EVERGREEN SUSTAINABLE ENTERPRISES, INC. The following discussion is intended to assist you in understanding our results of operations and our present financial condition and contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. We caution you that our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are discussed elsewhere in this Annual Report, particularly in the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors," all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
There is limited historical financial information about our Company upon which to base an evaluation of our future performance. We cannot guarantee that we will be successful in our hemp businesses. We are subject to risks inherent in a small company, including limited capital resources, delays and cost overruns due to price and cost increases. There is no assurance that future financing will be available to our company on acceptable terms. Additional equity financing could result in dilution to existing shareholders.
Overview
We are a holding company active within the "hemp" space. We were incorporated on
On
We also generate revenue from rental of our "Cannabis Zoned" (Hemp) warehouse
property located in
Liquidity - The Company is dependent upon obtaining additional funding to continue ongoing operations and to pursue its strategy and execute its acquisition plans.
In 2021, the Company used
The Company will continue to pursue additional capital raising opportunities in order to fund future acquisitions and meet its obligations as they become due. In the event financing cannot be obtained, the Company may not be able to satisfy these plans and obligations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Impact of COVID-19 Pandemic on Our Business - Our business, results of
operations and financial condition have been adversely affected by the COVID-19
pandemic, beginning in
How the Company Generates Revenue
We provide post-harvest and midstream services to growers by drying, processing,
cleaning and stripping harvested hemp directly from the field and wetbaled at
our leased 48,000 square foot facility located in
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We also generate revenue from rental of our "Cannabis Zoned" (Hemp) warehouse
property located in
Our Costs and Expenses of Conducting Business
The principal costs and expenses involved in conducting our business are labor, materials and overhead costs for processing services, real estate holding costs (interest, taxes, depreciation and maintenance costs) and general and administrative expenses for our management, contract labor, professional fees and other costs of being a public company. We also incur costs in seeking acquisitions and financings of our business.
Discontinued Oil & Gas Activities
As of
Results of Operations
Years Ended
The net loss for the year ended
The Company reports its oil & gas activities as discontinued operations. Loss
from discontinued operations was
Revenue. We commenced post-harvest and midstream services for new and renewed
customer contracts in the third quarter of 2021. These revenues are typically
limited due during the first half of each year until harvest. In 2020 (prior to
our acquisition), Halcyon had revenues of
Rental revenue was
Cost of Revenue. Cost of revenue for 2021 was
Depreciation and Amortization. Depreciation and amortization expense totaled
Merger and Acquisition Costs. We incurred
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General and Administrative Expense. General and administrative expenses totaled
Other Income/Expense. Total other expense was
In 2021, we sold our investment in the marketable common stock we held for total
proceeds of
We received notice that the Company's PPP Loan principal and interest thereon
was fully forgiven on
Loss from Discontinued Operations. In 2021, we recognized a loss from
discontinued operations of
In 2019, the Company's oil and gas properties became impaired and the carrying amount of the properties was expensed to the market decline and the Company's determination to exit the oil and gas business.
Liquidity and Capital Resources
Our primary source of cash from continuing operations includes post-harvest and midstream services and rental revenue. Our primary uses of cash include our operating costs, general and administrative expenses and merger and acquisition expenses.
Cash flow information from continuing operations for the first nine months of 2021 was as follows:
? Cash used in operating activities was$3.5 million principally due to the net loss adjusted for non-cash items. ? Net cash used in investing activities totaled$1.6 million including an expenditure of$1.5 million for the cash portion of the total consideration for the Halcyon acquisition and proceeds from the sale of our investment in common stock of$35 thousand . We made capital expenditures totaling$78 thousand for new processing equipment to expand our business lines to include post-processing of biomass. ? Net cash from financing activities totaled$2.3 million . This amount included$4.3 million of cash inflows from the issuance of common stock units and proceeds from warrant exercises. As well, we received$410 thousand in advances from our CEO under promissory notes. We used$2.2 million of cash for repayment of outstanding indebtedness and$154 thousand for payment of scheduled redemptions and dividends on the Series B preferred stock.
We had no cash flows from discontinued operations in 2021.
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Funding Requirements
We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our overall expenses may increase significantly as we grow our hemp business.
We anticipate that we will require additional capital to fund operations, including hiring additional employees, completing acquisitions and funding capital expenditures during the next twelve-month period.
Because of the numerous risks and uncertainties associated with the development and commercialization of our business, we are unable to estimate the amounts of increased capital outlays and operating expenses. Our future capital requirements will depend on many factors, including:
? our success in identifying and making acquisitions of profitable operations;
? our ability to negotiate operating contracts with growers and others within
the hemp industry on favorable terms, if at all;
? deriving revenue from our assets and operations; and
? the cost of such operations and costs of being a public company.
Until such time as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our growth plans and future commercialization efforts.
Off-Balance Sheet Arrangements
As of
Indebtedness
The Company's indebtedness at
In the first quarter of 2022,
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with
Impairment of Long-lived Assets. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events and circumstances include, but are not limited to, a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, a significant adverse change in the extent or manner in which we use a long-lived asset or a change in its physical condition.
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When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying amount. If the projected undiscounted cash flows are less than the carrying amount, an impairment is recorded for the excess of the carrying amount over the estimated fair value.
We make various assumptions, including assumptions regarding future cash flows in our assessments of long-lived assets for impairment. The assumptions about future cash flows and growth rates are based on the current and long-term business plans related to the long-lived assets.
Stock-based Compensation - We account for employee stock-based compensation using the fair value method. Compensation cost for equity incentive awards is based on the fair value of the equity instrument generally on the date of grant and is recognized over the requisite service period. Forfeitures are recognized as they occur.
Recent Accounting Pronouncements. See Item 8 of Part II, "Financial Statements and Supplementary Data-Note 2-Summary of Significant Accounting Policies-Recent Accounting Pronouncements."
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