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Note 3 - Restructuring Costs

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

NOTE 3 – RESTRUCTURING COSTS

During the second quarter, the Company completed a restructuring program to reduce costs, decrease operating losses and improve cash flow. Total restructuring and restructuring-related net charges pursuant to this program were $1,786,863, which were recorded separately in the income statement as “restructuring costs”, and allocated as follows:

CEO separation -- On May 10, 2022, the Board of Directors accepted the resignation of Sune Mathiesen as Chief Executive Officer and a director of the Company, effective May 12, 2022. As previously announced, Mr. Mathiesen had been on a medical leave of absence since March 17, 2022. In connection with Mr. Mathiesen’s resignation, Mr. Mathiesen and the Company entered into a Separation Agreement and Release (the “Separation Agreement”). Under the provisions of the Separation Agreement, Mr. Mathiesen received DKK1,605,000 (equivalent to $230,538), which is the equivalent of six months of salary, car allowance and pension contributions, in a lump-sum payment, less applicable deductions and withholdings.

Terminated employees – In the second quarter of 2022, the Company re-aligned its corporate management structure, which involved a reduction in headcount and labor costs of approximately 25%. The new organization reflects a focused effort to align key leaders with strategic imperatives, inspire greater accountability and performance management, eliminate silos and layers of middle management, and operate a leaner, more efficient business. Provisions for salary obligations to employees amounted to $159,841, reflecting the costs related to select employees released from duties with immediate effect. No provisions were made for the employees working during the notice period.

China close-down – In the second quarter of 2022, the Company reduced and suspended planned capital investments, including the Company’s program to build a manufacturing and service center in China. Pursuant to the suspended plans, the Company terminated and settled agreements with consultants, select project employees, and domestic property development providers, resulting in a net payment of termination and cancellation charges of $278,391.

Capex commitments -- As part of efforts to balance future investments with expected demands and cash flow, the Company commenced the renegotiation of all material Capex commitments during the quarter, with the ambition to reduce, cancel, or delay deliveries under the contracts, which initially amounted to approximately $9,000,000. Substantial progress was made during the second quarter, with expected closure of the renegotiation in the second half of 2022. As part of the renegotiation, a provision was made during the second quarter of $668,606 regarding expected cancellation charges and contractual termination costs. However, during this quarter the amount of paid cancellation charges has exceeded the provision by $28,607, which explains the total amount regarding capex commitments of $697,213.

Write-downs -- The re-routing of production equipment and machinery to Denmark (originally planned for China), resulted in a write-down of $243,075 on legacy installed equipment and machinery that was decommissioned as part of the arrival and implementation of new and more efficient equipment. Furthermore, review of obsolete inventory and existing product demand resulted in a write-down of $177,804.

The Company’s restructuring costs are as follows for the nine months ended September 30, 2022, of which $1,763,015 has been settled, resulting in $23,848 remaining unsettled as of September 30, 2022:

		September 30, 2022
CEO separation		$	230,538
Terminated employees			159,841
China close-down			278,391
Capex commitments			697,213
Write-downs			420,880
		$	1,786,863

The following table displays a roll-forward of the restructuring accruals, presented within “accrued expenses”, for the nine months ended September 30, 2022 and 2021:

		2022				2021
Restructuring accruals, January 1		$	-			$	-
Restructuring costs, net			1,786,863				-
Cash payments			(1,342,135	)			-
Asset impairments			(420,880	)			-
Restructuring accruals, September 30		$	23,848			$	-