REG - MyCelx Tech. Corp. MyCelx Tech. Cp-MYXR - Final Results for the Year Ending 31 December 2023
16/05/2024 07:00
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RNS Number : 6946O MyCelx Technologies Corporation 16 May 2024
16 May 2024
MYCELX TECHNOLOGIES CORPORATION (AIM: MYX)
Final Results for the Year Ending 31 December 2023
MYCELX Technologies Corporation ("MYCELX" or the "Company"), the clean water
and clean air technology company transforming the environmental impact of
industry, announces its audited results for the year ended 31 December 2023.
Highlights
Financial
· Revenue of $10.9 million (2022: $10.0 million)
· Gross profit of $3.9 million (2022: $4.4 million)
· EBITDA(1) of negative $2.5 million (2022: negative $2.5 million)
· Loss before tax of $3.3 million (2022: loss before tax $3.6
million)
· Cash & cash equivalents of $0.4 million (2022: $1.7 million)
· Post period end: Sale of Saudi business operations for upfront
cash of $3.125 million and potential deferred consideration of $4 million over
the next 24 months
Operational
PFAS Remediation
· Installed a pilot system at a landfill leachate site that will
continue in H1 of 2024 addressing other high-level contaminants comingled with
the PFAS contamination; a common step required to treat water from landfills
· Multiple discussions with strategic partners in all four targeted
PFAS vertical markets
· Granted NSF 61 certification for treating drinking water
· Passed the TCLP test verifying non-leaching of specific targeted
contaminants from PFAS filter media
· Post period end:
o Awarded a short-term project treating PFAS-laden firefighting foam (AFFF)
at a refinery in the U.S.
o Hired a seasoned PFAS technical expert to work alongside the PFAS Business
Director
o Working with a potential partner to sell residential Point-of-Entry PFAS
systems
o Chosen to participate in large Municipal Wastewater PFAS treatment trial
in 2024
· Commenced RSSCT (Rapid Small Scale Column Tests) accepted by
industry with third party lab verification leading to accelerated PFAS data
collection
REGEN for EOR Production
· Secured contract with a National Oil Company (NOC) for a REGEN
system and media valued at $5.4 million to treat produced water with delivery
expected in late 2024
· REGEN Retrofit project sold replacing failing nutshell filters at
major Middle East producer
· Two successful trials in the U.S. for beneficial use of produced
water at mature assets belonging to major U.S. producers
· Post period end:
o Completed sale and delivery of first Retrofit package to global EOR
producer to begin conversion of their existing nutshell filters to MYCELX
REGEN media
o Startup of months-long pilot with a large strategic partner in the Middle
East to showcase the superior performance of REGEN over nutshell filtration
Middle East Downstream
· Continued momentum in Saudi Arabia:
o Installed wastewater treatment systems for two customers opening a new
market
o Secured a contract valued at $1.8 million to treat process water and
protect internal equipment components
o Renewal of two contracts during the year to treat water and wastewater
from plant production
o Delivered a process water treatment system for a new petrochemical plant
customer
Corporate
· Post period end: The Company sold its Saudi Arabia operations to
a Saudi Arabian-led consortium transitioning the established MYCELX business
into an exclusive MYCELX distributorship lead by the legacy MYCELX team
Outlook
The Company remains upbeat about the progress made to date in 2024 and intends
to capitalise on positive recent developments in the U.S., following the
publishing of the EPA PFAS Drinking Water regulations, as it continues to
aggressively pursue partnerships, pilots, data collection and projects in its
core markets. There is tremendous opportunity in the EOR market for the REGEN
product. The Company is engaged with multiple producers who require better
performance during production for EOR and beneficial reuse. Both the PFAS and
REGEN offerings are designed to be best in class in their applications and the
Company expects to see a continued uptick in demand for sales and/or pilot
projects from globally recognisable firms over the rest of 2024.
Connie Mixon, CEO, commented:
"During 2023, MYCELX delivered steady progress in its core areas of focus.
This can be seen with the number of new project awards and recurring work
agreed during the period. We believe we have tremendous upside with
differentiated technology that provides clear economic and environmental
benefits that will result in significant growth for the Company into the
future.
I would like to take the time to thank the Board and the enthusiastic team at
MYCELX for their hard work and dedication during 2023, in what was a period of
change for our business. Post the sale of our Saudi business operations, we
sit as a leaner, better capitalised company, focused on significant
opportunities within our reach and we look forward to updating our
stakeholders on further developments in the coming months."
For further information, please contact:
MYCELX Technologies Corporation
Connie Mixon, CEO Tel: +1 888 306 6843
Kim Slayton, CFO
Canaccord Genuity Limited (Nomad and Sole Broker)
Henry Fitzgerald-O'Connor Tel: +44 20 7523 8000
Ana Ercegovic
Celicourt Communications (Financial PR)
Mark Antelme Tel: +44 20 2770 6424
Jimmy Lea
Charlie Denley-Myerson
(1) EBITDA is a non-U.S. GAAP measure that the Company uses to measure and
monitor performance and liquidity and is calculated as net profit before
interest expense, provision for income taxes, and depreciation and
amortisation of fixed and intangible assets, including depreciation of leased
equipment which is included in cost of goods sold. This non-U.S. GAAP measure
may not be directly comparable to other similarly titled measures used by
other companies and may have limited use as an analytical tool.
Chairman's Statement
Throughout 2023, MYCELX made considerable progress in strengthening its market
leading position as clean water technology experts. Against a dynamic global
economic backdrop, MYCELX's international customers have continued their
strong demand for cost-effective solutions that both optimise their operations
and help them achieve their ever-important sustainability goals.
Over the course of 2023, and into 2024, MYCELX continued to develop and hone
its strategy and offerings, reflecting the evolving needs of its customers and
ensuring it is best placed to capitalise on growing market opportunities.
MYCELX refined its strategic focus by divesting (post period end) its business
operations in Saudi Arabia. This allows the Company to better focus on, and
invest in, its core PFAS and REGEN offerings, both of which are highly
attractive opportunities for the Company. Following this divesture, MYCELX has
a more targeted strategy in two large, high-margin markets, which the Board
believes have the potential to create significant value for shareholders. With
these positive changes in its business portfolio, MYCELX still retains a clear
and common purpose to improve the ESG performance of industry and to achieve
cleaner water around the world. Furthermore, the Board firmly believes this
will provide access to fast-growing markets for the Company's proven
technology, while also providing diversification in terms of products,
customers and geographies.
MYCELX is well placed to play a key role in the PFAS remediation industry,
which is increasingly recognised as an unprecedented health and environmental
challenge and therefore a major market opportunity. In the U.S., new
Government regulations and funding will positively impact PFAS remediation
market demand. MYCELX's internationally recognised solution is vital in
combating the widespread risks to human health posed by PFAS-contaminated
water. The total global PFAS remediation market is estimated to be in excess
of $250 billion, and we believe that early moving companies such as MYCELX,
with patented, proven solutions, are well positioned to capture valuable share
in this large and growing market.
The Company continues to make progress with its REGEN offering, which targets
water treatment in the EOR market and other specialty remediation segments of
the oil and gas sector. MYCELX's patent-protected REGEN solution has been
successfully deployed with multiple leading oil and gas companies, and the
Company hopes to build on this success to secure more business going forward.
MYCELX believes that these markets will remain attractive for the foreseeable
future, and will likely play a role in unlocking new, attractive opportunities
in the oil and gas sector.
Underpinned by world leading, patented technologies, MYCELX has adapted to
evolving markets and has positioned itself to deliver long-term value for all
shareholders by capitalising on its two main market offerings - PFAS and
REGEN. This is an exciting time for MYCELX, not only in terms of helping its
customers meet their essential environmental commitments, but also for the
continued growth of the Company.
Finally, I would like to thank our shareholders for their continued support,
as well as the outstanding, committed employees at MYCELX for their unwavering
efforts to capitalise on the attractive opportunities in our targeted markets.
Chief Executive Officer's Statement
During 2023, MYCELX delivered steady progress in its core areas of focus. This
can be seen with the number of new project awards and recurring work agreed
during the period.
In terms of agreements signed, they included a significant REGEN project award
in the EOR sector in the Middle East that has positive, long-term implications
for widespread REGEN media adoption. We were also awarded our fourth
in-country project, valued at $5.4 million, with a National Oil Company
deploying REGEN for onshore produced water treatment.
We also made notable progress in the PFAS remediation market with pilot trials
initiated in the United States, equipment and media sales and trials in
Australia, receiving national health and safety accreditation for our PFAS
product and forging relationships with potential strategic partners, which led
to multiple, ongoing discussions throughout the year continuing into 2024. Our
downstream operations in Saudi Arabia received three new contracts and renewed
two existing contracts. During the year, the Company also began negotiations
to sell its business operations in Saudi Arabia and transition it into an
exclusive distributorship. The Board believed this approach was in the best
interest for all stakeholders, and post period end, the operation was bought
by a Saudi Arabian consortium with strong relationships in-country and the
ability to expand into new markets with MYCELX technology. We look forward to
supporting the new owners and the country's Vision 2030 initiatives with which
our advanced water treatment products are very well aligned to.
The PFAS remediation market in the United States, and elsewhere in the world,
continues to develop as regulations are being issued to address the magnitude
of the problem and as public awareness increases through global media
exposure. It is a market opportunity in which we are highly engaged with
proven technology that we intend to capitalise on. The size of the market
continues to grow as more PFAS-contaminated sites continue to be identified.
Effective, efficient technology is essential to clean up PFAS contamination in
the challenging applications and equally necessary is the ability to scale
technology cost effectively, which is one of the important differentiators
that sets us apart when compared with our peers.
Oil and gas markets were, and continue to be, robust, with producers globally
planning upgrades and expansion of existing fields. We continue to see the
trend of greater adoption of cleaner production solutions, while operators
increase production, all of which have high commercial value with clear
environmental benefits. Our REGEN product achieves those goals. The EOR and
beneficial reuse markets are our focus as well as offshore production. Each
one of these areas of oil and gas production offer tremendous opportunity for
global adoption of our REGEN media product.
Operational Highlights
PFAS Remediation
MYCELX has chosen to target four markets in the PFAS sector: landfill
leachate, municipal drinking water, residential use and industrial wastewater.
In 2023, MYCELX installed a pilot system at a landfill leachate site working
with a global engineering company and began the process of identifying a
pre-treatment system to prevent fouling of the MYCELX system and PFAS removal
media. The pre-treatment project has continued into Q2 2024 and, if
successful, should lead to further project work with the lead engineering
company in the leachate application. In the municipal drinking water sector,
the Company received National Sanitation Foundation (NSF) 61 certification, a
national health and safety stamp-of-approval required for filtration media
that will be used to treat drinking water. The media was also tested and found
compliant with the Toxic Characteristic Leaching Procedure (TCLP) that
certified our PFAS media product does not leach specific PFAS chemicals at
levels that exceed the regulatory limits. This benefits the business in waste
disposal, given the captured PFAS will not re-enter the environment after
coming in contact with our PFAS media. During the year, our Business
Development Director held multiple meetings with potential strategic partners
in each market vertical we are targeting. We know that many technologies,
including the incumbent carbon and resin media, have gaps in performance that
MYCELX PFAS media can address. It has provided an opening to work with several
domestic and global partners who recognise the benefits of integrating our
technology as an effective solution and for MYCELX to leverage pre-treatment
technologies as well.
Post period, the Company won a short-term project treating water contaminated
with AFFF firefighting foam. Working with a global engineering company, MYCELX
has been able to showcase the performance of our solution in a common
application that can be replicated at many AFFF-contaminated sites. Our aim is
to continue this application in additional AFFF-contaminated sites and
potentially become their go-to solution for AFFF remediation. In the municipal
wastewater market, the Company tested PFAS-laden water samples from a
wastewater treatment plant that is trialling several technologies they chose
for potential implementation. After third-party lab verification of MYCELX
PFAS removal capability, the Company was chosen as one of the technologies to
be tested on-site for the trial which will commence in Q1 2025. The outcome of
the trial will determine the lucrative project award expected to be announced
in later 2025. After a long search for an experienced PFAS technical expert,
MYCELX brought onboard a professional with nine years of PFAS experience from
a global water equipment and solutions provider. The PFAS market is very
large, lucrative and in need of new technology. We intend to break into the
four markets we have identified with a two-fold approach; i) strategic
partnerships and ii) distributors who service and sell to customers who need
reliable technology and have years of experience in water treatment sales.
Recently, the Company sold media to a national residential drinking water
company who we intend to partner with to sell our media used in their
point-of-entry ('POE') systems to protect homes from PFAS contamination.
As the year progresses, our trials will continue to operate, gathering
critical data that will help us refine and optimise our offering and the
pre-treatment steps required by some of our systems going forward. We are
confident that we will be able to convert trials to revenue-generative
projects in 2024 and 2025.
REGEN for Enhanced Oil Recovery and Beneficial Reuse
In our REGEN division, we secured a contract with a National Oil Company
('NOC') for a REGEN system and media valued at $5.4 million with delivery
expected in late 2024. This will be our fourth project installation
in-country. Our systems ensure discharge into surface water is in compliance
with regulations. We believe we will continue to sell our REGEN systems for
this application given the increased focus on environmental concerns in the
region as well as the proven, superior performance and reliability to meet or
exceed discharge regulations. The Company contracted its first project with a
NOC in the Middle East to treat water during EOR production. They are
replacing their nutshell media with REGEN, based on our unique innovation of a
retrofit package that enables their equipment to be modified to accept our
REGEN media. This is the first of several projects MYCELX is engaged in with
this producer and expects to participate in future projects with others in the
region who intend to upgrade to REGEN to increase their production and reduce
water consumption. In the U.S., the Company operated successful pilots at
mature assets for beneficial reuse of produced water with two U.S. oil and gas
producers. Beneficial reuse of water in oil and gas production is being
embraced in the U.S. to recycle and reuse water that is scarce in areas where
oil is produced. After successful trials and technical acceptance of the REGEN
media in 2023, we expect a contract award in 2024 as producers adopt
Beneficial Reuse into their production process.
Downstream Middle East
In Saudi Arabia the Company won three new purchase orders and renewed two
contracts. Post period end, executing on our strategic plan, we sold our Saudi
Arabia business operations to Twarid Water Treatment LLC ('Twarid'), a Saudi
Arabian owned consortium, and transitioned the business to a MYCELX exclusive
distributorship. The transaction was structured as an Earn Out, with the
Company receiving $3.125 million upon closing, with the potential of an
additional $4.0 million received based on achieving the revenue targets
historically reached over the last several years of operations.
This strategic decision has the potential to be a seminal event for MYCELX.
Saudi Arabia has played an important role in the Company's growth and under
the leadership of the legacy MYCELX management team in the region and Twarid's
strong relationships, we believe that this distributorship has the potential
to significantly accelerate the growth of our existing media business in
addition to unlocking significant upside potential in oil and gas,
petrochemicals, industrial wastewater, PFAS remediation and marine
applications. Although MYCELX will no longer be involved in the ongoing
operations in-country, this has significant benefits to the business, as it
reduces our cost base, increases personnel bandwidth for executing plans in
our two other core markets, and allows us to support Twarid as they increase
market share and grow media sales in one of the largest and most robust
water-scarce countries in the world.
The sale leaves the Company in a stronger financial position, and as ever, we
continue to adopt a strict capital allocation policy, ensuring that our costs
are as low as possible, while ensuring adequate money is being invested in the
growth of the business.
The decision also enables us to focus on what we believe are the Company's two
largest market opportunities - PFAS remediation and EOR REGEN. The size of the
prize in both of these markets is significant and we believe that focusing on
these two very large opportunities will provide the Company with high-margin,
long-term revenue for decades to come.
Following our progress in recent years, we believe we have laid the
foundations to achieve further market penetration with our REGEN offering in
the U.S. onshore oil and gas sector. As we have seen over the last 12 months,
significant consolidation has occurred, with now only a handful of players
possessing dominant positions in key areas such as the Permian Basin. We have
successfully trialled in the Permian with major players and expect to move to
a contract in 2024 provided the project progresses on schedule.
Given our track record in the U.S., we know we have the technology to assist
operators with their water handling needs, and we believe that with there now
being a more concentrated number of operators, we have a strong opportunity to
increase our market presence. MYCELX technology has been proven across a wide
range of applications to deliver operational efficiencies, cost savings and
better environmental solutions to customers.
We have made a strong start to 2024 and we anticipate MYCELX will achieve
revenues in the range of $9.0 to $10.0 million during the year. The Company
continues to focus on a number of other potential opportunities which could
positively influence 2024 revenue and the final outturn is dependent on
projects meeting delivery timelines.
In closing, I would like to take the time to thank the Board and the
enthusiastic team at MYCELX for their hard work and dedication during 2023, in
what was a period of change for our business. Post the sale of our Saudi
business operations, we sit as a leaner, better capitalised company, focused
on significant opportunities within our reach.
We believe we have tremendous upside with differentiated technology that
provides clear economic and environmental benefits that will result in
significant growth for the Company into the future. We look forward to
updating our stakeholders on further developments in the coming months.
Financial Review
Due to growth in long-term legacy media sales and a sale of REGEN and a
retrofit package to an EOR producer in the Middle East, total revenue
increased 9% to $10.9 million for 2023, compared to $10.0 million for 2022.
Revenue from equipment sales and leases decreased by 17% to $3.0 million for
2023 (FY22: $3.6 million) and revenue from consumable filtration media and
service increased by 23% to $7.9 million (FY22: $6.4 million). Whilst the
equipment sales are one-off by nature, there is longevity to the media sales
and ongoing lease and service revenues.
Gross profit decreased by 12% to $3.9 million during the year, compared to
$4.4 million in 2022, and gross profit margin decreased to 36% (FY22: 44%) due
to increases in costs for ancillary services in Saudi Arabia.
Total operating expenses for 2023, including depreciation and amortisation,
decreased by 10% to $7.2 million (FY22: $8.0 million). The largest component
of operating expenses was selling, general and administrative expenses, which
decreased by approximately 11% to $6.7 million (FY22: $7.6 million) due to
moving expenses for relocating the Company's office in Georgia in 2022.
Depreciation and amortisation within operating expenses increased by 10% to
$231,000 (FY22: $210,000).
EBITDA was negative $2.5 million, unchanged from negative $2.5 million in
2022. EBITDA is a non-U.S. GAAP measure that the Company uses to measure and
monitor performance and liquidity and is calculated as net profit before
interest expense, provision for income taxes, and depreciation and
amortisation of fixed and intangible assets, including depreciation of leased
equipment which is included in cost of goods sold. This non-U.S. GAAP measure
may not be directly comparable to other similarly titled measures used by
other companies and may have limited use as an analytical tool.
The Company recorded a loss before tax of $3.3 million in 2023, compared to a
loss before tax of $3.6 million in 2022. Basic loss per share was 16 cents in
2023, compared to basic loss per share of 18 cents in the previous year.
As of 31 December 2023, total assets were $10.4 million with the largest
assets being inventory of $3.4 million, property and equipment of $2.6
million, $1.8 million of accounts receivable and $433,000 of cash and cash
equivalents including restricted cash.
Total liabilities as of 31 December 2023 were $3.4 million and stockholders'
equity was $7.2 million, resulting in a debt-to-equity ratio of 47%.
The Company ended the period with $433,000 of cash and cash equivalents,
including restricted cash, compared to $1.7 million in total at 31 December
2022. The Company used approximately $1.1 million of cash in operations in
2023 (FY22: $2.7 million used in operations) and $180,000 was used in
investing activities (FY22: $840,000 used in investing activities). Proceeds
from the Placing of Common Shares contributed $2.0 million provided by
financing activities in FY22.
Post period end, the Company sold its Saudi Arabia business operations,
including equipment, inventory and contracts, for an acquisition price of up
to $7.125 million (the 'Total Consideration') to Twarid Water Treatment LLC
('Twarid'). The Total Consideration was split $3.125 million at closing with
up to $4 million deferred on a 24 month earn-out structure based on Twarid
achieving defined revenue targets. The assets sold had a net book value of
$2.2 million. The proceeds of the sale will enable the Company to focus on
accelerating its marketing and sales plan for its unique technologies in the
PFAS remediation and EOR markets while continuing to grow its propriety media
and product sales in Saudi Arabia through an exclusive distribution agreement
with Twarid.
Statements of Operations
(USD, in thousands, except share data)
For the Year Ended 31 December: 2023 2022
Revenue 10,907 10,026
Cost of goods sold 7,017 5,584
Gross profit 3,890 4,442
Operating expenses:
Research and development 248 218
Selling, general and administrative 6,743 7,589
Depreciation and amortisation 231 210
Gain on sale of property and equipment - (2)
Total operating expenses 7,222 8,015
Operating loss (3,332) (3,573)
Other expense
Interest expense 9 -
Loss before income taxes (3,341) (3,573)
Provision for income taxes (365) (418)
Net loss (3,706) (3,991)
Loss per share - basic (0.16) (0.18)
Loss per share - diluted (0.16) (0.18)
Shares used to compute basic loss per share 22,983,023 22,214,884
Shares used to compute diluted loss per share 22,983,023 22,214,884
The accompanying notes are an integral part of the financial statements.
Balance Sheets
(USD, in thousands, except share data)
As at 31 December: 2023 2022
Assets
Current Assets
Cash and cash equivalents 383 1,645
Restricted cash 50 84
Accounts receivable - net 1,812 2,778
Unbilled accounts receivable 255 -
Inventory 3,417 3,737
Prepaid expenses 123 99
Other assets 153 138
Total Current Assets 6,193 8,481
Property and equipment - net 2,594 3,229
Intangible assets - net 759 733
Operating lease asset - net 844 1,176
Total Assets 10,390 13,619
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 1,541 795
Payroll and accrued expenses 793 758
Customer deposits 10 18
Operating lease obligations - current 282 326
Total Current Liabilities 2,626 1,897
Operating lease obligations - long-term 607 890
Total Liabilities 3,233 2,787
Stockholders' Equity
Common stock, $0.025 par value, 100,000,000 shares authorised, 22,983,023 574 574
shares issued and outstanding at 31 December 2023 and 31 December 2022
Additional paid-in capital 44,799 44,768
Accumulated deficit (38,216) (34,510)
Total Stockholders' Equity 7,157 10,832
Total Liabilities and Stockholders' Equity 10,390 13,619
The accompanying notes are an integral part of the financial statements.
Statements of Stockholders' Equity
(USD, in thousands, except share data)
Common Stock Additional Accumulated Deficit Total
Paid-in $ $
Capital
$
Shares $
Balances at 31 December 2021 19,443,750 486 42,655 (30,519) 12,622
Issuance of common stock, net of offering costs 3,539,273 88 1,957 - 2,045
Stock-based compensation expense - - 156 - 156
Net loss for the period - - - (3,991) (3,991)
Balances at 31 December 2022 22,983,023 574 44,768 (34,510) 10,832
Stock-based compensation expense - - 31 - 31
Net loss for the period - - - (3,706) (3,706)
Balances at 31 December 2023 22,983,023 574 44,799 (38,216) 7,157
The accompanying notes are an integral part of the financial statements.
Statements of Cash Flows
(USD, in thousands)
For the Year Ended 31 December: 2023 2022
Cash flow from operating activities
Net loss (3,706) (3,991)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortisation 868 1,091
Gain on sale of property and equipment - (2)
Inventory reserve adjustment (415) (5)
Stock compensation 31 156
Change in operating assets and liabilities:
Accounts receivable - net 966 (911)
Unbilled accounts receivable (255) 175
Inventory 657 402
Prepaid expenses (24) 104
Prepaid operating leases 5 32
Other assets (15) 261
Accounts payable 746 112
Payroll and accrued expenses 35 -
Contract liability - (54)
Customer deposits (8) (56)
Net cash used in operating activities (1,115) (2,686)
Cash flow from investing activities
Payments for purchases of property and equipment (90) (814)
Payments for internally developed patents (91) (28)
Net cash used ininvesting activities (181) (842)
Cash flows from financing activities
Net proceeds from stock issuance - 2,045
Net cash provided by financing activities - 2,045
Net decrease in cash, cash equivalents and restricted cash (1,296) (1,483)
Cash, cash equivalents and restricted cash, beginning of year 1,729 3,212
Cash, cash equivalents and restricted cash, end of year 433 1,729
Supplemental disclosures of cash flow information:
Cash payments for interest 9 -
Cash payments for income taxes 394 390
Non-cash movements of inventory and fixed assets 78 186
Non-cash operating ROU assets 889 1,049
Non-cash operating lease obligations 889 1,049
The accompanying notes are an integral part of the financial statements.
Notes to the Financial Statements
1. Nature of Business and Basis of Presentation
Basis of presentation - These financial statements have been prepared using
recognition and measurement principles of Generally Accepted Accounting
Principles in the United States of America ('U.S. GAAP').
Nature of business - MYCELX Technologies Corporation ('MYCELX' or the
'Company') was incorporated in the State of Georgia on 24 March 1994. The
Company is headquartered in Norcross, Georgia with operations in Houston,
Texas, Saudi Arabia and the United Kingdom. The Company provides clean water
technology equipment and related services to the oil and gas, power, marine
and heavy manufacturing sectors and the majority of its revenue is derived
from the Middle East and the United States.
Liquidity - The Company meets its day-to-day working capital and other cash
flow requirements through cash flow from operations. Post period end, the
Company sold its Saudi Arabia business operations for $7.125 million which
included $3.125 at closing and up to $4 million deferred on a 24 month
earn-out structure. The proceeds of the sale will enable the Company to focus
on accelerating its marketing and sales plan for its unique technologies in
the PFAS remediation and EOR markets while also supporting other working
capital needs. The Company actively manages its financial risk by operating
Board-approved financial policies that are designed to ensure that the Company
maintains an adequate level of liquidity and effectively mitigates financial
risks.
On the basis of current financial projections, including a downside scenario
sensitivity analysis considering only revenues that are contracted or that the
Company considers probable and adjusting for direct cost of goods sold within
the analysis, the Company believes that it has adequate resources to continue
in operational existence for the foreseeable future of at least 12 months from
the date of the issuance of these financial statements and, accordingly,
consider it appropriate to adopt the going concern basis in preparing these
Financial Statements. Should the projected cash flow not materialise under
certain scenarios, alternative actions to increase liquidity may need to be
considered.
2. Summary of Significant Accounting Policies
Use of estimates - The preparation of financial statements in conformity with
U.S. GAAP requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the amounts reported in
the financial statements and accompanying notes. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised. The
primary estimates and assumptions made by management relate to the inventory
valuation, accounts receivable valuation, useful lives of property and
equipment, volatility used in the valuation of the Company's share-based
compensation and the valuation allowance on deferred tax assets. Although
these estimates are based on management's best knowledge of current events and
actions the Company may undertake in the future, actual results ultimately may
differ from the estimates and the differences may be material to the financial
statements.
Revenue recognition - The Company's revenue consists of filtration media
product, equipment leases, professional services to operate the leased assets,
turnkey operations and equipment sales. These sales are based on mutually
agreed upon pricing with the customer prior to the delivery of the media
product and equipment. The Company recognises revenue when it satisfies a
performance obligation by transferring control over a product or service to a
customer.
Revenue from filtration media sales and spare parts (part of equipment sales)
is billed and recognised when products are shipped to the customer. Revenue
from equipment leases is recognised over time as the equipment is available
for customer use and is typically billed monthly. Revenue from professional
services provided to monitor and operate the equipment is recognised over time
when the service is provided and is typically billed monthly. Revenue from
turnkey projects whereby the Company is asked to manage the water filtration
process end to end is recognised on a straight-line basis over time as the
performance obligation, in the context of the contract, is a stand-ready
obligation to filter all water provided. Revenue from contracts related to
construction of equipment is recognised upon either factory acceptance testing
or shipment of the equipment to the customer because the control transfers at
acceptance or the point of shipment and there is no enforceable right to
payments made as customer deposits prior to that date. Customer deposits for
equipment sales represent payments made prior to transferring control at the
point of shipment that can be refunded at any time when requested by the
customer.
Sales tax charged to customers is presented on a net basis within the
Statements of Operations and therefore recorded as a reduction of net
revenues. Shipping and handling costs associated with outbound freight after
control over a product has transferred to a customer are accounted for as a
fulfilment cost and are included in cost of goods sold.
The Company's contracts with the customers state the final terms of the sales,
including the description, quantity, and price of media product, equipment
(sale or lease) and the associated services to be provided. The Company's
contracts are generally short-term in nature and, in most situations, the
Company provides products and services ahead of payment and has fulfilled the
performance obligation prior to billing.
The Company believes the output method is a reasonable measure of progress for
the satisfaction of its performance obligations that are satisfied over time,
as it provides a faithful depiction of (1) performance toward complete
satisfaction of the performance obligation under the contract and (2) the
value transferred to the customer of the services performed under the
contract. All other performance obligations are satisfied at a point in time
upon transfer of control to the customer.
The Company's contracts with customers often include promises to transfer
multiple products and services. Determining whether products and services are
considered distinct performance obligations that should be accounted for
separately versus together may require significant judgement. Judgement is
required to determine stand-alone selling price ('SSP') for each distinct
performance obligation. The Company develops observable SSP by reference to
stand-alone sales for identical or similar items to similarly situated
customers at prices within a sufficiently narrow range.
All equipment sold by the Company is covered by the original manufacturer's
warranty. The Company does not offer an additional warranty and has no related
obligations.
Unbilled accounts receivable represents revenue recognised in excess of
amounts billed. Contract liability represents billings in excess of revenue
recognised. Unbilled accounts receivable at 31 December 2023 and 2022, and 1
January 2022 was $255,000, $nil and $175,000, respectively. Contract liability
at 31 December 2023 and 2022, and 1 January 2022 was $nil, $nil and $54,000,
respectively.
Timing of revenue recognition for each of the periods and geographic regions
presented is shown below:
Year Ending 31 December Equipment Leases, Turnkey Arrangements, and Services Recognised Over Time Consumable Filtration Media, Equipment Sales and Services Recognised at a
(USD, in thousands) Point in Time
2023 2022 2023 2022
Middle East 6,967 6,453 615 572
United States - - 2,683 2,094
Australia - - 369 558
Other - - 248 349
Total revenue recognised under ASC 606 6,967 6,453 3,915 3,573
Total revenue recognised under ASC 842 25 - - -
Total revenue 6,992 6,453 3,915 3,573
Contract costs - The Company capitalises certain contract costs such as costs
to obtain contracts (direct sales commissions) and costs to fulfil contracts
(upfront costs where the Company does not identify the set-up fees as a
performance obligation). These contract assets are amortised over the period
of benefit, which the Company has determined is customer life and averages one
year.
During the years ended 31 December 2023 and 2022, the Company did not have any
costs to obtain a contract and any costs to fulfil a contract were
inconsequential.
Cash, cash equivalents and restricted cash - Cash and cash equivalents consist
of short-term, highly liquid investments which are readily convertible into
cash within ninety days of purchase. At 31 December 2023, all of the Company's
cash, cash equivalent and restricted cash balances were held in checking and
money market accounts. The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. At 31 December 2023 and
2022, cash in non-U.S. institutions was $92,000 and $159,000, respectively.
The Company has not experienced any losses in such accounts. The Company
classifies as restricted cash all cash whose use is limited by contractual
provisions. At 31 December 2023, restricted cash included $50,000 in a money
market account to secure the Company's corporate credit card. At 31 December
2022, restricted cash included $84,000 in a money market account to secure the
Company's corporate credit card and a stand-by letter of credit.
Reconciliation of cash, cash equivalents and restricted cash at 31 December
2023 and 2022:
31 December 2023 31 December 2022
US$000 US$000
Cash and cash equivalents 383 1,645
Restricted cash 50 84
Total cash, cash equivalents and restricted cash 433 1,729
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 2023 and
2022 was $208,000 and $168,000, respectively.
Inventories - Inventories consist primarily of raw materials and filter media
finished goods as well as equipment to house the filter media and are stated
at the lower of cost or net realisable value. Equipment that is in the process
of being constructed for sale or lease to customers is also included in
inventory (work-in-progress). The Company applies the Average Cost method to
account for its inventory. Manufacturing work-in-progress and finished
products inventory include all direct costs, such as labour and materials, and
those indirect costs which are related to production, such as indirect labour,
rents, supplies, repairs and depreciation costs. A valuation reserve is
recorded for slow-moving or obsolete inventory items to reduce the cost of
inventory to its net realisable value. The Company determines the valuation by
evaluating expected future usage as compared to its past history of
utilisation and future expectations of usage. At 31 December 2023 and 2022,
the Company had REGEN-related inventory of 44 percent and 41 percent of the
total inventory balance, respectively, which is in excess of the Company's
current requirements based on the recent level of sales. The inventory is
associated with efforts to expand into the Enhanced Oil Recovery and
Beneficial Reuse markets that the Company has identified as large global
markets. These efforts should reduce this inventory to desired levels over the
near term and management believes no loss will be incurred on its disposition.
However, there is a risk that management will sustain a loss on the value of
the inventory before it is sold. No estimate can be made of a range of amounts
of loss that are reasonably possible should the efforts not be successful.
Prepaid expenses and other current assets - Prepaid expenses and other current
assets include non-trade receivables that are collectible in less than 12
months, security deposits on leased space and various prepaid amounts that
will be charged to expenses within 12 months. Non-trade receivables that are
collectible in 12 months or more are included in long-term assets.
Property and equipment - All property and equipment are valued at cost.
Depreciation is computed using the straight-line method for reporting over the
following useful lives:
Leasehold improvements Lease period or 1-5 years (whichever is shorter)
Office equipment 3-10 years
Manufacturing equipment 5-15 years
Research and development equipment 5-10 years
Purchased software Licensing period or 5 years (whichever is shorter)
Equipment leased to customers 5-10 years
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalised. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation expense includes
depreciation on equipment leased to customers and is included in cost of goods
sold.
Intangible assets - Intangible assets consist of the costs incurred to
purchase patent rights and legal and registration costs incurred to internally
develop patents. Intangible assets are reported net of accumulated
amortisation. Patents are amortised using the straight-line method over a
period based on their contractual lives which approximates their estimated
useful lives.
Impairment of long-lived assets - Long-lived assets to be held and used,
including property and equipment and intangible assets with definite useful
lives, are assessed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
total of the expected undiscounted future cash flows is less than the carrying
amount of the asset, a loss, if any, is recognised for the difference between
the fair value and carrying value of the assets. Impairment analyses, when
performed, are based on the Company's business and technology strategy,
management's views of growth rates for the Company's business, anticipated
future economic and regulatory conditions, and expected technological
availability. For purposes of recognition and measurement, the Company groups
its long-lived assets at the lowest level for which there are identifiable
cash flows, which are largely independent of the cash flows of other assets
and liabilities. No impairment charges were recorded in the years ended 31
December 2023 and 2022.
Research and development costs - Research and development costs are expensed
as incurred. Research and development expense for the years ended 31 December
2023 and 2022 was approximately $248,000 and $218,000, respectively.
Advertising costs - The Company expenses advertising costs as incurred.
Advertising expense for the years ended 31 December 2023 and 2022 was $9,000
and $nil, respectively, and is recorded in selling, general and administrative
expenses.
Income taxes - The provision for income taxes for annual periods is determined
using the asset and liability method, under which deferred tax assets and
liabilities are calculated based on the temporary differences between the
financial statement carrying amounts and income tax bases of assets and
liabilities using currently enacted tax rates. The deferred tax assets are
recorded net of a valuation allowance when, based on the weight of available
evidence, it is more likely than not that some portion or all of the recorded
deferred tax assets will not be realised in future periods. Decreases to the
valuation allowance are recorded as reductions to the provision for income
taxes and increases to the valuation allowance result in additional provision
for income taxes. The realisation of the deferred tax assets, net of a
valuation allowance, is primarily dependent on the ability to generate taxable
income. A change in the Company's estimate of future taxable income may
require an addition or reduction to the valuation allowance.
The benefit from an uncertain income tax position is not recognised if it has
less than a 50 percent likelihood of being sustained upon audit by the
relevant authority. For positions that are more than 50 percent likely to be
sustained, the benefit is recognised at the largest amount that is
more-likely-than-not to be sustained. Where a net operating loss carried
forward, a similar tax loss or a tax credit carry forward exists, an
unrecognised tax benefit is presented as a reduction to a deferred tax asset.
Otherwise, the Company classifies its obligations for uncertain tax positions
as other non-current liabilities unless expected to be paid within one year.
Liabilities expected to be paid within one year are included in the accrued
expenses account.
The Company recognises interest accrued related to tax in interest expense and
penalties in selling, general and administrative expenses. During the years
ended 31 December 2023 and 2022 the Company recognised no interest or
penalties.
Earnings per share - Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
potentially dilutive shares outstanding during the period. Potentially
dilutive shares consist of the incremental common shares issuable upon
conversion of the exercise of common stock options. Potentially dilutive
shares are excluded from the computation if their effect is anti-dilutive.
Total common stock equivalents consisting of unexercised stock options that
were excluded from computing diluted net loss per share were approximately
1,903,694 for the year ended 31 December 2023 and there were no adjustments to
net income available to stockholders as recorded on the Statement of
Operations.
The following table sets forth the components used in the computation of basic
and diluted net (loss) profit per share for the periods indicated:
Years Ended 31 December
2023 2022
Basic weighted average outstanding shares of common stock 22,983,023 22,214,884
Effect of potentially dilutive stock options - -
Diluted weighted average outstanding shares of common stock 22,983,023 22,214,884
Anti-dilutive shares of common stock excluded from diluted weighted average 1,903,694 2,019,118
shares of common stock
Fair value of financial instruments - The Company uses the framework in ASC
820, Fair Value Measurements, to determine the fair value of its financial
assets. ASC 820 establishes a fair value hierarchy that prioritises the inputs
to valuation techniques used to measure fair value and expands financial
statement disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under ASC 820 are described
below:
· Level 1: Unadjusted quoted prices in active markets for identical
assets or liabilities that the Company has the ability to access at the
measurement date.
· Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or indirectly.
· Level 3: Unobservable inputs for the asset or liability.
There were no transfers into and out of each level of the fair value hierarchy
for assets measured at fair value for the years ended 31 December 2023 or
2022.
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 2023 and 2022 include
cash and cash equivalents, restricted cash, accounts receivable and accounts
payable. The carrying values of cash and cash equivalents, restricted cash,
accounts receivable and accounts payable approximate fair value due to the
short-term nature of those assets and liabilities.
Foreign currency transactions - From time to time the Company transacts
business in foreign currencies (currencies other than the United States
Dollar). These transactions are recorded at the rates of exchange prevailing
on the dates of the transactions. Foreign currency transaction gains or losses
are included in selling, general and administrative expenses.
Stock compensation - The Company issues equity-settled share-based awards to
certain employees, which are measured at fair value at the date of grant. The
fair value determined at the grant date is expensed, based on the Company's
estimate of shares that will eventually vest, on a straight-line basis over
the vesting period. Fair value for the share awards representing equity
interests identical to those associated with shares traded in the open market
is determined using the market price at the date of grant. Fair value is
measured by use of the Black Scholes valuation model (see Note 8).
Recently issued accounting standards - In June 2016, the FASB issued ASU
2016-13, Financial Instruments - Credit Losses (Topic 326), which requires
measurement and recognition of expected credit losses for financial assets
held. The standard is to be applied using a modified retrospective approach
through a cumulative-effect adjustment to retained earnings as of the
beginning of the first reporting period in which the guidance is effective.
The Company adopted this guidance effective 1 January 2023. The adoption of
this new guidance did not have a material impact on the financial statements.
Recent accounting pronouncements pending adoption not discussed above are
either not applicable or are not expected to have a material impact on the
Company.
3. Accounts Receivable
Accounts receivable and their respective allowance amounts at 31 December 2023
and 2022:
31 December 2023 31 December 2022
US$000 US$000
Accounts receivable 2,020 2,946
Less: allowance for doubtful accounts (208) (168)
Total receivable - net 1,812 2,778
4. Inventories
Inventories consist of the following at 31 December 2023 and 2022:
31 December 2023 31 December 2022
US$000 US$000
Raw materials 1,637 1,957
Finished goods 1,780 1,780
Total inventory 3,417 3,737
5. Property and Equipment
Property and equipment consist of the following at 31 December 2023 and 2022:
31 December 2023 31 December 2022
US$000 US$000
Leasehold improvements 617 617
Office equipment 636 636
Manufacturing equipment 975 943
Research and development equipment 545 545
Purchased software 222 222
Equipment leased to customers 10,114 10,221
13,109 13,184
Less: accumulated depreciation (10,515) (9,955)
Property and equipment - net 2,594 3,229
During the years ended 31 December 2023 and 2022, the Company removed property
and equipment and the associated gross and accumulated depreciation of
approximately $243,000 and $742,000, respectively, to reflect the disposal of
property and equipment.
Depreciation expense for the years ended 31 December 2023 and 2022 was
approximately $803,000 and $1,022,000, 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 2023
and 2022 was $637,000 and $881,000, respectively.
6. Intangible Assets
During 2009, the Company entered into a patent rights purchase agreement. The
patent is amortised utilising the straight-line method over a useful life of
17 years which represents the legal life of the patent from inception.
Accumulated amortisation on the patent was approximately $83,000 and $77,000
as of 31 December 2023 and 2022, respectively.
In January 2023, the Company entered into a patent rights purchase agreement.
The patents are amortised utilising the straight-line method over useful lives
of 13 and 14.75 years which represent the remaining legal life of the patents
on the date of purchase. Accumulated amortisation on the patents was
approximately $4,000 at 31 December 2023.
In addition to the purchased patents, the Company has internally developed
patents. Internally developed patents include legal and registration costs
incurred to obtain the respective patents. The Company currently holds various
patents and numerous pending patent applications in the United States, as well
as numerous foreign jurisdictions outside of the United States. In 2023, there
was $41,000 of new internally developed patents and fees on patents in
progress.
Intangible assets as of 31 December 2023 and 2022 consist of the following:
Weighted Average Useful Lives 31 December 2023 31 December 2022
US$000 US$000
Internally developed patents 15 years 1,516 1,475
Purchased patents 17 years 150 100
1,666 1,575
Less accumulated amortisation - Internally developed patents (824) (765)
Less accumulated amortisation - purchased patents (83) (77)
Intangible assets - net 759 733
At 31 December 2023, internally developed patents include approximately
$237,000 for costs accumulated for patents that have not yet been issued and
are not depreciating.
Approximate aggregate future amortisation expense is as follows:
Year Ending 31 December (USD, in thousands)
2024 67
2025 66
2026 63
2027 59
2028 52
Thereafter 215
Amortisation expense for the years ended 31 December 2023 and 2022 was
approximately $65,000 and $69,000, respectively.
7. Income Taxes
The components of income taxes shown in the Statements of Operations are as
follows:
31 December 2023 31 December 2022
US$000 US$000
Current:
Federal - -
Foreign 363 415
State 2 3
Total current provision 365 418
Deferred:
Federal - -
Foreign - -
State - -
Total deferred provision - -
Total provision for income taxes 365 418
The provision for income tax varies from the amount computed by applying the
statutory corporate federal tax rate of 21 percent, primarily due to the
effect of certain non-deductible expenses, foreign withholding tax, and
changes in valuation allowances.
A reconciliation of the differences between the effective tax rate and the
federal statutory tax rate is as follows:
31 December 2023 31 December 2022
Federal statutory income tax rate 21.0% 21.0%
State tax rate, net of federal benefit (0.7%) 0.8%
Valuation allowance (23.0%) (18.8%)
Other 0.3% (5.6%)
Foreign withholding tax (8. 5%) (9.1%)
Effective income tax rate (10.9%) (11.7%)
The significant components of deferred income taxes included in the Balance
Sheets are as follows:
31 December 2023 31 December 2022
US$000
US$000
Deferred tax assets
Net operating loss 7,478 6,598
Equity compensation 208 227
Research and development credits 159 159
Right of use liability 196 263
Inventory valuation reserve 265 350
Other 68 145
Total gross deferred tax asset 8,374 7,742
Deferred tax liabilities
Property and equipment (638) (708)
Right of use asset (186) (254)
Total gross deferred tax liability (824) (962)
Net deferred tax asset before valuation allowance 7,550 6,780
Valuation allowance (7,550) (6,780)
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 2023 and 2022, the Company
has recorded a valuation allowance of $7.6 million and $6.8 million,
respectively, 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 2023, the Company has approximately $34.4 million of gross
U.S. federal net operating loss carry forwards and $3.6 million of gross state
net operating loss carry forwards that will begin to expire in the 2024 tax
year and will continue through 2043 when the current year net operating losses
will expire. As of 31 December 2022, the Company had approximately $30.2
million of gross U.S. federal net operating loss carry forwards and $3.7
million of gross state net operating loss carry forwards.
On 27 March 2020, the U.S. Government enacted the Coronavirus Aid, Relied, and
Economic Security Act (the 'CARES Act'). The CARES Act includes, but is not
limited to, tax law changes related to (1) accelerated depreciation deductions
for qualified improvement property placed in service after 27 September 2017,
(2) reduced limitation of interest deductions, and (3) temporary changes to
the use and limitation of NOLs. There was no material impact of the CARES Act
to the Company's income tax provision for 2023 or 2022.
On 16 August 2022, the Inflation Reduction Act of 2022 ('IRA') was signed into
law. The IRA levies a 1% excise tax on net stock repurchases after 31 December
2022 and imposes a 15% corporate alternative minimum tax ('CAMT') for tax
years beginning after 31 December 2022. There was no material impact of the
IRA on the Company's income tax provision for 2023 or 2022.
The Company's tax years 2019 through 2023 remain subject to examination by
federal, state and foreign income tax jurisdictions. However, net operating
losses that were generated in previous years may still be adjusted by the
Internal Revenue Service if they are used in a future period.
8. Stock Compensation
In July 2011, the Company's shareholders approved the Conversion Shares and
the Directors' Shares, as well as the Plan Shares and Omnibus Performance
Incentive Plan ('Plan'). This included the termination of all outstanding
stock incentive plans, cancellation of all outstanding stock incentive
agreements, and the awarding of stock incentives to Directors and certain
employees and consultants. The Company established the Plan to attract and
retain Directors, officers, employees and consultants. The Company reserved an
amount equal to 10 percent of the Common Shares issued and outstanding
immediately following its Public Offering.
Upon the issuance of these shares, an award of share options was made to the
Directors and certain employees and consultants, and a single award of
restricted shares was made to a former Chief Financial Officer. In addition,
additional stock options were awarded in each year subsequent. The awards of
stock options and restricted shares made upon issuance were in respect of 85
percent of the Common Shares available under the Plan, equivalent to 8.5
percent of the Public Offering.
In July 2019, the Company's shareholders approved the extension of the Plan to
2029 and the increase in the possible number of shares to be awarded pursuant
to the Plan to 15 percent of the Company's issued capital at the date of any
award. The total number of shares reserved for stock options under this Plan
is 3,447,453 with 1,753,357 shares allocated as of 31 December 2023. The
shares are all allocated to employees, executives and consultants.
Any options granted to Non-Executive Directors, unless otherwise agreed, vest
contingent on continuing service with the Company at the vesting date and
compliance with the covenants applicable to such service.
Employee options vest over three years with a third vesting ratably each year,
partially on issuance and partially over the following 24-month period, or if
there is a change of control, and expire on the tenth anniversary date the
option vests. Vesting accelerates in the event of a change of control. Options
granted to Non-Executive Directors, Consultants and one Executive vest
partially on issuance and will vest partially one to two years later. The
remaining Non-Executive Director options expired at the end of 2016 on the
five-year anniversary date of the grant.
As discussed in Note 2, the Company uses the Black Scholes valuation model to
measure the fair value of options granted. The Company's expected volatility
is calculated as the historical volatility of the Company's stock over a
period equal to the expected term of the awards. The expected terms of options
are calculated using the weighted average vesting period and the contractual
term of the options. The risk-free interest rate is based on a blended average
yield of two- and five-year United States Treasury Bills at the time of grant.
The assumptions used in the Black Scholes option pricing model for options
granted in 2023 and 2022 were as follows:
Number of Options Granted Grant Date Risk-free Interest Rate Expected Term Volatility Exercise Price Fair Value Per Option
2022 250,000 27/06/2022 3.25% 6.0 years 279.00% $0.55 $0.54
25,000 28/09/2022 4.18% 6.0 years 279.00% $0.33 $0.33
The Company assumes a dividend yield of 0.0 percent.
The following table summarises the Company's stock option activity for the
years ended 31 December 2023 and 2022:
Stock Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Average Grant Date Fair Value
Outstanding at 31 December 2021 2,043,338 $1.43 5.8 $0.76
Granted 275,000 $0.53 6.0 $0.52
Forfeited (213,258) $2.41
Outstanding at 31 December 2022 2,105,080 $1.22 5.8 $0.68
Forfeited (351,705) $1.70
Outstanding at 31 December 2023 1,753,375 $1.12 5.8 $0.66
Exercisable at 31 December 2023 1,411,708 $1.27 5.4
The total intrinsic value of the stock options exercised during the years
ended 31 December 2023 and 2022 was approximately $nil.
A summary of the status of unvested options as of 31 December 2023 and changes
during the years ended 31 December 2023 and 2022 is presented below:
Unvested Options Shares Weighted-Average Fair Value at
Grant Date
Unvested at 31 December 2021 851,000 $0.41
Granted 275,000 $0.52
Vested (356,334) $0.46
Forfeited (26,666)
Unvested at 31 December 2022 743,000 $0.43
Vested (301,333) $0.42
Forfeited (100,000)
Unvested at 31 December 2023 341,667 $0.40
As of 31 December 2023, total unrecognised compensation cost of approximately
$86,000 was related to unvested share-based compensation arrangements awarded
under the Plan.
Total stock compensation expense for the years ended 31 December 2023 and 2022
was approximately $31,000 and $156,000, respectively.
9. Commitments and Contingencies
Operating leases - As of 31 December 2023, the Operating Lease ROU Asset has a
balance of $843,000, net of accumulated amortisation of $899,000, and an
Operating Lease Liability of $890,000, which are included in the accompanying
balance sheet. The weighted-average discount rate used for leases is 5.25
percent, which is based on the Company's secured incremental borrowing rate.
The Company's leases do not include any options to renew that are reasonably
certain to be exercised. The Company's leases mature at various dates through
March 2027 and have a weighted-average remaining life of 3.1 years.
Future maturities under the Operating Lease Liability are as follows for the
years ended 31 December:
Year Ending 31 December Future Lease Payments
US$000
2024 320
2025 280
2026 291
2027 74
Total future maturities 965
Portion representing interest (75)
890
Total lease expense for the years ended 31 December 2023 and 2022 was
approximately $386,000 and $341,000, respectively.
Total cash paid for leases for the years ended 31 December 2023 and 2022 was
$381,000 and $307,000, respectively, and is part of prepaid operating leases
on the Statements of Cash Flows.
The Company has elected to apply the short-term lease exception to all leases
of one year or less and is not separating lease and non-lease components when
evaluating leases. Total costs associated with short-term leases was $237,000
and $322,000 for the years ended 31 December 2023 and 2022, respectively.
Legal - From time to time, the Company is a party to certain legal proceedings
arising in the ordinary course of business. In the opinion of management,
there are no current legal proceedings or other claims outstanding which could
have a material adverse effect on the results of operations or financial
position of the Company.
10. Related Party Transactions
The Company has held a patent rights purchase agreement since 2009 with a
Director, who is also a shareholder, as described in Note 6.
11. Segment and Geographic Information
ASC 280-10, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for reporting information about operating
segments. ASC 280-10 requires that the Company report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise for which separate financial
information is available that is evaluated regularly by the chief operating
decision maker ('CODM') in deciding how to allocate resources and in assessing
performance. The Company's CODM is the Chief Executive Officer ('CEO'). While
the CEO is apprised of a variety of financial metrics and information, the
business is principally managed on an aggregate basis as of 31 December 2023.
For the year ended 31 December 2023, the Company's revenues were generated
primarily in the Middle East and the United States ('U.S.'). Additionally, the
majority of the Company's expenditures and personnel either directly supported
its efforts in the Middle East and the U.S., or cannot be specifically
attributed to a geography. Therefore, the Company has only one reportable
operating segment.
Revenue from customers by geography is as follows:
Year Ending 31 December (USD, in thousands) 2023 2022
Middle East 7,582 7,025
United States 2,708 2,094
Australia 369 558
Other 248 349
Total 10,907 10,026
Long-lived assets, net of depreciation, by geography is as follows:
Year Ending 31 December (USD, in thousands) 2023 2022
Middle East 1,518 2,016
United States 1,075 2,389
Total 2,593 4,405
12. Concentrations
At 31 December 2023, five customers, one with three contracts with three
separate plants, represented 90 percent of accounts receivable. During the
year ended 31 December 2023, the Company received 87 percent of its gross
revenue from seven customers, one with three contracts with three separate
plants.
At 31 December 2022, two customers, one with four contracts with four separate
plants, represented 88 percent of accounts receivable. During the year ended
31 December 2022, the Company received 85 percent of its gross revenue from
five customers, one with four contracts with four separate plants.
13. 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 15 May
2024, the date the financial statements were available to be issued, and no
events have occurred which require further disclosure other than the
following:
On 29 February 2024, the Company sold its Saudi Arabia business operations,
including equipment, inventory and contracts, for an acquisition price of up
to $7.125 million (the 'Total Consideration') to Twarid Water Treatment LLC
('Twarid'). The Total Consideration was split $3.125 million at closing with
up to $4 million deferred on a 24 month earn-out structure based on Twarid
achieving defined revenue targets. The assets sold had a net book value of
$2.2 million. The proceeds of the sale will enable the Company to focus on
accelerating its marketing and sales plan for its unique technologies in the
PFAS remediation and EOR markets while continuing to grow its propriety media
and product sales in Saudi Arabia through an exclusive distribution agreement
with Twarid.
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