TIDMMYX TIDMMYXR
RNS Number : 6910L
MyCelx Technologies Corporation
17 May 2022
17 May 2022
MYCELX Technologies Corporation
Final Results for the Year Ending 31 December 2021
MYCELX Technologies Corporation ("MYCELX" or the "Company"), the
clean water and clean air technology company, announces its audited
results for the year ended 31 December 2021.
Highlights
Financial
-- Revenue of $8.5 million (2020: $7.1 million)
-- Gross profit of $3.3 million (2020: $1.6 million)
-- EBITDA(1) of $19,000 (2020: negative $4.2 million)
-- Loss before tax $1.1 million (2020: loss before tax $5.8 million)
-- Cash & cash equivalents $3.2 million (2020: $3.8 million)
Operational
-- Middle East:
o Significant new contract and two contract extensions
o Two separate contract wins including REGEN media sale and paid
REGEN trial with leading EOR producer
-- U.S. PFAS Market:
o Successful U.S. PFAS trial demonstrating ability to remove all
PFAS compounds to non-detect levels
o Engineered and built two PFAS remediation units for
commercialisation in 2022
-- U.S. Business Development
o Seasoned Business Development professional hired to drive
sales in North America
o Further contract win for an industrial water treatment
project
-- Launched new website
-- Sale of Duluth office for $5.4 million
Post Period
-- Closed a Placing of 3,539,273 Common Shares raising gross
proceeds of approximately $2.3 million before expenses
Connie Mixon, CEO, said:
"In 2021, a more stable oil price benefitted the Company's core
business which focusses primarily on supporting the energy
industry's clean production initiatives. This energy market
strength, along with the Company's efforts, helped MYCELX achieve
both new contracts and the extension of existing contracts across
multiple core geographies. The Company also made significant
inroads into the PFAS remediation market, demonstrating our PFAS
system is cost effective and more efficient than existing
technologies.
MYCELX is well placed to capitalise on new, large market
applications with ambitious growth targets. With industry's
increased focus on mitigating environmental impact, MYCELX's proven
technology has never been more relevant in the fight for clean
water and air. We look forward to keeping all our stakeholders
updated on the Company's progress throughout the rest of the
year."
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) Tel: +44 20 7523 8150
Henry Fitzgerald-O'Connor
Gordon Hamilton
Celicourt Communications (Financial PR)
Mark Antelme Tel: +44 20 8434 2754
Jimmy Lea
(1) EBITDA is a non-U.S. GAAP measure that the Company uses to
measure and monitor performance and liquidity and is calculated 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. This non-U.S. GAAP measure may not be directly
comparable to other similarly titled measures used by other
companies and may have limited use as an analytical tool.
Chairman's Statement
MYCELX meets the growing demand for innovative technology that
mitigates the environmental impact of industry
I am pleased to address our shareholders, and all stakeholders,
following my first year as Chairman of your Company. MYCELX today
is in a strong position, and strategically well placed to
capitalise on the growing demand for innovative technology, which
is designed with the clear intention of helping the world mitigate
the environmental impact of industry. We are leaders in this field
and are supporting compliance across multiple industries and
geographies.
Throughout 2021, MYCELX continued to successfully navigate the
challenges presented by the global pandemic. The Company maintained
its focus on ensuring the welfare of its staff and serving its
customers, and was pleased to witness the gradual easing of
COVID-related restrictions.
Whilst the pandemic continued to bring uncertainty throughout
the year, operations did improve in the second half of 2021. A more
stable oil price benefitted the Company's core business which
focusses primarily on supporting the energy industry's clean
production initiatives. This energy market strength, along with the
Company's efforts, helped MYCELX achieve both new contracts and the
extension of existing contracts across multiple core
geographies.
The need for improved environmental stewardship has never been
more important. This was made clear at the recent United Nations
Climate Conference in the U.K., as well as with the burgeoning
adoption of Environmental, Sustainability and Governance ('ESG')
initiatives by companies around the globe. MYCELX is uniquely
placed to help its industrial clients fulfil their commitments to
more environmentally sustainable processes and effective
remediation of contaminated water. The Company continues its
commitment to driving the global green economy and was designated
with the award of the London Stock Exchange's Green Economy Mark,
which recognises our achievement in ESG initiatives. This
environmental focus remains the cornerstone of our offering, which
allows MYCELX to be a force for global sustainability, and it also
presents attractive commercial growth opportunities.
The PFAS remediation market represents a material opportunity
for MYCELX, and you will read in the annual report the significant
progress that has been made to accelerate commercialisation of our
PFAS offering. PFAS, which stands for perfluoroalkyl and
polyfluoroalkyl compounds, are a collection of long-lasting
man-made toxic chemicals, which present a threat to the environment
and human health. The Company estimates the annual PFAS remediation
cost in the United States alone to be in excess of US$8bn and
growing as contaminated sites continue to be identified.
Outlook
Our outlook is encouraging on multiple fronts. The PFAS
remediation market is a significant growth opportunity for MYCELX,
providing real environmental and health benefits deploying our
effective and efficient technology. In our traditional energy
markets, today's high oil price bodes well for the completion of
new commercial agreements with both existing and new international
customers, and we are optimistic that the resurgence in bidding
activity will support strong performance in 2022 and beyond. Our
REGEN offering is also expected to play an important role as we
grow within the Enhanced Oil Recovery market of the energy sector.
We continue to focus on taking advantage of these attractive market
opportunities.
On behalf of the Board, I would like to thank our shareholders
for their continued support. In addition, our team have worked
tirelessly through a challenging time to advance the Company's
initiatives, and I would like to thank them for their dedication
and professionalism. I look forward to keeping you updated on our
progress throughout the year.
Chief Executive's Statement
Continued operational delivery and poised to meet new
environmental challenges
Global markets continued to be buffeted by geo-political events
in 2021, but the Company saw green shoots emerge, on which it seeks
to capitalise.
Following a challenging year in 2020, the Company continued to
deliver in its core markets despite a challenging backdrop.
Notwithstanding the continued impact of the COVID-19 pandemic and
the effect this has had on global energy markets, we saw a
resurgence in activity across the various industries in which we
operate.
As ever, the safety of our workforce remained of the utmost
importance to us and we were pleased with how we managed to not
skip a beat operationally, whilst simultaneously safeguarding the
wellbeing of our employees. The travel and work restrictions in
place both kept people safe and ensured that we were able to manage
our cost base effectively. At the time of writing, I am pleased to
report that the business is currently experiencing minimal to no
impact of COVID-19 in its day-to-day business functions.
Although historically the Company has largely been focused on
the oil and gas sector, the emergence of the Perfluoroalkyl and
Polyfluoroalkyl Substances ('PFAS') remediation market in the
Unites States and Australia led to a new and potentially highly
lucrative opportunity for us. PFAS chemicals, commonly found in
Teflon-related consumer goods and other industrial use products,
are highly toxic and pose a significant threat to human health and
the environment. MYCELX's unique product offering is well suited to
play an important role in the global PFAS remediation challenge. As
such, considerable time and efforts went into pursuing new
opportunities in this market, which I will go into more detail on
later in this statement.
We made a strong start to 2021, signing a number of new
contracts and contract extensions in the Middle East, in addition
to targeting other opportunities in the U.S. and Nigeria, and the
Company was actively involved in bidding projects globally. In the
second half of the year, MYCELX signed a $1 million contract with a
client in the Middle East, with much of the revenues due to fall in
the 2022 financial year.
We also made significant inroads into the PFAS remediation
market, announcing in May 2021 the validation and capacity upgrade
of a MYCELX PFAS system in an Australian Department of Defence
location. This was an important milestone for the business as it
demonstrated that our PFAS system is cost effective and able to
remove toxic "forever" chemicals associated with Teflon-related
products. We were also pleased to commence an important trial at an
industrial site in upstate New York, in December 2021, which
demonstrated the ability of the MYCELX system to completely remove
all detected PFAS chemicals, achieving a 99.99% removal
efficiency.
Operational performance
I am pleased to report that our operations continue to perform
in line with management expectations, and we are experiencing
little to no disruption due to COVID-19. We anticipate that
international travel will continue to open up, meaning that a
number of the safety restrictions we put in place can now be
removed, which will improve our ability to perform business
functions and travel to meet new and existing clients.
In 2021, the Company achieved revenue of $8.5 million, an
increase of 20% year-on-year. The Company continues to manage its
working capital requirements and following the recently closed
fundraise, is well placed to take advantage of opportunistic
applications and new customer initiatives in the market. EBITDA was
$19,000 and the Company recorded a loss before tax of $1.1 million
in 2021. In 2022, MYCELX aims to achieve a similar level of
year-on-year revenue growth, but this remains subject to market
conditions.
After the reporting period, we chose to undertake a fundraise in
order to help support the Company's growth trajectory and
capitalise on the rapidly changing PFAS market. As we have
demonstrated in Australia and in our recent U.S. trial, MYCELX has
the potential to play an important role in tackling the enormous
challenges presented by PFAS-laden water. The Company's technology
is proven and our unique PFAS systems are installed and have been
operational in Australia for seven years. In addition, we executed
a highly promising trial in the U.S. We are very grateful for the
support of our shareholders, as with the inclusion of the Broker
Option, we were able to raise ca.$2.3 million, which will enable us
to cement our position in the market. The PFAS market in the U.S.
is both nascent and very large, and one we believe we are ideally
positioned to take advantage of. We hope to comment further in the
coming months.
Post-period end, we were also pleased to receive the London
Stock Exchange's Green Economy Mark, recognising MYCELX's
contribution to the global green economy. In order to qualify,
companies and funds must generate 50% or more of their total annual
revenues from products and services that contribute to the global
green economy. This reinforces our view that MYCELX is a
'pure-play' green technology business that has the potential to be
a force for good.
Looking to the future
Following the uptick in bidding activity that we witnessed last
year, coupled with the strict capital controls in place and the
successfully executed fundraise, MYCELX is well placed to
capitalise new, large market applications with ambitious growth
targets. With industry's increased focus on mitigating
environmental impact, MYCELX's proven technology has never been
more relevant in the fight for clean water and air. We are excited
about what the future holds and look forward to updating all our
stakeholders on future corporate developments as appropriate.
Financial Review
Due to the resurgence in activity across the various industries
in which we operate, we saw revenue rise 20% to $8.5 million for
2021, compared to $7.1 million for 2020. Revenue from equipment
sales and leases increased by 36% to $3.8 million for 2021 (FY20:
$2.8 million) and revenue from consumable filtration media and
service increased by 9% to $4.7 million (FY20: $4.3 million).
Whilst the equipment sales are one-off by nature, there is
longevity to the media sales and ongoing lease and service
revenues.
Gross profit increased by 106% to $3.3 million during the year,
compared to $1.6 million in 2020, and gross profit margin increased
to 39% (FY20: 23%).
Total operating expenses for 2021, including depreciation and
amortisation and the gain on sale of property and equipment,
decreased by 37% to $4.8 million (FY20: $7.6 million). The largest
component of operating expenses was selling, general and
administrative expenses, which decreased by approximately 5% to
$6.9 million (FY20: $7.3 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 34% to $205,000 (FY20: $310,000), primarily due to
older equipment reaching the end of its useful life.
EBITDA was $19,000, compared to negative $4.2 million in 2020.
Normalised EBITDA excluding the sale of the Company's building in
Duluth, Georgia was negative $2.5 million. The Company recorded a
loss before tax of $1.1 million in 2021, compared to a loss before
tax of $5.8 million in 2020. The decrease in net loss was partially
due to the $2.6 million gain the Company recognised on the sale of
its building. Basic loss per share was 7 cents in 2021, compared to
basic loss per share of 31 cents in the previous year.
In March 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 $2.6 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 were used for working capital purposes to
support the business needs.
As of 31 December 2021, total assets were $15.6 million with the
largest assets being inventory of $4.3 million, property and
equipment of $3.2 million, $3.2 million of cash and cash
equivalents including restricted cash and $1.9 million of accounts
receivable.
Total liabilities as of 31 December 2021 were $3.0 million and
stockholders' equity was $12.6 million, resulting in a
debt-to-equity ratio of 24%.
The Company ended the period with $3.2 million of cash and cash
equivalents, including restricted cash, compared to $3.8 million in
total at 31 December 2020. The Company used approximately $3.4
million of cash in operations in 2021 (FY20: $1.5 million used in
operations). The proceeds from the sale of the Company's property
offset by purchases of property and equipment and patents
contributed to $5.1 million provided by investment activities
(FY20: $159,000 used in investing activities). In 2021, the
Company's financing activities included net proceeds of $401,000
from a forgivable loan and $2.6 million paid towards debt.
Post the period end, the Company completed the closing of a
Placing of 3,539,273 Common Shares at a price of US$0.66 (50 pence)
per new share raising gross proceeds of approximately $2.3 million
before expenses. The Company incurred costs in the issuance of
these shares of approximately $267,000. The proceeds from the
transaction will be used to accelerate the commercialisation of the
Company's Remediation System in the U.S. for per- and
polyfluoroalkyl substances ('PFAS') and in order to support working
capital across the Company's core markets.
Statements of Operations
(USD, in thousands, except share data)
For the Year Ended 31 December: 2021 2020
Revenue 8,478 7,104
---------- ----------
Cost of goods sold 5,203 5,512
---------- ----------
Gross profit 3,275 1,592
---------- ----------
Operating expenses:
---------- ----------
Research and development 223 64
---------- ----------
Selling, general and administrative 6,939 7,271
---------- ----------
Depreciation and amortisation 205 310
---------- ----------
Gain on sale of property and equipment (2,584) -
---------- ----------
Total operating expenses 4,783 7,645
---------- ----------
Operating loss (1,508) (6,053)
---------- ----------
Other income (expense)
---------- ----------
Gain upon extinguishment of debt 403 404
---------- ----------
Interest expense (24) (117)
---------- ----------
Loss before income taxes (1,129) (5,766)
---------- ----------
Provision for income taxes (296) (328)
---------- ----------
Net loss (1,425) (6,094)
---------- ----------
Loss per share - basic (0.07) (0.31)
---------- ----------
Loss per share - diluted (0.07) (0.31)
---------- ----------
Shares used to compute basic loss per share 19,443,750 19,443,750
---------- ----------
Shares used to compute diluted loss per share 19,443,750 19,443,750
---------- ----------
The accompanying notes are an integral part of the financial
statements.
Balance Sheets
(USD, in thousands, except share data)
As at 31 December: 2021 2020
Assets
-------- --------
Current Assets
-------- --------
Cash and cash equivalents 3,128 3,292
-------- --------
Restricted cash 84 500
-------- --------
Accounts receivable - net 1,867 1,479
-------- --------
Unbilled accounts receivable 175 -
-------- --------
Inventory 4,320 5,642
-------- --------
Prepaid expenses 203 84
-------- --------
Other assets 399 107
-------- --------
Total Current Assets 10,176 11,104
-------- --------
Property and equipment - net 3,249 6,756
-------- --------
Intangible assets - net 774 790
-------- --------
Operating lease asset - net 1,459 482
-------- --------
Total Assets 15,658 19,132
-------- --------
Liabilities and Stockholders' Equity
-------- --------
Current Liabilities
-------- --------
Accounts payable 683 473
-------- --------
Payroll and accrued expenses 758 540
-------- --------
Contract liability 54 745
-------- --------
Customer deposits 74 492
-------- --------
Operating lease obligations - current 251 175
-------- --------
Note payable - current - 102
-------- --------
Line of credit - 997
-------- --------
Total Current Liabilities 1,820 3,524
-------- --------
Operating lease obligations - long-term 1,216 275
-------- --------
Note payable - long-term - 1,541
-------- --------
Total Liabilities 3,036 5,340
-------- --------
Stockholders' Equity
-------- --------
Common stock, $0.025 par value, 100,000,000 shares
authorised,
19,443,750 shares issued and outstanding at
31 December 2021 and 2020. 486 486
-------- --------
Additional paid-in capital 42,655 42,400
-------- --------
Accumulated deficit (30,519) (29,094)
-------- --------
Total Stockholders' Equity 12,622 13,792
-------- --------
Total Liabilities and Stockholders' Equity 15,658 19,132
-------- --------
The accompanying notes are an integral part of the financial
statements.
Statements of Stockholders' Equity
(USD, in thousands)
Common Stock
Additional
Paid-in Accumulated
Capital Deficit Total
Shares $ $ $ $
---------- ---
Balances at 31 December 2019 19,443,750 486 42,358 (23,000) 19,844
---------- --- ---------- ----------- -------
Stock-based compensation expense - - 42 - 42
---------- --- ---------- ----------- -------
Net loss for the period - - - (6,094) (6,094)
---------- --- ---------- ----------- -------
Balances at 31 December 2020 19,443,750 486 42,400 (29,094) 13,792
---------- --- ---------- ----------- -------
Stock-based compensation expense - - 255 - 255
---------- --- ---------- ----------- -------
Net loss for the period - - - (1,425) (1,425)
---------- --- ---------- ----------- -------
Balances at 31 December 2021 19,443,750 486 42,655 (30,519) 12,622
---------- --- ---------- ----------- -------
The accompanying notes are an integral part of the financial
statements.
Statements of Cash Flows
(USD, in thousands)
For the Year Ended 31 December: 2021 2020
Cash flow from operating activities
------- -------
Net loss (1,425) (6,094)
------- -------
Adjustments to reconcile net loss to net cash
used in operating activities:
------- -------
Depreciation and amortisation 1,124 1,427
------- -------
Gain on sale of property and equipment (2,584) -
------- -------
Inventory reserve adjustment (45) 1,061
------- -------
Gain upon extinguishment of debt (401) (401)
------- -------
Stock compensation 255 42
------- -------
Change in operating assets and liabilities:
------- -------
Accounts receivable - net (388) 2,508
------- -------
Unbilled accounts receivable (175) -
------- -------
Inventory 1,265 (562)
------- -------
Prepaid expenses (119) 134
------- -------
Prepaid operating leases 40 10
------- -------
Other assets (292) 280
------- -------
Accounts payable 210 (313)
------- -------
Payroll and accrued expenses 218 37
------- -------
Contract liability (691) 745
------- -------
Customer deposits (418) (372)
------- -------
Net cash used in operating activities (3,426) (1,498)
------- -------
Cash flow from investing activities
------- -------
Payments for purchases of property and equipment (327) (110)
------- -------
Proceeds from sale of property and equipment 5,455 -
------- -------
Payments for internally developed patents (43) (49)
------- -------
Net cash provided by (used in) investing activities 5,085 (159)
------- -------
Cash flows from financing activities
------- -------
Payments on notes payable (1,643) (96)
------- -------
Proceeds from notes payable 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) 1,302
------- -------
Net decrease in cash, cash equivalents and restricted
cash (580) (355)
------- -------
Cash, cash equivalents and restricted cash, beginning
of year 3,792 4,147
------- -------
Cash, cash equivalents and restricted cash,
end of year 3,212 3,792
------- -------
Supplemental disclosures of cash flow information:
------- -------
Cash payments for interest 30 117
------- -------
Cash payments for income taxes 300 247
------- -------
Non-cash movements of inventory and fixed assets 102 -
------- -------
Non-cash operating ROU asset 1,192 -
------- -------
Non-cash operating lease obligation 1,192 -
------- -------
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 Norcross, 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, Nigeria and the 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. Post the period end, the Company
completed the closing of a placing raising gross proceeds of
approximately $2.3 million before expenses (see Note 16). The
proceeds from the transaction will be used to accelerate the
commercialisation of the Company's PFAS remediation system in the
U.S., and in order to support working capital across the Company's
core markets. 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.
Whilst macro events are creating uncertainty within world
markets and volatility in oil prices, today's high oil price bodes
well for the completion of new commercial agreements with both
existing and new international customers. On the basis of current
financial projections, including a downside scenario sensitivity
analysis taking into account the potential for lingering effects of
the COVID-19 pandemic whilst considering revenues already under
contract and adjusting only for cost of goods sold, the Company
believes that it has adequate resources to continue in operational
existence for the foreseeable future of at least 12 months from the
date of the issuance of these financial statements and,
accordingly, consider it appropriate to adopt the going concern
basis in preparing these 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 the 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 leased assets, 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.
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 judgement. Judgement 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 31
December 2021 and 2020, and 1 January 2020 was $175,000, $nil and
$nil, respectively. Contract liability at 31 December 2021 and
2020, and 1 January 2020 was $54,000, $745,000 and $nil,
respectively.
Timing of revenue recognition for each of the periods and
geographic regions presented is shown below:
Consumable Filtration
Equipment Leases, Turnkey Media, Equipment Sales
Arrangements, and Services and Service Recognised
Recognised Over Time at a Point in Time
Year Ending 31 December
(USD, in thousands) 2021 2020 2021 2020
-------------- ------------- ------------ -----------
Middle East 4,550 5,181 838 88
-------------- ------------- ------------ -----------
United States - - 1,311 1,394
-------------- ------------- ------------ -----------
Nigeria - - 1,312 3
-------------- ------------- ------------ -----------
Other - 3 442 318
-------------- ------------- ------------ -----------
Total revenue recognised
under ASC 606 4,550 5,184 3,903 1,803
-------------- ------------- ------------ -----------
Total revenue recognised
under ASC 842 25 117 - -
-------------- ------------- ------------ -----------
Total revenue 4,575 5,301 3,903 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 and averages one year.
During the years ended 31 December 2021 and 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 31 December 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 31 December 2021 and 2020, cash in non-U.S. institutions
was $25,000 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 31 December 2021 restricted cash included $84,000 in
a money market account to secure the Company's corporate credit
card and a stand-by letter of credit. At 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.
Reconciliation of cash, cash equivalents and restricted cash at
31 December 2021 and 2020:
31 December 31 December
2021 2020
US$000 US$000
Cash and cash equivalents 3,128 3,292
----------- -----------
Restricted cash 84 500
----------- -----------
Total cash, cash equivalents and restricted cash 3,212 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 31
December 2021 and 2020 was $90,000 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 applies the Average Cost method to
account for its inventory. Manufacturing work-in-progress and
finished products inventory include all direct costs, such as
labour and materials, 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. At 31 December 2021
and 2020, the Company had REGEN-related inventory of 39 percent and
34 percent of the total inventory balance, respectively, which is
in excess of the Company's current requirements based on the recent
level of sales. The inventory is associated with efforts to expand
into the Enhanced Oil Recovery market that the Company has
identified as a large global market. These efforts should reduce
this inventory to desired levels over the near term and Management
believes no loss will be incurred on its disposition. No estimate
can be made of a range of amounts of loss that are reasonably
possible should the efforts not be successful.
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
Lease period or 1-5 years (whichever
Leasehold improvements is shorter)
---------------------------------------
Office equipment 3-10 years
---------------------------------------
Manufacturing equipment 5-15 years
---------------------------------------
Research and development equipment 5-10 years
---------------------------------------
Licensing period or 5 years (whichever
Purchased software 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 years ended 31 December 2021 and 2020.
Research and development costs - Research and development costs
are expensed as incurred. Research and development expense for the
years ended 31 December 2021 and 2020 was approximately $223,000
and $64,000, respectively.
Advertising costs - The Company expenses advertising costs as
incurred. Advertising expense for the years ended
31 December 2021 and 2020 was $5,000 and $nil, respectively, and
is recorded in selling, general and administrative expenses.
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 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 years ended 31 December 2021
and 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 1,782,420 for the year ended 31 December
2021 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 (loss) profit per share for
the periods indicated:
Years Ended 31 December
2021 2020
------------ -----------
Basic weighted average outstanding shares of
common stock 19,443,750 19,443,750
------------ -----------
Effect of potentially dilutive stock options - -
------------ -----------
Diluted weighted average outstanding shares of
common stock 19,443,750 19,443,750
------------ -----------
Anti-dilutive shares of common stock excluded
from diluted weighted
average shares of common stock 1,782,420 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 and out of each level of the fair
value hierarchy for assets measured at fair value for the years
ended 31 December 2021 or 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 31 December 2021 and
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, accounts
receivable, accounts payable, and the line of credit approximate
fair value due to the short-term nature of those assets and
liabilities. The fair value of the note payable approximates face
value.
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 June 2016, the FASB
issued ASU 2016-13, Financial Instruments - Credit Losses (Topic
326), which requires measurement and recognition of expected credit
losses for financial assets held. The standard is to be applied
through a cumulative-effect adjustment to retained earnings as of
the beginning of the first reporting period in which the guidance
is effective. The guidance will become effective for the Company in
fiscal years beginning after 15 December 2022, including interim
periods within that reporting period. 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.
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 31
December 2021 and 2020:
31 December 31 December
2021 2020
US$000 US$000
Accounts receivable 1,957 1,512
----------- -----------
Less: allowance for doubtful accounts (90) (33)
----------- -----------
Total receivable - net 1,867 1,479
----------- -----------
4. Inventories
Inventories consist of the following at 31 December 2021 and
2020:
31 December 31 December
2021 2020
US$000 US$000
Raw materials 1,950 2,158
----------- -----------
Work-in-progress 202 -
----------- -----------
Finished goods 2,168 3,484
----------- -----------
Total inventory 4,320 5,642
----------- -----------
5. Property and Equipment
Property and equipment consist of the following at 31 December
2021 and 2020:
31 December 31 December
2021 2020
US$000 US$000
Land - 709
----------- -----------
Building - 2,724
----------- -----------
Leasehold improvements 107 277
----------- -----------
Office equipment 636 710
----------- -----------
Manufacturing equipment 888 930
----------- -----------
Research and development equipment 545 551
----------- -----------
Purchased software 222 222
----------- -----------
Equipment leased to customers 10,254 10,009
----------- -----------
Equipment available for lease to customers 272 89
----------- -----------
12,924 16,221
----------- -----------
Less: accumulated depreciation (9,675) (9,465)
----------- -----------
Property and equipment - net 3,249 6,756
----------- -----------
In March 2021, the Company completed the sale of its building in
Duluth, Georgia for total consideration of $5.4 million enabling
the Company to right-size its office space needs across its main
operating locations. The net book value of the building and land
was $2.8 million so the Company recognised a financial gain of
approximately $2.6 million.
During the years ended 31 December 2021 and 2020, the Company
removed property, plant and equipment and the associated gross and
accumulated depreciation of approximately $856,000 and $nil,
respectively, to reflect the disposal of property, plant and
equipment.
Depreciation expense for the years ended 31 December 2021 and
2020 was approximately $1,066,000 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 years ended 31 December 2021 and 2020
was $919,000 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 $70,000 and $64,000 as of 31 December 2021
and 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 2021, there was
$43,000 of new internally developed patents and fees on patents in
progress.
Intangible assets as of 31 December 2021 and 2020 consist of the
following:
31 December 31 December
Weighted Average 2021 2020
Useful Lives US$000 US$000
Internally developed patents 15 years 1,447 1,405
----------------- ----------- -----------
Purchased patents 17 years 100 100
----------------- ----------- -----------
1,547 1,505
-------------------------------------------------------------- ----------- -----------
Less accumulated amortisation - Internally
developed patents (703) (651)
----------- -----------
Less accumulated amortisation - purchased
patents (70) (64)
----------- -----------
Intangible assets - net 774 790
----------- -----------
At 31 December 2021, internally developed patents include
approximately $396,000 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)
2022 57
---
2023 50
---
2024 48
---
2025 47
---
2026 44
---
Thereafter 132
---
Amortisation expense for the years ended 31 December 2021 and
2020 was approximately $58,000 and $57,000, respectively.
7. Income Taxes
The components of income taxes shown in the statements of
operations are as follows:
31 December 31 December
2021 2020
US$000 US$000
Current:
----------- -----------
Federal - -
----------- -----------
Foreign 291 320
----------- -----------
State 5 8
----------- -----------
Total current provision 296 328
----------- -----------
Deferred:
----------- -----------
Federal - -
----------- -----------
Foreign - -
----------- -----------
State - -
----------- -----------
Total deferred provision - -
----------- -----------
Total provision for income taxes 296 328
----------- -----------
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:
31 December 31 December
2021 2020
Federal statutory income tax rate 21.0% 21.0%
----------- -----------
State tax rate, net of federal benefit (4.9%) (0.4%)
----------- -----------
Valuation allowance (13.3%) (24.0%)
----------- -----------
Other (8.8%) 2.0%
----------- -----------
Foreign withholding tax (20.2%) (4.4%)
----------- -----------
Effective income tax rate (26.2%) (5.8%)
----------- -----------
The significant components of deferred income taxes included in
the balance sheets are as follows:
31 December 31 December
2021 2020
US$000 US$000
Deferred tax assets
----------- -----------
Net operating loss 5,802 5,589
----------- -----------
Equity compensation 272 327
----------- -----------
Research and development credits 159 159
----------- -----------
Right of use liability 316 97
----------- -----------
Inventory valuation reserve 349 358
----------- -----------
Other 102 22
----------- -----------
Total gross deferred tax asset 7,000 6,552
----------- -----------
Deferred tax liabilities
----------- -----------
Property and equipment (578) (635)
----------- -----------
Right of use asset (314) (104)
----------- -----------
Total gross deferred tax liability (892) (739)
----------- -----------
Net deferred tax asset before valuation allowance 6,108 5,813
----------- -----------
Valuation allowance (6,108) (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
31 December 2021 and 2020, the Company has recorded a valuation
allowance of $6.1 million and $5.8 million, respectively, a change
of $300,000 and $1.2 million for each year, 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 2021, the Company has approximately $26.5
million of gross U.S. federal net operating loss carry forwards and
$3.6 million of gross state net operating loss carry forwards that
will begin to expire in the 2022 tax year and will continue through
2040 when the current year net operating losses will expire. As of
31 December 2020, the Company had approximately $25.2 million of
gross U.S. federal net operating loss carry forwards and $4.4
million of gross state net operating loss carry forwards.
On 27 March 2020, the U.S. Government enacted the Coronavirus
Aid, Relied, 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 2021 or
2020.
The Company's tax years 2017 through 2021 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 as 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 31 December 2020 was $997,000. The interest rate
on 31 December 2020 was 4.50 percent. Interest expense related to
this loan was $9,000 and $38,000 for the years ended 31 December
2021 and 2020, respectively.
9. Paycheck Protection Program Loan
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 24-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.
On 5 August 2021, the Company's second 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.
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
continued to operate through March 2022. The carrying amount of the
property and building was $2.9 million as of 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 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 2,043,338 shares allocated as of 31 December 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 of control, and
expire on the tenth anniversary date the option vests. Vesting
accelerates in the event of a change of control. Options granted to
Non-Executive Directors, Consultants 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% 5.7 years 76.00% $0.69 $0.45
----------- ---------- --------- --------- ---------- -------- -----------
100,000 11/11/2021 1.23% 5.2 years 63.00% $1.00 $0.54
----------- ---------- --------- --------- ---------- -------- -----------
The Company assumes a dividend yield of 0.0 percent.
The following table summarises the Company's stock option
activity for the years ended 31 December 2021 and 2020:
Weighted-Average Average Grant
Weighted-Average Remaining Contractual Date Fair
Stock Options Shares Exercise Price Term (in years) Value
Outstanding at 31 December
2019 1,374,542 $2.40 5.7 $1.13
--------- ---------------- ---------------------- -------------
Granted 325,000 $0.45 5.7 $0.29
--------- ---------------- ---------------------- -------------
Forfeited (375,204) $1.97
--------- ---------------- ---------------------- -------------
Outstanding at 31 December
2020 1,324,338 $2.04 5.8 $1.01
--------- ---------------- ---------------------- -------------
Granted 862,000 $1.69 5.7 $0.46
--------- ---------------- ---------------------- -------------
Forfeited (143,000) $2.83
--------- ---------------- ---------------------- -------------
Outstanding at 31 December
2021 2,043,338 $1.43 5.8 $0.76
--------- ---------------- ---------------------- -------------
Exercisable at 31 December
2021 1,192,338 $2.00 6.0
--------- ---------------- ---------------------- -------------
The total intrinsic value of the stock options exercised during
the years ended 31 December 2021 and 2020 was approximately
$nil.
A summary of the status of unvested options as of 31 December
2021 and changes during the years ended 31 December 2021 and 2020
is presented below:
Weighted-Average
Fair Value
Unvested Options Shares at Grant Date
Unvested at 31 December 2019 168,334 $0.76
--------- ----------------
Granted 325,000 $0.29
--------- ----------------
Vested (70,000) $1.33
--------- ----------------
Forfeited (58,334)
--------- ----------------
Unvested at 31 December 2020 365,000 $0.34
--------- ----------------
Granted 862,000 $0.46
--------- ----------------
Vested (374,000) $0.46
--------- ----------------
Forfeited (2,000)
--------- ----------------
Unvested at 31 December 2021 851,000 $0.41
--------- ----------------
As of 31 December 2021, total unrecognised compensation cost of
approximately $192,000 was related to unvested share-based
compensation arrangements awarded under the Plan.
Total stock compensation expense for the years ended 31 December
2021 and 2020 was approximately $255,000 and $42,000,
respectively.
12. Commitments and Contingencies
Operating leases - As of 31 December 2021, the Operating Lease
ROU Asset has a balance of $1,459,000, net of accumulated
amortisation of $283,000, and an Operating Lease Liability of
$1,467,000, which are included in the accompanying balance sheet.
The weighted average discount rate used for leases 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 March 2027 and have a weighted average
remaining life of 4.58 years.
Future maturities under the Operating Lease Liability are as
follows for the years ended 31 December:
Future Lease
Year Ending 31 December Payments US$000
2022 307
----------------
2023 381
----------------
2024 321
----------------
2025 280
----------------
2026 291
----------------
2027 74
----------------
Total future maturities 1,654
----------------
Portion representing interest (187)
----------------
1,467
----------------
Total lease expense for the years ended 31 December 2021 and
2020 was approximately $259,000 and $315,000, respectively.
Total cash paid for leases for the years ended 31 December 2021
and 2020 was $227,000 and $313,000, respectively, and is part of
prepaid operating leases on the Statements of Cash Flows.
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 $447,000 and $130,000 for the years
ended 31 December 2021 and 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, 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 2021. For the year ended 31
December 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:
Year Ending 31 December (USD, in thousands) 2021 2020
Middle East 5,388 5,269
----- -----
United States 1,336 1,511
----- -----
Nigeria 1,312 3
----- -----
Other 442 321
----- -----
Total 8,478 7,104
----- -----
Long lived assets, net of depreciation, by geography is as
follows:
Year Ending 31 December (USD, in thousands) 2021 2020
Middle East 2,380 3,127
----- -----
United States 2,328 4,109
----- -----
Other - 2
----- -----
Total 4,708 7,238
----- -----
15. Concentrations
At 31 December 2021, two customers, one with four contracts with
four separate plants, represented 82 percent of accounts
receivable. During the year ended 31 December 2021, the Company
received 78 percent of its gross revenue from five customers, one
with four contracts with four separate plants.
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 its
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 16 May
2022, the date the financial statements were available to be
issued, and no events have occurred which require further
disclosure other than the following:
On 21 March 2022, the Company issued an additional 3,539,273
shares of common stock at a price of US$0.66 (50 pence) per share.
The Company incurred costs in the issuance of these shares of
approximately $267,000. The Company received net proceeds of
approximately $2.1 million. Upon the conclusion of the public
offering, the total shares issued and outstanding were
22,983,023.
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END
FR FFFIIEIIRLIF
(END) Dow Jones Newswires
May 17, 2022 02:01 ET (06:01 GMT)
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