REG - MyCelx Tech. Corp. MyCelx Tech. Cp-MYXR - Half Year Results Statement
24/09/2024 07:00
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RNS Number : 3960F MyCelx Technologies Corporation 24 September 2024
24 September 2024
MYCELX TECHNOLOGIES CORPORATION (AIM: MYX)
Half Year Results Statement
MYCELX Technologies Corporation ("MYCELX" or the "Company"), the clean water
and clean air technology company established to transform the environmental
impact of industry, is pleased to announce its unaudited interim results for
the six months ended 30 June 2024.
Highlights
Financial
· Sale of Saudi Arabia business operations for a total consideration of
$3.125 million at closing with up to $4.0 million deferred on a two year
earn-out structure, allowing Company to focus resources on two core growth
markets
· Reflecting the sale of the Saudi Arabia business operations, revenue
of $3.5 million (2023 H1: $5.6 million)
· Gross profit margin of 28.2% (2023 H1: 45.2%)
· EBITDA(*) loss $1.1 million (2023 H1: loss $900,000)
· Net loss of $1.4 million (2023 H1: $1.5 million)
· Cash and cash equivalents $2.1 million at end of period
Operational
PFAS
· Completed a short-term, emergency PFAS remediation project treating
Aqueous Film Forming Foam ('AFFF') contaminated water. Contracted by a global
engineering company, MYCELX intends to leverage this success to win more AFFF
clean-up projects and become a "go to" solution for AFFF remediation
worldwide.
· Successfully completed a treatability study paving the way for
inclusion in a multiple technology, four-month pilot trial treating PFAS
contamination at a municipal wastewater treatment facility.
o Post period end: the trial is expected to commence in Q1 2025, with the
final outcome of the trial likely to determine the award of a long-term
contract by the municipality which, industry-wide, are generally in excess of
15 years.
· Received first media order from an established Point of Entry/Point
of Use commercial and residential water system supplier in the US, integrating
the Company's PFAS media into their product line.
· Hired an experienced PFAS technical expert with nine years of
industry experience from a global water equipment and solutions provider.
REGEN
· Delivered first REGEN retrofit package, which will enable MYCELX's
enhanced oil recovery ('EOR') customer in the Middle East to change from
traditional nutshell media to REGEN media.
· Received notification from a global product supplier that their
testing concluded REGEN was the most effective technology to treat water
during EOR production. The supplier intends to include REGEN in their project
bids going forward.
· Continuation of a pilot trial with a global energy technology company
showcasing REGEN media's superior capabilities over nutshell media to other
producers.
· Commenced REGEN pilot trial with Canadian EOR producer.
· Hired an experience engineer to further strengthen the REGEN team.
Post Period Update
· Signed a Business Partnership Agreement with an 8a and HUBZone
Certified Prime Contractor with the sole purpose of developing a mutually
beneficial business relationship focused on the US Department of Defense (the
'US DoD') funded PFAS remediation projects.
· Made our second sale of an oil-polishing unit to an electric utility
in Canada. Delivery expected in H1 2025.
· Continuation of pre-treatment system design for PFAS system for
landfill leachate
· Successful installation of REGEN system at Middle East EOR producer
· Successfully completed an equity fundraise of ca.$0.9 million in
September to accelerate the Company's progress in the PFAS and EOR markets.
The fundraise enables MYCELX to purchase additional trial equipment so that
more trials can be executed, which increases the chances of securing project
bids going forward.
Outlook
Based on current robust trial and bidding activity, MYCELX is very optimistic
about the PFAS, REGEN and EOR markets going into 2025 and beyond. Recognition
that the PFAS remediation market is going to be a multi-billion dollar a year
industry (as estimated by the US DoD) is starting to gain traction with
operators and developers of remediation technologies. It is imperative the
Company focuses on this division to capture its share of this long-term,
lucrative opportunity. In the EOR market, two trials are currently underway
with another potential opportunity before year end. The building momentum in
MYCELX's technology is why the Company elected to successfully complete a
ca.$0.9 million equity fundraise in September, as it will enable the Company
to capitalise on these and future opportunities.
In terms of upcoming PFAS projects and opportunities that we expect to
commence over the coming months, we have the landfill leachate trial with a
global engineering company in the second phase addressing the pre-treatment
unit required to prevent fouling of the MYCELX system and PFAS removal media.
Given the enlarged scope of work, the Company expects the project to move to
2025 with potential follow-on opportunities working with the engineering
company. MYCELX's PFAS residential systems partnership is expected to launch
by year end with expectations that while media sales per unit will be smaller
than in the industrial markets, the sector will build over time into a volume
play creating steady, predictable revenue. The Company signed an agreement
with a preferred US DoD contractor who has water treatment experience at
military sites. Together we are engaged with the US DoD and the EPA to
identify upcoming PFAS remediation projects registered on the US government
administered System for Award Management. Early in 2025 the Company will be
one of a few technologies engaged in a municipal wastewater treatment trial.
This market sector is a target for MYCELX in small to mid-size public
utilities for PFAS water treatment. The Company is in discussions with an
existing engineering company customer to treat AFFF laden with PFAS which
would be our second project with them offering onsite, fast response systems
to remediate PFAS.
The Company continues to see robust interest in the REGEN media for EOR
production. We are continuing a pilot trial with a Canadian EOR producer that
has moved into a second phase subsequent to a system upgrade. We expect this
phase to prove the efficacy of our REGEN system and lead to either a purchase
of the on-site equipment, or a new system. The Company recently installed and
started up our REGEN Retro-fit package for an operator in the Middle East,
which was shipped to the customer in the first half of 2024. We expect this
project to lead to several more projects with this customer.
The Company recently provided updated revenue guidance for the full financial
year following a change to a customer's project timeline. This meant that
revenue expected to be recognised in December will shift into Q1 2025.
Notwithstanding this, the Directors are pleased with the progress of the
Company in the year to date and they look forward to delivering on the
recently revised forecasts.
*See Financial Review for definition of EBITDA
Commenting on these results, Connie Mixon, CEO, said:
"The Company's performance in H1 2024 is highlighted by a number of important
trial projects and contract awards with existing and new customers were
secured across our markets of focus, demonstrating that we continue to provide
customers with a cost effective, high performance and environmentally
sustainable product.
The sale of our Saudi Arabia business operations was a pivotal event for the
business, as it allowed us to release capital that could be deployed into high
margin and high growth industries, whilst also ensuring that, through our
exclusive distribution agreement with the purchaser, we are still able to grow
our proprietary media and product sales in Saudi Arabia, which is an important
market for these applications.
Post period end, we were pleased to announce the successful closing of a
ca.$0.9 million equity fundraise, which will enable us to deploy the funds
into additional trial equipment, which will enable the Company to take part in
more trials, which should lead to further contract wins.
We have several important trials operating with follow-on sites in both core
markets which is cause for optimism for the remainder of 2024 and going into
2025. As recently announced, approximately $5.4 million of revenue from a
significant project that we expected to recognise in December will be shifted
to Q1 2025. We look forward to delivering our revised expectations for 2024
and we will be updating all our stakeholders on our progress over the coming
period."
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
Charlie Hammond
Celicourt Communications (Financial PR)
Mark Antelme Tel: +44 20 7770 6424
Jimmy Lea
Charlie Denley-Myerson
Chairman's and Chief Executive Officer's Statement
We are pleased to publish MYCELX's H1 2024 results today, alongside a wider
business update on the corporate activity we have been working on since the
start of the year.
Operational Review
In H1 2024 MYCELX realised a number of significant corporate and operational
achievements. Arguably, the most transformational was the completion of the
sale of MYCELX's business operations in the Kingdom of Saudi Arabia
transitioning it to an Exclusive Distributorship led by the legacy management
and operations team. The transaction enabled us to further strengthen our
financial position, providing the business with the ability to place greater
focus on accelerating the growth of our PFAS and EOR offerings in our core
markets.
The agreement with Twarid Water Treatment LLC ("Twarid") allows MYCELX to
maintain its presence in Saudi Arabia, with the advantage of a significant
reduction in business related costs that come with operating as a foreign
company in Saudi Arabia. We are highly confident that we will be able to
generate future value from the established footprint and Twarid's strong
relationships in what remains one of the most important markets for oil and
gas production in the world. The Company has two one-year earn-out periods
associated with the sale of the Saudi Arabia operations. Based on the buyer's
performance over the first six months, we are on track to earn in excess of $1
million out of a potential $2 million for the first earn-out period that would
be received in Q2 2025. If the buyer continues on this trajectory, we would
hope that substantially all the contingent consideration would become payable
to the Company across both earn-out periods for a total of $4 million, however
the Company cautions there are no guarantees to this and it remains outside of
the Company's control.
The Company's PFAS and REGEN trials and bidding activity has increased
significantly since the beginning of the year. PFAS remediation is a
long-term, large market that is in the early stages of development in the US.
Technologies to improve performance versus the incumbent technologies are in
development and from our discussions with potential clients, it is clear they
are seeking more effective and efficient technology. We have forged two
strategic relationships; the first in residential PFAS protection with a
partner who has years of experience in that market, and the second with the
newly signed agreement with a preferred military contractor to address PFAS
site remediation for the US DoD. We continue to identify potential partners in
our other core markets as well as marketing directly to end users. The Company
successfully completed a short-term, emergency remediation project treating
water contaminated with AFFF at a refinery, which saw us become the
first-choice solution for AFFF remediation for the client, which is a global
engineering company. We have worked hard to expand the applicability of
MYCELX's PFAS remediation technologies to new markets and look forward to
exploring the ever-growing remediation opportunities in the AFFF sector. The
period also saw MYCELX successfully complete a treatability study which has
led to the inclusion of our technology in a four-month long pilot trial
treating PFAS contamination for a municipality at its wastewater treatment
facility. If successful, the trial, which is expected to commence in Q1 2025,
could lead to MYCELX being awarded a long-term contract by the municipality.
The Company also secured a first media order from an established Point of
Entry/Point of Use commercial and residential water system supplier in the US
with plans to integrate MYCELX's PFAS media into its product line. Following
the end of the first half of 2024, the Company was excited to announce its
agreement with an 8a and HubZone certified contractor which will lead to an
ongoing collaboration to provide PFAS remediation solutions for the US DoD.
The Company looks forward to updating the market as this partnership develops
further.
We continue to see strong interest in MYCELX's REGEN offering in the EOR
market, evidenced by the delivery of the Company's first REGEN retrofit
package for a client in the Middle East. The conclusion of this order
demonstrates the growing demand for REGEN and MYCELX's ability to install and
apply its EOR remediation technology to meet the changing needs of our global
client base. Our REGEN technology also gained industry-leading recognition in
the period after a global product supplier to the EOR market notified MYCELX
that its technology was found to be the best of the technologies tested in
treating EOR-produced water. The client also notified us that they intend to
bid their products to include REGEN in the future. The Company also maintained
its focus on pilot trials to demonstrate the applicability of its REGEN
technology across the EOR market.
We were also pleased to further strengthen our senior leadership and
management team during the period, hiring an experienced PFAS technical expert
with nine years of experience in the sector, who previously worked for a
global water equipment and solutions provider. In the REGEN team, MYCELX added
an engineer with several years of experience to strengthen the division. Both
additions have and will continue to allow us to improve our ability to meet
demand from these growing addressable markets.
Financial Review
In 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 which included $3.125 million paid at closing and up to $4
million deferred on a 24 month earn-out structure. 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 also supporting
other working capital needs.
Due to the sale of the Saudi Arabia business operations, revenue decreased 37%
to $3.5 million compared to $5.6 million in the first half of 2023. Revenue
from equipment sales and leases decreased by 80% to $400,000 in the first half
of 2024 (2023 H1: $2.0 million). Revenue from consumable filtration media and
service decreased by 14% to $3.1 million (2023 H1: $3.6 million). The
equipment sales are one off by nature, but there is longevity to the recurring
media sales.
Gross profit decreased by 60% to $1.0 million in the first half of 2024,
compared to $2.5 million in the first half of 2023, and gross profit margin
decreased to 28% in the first half of 2024 (2023 H1: 45%) due to an inordinate
amount of ancillary services provided in Saudi Arabia prior to the sale of the
Saudi Arabia business operations.
Total operating expenses for the first half of 2024, including depreciation
and amortisation, decreased by 18% to $3.1 million (2023 H1: $3.8 million).
The largest component of operating expenses was selling, general and
administrative expenses, which decreased by approximately 19% to $2.9 million
in the first half of 2024 (2023 H1: $3.6 million) due to the elimination of
overhead expenses associated with the branch office in Saudi Arabia.
Depreciation and amortisation within operating expenses decreased by 8% to
$107,000 (2023 H1: $116,000).
EBITDA was negative $1.1 million for the first half of 2024, compared to
negative $900,000 for the first half of 2023. 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, and includes gains on sale of fixed assets (which includes gains from
the sale of Saudi Arabia business operations - see Note 13). 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 $1.3 million for the first half of
2024, unchanged from the loss before tax of $1.3 million for the first half of
2023 despite the lower revenue in the period. Basic loss per share was 6 cents
for the first half of 2024, compared to basic loss per share of 7 cents for
the first half of 2023.
As of 30 June 2024, total assets were $8.7 million with the largest assets
being inventory of $2.7 million, property and equipment of $1.1 million, and
$2.1 million of cash and cash equivalents including restricted cash.
Total liabilities as of 30 June 2024 were $2.9 million and stockholders'
equity was $5.8 million, resulting in a debt-to-equity ratio of 50%.
The Company ended the period with $2.1 million of cash and cash equivalents,
including restricted cash, compared to $433,000 in total at 31 December 2023.
The Company used approximately $550,000 cash in operations in the first half
of 2024, compared to $100,000 used in operations in the first half of 2023.
Due to proceeds from the sale of Saudi business operations, the Company
generated $2.2 million in investment activities in the first half of 2024
(2023 H1: $172,000 used in investing) and there were no financing activities
in the first half of 2024 or 2023.
Post the period end, the Company completed the closing of a Placing of
1,380,791 Common Shares at a price of US$0.68 (51.5 pence) per new share
raising gross proceeds of ca.$0.9 million before expenses. The proceeds from
the transaction will be used to purchase additional trial equipment so that
more trials can be entered into, which increases the chances of securing
project bids going forward.
Outlook
Following our performance in H1 2024, and the recently executed fundraise of
ca.$0.9 million, we are well placed to capitalise on the market opportunity in
front of us. We firmly believe that the PFAS remediation market will not be a
winner-take-all industry, but that there will be a small handful of players
that are able to deliver a sustainable, low-cost technology offering, that
generates results for customers. Our aim is to be the leader of this group and
we see it as our job to deliver on this objective.
Global energy companies remain keen to seek out environmentally friendly and
capital efficient technologies that enable them to deliver operational and
financial synergies along with environmental benefits to their businesses. We
continue to believe that MYCELX offers all of these advantages to its
customers, so we look forward to continuing with our growth plans over the
remainder of 2024 and beyond, which will generate significant value for all
our stakeholders.
Tom
Lamb
Connie Mixon
Chairman
Chief Executive Officer
24 September 2024
MYCELX TECHNOLOGIES CORPORATION
Statements of Operations
(USD, in thousands, except share data)
Six Months Six Months Year
Ended Ended Ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited)
Revenue 3,500 5,568 10,907
Cost of goods sold 2,514 3,051 7,017
Gross profit 986 2,517 3,890
Operating expenses:
Research and development 113 107 248
Selling, general and administrative 2,892 3,608 6,743
Depreciation and amortisation 107 116 231
Total operating expenses 3,112 3,831 7,222
Operating loss (2,126) (1,314) (3,332)
Other income (expense)
Gain on sale of fixed assets 838 - -
Interest expense (7) (4) (9)
Loss before income taxes (1,295) (1,318) (3,341)
Provision for income taxes (66) (187) (365)
Net loss (1,361) (1,505) (3,706)
Loss per share-basic (0.06) (0.07) (0.16)
Loss per share-diluted (0.06) (0.07) (0.16)
Shares used to compute basic loss per share 22,983,023 22,983,023 22,983,023
Shares used to compute diluted loss per share 22,983,023 22,983,023 22,983,023
The accompanying notes are an integral part of the financial statements.
MYCELX TECHNOLOGIES CORPORATION
Balance Sheets
(USD, in thousands, except share data) As of As of As of
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited)
ASSETS
Current Assets
Cash and cash equivalents 2,073 1,394 383
Restricted cash 50 50 50
Accounts receivable - net 443 1,675 1,812
Unbilled accounts receivable 99 - 255
Inventory 2,690 3,826 3,417
Prepaid expenses 155 272 123
Other assets 88 138 153
Total Current Assets 5,598 7,355 6,193
Property and equipment - net 1,083 3,007 2,594
Intangible assets - net 734 784 759
Operating lease asset - net 1,300 1,011 844
Total Assets 8,715 12,157 10,390
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 413 703 1,541
Payroll and accrued expenses 54 865 793
Contract liability 1,040 - -
Customer deposits 53 176 10
Operating lease obligations - current 348 331 282
Total Current Liabilities 1,908 2,075 2,626
Operating lease obligations - long-term 997 725 607
Total Liabilities 2,905 2,800 3,233
Stockholders' Equity
Common stock, $0.025 par value, 100,000,000
shares authorised, 22,983,023 shares issued and
outstanding at 30 June 2023 and 2022 and
31 December 2022
574 574 574
Additional paid-in capital 44,813 44,798 44,799
Accumulated deficit (39,577) (36,015) (38,216)
Total Stockholders' Equity 5,810 9,357 7,157
Total Liabilities and Stockholders' Equity 8,715 12,157 10,390
As of
As of
As of
30 June
30 June
31 December
2024
2023
2023
(unaudited)
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents
2,073
1,394
383
Restricted cash
50
50
50
Accounts receivable - net
443
1,675
1,812
Unbilled accounts receivable
99
-
255
Inventory
2,690
3,826
3,417
Prepaid expenses
155
272
123
Other assets
88
138
153
Total Current Assets
5,598
7,355
6,193
Property and equipment - net
1,083
3,007
2,594
Intangible assets - net
734
784
759
Operating lease asset - net
1,300
1,011
844
Total Assets
8,715
12,157
10,390
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable
413
703
1,541
Payroll and accrued expenses
54
865
793
Contract liability
1,040
-
-
Customer deposits
53
176
10
Operating lease obligations - current
348
331
282
Total Current Liabilities
1,908
2,075
2,626
Operating lease obligations - long-term
997
725
607
Total Liabilities
2,905
2,800
3,233
Stockholders' Equity
Common stock, $0.025 par value, 100,000,000
shares authorised, 22,983,023 shares issued and
outstanding at 30 June 2023 and 2022 and
31 December 2022
574
574
574
Additional paid-in capital
44,813
44,798
44,799
Accumulated deficit
(39,577)
(36,015)
(38,216)
Total Stockholders' Equity
5,810
9,357
7,157
Total Liabilities and Stockholders' Equity
8,715
12,157
10,390
The accompanying notes are an integral part of the financial statements.
MYCELX TECHNOLOGIES CORPORATION
Statements of Stockholders' Equity
(USD, in thousands)
Additional
Common Stock Paid-in Accumulated
Capital Deficit Total
Shares $ $ $ $
Balances at 31 December 2022 22,983,023 574 44,768 (34,510) 10,832
Stock-based compensation expense - - 30 - 30
Net loss for the period - - - (1,505) (1,505)
Balances at 30 June 2023 (unaudited) 22,983,023 574 44,798 (36,015) 9,357
Stock-based compensation expense - - 1 - 1
Net loss for the period - - - (2,201) (2,201)
Balances at 31 December 2023 22,983,023 574 44,799 (38,216) 7,157
Stock-based compensation expense - - 14 - 14
Net loss for the period - - - (1,361) (1,361)
Balances at 30 June 2024 (unaudited) 22,983,023 574 44,813 (39,577) 5,810
The accompanying notes are an integral part of the financial statements.
MYCELX TECHNOLOGIES CORPORATION
Statements of Cash Flows
(USD, in thousands)
Six Months Six Months Year
Ended Ended Ended
30 June 30 June 31 December
2024 2023 2023
(unaudited) (unaudited)
Cash flow from operating activities
Net loss (1,361) (1,505) (3,706)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortisation 235 441 868
Gain on sale of fixed assets (838) - -
Inventory reserve adjustment (101) - (415)
Stock compensation 14 30 31
Change in operating assets and liabilities:
Accounts receivable - net 1,369 1,103 966
Unbilled accounts receivable 156 - (255)
Inventory 727 (187) 657
Prepaid expenses (32) (173) (24)
Prepaid operating leases - 5 5
Other assets 65 - (15)
Accounts payable (1,128) (92) 746
Payroll and accrued expenses (739) 107 35
Contract liability 1,040 - -
Customer deposits 43 158 (8)
Net cash used in operating activities (550) (113) (1,115)
Cash flow from investing activities
Proceeds from sale of fixed assets 2,281 - -
Payments for purchases of property and equipment (32) (89) (90)
Payments for internally developed patents (9) (83) (91)
Net cash provided by (used in) investing activities 2,240 (172) (181)
Net increase (decrease) in cash, cash equivalents and restricted cash 1,690 (1,296)
(285)
Cash, cash equivalents and restricted cash, beginning of period 433 1,729
1,729
Cash, cash equivalents and restricted cash, end of period 2,123 433
1,444
Supplemental disclosures of cash flow information:
Cash payments for interest 7 4 9
Cash payments for income taxes 133 244 394
Non-cash movements of inventory and fixed assets - 98 78
Non-cash operating ROU assets 1,300 906 889
Non-cash operating lease obligations 1,345 946 889
The accompanying notes are an integral part of the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Nature of business and basis of presentation
Basis of presentation - These interim financial statements have been prepared
using recognition and measurement principles of Generally Accepted Accounting
Principles in the United States of America ('U.S. GAAP').
The interim financial statements for the six months ended 30 June 2024 and
2023 have not been audited.
Nature of business - MYCELX Technologies Corporation ('MYCELX' or the 'Company') was incorporated in the State of Georgia on 24 March 1994. The Company is headquartered in Norcross, Georgia with operations in Houston, Texas 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. In February 2024, the
Company sold its Saudi Arabia business operations for up to $7.125 million
which included $3.125 million paid at closing and up to $4 million deferred on
a 24 month earn-out structure. Additionally, the Company raised gross proceeds
of ca.$0.9 million before expenses in a Placing of Common Shares post period
end. The proceeds of these transactions 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 interim financial statements and,
accordingly, consider it appropriate to adopt the going concern basis in
preparing these interim 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 judgment. Judgment is
required to determine stand-alone selling price ('SSP') for each distinct
performance obligation. The Company develops observable SSP by reference to
stand-alone sales for identical or similar items to similarly situated clients
at prices within a sufficiently narrow range.
All equipment sold by the Company is covered by the original manufacturer's
warranty. The Company does not offer an additional warranty and has no related
obligations.
Unbilled accounts receivable represents revenue recognised in excess of
amounts billed. Contract liability represents billings in excess of revenue
recognised. Unbilled accounts receivable at 30 June 2024 and 2023, 31 December
2023 and 1 January 2023 was $99,000, $nil, $255,000 and $nil, respectively.
Contract liability at 30 June 2024 and 2023, 31 December 2023 and 1 January
2023 was $1 million, $nil, $nil and $54,000, respectively.
Timing of revenue recognition for each of the periods and geographic regions
presented is shown below:
Equipment Leases, Turnkey Arrangements, and Services Recognised Over Time Consumable Filtration Media, Equipment Sales and Service Recognised at a Point
in Time
30 June 2024 30 June 2023 31 December 2023 30 June 2024 30 June 2023 31 December 2023
(USD, in thousands)
Middle East 752 3,885 6,967 860 6 615
United States - - - 1,032 1,338 2,683
Australia - - - 513 184 369
Other - - - 272 148 248
Total revenue recognised under ASC 606 752 3,885 6,967 2,677 1,676 3,915
Total revenue recognised under ASC 842 - 7 25 71 - -
Total revenue 752 3,893 6,992 2,748 1,676 3,915
Contract costs - The Company capitalises certain contract costs such as costs
to obtain contracts (direct sales commissions) and costs to fulfil contracts
(upfront costs where the Company does not identify the set-up fees as a
performance obligation). These contract assets are amortised over the period
of benefit, which the Company has determined is customer life and averages one
year.
During the six months ended 30 June 2024 and 2023, and the year ended 31
December 2023, the Company did not have any costs to obtain a contract and any
costs to fulfil a contract were inconsequential.
Cash, cash equivalents and restricted cash - Cash and cash equivalents consist
of short-term, highly liquid investments which are readily convertible into
cash within ninety (90) days of purchase. At 30 June 2024, all of the
Company's cash, cash equivalent and restricted cash balances were held in
checking and money market accounts. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured limits. At 30
June 2024 and 2023, and 31 December 2023, cash in non-U.S. institutions was
$1,000, $106,000 and $92,000, respectively. The Company has not experienced
any losses in such accounts. The Company classifies as restricted cash all
cash whose use is limited by contractual provisions. At 30 June 2024 and 2023,
and 31 December 2023, restricted cash included $50,000 in a money market
account to secure the Company's corporate credit card.
Reconciliation of cash, cash equivalents and restricted cash at 30 June 2024
and 2023, and 31 December 2023:
30 June 30 June 31 December
2024 2023 2023
US$000 US$000 US$000
Cash and cash equivalents 2,073 1,394 383
Restricted cash 50 50 50
Total cash, cash equivalents and restricted cash 2,123 1,444 433
Accounts receivable - Trade accounts receivable are stated at the amount
management expects to collect from outstanding balances. The Company provides
credit in the normal course of business to its customers and performs ongoing
credit evaluations of those customers and maintains allowances for doubtful
accounts, as necessary. Accounts are considered past due based on the
contractual terms of the transaction. Credit losses, when realised, have been
within the range of the Company's expectations and, historically, have not
been significant. The allowance for doubtful accounts at 30 June 2024 and
2023, and 31 December 2023 was $58,000, $168,000 and $208,000, respectively.
Inventories - Inventories consist primarily of raw materials and filter media
finished goods as well as equipment to house the filter media and are stated
at the lower of cost or net realisable value. Equipment that is in the process
of being constructed for sale or lease to customers is also included in
inventory (work-in-progress). The Company applies the Average Cost method to
account for its inventory. Manufacturing work-in-progress and finished
products inventory include all direct costs, such as labour and materials, and
those indirect costs which are related to production, such as indirect labour,
rents, supplies, repairs and depreciation costs. A valuation reserve is
recorded for slow-moving or obsolete inventory items to reduce the cost of
inventory to its net realisable value. The Company determines the valuation by
evaluating expected future usage as compared to its past history of
utilisation and future expectations of usage. At 30 June 2024 and 2023, and 31
December 2023, the Company had REGEN-related inventory of 48 percent, 41
percent and 44 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 six months ended
30 June 2024 and 2023, and the year ended 31 December 2023.
Research and development costs - Research and development costs are expensed
as incurred. Research and development expense for the six months ended 30 June
2024 and 2023, and the year ended 31 December 2023 was approximately $113,000,
$107,000 and $248,000, respectively.
Advertising costs - The Company expenses advertising costs as incurred.
Advertising expense for the six months ended 30 June 2024 and 2023, and the
year ended 31 December 2023 was $7,000, $7,000 and $9,000, respectively, and
is recorded in selling, general and administrative expenses.
Income taxes - The provision for income taxes for interim and annual periods
is determined using the asset and liability method, under which deferred tax
assets and liabilities are calculated based on the temporary differences
between the financial statement carrying amounts and income tax bases of
assets and liabilities using currently enacted tax rates. The deferred tax
assets are recorded net of a valuation allowance when, based on the weight of
available evidence, it is more likely than not that some portion or all of the
recorded deferred tax assets will not be realised in future periods. Decreases
to the valuation allowance are recorded as reductions to the provision for
income taxes and increases to the valuation allowance result in additional
provision for income taxes. The realisation of the deferred tax assets, net of
a valuation allowance, is primarily dependent on the ability to generate
taxable income. A change in the Company's estimate of future taxable income
may require an addition or reduction to the valuation allowance.
The benefit from an uncertain income tax position is not recognised if it has
less than a 50 percent likelihood of being sustained upon audit by the
relevant authority. For positions that are more than 50 percent likely to be
sustained, the benefit is recognised at the largest amount that is
more-likely-than-not to be sustained. Where a net operating loss carried
forward, a similar tax loss or a tax credit carry forward exists, an
unrecognised tax benefit is presented as a reduction to a deferred tax asset.
Otherwise, the Company classifies its obligations for uncertain tax positions
as other non-current liabilities unless expected to be paid within one year.
Liabilities expected to be paid within one year are included in the accrued
expenses account.
The Company recognises interest accrued related to tax in interest expense and
penalties in selling, general and administrative expenses. During the six
months ending 30 June 2024 and 2023, and the year ended 31 December 2023 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
1,604,578 for the six months ended 30 June 2024 and there were no adjustments
to net income available to stockholders as recorded on the Statement of
Operations.
The following table sets forth the components used in the computation of basic
and diluted net (loss) profit per share for the periods indicated:
30 June 30 June 31 December
2024 2023 2023
US$000 US$000 US$000
Basic weighted average outstanding shares of common stock
22,983,023 22,983,023 22,983,023
Effect of potentially dilutive stock options - - -
Diluted weighted average outstanding shares of common stock
22,983,023 22,983,023 22,983,023
Anti-dilutive shares of common stock excluded from diluted weighted average
shares of common stock
1,604,578 2,021,707 1,903,694
Fair value of financial instruments - The Company uses the framework in ASC
820, Fair Value Measurements, to determine the fair value of its financial
assets. ASC 820 establishes a fair value hierarchy that prioritises the inputs
to valuation techniques used to measure fair value and expands financial
statement disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under ASC 820 are described
below:
· Level 1: Unadjusted quoted prices in active markets for identical
assets or liabilities that the Company has the ability to access at the
measurement date.
· Level 2: Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly.
· Level 3: Unobservable inputs for the asset or liability.
There were no transfers into or out of each level of the fair value hierarchy
for assets measured at the fair value for the six months ended 30 June 2024
and 2023, and the year ended 31 December 2023.
All transfers are recognised by the Company at the end of each reporting
period.
Transfers between Levels 1 and 2 generally relate to whether a market becomes
active or inactive. Transfers between Levels 2 and 3 generally relate to
whether significant relevant observable inputs are available for the fair
value measurement in their entirety.
The Company's financial instruments as of 30 June 2024 and 2023, and 31
December 2023 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 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 30 June 2024 and
2023, and 31 December 2023:
30 June 30 June 31 December
2024 2023 2023
US$000 US$000 US$000
Accounts receivable 501 1,843 2,020
Less: allowance for doubtful accounts (58) (168) (208)
Total receivable - net 443 1,675 1,812
4. Inventories
Inventories consist of the following at 30 June 2024 and 2023, and 31 December
2023:
30 June 30 June 31 December
2024 2023 2023
US$000 US$000 US$000
Raw materials 1,130 2,066 1,637
Work-in-progress 177 - -
Finished goods 1,383 1,760 1,780
Total inventory 2,690 3,826 3,417
5. Property and equipment
Property and equipment consist of the following at 30 June 2024 and 2023, and
31 December 2023:
30 June 30 June 31 December
2024 2023 2023
US$000 US$000 US$000
Leasehold improvements 530 617 617
Office equipment 615 636 636
Manufacturing equipment 709 976 975
Research and development equipment 427 545 545
Purchased software 207 222 222
Equipment leased to customers 1,810 10,307 10,114
Equipment available for lease to customers - - -
4,298 13,303 13,109
Less: accumulated depreciation (3,215) (10,296) (10,515)
Property and equipment - net 1,083 3,007 2,594
During the six months ended 30 June 2024 and 2023, and the year ended 31
December 2023, the Company removed property, plant and equipment and the
associated accumulated depreciation of approximately $7.5 million, $68,000 and
$243,000, respectively, to reflect the disposal of property, plant and
equipment.
Depreciation expense for the six months ended 30 June 2024 and 2023, and the
year ended 31 December 2023 was approximately $201,000, $409,000 and $803,000,
respectively, and includes depreciation on equipment leased to customers.
Depreciation expense on equipment leased to customers included in cost of
goods sold for the six months ended 30 June 2024 and 2023, and the year ended
31 December 2023 was $128,000, $325,000 and $637,000, 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 $86,000, $80,000 and
$83,000 as of 30 June 2024 and 2023, and 31 December 2023, 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 $5,000, $2,000 and $4,000 as of 30 June 2024 and 2023, and 31
December 2023, respectively.
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 the six
months ended 30 June 2024, there was $9,000 of new internally developed
patents and fees on patents in progress.
Intangible assets as of 30 June 2024 and 2023, and 31 December 2023 consist of
the following:
Weighted Average 30 June 30 June 31 December
Useful lives 2024 2023 2023
US$000 US$000 US$000
Internally developed patents 15 years 1,525 1,508 1,516
Purchased patents 13-17 years 150 150 150
1,675 1,658 1,666
Less accumulated amortisation - internally developed patents (850) (792) (824)
Less accumulated amortisation - purchased patents (91) (82) (83)
Intangible assets - net 734 784 759
At 30 June 2024, internally developed patents include approximately $246,000
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 34
2025 66
2026 63
2027 58
2028 52
Thereafter 215
Amortisation expense for the six months ended 30 June 2024 and 2023, and the
year ended 31 December 2023 was approximately $34,000, $32,000 and $65,000,
respectively.
7. Income taxes
The components of income taxes shown in the Statements of Operations are as
follows:
30 June 30 June 31 December
2024 2023 2023
US$000 US$000 US$000
Current:
Federal - - -
Foreign 62 186 363
State 4 1 2
Total current provision 66 187 365
Deferred:
Federal - - -
Foreign - - -
State - - -
Total deferred provision - - -
Total provision for income taxes 66 187 365
The provision for income tax varies from the amount computed by applying the
statutory corporate federal tax rate of 21 percent, primarily due to the
effect of certain non-deductible expenses, foreign withholding tax, and
changes in valuation allowances.
A reconciliation of the differences between the effective tax rate and the
federal statutory tax rate is as follows:
30 June 30 June 31 December
2024 2023 2023
Federal statutory income tax rate 21.0% 21.0% 21.0%
State tax rate, net of federal benefit 1.3% 2.4% (0.7%)
Valuation allowance (23.4%) (26.5%) (23.0%)
Other (0.2%) 0.0% 0.3%
Foreign withholding tax (3.7%) (11.1%) (8.5%)
Effective income tax rate (5.0%) (14.2%) (10.9%)
The significant components of deferred income taxes included in the balance
sheets are as follows:
30 June 30 June 31 December
2024 2023 2023
US$000 US$000 US$000
Deferred tax assets
Net operating loss 7,812 6,940 7,478
Equity compensation 211 233 208
Research and development credits 159 159 159
Right of use liability 297 228 196
Inventory valuation reserve 265 349 265
Other 34 145 68
Total gross deferred tax asset 8,778 8,054 8,374
Deferred tax liabilities
Property and equipment (638) (710) (638)
Right of use asset (287) (218) (186)
Total gross deferred tax liability (925) (928) (824)
Net deferred tax asset before valuation allowance 7,853 7,126 7,550
Valuation allowance (7,853) (7,126) (7,550)
Net deferred tax asset (liability) - - -
Deferred tax assets and liabilities are recorded based on the difference
between an asset or liability's financial statement value and its tax
reporting value using enacted rates in effect for the year in which the
differences are expected to reverse, and for other temporary differences as
defined by ASC-740, Income Taxes. At 30 June 2024 and 2023 and 31 December
2023, the Company has recorded a valuation allowance of $7.9 million, $7.1
million and $7.6 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 30 June 2024, the Company has approximately $35.9 million of gross U.S.
federal net operating loss carry forwards and $3.7 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 30 June 2023, the Company had approximately $31.7 million of
gross U.S. federal net operating loss carry forwards and $3.6 million of gross
state net operating loss carry forwards and at 31 December 2023, the Company
had 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.
On 27 March 2020, the U.S. Government enacted the Coronavirus Aid, Relief, and
Economic Security Act (the 'CARES Act'). The CARES Act includes, but is not
limited to, tax law changes related to (1) accelerated depreciation deductions
for qualified improvement property placed in service after 27 September 2017,
(2) reduced limitation of interest deductions, and (3) temporary changes to
the use and limitation of NOLs. There was no material impact of the CARES Act
to the Company's income tax provision for the six months ended 30 June 2024
and 2023 or for the year ended 31 December 2023.
On 16 August 2022, the Inflation Reduction Act of 2022 ('IRA') was signed into
law. The IRA levies a 1 percent excise tax on net stock repurchases after 31
December 2022 and imposes a 15 percent corporate alternative minimum tax 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 the period ending 30
June 2024.
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 1,478,335 shares allocated as of 30 June 2024. The shares
are all allocated to employees, executives and consultants.
Any options granted to Non-Executive Directors, unless otherwise agreed, vest
contingent on continuing service with the Company at the vesting date and
compliance with the covenants applicable to such service.
Employee options vest over three years with a third vesting ratably each year,
partially on issuance and partially over the following 24-month period, or if
there is a change in control, and expire on the tenth anniversary date the
option vests. Vesting accelerates in the event of a change of control. Options
granted to Non-Executive Directors, Consultants and one Executive vest
partially on issuance and will vest partially one to two years later. The
remaining Non-Executive Director options expired at the end of 2016 on the
five-year anniversary date of the grant.
As discussed in Note 2, the Company uses the Black Scholes valuation model to
measure the fair value of options granted. The Company's expected volatility
is calculated as the historical volatility of the Company's stock over a
period equal to the expected term of the awards. The expected terms of options
are calculated using the weighted average vesting period and the contractual
term of the options. The risk-free interest rate is based on a blended average
yield of two- and five-year United States Treasury Bills at the time of grant.
The assumptions used in the Black Scholes option pricing model for options
granted in 2024 and 2023 were as follows:
Number of Options Granted Grant Date Risk-Free Interest Rate Expected Term Volatility Exercise Price Fair Value Per Option
2024 25,000 13/03/2024 3.97% 6.0 years 65% $0.64 $0.40
225,000 15/03/2024 3.97% 6.0 years 65% $0.59 $0.37
50,000 15/03/2024 3.97% 5.75 years 65% $0.59 $0.36
The Company assumes a dividend yield of 0.0%.
The following table summarises the Company's stock option activity for the six
months ended 30 June 2024:
Stock Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Average Grant Date Fair Value
Outstanding at 31 December 2023 1,753,375 $1.12 5.8 $0.66
Granted 300,000 $0.59 6.0 $0.37
Forfeited (575,040) $1.53
Outstanding at 30 June 2024 1,478,335 $0.85 5.8 $0.55
Exercisable at 30 June 2024 1,011,668 $0.98 5.4
The total intrinsic value of the stock options exercised during the six months
ended 30 June 2024 and 2023, and 31 December 2023 was $nil.
A summary of the status of unvested options as of 30 June 2024 and changes
during the six months ended 30 June 2024 is presented below:
Unvested Options Shares Weighted-Average Fair Value at Grant Date
Unvested at 31 December 2023 341,667 $0.40
Granted 300,000 $0.37
Forfeited (175,000)
Unvested at 30 June 2024 466,667 $0.42
As of 30 June 2024, total unrecognised compensation cost of $183,000 was
related to unvested share-based compensation arrangements awarded under the
Plan.
Total stock compensation expense for the six months ended 30 June 2024 and
2023, and 31 December 2023 was approximately $14,000, $30,000 and $31,000,
respectively.
9. Commitments and contingencies
Operating leases - As of 30 June 2024, the Operating Lease ROU Asset has a
balance of $1,300,000, net of accumulated amortisation of $520,000 and an
Operating Lease Liability of $1,346,000, 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 3.75 years.
Future maturities under the Operating Lease Liability are as follows for the
years ended 31 December:
(USD, in thousands) Future Lease Payments
2024 202
2025 416
2026 432
2027 220
2028 151
2029 64
Total future maturities 1,485
Portion representing interest (140)
1,345
Total lease expense for the six months ended 30 June 2024 and 2023, and the
year ended 31 December 2023 was approximately $195,000, $193,000 and $386,000,
respectively.
Total cash paid for leases for the six months ended 30 June 2024 and 2023, and
the year ended 31 December 2023 was $196,000, $189,000 and $381,000,
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 $47,000,
$120,000 and $237,000 for the six months ended 30 June 2024 and 2023, and 31
December 2023, 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 30 June 2024. For
the six months ended 30 June 2024, 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:
(USD, in thousands) Six months ended 30 June Six months ended 30 June Year ended 31 December
2024 2023 2023
Middle East 1,612 3,891 7,582
United States 1,083 1,345 2,708
Australia 513 184 369
Other 292 148 248
Total 3,500 5,568 10,907
Long lived assets, net of depreciation, by geography is as follows:
(USD, in thousands) Six months ended 30 June Six months ended 30 June Year ended 31 December
2024 2023 2023
Middle East - 1,743 1,518
United States 1,083 1,264 1,075
Total 1,083 3,007 2,593
12. Concentrations
At 30 June 2024, seven customers represented 89 percent of accounts
receivable. During the six months ended 30 June 2024, the Company received 85
percent of its gross revenue from seven customers.
At 30 June 2023, two customers, one with three contracts with three separate
plants, represented 84 percent of accounts receivable. During the six months
ended 30 June 2023, the Company received 85 percent of its gross revenue from
four customers, one with three contracts with three separate plants.
At 31 December 2023, five customers, one with three contracts with three
separate plants, represented 80 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.
13. Gain on sale of Saudi Arabia business operations
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 (the 'Total Consideration') million to Twarid Water Treatment LLC
('Twarid'). The Total Consideration was split $3.125 million paid 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 Company recognised a gain of $838,000 from the sale of
fixed assets and operating profit of $100,000 from the sale of inventory. 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 it propriety media and product sales
in Saudi Arabia through an exclusive distribution agreement with Twarid.
14. 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 24
September 2024, the date the interim results were available to be issued, and
no events have occurred which require further disclosure other than the
following:
On 4 September 2024, the Company issued an additional 1,380,791 shares of
Common Stock at a price of US$0.68 (51.5 pence) per share. The Company
received gross proceeds of ca.$0.9 million. Upon the conclusion of the
Placing, the total shares issued and outstanding were 24,363,814.
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