TIDMMYX TIDMMYXR
RNS Number : 7627E
MyCelx Technologies Corporation
11 May 2017
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via a Regulatory Information
Service ("RIS"), this inside information is now considered to be in
the public domain.
11 May 2017
MYCELX Technologies Corporation
("MYCELX" or the "Company")
Final Results for the year ending 31 December 2016
MYCELX Technologies Corporation (AIM:MYX), the clean water
technology company providing patented solutions for commercial
industrial markets worldwide, is pleased to announce its audited
results for the year ended 31 December 2016.
Financial Highlights
- Management focus on active cash management and margin retention
- Operationally cash flow positive at $0.1m (FY15: negative
$2.1m) in spite of tough market conditions
- Revenue reduced in line with management expectations to $7.9m
(FY15: $13.6m), with 30% expected revenue growth in 2017
- Cash and cash equivalents, including restricted cash, of $5.6m (FY15: $5.8m)
- Retained robust gross margins at 52% (FY15: 53%)
Operational highlights
- Strategic Agreement - Schlumberger entered into an exclusive
sales and marketing agreement with MYCELX for the upstream market
and will promote MYCELX products as the method of choice for water
treatment to their upstream Oil and Gas customers
- US: Fourth MYCELX system commissioned at terminal operator to
treat water from operations for discharge into Houston Ship
Channel
- US: Fifth system sold for offshore use to existing supermajor customer
- Saudi Arabia: Launched new fast-to-market product - the MYCELX Oil Recovery System
- Saudi Arabia: Awarded two year contract with SABIC for total value of $5 million
- US: Added experienced Business Development personnel with
oilfield services and water treatment background to drive sales and
strategic alliance formation
- Nigeria: Successful trial offshore platform with local oil
producer. First deployment of RE-GEN system offshore
- Oman: Successful trial resulted in lease and media sales for downstream process water
- US: Equipment lease secured for treatment of process water at Oklahoma refinery
- On-going build-up of recurring revenue with filter media replacement sales
Post period highlights:
- Awarded first contract in the Nigerian Oil and Gas market,
will provide an onshore water treatment solution to a leading
independent oil and gas producer focused on the Niger Delta
Connie Mixon, Chief Executive Officer of MYCELX Technologies
Corp, said: "The actions that we took to safeguard the business
have ensured that we met the commitments we made to our investors.
We protected our cash position, met our revenue forecast without
sacrificing margin, and are cash positive from operations for the
year in spite of continuing tough market conditions.
"2016 was not just about righting the ship; weaker or more
volatile markets emphasise the need to our clients for them to seek
out smarter and more cost effective solutions for water treatment
as part of performance optimisation. We seized this opportunity to
work closely with existing and new clients on trials to demonstrate
the significant value that MYCELX offers them. This market has
created a more appreciative audience for our solutions. The
concerted effort of undertaking trials over long periods has paid
off. We have created business development opportunities that will
ensure that the Company is well positioned to thrive going forward,
even in uncertain times."
Tim Eggar, Chairman of MYCELX Technologies Corp said: "During
this year of continued challenge for the Oil and Gas industry,
MYCELX has taken the necessary steps to preserve our financial
position and put in place the key building blocks for our future
success - strong customer relationships built on the trust that
comes from close interaction and consistent results, strategic
partnerships and an international business development capability.
When combined with our Company's drive for innovation and our
technological advantage, we are now well positioned for the
future.
"MYCELX has navigated through another extremely challenging year
in the Oil and Gas market. Following the fall in crude pricing a
survival mindset took hold within the industry and this continues
to be prevalent. Pessimism began to lift slightly when a reduction
in US production underscored oil price recoveries later in the
year. Coupled with this, the cost reduction programmes that had
been implemented began to show results. However capital spending
delays continued to exert pressure on the oil field services
sector. In these adverse times, MYCELX was able to adapt and
embrace the challenges facing our industry.
"We were able to do this because of our confidence in our own
financial position. The Company met key milestones in its cash
preservation program by finishing cash neutral from operations for
the last eighteen months. The expense control measures enacted last
year in response to the challenging oil price conditions have
continued into this year and helped us to meet our goal of
achieving a cash positive position from operations for FY2016."
Outlook
We continue to focus our growth strategy in the Middle East,
India and Americas regions. Although the Company's primary market
remained in distress, operators are increasingly keen to seek out
new technology that offers better performance and most importantly
cost savings. While the tough environment has created opportunity
for MYCELX, the Board of Directors are well aware of the challenges
the Company faces. We continue to believe long-term success and
building a global brand will be achieved by engaging in large scale
projects as well as smaller scale, fast-to-market opportunities.
The Company's first Oil Recovery System installed in the
petrochemical plant in Saudi Arabia is truly innovative and fits
both this faster to market approach and also meets our customers'
cost savings goals to turn waste water treatment from a cost into a
profit center.
At its core, the Company is a technology company with
exceptional expertise gained through onsite, real-time water
treatment experience. The Company will continue to use its
knowledge to innovate and commercialise next generation technology
to meet our customers' current and future needs more reliably and
cost effectively than outdated conventional methods. The Oil and
Gas and petrochemical industries continue to integrate MYCELX(R)
technology into their critical, real-time processes. This is
confirmation that our technology has its role in achieving
sustainable water treatment for years to come. The Board of
Directors and Company management are committed to ensuring
MYCELX(R) technology reaches its full potential as the global
industry standard.
As we enter 2017, a sense of cautious optimism appears to have
crept into the industry. Rig count increases, OPEC production cuts
and increasing investment into the downstream sector are all signs
of a potential recovery. Overall, the MYCELX contracted order book
is stronger than this time last year and the Company therefore
envisages a year-on-year revenue increase for 2017 in the range of
30%, with the aim of being EBITDA neutral, and with no material
change in cash balance. MYCELX's revenue is already being generated
from a broader geographic base than previously. The Company fully
expects this positive trend, which is a result of our deliberate
efforts to broaden our geographic exposure, to continue. By
focussing on our customer relationships and strengthening those
bonds, we have positioned the business to be prepared for
continuing market uncertainty or a quick upturn. We are becoming
known as a performance enhancing solution provider - we are
important to our customers in all economic scenarios. As such, we
embrace whatever challenges the market presents to us.
Strategic Priorities
Our strategic intent is to become the leading provider of water
treatment solutions for the Oil and Gas industry. We adopt a staged
approach of building traction amongst our target markets to
appreciate the performance and cost benefits of truly oil free
water delivered by MYCELX. We have three overarching strategic
objectives:
1. Demonstrate Technical Superiority
We differentiate ourselves by the reliability of our superior
performance. We get better results, using a smaller footprint, and
are more cost effective than conventional techniques. The key
actions to achieve this goal are:
-- Improve Customer Intimacy via trials - we create value for
our clients through a deep understanding of their needs, both now
and in the future
-- Educate the market - Our water expertise allows us to show
our customers how they might improve their system by focusing on
different water metrics
-- Consistent Superior Performance - Our performance underpins our reputation and our future
The benefits of this approach will be:
-- A customer base that realises the true value of MYCELX
-- Enhancing our reputation via industry game changing trials
-- Revenue generation and preservation of margins
2. Gain Industry acceptance
We seek to gain wider industry acceptance of our technology. We
need to broadcast our successes to the wider audience. The methods
of doing this include:
-- Cost Savings Opportunities - The ability to offer quick pay
back on investment and cost savings is particularly attractive
during this period of low oil price
-- Shared Learnings - Issues faced by one operation are often common problems
-- Endorsement by leading industry player/awards - References
with leading industry players is an immediate comfort for new
customers
This approach will lead to revenue generation and further
reference creation. In some of our larger customers, if a MYCELX
solution is installed in two operations then it will become a
recommended solution for the group.
3. Obtain Critical Mass
We aim to convert industry acceptance into revenue generation.
We will achieve this aim with the following efforts:
-- Rapid response - Often our customers will need us to provide
a solution quickly to address an urgent water treatment need.
Having a ready rental fleet to deploy is particularly useful when
establishing a new customer relationship.
-- 24/7 support availability - through our branch offices we
offer support to our customers' needs 24/7
-- Strategic Partnerships - through their broader customer
networks, our successes can be broadcast better
These actions will help to broaden our customer base and support
revenue generation.
Forward looking statements:
Certain statements made in this announcement are or may be
"forward-looking statements". These statements typically contain
words such as "intends", "expects", "anticipates", "estimates" and
words of similar import. All the statements other than statements
of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial
position, business strategy, plans and objectives of management for
future operations (including development plans and objectives
relating to the Company's products and services) are
forward-looking statements. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future
and therefore undue reliance should not be placed on such
forward-looking statements. There are a number of factors that
could cause the actual results, performance or achievements of the
Company to be materially different from future results, performance
or achievements expressed or implied by such forward-looking
statements. Such forward-looking statements are based on numerous
assumptions regarding the Company's present and future business
strategies and the environment in which the Company will operate in
the future and such assumptions may or may not prove to be correct.
Forward-looking statements speak only as at the date they are made.
Neither the Company nor any other person undertakes any obligation
(other than, in the case of the Company, pursuant to the AIM Rules
for Companies) to update publicly any of the information contained
in this announcement, including any forward-looking statements, in
the light of new information, change in circumstances or future
events.
For further information please contact:
MYCELX Technologies Corporation
Connie Mixon, CEO Tel: +1 888 306 6843
Kim Slayton, CFO
Cantor Fitzgerald Europe - NOMAD and Broker Tel: +44 20 7894 7000
Andrew Craig
Richard Salmond
Celicourt Communications Tel: +44 20 7520 9266
Mark Antelme
Joanna Boon
Notes to Editors
MYCELX is a revolutionary oil-free water technology company
solving the world's toughest oil removal problems in the Oil and
Gas industry. The systems are based upon scientific breakthrough
for a completely different approach to permanent oil removal. The
Company created the patented MYCELX polymer using innovative
molecular cohesion for removing oil from water far beyond what
conventional systems have ever achieved. MYCELX systems remove oil
to critically low levels in a much smaller physical footprint than
conventional systems and in a virtually fail-safe process.
www.mycelx.com
CHAIRMAN'S STATEMENT: DECISIVE ACTIONS, EMBRACING THE CHALLENGE,
BUILDING OUR FUTURE
During this year of continued challenge for the Oil and Gas
industry, MYCELX has taken the necessary steps to preserve our
financial position and put in place the key building blocks for our
future success - strong customer relationships built on the trust
that comes from close interaction and consistent results, strategic
partnerships and an international business development capability.
When combined with our Company's drive for innovation and our
technological advantage, we are now well positioned for the
future.
FINANCIAL & OPERATING PERFORMANCE
MYCELX has navigated through another extremely challenging year
in the Oil and Gas market. Following the fall in crude pricing a
survival mindset took hold within the industry and this continues
to be prevalent. Pessimism began to lift slightly when a reduction
in US production underscored oil price recoveries later in the
year. Coupled with this, the cost reduction programmes that had
been implemented began to show results. However capital spending
delays continued to exert pressure on the oil field services
sector. In these adverse times, MYCELX was able to adapt and
embrace the challenges facing our industry.
We were able to do this because of our confidence in our own
financial position. The Company met key milestones in its cash
preservation program by finishing cash neutral from operations for
the last eighteen months. The expense control measures enacted last
year in response to the challenging oil price conditions have
continued into this year and helped us to meet our goal of
achieving a cash positive position from operations for FY2016.
The Company will continue to be a prudent steward of its cash,
with monitoring in place to ensure specific measures are taken in
the event of a revenue shortfall or contract delay during the
upcoming year. Any additional equipment purchased will be supported
by a sales contract. Importantly, our cost reduction program is
targeted to ensure that it does not adversely affect the Company's
continuing ability to win contracts and grow. Our recent wins in
new markets and with new customers serve to show that whilst our
Selling, General and Administrative costs have been reduced by 50%
over the last eighteen months, our ability to convert business
development opportunities into cash generation has not
diminished.
STRATEGIC PARTNERSHIP
Our steadfast goal of widespread industry adoption of MYCELX
relies on our ability to retain and leverage our existing customer
relationships as well as explore strategic alliances to leverage
sales and marketing channels globally. In 2016 the Company made
substantial progress on both fronts.
One of the stated goals of the Company was achieved in the first
half of the year. MYCELX signed an exclusive upstream sales and
marketing agreement with Schlumberger, the world's largest oil
field services company. The agreement will help to expedite the
industry adoption of MYCELX's new RE-GEN product line as
Schlumberger will market it as the water treatment method of choice
in the upstream market. We continue to pursue strategic
partnerships to leverage sales and marketing platforms that value
differentiated technology. It is clear that the Oil and Gas
industry wants and needs technology to support cost effective
operations. MYCELX believes that the lack of spending by the oil
producers during the downturn has created an even greater need for
smart, technology-driven solutions going forward to overcome the
likely ramifications of the drop in continuous investment.
PERFORMANCE VS KEY METRICS
The Company performed well against its key metrics despite the
generally adverse market conditions. Revenue projections were met
at $7.9m in sales, and crucially our commitment to be cash positive
from operations was upheld. We have set a goal going forward to be
EBITDA neutral.
Executing a strategic arrangement with Schlumberger was not only
a demonstration of our ability to execute our strategy but was a
powerful endorsement of our technology from the largest player in
the oil field services in the world.
Funds have been focused on positioning MYCELX for the future.
I'm delighted that we have brought two seasoned business
development professionals to pursue opportunities which have arisen
as clients respond to the adverse market conditions. We also
supported on site trialling work at our clients' sites. Our
engineers spent over 250 man days working with customers in the
field to demonstrate MYCELX's advanced technology. These trials are
increasingly long processes, which reflect an industry determined
to take its time to find the right solution as it can ill afford
costly mistakes at the current oil price. Our ability to compete in
these arduous trials against large established competitors and
emerge successful has proven our resilience, demonstrated our
superior product offering and meant that our technology is making
inroads in new frontiers and markets.
A good example of this is the work this year on Enhanced Oil
Recovery opportunities. After months of collaboration with SNF, the
world's leading polymer producer for the Oil and Gas industry, our
engineers were able to demonstrate conclusively that MYCELX has an
effective water treatment solution for Polymer Flood operators who
have historically failed to resolve the water treatment challenge
using conventional technology. This capability is a game changer
for the industry. MYCELX's technology is able to treat polymer
laden water effectively, and actually preserve the valuable
polymer. This improves the overall economics of the EOR technique.
The concerted effort to build the relationship with this industry
leader and the resulting white paper co-authored with SNF is a good
example of how our efforts in 2016 have helped to build a platform
for the future of the Company. By removing the water treatment
obstacle for Polymer Flood we have opened up a large potential
opportunity that will support not only MYCELX but also the industry
at large in its effort to continue producing oil for the next
generations.
We have also been careful to ensure our current footprint has
been well serviced and maintained whilst we are chasing down new
opportunities. We sold a fifth system for offshore use to a current
customer and commissioned a fourth system for a midstream client.
In downstream, which is currently our principal market, this is the
fourth year we have been operating in one of the largest
petrochemical plants in the world. The reliability of our service
and the close partnership that our Jubail based team has with its
customers mean that we have been able to grow our presence within
that petrochemical complex with an exciting innovative project -
the Oil Recovery System which embodies our corporate message - From
Waste to Worth. We are able to convert the costly process of oily
wastewater disposal into a revenue generating operation by
recovering pure oil that can then be resold.
PROMISING OUTLOOK
With our financial position more assured, we are now well
positioned for when the industry does recover. There are signs that
the tide is beginning to turn - with an increase in rig activity,
and signs of greater investment in the petrochemical industry in
our key market of Saudi Arabia.
CHIEF EXECUTIVE'S STATEMENT
Seizing opportunities in a volatile market; establishing strong
foundations
The actions that we took to safeguard the business have ensured
that we met the commitments we made to our investors. We protected
our cash position, met our revenue forecast without sacrificing
margin, and are cash positive from operations for the year in spite
of continuing tough market conditions.
2016 was not just about righting the ship; weaker or more
volatile markets emphasise the need to our clients for them to seek
out smarter and more cost effective solutions for water treatment
as part of performance optimisation. We seized this opportunity to
work closely with existing and new clients on trials to demonstrate
the significant value that MYCELX offers them. This market has
created a more appreciative audience for our solutions. The
concerted effort of undertaking trials over long periods has paid
off. We have created business development opportunities that will
ensure that the Company is well positioned to thrive going forward,
even in uncertain times.
Operational Performance:
The continuing oil price uncertainty and the severe reduction in
investment across the industry in 2016 resulted in a generally
subdued market for MYCELX but one that nevertheless presented us
with opportunities. With an estimated $600 billion worth of
projects deferred or cancelled through to 2020, there has been an
increasing focus by Oil and Gas companies on optimising existing
operations. Our superior performance, smaller footprint and
immediate cost saving offering puts MYCELX in good position to
impress clients looking for ways to optimise their current
operations.
The effect of the downturn has been most profoundly felt in
North America, whereas the Middle East was less impacted with no
significant drop in Saudi Arabian investment this year. For MYCELX,
the Middle East and specifically Saudi Arabia continue to be a
primary market. Whilst capital investments were not scaled back in
Saudi Arabia, the reduced margins that our petrochemical customers
are experiencing, as they become accustomed to the increased price
for their feedstock, has meant they too are focused on cost saving
and performance enhancement opportunities.
Middle East and North Africa (MENA)
MYCELX had several key successes in the MENA region during the
year and has taken action to strengthen our business going forward
by committing additional resources. During 2016 we continued to
operate at one of the leading ethylene plants in the world with a
full service contract that treats water for the crucial quenchwater
loop system. The current two year contract is for $5 million and is
the result of the recognition that MYCELX systems bring greater
operational efficiency which lead to higher production and
attractive cost savings for the plant. As a result of the
significant performance improvement experienced by the client, we
were honored to be the only water treatment company invited to
present at the internal SABIC Technical Conference held in
Jubail.
In Saudi Arabia, the Company also undertook a sales initiative
for a new fast-to-market product - the MYCELX Oil Recovery System
which offers customers a system that treats oily wastewater onsite
charged on a volume treated basis. Its benefits include cost
savings, reduction of truck haul off and production of high quality
sales oil in the process. It is the driving force behind our
campaign - From Waste to Worth - that seeks to turn water treatment
from a costly annoyance into a potentially significant profit
center. The first installation of this new product occurred in Q1
2017 and underpins our 2017 forecasts.
Growing recognition of our successful performance has also
spread throughout rest of the GCC region and led to paid trial
requests from new customers. A downstream trial in Oman led to a
lease, which we were able to respond quickly to by utilizing
equipment from our rental fleet.
In order to capitalize on this wave of business opportunities,
MYCELX appointed a Director of Business Development for the MENA
and Asia regions who will be located in Saudi Arabia. This seasoned
professional has worked with MYCELX for many years and will lead
our efforts to grow the business in this key region. The
fundamentals of the petrochemical industry in Saudi Arabia remain
strong. Reduction in power and water subsidies, concerns over
sustainability, along with the increased price for feedstock is
driving operational efficiencies. At the same time, the commitment
of the Saudi government to the petrochemical industry, as seen in
both the National Transformation Plan and Vision 2030, ensures it
will remain a key pillar of the economy and retain its leading
global cost competitive position.
The Company had an important breakthrough in Nigeria during the
year. We successfully performed our first trial offshore with a
local oil producer and it was the first time that we had tested a
RE-GEN system on an offshore facility. The Company will leverage
this success to perform other trials in Nigeria showcasing the
robust performance in a challenging operating environment. The
Company expects successful trials to generate sales in the region
as the oil price rises.
Americas
While activity in North America and South America was generally
subdued in 2016 the Company's strategy of engaging with new
customers to run trials generated revenue and we were also able to
leverage our existing footprint to make follow on sales. For
example, in the US onshore market MYCELX commissioned its fourth
water treatment system for a terminal operator in the Houston Ship
Channel. As the only approved technology for discharge into Houston
Ship Channel, the system is able to freely discharge the water from
operations. Similarly, the Company supplied a fifth offshore system
to an important supermajor customer to manage water in a
challenging production environment. MYCELX also secured its first
project in Oklahoma with an equipment lease to a refinery. To
further expand and strengthen our reach in North and South America
from our Houston office, the Company added an experienced Business
Development professional with years of oilfield services and water
treatment background to drive sales and strategic alliance
formation.
The Global EOR Market
The Company has been engaged in trials in Enhanced Oil Recovery
("EOR") produced water in North America, the Middle East, Europe
and with a major producer in India for three years. The opportunity
to trial at full scale at a polymer flood field facility is the
only way to gather the necessary data and understand the operating
conditions under which a water treatment system will have to
perform. We continue to believe the commercial opportunity
associated with treating water in EOR operations cannot be
overstated.
The choice of which EOR processes are adopted is highly
dependent on the ability to treat the water. One approach - Polymer
Flood - presents a particularly difficult challenge as conventional
technologies have been unable to effectively treat the
polymer-laden water. This inability to properly process produced
water containing polymers has adversely impacted the widespread
adoption of what is an effective EOR technique.
MYCELX has now been proven to be the water treatment method to
overcome this hurdle. Our cost-effective solution transforms the
economics of using Polymer Flooding for the end user. This game
changer opportunity for the industry was tested in close
collaboration with SNF, the world's largest provider of polymer to
the Oil and Gas industry. The objective was to test our RE-GEN
media's ability to reliably remove oil and grease in the presence
of polymer in produced water applications. The testing was very
successful. Not only was RE-GEN media able to remove the oil from
the polymer water to the required levels, the polymer was not
removed from the water in the treatment process. This offers the
potential for huge cost savings for producers using this technique.
These results support the use of SNF's polymer to increase
production in older fields. In the co-authored white paper,
supported by extensive testing data, both MYCELX and SNF conclude
that MYCELX provides the solution that operators have been
searching for. This is a good example of how a concerted effort of
working together with industry leaders to explore how combined
technology capabilities can open up future opportunity in a
lucrative market with applications globally.
PROGRESS ON STRATEGIC GOALS
We set a goal of searching for opportunities for strategic
partnerships that would help to expedite the widespread adoption of
MYCELX's technology in the industry. In June 2016 we executed an
exclusive distributorship agreement for the upstream market with
Schlumberger, the world's largest oil field services company.
As our strategic partner, Schlumberger is marketing our products
around the world on a scale and to an audience that only an
industry leader could achieve. In partnering with Schlumberger,
MYCELX has expedited our business plan and our ambition. Both
MYCELX and Schlumberger believe together we can achieve more than
either of us could alone in our targeted market sectors and we
expect to grow in these sectors quickly as the market recovers.
MYCELX continues to look into further opportunities for similar
partnerships that can expedite growth in our other target
markets.
SAFETY
Our continuing success is based on our people, and their safety
and of those people around us is central to everything we do. We
are proud of our safety record and have engineered the design of
our systems to ensure that operating them is simple and safe.
LOOKING TO THE FUTURE
We continue to focus our growth strategy in the Middle East,
India and Americas regions. Although the Company's primary market
remained in distress, operators are increasingly keen to seek out
new technology that offers better performance and most importantly
cost savings. While the tough environment has created opportunity
for MYCELX, the Board of Directors are well aware of the challenges
the Company faces. We continue to believe long-term success and
building a global brand will be achieved by engaging in large scale
projects as well as smaller scale, fast-to-market opportunities.
The Company's first Oil Recovery System installed in the
petrochemical plant in Saudi Arabia is truly innovative and fits
both this faster to market approach and also our meets customers'
cost savings goals to turn waste water treatment from a cost into a
profit center.
At its core, the Company is a technology company with
exceptional expertise gained through onsite, real-time water
treatment experience. The Company will continue to use its
knowledge to innovate and commercialise next generation technology
to meet our customers' current and future needs more reliably and
cost effectively than outdated conventional methods. The Oil and
Gas and petrochemical industries continue to integrate MYCELX(R)
technology into their critical, real-time processes. This is
confirmation that our technology has its role in achieving
sustainable water treatment for years to come. The Board of
Directors and Company management are committed to ensuring
MYCELX(R) technology reaches its full potential as the global
industry standard.
As we enter 2017, a sense of cautious optimism appears to have
crept into the industry. Rig count increases, OPEC production cuts
and increasing investment into the downstream sector are all signs
of a potential recovery. Overall, the MYCELX contracted order book
is stronger than this time last year and the Company therefore
envisages a year-on-year revenue increase for 2017 in the range of
30%, with the aim of being EBITDA neutral, and with no material
change in cash balance. MYCELX's revenue is already being generated
from a broader geographic base than previously. The Company fully
expects this positive trend, which is a result of our deliberate
efforts to broaden our geographic exposure, to continue. By
focussing on our customer relationships and strengthening those
bonds, we have positioned the business to be prepared for
continuing market uncertainty or a quick upturn. We are becoming
known as a performance enhancing solution provider - we are
important to our customers in all economic scenarios. As such, we
embrace whatever challenges the market presents to us.
OUR CORE MARKETS
Downstream: Current trends
Our key market in the downstream petrochemical industry is Saudi
Arabia.
Saudi Arabia: Positive support for the future
The future of the Saudi petrochemical industry has been
confirmed along with its status as a vital pillar in the Saudi
Arabian economy. It has been identified as a focus by two key
government drives- the National Transformation Program (NTP) and
Vision 2030. The Royal Commission for Yanbu and Jubail which
oversees the Petrochemical industry in the Kingdom will be the
second largest receiver of government funds under these
schemes.
The Saudi Arabian petrochemical industry already has a
structural advantage over its global competitors due to its low
cost feedstock. This has helped it to weather the storm from the
drop in global chemical prices since mid 2014, increased
competition from the US and China and the recent rise in the price
for its feedstock.
Even with the rise in ethane pricing to $1.75 per mmBTu, Saudi
Arabia retains a distinct margin advantage over other petrochemical
regions. Whereas it costs Saudi producers $108.50/MT ethylene, it
would cost US producers $142.10/MT and other countries in the
Middle East up to $303.80/MT.
It is therefore no surprise that Saudi petrochemical players
hold the advantageous position of being the world's lowest cost
ethylene producers. Saudi Arabia has 13 steam crackers currently
operating in the country and MYCELX already has a footprint in
several of these facilities.
Focus on margins
The 133% price rise of ethane in January 2016, along with the
increase in the cost of electricity and water by 40% has led to a
focus on margin improvement by Saudi ethylene producers hoping to
address this new paradigm squeeze on their margins via performance
optimisation and cost savings.
New investment in the industry
The recent move by Saudi Aramco to enter the petrochemical
industry directly in Saudi Arabia via Sadara, its JV with Dow
Chemical, is an excellent prospect and will lead to the building of
many new plants.
Rest of GCC
Most of the petrochemical companies in the GCC are wholly or
majority owned by their local governments and thus have been
supported during these times of low prices and strained capital
budgets.
Nevertheless, given the oil price impact on state budgets and
the resulting reductions in subsidies for power and water -
petrochemical plants across the region are looking to cut costs and
protect their already squeezed margins.
Downstream: Impact and Opportunities
MYCELX's systems offer significant cost savings for Saudi
players by improving the water and utilities usage of their current
processes.
Furthermore, the higher quality water that our systems generate
contribute to production improvement and large reductions in
maintenance and repair costs.
The Company appointed a new Director of Business Development for
MENA and Asia specifically to chase down new opportunities such as
the new market entrants in Jubail Industrial City.
The new Oil Recovery System (ORS) that MYCELX has developed is
particularly welcomed given current market conditions. The ability
to convert what was historically a costly waste stream into a
profit generating centre without any outlay of capital and also
benefiting from the improved water preservation is perfectly in
tune with our customers' current concerns.
Upstream offshore: Current Trends
Producers have declared 2016 as a year of tough decisions.
Following the fall in crude pricing early in the year, a survival
mindset took hold within the industry and this continues to be
prevalent. Pessimism began to lift when a reduction in US
production underscored oil price recoveries. Coupled with this, the
cost reduction programmes that had been implemented began to take
hold. For oilfield services companies like MYCELX, the continuing
delays on capital spending remained to exert pressure, however in
June 2016 US rig counts, a leading indicator, began to recover.
The US Energy Information Administration (EIA) projects growth
in the Gulf of Mexico between 2016 and 2018 to be 300,000 barrels
per day (bpd) which will account for 30% of the total US production
increase forecast. The EIA also expects 2018 total production will
be 1.9 million bpd. Additionally, according to the energy
consultancy firm Douglas-Westwood, production from the global
offshore market is expected to grow in the medium term as projects
sanctioned before the downturn add to output. They also suggest
that long term new supply could stall as we approach 2020 from lack
of investment during the last two years.
Upstream offshore: Impact and Opportunities
MYCELX has a footprint of five offshore installations with a
supermajor and looks to expand its reach as the oil price
recovers.
The forecast for increased production coupled with the
prevailing lack of investment points to the necessity for
technology that can get the most out of existing assets as prices
recover and robust enough to perform reliably to support production
as output levels increase. This plays well into MYCELX's core
strengths in offshore water treatment, namely excursion management
and small footprint.
MYCELX has installed produced water treatment systems offshore
managing severe upset conditions that curtail production and cost
producers millions of dollars in production loss.
Desirous of new and better technology, Chevron designed the
MYCELX system into their full treatment train on the Jack/St. Malo
platform, their state-of-the-art facility in the Gulf of Mexico.
The Company has continued its deployment with Chevron in the Gulf
of Mexico and to other platforms around the world.
The Company anticipates the strategic alliance with Schlumberger
will accelerate the uptake of MYCELX's differentiated solution for
offshore use.
Upstream onshore: Current Trends
With global demand for hydrocarbons continuing to rise each
year, the ability of producers to meet demand is becoming
increasingly strained. As fields mature, the oil production
decreases while water production increases. The recovery factor of
these mature fields currently average around 20% to 40%. This
equates to 60% to 80% of the Original Oil in Place (OOIP) locked in
the reservoir.
It is generally more practical for operators to invest in
enhanced recovery techniques than to develop a new field. Many of
the advanced recovery production techniques used by producers are
referred to as Chemical Enhanced Oil Recovery (CEOR). Water
availability, cost, and regulations are all careful considerations
leading producers to adapt their produced water management methods.
Reliable water treatment is critical to a facility that is
utilizing a produced water recycle loop for a CEOR process. Poor
water quality will increase the quantity of chemicals required to
achieve the desired production gains associated with polymer
flooding. This is a challenge because the presence of back-produced
or returning polymer in the produced water can greatly impact the
performance of existing produced water treatment systems.
MYCELX continues to support innovation in unconventional shale
plays. As the Permian Basin regains its confidence with an
increasing rig count, the demand for produced water continues to
increase supported by state and federal regulation, accommodating
frac fluid systems and increasing frac water volume.
Upstream onshore: Impact and Opportunities
MYCELX believes Enhanced Oil Recovery is the largest play in the
produced water market and has completed numerous successful trials
and has the endorsement of the largest polymer producer servicing
the oil and gas industry.
We have worked closely with SNF, the world leader in polymer
production for the Oil and Gas industry, conducting rigorous
testing and successfully proven that MYCELX RE-GEN achieves the
performance required to treat water in polymer flood
operations.
The fact that our technology allows the polymer to be preserved
is also a game changer for the economics of this often overlooked
EOR technique.
In the past four years innovation has driven the frac volume
required to open some wells from 100,000 barrels of frac water to
1,000,000 barrels of frac water. MYCELX supports the operator
utilisation of produced water for this purpose by removing specific
contaminants that encumber further innovation for this process.
OUR BUSINESS AT A GLANCE
Taking Water Treatment to a whole new level
MYCELX is a revolutionary clean water technology company that
provides superior performance and cost effective solutions
primarily for the Oil and Gas industry's water treatment needs.
Water Challenge our customers face
Very often much more water than oil is produced during oil and
gas production. Reuse of water, especially in water stressed
regions, is part of the industry's every day water management and
business calculations. Our technology is industry-recognised as a
step change improvement on the now outmoded conventional approaches
that are becoming obsolete. In the face of increasingly challenging
water treatment requirements across the industry worldwide, new
technology adoption is the path forward for operational
excellence.
Global Footprint and Ambition
We operate in all segments of the Oil and Gas industry and have
installations throughout the world. Outside the Oil and Gas
industry, we have also applied our technology to solve water
treatment issues for other industries, including the marine, power
and utility, mining, manufacturing and air filtration
industries.
MYCELX products are currently used in over 20 countries across
the globe. Our teams are active, particularly in North America, the
Middle East and India. Our systems are installed at some of the
leading upstream and downstream operations, including one of the
largest ethylene plants in the world and the latest rig designs for
a supermajor in the Gulf of Mexico.
Our headquarters in Duluth, Georgia are supported by branch
offices in Houston, London, Jubail and our project office in
Delhi.
Route to Market
Our proprietary filtration products are delivered in systems
that MYCELX has designed for new build facilities like offshore
platforms or as performance upgrade retrofits such as enhancement
to process water loops in petrochemical plants.
We have established a strategic partnership in the upstream
market with Schlumberger to broadcast our successes better
throughout their global client base and will consider similar
strategic alliances in our other markets if they would be
beneficial at expediting our business model.
In tune with current market trends
Water Treatment - A production enhancement opportunity
Oil and Gas producers live in the world of upset conditions
during normal everyday operations. These upsets can wreak havoc on
produced water quality which adversely impacts operations and
production uptime. Upsets are intermittent, can fluctuate wildly,
and last hours to days. Additionally, process control varies
because some operating environments are more difficult than others.
These factors, alone or in combination, can cause slowdown or
shutdown of production. To maintain continuous operation the water
treatment system must be able to handle the upsets and process
control issues and produce the right water quality to keep running
without interruption always avoiding downtime.
The Cost of 1%
If a production facility is not operational due to water
management issues for even 1% of total run time during a year, the
cost of lost production to the producer is significant. Production
uptime is paramount to maximizing profits. MYCELX systems protect
operators from the costly 1% at risk.
Sustainability Concerns
With increasing value placed on water in areas such as the
Middle East and Canada, the opportunity to recycle or reuse water
in upstream and downstream operations is now of critical importance
not only from a regulatory view but also from a purely economic
perspective.
The cost of water or the power required to turn it into steam is
a key consideration at the forefront of operators' minds during
these challenging times when Oil and Gas companies are looking for
cost saving opportunities and performance improvements.
Ensuring Oil Production for the Next Generation
As water cuts rise in mature fields, the use of enhanced oil
recovery (EOR) methods becomes increasingly important. MYCELX is
leading the field in terms of water treatment solutions for such
EOR techniques. The benefits of our unique molecular cohesion
approach has the ability to transform the economics of EOR
techniques such as Polymer Flooding or Steam Assisted Gravity
Drainage.
From Waste to Worth
Our more efficient and cost effective Oil Recovery System
recovers saleable oil and turns waste water treatment from a costly
expense into a revenue stream for the customers.
MYCELX is molecular cohesion, not just filtration, resulting in
true oil-free water
Our patented polymer uses innovative molecular cohesion to
reliably and consistently remove oil from water to levels our
customers require. We can achieve oil removal to less than 1ppm if
necessary. By removing oil at the molecular level we deliver a step
change improvement on conventional physical separation methods.
Revolutionary Technology
Our patented polymer was created by our founder, Hal Alper. The
polymer and its applications are protected by 38 Global
patents.
Recurring Media Sales
MYCELX's patented polymer is infused into purpose built
back-washable media as well as standard filters.
Standardised Equipment
MYCELX media is housed inside MYCELX's equipment or specially
modified standard vessels.
Engineered solutions based on extensive water expertise
Understanding our clients' water is at the core of ensuring the
MYCELX solutions we provide are efficient, cost-effective and
operator friendly.
Our engineers design systems leveraging our proven technology
which meet our customers' requirements in terms of overall
economics, performance and whether they wish us to handle operation
of the installation.
Enhanced Customer Performance
The end result is oil free water that allows MYCELX's clients to
consistently meet their discharge or process requirements and
regulation guidelines.
The ability to reuse or recycle this water offers huge cost
savings to our customers.
The reduction of hydrocarbon contamination in their systems
allows for greater uptime, reduced maintenance and more consistent
performance which ultimately improves production metrics.
FINANCIALS REVIEW
Statements of Operations
(USD, in thousands, except share data)
For the Year Ended 31 December: 2016 2015
=============================================== ========== ==========
Revenue 7,923 13,592
=============================================== ========== ==========
Cost of goods sold 3,820 6,343
=============================================== ========== ==========
Gross profit 4,103 7,249
=============================================== ========== ==========
Operating expenses:
=============================================== ========== ==========
Research and development - 172
=============================================== ========== ==========
Selling, general and administrative 6,588 9,594
=============================================== ========== ==========
Depreciation and amortisation 499 507
=============================================== ========== ==========
Total operating expenses 7,087 10,273
=============================================== ========== ==========
Operating loss (2,984) (3,024)
=============================================== ========== ==========
Other expense
=============================================== ========== ==========
Loss on disposal of equipment (2) (76)
=============================================== ========== ==========
Interest expense (94) (144)
=============================================== ========== ==========
Loss before income taxes (3,080) (3,244)
=============================================== ========== ==========
Provision for income taxes (199) (405)
=============================================== ========== ==========
Net loss (3,279) (3,649)
=============================================== ========== ==========
Loss per share - basic (0.17) (0.20)
=============================================== ========== ==========
Loss per share - diluted (0.17) (0.20)
=============================================== ========== ==========
Shares used to compute basic loss per share 18,770,117 18,705,244
=============================================== ========== ==========
Shares used to compute diluted loss per share 18,770,117 18,705,244
=============================================== ========== ==========
The accompanying notes are an integral part of the financial
statements.
Balance Sheets
(USD, in thousands, except share data)
as at 31 December: 2016 2015
======================================================= ========= =========
Assets
======================================================= ========= =========
Current Assets
======================================================= ========= =========
Cash and cash equivalents 5,139 5,296
======================================================= ========= =========
Restricted cash 500 500
======================================================= ========= =========
Accounts receivable - net 1,941 2,855
======================================================= ========= =========
Unbilled accounts receivable 94 20
======================================================= ========= =========
Inventory 3,190 3,790
======================================================= ========= =========
Prepaid expenses 126 204
======================================================= ========= =========
Other assets 36 109
======================================================= ========= =========
Total Current Assets 11,026 12,774
======================================================= ========= =========
Property and equipment - net 10,487 11,714
======================================================= ========= =========
Intangible assets - net 852 809
======================================================= ========= =========
Total Assets 22,365 25,297
======================================================= ========= =========
Liabilities and Stockholders' Equity
======================================================= ========= =========
Current Liabilities
======================================================= ========= =========
Accounts payable 657 485
======================================================= ========= =========
Payroll and accrued expenses 425 577
======================================================= ========= =========
Deferred revenue - 42
======================================================= ========= =========
Note payable - current 85 75
======================================================= ========= =========
Other current liabilities 436 115
======================================================= ========= =========
Total Current Liabilities 1,603 1,294
======================================================= ========= =========
Note payable - long-term 1,921 2,006
======================================================= ========= =========
Total Liabilities 3,524 3,300
======================================================= ========= =========
Stockholders' Equity
======================================================= ========= =========
Common stock, $0.025 par value, 100,000,000 shares
authorised, 18,770,117 shares issued and outstanding
at 31 December 2016 and 2015 469 469
======================================================= ========= =========
Additional paid-in capital 40,325 40,202
======================================================= ========= =========
Accumulated deficit (21,953) (18,674)
======================================================= ========= =========
Total Stockholders' Equity 18,841 21,997
======================================================= ========= =========
Total Liabilities and Stockholders' Equity 22,365 25,297
======================================================= ========= =========
The accompanying notes are an integral part of the financial
statements.
Statements of Stockholders' Equity
(USD, in thousands)
Additional Stock Subscription
Paid-in Accumulated Receivable
Common Stock Capital Deficit Total
=========================== ================= ========== =========== ================== =======
Shares $ $ $ $ $
=========================== ========== ===== ========== =========== ================== =======
Balances at 31 December
2014 18,553 464 39,820 (15,025) (235) 25,024
=========================== ========== ===== ========== =========== ================== =======
Issuance of common stock,
net of offering costs 217 5 259 - 235 499
=========================== ========== ===== ========== =========== ================== =======
Stock-based compensation
expense - - 123 - - 123
=========================== ========== ===== ========== =========== ================== =======
Net loss for the period - - - (3,649) - (3,649)
=========================== ========== ===== ========== =========== ================== =======
Balances at 31 December
2015 18,770 469 40,202 (18,674) - 21,997
=========================== ========== ===== ========== =========== ================== =======
Stock-based compensation
expense - - 123 - - 123
=========================== ========== ===== ========== =========== ================== =======
Net loss for the period - - - (3,279) - (3,279)
=========================== ========== ===== ========== =========== ================== =======
Balances at 31 December
2016 18,770 469 40,325 (21,953) - 18,841
=========================== ========== ===== ========== =========== ================== =======
The accompanying notes are an integral part of the financial
statements.
Statements of Cash Flows
(USD, in thousands)
For the Year Ended 31 December: 2016 2015
====================================================== ======= =======
Cash flow from operating activities
====================================================== ======= =======
Net loss (3,279) (3.649)
====================================================== ======= =======
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
====================================================== ======= =======
Depreciation and amortisation 1,384 1,441
====================================================== ======= =======
Loss from disposition of equipment 2 76
====================================================== ======= =======
Stock compensation 123 123
====================================================== ======= =======
Non-cash change in warrant liability - (63)
====================================================== ======= =======
Change in operating assets and liabilities:
====================================================== ======= =======
Accounts receivable 914 (245)
====================================================== ======= =======
Unbilled accounts receivable (74) 71
====================================================== ======= =======
Inventory 591 1,190
====================================================== ======= =======
Prepaid expenses 78 324
====================================================== ======= =======
Other assets 73 31
====================================================== ======= =======
Accounts payable 172 (716)
====================================================== ======= =======
Payroll and accrued expenses (158) (309)
====================================================== ======= =======
Deferred revenue (42) (240)
====================================================== ======= =======
Other current liabilities 321 (119)
====================================================== ======= =======
Net cash provided by (used in) operating activities 105 (2,085)
====================================================== ======= =======
Cash flow from investing activities
====================================================== ======= =======
Payments for purchases of property and equipment (109) (806)
====================================================== ======= =======
Proceeds from sale of property and equipment 7 3
====================================================== ======= =======
Payments for purchases of intangible assets (85) (92)
====================================================== ======= =======
Net cash used in investing activities (187) (895)
====================================================== ======= =======
Cash flows from financing activities
====================================================== ======= =======
Net proceeds from stock issuance - 499
====================================================== ======= =======
Payments on notes payable (75) (85)
====================================================== ======= =======
Payments on lines of credit - (3,427)
====================================================== ======= =======
Net cash used in financing activities (75) (3,013)
====================================================== ======= =======
Net decrease in cash and cash equivalents (157) (5,993)
====================================================== ======= =======
Cash and cash equivalents, beginning of year 5,296 11,289
====================================================== ======= =======
Cash and cash equivalents, end of year 5,139 5,296
====================================================== ======= =======
Supplemental disclosures of cash flow information:
====================================================== ======= =======
Cash payments for interest 86 153
====================================================== ======= =======
Cash and non cash payments for income taxes 216 403
====================================================== ======= =======
Non cash movements of inventory and fixed assets (9) -
====================================================== ======= =======
Management considered the effect of exchange
rate changes on cash and cash equivalents held
or due in foreign currency and deemed it immaterial
to the statement of cash flows.
====================================================== ======= =======
The accompanying notes are an integral part of the financial
statements.
Notes to the financial statements
1. Nature of business and basis of presentation
Basis of presentation - These financial statements have been
prepared using recognition and measurement principles of Generally
Accepted Accounting Principles in the United States of America
("U.S. GAAP").
Nature of business - MYCELX Technologies Corporation ("MYCELX"
or the "Company") was incorporated in the State of Georgia on 24
March 1994. The Company is headquartered in Duluth, Georgia with
operations in Houston, Texas, Saudi Arabia, India and the United
Kingdom. The Company provides clean water technology equipment and
related services to the oil and gas, power, marine and heavy
manufacturing sectors and the majority of its revenue is derived
from the Middle East and United States.
2. Summary of significant accounting policies
Use of estimates - The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
The primary estimates and assumptions made relate to depreciation
and amortisation, share-based compensation and deferred taxes.
Actual results could differ from these estimates and the
differences may be material to the financial statements.
Cash and cash equivalents - Cash and cash equivalents consist of
short-term, highly liquid investments which are readily convertible
into cash within ninety (90) days of purchase. At 31 December 2016,
all of the Company's cash and cash equivalent balances were held in
non interest-bearing transaction accounts. The Company maintains
its cash in bank deposit accounts which, at times, may exceed
federally insured limits. At 31 December 2016 and 2015, cash in
non-U.S. institutions was $140,000. The Company has not experienced
any losses in such accounts.
Restricted cash - The Company classifies as restricted cash all
cash whose use is limited by contractual provisions. As of 31
December 2016 and 2015, restricted cash included $500,000 cash on
deposit in a money market account as required by a lender (see Note
9).
Trade accounts receivable - Trade accounts receivable are stated
at the amount management expects to collect from outstanding
balances. The Company provides credit in the normal course of
business to its customers and performs ongoing credit evaluations
of those customers and maintains allowances for doubtful accounts,
as necessary. Accounts are considered past due based on the
contractual terms of the transaction. Credit losses, when realised,
have been within the range of the Company's expectations and,
historically, have not been significant. The allowance for doubtful
accounts at 31 December 2016 and 2015 was $143,000 and $nil,
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 market value.
Equipment that is in the process of being constructed for sale or
lease to customers is also included in inventory
(work-in-progress). The Company applies the FIFO method (first in;
first out) to account for inventory. Manufacturing work-in-progress
and finished products inventory include all direct costs, such as
labor and material, and those indirect costs which are related to
production, such as indirect labor, rents, supplies, repairs and
depreciation costs. A valuation reserve is recorded for slow moving
or obsolete inventory items to reduce the cost of inventory to its
net realisable value.
Prepaid expenses and other current assets - Prepaid expenses and
other current assets include non-trade receivables that are
collectible in less than twelve months, security deposits on leased
space and various prepaid amounts that will be charged to expenses
within twelve months. Non-trade receivables that are collectible in
twelve months or more are included in long-term assets.
Property and equipment - All property and equipment are valued
at cost. Depreciation is computed using the straight-line method
for reporting over the following useful lives:
Buildings 39 years
============================== ==========
Leasehold improvements 1-5 years
============================== ==========
Office equipment 3-10 years
============================== ==========
Manufacturing equipment 5-15 years
============================== ==========
Research and development
equipment 5-10 years
============================== ==========
Purchased software 1-5 years
============================== ==========
Equipment leased to customers 3-10 years
============================== ==========
Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalised.
Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation expense includes depreciation on equipment
leased to customers and is included in cost of goods sold.
Intangible assets - Intangible assets consist of the costs
incurred to purchase patent rights and legal and registration costs
incurred to internally develop patents. Intangible assets are
reported net of accumulated amortisation. Patents are amortised
using the straight-line method over a period based on their
contractual lives which approximates their estimated useful
lives.
Revenue recognition - The Company's revenue consists of media
product and equipment sales. Revenues from media sales are
recognised, net of sales allowances and sales tax, when products
are shipped and risk of loss has transferred to customers,
collection is probable, persuasive evidence of an arrangement
exists, and the sales price is fixed or determinable. The Company
offers customers the option to lease or purchase their equipment.
Lease agreements range from one to twenty-four months in length and
are renewed at the end of each agreement, if necessary. The lease
agreements meet the criteria for classification as operating
leases; accordingly, revenue on lease agreements is recognised as
income over the lease term. Revenues on long-term contracts related
to construction of equipment are recognised, net of sales tax, on
the percentage-of-completion basis using costs incurred compared to
total estimated costs. Costs are recognised and considered for
percentage-of-completion as they are incurred in the manufacture of
the equipment. Therefore, revenues may not be related to the
progress billings to customers. Revenues are based on estimates,
and the uncertainty inherent in estimates initially is reduced
progressively as work on the contract nears completion. Revenues on
sales in which equipment is pre-fabricated and stocked in inventory
are recognised, net of sales tax, upon shipment of the equipment to
the customer.
Contract costs include all direct labor and benefits, materials
unique to or installed to the project, subcontractor costs, as well
as costs relative to contract performance such as travel to a
customer site and shipping charges. Provision for estimated losses
on uncompleted contracts is recorded in the period in which such
losses are probable and estimable. No such provisions have been
recognised as of 31 December 2016 and 2015. Changes in job
performance, job conditions, and estimated profitability may result
in revisions to costs and income, which are recognised in the
period in which the revisions are determined. Actual results could
vary from estimates used in the financial statements.
Unbilled accounts receivable represents revenues recognised in
excess of amounts billed. Deferred revenue represents billings in
excess of revenues recognised. Contract retentions are recorded as
a component of accounts receivable.
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 2016 and 2015.
Shipping and handling costs - Consistent with Financial
Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 605-45-50 Shipping and Handling Fees and
Costs, the Company classifies shipping and handling amounts billed
to customers as revenue, and shipping and handling costs as a
component of costs of goods sold.
Research and development costs - Research and development costs
are expensed as incurred. Research and development expense for the
years ended 31 December 2016 and 2015 was approximately $nil and
$172,000, respectively.
Advertising costs - The Company expenses advertising costs as
incurred. Advertising expense for the years ended 31 December 2016
and 2015 was approximately $4,000 and $7,000, respectively, and is
recorded in selling, general and administrative expenses.
Rent expense - The Company records rent expense on a
straight-line basis for operating lease agreements that contain
escalating rent clauses. The deferred rent liability included in
other current liabilities in the accompanying balance sheet
represents the cumulative difference between rent expense
recognised on the straight-line basis and the actual rent paid.
Income taxes - The provision for income taxes for annual periods
is determined using the asset and liability method, under which
deferred tax assets and liabilities are calculated based on the
temporary differences between the financial statement carrying
amounts and income tax bases of assets and liabilities using
currently enacted tax rates. The deferred tax assets are recorded
net of a valuation allowance when, based on the weight of available
evidence, it is more likely than not that some portion or all of
the recorded deferred tax assets will not be realised in future
periods. Decreases to the valuation allowance are recorded as
reductions to the provision for income taxes and increases to the
valuation allowance result in additional provision for income
taxes. The realisation of the deferred tax assets, net of a
valuation allowance, is primarily dependent on the ability to
generate taxable income. A change in the Company's estimate of
future taxable income may require an addition or reduction to the
valuation allowance.
The benefit from an uncertain income tax position is not
recognised if it has less than a 50 percent likelihood of being
sustained upon audit by the relevant authority. For positions that
are more than 50 percent likely to be sustained, the benefit is
recognised at the largest amount that is more-likely-than-not to be
sustained. An uncertain income tax position is not recognised if it
has less than a 50 percent likelihood of being sustained. Where a
net operating loss carried forward, a similar tax loss or a tax
credit carry forward exists, an unrecognised tax benefit is
presented as a reduction to a deferred tax asset. Otherwise, the
Company classifies its obligations for uncertain tax positions as
other non-current liabilities unless expected to be paid within one
year. Liabilities expected to be paid within one year are included
in the accrued expenses account.
The Company recognises interest accrued related to tax in
interest expense and penalties in selling, general and
administrative expenses. During the years ended 31 December 2016
and 2015 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 and warrants. Potentially dilutive
shares are excluded from the computation if their effect is
antidilutive. Total common stock equivalents that were excluded
from computing diluted net loss per share were approximately
1,125,640 and 1,150,201 for the years ended 31 December 2016 and
2015, respectively.
Fair value of financial instruments - The Company uses the
framework in ASC 820, Fair Value Measurements and Disclosures, to
determine the fair value of its financial assets. ASC 820
establishes a fair value hierarchy that prioritises the inputs to
valuation techniques used to measure fair value and expands
financial statement disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority
to unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements).
The three levels of the fair value hierarchy under ASC 820 are
described below:
-- Level 1: Unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access at the measurement date.
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly or indirectly.
-- Level 3: Unobservable inputs for the asset or liability.
There were no significant transfers into and out of each level
of the fair value hierarchy for assets measured at fair value for
the year ended 31 December 2016 or 2015.
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 2016 and
2015 include cash and cash equivalents, accounts receivable,
accounts payable, the line of credit, and the note payable. The
carrying values of cash and cash equivalents, accounts receivable,
accounts payable, and the line of credit approximate fair value due
to the short-term nature of those assets and liabilities. The
Company believes it is impractical to disclose the fair value of
the note payable as it is an illiquid financial instrument.
Foreign currency transactions - From time to time the Company
transacts business in foreign currencies (currencies other than the
United States Dollar). These transactions are recorded at the rates
of exchange prevailing on the dates of the transactions. Foreign
currency transaction gains or losses are included in selling,
general and administrative expenses.
Share-based compensation - The Company issues equity-settled
share-based awards to certain employees, which are measured at fair
value at the date of grant. The fair value determined at the grant
date is expensed, based on the Company's estimate of shares that
will eventually vest, on a straight-line basis over the vesting
period. Fair value for the share awards representing equity
interests identical to those associated with shares traded in the
open market is determined using the market price at the date of
grant. Fair value is measured by use of the Black Scholes valuation
model (see Note 11).
Recently issued accounting standards - In May 2014, the FASB
issued Accounting Standards Update ("ASU") 2014-09, "Revenue from
Contracts with Customers (Topic 606)", as subsequently amended,
which is the new comprehensive revenue recognition standard that
will supersede all existing revenue recognition guidance under U.S.
GAAP. The standards' core principle is that a company will
recognise revenue when it transfers promised goods or services to a
customer in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or
services. In August 2015, the FASB issued ASU 2015-14, which defers
the effective date of ASU 2014-09 for all entities by one year.
Accordingly, public companies should apply the guidance in ASU
2014-09, as amended, to annual and interim periods beginning on or
after 15 December 2017. Early adoption is permitted but not before
annual periods beginning after 15 December 2016. Entities will have
the option of using either a full retrospective approach or a
modified approach to adopt the guidance. 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 July 2015, the FASB issued ASU 2015-11, "Simplifying the
Measurement of Inventory", which simplifies the subsequent
measurement of inventory by requiring inventory to be measured at
the lower of cost and net realisable value. The standard applies
only to inventories for which cost is determined by methods other
than last-in first-out and the retail inventory method and is
effective for annual reporting periods beginning after 15 December
2016, and interim periods within those fiscal years, with early
application permitted. The Company is currently evaluating the
impact of adopting this guidance but does not expect it to have a
material impact on the Company's financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic
842)", which requires lessees to recognise on the balance sheet the
assets and liabilities for the rights and obligations created by
the leases with lease terms of more than twelve months. The
recognition, measurement, and presentation of expenses and cash
flows arising from a lease by a lessee will continue to primarily
depend on its classification as a finance or operating lease.
However, unlike current U.S. GAAP, which requires only capital
leases to be recognised on the balance sheet, the new standard will
require both types of leases to be recognised on the balance sheet.
The new standard also requires disclosures about the amount,
timing, and uncertainty of cash flows arising from leases. These
disclosures include qualitative and quantitative requirements,
providing additional information about the amounts recorded in the
financial statements. The new standard is effective for fiscal
years beginning after 15 December 2018, and for interim and annual
periods thereafter, with early application permitted. The Company
is currently evaluating the impact of adopting this guidance but
does not expect it to have a material impact on the Company's
financial statements.
In March 2016, the FASB issued ASU 2016-09, "Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment
Accounting", which amends several aspects of the accounting for
employee share-based payment transactions including the accounting
for income taxes, forfeitures and statutory tax withholding
requirements, as well as classification in the statement of cash
flows. The standard is effective for annual reporting periods
beginning after 15 December 2016, and interim periods within those
fiscal years, with early application permitted. The Company is
currently evaluating the impact of adopting this guidance.
3. Accounts receivable
Accounts receivable and their respective allowance amounts at 31
December 2016 and 2015:
31 December 31 December
2016 2015
US$000 US$000
======================================= =========== ===========
Accounts Receivable 2,084 2,855
======================================= =========== ===========
Less: allowance for doubtful accounts (143) -
======================================= =========== ===========
Total receivable - net 1,941 2,855
======================================= =========== ===========
4. Inventories
Inventories consist of the following at 31 December 2016 and
2015:
31 December 31 December
2016 2015
US$000 US$000
================= =========== ===========
Raw materials 756 929
================= =========== ===========
Finished goods 2,434 2,861
================= =========== ===========
Total inventory 3,190 3,790
================= =========== ===========
5. Property and equipment
Property and equipment consists of the following at 31 December
2016 and 2015:
31 December 31 December
2016 2015
US$000 US$000
==================================== =========== ===========
Land 709 709
==================================== =========== ===========
Building 2,724 2,724
==================================== =========== ===========
Leasehold improvements 341 325
==================================== =========== ===========
Office equipment 723 745
==================================== =========== ===========
Manufacturing equipment 854 917
==================================== =========== ===========
Research and development equipment 514 644
==================================== =========== ===========
Purchased software 222 222
==================================== =========== ===========
Equipment leased to customers 8,837 8,610
==================================== =========== ===========
Construction in progress 730 826
==================================== =========== ===========
15,654 15,722
==================================== =========== ===========
Less: accumulated depreciation (5,167) (4,008)
==================================== =========== ===========
Property and equipment - net 10,487 11,714
==================================== =========== ===========
During the years ended 31 December 2016 and 2015, the Company
removed property, plant and equipment and the associated
accumulated depreciation of approximately $183,000 and $41,000,
respectively, to reflect the disposal of property, plant and
equipment.
Depreciation expense for the years ended 31 December 2016 and
2015 was approximately $1,342,000 and $1,403,000, 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 2016 and 2015
was $885,000 and $934,000, respectively.
6. Intangible assets
During 2009, the Company entered into a patent rights purchase
agreement with a shareholder. The agreement provided for the
immediate payment of $28,000 in 2009 with the possibility of an
additional $72,000 based on profits on the sales of a particular
product. During 2010, the Company paid $22,000 based on profits on
the sales of the product and paid the remaining $50,000 in 2011.
The patent is amortised utilising the straight-line method over a
useful life of 17 years which represents the legal life of the
patent from inception. Accumulated amortisation on the patent was
approximately $39,000 and $32,000 as of 31 December 2016 and 2015,
respectively.
In addition to the purchased patent, the Company has internally
developed patents. Internally developed patents include legal and
registration costs incurred to obtain the respective patents. The
Company currently holds various patents and numerous pending patent
applications in the United States, as well as numerous foreign
jurisdictions outside of the United States.
Intangible assets as of 31 December 2016 and 2015 consist of the
following:
Weighted 31 December 31 December
Average Useful 2016 2015
lives US$000 US$000
=============================== ================ =========== ===========
Internally developed patents 15 years 1,240 1,155
=============================== ================ =========== ===========
Purchased patents 17 years 100 100
=============================== ================ =========== ===========
1,340 1,255
================================================ =========== ===========
Less accumulated amortisation (488) (446)
================================================= =========== ===========
Intangible assets - net 852 809
================================================= =========== ===========
Approximate aggregate future amortisation expense is as
follows:
Year Ending 31 December (USD, in thousands)
============================================= ===
2017 46
============================================= ===
2018 46
============================================= ===
2019 42
============================================= ===
2020 41
============================================= ===
2021 41
============================================= ===
Thereafter 223
============================================= ===
Amortisation expense for the years ended 31 December 2016 and
2015 was approximately $42,000 and $38,000, respectively.
7. Income taxes
The components of income taxes shown in the consolidated
statements of operations are as follows:
31 December 31 December
2016 2015
US$000 US$000
================================== =========== ===========
Current:
================================== =========== ===========
Federal - -
================================== =========== ===========
Foreign 197 392
================================== =========== ===========
State 2 13
================================== =========== ===========
Total current provision 199 405
================================== =========== ===========
Deferred:
================================== =========== ===========
Federal - -
================================== =========== ===========
Foreign - -
================================== =========== ===========
State - -
================================== =========== ===========
Total deferred provision - -
================================== =========== ===========
Total provision for income taxes 199 405
================================== =========== ===========
The provision for income tax varies from the amount computed by
applying the statutory corporate federal tax rate of 34 percent,
primarily due to the effect of certain nondeductible expenses,
foreign withholding tax, and changes in valuation allowances.
A reconciliation of the differences between the effective tax
rate and the federal statutory tax rate is as follows:
31 December 31 December
2016 2015
======================================== =========== ===========
Federal statutory income tax rate 34.0% 34.0%
======================================== =========== ===========
State tax rate, net of federal benefit (0.1%) 0.4%
======================================== =========== ===========
Valuation allowance (36.2%) (25.1%)
======================================== =========== ===========
Other 0.1% (13.8%)
======================================== =========== ===========
Foreign withholding tax (4.2%) (8.0%)
======================================== =========== ===========
Effective income tax rate (6.4%) (12.5%)
======================================== =========== ===========
The significant components of deferred income taxes included in
the balance sheets are as follows:
31 December 31 December
2016 2015
US$000 US$000
=================================================== =========== ===========
Deferred tax assets
=================================================== =========== ===========
Net operating loss 7,140 6,056
=================================================== =========== ===========
Equity compensation 413 404
=================================================== =========== ===========
Research and development credits 159 159
=================================================== =========== ===========
Allowance for bad debts 49 -
=================================================== =========== ===========
Accrued liability 7 44
=================================================== =========== ===========
Charitable contributions 10 9
=================================================== =========== ===========
Other 37 25
=================================================== =========== ===========
Total gross deferred tax asset 7,815 6,697
=================================================== =========== ===========
Deferred tax liabilities
=================================================== =========== ===========
Property and equipment (971) (968)
=================================================== =========== ===========
Total gross deferred tax liability (971) (968)
=================================================== =========== ===========
Net deferred tax asset before valuation allowance 6,844 5,729
=================================================== =========== ===========
Valuation allowance (6,844) (5,729)
=================================================== =========== ===========
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 2016, the Company has recorded a valuation allowance of
$6.8 million for which it is more likely than not that the Company
will not receive future tax benefits due to the uncertainty
regarding the realisation of such deferred tax assets.
As of 31 December 2016, the Company has approximately $20.4
million of gross U.S. federal net operating loss carry forwards and
$5.3 million of gross state net operating loss carry forwards that
will begin to expire in the 2019 tax year.
The FASB issued Interpretation ASC-740-10-25, Income Taxes, an
interpretation of ASC-740 which clarifies the accounting for income
taxes by prescribing the minimum recognition threshold a tax
position is required to meet before being recognised in the
financial statements. Under ASC-740, the impact of an uncertain
income tax position on the income tax return must be recognised at
the largest amount that is more likely than not to be sustained
upon audit by the relevant taxing authority. ASC-740 also provides
guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and
transition. ASC-740 applies to all tax positions related to income
taxes.
As a result of the adoption and implementation of ASC-740, a tax
position is recognised as a benefit only if it is "more likely than
not" that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount
recognised is the largest amount of tax benefit that has a greater
than 50 percent likelihood of being realised on examination. For
tax positions not meeting the "more likely than not" test, no tax
benefit is recorded. The Company recognises interest and penalties
related to tax positions in income tax expense. At 31 December 2016
and 2015, there was no accrual for uncertain tax positions or
related interest.
The Company's tax years 2012 through 2016 remain subject to
examination by federal, state and foreign income tax
jurisdictions.
8. Line of credit
In October 2014, the Company entered into a bank line of credit
that allows for borrowings up to $500,000. The line of credit is
revolving and is payable on demand. There was no balance on the
line of credit at 31 December 2016 and 2015. The facility matures
in October 2017 and is secured by the assignment of a deposit
account held by the lender. The line of credit carries a variable
interest rate of 0.5 percentage points under an independent index
which is the Wall Street Journal Prime and is calculated by
applying the ratio of the interest rate over a year of 360 days
multiplied by the outstanding principal balance multiplied by the
actual number of days the principal balance is outstanding. The
interest rate on 31 December 2016 and 2015 was 3.25 percent and
3.00 percent, respectively. There was no interest expense related
to this loan for the years ended 31 December 2016 and 2015.
9. Notes payable
On 27 March 2013, the Company entered into a term loan agreement
with a lender for the purchase of property and a building for its
manufacturing operations and corporate offices. The note is secured
by the property and building. The Company borrowed proceeds of
$2,285,908 at a fixed interest rate of 4.45 percent. The loan has a
ten year term with monthly payments based on a twenty year
amortisation. There is a one-time payment at the end of the term of
the note of approximately $1,400,000. In accordance with the terms
of the agreement, the Company is required to keep $500,000 in a
deposit account with the lending bank. As of 31 December 2016 and
2015, the Company had restricted cash of $500,000 related to the
loan agreement. Future maturities of long-term debt are as follows
as of 31 December 2016:
Year Ending 31 December (USD, in thousands)
============================================= =====
2017 85
============================================= =====
2018 89
============================================= =====
2019 93
============================================= =====
2020 97
============================================= =====
2021 102
============================================= =====
Thereafter 1,540
============================================= =====
2,006
============================================= =====
10. Public Offering of Common Stock
Authorised shares and shares issuance
In December 2014, the Company issued an additional 5,295,069
shares of common stock for $2.35 per share ("the Public Offering").
The Company incurred costs in the issuance of these shares of
approximately $657,000. The Company received net proceeds of
approximately $11,786,000. In January 2015, the Company completed
the final closing of the share offering and issued 78,977 shares of
common stock for $2.35 per share raising approximately
$186,000.
11. Stock compensation
Stock options
In July 2011, the Company's shareholders approved the Conversion
Shares and the Directors' Shares, as well as the Plan Shares and
Omnibus Performance Incentive Plan ("Plan"). This included the
termination of all outstanding stock incentive plans, cancellation
of all outstanding stock incentive agreements, and the awarding of
stock incentives to Directors and certain employees and
consultants. The Company established the Plan to attract and retain
Directors, officers, employees and consultants. The Company
reserved an amount equal to 10 percent of the Common Shares issued
and outstanding immediately following the Public Offering.
Upon the issuance of these additional shares, an award of share
options was made to the Directors and certain employees and
consultants, and a single award of restricted shares was made to a
former Chief Financial Officer. In addition, additional stock
options were awarded in each year subsequent. The awards of stock
options and restricted shares made upon issuance were in respect of
85 percent of the Common Shares available under the Plan,
equivalent to 8.5 percent of the Public Offering. The total number
of shares reserved for stock awards and options under this Plan is
1,877,011 with 1,139,556 shares allocated as of 31 December 2016.
The shares are all allocated to employees, executives and
consultants.
The options granted to Non-Executive Directors, unless otherwise
agreed, vest contingent on continuing service with the Company at
the vesting date and compliance with the covenants applicable to
such service.
Employee options either vest over three years with a third
vesting ratably each year, or partially on issuance and partially
over the following 24 month period. Vesting accelerates in the
event of a change of control. Options granted to Non-Executive
Directors and one executive vest partially on issuance and will
vest partially one to two years later. The remaining Non-Executive
Director options expired at the end of 2016.
As discussed in Note 2, the Company uses the Black Scholes
valuation model to measure the fair value of options granted. Since
the Company does not have a sufficient trading history from which
to calculate its historical volatility, the Company's expected
volatility is based on a basket of comparable companies' historical
volatility. As the Company's initial options were granted in 2011,
the Company does not have sufficient history of option exercise
behavior from which to calculate the expected term. Accordingly,
the expected terms of options are calculated based on the short-cut
method commonly utilised by newly public companies. The risk free
interest rate is based on a blended average yield of two and five
year United States Treasury Bills at the time of grant. The
assumptions used in the Black Scholes option pricing model for
options granted in 2015 and 2016 were as follows:
Risk-Free Fair
Number of Interest Expected Exercise Value
Options Granted Grant Date Rate Term Volatility Price per option
====== ================ ========== ========= ========== ========== ======== ===========
2015 299,000 20/05/2015 1.29% 6 years 58.00% $2.15 $1.16
====== ================ ========== ========= ========== ========== ======== ===========
2016 25,000 01/02/2016 1.62% 5.75 years 56.00% $0.34 $0.18
====== ================ ========== ========= ========== ========== ======== ===========
345,000 14/03/2016 1.70% 5.75 years 54.50% $0.40 $0.20
====== ================ ========== ========= ========== ========== ======== ===========
The Company assumes a dividend yield of 0.0%.
The following table summarises the Company's stock option
activity for the years ended 31 December 2016 and 2015:
Weighted-Average Weighted-Average Average
Exercise Remaining Contractual Grant Date
Stock Options Shares Price Term (in years) Fair Value
============================ ========= ================ ====================== ===========
Outstanding at 31 December
2014 1,151,274 $3.79 5.5 $2,544,210
============================ ========= ================ ====================== ===========
Granted 299,000 $2.15 6.0 $346,840
============================ ========= ================ ====================== ===========
Exercised (170,007) $0.86
============================ ========= ================ ====================== ===========
Forfeited (454,711) $4.03
============================ ========= ================ ====================== ===========
Outstanding at 31 December
2015 825,556 $3.48 5.8 $1,476,970
============================ ========= ================ ====================== ===========
Granted 370,000 $0.40 5.8 $73,500
============================ ========= ================ ====================== ===========
Forfeited (56,000) $4.36
============================ ========= ================ ====================== ===========
Outstanding at 31 December
2016 1,139,556 $2.56 5.9 $1,372,852
============================ ========= ================ ====================== ===========
Exercisable at 31 December
2016 797,723 $3.13 6.3
============================ ========= ================ ====================== ===========
A summary of the status of unvested options as of 31 December
2016 and changes during the years ended 31 December 2016 and 2015
is presented below:
Weighted-Average Fair
Unvested Options Shares Value at Grant Date
================================= ========= =====================
Unvested at 31 December 2014 105,002 $3.83
================================= ========= =====================
Granted 299,000 $1.16
================================= ========= =====================
Vested (38,334) $3.92
================================= ========= =====================
Forfeited (116,668)
================================= ========= =====================
Unvested at 31 December 2015 249,000 $1.16
================================= ========= =====================
Granted 370,000 $0.20
================================= ========= =====================
Vested (262,167) $1.49
================================= ========= =====================
Forfeited (15,000)
================================= ========= =====================
Unvested at 31 December 2016 341,833 $0.65
================================= ========= =====================
As of 31 December 2016, total unrecognised compensation cost of
$171,000 was related to unvested share-based compensation
arrangements awarded under the Plan.
12. Employee benefit plan
The Company maintains an active defined contribution retirement
plan for its employees (the "Benefit Plan"). All employees
satisfying certain service requirements are eligible to participate
in the Benefit Plan. The Company makes cash contributions each
payroll period up to specified percentages of employees'
contributions as approved by the Board of Directors. In September
2015, the Company changed its policy of making contributions under
which it chose not to contribute to the plan. The Company may elect
to change its policy in the future. The Company's contributions to
the Benefit Plan were approximately $nil and $72,000 for the years
ended 31 December 2016 and 2015, respectively.
13. Commitments and contingencies
Operating leases - The Company leases certain facilities and
equipment under non-cancelable operating leases which expire at
varying times between January 2018 and May 2019. Certain of these
leases have escalating rent payments which result in the Company
recording a deferred rent liability.
Future minimum lease payments under the operating leases,
together with the present value of minimum lease payments as of 31
December 2016 are as follows:
Future
Lease Payments
Year Ending 31 December US$000
============================= ===============
2017 314
============================== ===============
2018 116
============================== ===============
2019 45
============================== ===============
Total future lease payments 475
============================== ===============
Rent expense for the years ended 31 December 2016 and 2015 was
approximately $337,000 and $613,000, respectively.
14. Related party transactions
The Company has held a patent rights purchase agreement since
2009 with a shareholder as described in Note 6.
15. Segment and geographic information
ASC 280-10, Disclosures About Segments of an Enterprise and
Related Information (ASC 280-10), establishes standards for
reporting information about operating segments. ASC 280-10 requires
that the Company report financial and descriptive information about
its reportable operating segments. Operating segments are
components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief
operating decision maker (CODM) in deciding how to allocate
resources and in assessing performance. The Company's CODM is the
Chief Executive Officer (CEO). While the CEO is apprised of a
variety of financial metrics and information, the business is
principally managed on an aggregate basis as of 31 December 2016.
For the year ended 31 December 2016, 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 2016 2015
======================== ===== ======
Middle East 3,989 10,604
======================== ===== ======
United States 1,766 1,897
======================== ===== ======
Other 2,168 1,091
======================== ===== ======
Total 7,923 13,592
======================== ===== ======
Equipment leased to customers by geography is as follows:
Year Ending 31 December 2016 2015
======================== ===== =====
Middle East 6,391 6,301
======================== ===== =====
United States 2,071 1,813
======================== ===== =====
Other 375 496
======================== ===== =====
Total 8,837 8,610
======================== ===== =====
16. Concentrations
At 31 December 2016, two customers, one with three contracts
with three separate plants, represented 61 percent of accounts
receivable. During the year ended 31 December 2016, the Company
received 67 percent of its gross revenue from two customers, one
with three separate plants.
At 31 December 2015, two customers, one with three contracts
with three separate plants, represented 74 percent of accounts
receivable. During the year ended 31 December 2015, the Company
received 78 percent of its gross revenue from two customers, one
with three separate plants.
17. Subsequent Events
The Company discloses material events that occur after the
balance sheet date but before the financials are issued. In
general, these events are recognised in the financial statements if
the conditions existed at the date of the balance sheet, but are
not recognised if the conditions did not exist at the balance sheet
date. Management has evaluated subsequent events through 10 May
2017, the date the financial statements were available to be
issued, and no events have occurred which require further
disclosure.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUPAAUPMGWU
(END) Dow Jones Newswires
May 11, 2017 02:00 ET (06:00 GMT)
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