ENVIRONMENTAL STRATEGIC & ENERGY RESOURCES, INC. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)

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The following discussion is intended to assist you in understanding our business
and the results of our operations. It should be read in conjunction with the
Condensed Consolidated Financial Statements and the related notes that appear
elsewhere in this report as well as our Report on Form 10-K filed with the
Securities and Exchange Commission on April 15, 2021. Certain statements made in
our discussion may be forward looking. Forward-looking statements involve risks
and uncertainties and a number of factors could cause actual results or outcomes
to differ materially from our expectations. These risks, uncertainties, and
other factors include, among others, the risks described in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission, as well as other
risks described in this Quarterly Report. Unless the context requires otherwise,
when we refer to "we," "us" and "our," we are describing Strategic Environmental
& Energy Resources, Inc. and its consolidated subsidiaries on a consolidated
basis.



SEER BUSINESS OVERVIEW


Strategic Environmental & Energy Resources, Inc. ("the Company" or "SEER") was
originally organized under the laws of the State of Nevada on February 13, 2002
for the purpose of acquiring one or more businesses, under the name of Satellite
Organizing Solutions, Inc. ("SOZG"). In January 2008, SOZG changed its name to
Strategic Environmental & Energy Resources, Inc., 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
environmental, waste management and renewable energy industries. SEER currently
operates five companies with four offices in the western and mid-western U.S.
Through these operating companies, SEER provides products and services
throughout the U.S. and has licensed and owned technologies with many customer
installations throughout the U.S. Each of the five operating companies, which
includes our majority owned entities, is discussed in more detail below.



The Company's domestic strategy is to grow internally through SEER's
subsidiaries that have well established revenue streams and, simultaneously,
establish long-term alliances with and/or acquire complementary domestic
businesses in rapidly growing markets for renewable energy, waste and water
treatment and industrial services. The focus of the SEER family of companies,
however, is to increase margins by securing or developing proprietary patented
and patent-pending technologies and then leveraging its 20 plus-year service
experience to place these innovations and solutions into the growing markets of
emission capture and control, renewable "green gas" capture and sale, compressed
natural gas fuel generation, as well as general solid waste and
medical/pharmaceutical waste destruction. Many of SEER's current operating
companies share customer bases and each provides synergistic services,
technologies and products.



The Company now owns and manages three operating entities and two entities that
have no significant operations to date, as REGS has been abandoned during the
fiscal quarter. References in this report to abandoned or abandonment refer to
the Company's determination not to provide financial support to, or conduct
operations in or through, REGS.



Subsidiaries



Wholly owned


MV, LLC (d/b/a MV Technologies), ("MV"): (operating since 2003) MV designs and
sells patented and/or proprietary, dry scrubber solutions for management of
Hydrogen Sulfide (H2S) in biogas, landfill gas, and petroleum processing
operations. These system solutions are marketed under the product names H2SPlus™
and OdorFilter™. The markets for these products include 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.



SEER Environmental Materials, LLC ("SEM"): (formed September 2015) is a wholly
owned subsidiary established as a materials technology business with the purpose
of developing advanced chemical absorbents and catalysts that enhance the
capability of biogas produced from, landfill, wastewater treatment operations
and agricultural digester operations.



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REGS, LLC d/b/a Resource Environmental Group Services ("REGS"): (operating from
1994 to September 2021) previously designed and manufactured environmental
systems and provided general industrial cleaning services and waste management
consulting to many industry sectors. During the fourth quarter of 2019, the
Company ceased bidding on, and accepting contracts for the services division of
its REGS subsidiary. The results from the subsidiary are included in
discontinued operations for the years ended 2019 and 2018. No contracts have
been uncompleted relating to the services division; therefore, the services
division did not have any performance obligations as of December 31, 2019, nor
thereafter. Fifteen employees in the division were terminated as of December 31,
2019. After the industrial cleaning services division was discontinued as of
2019, REGS continued with its manufacturing and assembly operations during 2020
and into 2021. These operations consisted primarily of building kilns and
related equipment. As of September 2021, the Company wound down REGS, ceased all
operations, and abandoned the entity as a subsidiary. REGS operations for the
periods reported were included in discontinued operations. Assets and
liabilities were stranded and written off in accordance with GAAP; however, the
Company cannot provide any assurance as to the treatment of such assets or
liabilities or the abandonment by third parties, including governmental
authorities.



Majority owned



Paragon Waste Solutions, LLC ("PWS"): (formed late 2010) PWS is an operating
company that has developed a patented waste destruction technology using a
pyrolytic heating process combined with "non-thermal plasma" assisted oxidation.
This technique involves gasification of solid waste by heating the waste in a
low-oxygen environment, followed by complete oxidation at higher temperatures in
the presence of plasma. 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.



PelleChar, LLC ("PelleChar"): (formed September 2018) owned 51% by SEER.
PelleChar has secured third-party pellet manufacturing capabilities from one of
the nation's premier pellet manufacturers. Working closely with Biochar Now,
LLC, PelleChar commenced sales in 2019 of its proprietary pellets containing the
proven and superior Biochar Now product starting with the landscaping and big
agriculture markets. At this time, PelleChar is the only company able to offer a
soil amendment pellet containing the Biochar Now product that is produced using
the patented pyrolytic process. PelleChar activity to date relates to startup of
operations, and an increasing sales effort. Revenue and expenses of PelleChar
were not material for the nine months ended September 30, 2021.



Joint Ventures


PWS MWS Joint Venture: In October 2014, PWS and Medical Waste Services, LLC
("MWS") formed a contractual joint venture to exploit the PWS medical waste
destruction technology. In 2015, MWS licensed and installed a CoronaLux™ unit at
an MWS facility, and subsequently received a limited permit to operate from the
South Coast Air Quality Management District ("SCAQMD") and the California
Department of Public Health. In November 2017, PWS received final air quality
permit approval from SCAQMD allowing for full operations of the CoronaLux™ unit
at the MWS facility.



Paragon Southwest Joint Venture: In December 2017, PWS and GulfWest Waste
Solutions, LLC ("GWWS") formed Paragon Southwest Medical Waste, LLC ("PSMW") to
exploit the PWS medical waste destruction technology. PSMW has an exclusive
license to the CoronaLux™ technology in a six-state area of the Southern United
States. In addition to the equity position, PWS is the operating partner for the
business and intends to sell a number of additional systems to the joint
venture. In 2017, PSMW purchased and installed three CoronaLux™ units at
an PSMW
facility.



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SEER’s financial situation and liquidity

As shown in the accompanying consolidated financial statements, the Company has
experienced recurring operating losses, and has accumulated a deficit of
approximately $28.9 million as of September 30, 2021, and $29.7 million as of
December 31, 2020. For the nine months ended September 30, 2021, and 2020 we had
net losses from operations before adjustment for losses attributable to
non-controlling interest of approximately $0.8 million and $1.5 million,
respectively. As of September 30, 2021, and December 31, 2020, our current
liabilities exceed our current assets by approximately $7.3 million and $9.8
million, respectively. The primary reason for that working capital deficit
decreased from December 31, 2020, to September 30, 2021, is due to abandonment
of REGS as an entity, and stranded a net of liabilities that are no longer
consolidated liabilities under the Company. The Company has limited common
shares available for issue which may limit the ability to raise capital or
settle debt through issuance of shares. These factors raise substantial doubt
about the ability of the Company to continue to operate as a going concern for a
period of at least one year after the date of the issuance of our audited
financial statements for the period ended September 30, 2021.



Realization of a major portion of our assets as of September 30, 2021, is
dependent upon our continued operations. The Company is dependent on generating
additional revenue or obtaining adequate capital to fund operating losses until
it becomes profitable. In addition, we have undertaken a number of specific
steps to continue to operate as a going concern. We continue to focus on
developing organic growth in our operating companies, diversifying our service
customer base and market concentrations and improving gross and net margins
through increased attention to pricing, aggressive cost management and overhead
reductions, including discontinuing a line of business with insufficient
margins. Critical to achieving profitability will be our ability to license and
or sell, permit and operate through our joint ventures and licensees our
CoronaLux™ waste destruction units. We have increased our business development
focus to address opportunities identified in domestic markets attributable to
increased federal and state emission control regulations and a growing demand
for energy conservation and renewable energies. In addition, the Company is
evaluating various forms of financing that may be available to it. There can be
no assurance that the Company will secure additional financing for working
capital on favorable terms or at all, increase revenues and achieve the desired
result of net income and positive cash flow from operations in future years.
These financial statements do not give any effect to any adjustments that would
be necessary should the Company be unable to report on a going concern basis.



Operating results for the three months ended September 30, 2021, and 2020




Total revenues were $1.2 million and $1.1 million for the three months ended
September 30, 2021, and 2020, respectively. The increase of approximately $0.1
million or 18% in revenues comparing the three months ended September 30, 2021,
to the three months ended September 30, 2020, is attributable to the increases
in revenues from our products segment revenue, which includes our environmental
solutions segment, which increased from approximately $1.0 million for the three
months ended September 30, 2020, to approximately $1.2 million for the three
months ended September 30, 2021, an increase of approximately $0.2 million or
approximately 19%. Environmental solutions segment generated more revenue as
activity increased in our construction contracts, due to the relief of a general
slowdown in the economy attributable to the COVID-19 pandemic the prior year
period.


Operating expenses, which include the cost of products, the cost of solid waste, and general and administrative (G&A) expenses, as well as salaries and related expenses, were held at approximately $ 1.2 million for the three months ended
September 30, 2021, and 2020.




Total non-operating expense, net was $1.5 million of other income for the three
months ended September 30, 2021, compared to $0.2 million expense for the three
months ended September 30, 2020. During the three months ended September 30,
2021, the Company recorded $1.5 million gain on abandonment, resulting from the
ceasing of operations and abandonment of the REGS subsidiary. We also recorded
$0.2 million in gain on debt extinguishment, which resulted from the forgiveness
of the Company's PPP Loans from the US Treasury.



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There is no provision for income taxes for both the three months ended September
30, 2021, and 2020, due to our net losses for both periods and we continue to
maintain full allowances covering our net deferred tax benefits as of September
30, 2021, and 2020.



Net income, before discontinued operations and non-controlling interest, for the
three months ended September 30, 2021, was $1.5 million compared to a net loss,
before discontinued operations and non-controlling interest, of $0.5 million for
the three months ended September 30, 2020. The net income attributable to SEER
after deducting $0.3 million for the non-controlling interest and adding a gain
from discontinued operations of $0.4 million was $1.7 million for the three
months ended September 30, 2021, as compared to a net loss of $0.6 million,
after deducting $30,700 in non-controlling interest and deducting $0.1 million
loss from discontinued operations, for the three months ended September 30,
2020. As noted above, an increase in non-operating income during 2021 of $1.7
million primarily due to the $1.5 million gain from abandonment of REGS and the
$0.2 million gain on debt extinguishment related to the forgiveness of the
Company's PPP Loan, an increase in revenue of $0.2 million, and a decrease of
operating expenses of $0.2 million, were the primary reason for the increase in
the net income.


Results of operations for the nine months ended September 30, 2021, and 2020

Total revenues were $2.9 million and $2.5 million for the nine months ended
September 30, 2021, and 2020, respectively. The increase of approximately $0.4
million or 16% in revenues comparing the nine months ended September 30, 2021,
to the nine months ended September 30, 2020, is attributable to the increases in
revenues from our products segment revenue, which includes our environmental
solutions segment, which increased from $2.3 million for the nine months ended
September 30, 2020, to $2.7 million for the nine months ended September 30,
2021, an increase of approximately $0.2 million, or approximately 16%. Activity
increased in our construction contracts, due to the relieving of a general
slowdown in the economy attributable to the COVID-19 pandemic the prior year
period.


Operating expenses, which include cost of products, cost of solid waste and
general and administrative (G&A) expenses, and salaries and related expenses,
were approximately $3.3 million for the nine months ended September 30, 2021,
compared to $3.5 million for the nine months ended September 31, 2020. The
decrease primarily consists of a decrease in general and administrative costs of
approximately $0.1 million, as a result of reduced professional fees during the
nine months ended, and a reduction in salaries and related of approximately $0.5
million due to the general decreased headcount, and the utilization of the
Employee Retention Tax Credit ("ERTC") program from the U.S Treasury, as part of
the COVID-19 stimulus package. The ERTC program refunds a portion of taxes paid
for payroll. This was partially offset by higher costs of products as we
recognized more costs related to our construction contracts, due to the
relieving of a general slowdown in the economy attributable to the COVID-19
pandemic the prior year period. This was partially offset by an increase in
product costs due to activity increased in our construction contracts, due to
the relieving of a general slowdown in the economy attributable to the COVID-19
pandemic the prior year period.



Total non-operating other income, net was $1.1 million for the nine months ended
September 30, 2021, compared to expense of $0.6 million for the nine months
ended September 30, 2020. During the nine months ended September 30, 2021, the
Company recorded a $1.5 million gain on abandonment, resulting from the ceasing
of operations and abandonment of the REGS subsidiary. We also recorded $0.2
million in gain on debt extinguishment, which resulted from the forgiveness of
the Company's PPP Loans from the US Treasury.



There is no provision for income taxes for both the nine months ended September
30, 2021, and 2020, due to our net losses for both periods and we continue to
maintain full allowances covering our net deferred tax benefits as of September
31, 2021, and 2020.



Net income, before non-controlling interest and discontinued operations, for the
nine months ended September 30, 2021, was $0.7 million compared to a net loss,
before non-controlling interest and discontinued operations, of $1.6 million for
the nine months ended September 30, 2020. The net loss attributable to SEER
after deducting $0.2 million for the non-controlling interest and adding a gain
from discontinued operations of $0.3 million was $0.8 million for the nine
months ended September 30, 2021, as compared to a loss of $1.8 million, after
deducting $0.1 million in non-controlling interest and deducting a loss from
discontinued operations of $0.3 million, for the nine months ended September 30,
2020. As noted above, a decrease in operating expenses during 2021 of 4%, an
increase in revenue of 16%, and an increase in non-operating income of $1.7
million primarily due to the $1.5 million gain from the abandonment of REGS and
the $0.2 million gain on debt extinguishment related to forgiveness of the
Company's PPP Loan, were the primary reasons for the change from a net loss to a
net income for the nine months ended September 30, 2021. We also recorded a gain
from discontinued operations of $0.3 million compared to a loss of $0.4 million,
resulting in a $0.7 million favorable result to net income.



Results of discontinued operations for the three and nine months ended September 30, 2020 and 2019




As of September 1, 2021 the Company abandoned its REGS subsidiary. All revenue
and expenses of our REGS subsidiary for 2021 and 2020 are classified as
discontinued operations.



                                        For the three months ended          For the nine months ended
                                               September 30,                      September 30,
                                          2021               2020             2021               2020

Services revenue                      $           -       $   142,300     $     177,200       $  171,400

Services costs                              (55,800 )        (192,600 )        (314,900 )       (368,400 )
General and administrative expenses         (22,900 )         (26,200 )         (40,800 )        (79,900 )
Salaries and related expenses               (51,200 )         (72,500 )        (150,800 )       (254,100 )
Other income (expense)                      145,200            12,400           210,800          186,200
Gain on debt extinguishment                 410,600                 -           410,600                -
Total expenses                              425,900          (278,900 )    

114,900 (516,200)


Total income (loss) from
discontinued operations               $     425,900       $  (136,600 )   $
    292,100       $ (344,800 )




There is no provision for income taxes for both the three or nine months ended
September 30, 2021 and 2020, due to our net loss carryforwards and we continue
to maintain full allowances covering our net deferred tax benefits as of
September 30, 2021 and 2020.



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Changes in Cash Flow



Operating Activities



The Company had net cash used by operating activities for the nine months ended
September 30, 2021, and 2020 of $1.4 million and $1.3 million, respectively.
Cash used by operating activities is driven by our net loss and adjusted by
non-cash items as well as changes in operating assets and liabilities. Non-cash
adjustments primarily include depreciation, amortization of intangible assets,
stock-based compensation expense, provision for bad debt, non-cash interest
expense, gain on debt extinguishment, and gain on abandonment of subsidiary. Net
loss decreased for the nine months ended September 30, 2021, from approximately
$1.9 million, to a gain of $1.0 million. Non-cash adjustments decreased cash
flows $2.1 million for the nine months ended September 30, 2021, compared to
increasing cash flows $0.3 million for the nine months ended September 30, 2020.



Gain on abandonment of subsidiary totaled $1.5 million during first nine months
of 2021 compared to $0 in the first nine months of 2020, non-cash expense for
interest was $0 in the first nine months of 2021, and $0.1 million in the first
nine months of 2020, gain on extinguishment of debt totaled $0.6 million during
first nine months of 2021 compared to $0 in the first nine months of 2020, and
gain on disposal of fixed assets was $0.2 million in the first half of 2021, and
$0 in the first half of 2020.



In addition to the non-cash adjustments to net income, changes in assets and
liabilities include: a) changes in account receivable used approximately $0.3
million in cash in the first nine months of 2021, compared to providing $0.2
million in the first nine months of 2020, a net decrease in cash of
approximately $0.5 million, b) changes in inventory used approximately $21,900
in the first three months of 2021, compared to using $136,300 in the first nine
months of 2020, a net increase in cash of approximately $0.1 million, c) changes
in accounts payable, accrued liabilities, and customer deposits provided $0.1
million in the first nine months of 2021, compared to providing $0.2 million in
the first nine months of 2020, a net decrease in cash provided of approximately
$0.1 million, d) changes in costs in excess of billings on uncompleted contracts
used $96,800 in the first nine months of 2021, compared to using $15,000 in the
first half of 2020, a net increase in cash used of approximately $0.1 million.



Investing activities



Net cash provided by investing activities was $0.2 million for the nine months
ended September 30, 2021, compared to using $0.1 million of cash for the nine
months ended September 30, 2020. The purchase of property and equipment was
$3,000 for the nine months ended September 30, 2021, and $131,600 for the nine
months ended September 30, 2020. The proceeds from sale of fixed assets totaled
$0.2 million for the nine months ended September 30, 2021, while $0 for the nine
months ended September 30, 2020.



Financing Activities



Net cash provided by financing activities was approximately $1.3 million for the
nine months ended September 30, 2021, which was consistent with the nine months
ended September 30, 2020. The net of proceeds and payments related to debt of
approximately $1.2 million in the nine months ended September 30, 2021, compared
to approximately $0.7 million in the nine months ended September 30, 2020, and
the net proceeds related to paycheck protection program of approximately $0.1 in
the nine months ended September 30, 2021, compared to approximately $0.6 million
in the nine months ended September 30, 2020.



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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 $800 and
$11,800 has been reserved as of September 30, 2021, and December 31, 2020,
respectively.



The Company is exposed to credit risk in the normal course of business,
primarily related to accounts receivable. Our customers operate primarily in the
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,
2021, and December 31, 2020, 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



The Company evaluates the carrying value of long-lived assets for impairment on
an annual basis or whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. An asset is considered to be impaired
when the anticipated undiscounted future cash flows of an asset group are
estimated to be less than its carrying value. The amount of impairment
recognized is the difference between the carrying value of the asset group and
its fair value. Fair value estimates are based on assumptions concerning the
amount and timing of estimated future cash flows. No impairments were determined
as of September 30, 2021.



Revenue Recognition



Revenue is recognized under FASB guidelines, which requires an evaluation of
revenue arrangements with customers following a five-step approach: (1) identify
the contract with a customer; (2) identify the performance obligations in the
contract; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations; and (5) recognize revenue when (or as) the
company satisfies each performance obligation. Revenues are recognized when
control of the promised services are transferred to the customers in an amount
that reflects the expected consideration in exchange for those services. A
customer obtains control when it has the ability to direct the use of and obtain
the benefits from the services. Other major provisions of the guidance include
capitalization of certain contract costs, consideration of the time value of
money in the transaction price and allowing estimates of variable consideration
to be recognized before contingencies are resolved in certain circumstances. The
guidance also requires enhanced disclosures regarding the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts with customers.



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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.

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