The signing of the Agreement with Hydrozonix signals the success of the Company's Innovation Network business model to license technology and transition the operations of its 52.6% owned subsidiary, EES, from a product and services demonstration oil and gas services provider to a oil and gas technology licensing and manufacturing company. The new model will result in revenues from the sale of equipment, plus ongoing technology licensing royalties based upon the profits generated by the equipment. It is anticipated that this transition will result in higher revenues due to the sales of the equipment, but at a lower gross profit margin percentage. The revenues generated from the technology licensing royalty are expected to grow steadily as the number of units of equipment are delivered and begin allowing energy companies to recycle 100% of their flowback and produced waters without the use of chemical biocides and scale inhibitors for use in oil and natural gas hydraulic fracturing operations.
This is good.
In April 2010, the Company offered holders of warrant derivative instruments the right to extend the expiration date of the warrants for an additional year in exchange for the removal of the repricing feature in the warrant agreement. Holders of 6,517,186 availed themselves of this opportunity which resulted in a charge to interest expense of $93,735 representing the increase in the fair value of the warrants resulting from the one year extension of the expiration date. In addition, holders of warrants to purchase 6,746,173 shares of common stock exercised their cashless exercise rights and were issued 5,834,188 shares of common stock. Further, since January 1, 2010, holders of warrants to purchase an additional 2,007,710 shares of common stock exercised their warrants for cash. As a result, the number of warrant derivative instruments has been reduced from 16,911,486 at December 31, 2009 to 1,640,417 as of June 30, 2011.
