Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion is intended to assist in understanding our business and
the results of our operations. It should be read in conjunction with the
Consolidated Financial Statements and the related footnotes and "Risk Factors"
that appear elsewhere in this Report. Certain statements in this Report
constitute "forward-looking statements." Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might cause such a difference include,
among others, uncertainties relating to general economic and business
conditions; industry trends; changes in demand for our products and services;
uncertainties relating to customer plans and commitments and the timing of
orders received from customers; announcements or changes in our pricing policies
or that of our competitors; unanticipated delays in the development, market
acceptance or installation of our products and services; changes in government
regulations; availability of management and other key personnel; availability,
terms and deployment of capital; relationships with third-party equipment
suppliers; and worldwide political stability and economic growth. The words
"believe," "expect," "anticipate," "intend" and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made. Unless the context requires otherwise, when we refer to
"we," "us" and "our," we are describing SEER and its consolidated subsidiaries
on a consolidated basis.
Overview
SEER was formed as a publicly traded company in early 2008 through a reverse
merger. SEER is dedicated to assembling complementary service and environmental,
clean-technology businesses that provide safe, innovative, cost effective, and
profitable solutions in the oil & gas, environmental, waste management and
renewable energy industries. SEER currently operates five companies with four
offices in the western and mid-western U.S. Through these operating companies,
SEER provides products and services throughout the U.S. and has licensed and
owned technologies with many customer installations throughout the U.S. Each of
the five operating companies is discussed in more detail below. The Company also
has non-controlling interests in joint ventures, some of which have no or
minimal operations.
The Company's domestic strategy is to grow internally through SEER's
subsidiaries that have well established revenue streams and, simultaneously,
establish long-term alliances with and/or acquire complementary domestic
businesses in rapidly growing markets for renewable energy, waste and water
treatment, and industrial services. The focus of the SEER family of companies,
however, is to increase margins by securing or developing proprietary, patented
and patent-pending technologies, and then leveraging its 20 plus-year service
experience to place these innovations and solutions into the growing markets of
emission capture and control, renewable "green gas" capture and sale, compressed
natural gas fuel generation, as well as general solid waste and
medical/pharmaceutical waste destruction. Many of SEER's current operating
companies share customer bases and each provides truly synergistic services,
technologies and products as well as annuity type revenue streams.
Financial Condition
As of December 31, 2021, we had approximately $7.5 million in negative working
capital, which represents a decrease of approximately $2.3 million from $9.8
million in negative working capital as of December 31, 2020. The primary reason
for that working capital deficit decrease from December 31, 2020, to December
31, 2021, is due to abandonment of REGS as an entity, stranding a net of
liabilities that are no longer consolidated liabilities under the Parent
Company.
As shown in the accompanying consolidated financial statements, the Company has
experienced recurring losses, and has accumulated a deficit of approximately
$29.4 million as of December 31, 2021, and $29.7 million as of December 31,
2020. For the year ended December 31, 2021, the Company realized net income of
approximately $0.5 million and in 2020, the Company incurred a net loss of
approximately $2.8 million.
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Realization of a major portion of our assets as of December 31, 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
efforts to address opportunities identified in expanding domestic markets
attributable to increased federal and state emission control regulations and a
growing demand for energy conservation and renewable energies. In addition, the
Company is evaluating various forms of financing that may be available to it.
There can be no assurance that the Company will secure additional financing for
working capital on favorable terms or at all, increase revenues and achieve the
desired result of net income and positive cash flow from operations in future
years. These financial statements do not give any effect to any adjustments that
would be necessary should the Company be unable to report on a going concern
basis.
Results of Continuing Operations for the Years Ended December 31, 2021, and 2020
Total revenues were $3.5 million and $2.7 million for the years ended December
31, 2021, and 2020, respectively. The increase of approximately $0.8 million or
28% in revenues comparing the year ended December 31, 2021, to the year ended
December 31, 2020, is primarily attributable to the increases in revenues from
our products segment revenue, which includes our environmental solutions
segment, which increased from $2.5 million for the year ended December 31, 2020,
to $3.2 million for the year ended December 31, 2021, an increase of
approximately $0.7 million or approximately 29%. Environmental solutions segment
generated more revenue, as the COVID affected general economic slowdown during
fiscal year 2020 improved during 2021. Our Solid Waste segment remained
consistent at $0.2 million for both 2021 and 2020.
Operating expenses, which include cost of products, cost of solid waste and
general and administrative (G&A) expenses, salaries and related expenses, were
approximately $4.2 million for both the years ended December 31, 2021, and 2020.
In total, operating expenses were consistent, but individual components did
change throughout the year. The increase in product costs of approximately $0.5
million for the year ended December 31, 2021, from the year ended December 31,
2020, coincides with the increase in product revenue above from $2.5 million to
$3.2 million. Margins were consistent at 32% for year ended December 31, 2021,
compared to 31% for the year ended December 31, 2020. This increase in product
costs was offset by a decrease in general and administrative expenses of
approximately $0.1 million in the year ended December 31, 2021, from the year
ended December 31, 2020, which was a result of reduced marketing and travel
expenses during 2021, and by a decrease of $0.3 million in salaries and related
expenses, as a result of a full year of reduced headcount, and ERTC credit
program, and reduced payroll taxes.
Total non-operating income or expense, net was $1.0 million of other income for
the year ended December 31, 2021, compared to $0.9 million expense for the year
ended December 31, 2020. During the year ended December 31, 2021, the Company
recorded $1.5 million gain on abandonment, resulting from the cessation 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. Additionally, the Company reported
interest expense of $0.7 million for the year ended December 31, 2021.
There is no provision for income taxes for both the years ended December 31,
2021, and 2020, due to our net operating loss carryforward for both periods and
we continue to maintain full valuation allowances covering our net deferred tax
benefits as of December 31, 2021, and 2020.
Net income, before discontinued operations and non-controlling interest, for the
year ended December 31, 2021, was $0.2 million compared to a net loss, before
discontinued operations and non-controlling interest, of $2.3 million for the
year ended December 31, 2020. The net income 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 $0.3 million for the year ended
December 31, 2021, as compared to a net loss of $2.7 million, after deducting
$34,700 in non-controlling interest and adding the $0.4 million loss from
discontinued operations, for the year ended December 31, 2020. As noted above,
an increase in non-operating income during 2021 of $1.8 million primarily due to
the $1.5 million gain from abandonment of REGS, the $0.2 million gain on debt
extinguishment related to the forgiveness of the Company's PPP Loan, and an
increase in revenue of $0.8 million, were the primary reason for the increase in
the net income.
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Results of Discontinued Operations for the Years Ended December 31, 2021, and
2020
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 years ended
December 31,
2021 2020
Services revenue $ 177,200 $ 171,400
Services costs (314,900 ) (423,700 )
General and administrative expenses (40,800 ) (102,300 )
Salaries and related expenses (150,800 ) (328,600 )
Other income 210,800 253,400
Gain on debt extinguishment 410,600 -
Total expenses 114,900 (601,200 )
Operating income (loss) 292,100 (429,800 )
Income tax benefit - -
Total income (loss) from discontinued operations $ 292,100 $ (429,800 )
There is no provision for income taxes for years ended December 31, 2021, and
2020, due to our net loss carryforwards and we continue to maintain full
allowances covering our net deferred tax benefits as of December 31, 2021, and
2020.
Liquidity and Capital Resources
The following table summarizes the net cash provided by (used in) operating,
investing and financing activities for the periods indicated:
Year Ended
December 31,
2021 2020
Operating activities $ (1,547,500 ) $ (1,690,100 )
Investing activities 189,100 160,500
Financing activities $ 1,499,900 $ 1,222,200
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Operating Activities
Net cash used in operating activities during the year ended December 31, 2021,
was $1.5 million compared to $1.7 million during the year ended December 31,
2020. Cash used in operating activities is driven by our net loss and adjusted
by non-cash items and changes in operating assets and liabilities. Non-cash
adjustments primarily include depreciation and amortization of property &
equipment and intangible assets, stock-based compensation expense, gain on
abandonment of subsidiary, gain on debt extinguishment, and non-cash interest
expense related to the issuance of common stock for short-term debt penalty. In
2021, net non-cash adjustments totaled approximately ($2.1) million and in 2020,
net non-cash adjustments totaled $0.2 million. 2021 non-cash adjustments
included ($1.5) million related to the gain on abandonment of subsidiary, and
($0.6) million related to gain on debt extinguishment.
In addition to the non-cash adjustments to net income, changes in assets and
liabilities include: a) changes in accounts receivable used $0.2 million in cash
in 2021, compared to providing $0.3 million in 2020, a net decrease in cash
provided of $0.5 million, b) costs in excess of billings on uncompleted
contracts used $3,200 in cash in 2021, compared to providing $235,700 in 2020, a
net decrease in cash provided of $0.2 million, c) inventory used $0.1 million in
2021, compared to using $0.3 million in 2020, a net decrease in cash used of
$0.2 million, d) accounts payable, accrued liabilities, and customer deposits
provided $26,700 in 2021, compared to providing $0.4 million in 2020, a net
decrease in cash provided of $0.4 million, d) billings in excess of revenue on
uncompleted contracts provided $0.2 million in 2021, compared to using $3,200 in
2020, a net increase in cash provided of $0.2 million,
Investing activities
Net cash provided by investing activities is primarily attributable to the
purchase of property and equipment, and the proceeds from notes receivable. Our
net cash flow provided by investing activities was $0.2 million for the year
ended December 31, 2021, and 2020. During 2021, we had proceeds of $0.2 million
from the sale of fixed assets. During 2020, we had additions to property and
equipment of $0.1 million, and proceeds of $0.3 million from sale of fixed
assets.
Financing Activities
Net cash provided by financing activities was approximately $1.5 million for
2021 and approximately $1.2 million for 2020. Proceeds from the issuance of
convertible and short-term debt, including the payroll protection program and
notes from related parties, was $1.7 million and $1.5 million in 2021 and 2020,
respectively. Payments on notes payable and capital lease obligations was $0.2
million in 2021 and $0.3 million in 2020.
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.
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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 $0 and
$11,800 had been reserved as of December 31, 2021, and 2020, respectively.
We are exposed to credit risk in the normal course of business, primarily
related to accounts receivable. Our customers operate primarily in the oil
production and refining, rail transport, biogas generating and wastewater
treatment industries in the United States. Accordingly, we are affected by the
economic conditions in these industries as well as general economic conditions
in the United States. To limit credit risk, management periodically reviews and
evaluates the financial condition of its customers and maintains an allowance
for doubtful accounts. As of December 31, 2021, and 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
We evaluate the carrying value of long-lived assets for impairment on an annual
basis or whenever events or changes in circumstances indicate that the carrying
amounts may not be recoverable. An asset is considered to be impaired when the
anticipated undiscounted future cash flows of an asset group are estimated to be
less than the carrying value. The amount of impairment recognized is the
difference between the carrying value of the asset group and its fair value.
Fair value estimates are based on assumptions concerning the amount and timing
of estimated future cash flows. For the year ended December 31, 2021, and 2020,
the Company did not have any impairment charges.
Revenue Recognition
In May 2014, the FASB issued guidance on revenue from contracts with customers
that superseded most current revenue recognition guidance, including
industry-specific guidance. The underlying principle of the guidance is to
recognize revenue to depict the transfer of goods or services to customers at an
amount to which the company expects to be entitled in exchange for those goods
or services. The new guidance requires an evaluation of revenue arrangements
with customers following a five-step approach: (1) identify the contract with a
customer; (2) identify the performance obligations in the contract; (3)
determine the transaction price; (4) allocate the transaction price to the
performance obligations; and (5) recognize revenue when (or as) the company
satisfies each performance obligation. Revenues are recognized when control of
the promised services are transferred to the customers in an amount that
reflects the expected consideration in exchange for those services. A customer
obtains control when it has the ability to direct the use of and obtain the
benefits from the services. Other major provisions of the guidance include
capitalization of certain contract costs, consideration of the time value of
money in the transaction price and allowing estimates of variable consideration
to be recognized before contingencies are resolved in certain circumstances. The
guidance also requires enhanced disclosures regarding the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts with customers.
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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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