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, 2022, we had approximately $9.6 million in negative working
capital, which represents a decrease of approximately $2.1 million from $7.5
million in negative working capital as of December 31, 2021. The primary reason
for that working capital deficit increase from December 31, 2021 to December 31,
2022, is is due an increase in accounts payable and short term borrowings.
As shown in the accompanying consolidated financial statements, the Company has
experienced recurring losses, and has accumulated a deficit of approximately
$32.0 million as of December 31, 2021, and $29.4 million as of December 31,
2021. For the year ended December 31, 2022, the Company incurred a net loss of
approximately $2.7 million the Company realized net income of approximately $0.5
million and in 2021.
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Realization of a major portion of our assets as of December 31, 2022, 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, 2022, and 2021
Total revenues were $4.1 million and $3.5 million for the years ended December
31, 2022, and 2021, respectively. The increase of approximately $0.7 million or
19% in revenues comparing the year ended December 31, 2022, to the year ended
December 31, 2021, is primarily attributable to the increases in revenues from
our products segment revenue, which includes our environmental solutions
segment, which increased from $3.2 million for the year ended December 31, 2021,
to $4.0 million for the year ended December 31, 2022, an increase of
approximately $0.8 million or approximately 25%. Environmental solutions segment
generated more revenue, as the company continues to recover from the economic
slowdown as result of COVID-19 pandemic.
Operating expenses, which include cost of products, cost of solid waste and
general and administrative (G&A) expenses, salaries and related expenses, were
approximately $6.2 million and $4.2 million for the years ended December 31,
2022, and 2021. In total, operating expenses increased as a result of increased
product costs of approximately $1.2 million for the year ended December 31,
2022, from the year ended December 31, 2021, coincides with the increase in
product revenue above from $3.2 million to $4.0 million. Margins increased were
16.4% for the year ended December 31, 2022, compared to 31% for the year ended
December 31, 2021. Salaries and related expenses increased by $0.3 million for
the year ended December 31, 2022, from the year ended December 31, 2021.
During the year ended December 31, 2022, the Company incurred impairment losses
of $0.3 million, compared to impairment losses of $0 for the year ended December
31, 2021.
Total non-operating income or expense, net was $0.6 million of other expense for
the year ended December 31, 2022, compared to $1.0 million of other income for
the year ended December 31, 2021. During the year ended December 31, 2022, the
Company incurred interest expense of $0.8 million. This was compared to a gain
on abandonment of $1.5 million during the year ended December 31, 2021.
There is no provision for income taxes for both the years ended December 31,
2022, and 2021, 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, 2022, and 2021.
Net loss, before discontinued operations and non-controlling interest, for the
year ended December 31, 2022, was $2.7 million compared to a net gain, before
discontinued operations and non-controlling interest, of $0.2 million for the
year ended December 31, 2021. The net loss attributable to SEER after deducting
$0.1 million for the non-controlling interest $2.6 million for the year ended
December 31, 2022, as compared to 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.
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,
2022 2021
Operating activities $ (1,024,000 ) $ (1,547,500 )
Investing activities (8,300 ) 189,100
Financing activities $ 865,000 $ 1,499,900
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Operating Activities
Net cash used in operating activities during the year ended December 31, 2022,
was $1.0 million compared to $1.5 million during the year ended December 31,
2021. 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, impairment
loss, gain on debt extinguishment, and non-cash interest expense related to the
issuance of common stock for short-term debt penalty. In 2022, net non-cash
adjustments totaled approximately $0.5 million and in 2021, net non-cash
adjustments totaled $2.1 million. 2022 non-cash adjustments included $0.3
million related to impairment loss, and $0.1 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 $0.3 million in cash
in 2022, compared to cash used of $0.2 million in 2021, a net increase in cash
used of $0.1 million, b) changes in contract assets used $0.1 million in cash in
2022, compared to providing $0 in 2021, a net decrease in cash provided of $0.1
million, c) inventory provided $0.2 million in 2022, compared to using $0.1
million in 2021, a net increase in cash provided of $0.3 million, d) accounts
payable, accrued liabilities, and customer deposits provided $1.4 million in
2022, compared to providing $26,700 in 2021, a net increase in cash provided of
$1.4 million, d) contract liabilites provided $10,100 in 2022, compared to
providing $0.2 million in 2021, a net decrease in cash provided of $0.2 million,
Investing activities
Net cash used by investing activities is primarily attributable to the purchase
of property and equipment. Our net cash flow used by investing activities was
$8,300 and $0.2 million was provided by investing activities for the years ended
December 31, 2022, and 2021 respectively. During 2021, we had proceeds of $0.2
million from the sale of fixed assets.
Financing Activities
Net cash provided by financing activities was approximately $0.9 million for
2022 and approximately $1.5 million for 2021. Proceeds from the issuance of
short-term and long-term debt, including the payroll protection program and
notes from related parties, was $0.9 million and $1.7 million in 2022 and 2021,
respectively. Payments on notes payable was $0.1 million in 2022 and $0.2
million in 2021.
Critical Accounting Policies, Judgments and Estimates
Use of Estimates
The preparation of these consolidated financial statements in conformity with
accounting principles generally accepted in the United States (U.S. GAAP)
requires management to make a number of estimates and assumptions related to the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period. Significant
items subject to such estimates and assumptions include the forecasted cash
flows used in the impairment testing of goodwill and intangible assets,
valuation allowances and reserves for receivables; revenue recognition related
to contracts accounted for under the percentage of completion method; and the
Company's ability to continue as a going concern. Actual results could differ
from those estimates.
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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 $179,000
and $0 had been reserved as of December 31, 2022, and 2021, 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, 2022, and 2021, we do not believe that
we have significant credit risk.
Goodwill and Intangible Assets
Intangible Assets. Intangible assets deemed to have finite lives are amortized
on a straight-line basis over their estimated useful lives, where the useful
life is the period over which the asset is expected to contribute directly, or
indirectly, to our future cash flows. Intangible assets are reviewed for
impairment on an interim basis when certain events or circumstances exist. For
amortizable intangible assets, impairment exists when the carrying amount of the
intangible asset exceeds its fair value. At least annually, the remaining useful
life is evaluated. An intangible asset with an indefinite useful life is not
amortized but assessed for impairment annually, or more frequently, when events
or changes in circumstances occur indicating that it is more likely than not
that the indefinite-lived asset is impaired. Impairment exists when the carrying
amount exceeds its fair value. In testing for impairment, the Company has the
option to first perform a qualitative assessment to determine whether it is more
likely than not that an impairment exists. If it is determined that it is not
more likely than not that an impairment exists, a quantitative impairment test
is not necessary. If the Company concludes otherwise, it is required to perform
a quantitative impairment test. To the extent an impairment loss is recognized,
the loss establishes the new cost basis of the asset that is amortized over the
remaining useful life of that asset, if any. Subsequent reversal of impairment
losses is not permitted.
Goodwill represents the excess of purchase price of acquired businesses over the
fair value of the assets acquired and liabilities assumed. Goodwill is allocated
to the reporting unit in which the business that created the goodwill resides.
The Company evaluates the recoverability of goodwill annually; however, we could
be required to evaluate the recoverability of goodwill more often if impairment
indicators exist.
In 2022, we early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment, which eliminates the
two-step goodwill impairment process. Goodwill is first qualitatively assessed
to determine whether further impairment testing is necessary. Factors that
management considers in this assessment include macroeconomic conditions,
industry and market considerations, overall financial performance (both current
and projected), changes in management and strategy, and changes in the
composition or carrying amount of net assets. If this qualitative assessment
indicates that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, a one-step test is then performed by
comparing the fair value of a reporting unit to its carrying amount. If the fair
value of a reporting unit is less than its carrying value, an impairment charge
will be recorded for the difference between the fair value and carrying value,
but is limited to the carrying value of the reporting unit's goodwill. An
impairment loss was charged to goodwill in the amount of $277,800 for the year
ended December 31, 2022. No impairment was recorded for the year ended December
31, 2021.
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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