Strategic Environmental & Energy Resources, Inc. filed on Wed, August 14 10-Q

Strategic Environmental & Energy Resources, Inc. revealed 10-Q form on August 14 accessible here.

The three majority-owned subsidiaries are; 1) Paragon Waste Solutions, LLC (‘PWS’); 2) ReaCH4Biogas (‘Reach’) and 3) PelleChar, LLC (‘PelleChar’). PWS is currently owned 54% by SEER (see Note 7), Reach is owned 85% by SEER and PelleChar is owned 51% by SEER.

As of June 30, 2019, the aggregate amount of the transaction price allocated to the remaining performance obligations was approximately $1,098,800, of which the Company expects to recognize revenue of approximately 99% over the next 24 months, including 96% over the next 12 months.

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 and unit sales revenues of approximately $8,200 and $33,500 for the three and six months ended June 30, 2019 and $134,800 for the years ended December 31, 2018, as such, royalties of $122,000 and $120,300 were due at June 30, 2019 and December 31, 2018, respectively.

In October 2014, PWS and Medical Waste Services, LLC (‘MWS’) formed a contractual joint venture to exploit the PWS medical waste destruction technology. In 2015, MWS licensed and installed a CoronaLux™ unit at an MWS facility, and subsequently received a limited permit to operate. In November 2017 a full permit was issued, and the unit is now fully operating. Operations to date have included the destruction of medical waste. For the six months ended June 30, 2019 and the year ended December 31, 2018, PWS has recorded $13,900 and $34,400 in income which represents their 50% interest in the net income of the joint venture, respectively. PWS did not incur any costs incurred on behalf of the joint venture for the six months ended June 30, 2019 nor the year ended December 31, 2018.

The non-controlling interest presented in our condensed consolidated financial statements reflects a 46% non-controlling equity interest in PWS and 49% non-controlling equity interest in PelleChar. Net losses attributable to non-controlling interest, as reported on our condensed consolidated statements of operations, represents the net loss of each entity attributable to the non-controlling equity interest. The non-controlling interest is reflected within stockholders’ equity on the condensed consolidated balance sheet.

The Company had sales from operations to two customers for the six months ended June 30, 2019 and two customers for the six months ended June 30, 2018, that surpassed the 10% threshold of total revenue. In total, these customers represented approximately 32% and 43% of our total sales, respectively. The concentration of the Company’s business with a relatively small number of customers may expose us to a material adverse effect if one or more of these large customers were to experience financial difficulty or were to cease being customers for non-financial related issues.

On July 2, 2019, the Company borrowed $100,000 under a short-term note, secured by all assets of Pellechar, LLC, a subsidiary of the Company. The note bears annual simple interest, at a rate of 12%. The Lender received a one-time stock option grant to purchase 500,000 shares of common stock, at $0.70 a share. The options have a contract term of three years.

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 had no operations as of June 30, 2019.

PelleChar, LLC (‘PelleChar’): (formed September 2018) owned 51% by SEER. PelleChar has secured third-party pellet manufacturing capabilities from one of the nation’s premier pellet manufacturer. Working closely with Biochar Now, LLC, PelleChar intends to commence sales in 2019 of its proprietary pellets containing the proven and superior Biochar Now product starting with the landscaping and big agriculture markets. At this time, PelleChar is the only company able to offer a soil amendment pellet containing the Biochar Now product that is produced using the patented pyrolytic process. PelleChar had minimal operations as of June 30, 2019.

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.

Total revenues were approximately $1.5 million and $2.4 million for the three months ended June 30, 2019 and 2018, respectively. The decrease in revenue comparing Q2 2019 to Q2 2018 is driven by a decrease of approximately $.3 million or 37% in industrial cleaning revenue coupled by a decrease in revenue of $.7 million or 42% in environmental solutions revenue. The decrease in the industrial cleaning revenue is due largely to a lack of mobile rail car cleaning services further reduced by a decrease in overall utilization of assets. The decrease in environmental solutions revenue is due to a decrease in media sales revenue. Solid waste revenue also decreased when comparing Q2 2019 to Q2 2018 by $.2 million or 26% due to a decrease in joint venture operating revenue.

Operating costs, which include cost of products, cost of services, solid waste costs, general and administrative (G&A) expenses and salaries and related expenses, were $2.3 million for the three months ended June 30, 2019 compared to $2.9 million for the three months ended June 30, 2018. The decrease in operating costs between the quarters was primarily the result of a 1) a 42% decrease in environmental solutions revenue resulting in a 41% decrease in environmental solutions costs totaling approximately ($387,400), 2) a 37% decrease in industrial cleaning revenue resulting in a 6% decrease in industrial cleaning costs totaling approximately ($48,900), 3) an approximately ($83,400) decrease in general and administrative expenses primarily driven by a decrease in professional services of approximately $69,000 and 4) an approximately ($63,300) decrease in salaries and related expenses. Product costs as a percentage of product revenues were 64% for the quarter ended June 30, 2019 and 62% for the quarter ended June 30, 2018. The decrease in margin performance for the product sales is due to a decreased long-term project margin. Services costs as a percentage of services revenues were 149% for the quarter ended June 30, 2019 and 101% for the quarter ended June 30, 2018. The decrease in margin performance for the services sector is due to a decreased utilization of manpower and the ability to utilize and bill our own equipment versus renting third-party equipment. We also were not able to recapture all project startup costs during the quarter. Solid waste costs as a percentage of revenues were 15% for the quarter ended June 30, 2019 and 10% for the quarter ended June 30, 2018. The decrease in margin performance for the solid waste segment is related to a decrease in operating fee revenue.

Total revenues were approximately $2.9 million and $4.3 million for the six months ended June 30, 2019 and 2018, respectively. The decrease in revenue comparing the six months ending June 30, 2019 to the six months ending June 30, 2018 is driven by a decrease of approximately $1 million or 58% in industrial cleaning revenue and by a decrease of $.4 million or 18% in environmental solutions revenue. The decrease in the industrial cleaning revenue is due largely to a lack of mobile rail car cleaning services further reduced by a decrease in overall utilization of assets. The decrease in environmental solutions revenue is due to a decrease in media sales. Solid waste revenue decreased by $0.04 million or 20% for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.

Operating costs, which include cost of products, cost of services, solid waste costs, general and administrative (G&A) expenses and salaries and related expenses, were $4.3 million for the six months ended June 30, 2019 compared to $5.2 million for the six months ended June 30, 2018. The decrease in operating costs between the six months ending June 30, 2019 compared to the six months ending June 30, 2018 was primarily the result of a 1) a 18% decrease in environmental solutions revenue resulting in a 17% decrease in environmental solutions costs totaling approximately ($255,900), 2) a 58% decrease in industrial cleaning revenue resulting in a 27% decrease in industrial cleaning costs totaling approximately ($437,700), 3) an approximately ($60,800) decrease in general and administrative expenses primarily driven by a decrease in depreciation of approximately ($31,000) coupled with a decrease in utilities and facilities expenses of approximately ($23,000) and 4) an approximately ($144,700) decrease in salaries and related expenses. Product costs as a percentage of product revenues were 61% for the six months ended June 30, 2019 and 61% for the six months ended June 30, 2018. Services costs as a percentage of services revenues were 159% for the six months ended June 30, 2019 and 93% for the six months ended June 30, 2018. The decrease in margin performance for the services sector is due to a decreased utilization of manpower and the ability to utilize and bill our own equipment versus renting third-party equipment. We also were not able to recapture all project startup costs during the six months ended. Solid waste costs as a percentage of revenues were 25% for the six months ended June 30, 2019 and 14% for the six months ended June 30, 2018. The decrease in margin performance for the solid waste segment is related to a decrease in joint venture operating revenue.

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