What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-03-22 compared with 2023-03-22 · 86 added, 104 removed, 180 unchanged (51% of the section changed)

Market for Registrant ’

s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the Nasdaq Capital Market under the symbol LIQT.

As of December 31, 2022, there were approximately 31 stockholders of record of our common stock as reported by our transfer agent, one of which is Cede & Co., a nominee for Depository Trust Company (“DTC”).

As of December 31, 2023, there were approximately 33 stockholders of record of our common stock as reported by our transfer agent, one of which is Cede & Co., a nominee for Depository Trust Company (“DTC”).

All of the shares of common stock held by brokerage firms, banks, and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held of record by Cede & Co.

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Since the beginning of our fiscal year ended December 31, 2023, we have not repurchased any of our equity securities.

Selected Financial Data

Not applicable. 

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

We are a Nevada corporation, formerly named Blue Moose Media, Inc.

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2023 Developments

On March 18, 2022 the Company announced that Sune Mathiesen, Chief Executive Officer, had taken a medical leave of absence.

Buehler, a member of the Board of Directors, was appointed to serve as Interim Chief Executive Officer, effective immediately.

In May 2022, the Company issued 22,535,850 shares of Common Stock and 30,425,000 prefunded warrants in a public offering to fund working capital, general corporate purposes, and partial repayment of its Senior Convertible Note.

The total net proceeds from the offering and exercise of the over-allotment option was $24,453,528, which includes $1,996,472 in discounts, commissions and offering expenses paid by the Company.

On June 23, 2022, the Company completed a private placement of Senior Notes in an aggregate principal amount of $6,000,000 and warrants to purchase 4,250,000 shares of common stock of the Company to affiliates of Bleichroeder L.P., 21 April Fund, L.P., and 21 April Fund, Ltd.

(together, the "Purchasers"), pursuant to a note and warrant purchase agreement.

Additionally, as part of the transaction, the Company issued 230,000 warrants to the placement agent.

All warrants issued in this transaction have an exercise price of $0.65 per share, a term of five years, and are exercisable for cash at any time. 

On July 29, 2022, the Company announced the appointment of Fei Chen as President & Chief Executive Officer, and a member of the Company’s Board of Directors.

On November 17, 2022, the Company entered into a new distribution agreement with NESR for commercialization of produced water treatment solution for re-injection.

On December 20, 2022, the Company entered into a cooperation agreement with Ecolotron Wasterwater Solutions on a combined solution for Phosporic acid purification

On February 15, 2023, the Company entered into a distribution agreement with Liquinex regarding the supply of silicon carbide ceramic membranes.

On April 25, 2023, the Company entered into a distribution agreement with Silicon Filter for Phosphoric Acid Purification Applications in China.

On May 26, 2023, the Company completed a 1-for-8 reverse split of its issued and outstanding shares of Common Stock.

On June 27, 2023, the Company announced that Chairman Mark Vernon would retire from the Board with immediate effect.

Buehler, a member of the Board of Directors, was appointed as the new Chairman of the Board.

Further, the Company announced that Martin Kunz was appointed to the Company’s Board of Directors, also with immediate effect.

On October 13, 2023, the Company and the Purchasers entered into an amendment to the Note and Warrant Purchase Agreement (the “ Amendment ”) and Allonge No.

1 to each of the Notes (collectively, the “ Allonges ”), each as more fully described in the current report on Form 8-K filed with the SEC on October 19, 2023, effective as of September 30, 2023, pursuant to which the Company and the Purchasers extended the maturity date of the Notes from June 20, 2024, to January 1, 2026 (the “ Extension ”).

On October 30, 2023, the Company entered into a distribution agreement with Barr + Wray for Aqua Solution® swimming pool water filtration systems covering the Middle East.

On November 2, 2023, the Company entered into a distribution agreement with Waterco for Aqua Solution® swimming pool water filtration systems covering Australia, New Zealand, Papua New Guinea, and the Pacific Islands.

On November 13, 2023, the Company filed an amendment to its Articles of Incorporation to increase the number of authorized shares of the Company’s common stock from 12,500,000 shares to 50,000,000 shares, which was approved by the Company’s stockholders at the Company’s on November 9, 2023.

Results of Operations

Results of Operations for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021  

Results of Operations for the Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

The following table sets forth our revenues, expenses, and net income for the years ended December 31, 2023 and 2022 in U.S.

dollars, except for percentages.  

For the Year Ending December 31,

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Gain (Loss) on lease termination

Gain (Loss) on sale of fixed assets

Gain (Loss) on assets held for sale

Gain (Loss) on sale of property and equipment

Total Other Income (Expense)

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Income Taxes Provision (Benefit)

Revenue for the year ended December 31, 2022 was $15,982,438 compared to $18,273,442 for the same period in 2021, representing a decrease of $2,291,004, or 13%.

The decline in revenue was primarily due to lower system sales and currency headwinds due to weakening of the EUR and DKK compared to the USD, partly offset by growth in sales of DPFs and plastics products measured in local currency.

Revenue for the year ended December 31, 2023 was $18,001,652 compared to $15,982,438 for the same period in 2022, representing an increase of $2,019,214, or 13%.

The increase in revenue was underpinned by an uptick in system sales, general spare parts and related services, and plastic component sales, partly offset by a decline in sales of DPFs and ceramic membranes.

For the years ended December 31, 2023 and 2022, sales of systems, spare parts and related services were $7,705,080 and $5,297,286, respectively, and accounted for 42% and 33% of our total sales.

For the years ended December 31, 2022 and 2021, sales of DPFs and ceramic membranes were $6,844,861 and $7,183,868, respectively, and accounted for 43% and 39% of our total sales.

For the years ended December 31, 2023 and 2022, sales of DPFs and ceramic membranes were $6,232,628 and $6,844,861, respectively, and accounted for 35% and 43% of our total sales.

For the years ended December 31, 2023 and 2022, plastics revenues were $3,736,529 and $3,528,606, respectively, and accounted for 21% and 22% of our total sales.

The decrease in sales of systems and related services of $1,899,179, reflecting a year on year decline of 26%, was a result of the negative impact of the uncertain macroeconomic environment and prolonged inflationary pressure, but also increased supply chain restrictions and general market volatility, which has resulted in significant restrictions and business limitations including a substantial decline in the demand and delivery of water treatment systems for the global marine scrubber industry.

The demand for our ceramic membranes and DPFs reflects continued interest in advanced environmental filtration solutions with a focus on the reduction of global CO2 emissions amid increased political and regulatory efforts, resulting in a year-on-year constant currency increase of 7%, offset by the negative impact of the currency headwinds from the weakening of the EUR compared to the USD, resulting a year-on-year decline of 5% to $6,844,861.

The sale of plastic products benefitted from a year-on-year increase of 10% measured in local currency predominantly in the first half of the year underpinned by a diversified customer base, stable order intake, and delivery of large orders for the Asia Pacific marked, followed by increased uncertainty and reduced activity levels amid the European energy crisis in the second half of the year.

In addition, the adverse impact of the USD appreciation against the DKK-denominated revenue base resulted in the year-on-year decline of 2% to $3,528,606.

For the years ended December 31, 2022 and 2021, revenue from R&D projects was $311,685 and $277,428, respectively, an increase of 12%.

Gross profit for the year ended December 31, 2022 was $567,144 compared to $1,576,146 for the same period in 2021, representing a decrease of $1,009,002, or approximately 64%.

The decrease in gross profit was largely the result of lower overall market activity and a lower relative mix of filtration system sales in our product mix, which typically command higher average gross margins.

Gross profit was further negatively impacted by the European energy crisis amid the Russia and Ukraine conflict and corresponding high electricity costs that also negatively impacted our competitive positioning as compared to companies operating outside of Europe, where the energy crisis has been less pronounced.

Proactive measures such as the reduction in capacity and the implementation of electricity price surcharges were implemented by the company to defend profitability to the extent possible.

Furthermore, gross profit also included higher provisions for obsolescence and certain non-recurring costs associated with a strategic review of inventories.

The increase in system sales and related services of $2,407,794, reflecting a year-on-year increase of 46%, is a result of the increased focus on aftermarket activities through the establishment of a new dedicated aftermarket organization that generated an uptick in spare parts and membrane housing orders, , coupled with continued traction within our system business related to pool and marine system deliveries as well as oil & gas and industrial system applications.

The sales of DPFs and ceramic membranes experienced a year-on-year decline of 9% to $6,232,628, as the year ended December 31, 2022, benefitted from delivery of a large legacy DPF order.

In addition, the Company has applied a deliberate focus to optimize the product mix in favor of higher-margin products, explaining the significant improvement in gross profit for the year.

The sale of plastic products benefitted from a year-on-year increase of 6% to $3,736,529, underpinned by increased customer diversification, stable order intake, and the successful execution of a large new order for the construction industry.

For the years ended December 31, 2023 and 2022, revenue from R&D projects was $327,415 and $311,685, respectively, reflecting an increase of 5%.

Gross profit for the year ended December 31, 2023, was $2,775,476, or 15.4%, compared to $567,144, or 3.5%, for the same period in 2022, representing an increase of $2,208,332, or approximately 389%.

The increase derives from a reduction in cost of goods sold due to an improved product mix and increased pricing discipline within the legacy ceramic DPF business, coupled with continued delivery of profitable system and aftermarket orders within the pool, oil & gas, and phosphoric acid businesses.

These efforts resulted in improved profitability, despite remediation costs related to legacy system deliveries and increased depreciation from recent investments in manufacturing equipment and facilities to improve kiln utilization and manufacturing throughput.

Included in the gross profit for the year ended December 31, 2023 is depreciation of $2,575,824 compared to $1,822,402 for the same period in 2022.

Total operating expenses for the year ended December 31, 2022 were $13,100,898, representing an increase of $837,428, or approximately 7%, compared to $12,263,470 for the same period in 2021.

Excluding restructuring charges of approximately $1.9 million, 2022 operating expenses were 9% lower than 2021.

More importantly the fourth quarter operating expenses were approximately 34% lower compared to the same period in 2021.

Selling expenses for the year ended December 31, 2022, were $3,669,887 compared to $4,564,188 for the same period in 2021, representing a decrease of $894,301 or approximately 20%.

The decrease is explained by the cost reduction and reorganization efforts initiated in 2022, including headcount reductions and organizational streamlining, partly offset by increased costs associated with increasing direct sales efforts, consulting service engagements, direct marketing activities, and bad debt provisions.

Total operating expenses for the year ended December 31, 2023, were $10,574,526, representing a decrease of $2,526,372, or approximately 19%, compared to $13,100,898 for the same period in 2022.

Adjusting for the reported restructuring costs of $1,893,166 incurred in 2022, total operating expenses decreased by $633,206, or 6%.

Selling expenses for the year ended December 31, 2023, were $4,298,905 compared to $3,669,887 for the same period in 2022, representing an increase of $629,018, or approximately 17%.

The increase is explained by the onboarding of new sales and commercial leadership in 2023, partly offset by the ongoing focus on cost reduction and reduced bad debt expenses.

General and administrative expenses for the year ended December 31, 2023, were $4,856,779 compared to $5,701,955 for the same period in 2022, representing a decrease of $845,176, or 15%.

The decrease for the year ended December 31, 2022, reflects the benefits of the cost reduction and restructuring efforts implemented in the first half of 2022 and fully implemented by the end of the year with favorable currency tailwinds from the weakening of the DKK compared to USD.

However, these savings were partly offset by non-recurring costs related to the CEO transition (increased non-cash compensation and recruitment expense) and consultancy costs associated with the now closed Chinese factory.

Included in general and administrative expenses is non-cash compensation expense of $934,423 and $481,105 for the years ended December 31, 2022 and December 31, 2021, respectively, representing an increase of $453,318, or 94%, attributable to stock grants to management in the context of the CEO transition. 

The decrease is attributed to reduced legal expenses, the absence of costs associated with the now-closed production facility in China, the CEO transition, and other transition costs related to management changes executed in 2022.

Included in general and administrative expenses is non-cash compensation expense of $627,904 and $934,423 for the years ended December 31, 2023 and December 31, 2022, respectively, representing a decrease of $306,519, or 33%, mainly explained by the stock grants awarded to management amid the 2022 CEO transition.

The following is a summary of our non-cash compensation:

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Total Non-Cash Compensation

Research and development expense for the year ended December 31, 2022 was $1,835,890 compared to $1,862,653 for the same period in 2021, representing a decrease of $26,763, or 1%.

The change is attributable to increased spending on materials used for ongoing development projects and patent applications, offset by the benefit of the USD appreciation and a decrease in the average number of employees engaged in research and development activities, as the Company streamlined and centralized the R&D function.

Restructuring costs for the year ended December 31, 2022, were $1,893,166 compared to $0 for the same period in 2021 fully attributable to the restructuring program that was executed in the second quarter (See Note 3).

Research and development expense for the year ended December 31, 2023, was $1,418,842 compared to $1,835,890 for the same period in 2022, representing a decrease of $417,048, or 23%.

The decrease was attributable to the centralization of R&D efforts to streamline R&D spend and allow for better resource allocation and prioritization of projects.

Restructuring costs for the year ended December 31, 2023, were $0 compared to $1,893,166 for the same period in 2022.

Other income (expenses)

Total Other income (expense) for the year ended December 31, 2022 was $(1,872,763) compared to $(502,672) for the comparable period in 2021, representing an increase of $(1,370,091), or 273%.

The change is mainly related to the lower gain on currency transactions and the early repayment of the Convertible Note issued in April 2021, reflecting the full recognition of the repayment premium and amortization cost in the second quarter.

Other income for the year benefited from the decrease in interest expenses due the repayment of the Convertible Note, receipt of COVID-19 grants to the Danish entities, and a gain associated with lease terminations. 

Total Other income (expense) for the year ended December 31, 2023, was $(978,302) compared to $(1,872,763) for the comparable period in 2022, representing a decrease of $894,462, or 48%.

Total Other income (expense) in 2023 reflects a loss on assets held for sale along with a reduced gain on currency transactions, with the increased levels in the prior period explained by non-recurring transactions related to the now-closed production facility in China, the receipt of COVID-19 grants, and the early repayment of the Convertible Note.

Income taxes provision

The income tax benefit for the year ended December 31, 2022 was $237,410 compared to a benefit of $63,036 for the comparable period in 2021, representing an increase of $174,374, or 277%, mainly driven by an increase in tax credits associated with research and development activities in Denmark.

Net Income/Loss

Net income/loss for the year ended December 31, 2022 was $(14,169,107) compared to $(11,126,960) for the comparable period in 2021, representing an increased loss of $3,042,147.

The change was primarily attributable to non-recurring restructuring costs, early repayment of the Convertible Note issued in April 2021, the increase in non-cash compensation, the closure of the production facility in China, and the CEO transition.

Furthermore, the change was also impacted by a decline in gross margin, caused largely by inflationary cost pressures on raw materials and electricity, lower overall sales activity levels and an unfavorable revenue mix with a lower share of higher margin systems sales.

Increased costs were partly offset by the benefits from the USD appreciation against the EUR/DKK-denominated cost base, general cost reductions and reorganization activities.

The income tax benefit for the year ended December 31, 2023, was $206,207 compared to a benefit of $237,410 for the comparable period in 2022, representing a decrease of $31,203, or 13%, mainly driven by a decrease in tax credits associated with research and development activities in Denmark.

Net loss for the year ended December 31, 2023 was $(8,571,145) compared to $(14,169,107) for the comparable period in 2022, representing an improvement of $5,597,963, or approximately 40%.

The change was primarily attributable to the improved gross profit combined with the notable non-recurring items recorded in 2022, including restructuring costs, early repayment of the Convertible Note, closure of the production facility in China, and the CEO transition.

Liquidity and Capital Resources

Based on the continued market volatility and geopolitical unrest pertaining to the Russia and Ukraine conflict, European energy crisis, and macro-economic uncertainty, the Company is unable to predict the full impact this will have on our long-term financial condition, results of operations, liquidity, and cash flows.

The Company has planned and executed on decisive measures in 2022 to help safeguard the business and its financial position by reducing cost, headcount, and overall capex commitments, which together with the successful completion of the $26.5 million public offering of common stock and pre-funded warrants, substantially improved the near-term liquidity position of the Company.

Furthermore, in June 2022, the Company completed the refinancing of its $15 million Convertible Note due in 2023, partly funded by the issuance of the new $6 million Senior Promissory Notes due in June 2024 along with the proceeds from the public offering.

The Senior Promissory Notes are interest-free, with full redemption after 24 months.

Based on current projections, which are subject to significant uncertainties, including the duration and severity of global macroeconomic issues, commodity volatility, and continued global supply chain disruptions, the Company believes the cash on hand, as well as ongoing cash generated from operations, will be sufficient to cover its capital requirements and committed investments for the next 12 months.

Continued market uncertainty and reduced order intake caused by weakening global macroeconomic conditions, recession, or a resurgence of the COVID-19 pandemic, however, could unfavorably impact the Company’s ability to generate positive cash flow and thereby significantly reduce its profitability and liquidity position.

In relation to the delivery and installation of new machinery and equipment to facilitate revenue growth, the Company has secured approximately $1.4 million of new finance leases from financial institutions to further strengthen its liquidity.

On September 30, 2023, the Company proactively addressed the maturity of the $6 million senior promissory notes, extending the original maturity from June 2024 to January 2026 with terms and conditions that are generally aligned with the original agreement dated on June 22, 2022.

Based on current projections, which are subject to significant uncertainties--including the duration and severity of global macroeconomic issues, geopolitical instability, commodity price volatility, and continued global supply chain disruptions--the Company believes that the cash on hand, as well as ongoing cash generated from operations, will be sufficient to cover its capital requirements and committed investments for the next 12 months.

While the Company anticipates that its proactive measures will be sufficient to protect the business over the coming 12 months, the Company cannot predict the specific duration and severity of the unfavorable market dynamics that may adversely affect the business.

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The Company has historically satisfied its capital and liquidity requirements through offerings of equity instruments, cash from operations, and our available lines of credit.

On December 31, 2022, the Company had net working capital of $21,581,287, including cash of $16,597,371, and on December 31, 2021, the Company had net working capital of $11,199,258, including cash of $17,489,380.

The increase in net working capital of $10,382,029 compared to December 31, 2021 is mainly a result of the capital raise and repayment of the Convertible Note.

On December 31, 2023, we had cash of $10,422,181 and net working capital of $14,590,430, and on December 31, 2022, we had cash of $16,597,371 and net working capital of $21,581,287.

On December 31, 2023, our net working capital had decreased by $6,990,857 compared to December 31, 2022, mainly due to a reduction in cash and cash equivalents.

In connection with certain orders, we provide the customer a working guarantee, a prepayment guarantee, or a security bond.

For that purpose, we maintain a guaranteed credit line of EUR 850,000 (approximately $940,000), which is secured by a cash deposit.

Going Concern and Management ’

The financial statements included elsewhere herein for the year ended December 31, 2022, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business.

As of December 31, 2022, we had cash and cash equivalents of $16,597,371, an accumulated deficit of $67,351,035, and total liabilities of $16,816,283.

We have incurred losses from continuing operations, have used cash in our continuing operations, and are dependent on additional financing to fund operations.

Going Concern and Management ’ s Plans

The financial statements included herein for the period ended December 31, 2023, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business.

As of December 31, 2023, we had cash and cash equivalents of $10,422,181, net working capital of $14,590,430, an accumulated deficit of $75,922,180, and total assets and liabilities of $35,971,847 and $18,695,831, respectively.

We have incurred losses from continuing operations, used cash in our continuing operations, and remain dependent on external financing to fund operations.

These conditions raise substantial doubt about our ability to continue as a going concern for one year after the date the financial statements are issued.

The financial statements included elsewhere herein do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

The Company has initiated substantial cost reductions and profitability improvement measures in order to right size the business and develop a clear and sustainable path to profitability, further underpinned by an updated strategy and onboarding of key management resources.

However, there can be no assurance that the Company will be able to obtain any sources of funding.

The Company has initiated substantial cost reductions and profitability improvement measures to help right-size the business and develop a clear and sustainable path to profitability, further underpinned by an updated strategy and onboarding of key executives.

There can be no assurance, however, that the Company will be able to obtain any sources of funding.

Such additional funding may not be available or may not be available on reasonable terms, and in the case of equity financing transactions, could result in significant additional dilution to our stockholders.

If we do not obtain required additional equity or debt funding, our cash resources will be depleted and we could be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained.

If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that could result in our stockholders losing some or all of their investment in us.

Funding that we may receive during fiscal 2023 is expected to be used to satisfy existing and future obligations and liabilities and working capital needs, as well as future operating losses.

If we do not obtain required additional equity or debt funding, our cash resources could be depleted and we could be required to materially reduce or suspend operations, which would likely have a material adverse effect on our business, stock price, and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Cash used by operating activities is net income (losses) adjusted for certain non-cash items and changes in assets and liabilities.

Cash used by operating activities for the year ended December 31, 2022 was $12,039,020 compared to cash used by operating activities of $7,203,843 for the year ended December 31, 2021, representing an increase of $4,835,177.

Cash used by operating activities for the year ended December 31, 2023, was $4,183,918 compared to cash used by operating activities of $12,039,020 for the year ended December 31, 2022, representing a decrease of $7,855,102.

The cash used by operating activities for the year ended December 31, 2023, consists mainly of the net loss for the year of $(8,571,145) adjusted by depreciation and other non-cash items of $4,544,181.

Further, changes in assets and liabilities include an increase of Accounts receivables of $460,837, an increase in Contract assets/liabilities of $695,616, and a decrease in Accrued expenses of $1,632,896, offset by a decrease in Inventory of $984,130.

Net cash used in investing activities was $1,689,986 for the year ended December 31, 2022 as compared to $1,450,139 for the year ended December 31, 2021, representing an increase of $239,847, or 17%.

Further, changes in assets and liabilities included an increase of Inventory of $1,045,838, an increase of Accounts receivables of $765,956, and an increase in Contract assets/liabilities of $1,108,589, offset by a decrease in Deposits of $1,403,707 and an increase of Accounts payable of $990,538.

Net cash used in investing activities was $2,886,036 for the year ended December 31, 2023, as compared to $1,689,986 for the year ended December 31, 2022, representing an increase of $1,196,050.

The investing activities include the purchase of property and equipment to satisfy earlier commitments made for the production facility in China, with select equipment re-directed to the manufacturing facility in Ballerup as part of the strategic negotiation with vendors.

Cash provided by financing activities was $13,696,551 for the year ended December 31, 2022 as compared to $13,902,999 for the year ended December 31, 2021.

For the year ended December 31, 2022, the change is mainly explained by the equity capital raise in the second quarter, generating net proceeds of $24,418,612 from the issuance of common stock and prefunded warrants, combined with the $6,000,000 proceeds from the issuance of the new Senior Promissory Notes, and offset by the full repayment of the Convertible Note issued in April 2021 of $16,800,000.

For the year ended December 31, 2021, the change was mainly attributable to the net cash proceeds of $14,283,333 related to the Convertible bond issuance in March 2021.

Cash provided by financing activities was $580,645 for the year ended December 31, 2023, as compared to $13,696,551 for the year ended December 31, 2022, representing a decrease of $13,115,906.

The decrease was mainly driven by the equity raise recorded in May 2022, generating net proceeds of $24,418,612 from the issuance of Common Stock and prefunded warrants, coupled with proceeds of $6,000,000 from the issuance of the new Senior Promissory Notes, and partly offset by the full repayment of the Convertible Note issued in April 2021 of $16,800,000.

Net Cash Used in Operating Activities

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Critical Accounting Policies

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements.

The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements, which have been prepared in accordance with U.S.

Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.

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The recognition and measurement of loss contingencies, which impact cost of sales or operating expenses when we recognize a loss contingency, revise the estimate for a loss contingency, or record an asset impairment.

We discuss these policies further below as well as the estimates and judgments involved. 

Accounts Receivable / Long-Term Receivable / Allowance for Doubtful Accounts / Bad Debt

We assess the collectability of accounts receivable and long-term receivables on an ongoing basis and establish an allowance for doubtful accounts when collection is no longer reasonably assured.

In establishing the allowance, we consider factors such as known troubled accounts, historical experience, age of receivables, financial and liquidity information that is publicly accessible, and other currently available evidence.

Accounts receivable consist of trade receivables arising from credit sales to customers in the normal course of business.

These receivables are recorded at the time of sale, net of an allowance for current expected credit losses.

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 326, “Financial Instruments – Credit Losses,” the Company estimates expected credit losses based on historical bad debt experience, the aging of accounts receivable, the current creditworthiness of our customers, prevailing economic conditions, and reasonable and supportable forward-looking information.

The roll-forward of the allowance for doubtful accounts for the year ended December 31, 2023 and December 31, 2022 was as follows:

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Allowance for doubtful accounts at the end of the period

The receivables written off during the period 2022 mainly relates to legacy marine scrubber contracts and partnerships, renegotiated and terminated amid the COVID disruptions and general slowdown in the marine scrubber market.

Goodwill and Definite-life intangible assets

The Company accounts for Goodwill and definite-life intangible assets in accordance with the provisions of the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles, Goodwill and Other.

Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of Topic 350.

Impairment losses arising from this impairment test, if any, are included in operating expenses in the period of impairment.

Topic 350 requires that definite intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with Topic 360, Criteria for Recognition of an Impairment of Long-Lived Assets.

Topic 350 requires that definite-life intangible assets be amortized over their respective estimated useful lives and reviewed for impairment in accordance with Topic 360, Criteria for Recognition of an Impairment of Long-Lived Assets.

The Company did not record an impairment charge on goodwill during the years ended December 31, 2023 and 2022, as management's estimated fair value of the reporting unit exceeded its carrying value determined during impairment testing in the fourth quarters of 2023 and 2022.

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We measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows.

If an asset grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired.

The impairment is measured by comparing the difference between the asset grouping’s carrying value and its fair value.

If an asset grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired.

The impairment is measured by comparing the difference between the asset grouping’s carrying value and its fair value.

Impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows.

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In addition, as we make manufacturing process changes and other factory planning decisions, we must make subjective judgments regarding the remaining useful lives of assets, primarily process-specific filter manufacturing tools and building improvements.

If we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’

new, shorter useful lives.

If we determine that the useful lives of assets are shorter than we had originally estimated, we accelerate the rate of depreciation over the assets’ new, shorter useful lives.

Management has analyzed the impact of the current economic climate on its financial statements as of December 31, 2023, and has determined that the changes to its significant judgements and estimates did not have a material impact with respect to goodwill, intangible assets, or long-lived assets.

During the years ended December 31, 2022 and 2021, no impairment charge of long-lived assets has been recorded. 

During the years ended December 31, 2023 and 2022, no impairment charge of long-lived assets has been recorded.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,”

which includes clarifying ASUs issued in 2015, 2016 and 2017 (“new revenue standard”).

On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” which includes clarifying ASUs issued in 2015, 2016 and 2017 (“new revenue standard”).

The new revenue standard was applied to all open revenue contracts using the modified retrospective method as of January 1, 2018.

The Company sells products throughout the world;

The Company sells products throughout the world;

sales by geographical region are as follows:

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Middle East & Africa

The Company’s sales by product and service are as follows for the years ended December 31, 2022 and 2021:

The Company’s sales by product and service are as follows for the years ended December 31, 2023 and 2022:

% Distribution

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This second performance obligation is recognized as revenue at the time of the commissioning services being rendered together with the cost incurred.

Part of the invoicing to the customer is also attributed to the commissioning, and at transfer of the control of the system (i.e., the first performance obligation), this portion is recognized as Contract liabilities. 

Aftermarket sales represent parts, extended warranties, and maintenance services.

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The Company has received long-term contracts for grants from government entities for the development and use of silicon carbide membranes in various water filtration and treatment applications and historically in the installation of various water filtrations systems.

We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs such as labor and materials.

We measure transfer of control of the performance obligation on long-term contracts utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs such as labor and materials.

Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and a significant factor in the accounting for such performance obligations.

The timing of when we bill our customers is generally dependent upon advance billings terms, milestone billings based on completion of certain phases of the work or when services are provided, or when products are shipped.

Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our balance sheet as Contract assets.

Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheet as Contract liabilities.

Contract assets are the Company’s rights to consideration in exchange for goods or services and is recognized when a performance obligation has been satisfied but has not yet been billed.

Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our balance sheet as Contract assets.

Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported on our balance sheet as Contract liabilities.

Contract assets are the Company’s rights to consideration in exchange for goods or services and is recognized when a performance obligation has been satisfied but has not yet been billed.

Contract assets are transferred to receivables when the right to consideration is unconditional and billed per the terms of the contractual agreement.

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Contract liabilities also include deferred revenue related to the second performance obligation stated under Revenue Recognition, where the obligation is attributed to the commissioning of the water treatment system.

The roll-forward of Contract assets / liabilities for the periods ended December 31, 2022 and December 31, 2021 is as follows: 

The roll-forward of Contract assets / liabilities for the periods ended December 31, 2023 and December 31, 2022 is as follows:

Cost incurred

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The estimate of future demand is compared to work-in-process and finished goods inventory levels to determine the amount, if any, of excess or obsolete inventory.

As of December 31, 2022, we had total furnace parts and supplies of $66,495, raw materials of $2,474,227, work-in-process inventory of $982,973, total finished goods inventory of $1,201,533, and a reserve for excess and obsolescence of $663,227.

As of December 31, 2023, we had total raw materials of $3,301,526, total finished goods inventory of $1,507,113, work-in-process inventory of $1,271,458, furnace parts and supplies of $55,177, and a reserve for excess and obsolescence of $867,458.

The estimated future demand is included in the development of our short-term manufacturing plans to enable consistency between inventory valuation and production decisions.

Product-specific facts and circumstances reviewed in the inventory valuation process include a review of the customer base, acceptance of the product by the customer and the various environmental authorities, competitors’

products, as well as an assessment of the selling price in relation to the product cost.

If our demand forecast for specific products is greater than actual demand, and we fail to reduce manufacturing output accordingly, we could be required to write off inventory or increase our allowance, which would negatively impact our gross profit.

To determine what costs can be included in the valuation of inventory, we must determine normal capacity at our manufacturing, assembly, and test facilities, based on historical production, compared to total available capacity.

To determine what costs can be included in the valuation of inventory, we must determine normal capacity at our manufacturing, assembly, and test facilities based on historical production and compared to total available capacity.

If the factory production is below the established normal capacity level, a portion of our manufacturing overhead costs would not be included in the cost of inventory and therefore would be recognized as cost of sales in that period, which would negatively impact our gross profit.

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At least quarterly, we review the status of each significant matter, and we may revise our estimates.

These revisions could have a material impact on our results of operations and financial position. 

Quantitative and Qualitative Disclosures about Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity