of royalty must be paid, out of NOP or otherwise, in order for the third phase five-year term to be exclusive. PWS will receive a one-time license initiation fee of $300,000 payable from NOP of Sterall as a priority payment before any other distributions or payouts. Sterall can take delivery of additional CoronaLux™ waste destruction units upon payment of a placement fee per unit of either $168,000 or $207,000 depending upon the size of the unit. The unit placement fees do not include freight, start-up and commissioning costs, which shall be borne by the facility. PWS, at its sole discretion will select the installation, startup and commissioning teams. Sterall has not generated any NOP and has not paid any licensing fees to PWS as required by the License Agreement, including the minimum payments required under the agreement. Black Stone is a minority shareholder of Sterall.
During the year ended December 31, 2014, Sterall ordered a total of six CoronaLux™ units, of which one unit was delivered after payment of a non-refundable placement fee of $236,250. The remaining five units have not been delivered as of September 30, 2016 as Sterall has defaulted on their purchase order for payment of the units ordered. The Company still retains a non-refundable deposit of $330,000 against the five units ordered.
On February 22, 2014, SEER and PWS entered into an Agreement with Daniel McAteer & Associates (“DMA”) to develop, permit and exploit the PWS waste destruction technology in Ireland and United Kingdom (“Limited Territory”). The Agreement called for the formation of a Joint Venture to be owned 50% by SEER and 50% by DMA. In accordance with the agreement, DMA was to pay a one-time license fee of $350,000 for an exclusive license for the limited purpose of medical waste destruction in the Limited Territory. On June 10, 2014 Paragon Waste (UK) Ltd (“Paragon UK”, “UK Joint Venture”), was formed in accordance with the laws of Northern Ireland. A total of 300,100 shares were issued upon formation, 100 Ordinary A voting shares were issued, of which PWS received 50 Ordinary A shares and 300,000 Ordinary B non-voting shares were issued. In 2015, the Agreement with DMA was amended to where Paragon UK purchased the CoronaLux™ unit from PWS for $350,000. 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.
On March 4, 2014, PWS entered into a Licensing and Equipment Lease Agreement with eCycling International of South Carolina, LLC (“eCycling”). The License Agreement grants to eCycling the use of the PWS Technology and the CoronaLux™ waste destruction units for an initial term of five years and requires a payment of $176,875 as a non-refundable initial licensing fee and distributions of 50% of net operating profits, as defined in the agreement, in lieu of continuing royalty payments for the use of the licensed technology. As of September 30, 2016, eCycling is still in the process of permitting the unit, and therefore, has not yet generated any NOP. As a result of eCycling not generating any NOP, their licensing contract was amended to provide for an additional $176,875 to be paid as licensing fees, all of which has been paid as of September 30, 2016.
On November 17, 2014, PWS entered into an Exclusive Licensing and Equipment Lease Agreement, for a limited license territory, with Medical Waste Services, LLC (“MWS”). The License Agreement grants to MWS the use of the PWS Technology and the CoronaLux™ waste destruction units for an initial term of seven years and requires a payment of $225,000 as a non-refundable initial licensing fee and distributions of 50% of net operating profits, as defined in the agreement, in lieu of continuing royalty payments for the use of the licensed technology. PWS and Medical Waste Services, LLC (“MWS”) formed a contractual joint venture to exploit the PWS medical waste destruction technology. MWS has received approval from the California Department of Public Health and a restricted permit from the South Coast Air Quality Management District (“SCAQMD”) to operate the CoronaLux™ unit licensed by MWS at its facility in Southern California. Operations to date have included the destruction of medical waste under this temporary operating permit issued by SCAQMD since May 2015. All required testing directed by SCAQMD has been successfully completed in 2016 and all required filings have been made to obtain a full operating permit from SCAQMD. The final issuance is pending.
In February 2015, PWS entered into a License Agreement with Particle Science Tech of Environmental Protection, Inc (“Particle”) a US subsidiary of Xinhua Energy Environmental Technology Co., Ltd (“Xinhua”), a large multi-national environmental company based in China. The agreement provides for the exclusive rights to distribute PWS’s patented technology in China, Hong Kong, Macau and the Taiwan territories (“Territory”). The grant was for both the medical waste, as well as the refinery vertical markets within the Territory. The Agreement calls for, among other things, the formation of a U.S. joint venture company, (“P&P Company”), to be owned 50/50 by PWS and Particle) and an obligation by Xinhua to fund all necessary and reasonable capital requirements to permit and roll out the PWS technology in the Territory as well as staff and manage the JV Entity’s operations. In 2015, PWS sold a CoronaLux™ unit to Xinhua for $430,500.
Upon the occurrence of certain events and timely performance by Xinhua, a second placement fee of $350,000 is required to be paid and, upon that second payment, it will then be granted exclusive manufacturing rights to produce the units to be deployed in the Territory.
Payments received for non-refundable licensing and placement fees have been recorded as deferred revenue in the accompanying consolidated balance sheets at September 30, 2016 and December 31, 2015 and are recognized as revenue ratably over the term of the contract. |
PAYROLL TAXES PAYABLE |
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Sep. 30, 2016 | |
| Notes to Financial Statements | |
| PAYROLL TAXES PAYABLE | NOTE 8 - 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.
In or around 2010, REGS retained Washington D.C.-based legal counsel specializing in resolving federal tax matters. REGS has been represented by this firm throughout all phases of this tax matter and related proceedings. In September 2011, REGS received approval from the Internal Revenue Service (“IRS”) to begin paying the outstanding federal payroll tax liability plus the related incurred interest and penalties totaling approximately $971,000 in installments (the “Installment Plan”). Under the Installment Plan, REGS was required to pay minimum monthly installments of $12,500 commencing September 2011, which increased to $25,000 per month in September 2012, until the liability was paid in full. Through the duration of the Installment Plan, the IRS continues to charge penalties and interest at statutory rates. If the conditions of the Installment Plan were not met, the IRS could cancel the installment plan and could demand the outstanding liability to be repaid through traditional enforcement proceedings available to the IRS. Additionally, the IRS has filed a notice of federal tax lien against certain of REGS assets in order to secure the obligation. The IRS is to release this lien if and when we pay the full amount due.
Two of the officers of REGS also have personal liability exposure for a portion of the taxes if REGS does not pay them. For the tax periods 2009 through 2014, one of the officers of REGS has had personal income tax refunds totaling $34,262 seized by the IRS and applied to REGS IRS obligation.
In May 2013, REGS filed an Offer in Compromise (“OIC”) with the IRS. While the OIC was under review by the IRS, the requirement to pay $25,000 a month under the Installment Plan was suspended. REGS was informed by its legal counsel that the IRS had accepted REGS’ OIC. However by a letter dated March 27, 2014, REGS was notified that the OIC had been rejected. REGS then appealed that rejections decision. However that appeal has been denied. As a result, the Installment Plan is 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 IRS has not taken any current action against REGS and REGS continues to be represented by its legal counsel.
As of September 30, 2016 and December 31, 2015, the outstanding balance due to the IRS was $987,600, and $970,500, respectively.
Other than this outstanding payroll tax matter arising in 2009, all state and federal taxes have been paid by REGS in a timely manner. |
DEBT |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DEBT | NOTE 9 – DEBT
In June 2011, we issued an unsecured promissory note to a third party in the amount of $40,000 (the “June 2011 Note”) bearing interest at a rate of 10% per annum and a three year warrant to purchase 13,000 shares of our common stock at an exercise price of $1.00 per share. In addition, a second note payable, to the same third party, in the amount of $25,000 plus $3,000 of accrued interest was also converted into the June 2011 Note, resulting in a new principal balance of $68,000. We valued the warrant at $170 using the Black-Scholes model and recorded this amount as a debt discount. The debt discount was fully amortized during 2011. In August 2016, the note and all accrued interest was paid by an offset to trade accounts receivable from the note holder.
In May 2016, the Company borrowed $200,000 in a short term financing arrangement. As an inducement to enter into the transaction the Company issued 500,000 warrants exercisable at $.50 per share for a period of four years. The warrants were valued at $97,200 and were recorded as additional interest. The short term debt was repaid in cash in June 2016 along with interest of $12,000.
In connection with the issuance of convertible debt on September 30, 2016, the Company issued 50,000 warrants as an inducement to enter into the transaction. The warrants are exercisable for five years at $.85 per share and were valued at $4,900 using the Black Scholes valuation method and are being amortized over the term of the debt. |
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RELATED PARTY TRANSACTIONS |
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| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | NOTE 10 – RELATED PARTY TRANSACTIONS
Notes payable, related parties
Related parties payable and accrued interest due to certain related parties as of September 30, 2016 and December 31, 2015 are as follows:
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 and sales of CoronaLux™ units of approximately $125,100 for the nine months ended September 30, 2016 and $890,500 for the year ended December 31, 2015, as such, royalties of $54,700 and $48,400 were due at September 30, 2016 and December 31, 2015, respectively.
In August 2014, the Company entered into a second Exchange and Acquisition Agreement ("New Technologies Agreement") with Black Stone for the acquisition of additional intellectual property ("IP") from Black Stone in exchange for 1,000,000 shares of common stock valued at $1,050,000. In 2015 the Company and Black Stone executed a rescission agreement of the New Technologies Agreement noted above that was effective December 31, 2014. The shares issued by the Company in accordance with the agreement were returned and all acquired IP returned to Black Stone.
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 nine months ended September 30, 2016 PWS have recorded $15,700 in income which represents their 50% interest in the net income of the joint venture. In addition, for the nine months ended September 30, 2016, PWS billed the joint venture approximately $90,600 in costs incurred on behalf of the joint venture.
In September 2014, the Company entered into an Equity Purchase Agreement ("Equity Agreement") with a third party ("Seller") whereby the Company issued 1,200,000 shares of the Company’s common stock, valued at $1,212,000, in exchange for 22.5 membership interest units, representing 15% ownership interest in Sterall, LLC, a Delaware corporation. In March 2015 the Company and the Seller entered into a revised agreement whereby the 1,200,000 shares issued by the Company would be held by the Seller until the completion of an independent third party valuation. The determination of fair value shall occur by December 31, 2015. Based on the fair market value of the Purchased Units from the valuation obtained by the Company, an amount of Consideration Shares will be returned to the Company to the extent that the fair market value of the Consideration Shares issued (see below) are greater than the fair market value of the Purchased Units. In no event shall the Company be obligated to issue additional shares as consideration for the Purchased Units. For purposes of this amendment, the fair market value of each Consideration Share as determined to be $0.83333. In the event the parties are unwilling to accept the fair market value of the Purchased Units, as determined by the independent valuation specialist, on or before the Closing Date (December 31, 2015) this Agreement, the transaction covered by this Agreement (the “Contemplated Transaction”) may be rescinded by either Party in writing. Due to the ability of the Company to rescind the shares issued at the commencement of the transaction the shares were considered contingently issuable shares and as such the 1,200,000 share not considered issued and outstanding at December 31, 2015. The 15% ownership interest in Sterall was considered contingently held until the conclusion of this transaction.
As of December 31, 2015 an independent appraisal was not performed and the Amended Equity Agreement expired by its terms. The 1,200,000 shares subject to the original Equity Agreement and the Amended Equity Agreement became unrestricted in 2016 and are now considered issued and outstanding. The shares were valued at $720,000 and have been recorded as a long term other asset pending resolution of claims by the parties involved related to the Sterall licensing agreement from September 2013, Sterall equipment deposits of $330,000 from 2014 and the equity purchase agreement noted above. The ultimate resolution of the various claims by the parties and the ultimate disposition of the $720,000 are expected to be resolved no later than December 31, 2016. |
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EQUITY TRANSACTIONS |
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| Equity [Abstract] | ||||
| EQUITY TRANSACTIONS | NOTE 11 – EQUITY TRANSACTIONS 2016
During the nine months ended September 30, 2016, the Company sold 600,000 shares of $.001 par value common stock at $.50 per share in a private placement, receiving proceeds of $300,000.
During the nine months ended September 30, 2016 the Company (i) issued 100,000 shares of $.001 par value common stock in connection with the payment of a common stock subscription of $25,000.
During the nine months ended September 30, 2016, the Company issued 250,000 shares of its $.001 par value common stock upon exercise of common stock warrants receiving proceeds of $125,000.
During the nine months ended September 30, 2016, the Company treated as issued 1,200,000 shares of its $.001 par value common stock valued at $720,000 in connection with the Sterall transaction (see Note 10).
During the nine months ended September 30, 2016, the Company issued 60,000 common stock options to employees exercisable at $.60 per share.
In the third quarter of 2016, the Company issued $250,000 in convertible debt that is convertible into 357,142 shares of its $.001 par value common stock.
In May 2016, the Company issued 500,000 warrants, in connection with a short term financing, exercisable at $.50 per share for a period of four years.
On September 30, 2016, the Company issued 50,000 warrants, in connection with a convertible debt issuance, exercisable for five years at $.85 per share and were valued at $4,900 using the Black Scholes valuation method.
2015
During the nine months ended September 30, 2015, the Company issued 120,949 shares of $.001 par value common stock upon the cashless exercise of 200,000 warrants.
As noted in Note 9, in January 2015 a convertible promissory note and accrued interest totaling $257,400 was converted into 514,750 shares on common stock in accordance with the terms on the original convertible note.
In the fourth quarter of 2015, the Company issued $1,250,000 in convertible debt that is convertible into 1,136,363 shares of its $.001 par value common stock.
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. |
CUSTOMER CONCENTRATIONS |
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| Risks and Uncertainties [Abstract] | ||||
| CUSTOMER CONCENTRATIONS | NOTE 12 – CUSTOMER CONCENTRATIONS The Company had sales from operations to two customers for the three months ended September 30, 2016 and 2015 that represented approximately 38% and 49%, respectively of our total sales and sales from operations to one customer for the nine months ended September 30, 2016 that represented approximately 22% and sales from operations to two customers for the nine months ended September 30, 2015 that represented approximately 49%, respectively, of our total sales. 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. REGS, a wholly owned subsidiary, was notified that effective April 1, 2016 it would no longer be providing routine maintenance services to its largest customer but would still be eligible to provide other industrial cleaning services. The projected loss of revenue from this customer is estimated to be between $2.5 and $3 million annually. |
NET LOSS PER SHARE |
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| NET LOSS PER SHARE | NOTE 13 – 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:
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ENVIRONMENTAL MATTERS AND REGULATION |
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| Environmental Remediation Obligations [Abstract] | |
| ENVIRONMENTAL MATTERS AND REGULATION | NOTE 14 - 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. |
LITIGATION |
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| Commitments and Contingencies Disclosure [Abstract] | |
| LITIGATION | NOTE 15 – LITIGATION
In March 2016, a complaint was filed by a lessor of property leased by REGS, a subsidiary of the Company. The month-to-month lease expired February 29, 2016, when REGS vacated the property. The landlord has made certain claims including property damage, and loss of rents, attorney fees and other costs totaling approximately $97,000. REGS has engaged defense counsel and intends to zealously oppose the claims. While the Company’s management believes the claims are without merit, the Company has accrued $48,400 as a loss against this claim.
In January 2016, an employee of SEM was involved in a vehicle accident while on Company business. The accident resulted in one fatality and injuries to another party. The two parties filed lawsuits against SEM as a result of the accident and the claims were turned over to our insurance carrier. Defense counsel was provided for and appointed by the Company’s insurance carrier. In August 2016, both claimants each filed a claim with our insurance carrier for the full amount of our insurance coverage, approximately $6 million. Later in August 2016, an involuntary proceeding was commenced by one of the claimants against SEM under Chapter 7 of the Bankruptcy code by one claimant as a result of both claimants filing for the $6 million in insurance available under our policies. SEM engaged bankruptcy counsel who filed certain motions on behalf of SEM. In September, the case was converted to a Chapter 11 under the Bankruptcy code and the Bankruptcy court granted SEM’s motion and ordered that the $6 million in insurance proceeds under our policy would be an asset of the estate of SEM. In October 2016, the Company filed a plan of reorganization with the court that allows for an equitable split of the $6 million in insurance proceeds, as determined by the two claimants, and allows for all creditors of SEM, both secured and unsecured, to be paid in full if the two claimants can come to terms with an equitable allocation of the $6 million in insurance proceeds. At this time SEM continues to manage its affairs and is currently operating normally. The ultimate outcome of this Chapter 11 proceeding is uncertain at this time. Management does not currently believe that any assets of SEM are impaired as of September 30, 2016. Operations and production are continuing uninterupted. |
SEGMENT INFORMATION |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION | NOTE 16 - SEGMENT INFORMATION
The Company currently has identified four segments as follows:
Reach has had minimal operations through June 30, 2016.
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 September 30, 2016 and 2015 is as follows:
____________________
Segment information for the nine months ended September 30, 2016 and 2015 is as follows:
_____________________ (1) Includes depreciation of property, equipment and leasehold improvement and amortization of intangibles. |
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SUBSEQUENT EVENTS |
9 Months Ended |
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Sep. 30, 2016 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 17 - SUBSEQUENT EVENTS
Management has evaluated the impact of events occurring after September 30, 2016 up to the date of the filing of these interim unaudited condensed consolidated financial statements. These statements contain all necessary adjustments and disclosures resulting from that evaluation. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 30, 2016 | ||||
| Accounting Policies [Abstract] | ||||
| Use of 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 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. |
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| Reclassifications | 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 income (loss). |
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| Research and Development | 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 $49,100 and $80,900 for the three months ended September 30, 2016 and 2015, respectively and $149,100 and $279,700 for the nine months ended September 30, 2016 and 2015, respectively. |
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| Income Taxes | Income Taxes
The Company accounts for income taxes pursuant to Accounting Standards Codification (“ASC”) 740, Income Taxes, which utilizes the asset and liability method of computing deferred income taxes. The objective of this method is to establish deferred tax assets and liabilities for any temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.
ASC 740 also provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized. During the three months and nine months ended September 30, 2016 and 2015 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 September 30, 2016 and December 31, 2015. 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, 2015. The tax periods for the years ending December 31, 2008 through 2015 are open to examination by federal and state authorities |
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| Recently issued accounting pronouncements | 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.
New Accounting Pronouncements Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued guidance creating Accounting Standards Codification (“ASC”) Section 606, “Revenue from Contracts with Customers”. The new section will replace Section 605, “Revenue Recognition” and creates modifications to various other revenue accounting standards for specialized transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest of the world, as well as, to enhance disclosures related to disaggregated revenue information. The updated guidance was effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. On July 9, 2015, the FASB approved a one year delay of the effective date. The Company will now adopt the new provisions of this accounting standard at the beginning of fiscal year 2018, unless it choose to early adopt in 2017. The Company will further study the implications of this statement in order to evaluate the expected impact on the consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. Management is evaluating the provisions of this statement, including which period to adopt, and has not determined what impact the adoption of ASU 2015-11 will have on the Company’s financial position or results of operations.
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2015-17, “Balance Sheet Classification of Deferred Taxes”. The new guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. The amendments will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The updated guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted, and the amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company is in the process of evaluating this guidance.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. Additionally, the ASU 2016-01 changes the disclosure requirements for financial instruments. The new standard will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted for certain provisions. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements as well as whether to adopt certain provisions early. |
PROPERTY AND EQUIPMENT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property plant and equipment | Property and equipment was comprised of the following:
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| Schedule of accumulated depreciation |
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| Schedule of capital leased assets | Property and equipment included the following amounts for leases that have been capitalized at:
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INTANGIBLE ASSETS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets | Intangible assets were comprised of the following:
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ACCRUED LIABILITIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrued liabilities | Accrued liabilities were comprised of the following:
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UNCOMPLETED CONTRACTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contractors [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of uncompleted contracts | Costs, estimated earnings and billings on uncompleted contracts are as follows:
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DEBT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of debt | In August 2016, the note and all accrued interest was paid by an offset to trade accounts receivable from the note holder.
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RELATED PARTY TRANSACTIONS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of notes payable and accrued interest, related parties | Related parties payable and accrued interest due to certain related parties as of September 30, 2016 and December 31, 2015 are as follows:
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NET LOSS PER SHARE (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of potentially dilutive securities | Potentially dilutive securities were comprised of the following:
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SEGMENT INFORMATION (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of segment information | Segment information for the three months ended September 30, 2016 and 2015 is as follows:
____________________
Segment information for the nine months ended September 30, 2016 and 2015 is as follows:
_____________________ (1) Includes depreciation of property, equipment and leasehold improvement and amortization of intangibles. |
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ORGANIZATION AND FINANCIAL CONDITION (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
Dec. 31, 2014 |
||||
| Accumulated deficit | $ (16,843,800) | $ (16,843,800) | $ (15,387,100) | [1] | |||||
| Net income (loss) before adjustment for losses attributable to non-controlling interest | (873,800) | $ (644,500) | (1,695,500) | $ (2,117,200) | (3,400,000) | $ (726,000) | |||
| Working capital deficit | $ 3,200,000 | 3,200,000 | $ 2,700,000 | ||||||
| Change in working capital | 500,000 | ||||||||
| Proceeds from sale of common stock and exercise of warrants | 425,000 | ||||||||
| Proceeds from warrant extensions | 29,900 | ||||||||
| Proceeds from convertible debt | $ 250,000 | $ 1,000,000 | |||||||
| Paragon Waste Solutions, LLC [Member] | |||||||||
| Percentage ownership | 54.00% | 54.00% | |||||||
| ReaCH4Biogas [Member] | |||||||||
| Percentage ownership | 85.00% | 85.00% | |||||||
| Resource Environmental Group Services [Member] | Sales Revenue [Member] | Lower Range [Member] | |||||||||
| Reduction in revenue | $ 2,500,000 | ||||||||
| Resource Environmental Group Services [Member] | Sales Revenue [Member] | Upper Range [Member] | |||||||||
| Reduction in revenue | $ 3,000,000 | ||||||||
| |||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Accounting Policies [Abstract] | ||||
| Research and development expenses | $ 49,100 | $ 80,900 | $ 149,100 | $ 279,700 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Accumulated depreciation and amortization | $ 2,418,800 | $ 1,974,000 |
| CoronaLux Units [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Accumulated depreciation and amortization | $ 271,700 | $ 149,500 |
PROPERTY AND EQUIPMENT (Details) - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
|||
|---|---|---|---|---|---|
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | $ 6,391,400 | $ 6,305,300 | |||
| Less: accumulated depreciation and amortization | (2,418,800) | (1,974,000) | |||
| Property and equipment, net | 3,972,600 | 4,331,300 | [1] | ||
| Field and Shop Equipment [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | 2,319,400 | 2,188,500 | |||
| Vehicles [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | 689,900 | 750,800 | |||
| Waste Destruction Equipment Placed In Service [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | 1,288,700 | 1,276,600 | |||
| Waste Destruction Equipment, Not Placed In Service [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | 1,521,100 | 1,521,100 | |||
| Furniture And Office Equipment [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | 322,800 | 321,400 | |||
| Leasehold Improvements [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | 65,400 | 65,400 | |||
| Building and Improvements [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | 21,200 | 18,600 | |||
| Land [Member] | |||||
| Property, Plant and Equipment [Line Items] | |||||
| Property and equipment, gross | $ 162,900 | $ 162,900 | |||
| |||||
PROPERTY AND EQUIPMENT (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| StatementLineItemLineItems [Line Items] | ||||
| Total Depreciation Expense | $ 165,600 | $ 126,500 | $ 502,600 | $ 379,700 |
| Cost of Sales [Member] | ||||
| StatementLineItemLineItems [Line Items] | ||||
| Total Depreciation Expense | 141,400 | 106,900 | 430,100 | 320,800 |
| Selling, general and administrative expense [Member] | ||||
| StatementLineItemLineItems [Line Items] | ||||
| Total Depreciation Expense | $ 24,200 | $ 19,600 | $ 72,500 | $ 58,900 |
PROPERTY AND EQUIPMENT (Details 2) - Vehicles, Field and Shop Equipment [Member] - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Vehicles, field and shop equipment | $ 462,700 | $ 462,700 |
| Less: accumulated amortization | (199,400) | (127,800) |
| Capital lease, net | $ 263,300 | $ 334,900 |
INTANGIBLE ASSETS (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Amortization expense | $ 25,200 | $ 20,000 | $ 68,200 | $ 60,100 |
| Lower Range [Member] | ||||
| Estimated useful lives | 7 years | |||
| Upper Range [Member] | ||||
| Estimated useful lives | 10 years | |||
INTANGIBLE ASSETS (Details) - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
|||
|---|---|---|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | |||||
| Gross carrying amount | $ 1,439,500 | $ 1,402,000 | |||
| Accumulated amortization | (683,700) | (615,400) | |||
| Net carrying value | 755,800 | 786,600 | [1] | ||
| Goodwill [Member] | |||||
| Finite-Lived Intangible Assets [Line Items] | |||||
| Gross carrying amount | 277,800 | 277,800 | |||
| Net carrying value | 277,800 | 277,800 | |||
| Customer Lists [Member] | |||||
| Finite-Lived Intangible Assets [Line Items] | |||||
| Gross carrying amount | 42,500 | 42,500 | |||
| Accumulated amortization | (42,500) | (42,500) | |||
| Technology and Patents [Member] | |||||
| Finite-Lived Intangible Assets [Line Items] | |||||
| Gross carrying amount | 1,064,600 | 1,027,100 | |||
| Accumulated amortization | (586,600) | (518,300) | |||
| Net carrying value | 478,000 | 508,800 | |||
| Trade Name [Member] | |||||
| Finite-Lived Intangible Assets [Line Items] | |||||
| Gross carrying amount | 54,600 | 54,600 | |||
| Accumulated amortization | $ (54,600) | $ (54,600) | |||
| |||||
ACCRUED LIABILITIES (Details) - USD ($) |
Sep. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued compensation and related taxes | $ 641,800 | $ 579,800 |
| Accrued interest | 37,100 | 58,800 |
| Other | 259,200 | 250,900 |
| Total Accrued Liabilities | $ 938,100 | $ 889,500 |
UNCOMPLETED CONTRACTS (Details) - USD ($) |
9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|||
| Revenue Recognized | $ (1,729,700) | $ (1,685,500) | ||
| Less: Billings to date | 2,430,100 | 2,273,400 | ||
| Costs and estimated earnings in excess of billings on uncompleted contracts | [1] | 204,000 | ||
| Billings in excess of costs and estimated earnings on uncompleted contracts | $ 700,400 | 587,900 | ||
| Contracts Receivable [Member] | ||||
| Revenue Recognized | 1,814,300 | |||
| Less: Billings to date | $ 1,610,300 | |||
| ||||
INVESTMENT IN PARAGON WASTE SOLUTIONS LLC (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | 56 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nov. 17, 2014 |
Jun. 10, 2014 |
Mar. 04, 2014 |
Feb. 22, 2014 |
Feb. 28, 2015 |
Sep. 30, 2013 |
Jun. 30, 2012 |
Mar. 31, 2012 |
Aug. 31, 2011 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2010 |
Sep. 30, 2016 |
||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| License initiation fee | $ 42,000 | $ 111,500 | $ 170,100 | $ 183,400 | ||||||||||||||||
| Customer deposits | 330,000 | 330,000 | $ 330,000 | [1] | $ 330,000 | |||||||||||||||
| Exclusive Use License and Joint Operations Agreement with Sterall Inc [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| License initiation fee | $ 300,000 | |||||||||||||||||||
| Initial fees paid | 200,000 | |||||||||||||||||||
| First phase royalty fees payment | 500,000 | |||||||||||||||||||
| Second phase royalty fees payment | 750,000 | |||||||||||||||||||
| Third phase royalty fees payment | 750,000 | |||||||||||||||||||
| Maximum payment of placement fee per unit | 207,000 | |||||||||||||||||||
| Minimum payment of placement fee per unit | $ 168,000 | |||||||||||||||||||
| Non-refundable placement fees received | $ 236,250 | |||||||||||||||||||
| Customer deposits | $ 330,000 | 330,000 | $ 330,000 | |||||||||||||||||
| Exclusive Use License and Equipment Lease Agreement with eCycling International [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| License initiation fee | $ 176,875 | |||||||||||||||||||
| Percentage of net operating profits to be distributed | 50.00% | |||||||||||||||||||
| Licensing fees paid | $ 176,875 | |||||||||||||||||||
| Exclusive Use License and Equipment Lease Agreement with Medical Waste Services, LLC [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| License initiation fee | $ 225,000 | |||||||||||||||||||
| Percentage of net operating profits to be distributed | 50.00% | |||||||||||||||||||
| Formation of Joint Venture Agreement [Member] | Ordinary A Voting Shares [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Membership units issued | 100 | |||||||||||||||||||
| Formation of Joint Venture Agreement [Member] | Ordinary B Non-Voting Shares [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Membership units issued | 300,000 | |||||||||||||||||||
| Related Parties [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Percentage ownership | 5.00% | 5.00% | 5.00% | |||||||||||||||||
| Irrevocable License & Royalty Agreement with PWS [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| License initiation fee | $ 125,100 | 890,100 | ||||||||||||||||||
| Royalty on revenue | $ 54,700 | $ 48,400 | ||||||||||||||||||
| Paragon Waste Solutions, LLC [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Membership units issued | 1,000,000 | |||||||||||||||||||
| Membership units acquired | 600,000 | |||||||||||||||||||
| Percentage ownership | 54.00% | 54.00% | 54.00% | |||||||||||||||||
| Payment for funding of subsidiary | $ 5,500,000 | |||||||||||||||||||
| Paragon Waste Solutions, LLC [Member] | Irrevocable License & Royalty Agreement [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Percentage of royalty revenue | 5.00% | |||||||||||||||||||
| Black Stone Management Services [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Membership units acquired | 400,000 | |||||||||||||||||||
| Percentage ownership | 36.00% | 36.00% | 36.00% | |||||||||||||||||
| Percentage allocated to two individuals | 10.00% | |||||||||||||||||||
| Stock issued for acquisition of intellectual property | $ 100,000 | |||||||||||||||||||
| Stock issued for acquisition of intellectual property (shares) | 1,000,000 | |||||||||||||||||||
| Black Stone Management Services [Member] | Waste Destruction Technology [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Useful life | 10 years | |||||||||||||||||||
| Daniel McAteer & Associates ("DMA") [Member] | Formation of Joint Venture Agreement [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Percentage ownership | 50.00% | |||||||||||||||||||
| License initiation fee | $ 350,000 | |||||||||||||||||||
| Paragon Waste (UK) Ltd [Member] | Formation of Joint Venture Agreement [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Membership units issued | 300,100 | |||||||||||||||||||
| Paragon Waste (UK) Ltd [Member] | Formation of Joint Venture Agreement [Member] | Ordinary A Voting Shares [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Membership units issued | 50 | |||||||||||||||||||
| Xinhua Energy Environmental Technology [Member] | ||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||
| Sale of waste destruction unit | $ 430,500 | |||||||||||||||||||
| Second phase royalty fees payment | $ 350,000 | |||||||||||||||||||
| Percentage of net operating profits to be distributed | 50.00% | |||||||||||||||||||
| ||||||||||||||||||||
PAYROLL TAXES PAYABLE (Details Narrative) - USD ($) |
9 Months Ended | 13 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2012 |
Sep. 30, 2011 |
May 31, 2013 |
Dec. 31, 2015 |
|
| Payroll tax reduction of oustanding liability with IRS | $ 34,600 | ||||
| IRS [Member] | |||||
| Past due payroll taxes | $ 987,600 | $ 971,000 | $ 970,500 | ||
| Monthly installment payments, payroll taxes | $ 25,000 | $ 12,500 | $ 25,000 | ||
| Description of personal income tax refunds | For the tax periods 2009 through 2014, one of the officers of REGS has had personal income tax refunds totaling $34,262 seized by the IRS and applied to REGS IRS obligation. |
||||
DEBT (Details Narrative) - USD ($) |
1 Months Ended | 9 Months Ended |
|---|---|---|
May 31, 2016 |
Sep. 30, 2016 |
|
| Debt Instrument [Line Items] | ||
| Debt conversion, price | $ 0.50 | |
| Warrants issued | $ 4,900 | |
| Warrant terms | 4 years | 5 years |
| Warrants issued, shares | 50,000 | |
| Exercise price (in dollars per share) | $ 0.85 | |
| Notes Payable, June 2011 Note [Member] | ||
| Debt Instrument [Line Items] | ||
| Debt, face amount | $ 40,000 | |
| Debt, issue date | Jun. 01, 2011 | |
| Debt, interest rate | 10.00% | |
| Debt warrant, shares | 13,000 | |
| Debt discount at issuance | $ 170 | |
| Exercise price (in dollars per share) | $ 1.00 | |
| Notes Payable, June 2011 2nd Note [Member] | ||
| Debt Instrument [Line Items] | ||
| Debt, face amount | $ 25,000 | |
| Debt, accrued interest amount | $ 3,000 | |
| Debt, issue date | Jun. 01, 2011 | |
| Notes Payable, June 2011 Note [Member] | ||
| Debt Instrument [Line Items] | ||
| Debt, face amount | $ 68,000 | |
| Notes Payable, June 2016 [Member] | ||
| Debt Instrument [Line Items] | ||
| Debt, face amount | $ 200,000 | |
| Debt, accrued interest amount | 12,000 | |
| Warrants issued | $ 97,200 | |
| Warrant terms | 4 years | |
| Warrants issued, shares | 500,000 | |
| Exercise price (in dollars per share) | $ 0.50 |
DEBT (Details) |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
|
Sep. 30, 2016
USD ($)
Number
$ / shares
|
Sep. 30, 2015
USD ($)
|
May 31, 2016
$ / shares
|
Dec. 31, 2015
USD ($)
|
||||
| Debt Instrument [Line Items] | |||||||
| Notes and capital lease obligation, total | $ 2,122,200 | $ 1,821,500 | |||||
| Notes and capital lease obligation, current | (825,500) | (660,100) | [1] | ||||
| Notes and capital lease obligation, long-term | 1,296,700 | 1,161,400 | [1] | ||||
| Debt conversion, price | $ / shares | $ 0.50 | ||||||
| Short term note payable due October 23, 2016 [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Long term debt, carrying amount | $ 200,000 | ||||||
| Description pf debt instrument interest payment | Interest is $10,000 for the first two weeks and $1,000 per week thereafter. |
||||||
| Debt, maturity date | Oct. 23, 2016 | ||||||
| Description of the collateral | Note is secured by certain trade accounts receivables |
||||||
| Notes Payable, June 2011 Note [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Long term debt, carrying amount | 68,000 | ||||||
| Convertible Secured Promissory Note due December 31, 2016 [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Long term debt, carrying amount | $ 1,500,000 | 1,250,000 | |||||
| Interest rate | 8.00% | ||||||
| Payment amount | $ 400,000 | ||||||
| Debt, maturity date | Dec. 31, 2016 | ||||||
| Debt discount | $ (16,800) | (16,600) | |||||
| Convertible Secured Promissory Note due December 31, 2016 [Member] | Upper Range [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Debt conversion, price | $ / shares | $ 1.10 | ||||||
| Convertible Secured Promissory Note due December 31, 2016 [Member] | Lower Range [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Debt conversion, price | $ / shares | $ .70 | ||||||
| 8% Secured Notes Payable Due October 1, 2017 [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Long term debt, carrying amount | $ 56,100 | 92,300 | |||||
| Interest rate | 8.00% | ||||||
| Payment amount | $ 4,523 | ||||||
| Number of payments | Number | 24 | ||||||
| Debt, maturity date | Oct. 01, 2017 | ||||||
| Description of the collateral | Secured by certain assets of SEM and guaranteed by SEER and MV |
||||||
| 8% Secured Notes Payable Due October 1, 2020 [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Long term debt, carrying amount | $ 190,200 | 218,900 | |||||
| Interest rate | 8.00% | ||||||
| Payment amount | $ 4,562 | ||||||
| Number of payments | Number | 60 | ||||||
| Debt, maturity date | Oct. 01, 2020 | ||||||
| Description of the collateral | Secured by real estate and other assets of SEM and guaranteed by SEER and MV |
||||||
| 4.25% Note Payable Insurance Premium Financing due November 1, 2016 [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Long term debt, carrying amount | $ 56,500 | ||||||
| Interest rate | 4.25% | ||||||
| Payment amount | $ 28,417 | ||||||
| Number of payments | Number | 10 | ||||||
| Debt, maturity date | Nov. 01, 2016 | ||||||
| Capital lease obligations [Member] | |||||||
| Debt Instrument [Line Items] | |||||||
| Capital lease obligation, carrying amount | $ 136,200 | $ 208,900 | |||||
| |||||||
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
1 Months Ended | 9 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2014 |
Aug. 30, 2014 |
Mar. 31, 2012 |
Sep. 30, 2016 |
Dec. 31, 2015 |
Dec. 31, 2010 |
||||
| Related Party Transaction [Line Items] | |||||||||
| Common stock, issued | 54,525,079 | 52,375,079 | [1] | ||||||
| Common stock, outstanding | 54,525,079 | 52,375,079 | [1] | ||||||
| Long term other asset | $ 25,600 | $ 37,500 | [1] | ||||||
| Income from joint venture | $ 15,700 | ||||||||
| Paragon Waste Solutions, LLC [Member] | |||||||||
| Related Party Transaction [Line Items] | |||||||||
| Membership interests acquired | 600,000 | ||||||||
| Percentage ownership | 54.00% | ||||||||
| Income from joint venture | $ 15,700 | ||||||||
| Percentage of net income in joint venture | 50.00% | ||||||||
| Cost incurred for joint venture | $ 90,600 | ||||||||
| Paragon Waste Solutions, LLC [Member] | Irrevocable License & Royalty Agreement [Member] | |||||||||
| Related Party Transaction [Line Items] | |||||||||
| Percentage of royalty revenue | 5.00% | ||||||||
| Irrevocable License & Royalty Agreement with PWS [Member] | |||||||||
| Related Party Transaction [Line Items] | |||||||||
| Revenue from customer | 125,100 | 890,500 | |||||||
| Royalty on revenue | $ 54,700 | $ 48,400 | |||||||
| New Technologies Agreement with Black Stone [Member] | |||||||||
| Related Party Transaction [Line Items] | |||||||||
| Issuance of common stock for intangible assets | $ 1,050,000 | ||||||||
| Number of shares of common stock issued for intangible asset | 1,000,000 | ||||||||
| Equity Agreement With Third Party [Member] | |||||||||
| Related Party Transaction [Line Items] | |||||||||
| Issuance of common stock for investment in unconsolidated subsidaiary | $ 1,212,000 | ||||||||
| Membership interests acquired | 22.5 | ||||||||
| Number of shares issued for investment in unconsolidated affiliate | 1,200,000 | ||||||||
| Common stock, fair value (in dollars per shares) | $ 0.83333 | ||||||||
| Percentage ownership | 15.00% | ||||||||
| Common stock, issued | 1,200,000 | ||||||||
| Common stock, outstanding | 1,200,000 | ||||||||
| Long term other asset | $ 720,000 | ||||||||
| Sterall equipment deposits | $ 330,000 | ||||||||
| |||||||||
RELATED PARTY TRANSACTIONS (Details) - USD ($) |
9 Months Ended | ||||
|---|---|---|---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
||||
| Related Party Transaction [Line Items] | |||||
| Accrued interest, unsecured note payable | $ 11,800 | $ 26,800 | |||
| Payable due officer for payment of IRS obligation | 34,600 | ||||
| Notes payable - related parties, including accrued interest | $ 46,400 | 31,800 | [1] | ||
| Chief Executive Officer [Member] | Promissory Note [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Notes Payable | $ 5,000 | ||||
| Interest rate | 8.00% | ||||
| Debt, maturity date | Jun. 01, 2016 | ||||
| |||||
EQUITY TRANSACTIONS (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|---|
May 31, 2016 |
Jan. 31, 2015 |
Sep. 30, 2016 |
Dec. 31, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Common stock shares issued upon warrant exercises, shares | 500,000 | 1,136,363 | ||||
| Proceeds from warrant exercises | $ 1,250,000 | $ 25,000 | ||||
| Number of stock options issued | 60,000 | 60,000 | ||||
| Exercise price (in dollars per shares) | $ .60 | $ .60 | ||||
| Per share value of convertible debt conversion | $ 0.50 | |||||
| Value of convertible debt convesion | $ 250,000 | |||||
| Number of convertible debt convesion | 357,142 | |||||
| Warrants issued | $ 4,900 | |||||
| Warrant terms | 4 years | 5 years | ||||
| Warrants issued, shares | 50,000 | |||||
| Exercise price (in dollars per share) | $ 0.85 | $ 0.85 | ||||
| Equity Agreement With Third Party [Member] | ||||||
| Number of shares issued | 1,200,000 | |||||
| Value of shares issued | $ 720,000 | |||||
| Common Stock Subscribed [Member] | ||||||
| Number of shares issued | 100,000 | |||||
| Payment for common stock subscription | $ 25,000 | |||||
| Paragon Waste Solutions, LLC [Member] | ||||||
| Noncontrolling interest | 46.00% | 46.00% | ||||
| Convertible Secured Promissory Note due December 31, 2014 [Member] | ||||||
| Promissory note and accrued interest converted to stock | $ 257,400 | |||||
| Shares converted | 514,750 | |||||
| Warrants [Member] | ||||||
| Common stock shares issued upon warrant exercises, shares | 250,000 | |||||
| Proceeds from warrant exercises | $ 125,000 | |||||
| Shares issued in warrant exercise | 120,949 | |||||
| Number of warrants exercised | 200,000 | |||||
| 2016 Private Placement [Member] | ||||||
| Private placement, shares issued | 600,000 | 600,000 | ||||
| Share price (in dollars per share) | $ 0.50 | $ 0.50 | ||||
| Gross proceeds from private placement | $ 300,000 | |||||
CUSTOMER CONCENTRATIONS (Details Narrative) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
|
Sep. 30, 2016
Number
|
Sep. 30, 2015
Number
|
Sep. 30, 2016
USD ($)
Number
|
Sep. 30, 2015
Number
|
|
| Sales [Member] | ||||
| Concentration Risk [Line Items] | ||||
| Number of customers | Number | 2 | 2 | 1 | 2 |
| Concentration risk | 38.00% | 49.00% | 22.00% | 49.00% |
| Sales Revenue [Member] | Resource Environmental Group Services [Member] | Lower Range [Member] | ||||
| Concentration Risk [Line Items] | ||||
| Reduction in revenue | $ 2,500,000 | |||
| Sales Revenue [Member] | Resource Environmental Group Services [Member] | Upper Range [Member] | ||||
| Concentration Risk [Line Items] | ||||
| Reduction in revenue | $ 3,000,000 | |||
NET LOSS PER SHARE (Details) - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Potentially dilutive securities | 12,447,935 | 13,773,471 |
| Warrants [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Potentially dilutive securities | 9,964,430 | 9,689,430 |
| Options [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Potentially dilutive securities | 990,000 | 1,974,950 |
| Convertible Notes Payable [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Potentially dilutive securities | 1,493,505 | 909,091 |
| Contingently Issuable Shares Sterall LLC [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Potentially dilutive securities | 1,200,000 | |
LITIGATION (Details Narrative) - USD ($) |
1 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Jan. 31, 2016 |
|
| Litigation Case - Property Leased [Member] | ||
| Loss Contingencies [Line Items] | ||
| Lease expiration date | Feb. 29, 2016 | |
| Damages sought value | $ 97,000 | |
| Damage paid | $ 48,400 | |
| Description of allegation | Certain claims including property damage, and loss of rents, attorney fees and other costs |
|
| Name of plaintiff | Landlord |
|
| Name of defendant | REGS, a subsidiary of the Company |
|
| Litigation Case - Vehicle Accident [Member] | ||
| Loss Contingencies [Line Items] | ||
| Damages sought value | $ 6,000,000 | |
| Description of allegation | The accident resulted in one fatality and injuries to another party. The two parties filed lawsuits against SEM as a result of the accident and the claims were turned over to our insurance carrier. |
|
| Name of plaintiff | Two Parties |
|
SEGMENT INFORMATION (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
||||
| Segment Reporting Information [Line Items] | |||||||
| Revenue | $ 2,836,500 | $ 2,968,200 | $ 8,902,500 | $ 9,441,100 | |||
| Depreciation and amortization | [1] | 190,800 | 146,600 | 570,900 | 439,900 | ||
| Interest expense | 56,000 | 5,500 | 258,300 | 45,000 | |||
| Stock-based compensation | 10,900 | 27,300 | 83,400 | 176,100 | |||
| Net income (loss) | (873,800) | (644,500) | (1,679,800) | (2,117,200) | |||
| Capital expenditures (cash and noncash) | 21,200 | 97,500 | 177,300 | 662,700 | |||
| Total assets | 8,066,400 | 8,713,900 | 8,066,400 | 8,713,900 | |||
| Industrial Cleaning [Member] | |||||||
| Segment Reporting Information [Line Items] | |||||||
| Revenue | 416,000 | 1,049,100 | 2,844,000 | 4,198,300 | |||
| Depreciation and amortization | [1] | 81,800 | 65,700 | 251,200 | 197,100 | ||
| Interest expense | 7,600 | 6,400 | 25,100 | 29,000 | |||
| Net income (loss) | (535,600) | (74,900) | (517,000) | 195,600 | |||
| Capital expenditures (cash and noncash) | 6,300 | 10,500 | 313,100 | ||||
| Total assets | 1,118,400 | 1,741,800 | 1,118,400 | 1,741,800 | |||
| Railcar Cleaning [Member] | |||||||
| Segment Reporting Information [Line Items] | |||||||
| Revenue | 629,400 | 842,100 | 2,433,900 | 2,263,400 | |||
| Depreciation and amortization | [1] | 10,000 | 6,400 | 30,700 | 19,200 | ||
| Interest expense | 300 | (5,100) | 3,100 | 5,100 | |||
| Net income (loss) | 34,200 | 172,600 | 444,500 | 201,000 | |||
| Capital expenditures (cash and noncash) | 9,700 | 15,500 | 22,900 | 45,000 | |||
| Total assets | 601,100 | 635,700 | 601,100 | 635,700 | |||
| Environmental Solutions [Member] | |||||||
| Segment Reporting Information [Line Items] | |||||||
| Revenue | 1,749,100 | 965,500 | 3,454,500 | 2,796,000 | |||
| Depreciation and amortization | [1] | 42,700 | 30,300 | 125,400 | 91,000 | ||
| Interest expense | 5,300 | 17,500 | 500 | ||||
| Net income (loss) | 217,000 | (61,900) | 307,800 | (78,800) | |||
| Capital expenditures (cash and noncash) | 11,400 | 12,900 | 43,600 | ||||
| Total assets | 2,349,300 | 1,418,800 | 2,349,300 | 1,418,800 | |||
| Solid Waste [Member] | |||||||
| Segment Reporting Information [Line Items] | |||||||
| Revenue | 42,000 | 111,500 | 170,100 | 183,400 | |||
| Depreciation and amortization | [1] | 31,500 | 25,500 | 96,300 | 76,400 | ||
| Interest expense | 300 | 500 | 300 | ||||
| Net income (loss) | (198,000) | (234,000) | (501,400) | (824,400) | |||
| Capital expenditures (cash and noncash) | 5,200 | 60,100 | 12,100 | 179,400 | |||
| Total assets | 2,914,500 | 3,766,400 | 2,914,500 | 3,766,400 | |||
| Corporate [Member] | |||||||
| Segment Reporting Information [Line Items] | |||||||
| Depreciation and amortization | [1] | 24,800 | 18,700 | 67,300 | 56,100 | ||
| Interest expense | 42,900 | 3,900 | 212,100 | 10,100 | |||
| Stock-based compensation | 10,900 | 27,300 | 83,400 | 176,100 | |||
| Net income (loss) | (391,400) | (446,300) | (1,413,900) | (1,610,600) | |||
| Capital expenditures (cash and noncash) | 81,600 | ||||||
| Total assets | $ 1,083,100 | $ 1,151,200 | $ 1,083,100 | $ 1,151,200 | |||
| |||||||
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