In 2020, water treatment company Phoslock Environmental Technologies (ASX: PET) came under the scanner for accounting irregularities and fraud in its China division. Subsequently, the Company’s financials suffered and it also lost some staff in China.
Three years later, PET’s China management team has been restructured to reduce costs and focus resources on revenue-generating activity. General Manager Viktor Li left the Company on August 31 after helping stabilise the operations in China following the previous mismanagement issues. Will Li has been appointed to the senior regional commercial role and legal representative for PET’s China sales entity.
Closer to home, Phoslock’s non-executive Director Barry Sechos has thrown in the towel, with his resignation effective from September 6, 2023. Furthermore, the Company will relocate its Corporate Head Office as part of its overall cost reduction program.
Phoslock informed that it will not be filling Sechos’s position on the Board.
PET has been struggling to gain funding to keep operations going. Its board meetings held on August 10 and August 29, 2023 reviewed various cash flow projections and the statement of financial position. The Board concluded that Phoslock’s ability to keep going as an operational and profitable business, i.e. a going concern, depends on its ability to raise significant additional funds.
As Phoslock explores funding sources, it is not able to say with certainty whether its efforts will bear fruit. In the absence of adequate funding or alternative transactions in a timely manner, the directors plan to put a resolution to shareholders for voluntary winding-up of the Company.
In keeping with that, the directors have determined that the going concern basis of accounting is no longer appropriate. Thus, the Company’s interim financial statements were prepared on a non-going concern, i.e. close to liquidation, basis.
In H1 FY23, the Company reported a revenue of $1 million, down 20% on H1 FY22, and an NPAT loss of $5.2 million. Its net operating cash outflow was $3.5 million. Existing project delays, lack of new projects and fluctuating freight rates put a damper on PET’s objectives.
On a positive note, in August, PET informed that it had secured a part payment of about $642k in respect of a receivable associated with the Xingyun Lake project in China. The payment was made to PET’s Beijing based subsidiary, Beijing Ecosystime Environmental Science and Technology Co. However, this payment represents just under 10% of the principal owed, which is $7.05 million, with efforts continuing to secure the balance.
Plus, it secured orders for Phoslock applications in Brazil and Finland, with a combined value of $600k, scheduled for September.
Even so, the Company is not very hopeful about its future. The new contract revenues and sales rebuild are not enough to support business operations, remaining well below expectations and requirements. The Company plans on sharing its full FY23 results by September 8, which will determine the way forward.
Alinda is a Business Reporter for The Sentiment
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