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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Mycelx Technologies Corporation | LSE:MYX | London | Ordinary Share | COM SHS USD0.025 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 53.00 | 50.00 | 60.00 | 0.00 | 07:30:21 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Water Supply | 10.03M | -3.99M | -0.1736 | -3.05 | 12.18M |
From Apr 2019 to Apr 2024
TIDMMYX TIDMTTM
RNS Number : 0398O
MyCelx Technologies Corporation
15 May 2018
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU No. 596/2014) ("MAR"). This inside information is now considered to be in the public domain.
15 May 2018
MYCELX TECHNOLOGIES CORPORATION
("MYCELX" or the "Company")
Final Results for the year ending 31 December 2017
MYCELX Technologies Corporation (AIM: MYX), the clean water technology company providing patented solutions for the Oil and Gas market and commercial industrial markets worldwide, is pleased to announce its audited results for the year ended 31 December 2017.
Highlights
Financial
-- Total revenue increased 74% to $13.8 million for 2017, (FY16: $7.9m) -- Gross profit margin remained strong at 54%, (FY16: 52%) -- EBITDA of $0.5 million in 2017, (FY16: negative $1.6 million) -- Cash and cash equivalents, including restricted cash, of $5.7 million, (FY16: $5.6m) -- Gross profit increased 82% to $7.5 million, (FY16: $4.1m)
Operational
-- Saudi Arabia
o Undertook a waste water project at a new SABIC customer SHARQ
o Successfully completed a turnaround role at Saudi Kayan
o Deployed a rapid response wastewater solution at Petrokemya Olefins II Plant
-- Nigeria
o First sale in Nigeria of a RE-GEN system for produced water
-- Successful trials in Alberta, Canada, and the Permian Basin, West Texas
Post period
-- Saudi Arabia
o Two year extension of successful Quenchwater system contract
o Placed a second wastewater system at Petrokemya Olefins III Plant
o Awarded a twelve month extension for wastewater solution at Petrokemya Olefins II Plant
-- Sold equipment into Australia, marking the Company's first sale into the LNG market in the country
-- Revenue outlook for 2018 raised to $16-$17 million on the back of contract wins
Outlook
-- Successful trials at facilities in Canada and West Texas leaves MYCELX well placed to benefit from an increase in activity in the region
-- The focus on business development in Saudi Arabia has yielded a pipeline of near term opportunities from which two have already been converted into purchase orders in Q1 2018
-- With signs of an industry recovery, namely US rig counts increases, continuing OPEC production cuts and increasing capital budgets in the Upstream space, the Company is ready to capitalise on the higher oil price environment
Tim Eggar, Chairman of MYCELX Technologies Corporation said:
"I am very proud of our achievements in 2017, as we were able to financially safeguard the business and generate strong momentum, which resulted in the Company's largest ever contract win in Saudi Arabia in early 2018.
Our customer focussed approach during the year, where we sought to work with clients to better understand their water challenges and educate them on how our technology can provide cost efficiencies and production enhancements, yielded considerable results. We exceeded expectations this year both in terms of outperforming our financial metric targets, increasing our customer base and entering new geographic territories, all of which helped us grow revenues by 74% and return to levels of activity not seen since 2014.
From a macro perspective, we were pleased to see an improvement in overall market sentiment with a higher oil price environment and greater investment in the petrochemical sector in our key market of Saudi Arabia. With our financial position more assured, we are now well positioned for when the industry does recover and stabilize."
Connie Mixon, Chief Executive Officer of MYCELX Technologies Corporation said:
"2017 was a pivotal year for the Company, which saw us put in place strong foundations to support our ongoing strategy to focus on profitable growth. We are happy to report that the actions we took last year paid off and allowed us to secure near term revenue opportunities. We exceeded our initial revenue forecast by 30%, thanks to the efforts of our team in Houston who made a significant first sale into Nigeria and the team in Saudi Arabia who secured a record three new projects in one year within SABIC.
We were pleased to announce our first contract win in Nigeria, for an onshore production project. The sale was of particular strategic importance to the Company as both producers and regulators are searching for a new standard in water treatment in country. We also conducted a number of successful trials in Canada and West Texas and whilst projects in North America generally require a longer lead time we are hopeful that these trials will convert to revenue generation in due course. The momentum that our team has generated in Saudi Arabia continues with exciting new projects that underpin our outlook for 2018."
For further information please contact:
MYCELX Technologies Corporation Connie Mixon, CEO Tel: +1 888 306 6843 Kim Slayton, CFO Cantor Fitzgerald Europe - NOMAD and Broker David Porter Tel: +44 20 7894 7000 Richard Salmond Celicourt Communications Mark Antelme Tel: +44 20 7520 9266 Jimmy Lea
Notes to Editors
MYCELX is a revolutionary oil-free water technology company solving the world's toughest oil removal problems in the oil and gas industry. The systems are based upon scientific breakthrough for a completely different approach to permanent oil removal. The Company created the patented MYCELX polymer using innovative molecular cohesion for removing oil from water far beyond what conventional systems have ever achieved. MYCELX systems remove oil to critically low levels in a much smaller physical footprint than conventional systems and in a virtually fail-safe process.
www.mycelx.com
CHAIRMAN'S STATEMENT
2017 has been an exciting year for MYCELX and we are pleased to report that the steps taken last year to safeguard the Company and position it for success yielded positive results and laid the strong foundations for sustained growth.
This has been a turnaround year for the Company with revenues up 74% and returning to levels not seen since 2014. We exceeded our own expectations thanks to the efforts of our teams in Saudi Arabia and Houston. Encouragingly, the overall momentum generated has continued to grow as seen by the Company's largest ever contract win in Saudi Arabia in early 2018.
IMPROVING MARKET ENVIRONMENT
During 2017, overall market sentiment improved as global economic growth rates returned to pre-financial crisis levels. For the oil and gas industry, our core market, the first half of the year saw price volatility on changing US stockpile data. This was followed by a price recovery based on improved fundamentals, the effects of Hurricane Harvey and the continuation of the OPEC output reduction deal. Looking forward, the effectiveness of the OPEC cuts will continue to be dependent on the activity of US Shale swing production but so far the outlook remains positive. As MYCELX is both cost effective and performance enhancing, the Company should be somewhat insulated from these macro production trends.
FINANCIAL & OPERATING PERFORMANCE
MYCELX has exceeded expectations this year both in terms of outperforming our financial metric targets, increasing our customer base and securing new geographic frontiers. The pessimism that marked the oil and gas market in 2016 noticeably dissipated throughout the year. Energy companies have steadily increased their spending in line with recovering crude oil prices. US rig counts are much higher than a year ago and continue to rise. After years of constraints, it is pleasing to note that the majority of E&P companies are now budgeting for at least a 10% increase in planned capital spending for 2018. This bodes well for our 2018 outlook, however what we learnt in 2017 was to rely on our customer focussed approach rather than ride the wave of industry fortunes.
CUSTOMER FOCUSSED APPROACH
Our primary goal remains to be increasing industry adoption of MYCELX. In 2016, our approach was to work with our clients to better understand their water challenges and educate them on how the Company's technology would provide cost efficiencies and production enhancements. This took the form of multiple trials on site. The most obvious positive outcome of these efforts came in the form of our first sale into Nigeria for a full produced water treatment system allowing future overboard discharge.
The potential to leverage this sale into a broader footprint in Nigeria is significant and will be a focus of our business development efforts in West Africa this year. Historical difficulties with adherence to discharge requirements have created an environmental challenge for this oil rich nation. MYCELX can assist with ensuring that future discharge specifications are met in a robust, cost effective and sustainable manner for years to come. The Company could potentially play a role in future clean-up operations in the Niger Delta.
In addition to Nigeria, we have had successful trials in Alberta, Canada and in the Permian Basin in West Texas. In Canada, the successful trial was an infield demonstration of our technically superior results in Enhanced Oil Recovery produced water applications. As fields mature globally, the ability to deal with polymer laden produced water will be essential as this effective extraction method is widely adopted.
The customer focussed approach was particularly successful in Saudi Arabia. I am delighted to say that the funds we deployed to reinvigorate our business development drive paid off as we expanded our footprint and deepened our relationships with existing clients by deploying new installations. Saudi Arabia remains one of the most exciting markets for MYCELX going forward. The country's Vision 2030 program and its focus on environmental protection and reducing the wastage of precious resources such as water are perfectly aligned to MYCELX solutions. Our team in Saudi have done a splendid job of capitalising on these opportunities by deploying our rental fleet to respond quickly to clients' needs as they demand smarter solutions to solve their water challenges.
PERFORMANCE VS KEY METRICS
The Company outperformed its key metrics and did so whilst preserving its cash position. Revenue exceeded projections by 30% and are a 74% improvement on 2016. Gross profit improved by 82% and returns to pre-2014 levels. Having set a goal of being EBITDA neutral we are pleased to report that we were both EBITDA and cash flow positive for the year. But the key is not just to have undertaken a turnaround in financial results but to also ensure the stability of our position and to build on it. We firmly believe that the successful trials combined with our business development momentum will help ensure that the Company continues to thrive. We have already seen this momentum sustained into 2018 with the securing of two large purchase orders from SABIC.
TRIBUTE
These successful results are a fitting tribute to Mark Mixon, who we tragically lost in September. Mark's vision and leadership are at the core of the business successes that we have seen this year and will underpin our success going forward. He was a key advocate for opening the branch in Saudi Arabia as well as the creation of the Rental Fleet services model that has been critical to our recent success in Saudi.
That the Company has managed to achieve these results in the face of a difficult operating environment is a testament to both the lasting impact of Mark's leadership and determination, as well as the tireless efforts of the whole MYCELX team.
PROMISING OUTLOOK
With our financial position more assured, we are now well positioned for when the industry does recover and stabilize. There are indications that the tide is turning - as seen with the increase in rig activity, and signs of greater investment in the petrochemical industry in our key market of Saudi Arabia. We have raised our revenue outlook for 2018 to be $16-$17 million on the basis that we already have visibility from the secured purchase orders announced to date.
GOVERNANCE
I am happy to advise that your Board of Directors and our experienced team of employees has continued to work well together over the year to support the Company's ambitions. I would like to thank them all for their wise counsel and support.
CHIEF EXECUTIVE'S STATEMENT
MYCELX enjoyed a turnaround in 2017 ensuring stronger foundations to support our ongoing focus on profitable growth. We are happy to report that the actions we took last year paid off and allowed us to secure near term revenue opportunities. We exceeded our initial revenue forecast by 30%, thanks to the efforts of our team in Houston who made a significant first sale into Nigeria and the team in Saudi Arabia who secured a record three new projects in one year within SABIC.
What was most pleasing was that two of these projects were placed at new customer plants. With each addition to our footprint comes further momentum as customers understand the cost savings and operational benefits our robust technology can bring to their projects and installations. Success at one location for a producer or operator often leads to many new opportunities at their sites around the world.
During 2017, we repositioned the Company so we could chase near term revenue opportunities that arose from policy initiatives in core geographies, and to prepare us for the nascent recovery seen across the industry. Our actions helped sustain the momentum that we created in 2016 with several large project wins at the start of 2018 and an exciting and growing pipeline to pursue.
In late 2017 Trent Weber was added as Chief Operating Officer for the Company, and in January 2018, Dr. Alexander Millar was promoted to General Manager of MENA and Asia.
OPERATIONAL PERFORMANCE
The steps taken in 2016 ensured that MYCELX was able to thrive this year. Our customer focussed approach and successful trials opened up opportunities with existing and new clients, which was the foundation of the turnaround in our financial results. We have repositioned our resources to take advantage of new opportunities arising across the globe. As a result, our focus this year has been on Saudi Arabia, Nigeria and Canada, where the need for superior water treatment is at the core of their policy and industry initiatives. Whilst we have taken account the recovery of the oil and gas industry and will continue to pursue those longer term opportunities our immediate focus for the Company has been on nearer term revenue opportunities and maintaining the momentum to generate more of these faster to market solutions.
Middle East and North Africa (MENA)
Our MENA team set a record with the number of installations in one year. The additional resources that we deployed to reinvigorate the business development drive in Saudi Arabia paid off with three new projects during the year and a pipeline of near term opportunities, from which two have already been converted into purchase orders in Q1 2018.
The focus in the first half of the year was to secure the foundations of our operations in Saudi Arabia. The core projects have continued to perform successfully as demonstrated by the lease renewal in Q1 2018 of our Quenchwater System for a further two years. The second half of the year has been characterised by increasing the utilisation of our rental fleet. In June we were pleased to place our Rapid Response Unit at a new SABIC client - SHARQ. That unit was deployed during adverse weather conditions and during Ramadan which posed significant logistical hurdles. The team did a sterling job to place and install the unit at site, on time and on budget. The system was tasked with solving a waste water issue which had previously been disposed of by vacuum truck haul off. Not only did our system significantly reduce the cost of treating this waste stream, but we were able to meet outlet specifications that allowed it to be discharged to the client's existing wastewater facilities, removing the need for any vacuum trucks. Vacuum trucks pose a logistical and health and safety issue for our clients in Saudi Arabia and there is a drive to reduce their costly usage.
The success of the SHARQ installation was followed by a suite of further opportunities in quick succession. In collaboration with a local waste management company, the team secured a role in the Saudi Kayan Turnaround to treat the complex waste water generated by that activity. This successful installation which ran for the duration of the turnaround and the restarting of the plant obtained recognition from the local regulator and other producers. Both the SHARQ and Saudi Kayan projects became a reference point for our next deployment of a rapid response system at Petrokemya. We placed a unit at one of that client's largest Olefins plant and have been operating successfully since installation.
The ability to chase these lucrative opportunities was only possible due to the availability of the Company's rental fleet in Saudi Arabia. This available equipment meant that we could be deployed within days of an enquiry, making us a viable alternative to the alternative of hauling away the problem waste stream.
There is clear demand for further opportunities similar to those secured in 2017. The superior water treatment capability of MYCELX is aligned with Saudi Arabia's initiatives to safeguard the environment and reduce waste. At the same time, regulations are becoming more stringent and enforced more rigorously. This provides the ideal environment for MYCELX's superior technology. There is a Saudi goal for 100% recycle or reuse of valuable water and other waste streams. Our collaboration with local waste management companies will help to ensure that we will be involved in this exciting and growing market.
West Africa: Nigeria
MYCELX entered a new geographical territory with its first contract for onshore water treatment in Nigeria. The client asked MYCELX to undertake a trial in 2016 as it was looking for an advanced technology that could cost effectively solve its current and future water challenges. MYCELX's trial proved that our system would allow the client to meet immediate discharge requirements and ensure performance and reliable ongoing production. MYCELX's RE-GEN solution is integral to the client's plan to use its produced water for secondary or enhanced oil recovery techniques.
Our first significant sale in Nigeria was strategically important because it creates a footprint for MYCELX in a country where both Producers and Regulators are searching for a new standard in water treatment. Producers require higher quality treated water for operational purposes to enhance production. Regulators are trying to establish more stringent environmental regulations and proper disposal is being enforced. MYCELX has been proven to meet the desired water outlet specifications to meet and exceed both parties' requirements.
Americas: Canada and West Texas
Activity in North America and South America was slightly subdued in early 2017 but increased as the year progressed, particularly for onshore production in West Texas. Thanks to our recurring revenue model we continued to sell media to our existing installations in the region, but our footprint did not enlarge. Opportunities in North America generally require a longer lead time before conversion to revenue generation. We have positioned ourselves for an uptick by conducting successful trials at facilities in Canada and West Texas.
In Canada, the client was faced with poor water quality for reinjection which had a detrimental impact on production and operating cost. The client needed a technology that would be able to maintain reinjection water quality despite sustained upsets and changing back produced polymer viscosities. MYCELX's RE-GEN was able to reliably treat oil to below 10mg/L and remove solids above 7 micron under all conditions. Prior to MYCELX's trial, all previous technologies had failed to achieve the necessary results. The success of this trial places MYCELX in a strong position for a sale at that facility in the future.
Through Schlumberger, our Strategic Partner in Upstream, we ran a successful trial in the Permian Basin, which has become the focus of US resurgent production in recent years. The ability to recycle produced water for hydraulic fracturing is critical for the Permian. MYCELX was able to meet the client's water requirements for produced water recycle and therefore will be able to provide significant operating cost savings.
NAVIGATING PIPELINE TIMELINES
During 2017 the Company reinvigorated its business development efforts globally. This revealed the clear regional differences in the likely timeline between receiving an enquiry and generating revenue. In our current stage of development, it is important that the Company continues to pursue opportunities in all regions and to take on the most difficult challenges facing the industry in order to clearly set a new standard for water treatment. However, this must be balanced with deploying our resources to secure near term revenue opportunities when they arise.
SAFETY
Our continuing success is based on our people, and their safety and of those people around us is central to everything we do. As we increase the number of installations we have put in place action plans to ensure that these standards are upheld across the whole portfolio of projects. We have engineered the design of our systems to ensure that operating them is simple and safe.
LOOKING TO THE FUTURE
The outlook for the Company after this turnaround year is bright. Our goal during 2018 is to ensure we manage our growth trajectory to ensure profitability, and devote the necessary resources to sustain the momentum enjoyed since the second half of 2017.
MYCELX enters 2018 in a much stronger position than it was in 2017. We have secured large scale projects in Q1 and into Q2, which that means that we have visibility on $16-$17 million in revenue already. Whilst Downstream activities were the foundations of our success in 2017, with US rig counts increasing, OPEC production cuts and increasing capital budgets in the Upstream space, we have positioned the Company to be ready to seize opportunities in the Upstream sector. Our ambition is underpinned by our success in Nigeria which we will continue to leverage in-country and around the world.
At its core, MYCELX is a technology business with exceptional expertise gained through onsite, real-time water treatment experience. The Company will continue to use its knowledge to innovate and commercialise next generation technology to meet its customers' current and future needs. In 2017, our experience was that once we solved one water challenge for our customers they often asked us to help with other water issues. Our solutions are more reliable and cost effective than outdated conventional methods and gradually we have started to obtain local regulatory and industry recognition of our new standard of water treatment. The oil and gas and petrochemical industries continue to integrate MYCELX technology into their critical, real-time processes. This is confirmation that our technology has its role in achieving sustainable water treatment for years to come. The Board of Directors and Company management are committed to ensuring MYCELX technology reaches its full potential as the global industry standard.
Statements of Operations
(USD, in thousands, except share data)
Hot Features
Premium
For the Year Ended 31 December: 2017 2016
Revenue 13,751 7,923
========== ==========
Cost of goods sold 6,285 3,820
========== ==========
Gross profit 7,466 4,103
========== ==========
Operating expenses:
========== ==========
Selling, general and administrative 7,772 6,588
========== ==========
Depreciation and amortisation 422 499
========== ==========
Total operating expenses 8,194 7,087
========== ==========
Operating loss (728) (2,984)
========== ==========
Other expense
========== ==========
Loss on disposal of equipment (14) (2)
========== ==========
Interest expense (89) (94)
========== ==========
Loss before income taxes (831) (3,080)
========== ==========
Provision for income taxes (327) (199)
========== ==========
Net loss (1,158) (3,279)
========== ==========
Loss per share - basic (0.06) (0.17)
========== ==========
Loss per share - diluted (0.06) (0.17)
========== ==========
Shares used to compute basic loss per share 18,773,764 18,770,117
========== ==========
Shares used to compute diluted loss per share 18,773,764 18,770,117
========== ==========
The accompanying notes are an integral part of the financial statements.
Balance Sheets
(USD, in thousands, except share data)
as at 31 December: 2017 2016
Assets
========= =========
Current Assets
========= =========
Cash and cash equivalents 5,171 5,139
========= =========
Restricted cash 525 500
========= =========
Accounts receivable - net 2,436 1,941
========= =========
Unbilled accounts receivable 398 94
========= =========
Inventory 3,085 3,190
========= =========
Prepaid expenses 254 126
========= =========
Other assets 33 36
========= =========
Total Current Assets 11,902 11,026
========= =========
Property and equipment - net 8,755 10,487
========= =========
Intangible assets - net 837 852
========= =========
Total Assets 21,494 22,365
========= =========
Liabilities and Stockholders' Equity
========= =========
Current Liabilities
========= =========
Accounts payable 982 657
========= =========
Payroll and accrued expenses 570 425
========= =========
Deferred revenue 192 -
========= =========
Note payable - current 89 85
========= =========
Other current liabilities 14 436
========= =========
Total Current Liabilities 1,847 1,603
========= =========
Note payable - long-term 1,832 1,921
========= =========
Total Liabilities 3,679 3,524
========= =========
Stockholders' Equity
========= =========
Common stock, $0.025 par value, 100,000,000 shares
authorised, 18,787,617 and 18,770,117 shares
issued and outstanding at 31 December 2017 and
2016, respectively. 470 469
========= =========
Additional paid-in capital 40,456 40,325
========= =========
Accumulated deficit (23,111) (21,953)
========= =========
Total Stockholders' Equity 17,815 18,841
========= =========
Total Liabilities and Stockholders' Equity 21,494 22,365
========= =========
The accompanying notes are an integral part of the financial statements.
Statements of Stockholders' Equity
(USD, in thousands)
Additional
Paid-in Accumulated
Common Stock Capital Deficit Total
Shares $ $ $ $
========== ===== ========== =========== =======
Balances at 31 December 2015 18,770 469 40,202 (18,674) 21,997
========== ===== ========== =========== =======
Stock-based compensation expense - - 123 - 123
========== ===== ========== =========== =======
Net loss for the period - - - (3,279) (3,279)
========== ===== ========== =========== =======
Balances at 31 December 2016 18,770 469 40,325 (21,953) 18,841
========== ===== ========== =========== =======
Issuance of common stock, net
of offering costs 18 1 6 - 6
========== ===== ========== =========== =======
Stock-based compensation expense - - 125 - 125
========== ===== ========== =========== =======
Net loss for the period - - - (1,158) (1,158)
========== ===== ========== =========== =======
Balances at 31 December 2017 18,788 470 40,456 (23,111) 17,815
========== ===== ========== =========== =======
The accompanying notes are an integral part of the financial statements.
Statements of Cash Flows
(USD, in thousands)
For the Year Ended 31 December: 2017 2016
Cash flow from operating activities
======= =======
Net loss (1,158) (3.279)
======= =======
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
======= =======
Depreciation and amortisation 1,205 1,384
======= =======
Loss on abandonment or expiration of patent 22 -
======= =======
Loss from disposition of equipment 14 2
======= =======
Stock compensation 125 123
======= =======
Change in operating assets and liabilities:
======= =======
Accounts receivable (495) 914
======= =======
Unbilled accounts receivable (304) (74)
======= =======
Inventory 670 591
======= =======
Prepaid expenses (128) 78
======= =======
Other assets 3 73
======= =======
Accounts payable 325 172
======= =======
Payroll and accrued expenses 145 (158)
======= =======
Deferred revenue 192 (42)
======= =======
Other current liabilities (422) 321
======= =======
Net cash provided by operating activities 194 105
======= =======
Cash flow from investing activities
======= =======
Payments for purchases of property and equipment (5) (109)
======= =======
Proceeds from sale of property and equipment - 7
======= =======
Payments for purchases of intangible assets (53) (85)
======= =======
Net cash used in investing activities (58) (187)
======= =======
Cash flows from financing activities
======= =======
Net proceeds from stock issuance 6 -
======= =======
Payments on notes payable (85) (75)
======= =======
Increase in restricted cash (25) -
======= =======
Net cash used in financing activities (104) (75)
======= =======
Net increase (decrease) in cash and cash equivalents 32 (157)
======= =======
Cash and cash equivalents, beginning of year 5,139 5,296
======= =======
Cash and cash equivalents, end of year 5,171 5,139
======= =======
Supplemental disclosures of cash flow information:
======= =======
Cash payments for interest 89 86
======= =======
Cash and non cash payments for income taxes 306 216
======= =======
Non cash movements of inventory and fixed assets 565 (9)
======= =======
Management considered the effect of exchange rate changes on cash and cash equivalents held or due in foreign currency and deemed it immaterial to the statement of cash flows.
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
1. Nature of business and basis of presentation
Basis of presentation - These financial statements have been prepared using recognition and measurement principles of Generally Accepted Accounting Principles in the United States of America ("U.S. GAAP").
Nature of business - MYCELX Technologies Corporation ("MYCELX" or the "Company") was incorporated in the State of Georgia on 24 March 1994. The Company is headquartered in Duluth, Georgia with operations in Houston, Texas, Saudi Arabia, and the United Kingdom. The Company provides clean water technology equipment and related services to the oil and gas, power, marine and heavy manufacturing sectors and the majority of its revenue is derived from the Middle East and United States.
2. Summary of significant accounting policies
Use of estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the amounts reported in the financial statements and accompanying notes. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised. The primary estimates and assumptions made by management relate to the useful lives of property and equipment, volatility used in the valuation of the Company's share-based compensation and valuation allowance on deferred tax assets. Although these estimates are based on management's best knowledge of current events and actions the Company may undertake in the future, actual results ultimately may differ from the estimates and the differences may be material to the financial statements.
Revenue recognition - The Company's revenue consists of media product and equipment sales. Revenues from media sales are recognised, net of sales allowances and sales tax, when products are shipped and risk of loss has transferred to customers, collection is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. The Company offers customers the option to lease or purchase their equipment. Lease agreements range from one to twenty-four months in length and are renewed at the end of each agreement, if necessary. The lease agreements meet the criteria for classification as operating leases; accordingly, revenue on lease agreements is recognised as income over the lease term. Revenues on long-term contracts related to construction of equipment are recognised, net of sales tax, on the percentage-of-completion basis using costs incurred compared to total estimated costs. Costs are recognised and considered for percentage-of-completion as they are incurred in the manufacture of the equipment. Therefore, revenues may not be related to the progress billings to customers. Revenues are based on estimates, and the uncertainty inherent in estimates initially is reduced progressively as work on the contract nears completion. Revenues on sales in which equipment is pre-fabricated and stocked in inventory are recognised, net of sales tax, upon shipment of the equipment to the customer.
Contract costs include all direct labor and benefits, materials unique to or installed to the project, subcontractor costs, as well as costs relative to contract performance such as travel to a customer site and shipping charges. Provision for estimated losses on uncompleted contracts is recorded in the period in which such losses are probable and estimable. No such provisions have been recognised as of 31 December 2017 and 2016. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognised in the period in which the revisions are determined. Actual results could vary from estimates used in the financial statements.
Unbilled accounts receivable represents revenues recognised in excess of amounts billed. Deferred revenue represents billings in excess of revenues recognised. Contract retentions are recorded as a component of accounts receivable.
Cash and cash equivalents - Cash and cash equivalents consist of short-term, highly liquid investments which are readily convertible into cash within ninety (90) days of purchase. At 31 December 2017, all of the Company's cash and cash equivalent balances were held in non interest-bearing transaction accounts. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. At 31 December 2017 and 2016, cash in non-U.S. institutions was $73,000 and $140,000, respectively. The Company has not experienced any losses in such accounts.
Restricted cash - The Company classifies as restricted cash all cash whose use is limited by contractual provisions. As of 31 December 2017 and 2016, restricted cash included $500,000 cash on deposit in a money market account as required by a lender (see Note 9) and $25,000 in a Certificate of Deposit to secure the Company's corporate credit card.
Trade accounts receivable - Trade accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides credit in the normal course of business to its customers and performs ongoing credit evaluations of those customers and maintains allowances for doubtful accounts, as necessary. Accounts are considered past due based on the contractual terms of the transaction. Credit losses, when realised, have been within the range of the Company's expectations and, historically, have not been significant. The allowance for doubtful accounts at 31 December 2017 and 2016 was $32,000 and $143,000, respectively.
Inventories - Inventories consist primarily of raw materials and filter media finished goods as well as equipment to house the filter media and are stated at the lower of cost or net realisable value. Equipment that is in the process of being constructed for sale or lease to customers is also included in inventory (work-in-progress). The Company applies the FIFO method (first in; first out) to account for inventory. Manufacturing work-in-progress and finished products inventory include all direct costs, such as labor and material, and those indirect costs which are related to production, such as indirect labor, rents, supplies, repairs and depreciation costs. A valuation reserve is recorded for slow moving or obsolete inventory items to reduce the cost of inventory to its net realisable value.
Prepaid expenses and other current assets - Prepaid expenses and other current assets include non-trade receivables that are collectible in less than twelve months, security deposits on leased space and various prepaid amounts that will be charged to expenses within twelve months. Non-trade receivables that are collectible in twelve months or more are included in long-term assets.
Property and equipment - All property and equipment are valued at cost. Depreciation is computed using the straight-line method for reporting over the following useful lives:
Buildings 39 years
Leasehold improvements 1-5 years
==========
Office equipment 3-10 years
==========
Manufacturing equipment 5-15 years
==========
Research and development
equipment 5-10 years
==========
Purchased software 1-5 years
==========
Equipment leased to customers 3-10 years
==========
Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalised. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense includes depreciation on equipment leased to customers and is included in cost of goods sold.
Intangible assets - Intangible assets consist of the costs incurred to purchase patent rights and legal and registration costs incurred to internally develop patents. Intangible assets are reported net of accumulated amortisation. Patents are amortised using the straight-line method over a period based on their contractual lives which approximates their estimated useful lives.
Impairment of long-lived assets - Long-lived assets to be held and used, including property and equipment and intangible assets with definite useful lives, are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss, if any, is recognised for the difference between the fair value and carrying value of the assets. Impairment analyses, when performed, are based on the Company's business and technology strategy, management's views of growth rates for the Company's business, anticipated future economic and regulatory conditions, and expected technological availability. For purposes of recognition and measurement, the Company groups its long-lived assets at the lowest level for which there are identifiable cash flows, which are largely independent of the cash flows of other assets and liabilities. No impairment charges were recorded in the years ended 31 December 2017 and 2016.
Shipping and handling costs - Consistent with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605-45-50 Shipping and Handling Fees and Costs, the Company classifies shipping and handling amounts billed to customers as revenue, and shipping and handling costs as a component of costs of goods sold.
Research and development costs - Research and development costs are expensed as incurred. There was no research and development expense for the years ended 31 December 2017 and 2016.
Advertising costs - The Company expenses advertising costs as incurred. Advertising expense for the years ended 31 December 2017 and 2016 was approximately $nil and $4,000, respectively, and is recorded in selling, general and administrative expenses.
Rent expense - The Company records rent expense on a straight-line basis for operating lease agreements that contain escalating rent clauses. The deferred rent liability included in other current liabilities in the accompanying balance sheet represents the cumulative difference between rent expense recognised on the straight-line basis and the actual rent paid.
Income taxes - The provision for income taxes for annual periods is determined using the asset and liability method, under which deferred tax assets and liabilities are calculated based on the temporary differences between the financial statement carrying amounts and income tax bases of assets and liabilities using currently enacted tax rates. The deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realised in future periods. Decreases to the valuation allowance are recorded as reductions to the provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realisation of the deferred tax assets, net of a valuation allowance, is primarily dependent on the ability to generate taxable income. A change in the Company's estimate of future taxable income may require an addition or reduction to the valuation allowance.
The Tax Cuts and Jobs Act ("TCJA") was enacted on 22 December 2018, with a key provision of the TCJA being a reduction of the corporate income tax rate from 35 percent to 21 percent. Pursuant to the requirements of ASC 740 the Company's income tax provision reflects the impact of the TCJA. This includes a $2.6 million tax expense of the rate reduction on the Company's cumulative differences between the financial statement and tax basis of its assets and liabilities. This expense has been fully offset by a corresponding decrease in valuation allowance.
The benefit from an uncertain income tax position is not recognised if it has less than a 50 percent likelihood of being sustained upon audit by the relevant authority. For positions that are more than 50 percent likely to be sustained, the benefit is recognised at the largest amount that is more-likely-than-not to be sustained. An uncertain income tax position is not recognised if it has less than a 50 percent likelihood of being sustained. Where a net operating loss carried forward, a similar tax loss or a tax credit carry forward exists, an unrecognised tax benefit is presented as a reduction to a deferred tax asset. Otherwise, the Company classifies its obligations for uncertain tax positions as other non-current liabilities unless expected to be paid within one year. Liabilities expected to be paid within one year are included in the accrued expenses account.
The Company recognises interest accrued related to tax in interest expense and penalties in selling, general and administrative expenses. During the years ended 31 December 2017 and 2016 the Company recognised no interest or penalties.
Earnings per share - Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon conversion of the exercise of common stock options. Potentially dilutive shares are excluded from the computation if their effect is antidilutive. Total common stock equivalents that were excluded from computing diluted net loss per share were approximately 1,119,350 and 1,125,640 for the years ended 31 December 2017 and 2016, respectively.
Fair value of financial instruments - The Company uses the framework in ASC 820, Fair Value Measurements and Disclosures, to determine the fair value of its financial assets. ASC 820 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value and expands financial statement disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under ASC 820 are described below:
-- Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
-- Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
-- Level 3: Unobservable inputs for the asset or liability.
There were no significant transfers into and out of each level of the fair value hierarchy for assets measured at fair value for the year ended 31 December 2017 or 2016.
All transfers are recognised by the Company at the end of each reporting period.
Transfers between Levels 1 and 2 generally relate to whether a market becomes active or inactive. Transfers between Levels 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurement in their entirety.
The Company's financial instruments as of 31 December 2017 and 2016 include cash and cash equivalents, accounts receivable, accounts payable, the line of credit, and the note payable. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and the line of credit approximate fair value due to the short-term nature of those assets and liabilities. The Company believes it is impractical to disclose the fair value of the note payable as it is an illiquid financial instrument.
Foreign currency transactions - From time to time the Company transacts business in foreign currencies (currencies other than the United States Dollar). These transactions are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign currency transaction gains or losses are included in selling, general and administrative expenses.
Share-based compensation - The Company issues equity-settled share-based awards to certain employees, which are measured at fair value at the date of grant. The fair value determined at the grant date is expensed, based on the Company's estimate of shares that will eventually vest, on a straight-line basis over the vesting period. Fair value for the share awards representing equity interests identical to those associated with shares traded in the open market is determined using the market price at the date of grant. Fair value is measured by use of the Black Scholes valuation model (see Note 10).
Recently issued accounting standards - In May 2014, the Financial Accounting Standards Board ("FASB") and International Accounting Standards Board issued their converged standard on revenue recognition Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", as subsequently amended. This ASU replaces nearly all existing U.S. GAAP guidance on revenue recognition. The standard prescribes a five-step model for recognising revenue, the application of which will require significant judgement. ASU No. 2014-09, as amended, is effective for the Company beginning 1 January 2018. The Company will apply Topic 606 using the cumulative effect method, recognising the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at 1 January 2018 for all open contracts at 31 December 2017. Based on the analysis completed by the Company, there will not be an impact to the beginning equity account at 1 January 2018.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which requires lessees to recognise on the balance sheet the assets and liabilities for the rights and obligations created by the leases with lease terms of more than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will continue to primarily depend on its classification as a finance or operating lease. However, unlike current U.S. GAAP, which requires only capital leases to be recognised on the balance sheet, the new standard will require both types of leases to be recognised on the balance sheet. The new standard also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The new standard is effective for fiscal years beginning after 15 December 2018, and for interim and annual periods thereafter, with early application permitted. The Company is currently evaluating the impact of adopting this guidance but does not expect it to have a material impact on the Company's financial statements.
3. Accounts receivable
Accounts receivable and their respective allowance amounts at 31 December 2017 and 2016:
31 December 31 December
2017 2016
US$000 US$000
Accounts Receivable 2,468 2,084
=========== ===========
Less: allowance for doubtful accounts (32) (143)
=========== ===========
Total receivable - net 2,436 1,941
=========== ===========
4. Inventories
Inventories consist of the following at 31 December 2017 and 2016:
31 December 31 December
2017 2016
US$000 US$000
Raw materials 686 756
=========== ===========
Work-in-progress 44 -
=========== ===========
Finished goods 2,355 2,434
=========== ===========
Total inventory 3,085 3,190
=========== ===========
5. Property and equipment
Property and equipment consists of the following at 31 December 2017 and 2016:
31 December 31 December
2017 2016
US$000 US$000
Land 709 709
=========== ===========
Building 2,724 2,724
=========== ===========
Leasehold improvements 341 341
=========== ===========
Office equipment 697 723
=========== ===========
Manufacturing equipment 747 854
=========== ===========
Research and development equipment 514 514
=========== ===========
Purchased software 222 222
=========== ===========
Equipment leased to customers 8,495 8,837
=========== ===========
Construction in progress 444 730
=========== ===========
14,893 15,654
=========== ===========
Less: accumulated depreciation (6,138) (5,167)
=========== ===========
Property and equipment - net 8,755 10,487
=========== ===========
During the years ended 31 December 2017 and 2016, the Company removed property, plant and equipment and the associated accumulated depreciation of approximately $188,000 and $183,000, respectively, to reflect the disposal of property, plant and equipment.
Depreciation expense for the years ended 31 December 2017 and 2016 was approximately $1,159,000 and $1,342,000, respectively, and includes depreciation on equipment leased to customers. Depreciation expense on equipment leased to customers included in cost of goods sold for the years ended 31 December 2017 and 2016 was $783,000 and $885,000, respectively.
6. Intangible assets
During 2009, the Company entered into a patent rights purchase agreement with a shareholder. The agreement provided for the immediate payment of $28,000 in 2009 with the possibility of an additional $72,000 based on profits on the sales of a particular product. During 2010, the Company paid $22,000 based on profits on the sales of the product and paid the remaining $50,000 in 2011. The patent is amortised utilising the straight-line method over a useful life of 17 years which represents the legal life of the patent from inception. Accumulated amortisation on the patent was approximately $45,000 and $39,000 as of 31 December 2017 and 2016, respectively.
In addition to the purchased patent, the Company has internally developed patents. Internally developed patents include legal and registration costs incurred to obtain the respective patents. The Company currently holds various patents and numerous pending patent applications in the United States, as well as numerous foreign jurisdictions outside of the United States.
Intangible assets as of 31 December 2017 and 2016 consist of the following:
Weighted 31 December 31 December
Average Useful 2017 2016
lives US$000 US$000
Internally developed patents 15 years 1,271 1,240
================ =========== ===========
Purchased patents 17 years 100 100
================ =========== ===========
1,371 1,340
================================================ =========== ===========
Less accumulated amortisation (534) (488)
=========== ===========
Intangible assets - net 837 852
=========== ===========
Approximate aggregate future amortisation expense is as follows:
Year Ending 31 December (USD, in thousands)
2018 45
===
2019 44
===
2020 44
===
2021 44
===
2022 42
===
Thereafter 203
===
Amortisation expense for the years ended 31 December 2017 and 2016 was approximately $46,000 and $42,000, respectively.
7. Income taxes
The components of income taxes shown in the statements of operations are as follows:
31 December 31 December
2017 2016
US$000 US$000
Current:
=========== ===========
Federal - -
=========== ===========
Foreign 326 197
=========== ===========
State 1 2
=========== ===========
Total current provision 327 199
=========== ===========
Deferred:
=========== ===========
Federal - -
=========== ===========
Foreign - -
=========== ===========
State - -
=========== ===========
Total deferred provision - -
=========== ===========
Total provision for income taxes 327 199
=========== ===========
The provision for income tax varies from the amount computed by applying the statutory corporate federal tax rate of 34 percent, primarily due to the effect of certain nondeductible expenses, foreign withholding tax, and changes in valuation allowances.
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate is as follows:
31 December 31 December
2017 2016
Federal statutory income tax rate 34.0% 34.0%
=========== ===========
State tax rate, net of federal benefit (0.5%) (0.1%)
=========== ===========
Valuation allowance 271.6% (36.2%)
=========== ===========
Rate reduction adjustment (311.6%) -
=========== ===========
Other (1.8%) 0.1%
=========== ===========
Foreign withholding tax (31.0%) (4.2%)
=========== ===========
Effective income tax rate (39.3%) (6.4%)
=========== ===========
The significant components of deferred income taxes included in the balance sheets are as follows:
31 December 31 December
2017 2016
US$000 US$000
Deferred tax assets
=========== ===========
Net operating loss 4,679 7,140
=========== ===========
Equity compensation 284 413
=========== ===========
Research and development credits 159 159
=========== ===========
Allowance for bad debts 7 49
=========== ===========
Accrued liability 1 7
=========== ===========
Charitable contributions - 10
=========== ===========
Other 26 37
=========== ===========
Total gross deferred tax asset 5,156 7,815
=========== ===========
Deferred tax liabilities
=========== ===========
Property and equipment (569) (971)
=========== ===========
Total gross deferred tax liability (569) (971)
=========== ===========
Net deferred tax asset before valuation allowance 4,587 6,844
=========== ===========
Valuation allowance (4,587) (6,844)
=========== ===========
Net deferred tax asset (liability) - -
=========== ===========
Deferred tax assets and liabilities are recorded based on the difference between an asset or liability's financial statement value and its tax reporting value using enacted rates in effect for the year in which the differences are expected to reverse, and for other temporary differences as defined by ASC-740, Income Taxes. At 31 December 2017, the Company has recorded a valuation allowance of $4.6 million for which it is more likely than not that the Company will not receive future tax benefits due to the uncertainty regarding the realisation of such deferred tax assets.
As of 31 December 2017, the Company has approximately $21.3 million of gross U.S. federal net operating loss carry forwards and $5.3 million of gross state net operating loss carry forwards that will begin to expire in the 2019 tax year.
On 22 December 2017, the Tax Cuts and Jobs Act was signed into law and impacts individuals, pass through entities and corporations. The Company is impacted by the corporation changes. The corporate tax rate remains unchanged for the year ended 31 December 2017, with the new federal corporate tax rate reducing from a maximum 35 percent marginal rate to a set 21 percent rate beginning in 2018. The Company's current income tax expense is based on a federal tax marginal rate of 34 percent. However, US GAAP requires the deferred tax components to be recorded at the rate in which the differences are expected to reverse which impacts tax expense for the year ended 31 December 2017. Based on the new federal corporate tax rate of 21 percent for 2018 and thereafter, the deferred tax assets and liabilities were revalued at the new tax rate and the adjustment of approximately $2.6 million was recorded directly to tax expense in 2017.
The FASB issued Interpretation ASC-740-10-25, Income Taxes, an interpretation of ASC-740 which clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognised in the financial statements. Under ASC-740, the impact of an uncertain income tax position on the income tax return must be recognised at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. ASC-740 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. ASC-740 applies to all tax positions related to income taxes.
As a result of the adoption and implementation of ASC-740, a tax position is recognised as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognised is the largest amount of tax benefit that has a greater than 50 percent likelihood of being realised on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The Company recognises interest and penalties related to tax positions in income tax expense. At 31 December 2017 and 2016, there was no accrual for uncertain tax positions or related interest.
The Company's tax years 2014 through 2017 remain subject to examination by federal, state and foreign income tax jurisdictions.
8. Line of credit
In October 2014, the Company entered into a bank line of credit that allows for borrowings up to $500,000. The line of credit is revolving and is payable on demand. There was no balance on the line of credit at 31 December 2017 and 2016. The facility matures in October 2019 and is secured by the assignment of a deposit account held by the lender. The line of credit carries a variable interest rate of 0.5 percentage points under an independent index which is the Wall Street Journal Prime and is calculated by applying the ratio of the interest rate over a year of 360 days multiplied by the outstanding principal balance multiplied by the actual number of days the principal balance is outstanding. The interest rate on 31 December 2017 and 2016 was 4.00 percent and 3.25 percent, respectively. There was no interest expense related to this loan for the years ended 31 December 2017 and 2016.
9. Notes payable
On 27 March 2013, the Company entered into a term loan agreement with a lender for the purchase of property and a building for its manufacturing operations and corporate offices. The note is secured by the property and building. The Company borrowed proceeds of $2,285,908 at a fixed interest rate of 4.45 percent. The loan has a ten year term with monthly payments based on a twenty year amortisation. In addition, there is a one-time payment at the end of the term of the note of approximately $1,400,000. In accordance with the terms of the agreement, the Company is required to keep $500,000 in a deposit account with the lending bank. As of 31 December 2017 and 2016, the Company had restricted cash of $500,000 related to the loan agreement. Future maturities of long-term debt are as follows as of 31 December 2017:
Year Ending 31 December (USD, in thousands)
2018 89
=====
2019 93
=====
2020 97
=====
2021 102
=====
2022 106
=====
Thereafter 1,434
=====
1,921
=====
10. Stock compensation
Stock options
In July 2011, the Company's shareholders approved the Conversion Shares and the Directors' Shares, as well as the Plan Shares and Omnibus Performance Incentive Plan ("Plan"). This included the termination of all outstanding stock incentive plans, cancellation of all outstanding stock incentive agreements, and the awarding of stock incentives to Directors and certain employees and consultants. The Company established the Plan to attract and retain Directors, officers, employees and consultants. The Company reserved an amount equal to 10 percent of the Common Shares issued and outstanding immediately following the Public Offering.
Upon the issuance of these additional shares, an award of share options was made to the Directors and certain employees and consultants, and a single award of restricted shares was made to a former Chief Financial Officer. In addition, additional stock options were awarded in each year subsequent. The awards of stock options and restricted shares made upon issuance were in respect of 85 percent of the Common Shares available under the Plan, equivalent to 8.5 percent of the Public Offering. The total number of shares reserved for stock awards and options under this Plan is 1,878,761 with 1,222,042 shares allocated as of 31 December 2017. The shares are all allocated to employees, executives and consultants.
The options granted to Non-Executive Directors, unless otherwise agreed, vest contingent on continuing service with the Company at the vesting date and compliance with the covenants applicable to such service.
Employee options either vest over three years with a third vesting ratably each year, or partially on issuance and partially over the following 24 month period. Vesting accelerates in the event of a change of control. Options granted to Non-Executive Directors and one executive vest partially on issuance and will vest partially one to two years later. The remaining Non-Executive Director options expired at the end of 2016.
As discussed in Note 2, the Company uses the Black Scholes valuation model to measure the fair value of options granted. Since the Company does not have a sufficient trading history from which to calculate its historical volatility, the Company's expected volatility is based on a basket of comparable companies' historical volatility. As the Company's initial options were granted in 2011, the Company does not have sufficient history of option exercise behavior from which to calculate the expected term. Accordingly, the expected terms of options are calculated based on the short-cut method commonly utilised by newly public companies. The risk free interest rate is based on a blended average yield of two and five year United States Treasury Bills at the time of grant. The assumptions used in the Black Scholes option pricing model for options granted in 2016 and 2017 were as follows:
Risk-Free Fair
Number of Interest Expected Exercise Value
Options Granted Grant Date Rate Term Volatility Price per option
2016 25,000 01/02/2016 1.62% 5.75 years 56.00% $0.34 $0.18
================ ========== ========= ========== ========== ======== ===========
345,000 14/03/2016 1.70% 5.75 years 54.50% $0.40 $0.20
================ ========== ========= ========== ========== ======== ===========
2017 205,000 26/05/2017 1.69% 5.75 years 56.70% $0.75 $0.39
================ ========== ========= ========== ========== ======== ===========
25,000 06/11/2017 2.08% 6 years 56.70% $1.26 $0.69
================ ========== ========= ========== ========== ======== ===========
50,000 06/11/2017 2.08% 6 years 56.70% $1.26 $0.00
================ ========== ========= ========== ========== ======== ===========
The Company assumes a dividend yield of 0.0%.
The following table summarises the Company's stock option activity for the years ended 31 December 2017 and 2016:
Weighted-Average Weighted-Average Average
Exercise Remaining Contractual Grant Date
Stock Options Shares Price Term (in years) Fair Value
Outstanding at 31 December
2015 825,556 $3.48 5.8 $1,476,970
========= ================ ====================== ===========
Granted 370,000 $0.40 5.8 $73,500
========= ================ ====================== ===========
Forfeited (56,000) $4.36
========= ================ ====================== ===========
Outstanding at 31 December
2016 1,139,556 $2.56 5.9 $1,372,852
========= ================ ====================== ===========
Granted 280,000 $0.89 5.8 $97,200
========= ================ ====================== ===========
Exercised (17,500) $0.36
========= ================ ====================== ===========
Forfeited (180,014) $1.81
========= ================ ====================== ===========
Outstanding at 31 December
2017 1,222,042 $2.31 5.9 $1,307,331
========= ================ ====================== ===========
Exercisable at 31 December
2017 1,038,376 $2.52 6.0
========= ================ ====================== ===========
A summary of the status of unvested options as of 31 December 2017 and changes during the years ended 31 December 2017 and 2016 is presented below:
Weighted-Average
Fair Value at Grant
Unvested Options Shares Date
Unvested at 31 December 2015 249,000 $1.16
========= ====================
Granted 370,000 $0.20
========= ====================
Vested (262,167) $0.49
========= ====================
Forfeited (15,000)
========= ====================
Unvested at 31 December 2016 341,833 $0.65
========= ====================
Granted 280,000 $0.35
========= ====================
Vested (340,584) $0.92
========= ====================
Forfeited (97,583)
========= ====================
Unvested at 31 December 2017 183,666 $0.44
========= ====================
As of 31 December 2017, total unrecognised compensation cost of $70,000 was related to unvested share-based compensation arrangements awarded under the Plan.
11. Commitments and contingencies
Operating leases - The Company leases certain facilities and equipment under non-cancelable operating leases which expire at varying times between January 2018 and May 2019. Certain of these leases have escalating rent payments which result in the Company recording a deferred rent liability.
Future minimum lease payments under the operating leases, together with the present value of minimum lease payments as of 31 December 2017 are as follows:
Future
Lease Payments
Year Ending 31 December US$000
2018 149
===============
2019 45
===============
Total future lease payments 194
===============
Rent expense for the years ended 31 December 2017 and 2016 was approximately $325,000 and $337,000, respectively.
12. Related party transactions
The Company has held a patent rights purchase agreement since 2009 with a shareholder as described in Note 6.
13. Segment and geographic information
ASC 280-10, Disclosures About Segments of an Enterprise and Related Information (ASC 280-10), establishes standards for reporting information about operating segments. ASC 280-10 requires that the Company report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM) in deciding how to allocate resources and in assessing performance. The Company's CODM is the Chief Executive Officer (CEO). While the CEO is apprised of a variety of financial metrics and information, the business is principally managed on an aggregate basis as of 31 December 2017. For the year ended 31 December 2017, the Company's revenues were generated primarily in the Middle East and the United States (U.S.). Additionally, the majority of the Company's expenditures and personnel either directly supported its efforts in the Middle East and the U.S., or cannot be specifically attributed to a geography. Therefore, the Company has only one reportable operating segment.
Revenue from customers by geography is as follows:
Year Ending 31 December 2017 2016
Middle East 6,256 3,989
====== =====
United States 7,191 1,766
====== =====
Other 304 2,168
====== =====
Total 13,751 7,923
====== =====
Equipment leased to customers by geography is as follows:
Year Ending 31 December 2017 2016
Middle East 6,391 6,391
===== =====
United States 1,729 2,071
===== =====
Other 375 375
===== =====
Total 8,495 8,837
===== =====
14. Concentrations
At 31 December 2017, two customers, one with four contracts with three separate plants, represented 89 percent of accounts receivable. During the year ended 31 December 2017, the Company received 80 percent of its gross revenue from two customers, one with four separate plants.
At 31 December 2016, two customers, one with three contracts with three separate plants, represented 61 percent of accounts receivable. During the year ended 31 December 2016, the Company received 67 percent of its gross revenue from two customers, one with three separate plants.
15. Subsequent Events
The Company discloses material events that occur after the balance sheet date but before the financials are issued. In general, these events are recognised in the financial statements if the conditions existed at the date of the balance sheet, but are not recognised if the conditions did not exist at the balance sheet date. Management has evaluated subsequent events through 14 May 2018, the date the financial statements were available to be issued, and no events have occurred which require further disclosure.
Forward Looking Statements
This announcement contains certain statements that are or may be "forward-looking statements". These statements typically contain words such as "intends", "expects", "anticipates", "estimates" and words of similar import. All the statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company's products and services) are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future and therefore undue reliance should not be placed on such forward-looking statements. There are a number of factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future and such assumptions may or may not prove to be correct. Forward-looking statements speak only as at the date they are made. Neither the Company nor any other person undertakes any obligation (other than, in the case of the Company, pursuant to the AIM Rules for Companies) to update publicly any of the information contained in this announcement, including any forward-looking statements, in the light of new information, change in circumstances or future events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUMGAUPRGBC
(END) Dow Jones Newswires
May 15, 2018 02:00 ET (06:00 GMT)
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