TIDMMYX TIDMTTM
RNS Number : 2922N
MyCelx Technologies Corporation
29 September 2021
29 September 2021
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
MYCELX Technologies Corporation ("MYCELX" or the "Company"), the
clean water and air technology company transforming the
environmental impact of industry, is pleased to announce its
unaudited interim results for the six months ended 30 June
2021.
Highlights
Financial
-- Revenue of $4.2 million (2020 H1: $3.6 million)
-- Gross profit margin of 45.6% (2020 H1: 45.3%)
-- EBITDA of $1.2 million (2020 H1: negative $1.9 million),
normalized EBITDA excluding sale of building negative $1.3
million
-- Net profit of $435,000 (2020 H1: $2.8 million net loss)
-- Sale of office building in Duluth, Georgia, yielded net proceeds of $2.8 million
-- Net cash of $5.5 million at end of period
-- Recovery in financial performance year-on-year primarily due
to improving macro-outlook, but also the sale of the Company's
building in Duluth, Georgia
Operational
-- Middle East: two contract extensions signed in Q1 2021, valued at $2.4 million
-- Nigeria: equipment sale valued at $0.7 million
-- Australia: validation and capacity upgrade of Per and
Polyfluoroalkyl Substances ("PFAS") system for Department of
Defence
-- MYCELX continues to pursue other opportunities which have the
potential to generate further incremental revenues for the Company,
including PFAS in the US market and Enhanced Oil Recovery ("EOR")
applications
Post Period Update
-- Significant new contract and two contract extensions in Saudi
Arabia valued at a combined $3.9 million
-- Other water treatment contract wins valued at $650K which includes the paid REGEN trial
-- Seasoned business development hire to drive sales in North America
Outlook
MYCELX has made strong progress in H1 2021. New contracts and
contract extensions have been signed in the core market of the
Middle East and significant strides continue to be made in other
target regions such as the US and Nigeria. The Company is actively
involved in bidding activity globally, but especially in the Middle
East, and will update the market further on material contract
awards and extensions as appropriate.
In the US and Australia, the Company is actively pursuing the
PFAS remediation market, a rapidly growing multi-billion dollar
global sector. Recent validation and capacity upgrade at an
Australian Defence location and at a global oil Company's site are
evidence of our technology's increasing adoption in the PFAS
market. MYCELX expects to commence trials in the US in the coming
weeks leveraging its successful track record of PFAS water
treatment in Australia since 2014. PFAS remediation is expected to
become an increasingly important market for the business with
respect to the scale of the human health and environmental crisis
attributed to decades of use of PFAS in everyday products. PFAS
remediation is another sector where MYCELX is delivering innovative
technology to tackle one of the most serious environmental
challenges.
Building on the REGEN product development in 2020 the Company
expects to commence a paid trial in Q4 2021. The performance of the
REGEN technology ensures consistent and reliable production and
greatly reduces the number of costly well workovers.
Commenting on these results, Connie Mixon, CEO, said:
"I am pleased with the progress the Company has made in H1 2021.
A number of contract extensions and new purchase orders have been
awarded to us and we continue to actively bid on further
opportunities to improve water treatment in the oil and gas sector.
We are upbeat about our ability to win contracts due to our proven
technology, operational performance and buoyant oil prices in the
$65-$75 a barrel range. There will be challenges around the timing
of project awards, but with the continued focus on corporates
displaying strong ESG credentials, our patented technology supports
their initiatives for reuse or discharge of clean water in their
daily operations.
We are excited about our technology's success in the PFAS
remediation market in Australia and are currently mobilizing for
trials in the US. The need for innovative technology in this market
is evident from cost, sustainability and waste reduction
perspectives. MYCELX's solution has met these challenges in
Australia and we look forward to the same success in the US.
As we see the global economy normalize, we will continue to stay
close to our customers, and the markets we are focused on, which we
believe will lead to further contract awards in due course."
For further information, please contact:
MYCELX Technologies Corporation
Connie Mixon, CEO Tel: +1 888 306 6843
Kim Slayton, CFO
Canaccord Genuity Limited (Nomad and Sole Broker)
Henry Fitzgerald-O'Connor Tel: +44 20 7523 8000
Georgina McCooke
Celicourt Communications (Financial PR)
Mark Antelme Tel: +44 20 8434 2754
Jimmy Lea
Chairman's and Chief Executive Officer's Statement
We are pleased to publish MYCELX's H1 2021 results today and to
provide a wider update on the developments we have been working on
since the start of the year.
We have seen a resurgence in bidding activity across the
industries where we operate. We continued to prioritize the safety
and welfare of our workforce, meaning that our employees were able
to remain healthy, ensuring our business operations could continue
uninterrupted, especially in the current COVID-19 environment. As
documented earlier in the year, we are seeing green shoots start to
emerge, and with the prevailing focus on improving environmental
stewardship globally, we expect the applications for our technology
will continue to grow through additional project wins in 2021 and
beyond.
In H1, MYCELX delivered revenues of $4.2 million, resulting in a
net profit of $435,000. This is up considerably from H1 2020,
although we do still remain short of the numbers we produced prior
to the pandemic in H1 2019. However, given the continued attention
on operators behaving in an environmentally sustainable manner and
our strong execution we are confident of achieving revenues that
exceed the prior year.
On costs, our corporate G&A remains lower versus last year
and the savings initiatives we implemented in light of the pandemic
continue to generate results. We plan to maintain our strict
approach to capital discipline for the foreseeable future, as we
believe it to be in the best interests of all our stakeholders. As
of 30 June 2021, the Company's total assets were down from $19.1
million at FY 2020 to $17.1 million. As of 30 June 2021, the
Company had cash and cash equivalents of $5.5 million, up 45% from
$3.8 million in FY 2020.
Operational Review
We continue to make advancements in two new product applications
which will add to the current installed base of our technology.
First, PFAS remediation technology opens opportunities for MYCELX
in groundwater remediation projects. In the US, we progressed our
offering in the PFAS market with the goal of securing pilot trials
in Q4 2021 which will leverage the success we have experienced in
the PFAS market in Australia. Second, optimizing our REGEN retrofit
solution enables use of our technology on EOR as well as other
industrial applications. We anticipate that the paid REGEN trial we
expect to commence in Q4 will demonstrate REGEN's superior
performance over other water treatment offerings which in turn will
lead to accelerated uptake.
In the Middle East, we were awarded two contract extensions
during the period with customers in the Kingdom of Saudi Arabia.
The combined value of these awards to MYCELX was $2.4 million.
These projects confirm the commercial attractiveness, performance,
and acceptance of our offering as the preferred method to improve
process water for reuse and compliant discharge. In Nigeria, we
successfully delivered the equipment for our third sale in-country.
Our technology has gained significant recognition for reliable
treatment of produced water for safe discharge in these
regions.
In keeping with our cost saving measures, we announced the sale
of our building in Duluth, Georgia, USA, to right-size our office
space needs and provide working capital. The sale netted MYCELX a
financial gain of approximately $2.5 million.
Financial Review
Building on the work done in 2020 to consolidate our position
when the effects of the pandemic slowed, we saw revenue rise 17% to
$4.2 million compared to $3.6 million in the first half of 2020. We
also saw revenue from equipment sales and leases increase 58% to
$1.9 million in the first half of 2021 (2020 H1: $1.2 million).
Revenue from consumable filtration media and service was fairly
consistent at $2.3 million (2020 H1: $2.4 million). Whilst the
equipment sales are one off by nature, there is longevity to the
media sales and on-going lease and service revenues.
Gross profit increased by 19% to $1.9 million in the first half
of 2021, compared to $1.6 million in the first half of 2020, and
gross profit margin remained at 45% in the first half of 2021 (2020
H1: 45%).
We reduced the total operating expenses for the first half of
2021, including depreciation and amortisation, by 10% to $3.8
million (2020 H1: $4.2 million). The largest component of operating
expenses was selling, general and administrative expenses
('SG&A'), which decreased by approximately 7% to $3.7 million
(2020 H1: $4.0 million) due to the continued impact of a series of
company-wide cost saving measures implemented in 2020.
Depreciation and amortisation within operating expenses
decreased by 31% to $113,000 (2020 H1: $163,000), primarily due to
older equipment reaching the end of its useful life.
EBITDA was $1.2 million for the first half of 2021, compared to
negative $1.9 million for the first half of 2020. Normalized EBITDA
excluding the sale of building in Duluth, Georgia was negative $1.3
million. EBITDA is defined as net profit before interest expense,
provision for income taxes, and depreciation and amortisation of
fixed and intangible assets, including depreciation of leased
equipment which is included in cost of goods sold. The Company
recorded a profit before tax of $599,000 for the first half of
2021, compared to loss before tax of $2.6 million for the first
half of 2020. The increase in net profit was due to the $2.5
million gain the Company recognised on the sale of its building.
Basic profit per share was 2 cents for the first half of 2021,
compared to basic loss per share of 14 cents for the first half of
2020.
In the first half of 2021, the Company completed the sale of its
building in Duluth, Georgia, USA for a total consideration of $5.4
million. The Company recognised a financial gain of approximately
$2.5 million on the sale of the property and net cash proceeds were
approximately $2.8 million. The Note Payable and line of credit
were paid in full and $500,000 of cash was reclassified from
restricted cash. The sale enabled the Company to right-size its
office space needs across its main operating locations and provided
cash proceeds which will be used for working capital purposes to
support the business needs.
As of 30 June 2021, total assets were $17.1 million with the
largest assets being $5.5 million of cash and cash equivalents,
inventory of $5.1 million, property and equipment of $3.5 million
and $1.2 million of accounts receivable.
Total liabilities as of 30 June 2021 were $2.7 million and
stockholders' equity was $14.4 million, resulting in a
debt-to-equity ratio of 19%.
The Company ended the period with $5.5 million of cash and cash
equivalents and no restricted cash, compared to $3.8 million in
total at 31 December 2020, including restricted cash. The Company
used approximately $1.4 million cash in operations in the first
half of 2021, compared to $280,000 generated in the first half of
2020. The proceeds from the sale of the Company's property
contributed to $5.4 million provided by investment activities
compared to an outflow of $25,000 in the first half of 2020. In the
first half of 2021, the Company's financing activities included net
proceeds of $401,000 from a forgivable loan and $2.2 million paid
towards debt.
Outlook
This has been a productive period for the Company, building on
the product development achieved in 2020. The Company expects 2021
revenue to be in the region of 20% better than FY 2020, and we
anticipate that the hard work the team has put in will yield
further results in the near to medium term. The fundamentals of the
business have not changed. We have a unique and patented offering
that can deliver economic results and environmental improvement in
active markets across a range of applications. We are excited about
our acceleration into EOR and PFAS applications augmenting our
established footprint in petrochemical process and oil and gas
produced water. Application of MYCELX's suite of solutions ensures
cleaner water which results in reduction of the impact of industry
on the environment. These factors, combined with our geographic,
technical and industry expertise, will play an important role in
our success as we look to secure additional contract orders over
the coming period .
Tom Lamb Connie Mixon
Chairman Chief Executive Officer
29 September 2021
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
2021 2020 2020
(unaudited) (unaudited)
----------------- ----------------- -------------------
Revenue 4,164 3,641 7,104
Cost of goods sold 2,266 1,993 5,512
Gross profit 1,898 1,648 1,592
----------------- ----------------- -------------------
Operating expenses:
Research and development - 55 64
Selling, general and administrative 3,696 3,985 7,271
Depreciation and amortisation 113 163 310
----------------- ----------------- -------------------
Total operating expenses 3,809 4,203 7,645
----------------- ----------------- -------------------
Operating loss (1,911) (2,555) (6,053)
Other income (expense)
Gain upon extinguishment of debt - - 404
Gain on sale of property 2,532 - -
Interest expense (22) (62) (117)
----------------- ----------------- -------------------
Profit (loss) before income taxes 599 (2,617) (5,766)
Provision for income taxes (164) (162) (328)
----------------- ----------------- -------------------
Net profit (loss) 435 (2,779) (6,094)
================= ================= ===================
Profit (loss) per share-basic 0.02 (0.14) (0.31)
================= ================= ===================
Profit (loss) per share-diluted 0.02 (0.14) (0.31)
================= ================= ===================
Shares used to compute basic profit (loss)
per share 19,443,750 19,443,750 19,443,750
================= ================= ===================
Shares used to compute diluted profit (loss)
per share 21,032,082 19,443,750 19,443,750
================= ================= ===================
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
2021 2020 2020
(unaudited) (unaudited)
----------------- ---------------- ------------------
ASSETS
Current Assets
Cash and cash equivalents 5,512 4,255 3,292
Restricted cash - 500 500
Accounts receivable - net 1,246 1,208 1,479
Unbilled accounts receivable - 100 -
Inventory 5,096 6,821 5,642
Prepaid expenses 411 485 84
Other assets 130 387 107
--------------------- ---------------- ------------------
Total Current Assets 12,395 13,756 11,104
Property and equipment - net 3,480 7,453 6,756
Intangible assets - net 783 778 790
Operating lease asset - net 355 658 482
Total Assets 17,013 22,645 19,132
===================== ================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 424 963 473
Payroll and accrued expenses 721 1,019 540
Contract liability 12 477 745
Customer deposits 730 411 492
Operating lease obligations -
current 122 241 175
Note payable - current - 100 102
Line of credit - - 997
Other current liabilities 401 401 -
--------------------- ---------------- ------------------
Total Current Liabilities 2,410 3,612 3,524
Operating lease obligations - long-term 221 343 275
Note payable - long-term - 1,592 1,541
--------------------- ---------------- ------------------
Total Liabilities 2,631 5,547 5,340
--------------------- ---------------- ------------------
Stockholders' Equity
Common stock, $0.025 par value, 100,000,000
shares authorised, 19,443,750 shares
issued and outstanding at 30 June 2021
and 2020, and 31 December 2020.
486 486 486
Additional paid-in capital 42,555 42,391 42,400
Accumulated deficit (28,659) (25,779) (29,094)
--------------------- ---------------- ------------------
Total Stockholders' Equity 14,382 17,098 13,792
--------------------- ---------------- ------------------
Total Liabilities and Stockholders' Equity 17,013 22,645 19,132
===================== ================ ==================
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 2019 19,444 486 42,358 (23,000) 19,844
Stock-based compensation expense - - 33 - 33
Net loss for the period - - - (2,779) (2,779)
--------- ---- ----------- ------------ --------
Balances at 30 June 2020 (unaudited) 19,444 486 42,391 (25,779) 17,098
Stock-based compensation expense - - 9 - 9
Net loss for the period - - - (3,315) (3,315)
--------- ---- ----------- ------------ --------
Balances at 31 December 2020 19,444 486 42,400 (29,094) 13,792
Stock-based compensation expense - - 155 - 155
Net profit for the period - - - 435 435
--------- ---- ----------- ------------ --------
Balances at 30 June 2021 (unaudited) 19,444 486 42,555 (28,659) 14,382
========= ==== =========== ============ ========
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
2021 2020 2020
(unaudited) (unaudited)
--------------------- -------------------- -------------
Cash flow from operating activities
Net profit (loss) 435 (2,779) (6,094)
Adjustments to reconcile net profit
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortisation 573 607 1,427
Gain on sale of property (2,532) - -
Inventory reserve adjustment - - 1,061
Gain upon extinguishment of debt - - (401)
Stock compensation 155 33 42
Change in operating assets and
liabilities:
Accounts receivable - net 233 2,779 2,508
Unbilled accounts receivable - (100) -
Inventory 427 (680) (562)
Prepaid expenses (327) (267) 134
Prepaid operating leases 20 (30) 10
Other assets (23) - 280
Accounts payable (49) 177 (313)
Payroll and accrued expenses 181 516 37
Contract liability (733) 477 745
Customer Deposits 238 (453) (372)
Net cash (used in) provided by
operating
activities (1,402) 280 (1,498)
--------------------- -------------------- -------------
Cash flow from investing activities
Payments for purchases of property
and equipment (17) (17) (110)
Proceeds from sale of property 5,400 - -
Payments for internally developed
patents (22) (8) (49)
--------------------- -------------------- -------------
Net cash provided by (used in)
investing
activities 5,361 (25) (159)
--------------------- -------------------- -------------
Cash flow from financing activities
Payments on notes payable (1,643) (48) (96)
Proceeds from notes payable 401 401 401
Advances on line of credit - - 2,875
Payments on line of credit (997) - (1,878)
Net cash (used in) provided by
financing
activities (2,239) 353 1,302
--------------------- -------------------- -------------
Net increase (decrease) in cash, cash
equivalents and restricted cash 1,720 608 (355)
--------------------- -------------------- -------------
Cash, cash equivalents and restricted
cash, beginning of period 3,792 4,147 4,147
Cash, cash equivalents and restricted
cash, end of period 5,512 4,755 3,792
===================== ==================== =============
Supplemental disclosures of cash flow
information:
Cash payments for interest 40 63 117
Cash payments for income taxes 188 162 247
Non-cash movements of inventory and -
fixed
assets 119 -
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 2021 and 2020 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.
Liquidity - The Company meets its day-to-day working capital and
other cash flow requirements through operations and loan
facilities. The Company had a Note Payable (Note 10) that matured
in March 2023 and access to a line of credit (Note 8) that renewed
annually. However, the Note and the line of credit were paid in
full, and $500,000 of cash was reclassified from restricted cash,
during the period when the Company completed the sale of its
building in Duluth, Georgia, USA for total consideration of $5.4
million. The sale enabled the Company to right-size its office
space needs across its main operating locations and provided cash
proceeds, after repayment of the Note Payable and line of credit,
of $2.8 million which is being used for working capital purposes to
support the business needs. The Company actively manages its
financial risk by operating Board-approved financial policies that
are designed to ensure that the Company maintains an adequate level
of liquidity and effectively mitigates financial risks.
There has been a significant economic impact in the regions in
which the Company operates due to the global pandemic. For several
reasons including COVID-19, there has been a significant decrease
in oil demand and therefore a fall in prices. Considering the
Company's customer base is concentrated in the Oil and Gas
industry, this has impacted demand for the Company's clean water
technology. However, the Company continues to receive contract
awards and orders for media and has noted a recovery beginning to
take place within the markets it serves. The effect on the
Company's operational and financial performance will depend on
future developments, including the continued duration, spread, and
intensity of the pandemic, and governmental, regulatory and private
sector responses.
Given the continued uncertainty, the Company performed a
downside scenario sensitivity analysis taking into account the
potential for continuation of low oil prices and uncertainty around
COVID-19, whilst considering revenues already under contract and
adjusting only for cost of goods sold.
On the basis of current financial projections, including the
downside scenario sensitivity analysis, the Company believes that
it has adequate resources to continue in operational existence for
the foreseeable future at least 12 months from the date of the
issuance of these interim statements and, accordingly, consider it
appropriate to adopt the going concern basis in preparing these
interim Financial Statements.
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
inventory valuation, accounts receivable valuation, 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
filtration media product, equipment leases, professional services
to operate the leases, turnkey operations and equipment sales.
These sales are based on mutually agreed upon pricing with the
customer prior to the delivery of the media product and equipment.
The Company recognises revenue when it satisfies a performance
obligation by transferring control over a product or service to a
customer.
Revenue from filtration media sales and spare parts is billed
and recognised when products are shipped to the customer. Revenue
from equipment leases is recognised over time as the equipment is
available for customer use and is typically billed monthly. Revenue
from professional services provided to monitor and operate the
equipment is recognised over time when the service is provided and
is typically billed monthly. Revenue from turnkey projects whereby
the Company is asked to manage the water filtration process end to
end is recognised on a straight-line basis over time as the
performance obligation, in the context of the contract, is a stand
ready obligation to filter all water provided. Revenue from
contracts related to construction of equipment is recognised upon
shipment of the equipment to the customer because the contractual
terms state that control transfers at the point of shipment and
there is no enforceable right to payments made as customer deposits
prior to that date. Customer deposits for equipment sales represent
payments made prior to transferring control at the point of
shipment that can be refunded at any time when requested by the
customer, thus, they do not represent contract liability.
Sales tax charged to customers is presented on a net basis
within the statements of operations and therefore recorded as a
reduction of net revenues. Shipping and handling costs associated
with outbound freight after control over a product has transferred
to a customer are accounted for as a fulfilment cost and are
included in cost of goods sold.
The Company's contracts with the customers state the final terms
of the sales, including the description, quantity, and price of
media product, equipment (sale or lease) and the associated
services to be provided. The Company's contracts are generally
short-term in nature and in most situations, the Company provides
products and services ahead of payment and has fulfilled the
performance obligation prior to billing.
The Company believes the output method is a reasonable measure
of progress for the satisfaction of its performance obligations
that are satisfied over time, as it provides a faithful depiction
of (1) performance toward complete satisfaction of the performance
obligation under the contract and (2) the value transferred to the
customer of the services performed under the contract. All other
performance obligations are satisfied at a point in time upon
transfer of control to the customer.
The Company's contracts with customers often include promises to
transfer multiple products and services. Determining whether
products and services are considered distinct performance
obligations that should be accounted for separately versus together
may require significant judgment. Judgment is required to determine
stand-alone selling price ('SSP') for each distinct performance
obligation. The Company develops observable SSP by reference to
stand-alone sales for identical or similar items to similarly
situated clients at prices within a sufficiently narrow range.
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 revenue recognised in
excess of amounts billed. Contract liability represents billings in
excess of revenue recognised. Unbilled accounts receivable at 30
June 2021 and 2020, and 31 December 2020 was $nil, $100,000 and
$nil, respectively. Contract liability at 30 June 2021 and 2020 and
31 December 2020 was $12,000, $477,000 and $745,000,
respectively.
Timing of revenue recognition for each of the periods and
geographic regions presented is shown below:
Equipment leases, turnkey Consumable filtration
arrangements, and services media, equipment sales
recognised over time and service recognised
at a point in time
30 June 30 June 31 December 30 June 30 June 31 December
2021 2020 2020 2021 2020 2020
(USD, in thousands)
Middle East 2,529 2,586 5,181 50 48 88
United States - - - 606 646 1,394
Other - 1 3 962 260 321
---------- ---------- -------------- ---------- ---------- --------------
Total revenue recognised
under ASC 606 2,529 2,587 5,184 1,618 954 1,803
Total revenue recognised
under ASC 842 17 100 117 - - -
---------- ---------- -------------- ---------- ---------- --------------
Total revenue 2,546 2,687 5,301 1,618 954 1,803
========== ========== ============== ========== ========== ==============
Contract costs - The Company capitalises certain contract costs
such as costs to obtain contracts (direct sales commissions) and
costs to fulfil contracts (upfront costs where the Company does not
identify the set-up fees as a performance obligation). These
contract assets are amortised over the period of benefit, which the
Company has determined is customer life.
During the six months ended 30 June 2021 and 2020, and the year
ended 31 December 2020, the Company did not have any costs to
obtain a contract and any costs to fulfil a contract were
inconsequential.
Cash, cash equivalents and restricted cash - 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 2021, all of the Company's cash, cash
equivalent and restricted cash balances were held in checking and
money market accounts. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured
limits. At 30 June 2021 and 2020, and 31 December 2020, cash in
non-U.S. institutions was $126,000, $7,000 and $83,000,
respectively. The Company has not experienced any losses in such
accounts. The Company classifies as restricted cash all cash whose
use is limited by contractual provisions. At 30 June 2020 and 31
December 2020, restricted cash included $500,000 cash on deposit in
a money market account as required by a lender (see Note 10). The
restriction was released when the Note Payable was paid in full
during the period with proceeds from the sale of the Duluth
property. There was no restricted cash at 30 June 2021.
Reconciliation of cash, cash equivalents and restricted cash at
30 June 2021 and 2020, and 31 December 2020:
30 June 30 June 31 December
2021 2020 2020
US$000 US$000 US$000
Cash and cash equivalents 5,512 4,255 3,292
Restricted cash - 500 500
---------- ---------- --------------
Total cash, cash equivalents
and restricted cash 5,512 4,755 3,792
========== ========== ==============
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 2021 and 2020, and 31 December 2020 was
$33,000, $nil and $33,000, 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 changed its inventory accounting
method from the FIFO method (first in; first out) to the Average
Cost method. 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.
The Company determines the valuation by evaluating expected future
usage as compared to its past history of utilisation and future
expectations of usage.
Prepaid expenses and other current assets - Prepaid expenses and
other current assets include non-trade receivables that are
collectible in less than 12 months, security deposits on leased
space and various prepaid amounts that will be charged to expenses
within 12 months. Non-trade receivables that are collectible in 12
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:
Building 39 years
Leasehold improvements Lease period or 1-5 years (shorter
of)
Office equipment 3-10 years
Manufacturing equipment 5-15 years
Research and development equipment 5-10 years
Purchased software Licensing period or 5 years (whichever
is shorter)
Equipment leased to customers 5-10 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 2021 and 2020, and the
year ended 31 December 2020.
Research and development costs - Research and development costs
are expensed as incurred. Research and development expense for the
six months ended 30 June 2021 and 2020, and the year ended 31
December 2020 was approximately $nil, $55,000 and $64,000,
respectively.
Advertising costs - The Company expenses advertising costs as
incurred. Advertising expense for the six months ended 30 June 2021
and 2020, and the year ended 31 December 2020 was $nil and is
recorded in selling, general and administrative expenses.
Rent expense - In 2019, under ASC 842, the deferred rent
liability was recognised within the initial right of use asset as
of the transition date and the rent expense was recorded using
straight-line amortisation of the right of use asset as calculated
under the standard for the remainder of the expected lease term.
The lease liability was calculated at the present value of the
remainder of the contracted lease payments.
Lessor Contracts
The Company evaluated the potential impact of the adoption from
a lessor perspective as the Company's business model provides
customers with the use of equipment to filter water. The Company
determined that in contracts where equipment was leased, there was
an identified asset, the most significant economic benefit was the
ability of the customer to obtain clean water from their use of the
Company's clean water technology, and customers directed the
activities most significant to the ability to obtain those economic
benefits. Contracts generally contain no purchase options or
residual value guarantees. The assets that the Company leases
generally have a long useful life of up to 10 or more years and are
used by several customers over the useful life of the equipment.
The Company believes that the residual value at any point in time
is materially consistent with the recorded rate of depreciation as
a result.
The Company's lease contracts are generally short term in nature
and contain non lease components in the form of services, whereby
employees operate the equipment, and the media to use with the
equipment in order to clean the water. Within these contracts, the
predominant value lies in the purchased media, which cleans the
water, and is the most significant value received by the customer.
As a result, the Company will use the lessor practical expedient to
recognise all components under ASC 606 within these contracts.
From time to time, customers will lease only the equipment on a
trial basis or for a short period of time, as a need arises,
without the purchase of services or media. In these instances,
revenue is recognised under ASC 842. The amount of lease income to
be received under these types of arrangements over the next five
years for which a contract currently exists is not significant
because of the short-term nature of the Company's lease
contracts.
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 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. 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 2021
and 2020, and the year ended 31 December 2020 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 consisting of unexercised stock
options that were excluded from computing diluted net loss per
share were approximately nil, 1,311,973 and 1,348,638 for the six
months ended 30 June 2021 and 2020, and 31 December 2020,
respectively, and there were no adjustments to net income available
to stockholders as recorded on the statement of operations.
The following table sets forth the components used in the
computation of basic and diluted net profit (loss) per share for
the periods indicated:
30 June 30 June 31 December
2021 2020 2020
US$000 US$000 US$000
Basic weighted average outstanding
shares of common stock 19,443,750 19,443,750 19,443,750
Effect of potentially dilutive 1,588,332 - -
stock options
Diluted weighted average outstanding
shares of common stock 19,443,750 19,443,750 19,443,750
Anti-dilutive shares of common
stock excluded from diluted weighted
average shares of common stock - 1,374,542 1,348,638
Fair value of financial instruments - The Company uses the
framework in ASC 820, Fair Value Measurements, 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 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 2021 and 2020, and the year ended 31 December
2020.
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 2021 and 2020,
and 31 December 2020 include cash and cash equivalents, restricted
cash, accounts receivable, accounts payable, the line of credit,
and the note payable. The carrying values of cash and cash
equivalents, restricted cash, 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.
Stock 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 11).
Recently issued accounting standards - In August 2018, the FASB
issued ASU 2018-13, 'Fair Value Measurement (Topic 820): Disclosure
Framework', which removes, modifies and adds to the disclosure
requirements on fair value measurements in Topic 820. The
amendments on changes in unrealised gains and losses, the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
The Company adopted this guidance effective 1 January 2020. The
adoption of this new guidance did not have a material impact on the
financial statements.
In December 2019, the FASB issued ASU 2019-12, 'Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes', which is
expected to simplify income tax accounting requirements in areas
deemed costly and complex. The Company adopted this guidance
effective 1 January 2021. The adoption of this new guidance did not
have a material impact on the financial statements.
Recent accounting pronouncements pending adoption not discussed
above are either not applicable or are not expected to have a
material impact on the Company.
3. Accounts receivable
Accounts receivable and their respective allowance amounts at 30
June 2021 and 2020, and 31 December 2020:
30 June 30 June 31 December
2021 2020 2020
US$000 US$000 US$000
Accounts receivable 1,279 1,208 1,512
Less: allowance for doubtful
accounts (33) - (33)
---------- ---------- --------------
Total receivable - net 1,246 1,208 1,479
========== ========== ==============
4. Inventories
Inventories consist of the following at 30 June 2021 and 2020,
and 31 December 2020:
30 June 30 June 31 December
2021 2020 2020
US$000 US$000 US$000
Raw materials 2,101 4,139 2,158
Work-in-progress - 359 -
Finished goods 2,995 2,323 3,484
---------- ---------- --------------
Total inventory - net 5,096 6,821 5,642
========== ========== ==============
5. Property and equipment
Property and equipment consist of the following at 30 June 2021
and 2020, and 31 December 2020:
30 June 30 June 31 December
2021 2020 2020
US$000 US$000 US$000
Land - 709 709
Building - 2,724 2,724
Leasehold improvements 277 277 277
Office equipment 710 710 710
Manufacturing equipment 930 930 930
Research and development equipment 551 551 551
Purchased software 222 222 222
Equipment leased to customers 10,156 9,842 10,009
Equipment available for lease
to customers 76 163 89
12,922 16,128 16,221
Less: accumulated depreciation (9,442) (8,675) (9,465)
---------------- -------------------- --------------
Property and equipment - net 3,480 7,453 6,756
================ ==================== ==============
During the six months ended 30 June 2021 and 2020, and the year
ended 31 December 2020, the Company removed property, plant and
equipment and the associated accumulated depreciation of
approximately $567,000, $nil and $nil, respectively, to reflect the
disposal of property, plant and equipment.
Depreciation expense for the six months ended 30 June 2021 and
2020, and the year ended 31 December 2020 was approximately
$544,000, $580,000 and $1,370,000, 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 2021 and 2020, and the year ended 31
December 2020 was $460,000, $444,000 and $1,117,000,
respectively.
6. Intangible assets
During 2009, the Company entered into a patent rights purchase
agreement. 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 $67,000, $61,000 and $64,000 as of 30 June
2021 and 2020, and 31 December 2020, 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. In the six months ended
30 June 2021, there was $22,000 of new internally developed patents
and fees on patents in progress.
Intangible assets as of 30 June 2021 and 2020, and 31 December
2020 consist of the following:
Weighted 30 June 30 June 31 December
Average 2021 2020 2020
Useful lives US$000 US$000 US$000
Internally developed
patents 15 years 1,427 1,363 1,405
Purchased patents 17 years 100 100 100
1,527 1,463 1,505
Less accumulated amortisation (744) (685) (715)
------------------ -------------------- -------------------
Intangible assets
- net 783 778 790
================== ==================== ===================
Internally developed patents include approximately $375,000 for
costs accumulated for patents that have not yet been issued and are
not depreciating.
Approximate aggregate future amortisation expense is as
follows:
Year ending 31 December (USD, in
thousands)
2021 29
2022 57
2023 50
2024 48
2025 47
Thereafter 177
Amortisation expense for the six months ended 30 June 2021 and
2020, and the year ended 31 December 2020 was approximately
$29,000, $27,000 and $57,000, respectively.
7. Income taxes
The components of income taxes shown in the statements of
operations are as follows:
30 June 30 June 31 December
2021 2020 2020
US$000 US$000 US$000
------------------- ------------------ ------------------
Current:
Federal - - -
Foreign 160 162 320
State 4 - 8
------------------- ------------------ ------------------
Total current provision 164 162 328
------------------- ------------------ ------------------
Deferred:
Federal - - -
Foreign - - -
State - - -
------------------- ------------------ ------------------
Total deferred provision - - -
------------------- ------------------ ------------------
Total provision for income taxes 164 162 328
=================== ================== ==================
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 non-deductible 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
2021 2020 2020
---------- ---------- --------------
Federal statutory income tax rate 21.0% 21.0% 21.0%
State tax rate, net of federal
benefit 1.3% 0.3% (0.4%)
Valuation allowance (16.1%) (22.5%) (24.0%)
Other 0.2% (0.1%) 2.0%
Foreign withholding tax 20.9% (4.9%) (4.4%)
---------- ---------- --------------
Effective income tax rate 27.3% (6.2%) (5.8%)
========== ========== ==============
The significant components of deferred income taxes included in
the balance sheets are as follows:
30 June 30 June 31 December
2021 2020 2020
US$000 US$000 US$000
---------------------- --------------------- ---------------------------
Deferred tax assets
Net operating loss 5,443 5,249 5,589
Equity compensation 361 331 327
Research and development credits 159 159 159
Right of use liability 74 128 97
Inventory valuation reserve 358 132 358
Other 21 17 22
Total gross deferred tax asset 6,416 6,016 6,552
Deferred tax liabilities
Property and equipment (478) (683) (635)
Right of use asset (76) (144) (104)
Total gross deferred tax liability (554) (827) (739)
Net deferred tax asset before
valuation allowance 5,862 5,189 5,813
Valuation allowance (5,862) (5,189) (5,813)
---------------------- --------------------- ---------------------
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 2021, the Company has recorded a valuation allowance of
$5.9 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 2021, the Company has approximately $24.6 million
of gross U.S. federal net operating loss carry forwards and $4.4
million of gross state net operating loss carry forwards that will
begin to expire in the 2024 tax year and will continue through 2031
when the current year net operating loss will expire.
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.
On 27 March 2020, the U.S. Government enacted the Coronavirus
Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES
Act includes, but is not limited to, tax law changes related to (1)
accelerated depreciation deductions for qualified improvement
property placed in service after 27 September 2017, (2) reduced
limitation of interest deductions, and (3) temporary changes to the
use and limitation of NOLs. There was no material impact of the
CARES ACT to the Company's income tax provision for the six months
ended 30 June 2021 or for the year ended 31 December 2020.
The Company's tax years 2017 through 2020 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 allowed for borrowings up to $500,000. The line of credit was
revolving and was payable on demand. In November 2018, the maximum
borrowing capacity was increased to $1,875,000. The facility
renewed annually and was secured by the assignment of a deposit
account held by the lender and a second deed to the property owned
by the Company in Duluth, Georgia. The line of credit carried a
floating rate of interest equal to the lender's Prime Rate and was
subject to change any time the Prime Rate changed. Under terms of
the line of credit, the Company was required to maintain a minimum
cash balance and a specified cash flow coverage ratio, as those
terms were defined, and the Company was in compliance throughout
the term of the facility. In March 2021, the line of credit was
paid in full with proceeds from the sale of the Company's building
in Duluth, Georgia and the facility was closed. The balance on the
line of credit at 30 June 2020 and 31 December 2020 was $nil and
$997,000, respectively. The interest rate was 4.5 percent on 30
June 2020 and 31 December 2020. Interest expense related to this
loan was $38,000, $24,000 and $38,000 for the six months ended 30
June 2021 and 2020, and the year ended 31 December 2020,
respectively.
9. Paycheck Protection Program Loan ('PPP')
On 16 April 2020, the Company was granted a loan from Pinnacle
Bank, the Company's existing lender, in the amount of approximately
$401,000, pursuant to the Paycheck Protection Program ('PPP Loan'),
Title I of the CARES Act, which was enacted 27 March 2020. The PPP
Loan issued to the Company matures on 16 April 2022 and bears
interest at a fixed rate of 1 percent per annum and may be prepaid
in whole or in part without penalty. No interest payments are due
within the initial six months of the PPP Loan. The interest accrued
during the initial six-month period is due and payable, together
with the principal, on the maturity date. The Company used all
proceeds from the PPP Loan to retain employees, maintain payroll
and make lease and utility payments to support business continuity
during the COVID-19 pandemic. All or a portion of the PPP Loan may
be forgiven by the Small Business Administration ('SBA') upon
application by the Company and upon documentation of expenditures
in accordance with the SBA requirements. Under the CARES Act, loan
forgiveness is available for the sum of documented payroll costs,
covered rent payments, covered mortgage interest and covered
utilities during the twenty-four-week period beginning on the date
of receipt of the PPP Loan with certain stipulated restrictions. On
8 December 2020, the Company's PPP Loan was forgiven in full,
including all principal and interest outstanding as of the date of
the forgiveness. Any amount forgiven when the Company was legally
released as the primary obligor under the loan was recognised in
the Statement of Operations as a gain upon the extinguishment of
the loan.
In December 2020, Congress enacted the Consolidated
Appropriations Act, 2021. The Act is an approximately $900 billion
COVID-19 relief package and includes $284 billion for a second
round of the PPP Loan. In January 2021, the Company applied for and
was approved for a second PPP Loan in the amount of approximately
$401,000 with an interest rate of 1 percent and a maturity date of
January 2026. All other terms are the same as the initial PPP Loan.
The Company has classified the loan in other current liabilities at
30 June 2021. The Company anticipates meeting the requirements for
forgiveness of the loan as laid out in the Act. However, no
assurance can be given that the Company will obtain forgiveness of
the PPP Loan in whole or in part.
10. 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 was
secured by the property and building from which the Company
continues to operate. The carrying amount of the property and
building was $2.9 million as of 30 June 2020 and 31 December 2020.
Upon selling the collateral, the Company was required to repay the
term loan in full. The lender was not allowed to sell the
collateral during the term of the loan. The Company borrowed
proceeds of $2,285,908 at a fixed interest rate of 4.45 percent.
The loan had a 10-year term with monthly payments based on a
20-year amortisation. The result was a one-time balloon payment at
the end of the term of the note of approximately $1,400,000 during
2023. In accordance with the terms of the agreement, the Company
was required to keep $500,000 in a deposit account with the lending
bank. At 30 June 2020 and 31 December 2020, the Company had
restricted cash of $500,000 related to the loan agreement. In March
2021, the Note Payable was paid in full with proceeds from the sale
of the Company's building in Duluth, Georgia and $500,000 of cash
was reclassified from restricted cash.
11. 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 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.
In July 2019, the Company's shareholders approved the extension
of the Plan to 2029 and the increase in the possible number of
shares to be awarded pursuant to the Plan to 15 percent of the
Company's issued capital at the date of any award. The total number
of shares reserved for stock options under this Plan is 2,916,563
with 1,946,338 shares allocated as of 30 June 2021. The shares are
all allocated to employees, executives and consultants.
Any 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 vest over three years with a third vesting
ratably each year, partially on issuance and partially over the
following 24-month period, or if there is a change in control, and
expire on the tenth anniversary date of the grant. 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
on the five-year anniversary date of the grant.
As discussed in Note 2, the Company uses the Black Scholes
valuation model to measure the fair value of options granted. The
Company's expected volatility is calculated as the historical
volatility of the Company's stock over a period equal to the
expected term of the awards. The expected terms of options are
calculated using the weighted average vesting period and the
contractual term of the options. 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 2021
and 2020 were as follows:
Number Risk-Free
of Options Interest Expected Exercise Fair Value
Granted Grant Date Rate Term Volatility Price Per Option
-------- -------------- ------------- ------------ ------------ ------------- ----------- --------------
2020 325,000 06/08/2020 0.17% 5.7 years 77.00% $0.45 $0.29
2021 762,000 09/04/2021 1.10% 5.8 years 76.00% $0.69 $0.45
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 2021:
Weighted-Average Weighted-Average Average
Exercise Remaining Contractual Grant Date
Stock Options Shares Price Term (in years) Fair Value
------------------------------ ------------ ------------------- ------------------------- --------------
Outstanding at 31 December
2020 1,324,338 $2.04 5.8 $1.01
Granted 762,000 $0.69 5.8 $0.45
Forfeited (140,000) $2.87
------------------------------ ------------
Outstanding at 30 June
2021 1,946,338 $1.45 5.8 $0.76
------------------------------ ------------
Exercisable at 30 June
2021 1,126,671 $2.06 5.9
------------------------------ ------------
The total intrinsic value of the stock options exercised during
the six months ended 30 June 2021 and 2020, and 31 December 2020
was $nil.
A summary of the status of unvested options as of 30 June 2021
and changes during the six months ended 30 June 2021 is presented
below:
Weighted-Average
Fair Value at Grant
Unvested Options Shares Date
-------------------------------- ------------ -----------------------
Unvested at 31 December 2020 365,000 $0.34
Granted 762,000 $0.45
Vested (307,333) $0.44
-------------------------------- ------------
Unvested at 30 June 2021 819,667 $0.40
-------------------------------- ------------
As of 30 June 2021, total unrecognised compensation cost of
$242,000 was related to unvested share-based compensation
arrangements awarded under the Plan.
Total stock compensation expense for the six months ended 30
June 2021 and 2020, and 31 December 2020 was approximately
$155,000, $33,000 and $42,000, respectively.
12. Commitments and contingencies
Operating leases - As of 30 June 2021, the Operating Lease ROU
Asset has a balance of $355,000, net of accumulated amortisation of
$473,000 and an Operating Lease Liability of $343,000, which are
included in the accompanying balance sheet. The weighted average
discount rate used for leases accounted for under ASU 2016-02 is
5.25 percent, which is based on the Company's secured incremental
borrowing rate.
The Company's leases do not include any options to renew that
are reasonably certain to be exercised. The Company's leases mature
at various dates through May 2024 and have a weighted average
remaining life of 2.65 years.
Future maturities under the Operating Lease Liability are as
follows for the years ended 31 December:
(USD, in thousands) Future Lease
Payments
------------
2021 77
2022 120
2023 122
2024 50
------------
Total future maturities 369
Portion representing interest (26)
------------
343
============
Total lease expense for the six months ended 30 June 2021 and
2020, and the year ended 31 December 2020 was approximately
$156,000, $159,000 and $315,000, respectively.
Total cash paid for leases for the six months ended 30 June 2021
and 2020, and the year ended 31 December 2020 was $156,000,
$198,000 and $313,000, respectively.
The Company has elected to apply the short-term lease exception
to all leases of one year or less and is not separating lease and
non-lease components when evaluating leases. Total costs associated
with short-term leases was $166,000, $78,000 and $130,000 for the
six months ended 30 June 2021 and 2020, and 31 December 2020,
respectively.
Legal - From time to time, the Company is a party to certain
legal proceedings arising in the ordinary course of business. In
the opinion of management, there are no current legal proceedings
or other claims outstanding which could have a material adverse
effect on the results of operations or financial position of the
Company.
13. Related party transactions
The Company has held a patent rights purchase agreement since
2009 with a shareholder as described in Note 6.
14. 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 2021. For
the six months ended 30 June 2021, 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) 2021 2020 2020
Middle East 2,579 2,634 5,269
United States 623 746 1,511
Other 962 261 324
----------------- ----------------- ---------------
Total 4,164 3,641 7,104
================= ================= ===============
Long lived assets available for lease, net of depreciation, by
geography is as follows:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
(USD, in thousands) 2021 2020 2020
Middle East 2,548 3,327 3,127
United States 455 594 4,109
Other - - 2
----------------- ----------------- ---------------
Total 3,003 4,316 7,238
================= ================= ===============
15. Concentrations
At 30 June 2021, one customer with two contracts represented 77
percent of accounts receivable. During the six months ended 30 June
2021, that same customer, along with the Company's second largest
customer, accounted for 78 percent of the Company's gross
revenue.
At 30 June 2020, one customer with three contracts represented
91 percent of accounts receivable. During the six months ended 30
June 2020, the Company received 80 percent of its gross revenue
from four customers.
At 31 December 2020, one customer with three contracts
represented 72 percent of accounts receivable. During the year
ended 31 December 2020, that same customer, along with the
Company's second largest customer, accounted for 78 percent of the
Company's gross revenue.
16. 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 29
September 2021, 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
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END
IR VVLFLFKLFBBE
(END) Dow Jones Newswires
September 29, 2021 02:00 ET (06:00 GMT)
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