TIDMMYX TIDMTTM
RNS Number : 0398O
MyCelx Technologies Corporation
15 May 2018
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU No. 596/2014) ("MAR"). This inside
information is now considered to be in the public domain.
15 May 2018
MYCELX TECHNOLOGIES CORPORATION
("MYCELX" or the "Company")
Final Results for the year ending 31 December 2017
MYCELX Technologies Corporation (AIM: MYX), the clean water
technology company providing patented solutions for the Oil and Gas
market and commercial industrial markets worldwide, is pleased to
announce its audited results for the year ended 31 December
2017.
Highlights
Financial
-- Total revenue increased 74% to $13.8 million for 2017, (FY16: $7.9m)
-- Gross profit margin remained strong at 54%, (FY16: 52%)
-- EBITDA of $0.5 million in 2017, (FY16: negative $1.6 million)
-- Cash and cash equivalents, including restricted cash, of $5.7 million, (FY16: $5.6m)
-- Gross profit increased 82% to $7.5 million, (FY16: $4.1m)
Operational
-- Saudi Arabia
o Undertook a waste water project at a new SABIC customer
SHARQ
o Successfully completed a turnaround role at Saudi Kayan
o Deployed a rapid response wastewater solution at Petrokemya
Olefins II Plant
-- Nigeria
o First sale in Nigeria of a RE-GEN system for produced
water
-- Successful trials in Alberta, Canada, and the Permian Basin, West Texas
Post period
-- Saudi Arabia
o Two year extension of successful Quenchwater system
contract
o Placed a second wastewater system at Petrokemya Olefins III
Plant
o Awarded a twelve month extension for wastewater solution at
Petrokemya Olefins II Plant
-- Sold equipment into Australia, marking the Company's first
sale into the LNG market in the country
-- Revenue outlook for 2018 raised to $16-$17 million on the back of contract wins
Outlook
-- Successful trials at facilities in Canada and West Texas
leaves MYCELX well placed to benefit from an increase in activity
in the region
-- The focus on business development in Saudi Arabia has yielded
a pipeline of near term opportunities from which two have already
been converted into purchase orders in Q1 2018
-- With signs of an industry recovery, namely US rig counts
increases, continuing OPEC production cuts and increasing capital
budgets in the Upstream space, the Company is ready to capitalise
on the higher oil price environment
Tim Eggar, Chairman of MYCELX Technologies Corporation said:
"I am very proud of our achievements in 2017, as we were able to
financially safeguard the business and generate strong momentum,
which resulted in the Company's largest ever contract win in Saudi
Arabia in early 2018.
Our customer focussed approach during the year, where we sought
to work with clients to better understand their water challenges
and educate them on how our technology can provide cost
efficiencies and production enhancements, yielded considerable
results. We exceeded expectations this year both in terms of
outperforming our financial metric targets, increasing our customer
base and entering new geographic territories, all of which helped
us grow revenues by 74% and return to levels of activity not seen
since 2014.
From a macro perspective, we were pleased to see an improvement
in overall market sentiment with a higher oil price environment and
greater investment in the petrochemical sector in our key market of
Saudi Arabia. With our financial position more assured, we are now
well positioned for when the industry does recover and
stabilize."
Connie Mixon, Chief Executive Officer of MYCELX Technologies
Corporation said:
"2017 was a pivotal year for the Company, which saw us put in
place strong foundations to support our ongoing strategy to focus
on profitable growth. We are happy to report that the actions we
took last year paid off and allowed us to secure near term revenue
opportunities. We exceeded our initial revenue forecast by 30%,
thanks to the efforts of our team in Houston who made a significant
first sale into Nigeria and the team in Saudi Arabia who secured a
record three new projects in one year within SABIC.
We were pleased to announce our first contract win in Nigeria,
for an onshore production project. The sale was of particular
strategic importance to the Company as both producers and
regulators are searching for a new standard in water treatment in
country. We also conducted a number of successful trials in Canada
and West Texas and whilst projects in North America generally
require a longer lead time we are hopeful that these trials will
convert to revenue generation in due course. The momentum that our
team has generated in Saudi Arabia continues with exciting new
projects that underpin our outlook for 2018."
For further information please contact:
MYCELX Technologies Corporation
Connie Mixon, CEO Tel: +1 888 306 6843
Kim Slayton, CFO
Cantor Fitzgerald Europe - NOMAD and Broker
David Porter Tel: +44 20 7894 7000
Richard Salmond
Celicourt Communications
Mark Antelme Tel: +44 20 7520 9266
Jimmy Lea
Notes to Editors
MYCELX is a revolutionary oil-free water technology company
solving the world's toughest oil removal problems in the oil and
gas industry. The systems are based upon scientific breakthrough
for a completely different approach to permanent oil removal. The
Company created the patented MYCELX polymer using innovative
molecular cohesion for removing oil from water far beyond what
conventional systems have ever achieved. MYCELX systems remove oil
to critically low levels in a much smaller physical footprint than
conventional systems and in a virtually fail-safe process.
www.mycelx.com
CHAIRMAN'S STATEMENT
2017 has been an exciting year for MYCELX and we are pleased to
report that the steps taken last year to safeguard the Company and
position it for success yielded positive results and laid the
strong foundations for sustained growth.
This has been a turnaround year for the Company with revenues up
74% and returning to levels not seen since 2014. We exceeded our
own expectations thanks to the efforts of our teams in Saudi Arabia
and Houston. Encouragingly, the overall momentum generated has
continued to grow as seen by the Company's largest ever contract
win in Saudi Arabia in early 2018.
IMPROVING MARKET ENVIRONMENT
During 2017, overall market sentiment improved as global
economic growth rates returned to pre-financial crisis levels. For
the oil and gas industry, our core market, the first half of the
year saw price volatility on changing US stockpile data. This was
followed by a price recovery based on improved fundamentals, the
effects of Hurricane Harvey and the continuation of the OPEC output
reduction deal. Looking forward, the effectiveness of the OPEC cuts
will continue to be dependent on the activity of US Shale swing
production but so far the outlook remains positive. As MYCELX is
both cost effective and performance enhancing, the Company should
be somewhat insulated from these macro production trends.
FINANCIAL & OPERATING PERFORMANCE
MYCELX has exceeded expectations this year both in terms of
outperforming our financial metric targets, increasing our customer
base and securing new geographic frontiers. The pessimism that
marked the oil and gas market in 2016 noticeably dissipated
throughout the year. Energy companies have steadily increased their
spending in line with recovering crude oil prices. US rig counts
are much higher than a year ago and continue to rise. After years
of constraints, it is pleasing to note that the majority of E&P
companies are now budgeting for at least a 10% increase in planned
capital spending for 2018. This bodes well for our 2018 outlook,
however what we learnt in 2017 was to rely on our customer focussed
approach rather than ride the wave of industry fortunes.
CUSTOMER FOCUSSED APPROACH
Our primary goal remains to be increasing industry adoption of
MYCELX. In 2016, our approach was to work with our clients to
better understand their water challenges and educate them on how
the Company's technology would provide cost efficiencies and
production enhancements. This took the form of multiple trials on
site. The most obvious positive outcome of these efforts came in
the form of our first sale into Nigeria for a full produced water
treatment system allowing future overboard discharge.
The potential to leverage this sale into a broader footprint in
Nigeria is significant and will be a focus of our business
development efforts in West Africa this year. Historical
difficulties with adherence to discharge requirements have created
an environmental challenge for this oil rich nation. MYCELX can
assist with ensuring that future discharge specifications are met
in a robust, cost effective and sustainable manner for years to
come. The Company could potentially play a role in future clean-up
operations in the Niger Delta.
In addition to Nigeria, we have had successful trials in
Alberta, Canada and in the Permian Basin in West Texas. In Canada,
the successful trial was an infield demonstration of our
technically superior results in Enhanced Oil Recovery produced
water applications. As fields mature globally, the ability to deal
with polymer laden produced water will be essential as this
effective extraction method is widely adopted.
The customer focussed approach was particularly successful in
Saudi Arabia. I am delighted to say that the funds we deployed to
reinvigorate our business development drive paid off as we expanded
our footprint and deepened our relationships with existing clients
by deploying new installations. Saudi Arabia remains one of the
most exciting markets for MYCELX going forward. The country's
Vision 2030 program and its focus on environmental protection and
reducing the wastage of precious resources such as water are
perfectly aligned to MYCELX solutions. Our team in Saudi have done
a splendid job of capitalising on these opportunities by deploying
our rental fleet to respond quickly to clients' needs as they
demand smarter solutions to solve their water challenges.
PERFORMANCE VS KEY METRICS
The Company outperformed its key metrics and did so whilst
preserving its cash position. Revenue exceeded projections by 30%
and are a 74% improvement on 2016. Gross profit improved by 82% and
returns to pre-2014 levels. Having set a goal of being EBITDA
neutral we are pleased to report that we were both EBITDA and cash
flow positive for the year. But the key is not just to have
undertaken a turnaround in financial results but to also ensure the
stability of our position and to build on it. We firmly believe
that the successful trials combined with our business development
momentum will help ensure that the Company continues to thrive. We
have already seen this momentum sustained into 2018 with the
securing of two large purchase orders from SABIC.
TRIBUTE
These successful results are a fitting tribute to Mark Mixon,
who we tragically lost in September. Mark's vision and leadership
are at the core of the business successes that we have seen this
year and will underpin our success going forward. He was a key
advocate for opening the branch in Saudi Arabia as well as the
creation of the Rental Fleet services model that has been critical
to our recent success in Saudi.
That the Company has managed to achieve these results in the
face of a difficult operating environment is a testament to both
the lasting impact of Mark's leadership and determination, as well
as the tireless efforts of the whole MYCELX team.
PROMISING OUTLOOK
With our financial position more assured, we are now well
positioned for when the industry does recover and stabilize. There
are indications that the tide is turning - as seen with the
increase in rig activity, and signs of greater investment in the
petrochemical industry in our key market of Saudi Arabia. We have
raised our revenue outlook for 2018 to be $16-$17 million on the
basis that we already have visibility from the secured purchase
orders announced to date.
GOVERNANCE
I am happy to advise that your Board of Directors and our
experienced team of employees has continued to work well together
over the year to support the Company's ambitions. I would like to
thank them all for their wise counsel and support.
CHIEF EXECUTIVE'S STATEMENT
MYCELX enjoyed a turnaround in 2017 ensuring stronger
foundations to support our ongoing focus on profitable growth. We
are happy to report that the actions we took last year paid off and
allowed us to secure near term revenue opportunities. We exceeded
our initial revenue forecast by 30%, thanks to the efforts of our
team in Houston who made a significant first sale into Nigeria and
the team in Saudi Arabia who secured a record three new projects in
one year within SABIC.
What was most pleasing was that two of these projects were
placed at new customer plants. With each addition to our footprint
comes further momentum as customers understand the cost savings and
operational benefits our robust technology can bring to their
projects and installations. Success at one location for a producer
or operator often leads to many new opportunities at their sites
around the world.
During 2017, we repositioned the Company so we could chase near
term revenue opportunities that arose from policy initiatives in
core geographies, and to prepare us for the nascent recovery seen
across the industry. Our actions helped sustain the momentum that
we created in 2016 with several large project wins at the start of
2018 and an exciting and growing pipeline to pursue.
In late 2017 Trent Weber was added as Chief Operating Officer
for the Company, and in January 2018, Dr. Alexander Millar was
promoted to General Manager of MENA and Asia.
OPERATIONAL PERFORMANCE
The steps taken in 2016 ensured that MYCELX was able to thrive
this year. Our customer focussed approach and successful trials
opened up opportunities with existing and new clients, which was
the foundation of the turnaround in our financial results. We have
repositioned our resources to take advantage of new opportunities
arising across the globe. As a result, our focus this year has been
on Saudi Arabia, Nigeria and Canada, where the need for superior
water treatment is at the core of their policy and industry
initiatives. Whilst we have taken account the recovery of the oil
and gas industry and will continue to pursue those longer term
opportunities our immediate focus for the Company has been on
nearer term revenue opportunities and maintaining the momentum to
generate more of these faster to market solutions.
Middle East and North Africa (MENA)
Our MENA team set a record with the number of installations in
one year. The additional resources that we deployed to reinvigorate
the business development drive in Saudi Arabia paid off with three
new projects during the year and a pipeline of near term
opportunities, from which two have already been converted into
purchase orders in Q1 2018.
The focus in the first half of the year was to secure the
foundations of our operations in Saudi Arabia. The core projects
have continued to perform successfully as demonstrated by the lease
renewal in Q1 2018 of our Quenchwater System for a further two
years. The second half of the year has been characterised by
increasing the utilisation of our rental fleet. In June we were
pleased to place our Rapid Response Unit at a new SABIC client -
SHARQ. That unit was deployed during adverse weather conditions and
during Ramadan which posed significant logistical hurdles. The team
did a sterling job to place and install the unit at site, on time
and on budget. The system was tasked with solving a waste water
issue which had previously been disposed of by vacuum truck haul
off. Not only did our system significantly reduce the cost of
treating this waste stream, but we were able to meet outlet
specifications that allowed it to be discharged to the client's
existing wastewater facilities, removing the need for any vacuum
trucks. Vacuum trucks pose a logistical and health and safety issue
for our clients in Saudi Arabia and there is a drive to reduce
their costly usage.
The success of the SHARQ installation was followed by a suite of
further opportunities in quick succession. In collaboration with a
local waste management company, the team secured a role in the
Saudi Kayan Turnaround to treat the complex waste water generated
by that activity. This successful installation which ran for the
duration of the turnaround and the restarting of the plant obtained
recognition from the local regulator and other producers. Both the
SHARQ and Saudi Kayan projects became a reference point for our
next deployment of a rapid response system at Petrokemya. We placed
a unit at one of that client's largest Olefins plant and have been
operating successfully since installation.
The ability to chase these lucrative opportunities was only
possible due to the availability of the Company's rental fleet in
Saudi Arabia. This available equipment meant that we could be
deployed within days of an enquiry, making us a viable alternative
to the alternative of hauling away the problem waste stream.
There is clear demand for further opportunities similar to those
secured in 2017. The superior water treatment capability of MYCELX
is aligned with Saudi Arabia's initiatives to safeguard the
environment and reduce waste. At the same time, regulations are
becoming more stringent and enforced more rigorously. This provides
the ideal environment for MYCELX's superior technology. There is a
Saudi goal for 100% recycle or reuse of valuable water and other
waste streams. Our collaboration with local waste management
companies will help to ensure that we will be involved in this
exciting and growing market.
West Africa: Nigeria
MYCELX entered a new geographical territory with its first
contract for onshore water treatment in Nigeria. The client asked
MYCELX to undertake a trial in 2016 as it was looking for an
advanced technology that could cost effectively solve its current
and future water challenges. MYCELX's trial proved that our system
would allow the client to meet immediate discharge requirements and
ensure performance and reliable ongoing production. MYCELX's RE-GEN
solution is integral to the client's plan to use its produced water
for secondary or enhanced oil recovery techniques.
Our first significant sale in Nigeria was strategically
important because it creates a footprint for MYCELX in a country
where both Producers and Regulators are searching for a new
standard in water treatment. Producers require higher quality
treated water for operational purposes to enhance production.
Regulators are trying to establish more stringent environmental
regulations and proper disposal is being enforced. MYCELX has been
proven to meet the desired water outlet specifications to meet and
exceed both parties' requirements.
Americas: Canada and West Texas
Activity in North America and South America was slightly subdued
in early 2017 but increased as the year progressed, particularly
for onshore production in West Texas. Thanks to our recurring
revenue model we continued to sell media to our existing
installations in the region, but our footprint did not enlarge.
Opportunities in North America generally require a longer lead time
before conversion to revenue generation. We have positioned
ourselves for an uptick by conducting successful trials at
facilities in Canada and West Texas.
In Canada, the client was faced with poor water quality for
reinjection which had a detrimental impact on production and
operating cost. The client needed a technology that would be able
to maintain reinjection water quality despite sustained upsets and
changing back produced polymer viscosities. MYCELX's RE-GEN was
able to reliably treat oil to below 10mg/L and remove solids above
7 micron under all conditions. Prior to MYCELX's trial, all
previous technologies had failed to achieve the necessary results.
The success of this trial places MYCELX in a strong position for a
sale at that facility in the future.
Through Schlumberger, our Strategic Partner in Upstream, we ran
a successful trial in the Permian Basin, which has become the focus
of US resurgent production in recent years. The ability to recycle
produced water for hydraulic fracturing is critical for the
Permian. MYCELX was able to meet the client's water requirements
for produced water recycle and therefore will be able to provide
significant operating cost savings.
NAVIGATING PIPELINE TIMELINES
During 2017 the Company reinvigorated its business development
efforts globally. This revealed the clear regional differences in
the likely timeline between receiving an enquiry and generating
revenue. In our current stage of development, it is important that
the Company continues to pursue opportunities in all regions and to
take on the most difficult challenges facing the industry in order
to clearly set a new standard for water treatment. However, this
must be balanced with deploying our resources to secure near term
revenue opportunities when they arise.
SAFETY
Our continuing success is based on our people, and their safety
and of those people around us is central to everything we do. As we
increase the number of installations we have put in place action
plans to ensure that these standards are upheld across the whole
portfolio of projects. We have engineered the design of our systems
to ensure that operating them is simple and safe.
LOOKING TO THE FUTURE
The outlook for the Company after this turnaround year is
bright. Our goal during 2018 is to ensure we manage our growth
trajectory to ensure profitability, and devote the necessary
resources to sustain the momentum enjoyed since the second half of
2017.
MYCELX enters 2018 in a much stronger position than it was in
2017. We have secured large scale projects in Q1 and into Q2, which
that means that we have visibility on $16-$17 million in revenue
already. Whilst Downstream activities were the foundations of our
success in 2017, with US rig counts increasing, OPEC production
cuts and increasing capital budgets in the Upstream space, we have
positioned the Company to be ready to seize opportunities in the
Upstream sector. Our ambition is underpinned by our success in
Nigeria which we will continue to leverage in-country and around
the world.
At its core, MYCELX is a technology business with exceptional
expertise gained through onsite, real-time water treatment
experience. The Company will continue to use its knowledge to
innovate and commercialise next generation technology to meet its
customers' current and future needs. In 2017, our experience was
that once we solved one water challenge for our customers they
often asked us to help with other water issues. Our solutions are
more reliable and cost effective than outdated conventional methods
and gradually we have started to obtain local regulatory and
industry recognition of our new standard of water treatment. The
oil and gas and petrochemical industries continue to integrate
MYCELX technology into their critical, real-time processes. This is
confirmation that our technology has its role in achieving
sustainable water treatment for years to come. The Board of
Directors and Company management are committed to ensuring MYCELX
technology reaches its full potential as the global industry
standard.
Statements of Operations
(USD, in thousands, except share data)
For the Year Ended 31 December: 2017 2016
Revenue 13,751 7,923
========== ==========
Cost of goods sold 6,285 3,820
========== ==========
Gross profit 7,466 4,103
========== ==========
Operating expenses:
========== ==========
Selling, general and administrative 7,772 6,588
========== ==========
Depreciation and amortisation 422 499
========== ==========
Total operating expenses 8,194 7,087
========== ==========
Operating loss (728) (2,984)
========== ==========
Other expense
========== ==========
Loss on disposal of equipment (14) (2)
========== ==========
Interest expense (89) (94)
========== ==========
Loss before income taxes (831) (3,080)
========== ==========
Provision for income taxes (327) (199)
========== ==========
Net loss (1,158) (3,279)
========== ==========
Loss per share - basic (0.06) (0.17)
========== ==========
Loss per share - diluted (0.06) (0.17)
========== ==========
Shares used to compute basic loss per share 18,773,764 18,770,117
========== ==========
Shares used to compute diluted loss per share 18,773,764 18,770,117
========== ==========
The accompanying notes are an integral part of the financial
statements.
Balance Sheets
(USD, in thousands, except share data)
as at 31 December: 2017 2016
Assets
========= =========
Current Assets
========= =========
Cash and cash equivalents 5,171 5,139
========= =========
Restricted cash 525 500
========= =========
Accounts receivable - net 2,436 1,941
========= =========
Unbilled accounts receivable 398 94
========= =========
Inventory 3,085 3,190
========= =========
Prepaid expenses 254 126
========= =========
Other assets 33 36
========= =========
Total Current Assets 11,902 11,026
========= =========
Property and equipment - net 8,755 10,487
========= =========
Intangible assets - net 837 852
========= =========
Total Assets 21,494 22,365
========= =========
Liabilities and Stockholders' Equity
========= =========
Current Liabilities
========= =========
Accounts payable 982 657
========= =========
Payroll and accrued expenses 570 425
========= =========
Deferred revenue 192 -
========= =========
Note payable - current 89 85
========= =========
Other current liabilities 14 436
========= =========
Total Current Liabilities 1,847 1,603
========= =========
Note payable - long-term 1,832 1,921
========= =========
Total Liabilities 3,679 3,524
========= =========
Stockholders' Equity
========= =========
Common stock, $0.025 par value, 100,000,000 shares
authorised, 18,787,617 and 18,770,117 shares
issued and outstanding at 31 December 2017 and
2016, respectively. 470 469
========= =========
Additional paid-in capital 40,456 40,325
========= =========
Accumulated deficit (23,111) (21,953)
========= =========
Total Stockholders' Equity 17,815 18,841
========= =========
Total Liabilities and Stockholders' Equity 21,494 22,365
========= =========
The accompanying notes are an integral part of the financial
statements.
Statements of Stockholders' Equity
(USD, in thousands)
Additional
Paid-in Accumulated
Common Stock Capital Deficit Total
Shares $ $ $ $
========== ===== ========== =========== =======
Balances at 31 December 2015 18,770 469 40,202 (18,674) 21,997
========== ===== ========== =========== =======
Stock-based compensation expense - - 123 - 123
========== ===== ========== =========== =======
Net loss for the period - - - (3,279) (3,279)
========== ===== ========== =========== =======
Balances at 31 December 2016 18,770 469 40,325 (21,953) 18,841
========== ===== ========== =========== =======
Issuance of common stock, net
of offering costs 18 1 6 - 6
========== ===== ========== =========== =======
Stock-based compensation expense - - 125 - 125
========== ===== ========== =========== =======
Net loss for the period - - - (1,158) (1,158)
========== ===== ========== =========== =======
Balances at 31 December 2017 18,788 470 40,456 (23,111) 17,815
========== ===== ========== =========== =======
The accompanying notes are an integral part of the financial
statements.
Statements of Cash Flows
(USD, in thousands)
For the Year Ended 31 December: 2017 2016
Cash flow from operating activities
======= =======
Net loss (1,158) (3.279)
======= =======
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
======= =======
Depreciation and amortisation 1,205 1,384
======= =======
Loss on abandonment or expiration of patent 22 -
======= =======
Loss from disposition of equipment 14 2
======= =======
Stock compensation 125 123
======= =======
Change in operating assets and liabilities:
======= =======
Accounts receivable (495) 914
======= =======
Unbilled accounts receivable (304) (74)
======= =======
Inventory 670 591
======= =======
Prepaid expenses (128) 78
======= =======
Other assets 3 73
======= =======
Accounts payable 325 172
======= =======
Payroll and accrued expenses 145 (158)
======= =======
Deferred revenue 192 (42)
======= =======
Other current liabilities (422) 321
======= =======
Net cash provided by operating activities 194 105
======= =======
Cash flow from investing activities
======= =======
Payments for purchases of property and equipment (5) (109)
======= =======
Proceeds from sale of property and equipment - 7
======= =======
Payments for purchases of intangible assets (53) (85)
======= =======
Net cash used in investing activities (58) (187)
======= =======
Cash flows from financing activities
======= =======
Net proceeds from stock issuance 6 -
======= =======
Payments on notes payable (85) (75)
======= =======
Increase in restricted cash (25) -
======= =======
Net cash used in financing activities (104) (75)
======= =======
Net increase (decrease) in cash and cash equivalents 32 (157)
======= =======
Cash and cash equivalents, beginning of year 5,139 5,296
======= =======
Cash and cash equivalents, end of year 5,171 5,139
======= =======
Supplemental disclosures of cash flow information:
======= =======
Cash payments for interest 89 86
======= =======
Cash and non cash payments for income taxes 306 216
======= =======
Non cash movements of inventory and fixed assets 565 (9)
======= =======
Management considered the effect of exchange rate changes on
cash and cash equivalents held or due in foreign currency and
deemed it immaterial to the statement of cash flows.
The accompanying notes are an integral part of the financial
statements.
Notes to the Financial Statements
1. Nature of business and basis of presentation
Basis of presentation - These financial statements have been
prepared using recognition and measurement principles of Generally
Accepted Accounting Principles in the United States of America
("U.S. GAAP").
Nature of business - MYCELX Technologies Corporation ("MYCELX"
or the "Company") was incorporated in the State of Georgia on 24
March 1994. The Company is headquartered in Duluth, Georgia with
operations in Houston, Texas, Saudi Arabia, and the United Kingdom.
The Company provides clean water technology equipment and related
services to the oil and gas, power, marine and heavy manufacturing
sectors and the majority of its revenue is derived from the Middle
East and United States.
2. Summary of significant accounting policies
Use of estimates - The preparation of financial statements in
conformity with U.S. GAAP requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the amounts reported in the financial statements and
accompanying notes. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised. The
primary estimates and assumptions made by management relate to the
useful lives of property and equipment, volatility used in the
valuation of the Company's share-based compensation and valuation
allowance on deferred tax assets. Although these estimates are
based on management's best knowledge of current events and actions
the Company may undertake in the future, actual results ultimately
may differ from the estimates and the differences may be material
to the financial statements.
Revenue recognition - The Company's revenue consists of media
product and equipment sales. Revenues from media sales are
recognised, net of sales allowances and sales tax, when products
are shipped and risk of loss has transferred to customers,
collection is probable, persuasive evidence of an arrangement
exists, and the sales price is fixed or determinable. The Company
offers customers the option to lease or purchase their equipment.
Lease agreements range from one to twenty-four months in length and
are renewed at the end of each agreement, if necessary. The lease
agreements meet the criteria for classification as operating
leases; accordingly, revenue on lease agreements is recognised as
income over the lease term. Revenues on long-term contracts related
to construction of equipment are recognised, net of sales tax, on
the percentage-of-completion basis using costs incurred compared to
total estimated costs. Costs are recognised and considered for
percentage-of-completion as they are incurred in the manufacture of
the equipment. Therefore, revenues may not be related to the
progress billings to customers. Revenues are based on estimates,
and the uncertainty inherent in estimates initially is reduced
progressively as work on the contract nears completion. Revenues on
sales in which equipment is pre-fabricated and stocked in inventory
are recognised, net of sales tax, upon shipment of the equipment to
the customer.
Contract costs include all direct labor and benefits, materials
unique to or installed to the project, subcontractor costs, as well
as costs relative to contract performance such as travel to a
customer site and shipping charges. Provision for estimated losses
on uncompleted contracts is recorded in the period in which such
losses are probable and estimable. No such provisions have been
recognised as of 31 December 2017 and 2016. Changes in job
performance, job conditions, and estimated profitability may result
in revisions to costs and income, which are recognised in the
period in which the revisions are determined. Actual results could
vary from estimates used in the financial statements.
Unbilled accounts receivable represents revenues recognised in
excess of amounts billed. Deferred revenue represents billings in
excess of revenues recognised. Contract retentions are recorded as
a component of accounts receivable.
Cash and cash equivalents - Cash and cash equivalents consist of
short-term, highly liquid investments which are readily convertible
into cash within ninety (90) days of purchase. At 31 December 2017,
all of the Company's cash and cash equivalent balances were held in
non interest-bearing transaction accounts. The Company maintains
its cash in bank deposit accounts which, at times, may exceed
federally insured limits. At 31 December 2017 and 2016, cash in
non-U.S. institutions was $73,000 and $140,000, respectively. The
Company has not experienced any losses in such accounts.
Restricted cash - The Company classifies as restricted cash all
cash whose use is limited by contractual provisions. As of 31
December 2017 and 2016, restricted cash included $500,000 cash on
deposit in a money market account as required by a lender (see Note
9) and $25,000 in a Certificate of Deposit to secure the Company's
corporate credit card.
Trade accounts receivable - Trade accounts receivable are stated
at the amount management expects to collect from outstanding
balances. The Company provides credit in the normal course of
business to its customers and performs ongoing credit evaluations
of those customers and maintains allowances for doubtful accounts,
as necessary. Accounts are considered past due based on the
contractual terms of the transaction. Credit losses, when realised,
have been within the range of the Company's expectations and,
historically, have not been significant. The allowance for doubtful
accounts at 31 December 2017 and 2016 was $32,000 and $143,000,
respectively.
Inventories - Inventories consist primarily of raw materials and
filter media finished goods as well as equipment to house the
filter media and are stated at the lower of cost or net realisable
value. Equipment that is in the process of being constructed for
sale or lease to customers is also included in inventory
(work-in-progress). The Company applies the FIFO method (first in;
first out) to account for inventory. Manufacturing work-in-progress
and finished products inventory include all direct costs, such as
labor and material, and those indirect costs which are related to
production, such as indirect labor, rents, supplies, repairs and
depreciation costs. A valuation reserve is recorded for slow moving
or obsolete inventory items to reduce the cost of inventory to its
net realisable value.
Prepaid expenses and other current assets - Prepaid expenses and
other current assets include non-trade receivables that are
collectible in less than twelve months, security deposits on leased
space and various prepaid amounts that will be charged to expenses
within twelve months. Non-trade receivables that are collectible in
twelve months or more are included in long-term assets.
Property and equipment - All property and equipment are valued
at cost. Depreciation is computed using the straight-line method
for reporting over the following useful lives:
Buildings 39 years
Leasehold improvements 1-5 years
==========
Office equipment 3-10 years
==========
Manufacturing equipment 5-15 years
==========
Research and development
equipment 5-10 years
==========
Purchased software 1-5 years
==========
Equipment leased to customers 3-10 years
==========
Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalised.
Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense includes depreciation on equipment
leased to customers and is included in cost of goods sold.
Intangible assets - Intangible assets consist of the costs
incurred to purchase patent rights and legal and registration costs
incurred to internally develop patents. Intangible assets are
reported net of accumulated amortisation. Patents are amortised
using the straight-line method over a period based on their
contractual lives which approximates their estimated useful
lives.
Impairment of long-lived assets - Long-lived assets to be held
and used, including property and equipment and intangible assets
with definite useful lives, are assessed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the total of the
expected undiscounted future cash flows is less than the carrying
amount of the asset, a loss, if any, is recognised for the
difference between the fair value and carrying value of the assets.
Impairment analyses, when performed, are based on the Company's
business and technology strategy, management's views of growth
rates for the Company's business, anticipated future economic and
regulatory conditions, and expected technological availability. For
purposes of recognition and measurement, the Company groups its
long-lived assets at the lowest level for which there are
identifiable cash flows, which are largely independent of the cash
flows of other assets and liabilities. No impairment charges were
recorded in the years ended 31 December 2017 and 2016.
Shipping and handling costs - Consistent with Financial
Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 605-45-50 Shipping and Handling Fees and
Costs, the Company classifies shipping and handling amounts billed
to customers as revenue, and shipping and handling costs as a
component of costs of goods sold.
Research and development costs - Research and development costs
are expensed as incurred. There was no research and development
expense for the years ended 31 December 2017 and 2016.
Advertising costs - The Company expenses advertising costs as
incurred. Advertising expense for the years ended 31 December 2017
and 2016 was approximately $nil and $4,000, respectively, and is
recorded in selling, general and administrative expenses.
Rent expense - The Company records rent expense on a
straight-line basis for operating lease agreements that contain
escalating rent clauses. The deferred rent liability included in
other current liabilities in the accompanying balance sheet
represents the cumulative difference between rent expense
recognised on the straight-line basis and the actual rent paid.
Income taxes - The provision for income taxes for annual periods
is determined using the asset and liability method, under which
deferred tax assets and liabilities are calculated based on the
temporary differences between the financial statement carrying
amounts and income tax bases of assets and liabilities using
currently enacted tax rates. The deferred tax assets are recorded
net of a valuation allowance when, based on the weight of available
evidence, it is more likely than not that some portion or all of
the recorded deferred tax assets will not be realised in future
periods. Decreases to the valuation allowance are recorded as
reductions to the provision for income taxes and increases to the
valuation allowance result in additional provision for income
taxes. The realisation of the deferred tax assets, net of a
valuation allowance, is primarily dependent on the ability to
generate taxable income. A change in the Company's estimate of
future taxable income may require an addition or reduction to the
valuation allowance.
The Tax Cuts and Jobs Act ("TCJA") was enacted on 22 December
2018, with a key provision of the TCJA being a reduction of the
corporate income tax rate from 35 percent to 21 percent. Pursuant
to the requirements of ASC 740 the Company's income tax provision
reflects the impact of the TCJA. This includes a $2.6 million tax
expense of the rate reduction on the Company's cumulative
differences between the financial statement and tax basis of its
assets and liabilities. This expense has been fully offset by a
corresponding decrease in valuation allowance.
The benefit from an uncertain income tax position is not
recognised if it has less than a 50 percent likelihood of being
sustained upon audit by the relevant authority. For positions that
are more than 50 percent likely to be sustained, the benefit is
recognised at the largest amount that is more-likely-than-not to be
sustained. An uncertain income tax position is not recognised if it
has less than a 50 percent likelihood of being sustained. Where a
net operating loss carried forward, a similar tax loss or a tax
credit carry forward exists, an unrecognised tax benefit is
presented as a reduction to a deferred tax asset. Otherwise, the
Company classifies its obligations for uncertain tax positions as
other non-current liabilities unless expected to be paid within one
year. Liabilities expected to be paid within one year are included
in the accrued expenses account.
The Company recognises interest accrued related to tax in
interest expense and penalties in selling, general and
administrative expenses. During the years ended 31 December 2017
and 2016 the Company recognised no interest or penalties.
Earnings per share - Basic earnings per share is computed using
the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed using the weighted
average number of common and potentially dilutive shares
outstanding during the period. Potentially dilutive shares consist
of the incremental common shares issuable upon conversion of the
exercise of common stock options. Potentially dilutive shares are
excluded from the computation if their effect is antidilutive.
Total common stock equivalents that were excluded from computing
diluted net loss per share were approximately 1,119,350 and
1,125,640 for the years ended 31 December 2017 and 2016,
respectively.
Fair value of financial instruments - The Company uses the
framework in ASC 820, Fair Value Measurements and Disclosures, to
determine the fair value of its financial assets. ASC 820
establishes a fair value hierarchy that prioritises the inputs to
valuation techniques used to measure fair value and expands
financial statement disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority
to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under ASC 820 are
described below:
-- Level 1: Unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access at the measurement date.
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly.
-- Level 3: Unobservable inputs for the asset or liability.
There were no significant transfers into and out of each level
of the fair value hierarchy for assets measured at fair value for
the year ended 31 December 2017 or 2016.
All transfers are recognised by the Company at the end of each
reporting period.
Transfers between Levels 1 and 2 generally relate to whether a
market becomes active or inactive. Transfers between Levels 2 and 3
generally relate to whether significant relevant observable inputs
are available for the fair value measurement in their entirety.
The Company's financial instruments as of 31 December 2017 and
2016 include cash and cash equivalents, accounts receivable,
accounts payable, the line of credit, and the note payable. The
carrying values of cash and cash equivalents, accounts receivable,
accounts payable, and the line of credit approximate fair value due
to the short-term nature of those assets and liabilities. The
Company believes it is impractical to disclose the fair value of
the note payable as it is an illiquid financial instrument.
Foreign currency transactions - From time to time the Company
transacts business in foreign currencies (currencies other than the
United States Dollar). These transactions are recorded at the rates
of exchange prevailing on the dates of the transactions. Foreign
currency transaction gains or losses are included in selling,
general and administrative expenses.
Share-based compensation - The Company issues equity-settled
share-based awards to certain employees, which are measured at fair
value at the date of grant. The fair value determined at the grant
date is expensed, based on the Company's estimate of shares that
will eventually vest, on a straight-line basis over the vesting
period. Fair value for the share awards representing equity
interests identical to those associated with shares traded in the
open market is determined using the market price at the date of
grant. Fair value is measured by use of the Black Scholes valuation
model (see Note 10).
Recently issued accounting standards - In May 2014, the
Financial Accounting Standards Board ("FASB") and International
Accounting Standards Board issued their converged standard on
revenue recognition Accounting Standards Update ("ASU") No.
2014-09, "Revenue from Contracts with Customers (Topic 606)", as
subsequently amended. This ASU replaces nearly all existing U.S.
GAAP guidance on revenue recognition. The standard prescribes a
five-step model for recognising revenue, the application of which
will require significant judgement. ASU No. 2014-09, as amended, is
effective for the Company beginning 1 January 2018. The Company
will apply Topic 606 using the cumulative effect method,
recognising the cumulative effect of initially applying Topic 606
as an adjustment to the opening balance of equity at 1 January 2018
for all open contracts at 31 December 2017. Based on the analysis
completed by the Company, there will not be an impact to the
beginning equity account at 1 January 2018.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic
842)", which requires lessees to recognise on the balance sheet the
assets and liabilities for the rights and obligations created by
the leases with lease terms of more than twelve months. The
recognition, measurement, and presentation of expenses and cash
flows arising from a lease by a lessee will continue to primarily
depend on its classification as a finance or operating lease.
However, unlike current U.S. GAAP, which requires only capital
leases to be recognised on the balance sheet, the new standard will
require both types of leases to be recognised on the balance sheet.
The new standard also requires disclosures about the amount,
timing, and uncertainty of cash flows arising from leases. These
disclosures include qualitative and quantitative requirements,
providing additional information about the amounts recorded in the
financial statements. The new standard is effective for fiscal
years beginning after 15 December 2018, and for interim and annual
periods thereafter, with early application permitted. The Company
is currently evaluating the impact of adopting this guidance but
does not expect it to have a material impact on the Company's
financial statements.
3. Accounts receivable
Accounts receivable and their respective allowance amounts at 31
December 2017 and 2016:
31 December 31 December
2017 2016
US$000 US$000
Accounts Receivable 2,468 2,084
=========== ===========
Less: allowance for doubtful accounts (32) (143)
=========== ===========
Total receivable - net 2,436 1,941
=========== ===========
4. Inventories
Inventories consist of the following at 31 December 2017 and
2016:
31 December 31 December
2017 2016
US$000 US$000
Raw materials 686 756
=========== ===========
Work-in-progress 44 -
=========== ===========
Finished goods 2,355 2,434
=========== ===========
Total inventory 3,085 3,190
=========== ===========
5. Property and equipment
Property and equipment consists of the following at 31 December
2017 and 2016:
31 December 31 December
2017 2016
US$000 US$000
Land 709 709
=========== ===========
Building 2,724 2,724
=========== ===========
Leasehold improvements 341 341
=========== ===========
Office equipment 697 723
=========== ===========
Manufacturing equipment 747 854
=========== ===========
Research and development equipment 514 514
=========== ===========
Purchased software 222 222
=========== ===========
Equipment leased to customers 8,495 8,837
=========== ===========
Construction in progress 444 730
=========== ===========
14,893 15,654
=========== ===========
Less: accumulated depreciation (6,138) (5,167)
=========== ===========
Property and equipment - net 8,755 10,487
=========== ===========
During the years ended 31 December 2017 and 2016, the Company
removed property, plant and equipment and the associated
accumulated depreciation of approximately $188,000 and $183,000,
respectively, to reflect the disposal of property, plant and
equipment.
Depreciation expense for the years ended 31 December 2017 and
2016 was approximately $1,159,000 and $1,342,000, respectively, and
includes depreciation on equipment leased to customers.
Depreciation expense on equipment leased to customers included in
cost of goods sold for the years ended 31 December 2017 and 2016
was $783,000 and $885,000, respectively.
6. Intangible assets
During 2009, the Company entered into a patent rights purchase
agreement with a shareholder. The agreement provided for the
immediate payment of $28,000 in 2009 with the possibility of an
additional $72,000 based on profits on the sales of a particular
product. During 2010, the Company paid $22,000 based on profits on
the sales of the product and paid the remaining $50,000 in 2011.
The patent is amortised utilising the straight-line method over a
useful life of 17 years which represents the legal life of the
patent from inception. Accumulated amortisation on the patent was
approximately $45,000 and $39,000 as of 31 December 2017 and 2016,
respectively.
In addition to the purchased patent, the Company has internally
developed patents. Internally developed patents include legal and
registration costs incurred to obtain the respective patents. The
Company currently holds various patents and numerous pending patent
applications in the United States, as well as numerous foreign
jurisdictions outside of the United States.
Intangible assets as of 31 December 2017 and 2016 consist of the
following:
Weighted 31 December 31 December
Average Useful 2017 2016
lives US$000 US$000
Internally developed patents 15 years 1,271 1,240
================ =========== ===========
Purchased patents 17 years 100 100
================ =========== ===========
1,371 1,340
================================================ =========== ===========
Less accumulated amortisation (534) (488)
=========== ===========
Intangible assets - net 837 852
=========== ===========
Approximate aggregate future amortisation expense is as
follows:
Year Ending 31 December (USD, in thousands)
2018 45
===
2019 44
===
2020 44
===
2021 44
===
2022 42
===
Thereafter 203
===
Amortisation expense for the years ended 31 December 2017 and
2016 was approximately $46,000 and $42,000, respectively.
7. Income taxes
The components of income taxes shown in the statements of
operations are as follows:
31 December 31 December
2017 2016
US$000 US$000
Current:
=========== ===========
Federal - -
=========== ===========
Foreign 326 197
=========== ===========
State 1 2
=========== ===========
Total current provision 327 199
=========== ===========
Deferred:
=========== ===========
Federal - -
=========== ===========
Foreign - -
=========== ===========
State - -
=========== ===========
Total deferred provision - -
=========== ===========
Total provision for income taxes 327 199
=========== ===========
The provision for income tax varies from the amount computed by
applying the statutory corporate federal tax rate of 34 percent,
primarily due to the effect of certain nondeductible expenses,
foreign withholding tax, and changes in valuation allowances.
A reconciliation of the differences between the effective tax
rate and the federal statutory tax rate is as follows:
31 December 31 December
2017 2016
Federal statutory income tax rate 34.0% 34.0%
=========== ===========
State tax rate, net of federal benefit (0.5%) (0.1%)
=========== ===========
Valuation allowance 271.6% (36.2%)
=========== ===========
Rate reduction adjustment (311.6%) -
=========== ===========
Other (1.8%) 0.1%
=========== ===========
Foreign withholding tax (31.0%) (4.2%)
=========== ===========
Effective income tax rate (39.3%) (6.4%)
=========== ===========
The significant components of deferred income taxes included in
the balance sheets are as follows:
31 December 31 December
2017 2016
US$000 US$000
Deferred tax assets
=========== ===========
Net operating loss 4,679 7,140
=========== ===========
Equity compensation 284 413
=========== ===========
Research and development credits 159 159
=========== ===========
Allowance for bad debts 7 49
=========== ===========
Accrued liability 1 7
=========== ===========
Charitable contributions - 10
=========== ===========
Other 26 37
=========== ===========
Total gross deferred tax asset 5,156 7,815
=========== ===========
Deferred tax liabilities
=========== ===========
Property and equipment (569) (971)
=========== ===========
Total gross deferred tax liability (569) (971)
=========== ===========
Net deferred tax asset before valuation allowance 4,587 6,844
=========== ===========
Valuation allowance (4,587) (6,844)
=========== ===========
Net deferred tax asset (liability) - -
=========== ===========
Deferred tax assets and liabilities are recorded based on the
difference between an asset or liability's financial statement
value and its tax reporting value using enacted rates in effect for
the year in which the differences are expected to reverse, and for
other temporary differences as defined by ASC-740, Income Taxes. At
31 December 2017, the Company has recorded a valuation allowance of
$4.6 million for which it is more likely than not that the Company
will not receive future tax benefits due to the uncertainty
regarding the realisation of such deferred tax assets.
As of 31 December 2017, the Company has approximately $21.3
million of gross U.S. federal net operating loss carry forwards and
$5.3 million of gross state net operating loss carry forwards that
will begin to expire in the 2019 tax year.
On 22 December 2017, the Tax Cuts and Jobs Act was signed into
law and impacts individuals, pass through entities and
corporations. The Company is impacted by the corporation changes.
The corporate tax rate remains unchanged for the year ended 31
December 2017, with the new federal corporate tax rate reducing
from a maximum 35 percent marginal rate to a set 21 percent rate
beginning in 2018. The Company's current income tax expense is
based on a federal tax marginal rate of 34 percent. However, US
GAAP requires the deferred tax components to be recorded at the
rate in which the differences are expected to reverse which impacts
tax expense for the year ended 31 December 2017. Based on the new
federal corporate tax rate of 21 percent for 2018 and thereafter,
the deferred tax assets and liabilities were revalued at the new
tax rate and the adjustment of approximately $2.6 million was
recorded directly to tax expense in 2017.
The FASB issued Interpretation ASC-740-10-25, Income Taxes, an
interpretation of ASC-740 which clarifies the accounting for income
taxes by prescribing the minimum recognition threshold a tax
position is required to meet before being recognised in the
financial statements. Under ASC-740, the impact of an uncertain
income tax position on the income tax return must be recognised at
the largest amount that is more likely than not to be sustained
upon audit by the relevant taxing authority. ASC-740 also provides
guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and
transition. ASC-740 applies to all tax positions related to income
taxes.
As a result of the adoption and implementation of ASC-740, a tax
position is recognised as a benefit only if it is "more likely than
not" that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount
recognised is the largest amount of tax benefit that has a greater
than 50 percent likelihood of being realised on examination. For
tax positions not meeting the "more likely than not" test, no tax
benefit is recorded. The Company recognises interest and penalties
related to tax positions in income tax expense. At 31 December 2017
and 2016, there was no accrual for uncertain tax positions or
related interest.
The Company's tax years 2014 through 2017 remain subject to
examination by federal, state and foreign income tax
jurisdictions.
8. Line of credit
In October 2014, the Company entered into a bank line of credit
that allows for borrowings up to $500,000. The line of credit is
revolving and is payable on demand. There was no balance on the
line of credit at 31 December 2017 and 2016. The facility matures
in October 2019 and is secured by the assignment of a deposit
account held by the lender. The line of credit carries a variable
interest rate of 0.5 percentage points under an independent index
which is the Wall Street Journal Prime and is calculated by
applying the ratio of the interest rate over a year of 360 days
multiplied by the outstanding principal balance multiplied by the
actual number of days the principal balance is outstanding. The
interest rate on 31 December 2017 and 2016 was 4.00 percent and
3.25 percent, respectively. There was no interest expense related
to this loan for the years ended 31 December 2017 and 2016.
9. Notes payable
On 27 March 2013, the Company entered into a term loan agreement
with a lender for the purchase of property and a building for its
manufacturing operations and corporate offices. The note is secured
by the property and building. The Company borrowed proceeds of
$2,285,908 at a fixed interest rate of 4.45 percent. The loan has a
ten year term with monthly payments based on a twenty year
amortisation. In addition, there is a one-time payment at the end
of the term of the note of approximately $1,400,000. In accordance
with the terms of the agreement, the Company is required to keep
$500,000 in a deposit account with the lending bank. As of 31
December 2017 and 2016, the Company had restricted cash of $500,000
related to the loan agreement. Future maturities of long-term debt
are as follows as of 31 December 2017:
Year Ending 31 December (USD, in thousands)
2018 89
=====
2019 93
=====
2020 97
=====
2021 102
=====
2022 106
=====
Thereafter 1,434
=====
1,921
=====
10. Stock compensation
Stock options
In July 2011, the Company's shareholders approved the Conversion
Shares and the Directors' Shares, as well as the Plan Shares and
Omnibus Performance Incentive Plan ("Plan"). This included the
termination of all outstanding stock incentive plans, cancellation
of all outstanding stock incentive agreements, and the awarding of
stock incentives to Directors and certain employees and
consultants. The Company established the Plan to attract and retain
Directors, officers, employees and consultants. The Company
reserved an amount equal to 10 percent of the Common Shares issued
and outstanding immediately following the Public Offering.
Upon the issuance of these additional shares, an award of share
options was made to the Directors and certain employees and
consultants, and a single award of restricted shares was made to a
former Chief Financial Officer. In addition, additional stock
options were awarded in each year subsequent. The awards of stock
options and restricted shares made upon issuance were in respect of
85 percent of the Common Shares available under the Plan,
equivalent to 8.5 percent of the Public Offering. The total number
of shares reserved for stock awards and options under this Plan is
1,878,761 with 1,222,042 shares allocated as of 31 December 2017.
The shares are all allocated to employees, executives and
consultants.
The options granted to Non-Executive Directors, unless otherwise
agreed, vest contingent on continuing service with the Company at
the vesting date and compliance with the covenants applicable to
such service.
Employee options either vest over three years with a third
vesting ratably each year, or partially on issuance and partially
over the following 24 month period. Vesting accelerates in the
event of a change of control. Options granted to Non-Executive
Directors and one executive vest partially on issuance and will
vest partially one to two years later. The remaining Non-Executive
Director options expired at the end of 2016.
As discussed in Note 2, the Company uses the Black Scholes
valuation model to measure the fair value of options granted. Since
the Company does not have a sufficient trading history from which
to calculate its historical volatility, the Company's expected
volatility is based on a basket of comparable companies' historical
volatility. As the Company's initial options were granted in 2011,
the Company does not have sufficient history of option exercise
behavior from which to calculate the expected term. Accordingly,
the expected terms of options are calculated based on the short-cut
method commonly utilised by newly public companies. The risk free
interest rate is based on a blended average yield of two and five
year United States Treasury Bills at the time of grant. The
assumptions used in the Black Scholes option pricing model for
options granted in 2016 and 2017 were as follows:
Risk-Free Fair
Number of Interest Expected Exercise Value
Options Granted Grant Date Rate Term Volatility Price per option
2016 25,000 01/02/2016 1.62% 5.75 years 56.00% $0.34 $0.18
================ ========== ========= ========== ========== ======== ===========
345,000 14/03/2016 1.70% 5.75 years 54.50% $0.40 $0.20
================ ========== ========= ========== ========== ======== ===========
2017 205,000 26/05/2017 1.69% 5.75 years 56.70% $0.75 $0.39
================ ========== ========= ========== ========== ======== ===========
25,000 06/11/2017 2.08% 6 years 56.70% $1.26 $0.69
================ ========== ========= ========== ========== ======== ===========
50,000 06/11/2017 2.08% 6 years 56.70% $1.26 $0.00
================ ========== ========= ========== ========== ======== ===========
The Company assumes a dividend yield of 0.0%.
The following table summarises the Company's stock option
activity for the years ended 31 December 2017 and 2016:
Weighted-Average Weighted-Average Average
Exercise Remaining Contractual Grant Date
Stock Options Shares Price Term (in years) Fair Value
Outstanding at 31 December
2015 825,556 $3.48 5.8 $1,476,970
========= ================ ====================== ===========
Granted 370,000 $0.40 5.8 $73,500
========= ================ ====================== ===========
Forfeited (56,000) $4.36
========= ================ ====================== ===========
Outstanding at 31 December
2016 1,139,556 $2.56 5.9 $1,372,852
========= ================ ====================== ===========
Granted 280,000 $0.89 5.8 $97,200
========= ================ ====================== ===========
Exercised (17,500) $0.36
========= ================ ====================== ===========
Forfeited (180,014) $1.81
========= ================ ====================== ===========
Outstanding at 31 December
2017 1,222,042 $2.31 5.9 $1,307,331
========= ================ ====================== ===========
Exercisable at 31 December
2017 1,038,376 $2.52 6.0
========= ================ ====================== ===========
A summary of the status of unvested options as of 31 December
2017 and changes during the years ended 31 December 2017 and 2016
is presented below:
Weighted-Average
Fair Value at Grant
Unvested Options Shares Date
Unvested at 31 December 2015 249,000 $1.16
========= ====================
Granted 370,000 $0.20
========= ====================
Vested (262,167) $0.49
========= ====================
Forfeited (15,000)
========= ====================
Unvested at 31 December 2016 341,833 $0.65
========= ====================
Granted 280,000 $0.35
========= ====================
Vested (340,584) $0.92
========= ====================
Forfeited (97,583)
========= ====================
Unvested at 31 December 2017 183,666 $0.44
========= ====================
As of 31 December 2017, total unrecognised compensation cost of
$70,000 was related to unvested share-based compensation
arrangements awarded under the Plan.
11. Commitments and contingencies
Operating leases - The Company leases certain facilities and
equipment under non-cancelable operating leases which expire at
varying times between January 2018 and May 2019. Certain of these
leases have escalating rent payments which result in the Company
recording a deferred rent liability.
Future minimum lease payments under the operating leases,
together with the present value of minimum lease payments as of 31
December 2017 are as follows:
Future
Lease Payments
Year Ending 31 December US$000
2018 149
===============
2019 45
===============
Total future lease payments 194
===============
Rent expense for the years ended 31 December 2017 and 2016 was
approximately $325,000 and $337,000, respectively.
12. Related party transactions
The Company has held a patent rights purchase agreement since
2009 with a shareholder as described in Note 6.
13. Segment and geographic information
ASC 280-10, Disclosures About Segments of an Enterprise and
Related Information (ASC 280-10), establishes standards for
reporting information about operating segments. ASC 280-10 requires
that the Company report financial and descriptive information about
its reportable operating segments. Operating segments are
components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief
operating decision maker (CODM) in deciding how to allocate
resources and in assessing performance. The Company's CODM is the
Chief Executive Officer (CEO). While the CEO is apprised of a
variety of financial metrics and information, the business is
principally managed on an aggregate basis as of 31 December 2017.
For the year ended 31 December 2017, the Company's revenues were
generated primarily in the Middle East and the United States
(U.S.). Additionally, the majority of the Company's expenditures
and personnel either directly supported its efforts in the Middle
East and the U.S., or cannot be specifically attributed to a
geography. Therefore, the Company has only one reportable operating
segment.
Revenue from customers by geography is as follows:
Year Ending 31 December 2017 2016
Middle East 6,256 3,989
====== =====
United States 7,191 1,766
====== =====
Other 304 2,168
====== =====
Total 13,751 7,923
====== =====
Equipment leased to customers by geography is as follows:
Year Ending 31 December 2017 2016
Middle East 6,391 6,391
===== =====
United States 1,729 2,071
===== =====
Other 375 375
===== =====
Total 8,495 8,837
===== =====
14. Concentrations
At 31 December 2017, two customers, one with four contracts with
three separate plants, represented 89 percent of accounts
receivable. During the year ended 31 December 2017, the Company
received 80 percent of its gross revenue from two customers, one
with four separate plants.
At 31 December 2016, two customers, one with three contracts
with three separate plants, represented 61 percent of accounts
receivable. During the year ended 31 December 2016, the Company
received 67 percent of its gross revenue from two customers, one
with three separate plants.
15. Subsequent Events
The Company discloses material events that occur after the
balance sheet date but before the financials are issued. In
general, these events are recognised in the financial statements if
the conditions existed at the date of the balance sheet, but are
not recognised if the conditions did not exist at the balance sheet
date. Management has evaluated subsequent events through 14 May
2018, the date the financial statements were available to be
issued, and no events have occurred which require further
disclosure.
Forward Looking Statements
This announcement contains certain statements that are or may be
"forward-looking statements". These statements typically contain
words such as "intends", "expects", "anticipates", "estimates" and
words of similar import. All the statements other than statements
of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial
position, business strategy, plans and objectives of management for
future operations (including development plans and objectives
relating to the Company's products and services) are
forward-looking statements. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future
and therefore undue reliance should not be placed on such
forward-looking statements. There are a number of factors that
could cause the actual results, performance or achievements of the
Company to be materially different from future results, performance
or achievements expressed or implied by such forward-looking
statements. Such forward-looking statements are based on
numerous assumptions regarding the Company's present and future
business strategies and the environment in which the Company will
operate in the future and such assumptions may or may not prove to
be correct. Forward-looking statements speak only as at the date
they are made. Neither the Company nor any other person undertakes
any obligation (other than, in the case of the Company, pursuant to
the AIM Rules for Companies) to update publicly any of the
information contained in this announcement, including any
forward-looking statements, in the light of new information, change
in circumstances or future events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUMGAUPRGBC
(END) Dow Jones Newswires
May 15, 2018 02:00 ET (06:00 GMT)
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