TIDMMYX TIDMTTM
RNS Number : 4797A
MyCelx Technologies Corporation
12 September 2018
12 September 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.
MYCELX TECHNOLOGIES CORPORATION (AIM: MYX)
Half Year Results Statement
For the six months ended 30 June 2018
Record H1 results on strong contract awards
MYCELX Technologies Corporation ("MYCELX" or the "Company"), the
clean water technology company providing patented solutions for the
Oil and Gas market and commercial industrial markets worldwide, is
pleased to announce its interim unaudited results for the six
months ended 30 June 2018 for which highlights are set out
below.
Financial
-- 107% increase in Revenue YoY: $12.2 million (2017 H1: $5.9 million)
-- EBITDA of $2.7 million (2017 H1: $0.3 million)
-- Net Profit of $1.5 million (2017 H1: net loss of $0.5 million)
-- Gross profit margin of 51.4% (2017 H1: 52.2%)
Operational
Contract awards reflect the renewal of successful long-term
installations, the initial results from the targeted business
development efforts in the MENA region and the opening of new
markets:
Saudi Arabia:
o Operating contract for long-term installation for process
water treatment contract was renewed by SABIC on the same
commercial terms for a further two years and valued at $5
million
o A new purchase order was secured from SABIC for a rapid
response water treatment system that commenced operations in
February 2018
o Awarded a new purchase order for a twelve-month extension for
one of the Company's rapid response systems that was deployed in Q4
2017
o Secured a new purchase order for a three-month extension of
the rapid response unit that was placed in February 2018 and was
secured in collaboration with one of the Company's Saudi waste
management partners
North America:
o Rental of offshore polisher system to existing customer to
manage upsets during production
o With Schlumberger, sold REGEN for onshore, unconventional
market treating produced water for frac fluid in Canada
Australia:
o Equipment sale marks the first sale into the LNG market
Post Period
o Nigeria: Successful installation of first produced water
treatment system
o Europe: Produced water treatment trial for Enhanced Oil
Recovery field upgrade
o Canada: EOR trial with major Canadian producer in 4Q 2018
o North America: Short term lease for water treatment at
lubricants plant
o Saudi Arabia: further renewal of rapid response system
deployment for additional three months
Outlook
Maintain strong momentum by:
-- Leveraging business relationships and successful
installations in the Middle East to continue to grow footprint
throughout MENA
-- Using successful produced water installation in Nigeria as
reference site to secure more projects in-country
-- Continuing to focus on EOR produced water trials in Canada
and Europe which lead to equipment and recurring media sales
-- Working with Schlumberger's global sales and marketing targeting unconventional market
Commenting on these results, Connie Mixon, CEO, said:
"The Company is pleased to report its strongest half year
performance to date delivering $12.2 million in revenue, which is a
107% increase over H1 2017. EBITDA increased to $2.7 million
resulting in net profit of $1.5 million. Momentum grew in Saudi
Arabia with a series of contract wins adding to our existing
installation base within SABIC, the leading petrochemical company.
In addition to our SABIC success, the Company made its first
equipment sale into the LNG market in Australia and our recurring
media sales to legacy customers remained robust. Looking forward,
our focus will be on sustaining momentum by converting our pipeline
of opportunities in Saudi Arabia, Nigeria and North America which
should keep us in line with current market expectations. We will
also continue our proven strategy of engaging new customers for
trials. We have secured trials at several opportunities in Canada
and Europe for our proprietary RE-GEN media as the oil price
recovery has led to reinvigoration of Enhanced Oil Recovery (EOR)
opportunities. Our successful trials, together with strategic
partnerships such as Schlumberger, Saudi Waste Management companies
and Polymer Flood specialists help to increase industry recognition
of our differentiating technology and the superior performance it
brings to our customers.
MYCELX is a technology company that continues to expand its
exceptional water treatment expertise. MYCELX's growing knowledge
base supports the innovation and commercialisation of next
generation technology to meet the current and future needs of our
customers. We are more reliable and cost effective than outdated
conventional methods. The oil and gas and petrochemical industries
are integrating MYCELX(R) technology into critical, real-time
production and processes, where increased uptime performance goes
straight to the bottom line. Our technology will deliver
sustainable water treatment for years to come."
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
Chairman's and Chief Executive Officer's Statement
Introduction:
MYCELX is pleased to report the 2018 half year results are the
strongest in the Company's history. The Company has delivered $12.2
million in revenue, which is a 107% increase over H1 2017, and
EBITDA of $2.7 million which resulted in $1.5 million in net
profit. During the first half of 2018 market conditions for our
core applications began to improve as the oil price increased to
levels that support selective spending by producers. Our strategy
of remaining close to our customers and continuing to conduct
trials proved effective and the Company benefited once previously
abandoned projects were reinstated. This close customer engagement
and working with strategic partners was the foundation for the
project wins during H1. Our strong H1 financial performance was
primarily driven by a series of contract wins in the Middle East.
These wins came about due to the reputation that we have
established from our successful installations, which have been
reliably treating process and waste water for reuse since 2008. We
also made our first sale into the Australian LNG market and
continued making consistent, recurring media sales to our legacy
customers globally.
We continue to build up the market for our proprietary RE-GEN
solutions. During the period the engineering team undertook our
first RE-GEN installation in Nigeria to treat produced water for
discharge and prepared for trials in Canada and Europe for EOR
produced water treatment. Performing successful in-field trials has
demonstrated RE-GEN's superior capability to leading EOR producers
across the globe. These trials together with our strategic
partnership with Schlumberger are helping to increase industry
recognition of the step change improvement that our proprietary
technology provides our customers.
Operational Review
Middle East and North Africa
The first half of 2018 has seen increased activity for MYCELX
especially in the MENA region. We continue to pursue numerous
opportunities in petrochemical plants as well as other sectors
where our technology optimizes production uptime while handling the
difficult water streams associated with production. Our strong
track record, proven and reliable solutions and the ability to
deploy quickly have been instrumental in our ability to seize new
MENA opportunities in H1. Successful operating installations have
led to industry recognition within Saudi Arabia of MYCELX's
superior capability at treating difficult water challenges. It is
this reputation, together with a marketing drive and proactive
engagement with existing customers that has allowed us to secure
several contract wins during the period. With new contract wins,
particularly with existing customers, our client relationships
deepen and generate further opportunities as we are increasingly
treated as a trusted expert partner rather than just a vendor. Our
commitment to the MENA region continues to grow and is already
yielding results. The Company recently relocated one of its most
experienced senior engineers to the region to fill the key position
of Director of Engineering to further support the team there as it
continues to successfully convert pipeline opportunities.
Our core market in the MENA region is Saudi Arabia where our
technology is aligned with recent regulations and government
initiatives that are driving industries toward reduced waste
generation and increased recycle and reuse of vital resources, such
as water. MYCELX's technology offers sustainable solutions for
water treatment through our range of applications. Over the last
ten years we have been solving water treatment challenges in the
GCC ranging from BTEX removal to Quenchwater and Cooling Water
Reuse to Turnaround contamination treatment. Our key advantages in
all these applications is our extensive water treatment knowledge,
our smaller equipment footprint and our ability to rapidly respond
to client requests by deploying our regional rental fleet. Our
solutions are proven to increase production uptime and reduce
unscheduled maintenance, thereby ensuring that water treatment is
not only cost effective but also production enhancing.
Our efforts in the Downstream market in the rest of the GCC are
focused on applying our Saudi expertise to address similar issues
at petrochemical plants in Kuwait and UAE. The planned expansion of
the UAE's petrochemical industry offers MYCELX the opportunity to
broaden its footprint in the region. Upstream opportunities outside
of Saudi Arabia are focused on the region's aging fields which are
moving towards EOR methods to continue production. These EOR
methods require more advanced water treatment than conventional
technologies can deliver. MYCELX has been successfully trialed in
the Middle East and other locations to treat EOR produced water.
The Company views the EOR market as one of the largest water plays
for years to come.
Nigeria
In 2017 the Company entered the Nigerian market with the sale of
an onshore water treatment solution to a leading independent oil
and gas producer developing its reserves in the Niger Delta.
MYCELX's water treatment system was delivered in H1 2018 and was
successfully installed post period. The system cost effectively
solves the current and future water challenges as the operator
progresses to use water injection and enhanced oil recovery
techniques to further increase production and reserves. The sale of
this complete system is important not only because it opens up an
exciting new geographical frontier for MYCELX, it also provides a
critical reference installation in-country for other producers to
visit. Valuable operating data is currently being gathered and will
be the basis for our new business development campaign to commence
in Q4 2018. Additionally, the on-going sale of filter media will
add to MYCELX's recurring revenue base. MYCELX not only supports
the goals of producers who are striving to reduce the environmental
impact of industry, it fits their plans to ramp up their production
into the future using enhanced oil recovery techniques which plays
to MYCELX's experience and strength.
United States
MYCELX operates in both the offshore and onshore markets in the
United States. During H1, the Company has seen consistent demand
for media from these installations. The activity in the US onshore
market is very robust with producers aggressively increasing
production which will require more effective produced water
recycling. Our innovative technology enables producers to recycle
produced water while mitigating the need for fresh water during
operations and is in increasing demand. MYCELX is working with its
strategic partner Schlumberger on pursuing the US onshore market
with an advanced Dual Technology water recycle system that includes
effective complementary technologies only available with this
system. The Company will be working with Schlumberger to
aggressively market this technology in H2. MYCELX has sold and
supported systems for onshore water treatment in the past therefore
we are optimistic that the combined system will bring better
performance to produced water recycle applications.
In the offshore market the Company received a rental contract
for a MYCELX Polishing System to treat water during production
upsets in the Gulf of Mexico. This is the sixth system either sold
or rented to this existing customer for offshore use. The rental
systems can lead to sales of larger, permanent systems which
continue the recurring media sales begun with the rental.
Canada & Europe
MYCELX's efforts in Canada and Europe are focused on growing
industry recognition of our RE-GEN media's superior results when
treating polymer-laden produced water at Enhanced Oil Recovery
operations. Recognizing that conventional water treatment in the
EOR market has struggled to match oil production technique
advancements, MYCELX has sought to trial our technology to showcase
the efficacy of the RE-GEN media in this lucrative global
application and leverage the knowledge base the Company has amassed
over six years. To verify RE-GEN's effectiveness, SNF Floerger and
MYCELX performed testing that demonstrated RE-GEN media was capable
of effectively treating polymer-laden water, while actually
preserving the valuable polymer in the water. Polymer preservation
improves the overall economics of this effective EOR oil extraction
technique. MYCELX and SNF wrote a collaborative white paper on the
data and findings of the trial that has led to onsite trials with
some of the leading polymer flood producers the world over.
Post the period under review, MYCELX began a trial with a major
European producer upgrading to EOR techniques to increase oil
production. With the improved oil price, producers are once again
looking to implement technology that provides cost savings,
performance and environmental benefits beyond what they have
experienced with conventional technologies. The capabilities of the
RE-GEN media in polymer flood applications is best demonstrated
with pilot trials so that the end user sees first-hand the
remarkable performance and ease of operation. The primary goal of
these trials is to highlight the differentiators of RE-GEN and
conventional equipment that is currently in service onsite. This
approach has had the greatest impact on end users. MYCELX has been
active in Alberta for six years and looks forward to undertaking a
trial at a major producer later in the year. EOR activity globally
looks set to continue well into the future and MYCELX is
well-placed to participate in the very large and growing
market.
Financial
Total revenue increased by 107% to $12.2 million for the first
half of 2018, compared to $5.9 million in the first half of 2017.
Revenue from equipment sales and leases decreased by 10% to $2.7
million in the first half of 2018 (2017 H1: $3.0 million), while
revenue from consumable filtration media and service increased 228%
to $9.5 million (2017 H1: $2.9 million). Gross profit increased by
100% to $6.2 million in the first half of 2018, compared to $3.1
million in the first half of 2017. Gross profit margin decreased in
the first half of 2018 to 51.4% (2017 H1: 52.2%) due to increases
in ancillary service costs.
Total operating expenses for the first half of 2018 increased by
21% to $4.1 million (2017 H1: $3.4 million). The largest component
of operating expenses was selling, general and administrative
expenses which included a $300,000 increase to staff costs and
travel, a $200,000 increase to professional fees and a $200,000
increase to property and office expenses.
EBITDA was $2.7 million for the first half of 2018, compared to
$300,000 for the first half of 2017. EBITDA is net income before
interest expense, provision for income taxes, depreciation and
amortisation of fixed and intangible assets including depreciation
of leased equipment which is included in cost of goods sold. The
Company uses EBITDA as the profitability measure for making
decisions regarding allocating resources and assessing
performance.
The Company recorded a net profit of $1.5 million in the first
half of 2018 compared to a net loss of $500,000 in the first half
of 2017. Basic profit per share was 8 cents for the first half of
2018, compared to basic loss per share of 3 cents for the first
half of 2017.
The Company ended the period with $5.5 million of cash and cash
equivalents, including restricted cash, compared to $4.7 million in
total at 30 June 2017. The Company experienced an operating cash
outflow of approximately $12,000 in the first half of 2018,
compared to an operating cash outflow of $900,000 for the first
half of 2017. The Company's net cash position was $3.6 million at
30 June 2018. Net cash is defined as cash and cash equivalents plus
restricted cash less the balance on the line of credit and the
current and long term note payable.
Outlook
The turnaround in the Company's performance since 2016 has been
managed through careful deployment of limited resources and an
energised business development effort. With the improvement in
market conditions, the Company is now well placed to take advantage
of the groundwork that it has laid over the last two years. MYCELX
believes that market conditions could improve in H2 but is
maintaining a conservative outlook for its business as we continue
to convert our pipeline of opportunities which should keep us in
line with current market expectations. The focus for the remainder
of the year will be on maintaining momentum in the MENA region and
capitalising on the trials that are scheduled in Canada and
Europe.
Our immediate growth strategy remains focused on geographic
regions of the Middle East, Nigeria, and Canada. Each of our
targeted geographical markets is water stressed therefore each has
a need and significant bottom-line incentive to adopt technology
that offers better uptime performance while minimizing water
wastage, and ensures that strict regulations are reliably met. The
Company is focused on converting defined pipeline opportunities but
is capable of responding to unexpected lucrative opportunities as
and when they appear. The likelihood of such additional projects
has increased with the improvement in the oil price, but the
Company is also aware of the increased possibility of price
volatility due to geographic or political tensions. The foundation
of the Company's ongoing success remains the fact that MYCELX
offers better performance, cost benefits through increased
production uptime and relief from conventional technology that
struggles to keep pace with new extraction techniques and process
improvements.
Our strategic partnerships have yielded results across the
globe, primarily in Saudi Arabia, where working with Waste
Management companies has delivered some of the Company's largest
contracts to date. Our in-house business development efforts have
delivered significant revenue growth since 2016 and therefore we
aim to deploy our strategic partnerships on those segments of the
market where they will provide a sales platform that we cannot
easily achieve on our own. It is clear that the Oil and Gas
industry wants and needs technology that can effectively perform
and deliver strong cost benefits to operations. The ongoing
adoption of MYCELX technology as demonstrated by the increasing
number of contract wins is further confirmation that our technology
has its role in achieving sustainable water treatment for years to
come. Our goal is to be the industry leader by providing the
technology and expertise necessary to stay ahead of the production
and process advancements of the Oil and Gas industry and paving the
way for the future of water treatment. In this manner, MYCELX will
establish a new standard for water treatment for the Oil and Gas
industry.
Tim Eggar Connie Mixon
Chairman Chief Executive Officer
12 September 2018
MYCELX TECHNOLOGIES CORPORATION
Statements of Operations
(USD, in thousands, except share data)
Six Months Six Months Year
Ended Ended Ended
30 June 30 June 31 December
2018 2017 2017
(unaudited) (unaudited)
----------------- ----------------- ---------------------------
Revenue 12,160 5,877 13,751
Cost of goods sold 5,913 2,808 6,285
Gross profit 6,247 3,069 7,466
----------------- ----------------- ---------------------------
Operating expenses:
Selling, general and administrative 3,895 3,160 7,772
Depreciation and amortisation 244 216 422
----------------- ----------------- ---------------------------
Total operating expenses 4,139 3,376 8,194
----------------- ----------------- ---------------------------
Operating profit (loss) 2,108 (307) (728)
Other expense
Loss on disposal of equipment - - (14)
Interest expense (43) (45) (89)
----------------- ----------------- ---------------------------
Profit (loss) before income taxes 2,065 (352) (831)
Provision for income taxes (527) (152) (327)
----------------- ----------------- ---------------------------
Net profit (loss) 1,538 (504) (1,158)
================= ================= ===========================
Profit (loss) per share-basic 0.08 (0.03) (0.06)
================= ================= ===========================
Profit (loss) per share-diluted 0.08 (0.03) (0.06)
================= ================= ===========================
Shares used to compute basic profit (loss)
per share 18,798,242 18,770,117 18,773,764
================= ================= ===================
Shares used to compute diluted profit (loss)
per share 20,007,048 18,770,117 18,773,764
================= ================= ===================
The accompanying notes are an integral part of the financial
statements.
MYCELX TECHNOLOGIES CORPORATION
Balance Sheets
(USD, in thousands, except share data)
As of As of As of
30 June 30 June 31 December
2018 2017 2017
(unaudited) (unaudited)
------------------- ------------------- ----------------
ASSETS
Current Assets
Cash and cash equivalents 4,974 4,170 5,171
Restricted cash 525 500 525
Accounts receivable - net 5,316 3,866 2,436
Unbilled accounts receivable 410 680 398
Inventory 3,717 3,070 3,085
Prepaid expenses 327 348 254
Other assets 44 33 33
----------------------- ------------------- ----------------
Total Current Assets 15,313 12,667 11,902
Property and equipment - net 8,343 9,299 8,755
Intangible assets - net 809 844 837
Total Assets 24,465 22,810 21,494
======================= =================== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 1,786 891 982
Payroll and accrued expenses 1,081 487 570
Deferred revenue 269 661 192
Note payable - current 91 87 89
Other current liabilities 55 437 14
----------------------- ------------------- ----------------
Total Current Liabilities 3,282 2,563 1,847
Note payable - long-term 1,786 1,877 1,832
----------------------- ------------------- ----------------
Total Liabilities 5,068 4,440 3,679
----------------------- ------------------- ----------------
Stockholders' Equity
Common stock, $0.025 par value, 100,000,000
shares authorised, 18,807,617 shares
issued and outstanding at 30 June 2018,
18,770,117 shares issued and outstanding
at 30 June 2017, and 18,787,617 shares
issued and outstanding at 31 December
2017.
470 469 470
Additional paid-in capital 40,500 40,358 40,456
Accumulated deficit (21,573) (22,457) (23,111)
----------------------- ------------------- ----------------
Total Stockholders' Equity 19,397 18,370 17,815
----------------------- ------------------- ----------------
Total Liabilities and Stockholders' Equity 24,465 22,810 21,494
======================= =================== ================
The accompanying notes are an integral part of the financial
statements.
MYCELX TECHNOLOGIES CORPORATION
Statements of Stockholders'
Equity
(USD, in thousands)
Additional
Common Stock Paid-in Accumulated
Capital Deficit Total
Shares $ $ $ $
--------- ---- ----------- ------------ -------
Balances at 31 December 2016 18,770 469 40,325 (21,953) 18,841
Stock-based compensation expense - - 33 - 33
Net loss for the period - - - (504) (504)
--------- ---- ----------- ------------ -------
Balances at 30 June 2017 (unaudited) 18,770 469 40,358 (22,457) 18,370
Issuance of common stock, net
of offering costs 18 1 6 - 7
Stock-based compensation expense - - 92 - 92
Net loss for the period - - - (654) (654)
--------- ---- ----------- ------------ -------
Balances at 31 December 2017 18,788 470 40,456 (23,111) 17,815
Issuance of common stock, net
of offering costs 20 - 8 - 8
Stock-based compensation expense - - 36 - 36
Net profit for the period - - - 1,538 1,538
--------- ---- ----------- ------------ -------
Balances at 30 June 2018 (unaudited) 18,808 470 40,500 (21,573) 19,397
========= ==== =========== ============ =======
The accompanying notes are an integral part of the financial
statements.
MYCELX TECHNOLOGIES CORPORATION
Statements of Cash Flows
(USD, in thousands)
Six Months Six Months Year
Ended Ended Ended
30 June 30 June 31 December
2018 2017 2017
(unaudited) (unaudited)
---------------------- -------------- -------------
Cash flow from operating activities
Net profit (loss) 1,538 (504) (1,158)
Adjustments to reconcile net loss to
net cash (used in) provided by operating
activities:
Depreciation and amortisation 637 617 1,205
Loss on abandonment or expiration
of patent - - 22
Loss from disposition of equipment - - 14
Stock compensation 36 33 125
Change in operating assets and liabilities:
Accounts receivable (2,880) (1,925) (495)
Unbilled accounts receivable (12) (586) (304)
Inventory (680) 716 670
Prepaid expenses (73) (222) (128)
Other assets (11) 3 3
Accounts payable 804 234 325
Payroll and accrued expenses 511 62 145
Deferred revenue 77 661 192
Other current liabilities 41 1 (422)
Net cash (used in) provided by operating
activities (12) (910) 194
---------------------- -------------- -------------
Cash flow from investing activities
Payments for purchases of property
and equipment (132) (2) (5)
Payments for purchases of intangible
assets (17) (15) (53)
---------------------- -------------- -------------
Net cash used in investing activities (149) (17) (58)
---------------------- -------------- -------------
Cash flow from financing activities
Net proceeds from stock issuance 8 - 6
Payments on notes payable (44) (42) (85)
Increase in restricted cash - - (25)
Net cash used in financing activities (36) (42) (104)
---------------------- -------------- -------------
Net (decrease) increase in cash and
cash equivalents (197) (969) 32
---------------------- -------------- -------------
Cash and cash equivalents, beginning
of period 5,171 5,139 5,139
Cash and cash equivalents, end of period 4,974 4,170 5,171
====================== ============== =============
Supplemental disclosures of cash flow
information:
Cash payments for interest 43 45 89
Cash and non-cash payments for income taxes 538 159 306
Non-cash movements of inventory and fixed
assets (133) 596 565
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 interim financial statements have
been prepared using recognition and measurement principles of
Generally Accepted Accounting Principles in the United States of
America ("U.S. GAAP").
The interim financial statements for the six months ended 30
June 2018 and 2017 have not been audited.
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 taxes. 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 labour 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. Costs to obtain a contract or
other precontract costs are expensed as incurred. 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 30 June 2018 and 2017, or 31 December
2017. 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. All equipment sold by the Company is covered by the
original manufacturer's warranty. The Company does not offer an
additional warranty and has no related obligations.
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.
The Company had no long-term contracts for the six months ended
30 June 2018.
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 30 June 2018, 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 30 June 2018 and 2017, and 31 December 2017,
cash in non-U.S. institutions was $47,000, $98,000 and $73,000,
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. At 30 June
2018 and 2017, and 31 December 2017, 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 30 June 2018 and 2017, and 31 December 2017 was
$150,000, $208,000 and $32,000, 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
labour and material, and those indirect costs which are related to
production, such as indirect labour, 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 financial 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 six months ended 30 June 2018 and 2017, and the
year ended 31 December 2017.
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 six months ended 30 June 2018 and 2017, and the
year ended 31 December 2017.
Advertising costs - The Company expenses advertising costs as
incurred. Advertising expense for the six months ended 30 June 2018
and 2017, and the year ended 31 December 2017 was approximately
$nil, 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 interim and
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
2017, 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 six months ending 30 June 2018
and 2017, and the year ended 31 December 2017 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.
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 or out of each level of
the fair value hierarchy for assets measured at the fair value for
the six months ended 30 June 2018 and 2017, and the year ended 31
December 2017.
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 30 June 2018 and 2017,
and 31 December 2017 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") 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,
was effective for the Company beginning 1 January 2018. The Company
applied 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 was no 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 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 30
June 2018 and 2017, and 31 December 2017:
30 June 30 June 31 December
2018 2017 2017
US$000 US$000 US$000
Accounts receivable 5,466 4,074 2,468
Less: allowance for doubtful
accounts (150) (208) (32)
---------- ---------- --------------
Total receivable - net 5,316 3,866 2,436
========== ========== ==============
4. Inventories
Inventories consist of the following at 30 June 2017 and 2016,
and 31 December 2016:
30 June 30 June 31 December
2018 2017 2017
US$000 US$000 US$000
Raw materials 864 735 686
Work-in-progress 145 4 4
Finished goods 2,708 2,331 2,355
---------- ---------- --------------
Total inventory 3,717 3,070 3,085
========== ========== ==============
5. Property and equipment
Property and equipment consists of the following at 30 June 2018
and 2017, and 31 December 2017:
30 June 30 June 31 December
2018 2017 2017
US$000 US$000 US$000
Land 709 709 709
Building 2,724 2,724 2,724
Leasehold improvements 354 341 341
Office equipment 697 718 697
Manufacturing equipment 782 854 747
Research and development
equipment 514 514 514
Purchased software 222 222 222
Equipment leased to customers 9,069 8,464 8,495
Construction in progress - 443 444
---------------- ------------------------- --------------
15,071 14,989 14,893
Less: accumulated depreciation (6,728) (5,690) (6,138)
---------------- ------------------------- --------------
Property and equipment -
net 8,343 9,299 8,755
================ ========================= ==============
During the six months ended 30 June 2018 and 2017, and the year
ended 31 December 2017, the Company removed property, plant and
equipment and the associated accumulated depreciation of
approximately $2,000, $71,000 and $188,000, respectively, to
reflect the disposal of property, plant and equipment.
Depreciation expense for the six months ended 30 June 2018 and
2017, and the year ended 31 December 2017 was approximately
$592,000, $594,000 and $1,159,000, respectively, and includes
depreciation on equipment leased to customers. Depreciation expense
on equipment leased to customers included in cost of goods sold for
the six months ended 30 June 2018 and 2017, and the year ended 31
December 2017 was $393,000, $401,000 and $783,000,
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 $48,000, $42,000 and $45,000 as of 30 June 2018 and
2017, and 31 December 2017, 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 30 June 2018 and 2017, and 31 December
2017 consist of the following:
Weighted 30 June 30 June 31 December
Average 2018 2017 2017
Useful lives US$000 US$000 US$000
Internally developed
patents 15 years 1,288 1,255 1,271
Purchased patents 17 years 100 100 100
1,388 1,355 1,371
Less accumulated amortisation (579) (511) (534)
------------------- --------------------- ---------------------
Intangible assets
- net 809 844 837
=================== ===================== =====================
Approximate aggregate future amortisation expense is as
follows:
Year ending 31 December (USD, in
thousands)
2018 28
2019 51
2020 50
2021 50
2022 49
Thereafter 250
Amortisation expense for the six months ended 30 June 2018 and
2017, and the year ended 31 December 2017 was approximately
$45,000, $23,000 and $46,000, respectively.
7. Income taxes
The components of income taxes shown in the consolidated
statements of operations are as follows:
30 June 30 June 31 December
2018 2017 2017
US$000 US$000 US$000
------------------- ------------------- ------------------
Current:
Federal - - -
Foreign 524 152 326
State - - 1
------------------- ------------------- ------------------
Total current provision 524 152 327
------------------- ------------------- ------------------
Deferred:
Federal - - -
Foreign - - -
State - - -
------------------- ------------------- ------------------
Total deferred provision - - -
------------------- ------------------- ------------------
Total provision for income taxes 524 152 327
=================== =================== ==================
The provision for income tax varies from the amount computed by
applying the statutory corporate federal tax rate of 21 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:
30 June 30 June 31 December
2018 2017 2017
---------- ---------- --------------
Federal statutory income tax rate 21.2% 34.0% 34.0%
State tax rate, net of federal benefit (0.2%) (0.4%) (0.5%)
Valuation allowance (18.4%) (47.9%) 271.6%
Rate reduction adjustment - - (311.6%)
Other 2.7% (0.4%) (1.8%)
Foreign withholding tax 20.1% (28.5%) (31.0%)
---------- ---------- --------------
Effective income tax rate 25.4% (43.2%) (39.3%)
========== ========== ==============
The significant components of deferred income taxes included in
the balance sheets are as follows:
30 June 30 June 31 December
2018 2017 2017
US$000 US$000 US$000
----------------------- --------------------- ---------------------
Deferred tax assets
Net operating loss 4,266 7,289 4,679
Equity compensation 292 424 284
Research and development credits 159 159 159
Allowance for bad debts 32 72 7
Accrued liability 2 4 1
Charitable contributions - 10 -
Other 26 37 26
Total gross deferred tax asset 4,777 7,995 5,156
Deferred tax liabilities
Property and equipment (568) (982) (569)
Total gross deferred tax liability (568) (982) (569)
Net deferred tax asset before valuation
allowance 4,209 7,013 4,587
Valuation allowance (4,209) (7,013) (4,587)
----------------------- --------------------- ---------------------
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
30 June 2018, the Company has recorded a valuation allowance of
$4.2 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 30 June 2018, the Company has approximately $19.3 million
of gross U.S. federal net operating loss carry forwards and $5.2
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 was impacted by the corporation changes.
The corporate tax rate for the year ended 31 December 2017 was 34%,
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 21 percent. However, U.S. 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 30 June 2018 and
2017, and 31 December 2017, 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 30 June 2018 and 2017, and 31 December 2017. 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 30 June 2018 and 2017, and 31
December 2017 was 4.50 percent, 3.75 percent and 4.00 percent,
respectively. There was no interest expense related to this loan
for the six months ended 30 June 2018 and 2017, and the year ended
31 December 2017.
9. Note 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 30 June
2018 and 2017, and 31 December 2017, the Company had restricted
cash of $500,000 related to the loan agreement. Future maturities
of long-term debt are as follows as of 30 June 2018:
Year ending 31 December (USD, in
thousands)
2018 45
2019 93
2020 97
2021 102
2022 106
Thereafter 1,434
--------------
1,877
10. Stock compensation
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
1,880,762 with 1,197,042 shares allocated as of 30 June 2018. 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 2017 and 2018 were as follows:
Number Risk-Free
of Options Interest Expected Exercise Fair Value
Granted Grant Date Rate Term Volatility Price Per Option
-------- -------------- ------------- ------------ ------------- ------------- ----------- --------------
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 six months ended 30 June 2018:
Weighted-Average Weighted-Average Average
Exercise Remaining Contractual Grant Date
Stock Options Shares Price Term (in years) Fair Value
------------------------------ ------------ ------------------- ------------------------- --------------
Outstanding at 31 December
2017 1,222,042 $2.31 5.9 $1,307,331
Exercised (20,000) $0.44
Forfeited (5,000) $0.75
------------------------------ ------------
Outstanding at 30 June
2018 1,197,042 $2.35 5.9 $1,300,906
------------------------------ ------------
Exercisable at 30 June
2018 1,044,542 $2.55 5.9
------------------------------ ------------
A summary of the status of unvested options as of 30 June 2018
and changes during the six months ended 30 June 2018 is presented
below:
Weighted-Average
Fair Value at Grant
Unvested Options Shares Date
-------------------------------- ----------- -----------------------
Unvested at 31 December 2017 183,666 $0.44
Vested (28,666) $1.16
Forfeited (2,500)
-------------------------------- -----------
Unvested at 30 June 2018 152,500 $0.31
-------------------------------- -----------
As of 30 June 2018, total unrecognised compensation cost of
$33,000 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 June 2021. 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 30
June 2018 are as follows:
Future
Lease Payments
US$000
Year Ending 31 December
2018 70
2019 142
2020 98
2021 49
Total future lease payments 359
===============
Rent expense for the six months ended 30 June 2018 and 2017, and
the year ended 31 December 2017 was approximately $150,000,
$165,000 and $325,000, 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 30 June 2018. For
the six months ended 30 June 2018, 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:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
(USD, in thousands) 2018 2017 2017
Middle East 10,706 2,767 6,256
United States 1,159 816 7,191
Other 295 2,294 304
----------------- ----------------- ---------------
Total 12,160 5,877 13,751
================= ================= ===============
Equipment leased to customers by geography is as follows:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
(USD, in thousands) 2018 2017 2017
Middle East 6,971 6,391 6,391
United States 1,723 1,698 1,729
Other 375 375 375
----------------- ----------------- ---------------
Total 9,069 8,464 8,495
================= ================= ===============
14. Concentrations
At 30 June 2018, one customer with four contracts with three
separate plants represented 90 percent of accounts receivable.
During the six months ended 30 June 2018, the Company received 88
percent of its gross revenue from one customer with four contracts
with three separate plants.
At 30 June 2017, two customers, one with four contracts with
three separate plants represented 84 percent of accounts
receivable. During the six months ended 30 June 2017, the Company
received 81 percent of its gross revenue from two customers, one
with four contracts with three separate plants.
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.
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 10
September 2018, the date the interim results were available to be
issued, and no events have occurred which require further
disclosure.
Forward Looking Statements
This release 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 importance. 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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KFLFFVKFEBBF
(END) Dow Jones Newswires
September 12, 2018 02:01 ET (06:01 GMT)
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