TIDMMYX TIDMMYXR
RNS Number : 7094A
MyCelx Technologies Corporation
27 September 2022
27 September 2022
MYCELX TECHNOLOGIES CORPORATION (AIM: MYX)
Half Year Results Statement
MYCELX Technologies Corporation ("MYCELX" or the "Company"), the
clean water and clean air technology company transforming the
environmental impact of industry, is pleased to announce its
unaudited interim results for the six months ended 30 June
2022.
Highlights
Financial
-- Revenue of $3.7 million (2021 H1: $4.2 million)
-- Gross profit margin of 37.5% (2021 H1: 45.6%)
-- EBITDA of negative $2.1 million (2021 H1: $1.2 million,
normalized EBITDA excluding sale of building negative $1.3
million)
-- Net loss of $2.9 million (2021 H1: $435,000)
-- Closed a Placing of 3,539,273 Common Shares raising net proceeds of $2.0 million
-- Net cash of $2.8 million at end of period
Operational
-- Middle East: a contract extension signed in Q1 2022 and an
emergency response system completed in Q2 2022
-- Middle East: successful ongoing trial of REGEN product for
Enhanced Oil Recovery with major producer
-- United States: in discussions with a number of global water
treatment companies, an environmental engineering firm for US PFAS
trials, as well as a US water treatment company targeting the
residential market
-- Australia: successful PFAS trial treating landfill leachate
-- Awarded the London Stock Exchange's Green Economy Mark,
recognizing MYCELX's contribution to the global green economy
Post Period Update
-- New project award with a new customer in the Middle East
-- Fourth project with existing customer in the Middle East valued at $2.7 million
-- Two contract extensions in Saudi Arabia valued at a combined $2.8 million
-- Successful installation and commissioning of REGEN produced water system in Nigeria
Outlook
Traditionally, the Company has experienced heightened project
bidding activity in the second half of the year, and Management
expect that to be the same in 2022. Despite continued volatility in
the energy markets, prices remain robust and at levels whereby we
are confident that oil and gas companies will agree to finance new
capital and operational expenditure projects. While we continue to
monitor the situation closely, the impact of COVID-19 appears to be
lessening due to the vaccine rollout, meaning international and
domestic travel is likely to continue, supporting oil prices in the
near to medium term.
As seen with the contracts announced post period end, amounting
to $5.5 million, we continue to witness strong demand in our most
active region, the Middle East. The Company is actively involved in
a number of additional opportunities in other regions such as the
United States, Australia and Nigeria, which aligns with our
strategy of diversification.
MYCELX is upbeat about the global potential of the PFAS
remediation market and was pleased to recently report that it is in
discussions with a number of companies about how to best accelerate
the commencement of further PFAS trials in the USA. The Company
remains highly confident about the capability of its technology in
PFAS removal and believes its offering is not only cost effective,
but significantly out performs the competition with less hazardous
waste generation. MYCELX is well placed as a solution to the
significant global issue of PFAS contamination, particularly in
light of the recently announced US EPA proposal to designate PFOS
and PFOA as hazardous substances that polluters will be responsible
for remediating and cleaning up.
Recently the Company announced it is in the commercial phase of
contract negotiations with a major oil producer based in the Middle
East which, if successful, would see the Company announce its
second EOR installation deploying the patented MYCELX REGEN
product. Recent negotiations have made the Company aware it is
unlikely it will be able to recognize the anticipated revenue for
this project in 2022 and, therefore, will defer the revenue to
2023. When engaging with large, global companies the number of
division sign-offs required to proceed from an agreement in
principle to contract execution inevitably lead to delays making
timelines difficult to forecast. While frustrated and disappointed
when delays occur, the latent value within industry and the many
benefits our technology delivers is proving its class and its
superiority. In H2, the Company has other sales opportunities in
the pipeline that could close before year end, which could have the
potential to reduce the impact of the delayed revenue. In light of
this information, the Company recently reported a revision to its
guidance and now expects 10% year-on-year revenue growth for FY2022
with anticipated profitability also adversely affected.
Commenting on these results, Connie Mixon, CEO, said:
"The Company was awarded a number of new projects and contract
extensions post period end on the back of successful work and
performance during the first half of the year. As a business, we
have historically witnessed greater levels of bidding activity in
the second half of the year and we believe 2022 will be the same.
While it is disappointing that anticipated project revenue we
expected from the Middle East EOR project has been deferred to
2023, as a business we continue to have high level interaction with
key customers and strategic relationships. Operationally we are
delivering what our customers require.
We were also pleased that our strong focus on ESG was recognized
by the London Stock Exchange, with the Company being awarded the
Green Economy Mark for its contribution towards the green
economy.
We are grateful to our existing and new shareholders that
supported us with the $2 million fundraise we executed in March
2022, the proceeds of which afford us the financial capacity to
further invest in the growth potential of the Company in the REGEN
and PFAS markets. We continue to have strong conviction that our
patented technology offers a cost effective, safe and best in class
solution to the issues faced by companies in the sectors, and we
remain in active discussions with a range of parties on the
potential for future contracts and trials to be awarded.
We look forward to keeping all our stakeholders updated on the
Company's progress over the remainder of 2022."
For further information, please contact:
MYCELX Technologies Corporation
Connie Mixon, CEO Tel: +1 888 306 6843
Kim Slayton, CFO
Canaccord Genuity Limited (Nomad and Sole Broker)
Henry Fitzgerald-O'Connor Tel: +44 20 7523 8000
Gordon Hamilton
Celicourt Communications (Financial PR)
Mark Antelme Tel: +44 20 8434 2754
Jimmy Lea
Chairman's and Chief Executive Officer's Statement
We are pleased to publish MYCELX's H1 2022 results today,
alongside a wider business update on the corporate activity we have
been working on since the start of the year.
Operational Review
We delivered a number of important operational objectives during
H1, including a contract extension in the Middle East, a successful
ongoing REGEN trial for Enhanced Oil Recovery with a major producer
and progress with further advancing our solution in the global PFAS
remediation market.
A key focus for us in the first half of 2022 was building on the
strong client relationships we have in our core regions of focus,
which can be observed in the number of customers that return to use
our patented solution. Despite revenue for the period coming in
slightly lower year-on-year, we feel it is important to note that
MYCELX is generally more active on bidding opportunities in the
second half of the year and the new business projects we were
working on in H1 were delivered post period end.
Continued emphasis remains focused on gaining traction in the
global PFAS remediation market. We dedicated considerable resources
in H1 to this endeavor, which has started to yield results, as seen
by the important discussions we are now having with several global
water treatment companies, an environmental engineering firm and
companies focused on treatment for the residential market. We
anticipate that as these discussions progress and as MYCELX's
solution continues to deliver positive results in the trials it is
involved with, this will deliver commercial contracts. PFAS
pollution is a growing threat which is demonstrated to adversely
affect human health. We firmly believe that our solution is the
most cost effective and operationally deliverable product on the
market to tackle the issue.
We also chose to strengthen the Company's liquidity position
during H1 by conducting a $2 million fundraise. This exercise
leaves us well placed to deliver operationally on existing and new
potential projects for the remainder of 2022 and into 2023. We
continue to exercise strong capital discipline, with the cost
saving measures implemented during COVID-19 still largely in place
as appropriate. This means that the capital MYCELX possesses is
highly focused on delivering near term contracts and revenues for
the benefit of all our stakeholders.
Financial Review
Total revenue in the period was impacted by a decrease in
equipment sales, decreasing by 12% to $3.7 million compared to $4.2
million in the first half of 2021. Revenue from equipment sales and
leases decreased by 48% to $1.0 million in the first half of 2022
(2021 H1: $1.9 million). Revenue from consumable filtration media
and service increased by 20% to $2.7 million (2021 H1: $2.2
million). Whilst the equipment sales are one off by nature, there
is longevity to the media sales and on-going lease and service
revenues.
Gross profit decreased by 26% to $1.4 million in the first half
of 2022, compared to $1.9 million in the first half of 2021, and
gross profit margin decreased to 38% in the first half of 2022
(2021 H1: 46%). The decrease in gross margin was due to an
emergency response project executed at a lower margin.
Total operating expenses for the first half of 2022, including
depreciation and amortisation, increased to $4.1 million (2021 H1:
$1.3 million). Operating expenses in the first half of 2021 were
reduced by $2.5 million for the gain on the sale of property and
equipment in Duluth, Georgia. Without the gain, operating expenses
would have been $3.8 million in the first half of 2021. The largest
component of operating expenses was selling, general and
administrative expenses ('SG&A'), which increased by
approximately 5% to $3.9 million in the first half of 2022 (2021
H1: $3.7 million) due to moving expenses for relocating the
Company's office in Georgia.
Depreciation and amortisation within operating expenses
decreased by 19% to $92,000 (2021 H1: $113,000), primarily due to
older equipment reaching the end of its useful life.
EBITDA was negative $2.1 million for the first half of 2022,
compared to $1.2 million for the first half of 2021. Normalized
EBITDA for the first half of 2021, which excludes the sale of
property and equipment in Duluth, Georgia was negative $1.3
million. 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.
The Company recorded a loss before tax of $2.7 million for the
first half of 2022, compared to profit before tax of $599,000 for
the first half of 2021. The move into a net loss position was
partially due to the impact of the $2.5 million gain the Company
recognised on the sale of property and equipment in H1 2021. Basic
loss per share was 13 cents for the first half of 2022, compared to
basic profit per share of 2 cents for the first half of 2021.
In the first half of 2022, 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 needs across the Company's core markets.
As of 30 June 2022, total assets were $14.3 million with the
largest assets being inventory of $4.2 million, property and
equipment of $3.1 million, $2.8 million of cash and cash
equivalents including restricted cash and $1.2 million of accounts
receivable.
Total liabilities as of 30 June 2022 were $2.5 million and
stockholders' equity was $11.9 million, resulting in a
debt-to-equity ratio of 21%.
The Company ended the period with $2.8 million of cash and cash
equivalents, including restricted cash, compared to $3.2 million in
total at 31 December 2021. The Company used approximately $2.0
million cash in operations in the first half of 2022, compared to
$1.4 million used in operations in the first half of 2021. The
Company used $373,000 in investment activities in the first half of
2022 compared to an inflow of $5.4 million from the proceeds from
the sale of the Company's property in the first half of 2021. In
the first half of 2022, the Company's financing activities included
net proceeds of $2.0 million from the sale of Common Shares of
stock.
Outlook
Looking at the near and medium term, we are working hard toward
securing more REGEN business as well as PFAS trials in the US which
have the potential to become longer term leases or installations.
With oil prices remaining resilient and greater attention turning
towards the global PFAS problem, we believe our technology remains
best in class for its applications and well placed to be the
solution for these industries. When we speak to potential and
existing customers, their request remains the same. They are
looking for a solution that can deliver economic results in an
environmentally safe and sustainable way, which our technology
achieves. So, we will continue to focus on furthering our existing
and potential new client relationships, play an active role in the
bidding opportunities that we expect to see come through in the
second half of the year and further our pursuit of strategic
partners. Historically, this has delivered results for us, and we
believe that this will be the case again for the second half of
2022 and beyond.
Tom Lamb Connie Mixon
Chairman Chief Executive Officer
27 September 2022
MYCELX TECHNOLOGIES CORPORATION
Statements of Operations
(USD, in thousands, except share data)
Six Months Six Months Year
Ended Ended Ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited)
--------------------- ------------ -------------------
Revenue 3,699 4,164 8,478
Cost of goods sold 2,311 2,266 5,203
Gross profit 1,388 1,898 3,275
--------------------- ------------ -------------------
Operating expenses:
Research and development 101 - 223
Selling, general and administrative 3,898 3,696 6,939
Depreciation and amortisation 92 113 205
Gain on sale of property and equipment (2) (2,532) (2,584)
--------------------- ------------ -------------------
Total operating expenses 4,089 1,277 4,783
--------------------- ------------ -------------------
Operating profit (loss) (2,701) 621 (1,508)
Other income (expense)
Gain upon extinguishment of debt - - 403
Interest expense - (22) (24)
--------------------- ------------ -------------------
Profit (loss) before income taxes (2,701) 599 (1,129)
Provision for income taxes (180) (164) (296)
--------------------- ------------ -------------------
Net profit (loss) (2,881) 435 (1,425)
===================== ============ ===================
Profit (loss) per share-basic (0.13) 0.02 (0.07)
===================== ============ ===================
Profit (loss) per share-diluted (0.13) 0.02 (0.07)
===================== ============ ===================
Shares used to compute basic profit (loss)
per share 21,429,675 19,443,750 19,443,750
===================== ================ ===============
Shares used to compute diluted profit (loss)
per share 21,429,675 21,032,082 19,443,750
===================== ================ ===============
The accompanying notes are an integral part of the financial
statements.
MYCELX TECHNOLOGIES CORPORATION
Balance Sheets
(USD, in thousands, except share data) As of As of As of
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited)
---------------- ---------------- ------------------
ASSETS
Current Assets
Cash and cash equivalents 2,765 5,512 3,128
Restricted cash 84 - 84
Accounts receivable - net 1,226 1,246 1,867
Unbilled accounts receivable 200 - 175
Inventory 4,182 5,096 4,320
Prepaid expenses 464 411 203
Other assets 233 130 399
---------------- ---------------- ------------------
Total Current Assets 9,154 12,395 10,176
Property and equipment - net 3,101 3,480 3,249
Intangible assets - net 744 783 774
Operating lease asset - net 1,334 355 1,459
Total Assets 14,333 17,013 15,658
================ ================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 402 424 683
Payroll and accrued expenses 624 721 758
Contract liability - 12 54
Customer deposits 72 730 74
Operating lease obligations -
current 311 122 251
Other current liabilities - 401 -
---------------- ---------------- ------------------
Total Current Liabilities 1,409 2,410 1,820
Operating lease obligations - long-term 1,055 221 1,216
---------------- ---------------- ------------------
Total Liabilities 2,464 2,631 3,036
---------------- ---------------- ------------------
Stockholders' Equity
Common stock, $0.025 par value, 100,000,000
shares authorised, 22,983,023 shares
issued and outstanding at 30 June 2022
and 19,443,750 shares issued and outstanding
at 30 June 2021 and 31 December 2021.
574 486 486
Additional paid-in capital 44,695 42,555 42,655
Accumulated deficit (33,400) (28,659) (30,519)
---------------- ---------------- ------------------
Total Stockholders' Equity 11,869 14,382 12,622
---------------- ---------------- ------------------
Total Liabilities and Stockholders'
Equity 14,333 17,013 15,658
================ ================ ==================
The accompanying notes are an integral part of the financial
statements.
MYCELX TECHNOLOGIES CORPORATION
Statements of Stockholders'
Equity
(USD, in thousands)
Additional
Common Stock Paid-in Accumulated
Capital Deficit Total
Shares $ $ $ $
----------- ---- ----------- ------------ --------
Balances at 31 December 2020 19,443,750 486 42,400 (29,094) 13,792
Stock-based compensation expense - - 155 - 155
Net profit for the period - - - 435 435
----------- ---- ----------- ------------ --------
Balances at 30 June 2021 (unaudited) 19,443,750 486 42,555 (28,659) 14,382
Stock-based compensation expense - - 100 - 100
Net loss for the period - - - (1,860) (1,860)
----------- ---- ----------- ------------ --------
Balances at 31 December 2021 19,443,750 486 42,655 (30,519) 12,622
Issuance of common stock, net
of offering costs 3,539,273 88 1,957 - 2,045
Stock-based compensation expense - - 83 - 83
Net loss for the period - - - (2,881) (2,881)
----------- ---- ----------- ------------ --------
Balances at 30 June 2022 (unaudited) 22,983,023 574 44,695 (33,400) 11,869
=========== ==== =========== ============ ========
The accompanying notes are an integral part of the financial
statements.
MYCELX TECHNOLOGIES CORPORATION
Statements of Cash Flows
(USD, in thousands)
Six Months Six Months Year
Ended Ended Ended
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited)
---------------------- ---------------------- ----------------
Cash flow from operating activities
Net profit (loss) (2,881) 435 (1,425)
Adjustments to reconcile net profit
(loss) to net cash used in operating
activities:
Depreciation and amortisation 552 573 1,124
Gain on sale of property and equipment (2) (2,532) (2,584)
Inventory reserve adjustment - - (45)
Gain upon extinguishment of debt - - (401)
Stock compensation 83 155 255
Change in operating assets and
liabilities:
Accounts receivable - net 641 233 (388)
Unbilled accounts receivable (25) - (175)
Inventory 138 427 1,265
Prepaid expenses (261) (327) (119)
Prepaid operating leases 25 20 40
Other assets 166 (23) (292)
Accounts payable (281) (49) 210
Payroll and accrued expenses (134) 181 218
Contract liability (54) (733) (691)
Customer deposits (2) 238 (418)
Net cash used in operating activities (2,035) (1,402) (3,426)
---------------------- ---------------------- ----------------
Cash flow from investing activities
Payments for purchases of property
and equipment (364) (17) (327)
Proceeds from sale of property and
equipment - 5,400 5,455
Payments for internally developed patents (9) (22) (43)
---------------------- ---------------------- ----------------
Net cash provided by (used in) investing
activities (373) 5,361 5,085
---------------------- ---------------------- ----------------
Cash flow from financing activities
Net proceeds from stock issuance 2,045 - -
Payments on notes payable - (1,643) (1,643)
Proceeds from notes payable - 401 401
Payments on line of credit - (997) (997)
Net cash provided by (used in) financing
activities 2,045 (2,239) (2,239)
---------------------- ---------------------- ----------------
Net increase (decrease) in cash, cash
equivalents and restricted cash (363) 1,720 (580)
---------------------- ---------------------- ----------------
Cash, cash equivalents and restricted
cash, beginning of period 3,212 3,792 3,792
Cash, cash equivalents and restricted
cash, end of period 2,849 5,512 3,212
====================== ====================== ================
Supplemental disclosures of cash flow information:
Cash payments for interest - 40 30
Cash payments for income taxes 188 188 300
Non-cash movements of inventory and fixed
assets - 119 102
Non-cash operating ROU assets 1,120 - 1,192
Non-cash operating lease obligations 1,147 - 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 interim financial statements have
been prepared using recognition and measurement principles of
Generally Accepted Accounting Principles in the United States of
America ('U.S. GAAP').
The interim financial statements for the six months ended 30
June 2022 and 2021 have not been audited.
Nature of business - MYCELX Technologies Corporation ('MYCELX'
or the 'Company') was incorporated in the State of Georgia on 24
March 1994. The Company is headquartered in 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 and United States.
Liquidity - The Company meets its day-to-day working capital and
other cash flow requirements through operations and loan
facilities. The Company had a Note Payable (Note 10) that matured
in March 2023 and access to a line of credit (Note 8) that renewed
annually. However, the Note and the line of credit were paid in
full, and $500,000 of cash was reclassified from restricted cash,
during H1 2021 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. In March 2022, 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 continue to create 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 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 interim statements and, accordingly, consider it
appropriate to adopt the going concern basis in preparing these
interim Financial Statements.
2. Summary of significant accounting policies
Use of estimates - The preparation of financial statements in
conformity with U.S. GAAP requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the amounts reported in the financial statements and
accompanying notes. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised. The
primary estimates and assumptions made by management relate to the
inventory valuation, accounts receivable valuation, useful lives of
property and equipment, volatility used in the valuation of the
Company's share-based compensation and valuation allowance on
deferred tax assets. Although these estimates are based on
management's best knowledge of current events and actions the
Company may undertake in the future, actual results ultimately may
differ from the estimates and the differences may be material to
the financial statements.
Revenue recognition - The Company's revenue consists of
filtration media product, equipment leases, professional services
to operate the 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 judgment. Judgment is required to determine
stand-alone selling price ('SSP') for each distinct performance
obligation. The Company develops observable SSP by reference to
stand-alone sales for identical or similar items to similarly
situated clients at prices within a sufficiently narrow range.
All equipment sold by the Company is covered by the original
manufacturer's warranty. The Company does not offer an additional
warranty and has no related obligations.
Unbilled accounts receivable represents revenue recognised in
excess of amounts billed. Contract liability represents billings in
excess of revenue recognised. Unbilled accounts receivable at 30
June 2022 and 2021, 31 December 2021 and 1 January 2021 was
$200,000, $nil, $175,000 and $nil, respectively. Contract liability
at 30 June 2022 and 2021, 31 December 2021 and 1 January 2021 was
$nil, $12,000, $54,000 and $745,000, respectively.
Timing of revenue recognition for each of the periods and
geographic regions presented is shown below:
Equipment Leases, Turnkey Consumable Filtration
Arrangements, and Services Media, Equipment Sales
Recognised Over Time and Service Recognised
at a Point in Time
30 June 30 June 31 December 30 June 30 June 31 December
2022 2021 2021 2022 2021 2021
(USD, in thousands)
Middle East 2,479 2,529 4,550 136 50 838
United States - - - 741 606 1,311
Nigeria - - - - 733 1,312
Other - - - 343 229 442
---------- ---------- -------------- ---------- ---------- --------------
Total revenue recognised
under ASC 606 2,479 2,529 4,550 1,220 1,618 3,903
Total revenue recognised
under ASC 842 - 17 25 - - -
---------- ---------- -------------- ---------- ---------- --------------
Total revenue 2,479 2,546 4,575 1,220 1,618 3,903
========== ========== ============== ========== ========== ==============
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 six months ended 30 June 2022 and 2021, and the year
ended 31 December 2021, the Company did not have any costs to
obtain a contract and any costs to fulfil a contract were
inconsequential.
Cash, cash equivalents and restricted cash - Cash and cash
equivalents consist of short-term, highly liquid investments which
are readily convertible into cash within ninety (90) days of
purchase. At 30 June 2022, all of the Company's cash, cash
equivalent and restricted cash balances were held in checking and
money market accounts. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured
limits. At 30 June 2022 and 2021, and 31 December 2021, cash in
non-U.S. institutions was $124,000, $126,000 and $25,000,
respectively. The Company has not experienced any losses in such
accounts. The Company classifies as restricted cash all cash whose
use is limited by contractual provisions. At 30 June 2022 and 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. There was no restricted cash at 30 June
2021.
Reconciliation of cash, cash equivalents and restricted cash at
30 June 2022 and 2021, and 31 December 2021:
30 June 30 June 31 December
2022 2021 2021
US$000 US$000 US$000
Cash and cash equivalents 2,765 5,512 3,128
Restricted cash 84 - 84
---------- ---------- ------------
Total cash, cash equivalents
and restricted cash 2,849 5,512 3,212
========== ========== ============
Accounts receivable - Trade accounts receivable are stated at
the amount management expects to collect from outstanding balances.
The Company provides credit in the normal course of business to its
customers and performs ongoing credit evaluations of those
customers and maintains allowances for doubtful accounts, as
necessary. Accounts are considered past due based on the
contractual terms of the transaction. Credit losses, when realised,
have been within the range of the Company's expectations and,
historically, have not been significant. The allowance for doubtful
accounts at 30 June 2022 and 2021, and 31 December 2021 was
$90,000, $33,000 and $90,000, 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 30 June 2022 and
2021, and 31 December 2021, the Company had REGEN-related inventory
of 39 percent, 36 percent and 39 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
Leasehold improvements Lease period or 1-5 years (whichever
is shorter)
Office equipment 3-10 years
Manufacturing equipment 5-15 years
Research and development equipment 5-10 years
Purchased software Licensing period or 5 years (whichever
is shorter)
Equipment leased to customers 5-10 years
Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalised.
Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense includes depreciation on equipment
leased to customers and is included in cost of goods sold.
Intangible assets - Intangible assets consist of the costs
incurred to purchase patent rights and legal and registration costs
incurred to internally develop patents. Intangible assets are
reported net of accumulated amortisation. Patents are amortised
using the straight-line method over a period based on their
contractual lives which approximates their estimated useful
lives.
Impairment of long-lived assets - Long-lived assets to be held
and used, including property and equipment and intangible assets
with definite useful lives, are assessed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the total of the
expected undiscounted future cash flows is less than the carrying
amount of the asset, a loss, if any, is recognised for the
difference between the fair value and carrying value of the assets.
Impairment analyses, when performed, are based on the Company's
business and technology strategy, management's views of growth
rates for the Company's business, anticipated future economic and
regulatory conditions, and expected technological availability. For
purposes of recognition and measurement, the Company groups its
long-lived assets at the lowest level for which there are
identifiable cash flows, which are largely independent of the cash
flows of other assets and liabilities. No impairment charges were
recorded in the six months ended 30 June 2022 and 2021, and the
year ended 31 December 2021.
Research and development costs - Research and development costs
are expensed as incurred. Research and development expense for the
six months ended 30 June 2022 and 2021, and the year ended 31
December 2021 was approximately $101,000, $nil and $223,000,
respectively.
Advertising costs - The Company expenses advertising costs as
incurred. Advertising expense for the six months ended 30 June 2022
and 2021, and the year ended 31 December 2021 was $nil, $nil and
$5,000, respectively, and is recorded in selling, general and
administrative expenses.
Rent expense - In 2019, under ASC 842, the deferred rent
liability was recognised within the initial right of use asset as
of the transition date and the rent expense was recorded using
straight-line amortisation of the right of use asset as calculated
under the standard for the remainder of the expected lease term.
The lease liability was calculated at the present value of the
remainder of the contracted lease payments.
Income taxes - The provision for income taxes for interim and
annual periods is determined using the asset and liability method,
under which deferred tax assets and liabilities are calculated
based on the temporary differences between the financial statement
carrying amounts and income tax bases of assets and liabilities
using currently enacted tax rates. The deferred tax assets are
recorded net of a valuation allowance when, based on the weight of
available evidence, it is more likely than not that some portion or
all of the recorded deferred tax assets will not be realised in
future periods. Decreases to the valuation allowance are recorded
as reductions to the provision for income taxes and increases to
the valuation allowance result in additional provision for income
taxes. The realisation of the deferred tax assets, net of a
valuation allowance, is primarily dependent on the ability to
generate taxable income. A change in the Company's estimate of
future taxable income may require an addition or reduction to the
valuation allowance.
The benefit from an uncertain income tax position is not
recognised if it has less than a 50 percent likelihood of being
sustained upon audit by the relevant authority. For positions that
are more than 50 percent likely to be sustained, the benefit is
recognised at the largest amount that is more-likely-than-not to be
sustained. Where a net operating loss carried forward, a similar
tax loss or a tax credit carry forward exists, an unrecognised tax
benefit is presented as a reduction to a deferred tax asset.
Otherwise, the Company classifies its obligations for uncertain tax
positions as other non-current liabilities unless expected to be
paid within one year. Liabilities expected to be paid within one
year are included in the accrued expenses account.
The Company recognises interest accrued related to tax in
interest expense and penalties in selling, general and
administrative expenses. During the six months ending 30 June 2022
and 2021, and the year ended 31 December 2021 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 2,297,505 for the six months ended 30 June
2022 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:
30 June 30 June 31 December
2022 2021 2021
US$000 US$000 US$000
Basic weighted average outstanding
shares of common stock 21,429,675 19,443,750 19,443,750
Effect of potentially dilutive - 1,588,332 -
stock options
Diluted weighted average outstanding
shares of common stock 21,429,675 19,443,750 19,443,750
Anti-dilutive shares of common
stock excluded from diluted weighted
average shares of common stock 2,297,505 - 1,782,420
Fair value of financial instruments - The Company uses the
framework in ASC 820, Fair Value Measurements, to determine the
fair value of its financial assets. ASC 820 establishes a fair
value hierarchy that prioritises the inputs to valuation techniques
used to measure fair value and expands financial statement
disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority
to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under ASC 820 are
described below:
-- Level 1 : Unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access at the measurement date.
-- Level 2 : Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly.
-- Level 3 : Unobservable inputs for the asset or liability.
There were no transfers into or out of each level of the fair
value hierarchy for assets measured at the fair value for the six
months ended 30 June 2022 and 2021, and the year ended 31 December
2021.
All transfers are recognised by the Company at the end of each
reporting period.
Transfers between Levels 1 and 2 generally relate to whether a
market becomes active or inactive. Transfers between Levels 2 and 3
generally relate to whether significant relevant observable inputs
are available for the fair value measurement in their entirety.
The Company's financial instruments as of 30 June 2022 and 2021,
and 31 December 2021 include cash and cash equivalents, restricted
cash, accounts receivable and accounts payable. The carrying values
of cash and cash equivalents, restricted cash, accounts receivable
and accounts payable approximate fair value due to the short-term
nature of those assets and liabilities.
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 December 2019, the FASB issued ASU 2019-12, Income Taxes
(Topic 740): Simplifying the Accounting for Income Taxes, which is
expected to simplify income tax accounting requirements in areas
deemed costly and complex. The Company adopted this guidance
effective 1 January 2021. The adoption of this new guidance did not
have a material impact on the financial statements.
Recent accounting pronouncements pending adoption not discussed
above are either not applicable or are not expected to have a
material impact on the Company.
3. Accounts receivable
Accounts receivable and their respective allowance amounts at 30
June 2022 and 2021, and 31 December 2021:
30 June 30 June 31 December
2022 2021 2021
US$000 US$000 US$000
Accounts receivable 1,317 1,279 1,957
Less: allowance for doubtful
accounts (90) (33) (90)
---------- ---------- --------------
Total receivable - net 1,226 1,246 1,867
========== ========== ==============
4. Inventories
Inventories consist of the following at 30 June 2022 and 2021,
and 31 December 2021:
30 June 30 June 31 December
2022 2021 2021
US$000 US$000 US$000
Raw materials 1,928 2,101 1,950
Work-in-progress 12 - 202
Finished goods 2,242 2,995 2,168
---------- ---------- --------------
Total inventory 4,182 5,096 4,320
========== ========== ==============
5. Property and equipment
Property and equipment consist of the following at 30 June 2022
and 2021, and 31 December 2021:
30 June 30 June 31 December
2022 2021 2021
US$000 US$000 US$000
Leasehold improvements 292 277 107
Office equipment 636 710 636
Manufacturing equipment 937 930 888
Research and development equipment 545 551 545
Purchased software 222 222 222
Equipment leased to customers 10,643 10,156 10,254
Equipment available for lease
to customers - 76 272
13,275 12,922 12,924
Less: accumulated depreciation (10,174) (9,442) (9,675)
---------------- -------------------- --------------
Property and equipment - net 3,101 3,480 3,249
================ ==================== ==============
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 six months ended 30 June 2022 and 2021, and the year
ended 31 December 2021, the Company removed property, plant and
equipment and the associated accumulated depreciation of
approximately $14,000, $567,000 and $856,000, respectively, to
reflect the disposal of property, plant and equipment.
Depreciation expense for the six months ended 30 June 2022 and
2021, and the year ended 31 December 2021 was approximately
$513,000, $544,000 and $1,066,000, respectively, and includes
depreciation on equipment leased to customers. Depreciation expense
on equipment leased to customers included in cost of goods sold for
the six months ended 30 June 2022 and 2021, and the year ended 31
December 2021 was $460,000, $460,000 and $919,000,
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 $74,000, $67,000 and $70,000 as of 30 June
2022 and 2021, and 31 December 2021, respectively.
In addition to the purchased patent, the Company has internally
developed patents. Internally developed patents include legal and
registration costs incurred to obtain the respective patents. The
Company currently holds various patents and numerous pending patent
applications in the United States, as well as numerous foreign
jurisdictions outside of the United States. In the six months ended
30 June 2022, there was $9,000 of new internally developed patents
and fees on patents in progress.
Intangible assets as of 30 June 2022 and 2021, and 31 December
2021 consist of the following:
Weighted 30 June 30 June 31 December
Average 2022 2021 2021
Useful US$000 US$000 US$000
lives
Internally developed
patents 15 years 1,456 1,427 1,447
Purchased patents 17 years 100 100 100
1,556 1,527 1,547
Less accumulated amortisation
- internally developed
patents (739) (67) (703)
Less accumulated amortisation
- purchased patents (74) (677) (70)
------------------ -------------------- -------------------
Intangible assets -
net 744 783 774
================== ==================== ===================
At 30 June 2022, internally developed patents include
approximately $342,000 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 30
2023 54
2024 52
2025 51
2026 45
Thereafter 170
Amortisation expense for the six months ended 30 June 2022 and
2021, and the year ended 31 December 2021 was approximately
$39,000, $29,000 and $58,000, respectively.
7. Income taxes
The components of income taxes shown in the statements of
operations are as follows:
30 June 30 June 31 December
2022 2021 2021
US$000 US$000 US$000
------------------- ------------------ ------------------
Current:
Federal - - -
Foreign 177 160 291
State 3 4 5
------------------- ------------------ ------------------
Total current provision 180 164 296
------------------- ------------------ ------------------
Deferred:
Federal - - -
Foreign - - -
State - - -
------------------- ------------------ ------------------
Total deferred provision - - -
------------------- ------------------ ------------------
Total provision for income taxes 180 164 296
=================== ================== ==================
The provision for income tax varies from the amount computed by
applying the statutory corporate federal tax rate of 21 percent,
primarily due to the effect of certain non-deductible expenses,
foreign withholding tax, and changes in valuation allowances.
A reconciliation of the differences between the effective tax
rate and the federal statutory tax rate is as follows:
30 June 30 June 31 December
2022 2021 2021
---------- ---------- --------------
Federal statutory income tax rate 21.0% 21.0% 21.0%
State tax rate, net of federal
benefit 0.6% 1.3% (4.9%)
Valuation allowance (23.0%) (16.1%) (13.3%)
Other (0.1%) 0.2% (8.8%)
Foreign withholding tax (5.2%) 20.9% (20.2%)
---------- ---------- --------------
Effective income tax rate (6.7%) 27.3% (26.2%)
========== ========== ==============
The significant components of deferred income taxes included in
the balance sheets are as follows:
30 June 30 June 31 December
2022 2021 2021
US$000 US$000 US$000
---------------------- --------------------- ----------------------
Deferred tax assets
Net operating loss 6,406 5,443 5,802
Equity compensation 290 361 272
Research and development credits 159 159 159
Right of use liability 304 74 316
Inventory valuation reserve 349 358 349
Other 102 21 102
Total gross deferred tax asset 7,610 6,416 7,000
Deferred tax liabilities
Property and equipment (578) (478) (578)
Right of use asset (303) (76) (314)
Total gross deferred tax liability (881) (554) (892)
Net deferred tax asset before
valuation allowance 6,729 5,862 6,108
Valuation allowance (6,729) (5,862) (6,104)
---------------------- --------------------- ---------------------
Net deferred tax asset (liability) - - -
====================== ===================== =====================
Deferred tax assets and liabilities are recorded based on the
difference between an asset or liability's financial statement
value and its tax reporting value using enacted rates in effect for
the year in which the differences are expected to reverse, and for
other temporary differences as defined by ASC-740, Income Taxes. At
30 June 2022 and 2021 and 31 December 2021, the Company has
recorded a valuation allowance of $6.7 million, $5.9 million and
$6.1 million, respectively, a change of $600,000, $100,000 and
$$200,000 for each period, which it is more likely than not that
the Company will not receive future tax benefits due to the
uncertainty regarding the realisation of such deferred tax
assets.
As of 30 June 2022, the Company has approximately $29.3 million
of gross U.S. federal net operating loss carry forwards and $3.9
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 30
June 2021, the Company had approximately $24.6 million of gross
U.S. federal net operating loss carry forwards and $4.4 million of
gross state net operating loss carry forwards and at 31 December
2021, the Company had 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.
On 27 March 2020, the U.S. Government enacted the Coronavirus
Aid, Relief, and Economic Security Act (the 'CARES Act'). The CARES
Act includes, but is not limited to, tax law changes related to (1)
accelerated depreciation deductions for qualified improvement
property placed in service after 27 September 2017, (2) reduced
limitation of interest deductions, and (3) temporary changes to the
use and limitation of NOLs. There was no material impact of the
CARES ACT to the Company's income tax provision for the six months
ended 30 June 2021 or for the year ended 31 December 2021.
The Company's tax years 2017 through 2022 remain subject to
examination by federal, state and foreign income tax
jurisdictions.
8. Line of credit
In October 2014, the Company entered into a bank line of credit
that allowed for borrowings up to $500,000. The line of credit was
revolving and was payable on demand. In November 2018, the maximum
borrowing capacity was increased to $1,875,000. The facility
renewed annually and was secured by the assignment of a deposit
account held by the lender and a second deed to the property owned
by the Company in Duluth, Georgia. The line of credit carried a
floating rate of interest equal to the lender's Prime Rate and was
subject to change any time the Prime Rate changed. Under terms of
the line of credit, the Company was required to maintain a minimum
cash balance and a specified cash flow coverage ratio, as those
terms were defined, and the Company was in compliance throughout
the term of the facility. In March 2021, the line of credit was
paid in full with proceeds from the sale of the Company's building
in Duluth, Georgia and the facility was closed. The balance on the
line of credit at 30 June 2022 and 2021 and 31 December 2021 was
$nil. Interest expense related to this loan was $9,000 for the six
months ended 30 June 2021 and the year ended 31 December 2021.
9. Paycheck Protection Program Loan ('PPP')
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 Paycheck Protection Program ('PPP Loan'), Title I of
the CARES Act, which was enacted 27 March 2020. In January 2021,
the Company applied for and was granted a second PPP Loan from
Pinnacle Bank in the amount of approximately $401,000. The PPP Loan
issued to the Company matures in January 2026 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. 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 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. 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 3,447,453
with 2,160,080 shares allocated as of 30 June 2022. The shares are
all allocated to employees, executives and consultants.
Any options granted to Non-Executive Directors, unless otherwise
agreed, vest contingent on continuing service with the Company at
the vesting date and compliance with the covenants applicable to
such service.
Employee options vest over three years with a third vesting
ratably each year, partially on issuance and partially over the
following 24-month period, or if there is a change in control, and
expire on the tenth anniversary date 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 2022
and 2021 were as follows:
Number Risk-Free Fair
of Options Grant Interest Expected Exercise Value
Granted Date Rate Term Volatility Price Per Option
------- -------------- ------------- ------------ ------------ ------------- ----------- --------------
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
2022 250,000 27/06/2022 3.25% 6.0 years 279.00% $0.55 $0.54
The Company assumes a dividend yield of 0.0%.
The following table summarises the Company's stock option
activity for the six months ended 30 June 2022:
Weighted-Average Weighted-Average Average
Exercise Remaining Contractual Grant Date
Stock Options Shares Price Term (in years) Fair Value
------------------------------ ------------ ------------------- ------------------------- --------------
Outstanding at 31 December
2021 2,043,338 $1.43 5.8 $0.76
Granted 250,000 $0.55 6.0 $0.55
Forfeited (133,258) $3.44
------------------------------ ------------
Outstanding at 30 June
2022 2,160,080 $1.21 5.8 $0.66
------------------------------ ------------
Exercisable at 30 June
2022 1,365,414 $1.56 4.3
------------------------------ ------------
The total intrinsic value of the stock options exercised during
the six months ended 30 June 2022 and 2021, and 31 December 2021
was $nil.
A summary of the status of unvested options as of 30 June 2022
and changes during the six months ended 30 June 2022 is presented
below:
Weighted-Average
Fair Value at Grant
Unvested Options Shares Date
-------------------------------- ------------ -----------------------
Unvested at 31 December 2021 851,000 $0.41
Granted 250,000 $0.54
Vested (306,334) $0.44
-------------------------------- ------------
Unvested at 30 June 2022 794,666 $0.27
-------------------------------- ------------
As of 30 June 2022, total unrecognised compensation cost of
$242,000 was related to unvested share-based compensation
arrangements awarded under the Plan.
Total stock compensation expense for the six months ended 30
June 2022 and 2021, and 31 December 2021 was approximately $83,000,
$155,000 and $255,000, respectively.
12. Commitments and contingencies
Operating leases - As of 30 June 2022, the Operating Lease ROU
Asset has a balance of $1,334,000, net of accumulated amortisation
of $770,000 and an Operating Lease Liability of $1,366,000, which
are included in the accompanying balance sheet. The weighted
average discount rate used for leases accounted for under ASU
2016-02 is 5.25 percent, which is based on the Company's secured
incremental borrowing rate.
The Company's leases do not include any options to renew that
are reasonably certain to be exercised. The Company's leases mature
at various dates through March 2027 and have a weighted average
remaining life of 4.4 years.
Future maturities under the Operating Lease Liability are as
follows for the years ended 31 December:
(USD, in thousands) Future Lease
Payments
------------
2022 184
2023 381
2024 321
2025 280
2026 290
2027 74
------------
Total future maturities 1,530
Portion representing interest (164)
------------
1,366
============
Total lease expense for the six months ended 30 June 2022 and
2021, and the year ended 31 December 2021 was approximately
$148,000, $156,000 and $259,000, respectively.
Total cash paid for leases for the six months ended 30 June 2022
and 2021, and the year ended 31 December 2021 was $122,000,
$156,000 and $227,000, 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 $196,000, $166,000 and $447,000 for the
six months ended 30 June 2022 and 2021, and 31 December 2021,
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 30 June 2022. For the six months ended 30
June 2022, the Company's revenues were generated primarily in the
Middle East and the United States ('U.S.'). Additionally, the
majority of the Company's expenditures and personnel either
directly supported its efforts in the Middle East and the U.S., or
cannot be specifically attributed to a geography. Therefore, the
Company has only one reportable operating segment.
Revenue from customers by geography is as follows:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
(USD, in thousands) 2022 2021 2021
Middle East 2,615 2,579 5,388
United States 741 623 1,336
Nigeria - 733 1,312
Other 343 229 442
----------------- ----------------- ---------------
Total 3,699 4,164 8,478
================= ================= ===============
Long lived assets, net of depreciation, by geography is as
follows:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
(USD, in thousands) 2022 2021 2021
Middle East 1,989 2,548 2,380
United States 716 455 2,328
----------------- ----------------- ---------------
Total 2,705 3,003 4,708
================= ================= ===============
15. Concentrations
At 30 June 2022, two customers, one with three contracts with
three separate plants, represented 84 percent of accounts
receivable. During the six months ended 30 June 2022, the Company
received 84 percent of its gross revenue from two customers, one
with four contracts with four separate plants.
At 30 June 2021, one customer with two contracts represented 77
percent of accounts receivable. During the six months ended 30 June
2021, that same customer, along with the Company's second largest
customer, accounted for 78 percent of the Company's gross
revenue.
At 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.
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 27
September 2022, the date the interim results were available to be
issued, and no events have occurred which require further
disclosure.
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END
IR DQLFLLKLEBBL
(END) Dow Jones Newswires
September 27, 2022 02:00 ET (06:00 GMT)
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