Basis of Presentation and Significant Accounting Policies |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions among consolidated entities were eliminated upon consolidation. The unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial reporting. As permitted under those rules, certain footnotes or other financial information can be condensed or omitted. These condensed consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on April 1, 2024 (the "2023 Form 10-K").
These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments that are necessary for a fair statement of the Company’s consolidated financial information. The interim results of operations are not necessarily indicative of the results that may be expected for the full year, or for any other future annual or interim period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Accounting estimates and assumptions are inherently uncertain. Management bases its estimates and assumptions on current facts, historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ materially and adversely from these estimates. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but not limited to, cost-to-cost (input) revenue recognition method, fair value of warrant issuances, provision for expected credit losses, useful lives and recoverability of long-lived assets, valuation of deferred tax assets, stock-based compensation and operating lease right-of-use assets and liabilities.
Reclassifications
Certain reclassifications have been made to the condensed consolidated statement of cash flows for the nine months ended September 30, 2023 for consistency with the presentation of the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. There was no effect on the Company's financial position or stockholders' equity as of September 30, 2024 and December 31, 2023 or the results of operations for the three and nine months ended September 30, 2024 and 2023.
Risks and Uncertainties
The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine, as well as Israel and Hamas. The Company’s financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Summary of Significant Accounting Policies
Reference is made to Note 3 Basis of Presentation and Significant Accounting Policies in the 2023 Form 10-K filed for a detailed description of significant accounting policies. There have been no significant changes to our accounting policies as disclosed in the 2023 Form 10-K.
Revenue Recognition
The Company generates revenue primarily through the four revenue streams described below which together, represent four operating segments; the Fiber Optics division, the Slant Wells group, Element 82, and the Smart Windows division. The Slant Wells group and Element 82, while reported as separate operating segments, are part of the Company's newly formed "Water Solutions" division.
The Fiber Optics division's specialty services are performed for communications providers in connection with the deployment of underground fiber optic transmission lines and include the upfront procurement of specialized equipment that will be used to provide the services.
The Slant Wells group's specialty services involves the construction of “slant wells” providing water for desalination plants and include the upfront procurement of specialized equipment that will be used to provide the services.
Element 82 helps water utility companies meet all Environmental Protection Agency compliance requirements by identifying lead pipes in residential, commercial and municipal water line systems. Their specialty services include the upfront procurement of specialized equipment that will be used to provide the services.
The Smart Windows division produces, sells and installs products referred to as the Smart Window Inserts, using DynamicTint Electrokinetic Technology that allows windows to tint and transition from clear to true black.
Together, these revenue sources support the Company’s diversified income model across its core operating segments.
The Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company applies the following five-step revenue recognition model in accounting for its revenue arrangements:
•Identification of the contract with the customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when, or as, the Company satisfies a performance obligation.
The Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component when the time between the goods or service being transferred to the customer and the customer pays is one year or less.
Fiber Optics Division Revenue Recognition
The nature of the Company’s Fiber Optics division's performance in its agreements is to customize outputs by constructing infrastructure that is customer specific. The Company is required to adhere to the rules and regulations that are outlined in an agreement between the Company and the customer. As a result, the Fiber Optic division's contracts prevent the Company from directing the use of such output to any other entity except the specific customer. The customer is the only party that can benefit from the output that results from the Company’s performance of specialty services under the contract.
As such, the Company’s performance does not create an asset with an alternative use and the Company has concluded that the specialty services are recognized over time.
In accordance with ASC 606, the Company meets the criteria for recognizing revenue over time because it maintains an enforceable right to bill the customer for performance completed to date as the services are rendered. This right to bill is consistent with the Company's obligation to provide continuous access to the project, reflecting progress toward completion that is aligned with customer specifications.
To measure the progress of completion, the Company uses a cost-to-cost (input) method, by comparing costs incurred to date relative to the total expected costs to satisfy the performance obligation. When applying this method, the Company excludes the effects of any costs that do not depict its performance in transferring control of goods or services to the customer. Additionally, the Company notes that the procurement performance obligation is not considered distinct and is therefore combined with other specialty services as part of a single performance obligation.
Slant Wells Group Revenue Recognition
The nature of the Company’s Slant Wells group's performance in its agreements is to customize output by constructing slant wells that are customer specific. The Company is required to adhere to the rules and regulations that are outlined in an agreement between the Company and the customer. As a result, the slant well contracts prevent the Company from directing the use of such output to any other entity except the specific customer. The customer is the only party that can benefit from the output that results from the Company’s performance of the services under the contract. As such, the Company’s performance does not create an asset with an alternative use and the Company has concluded that the services are recognized over time.
The Company maintains an enforceable right to bill the customer for performance completed to date. This right to bill reflects the progress toward fulfilling the contract and confirms that the Company’s services are being rendered continuously, with the customer receiving benefits from the ongoing completion of the customized slant well.
To measure the progress of completion, the Company uses a cost-to-cost (input) method, by comparing costs incurred to date relative to the total expected costs to satisfy the performance obligation. The Company notes that when applying this method, it excludes the effects of any costs that do not depict its performance in transferring control of goods or services to the customer.
Element 82 Revenue Recognition
The Company performs water service line lead pipe inspection and investigation services at customer locations pursuant to the contracts. These fulfillment services which constitute a series of distinct performance obligations recognized over time, culminate in comprehensive lead pipe inspection reports which the Company is required to provide to its customers. Revenue is recognized as units are delivered (output method), reflecting the delivery of inspection report units as a percentage of the total units agreed upon in each contract.
The Company procures equipment essential for fulfilling these services. The costs associated with equipment procurement are capitalized when they meet the criteria for capitalization and are amortized over the period in which the related performance obligations are satisfied.
As of September 30, 2024 and December 31, 2023, capitalized costs related to equipment procurement were considered insignificant.
Smart Windows Division Revenue Recognition
The Company’s Smart Windows division has not entered into any material revenue contracts with its customers and no revenue was recognized for this operating segment for the three and nine months ended September 30, 2024 and 2023.
Retention Receivables
The Company’s Fiber Optics customers have a contractual right to withhold payment of a retainage amount that typically ranges between 5% to 10% of the total contract consideration. The retainage can be utilized by customers for any claims that may arise after work is completed through one year after project completion. The retainage amount is expected to be
collected upon the project's completion and acceptance by the customer. As of September 30, 2024 and December 31, 2023, the Company has recorded a retainage receivable of $0.3 million and zero, respectively, which is a component of the accounts and retention receivables balance in the condensed consolidated balance sheets.
Contract Assets
The Company records contract assets for revenue recognized in excess of billings, representing amounts due from customers where revenue has been recognized based on the satisfaction of performance obligations but for which billing has not yet occurred. Contract assets, including unbilled receivables, are recorded when the Company has an unconditional right to payment, and are subsequently reclassified to accounts receivable when the right to bill the customer arises.
As of September 30, 2024, the Company's contract assets included unbilled receivables totaling $0.3 million, compared to zero as of December 31, 2023.
The following table provides a rollforward of the contract assets activity for the nine months ended September 30, 2024:
Deferred Revenue and Contract Liabilities
The Company records deferred revenue as contract liabilities when it receives payments from customers in advance of performing the contracted services or delivering goods. Deferred revenue is recognized as revenue in the period when the services are performed or the goods are delivered, satisfying the Company's obligations under the contract terms.
For Fiber Optics and Slant Well projects, the Company recognizes revenue on a percentage-of-completion basis, based on the proportion of costs incurred to total estimated costs. For Element 82, the Company recognizes revenue on a percentage-of-completion basis, based on the proportion of units delivered to total units in the contract. In instances where significant judgments are required to estimate completion, management reviews and adjusts deferred revenue balances periodically to reflect performance progress accurately.
In instances where anticipated costs to complete a contract are expected to exceed the contract’s total revenue, the Company recognizes an estimated loss on the contract. This estimated loss is accrued as a liability and recognized in full in the period the loss is identified, ensuring the contract assets and liabilities accurately represent the Company’s financial position.
As of September 30, 2024 and December 31, 2023, the contract liabilities were $0.2 million and zero, respectively.
The following table provides a rollforward of the contract liabilities activity for the nine months ended September 30, 2024:
Revisions in Estimates
Profit recognition related to the Fiber Optics division and Slant Wells group’s contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate.
When there are significant revisions in these estimates, the Company’s management reviews the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally the cumulative catch-up method is used for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change.
Provision for Credit Losses
The provision for credit losses is based on the Company’s assessment of the collectibility of its customer accounts and retention receivables and contract assets, all of which fall within the scope of ASC 326.
The Company reviews the provision for credit losses by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customer’s ability to pay. Uncollectible accounts and retention receivables and contract assets are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered. The Company’s provision for credit losses was zero as of September 30, 2024 and December 31, 2023, respectively.
Concentrations of Risk and Significant Customers
The Company maintains its cash accounts with financial institutions, ensuring all deposits remain fully protected by utilizing ICS/Sweep accounts. As a result, no cash balances exceed the Federal Deposit Insurance Corporation limits, providing complete coverage and safeguarding the Company's funds through September 30, 2024.
The Company’s customers are generally large public or private companies with good credit and payment practices and a positive reputation in the industry at the time that the contracts are entered into. Furthermore, because it has the ability to stop transferring promised goods and services if payment is not received, the Company has concluded that collection risk is minimal.
Three customers accounted for 91% of accounts receivable as of September 30, 2024. Accounts receivable were not significant as of December 31, 2023.
The Company’s revenue is generated from its Fiber Optics, Slant Wells, and Element 82 segments. Three customers accounted for approximately 95% and 84% of the total revenue generated for the three and nine months ended September 30, 2024, respectively. Revenue was not significant for the three and nine months ended September 30, 2023.
For the three and nine months ended September 30, 2024, the Company’s vendor purchases primarily included costs associated with professional fees, subcontractor labor, equipment purchases and leases, and purchases of other supplies and materials. Any disruptions in the Company’s vendor relationships could have a material adverse effect on the Company’s business, results of operations and financial condition.
Reportable Segments
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is determined to be the CODM.
The Company has four operating segments during the three and nine months ended September 30, 2024, including the Smart Windows division, the Fiber Optics division, the Slant Wells group and Element 82. The Company has four reportable segments, the Smart Windows division, the Fiber Optics division, the Slant Wells group, and Element 82.
Revenue recognized during the three and nine months ended September 30, 2024 relates to the Fiber Optics division, the Slant Wells group and Element 82.
Deferred Debt Issuance Costs
The Company accounts for debt issuance costs related to its line of credit and equity line of credit as a deferred asset on the condensed consolidated balance sheets, which is amortized over the life of the line of credit and equity line of credit. Since the Company has elected the fair value option for its convertible notes, upon a draw down, a portion of the deferred asset
balance will be amortized and recognized as other income (expense) in the condensed consolidated statements of operations.
Warrants
The Company estimates the fair value of certain common stock warrants issued both before and after June 30, 2024, using the Black-Scholes option pricing model. This model requires management to make significant estimates and assumptions, including the expected volatility of the Company’s stock price, the expected term of the warrants, the risk-free interest rate, and expected dividends.
Common Stock Warrants Issued Before June 30, 2024:
These warrants are classified as liabilities as their settlement terms preclude equity classification. The warrants were recorded at fair value upon issuance and are subsequently remeasured at fair value at each balance sheet date, with changes in fair value recognized within other income (expense), net in the Company’s condensed consolidated statements of operations.
The change in fair value of warrant liabilities for both the three months ended September 30, 2024 and September 30, 2023 were zero. The change in fair value of warrant liabilities for the nine months ended September 30, 2024 and September 30, 2023 were zero and $0.5 million, respectively. The fair value of warrant liabilities were insignificant as of both September 30, 2024 and December 31, 2023.
Common Stock Warrants Issued After June 30, 2024:
Warrants issued after June 30, 2024 have been classified within stockholders' equity as they meet the criteria for equity classification. Specifically, these warrants are indexed to the Company’s common stock and do not contain settlement provisions that would preclude them from equity classification. Upon issuance, the fair value of these equity-classified warrants was recorded in additional paid-in capital with no subsequent remeasurement required.
Valuation Assumptions for Black-Scholes Model:
The following key assumptions were used in the Black-Scholes model to estimate fair value:
•Volatility: Based on historical volatility of comparable companies
•Expected Term: Estimated based on the contractual term of the warrants
•Risk-Free Interest Rate: Based on U.S. Treasury yields at the time of issuance
•Dividend Yield: Assumed to be zero, as the Company does not expect to pay dividends
Net Loss per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders is computed using the sum of the weighted-average number of shares of common stock outstanding during the period and the effect of dilutive securities.
As the Company was in a net loss position for the three and nine months ended September 30, 2024 and 2023, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders because the effects of potentially dilutive securities are antidilutive.
Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share as of September 30, 2024 and 2023 are as follows:
Accounting Pronouncements Recently Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an interim and annual basis. The Company adopted annual requirements under ASU 2023-07 on January 1, 2024 and plans to adopt interim requirements under ASU 2023-07 on January 1, 2025. The Company will begin including financial statement disclosures in accordance with ASU 2023-07 in its Annual Report on Form 10-K for the year ending December 31, 2024. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the Securities and Exchange Commission’s Disclosure Update and Simplification Initiative. ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 33-10532: Disclosure Update and Simplification into various topics within the ASC. ASU 2023-06’s amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. Early adoption is prohibited. The Company does not expect the standard to have a material impact on its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures, which requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
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