REG - MyCelx Tech. Corp.MyCelx Tech. Corp.. - Half Year Results Statement <Origin Href="QuoteRef">MYXR.L</Origin> - Part 2
29/10/2014 11:18
- Part 2: For the preceding part double click ID:nRSL4187Ra
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. There was no allowance for doubtful accounts for the six
months ended 30 June 2014 and 2013, and the year ended 31 December 2013.
Inventories - Inventories consist primarily of raw materials and filter media
finished goods as well as equipment to house the filter media and are stated
at the lower of cost or market value. Equipment that is in the process of
being constructed for sale to customers is also included in inventory
(work-in-progress). The Company applies the FIFO method (first in; first out)
to account for inventory. Manufacturing work-in-progress and finished products
inventory includes all direct costs, such as labor and material, and those
indirect costs which are related to production, such as indirect labor, rents,
supplies, repairs and depreciation costs. A valuation reserve is recorded for
slow moving or obsolete inventory items to reduce the cost of inventory to its
net realisable value. The reserve is determined by item based on purchases in
the recent past and/or expected future demand. At 30 June 2014 and 2013, and
31 December 2013, the valuation reserve was $21,000, $12,000 and $21,000,
respectively.
Prepaid expenses and other current assets - Prepaid expenses and other current
assets include non-trade receivables that are collectible in less than twelve
months, security deposits on leased space and various prepaid amounts that
will be charged to expenses within twelve months. Non-trade receivables that
are collectible in twelve months or more are included in long-term assets.
Property and equipment - All property and equipment are valued at cost.
Depreciation is computed using the straight-line method for financial
reporting over the following useful lives:
Office equipment 5-10 years
Buildings 39 years
Leasehold improvements 1-5 years
Manufacturing equipment 7-15 years
Research and development equipment 7-10 years
Purchased software 1-5 years
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 leased equipment which is included in cost of goods sold.
Intangible assets - Intangible assets consist of the costs incurred to
purchase patent rights and legal and registration costs incurred to internally
develop patents. Intangible assets are reported net of accumulated
amortisation. Patents are amortised using the straight-line method over a
period based on their contractual lives which approximates their estimated
useful lives.
Revenue recognition - The Company's revenue consists of media product and
equipment sales. Revenues from media sales are recognised, net of sales
allowances, when products are shipped and risk of loss has transferred to
customers, collection is probable, persuasive evidence of an arrangement
exists, and the sales price is fixed or determinable. The Company offers
customers the option to lease or purchase their equipment. Lease agreements
range from one to twelve months in length and are renewed at the end of each
agreement, if necessary. The lease agreements meet the criteria for
classification as operating leases; accordingly, revenue on lease agreements
is recognised as income over the lease term.
Revenues on long-term contracts related to construction of equipment are
recognised on the percentage-of-completion basis using costs incurred compared
to total estimated costs. Costs are recognised and considered for percentage
completion as they are incurred in the manufacture of the equipment.
Therefore, revenues may not be related to the progress billings to customers.
Revenues are based on estimates, and the uncertainty inherent in estimates
initially is reduced progressively as work on the contract nears completion.
Revenues on sales in which equipment is pre-fabricated and stocked in
inventory are recognised upon shipment of the equipment to the customer.
Contract costs include all direct labor and benefits, materials unique to or
installed to the project, subcontractor costs, as well as costs relative to
contract performance such as travel to a customer site and shipping charges.
Provision for estimated losses on uncompleted contracts is made in the period
in which such losses are probable and estimable. No such provisions have been
recognised as of 30 June 2014 and 2013, and 31 December 2013. Changes in job
performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognised in the period in which the
revisions are determined. Actual results could vary from estimates used in the
financial statements.
Unbilled accounts receivable represents revenues recognised in excess of
amounts billed. Deferred revenue represents billings in excess of revenues
recognised. Contract retentions are recorded as a component of accounts
receivable.
Impairment of long-lived assets - Long-lived assets to be held and used,
including property and equipment and intangible assets with definite useful
lives, are assessed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
total of the expected undiscounted future cash flows is less than the carrying
amount of the asset, a loss, if any, is recognised for the difference between
the fair value and carrying value of the assets. Impairment analyses, when
performed, are based on the Company's business and technology strategy,
management's views of growth rates for the Company's business, anticipated
future economic and regulatory conditions, and expected technological
availability. For purposes of recognition and measurement, the Company groups
its long-lived assets at the lowest level for which there are identifiable
cash flows, which are largely independent of the cash flows of other assets
and liabilities. No impairment charges were recorded in the six months ended
30 June 2014 and 2013, and the year ended 31 December 2013.
Shipping and handling costs - Consistent with FASB ASC 605-45-50 Shipping and
Handling Fees and Costs, the Company classifies shipping and handling amounts
billed to customers as revenue, and shipping and handling costs as a component
of costs of goods sold.
Research and development costs - Research and development costs are expensed
as incurred. Research and development expense for the six months ended 30
June 2014 and 2013, and the year ended 31 December 2013 was approximately
$154,000, $202,000 and $479,000, respectively.
Advertising costs - The Company expenses advertising costs as incurred.
Advertising expense for the six months ended 30 June 2014 and 2013, and the
year ended 31 December 2013 was approximately $11,000, $17,000 and $24,000,
respectively.
Rent expense- The Company records rent expense on a straight-line basis for
operating lease agreements that contain escalating rent clauses. The deferred
rent liability included in accrued expenses in the accompanying balance sheet
represents the cumulative difference between rent expense recognised on the
straight-line basis and the actual rent paid.
Income taxes - Income taxes consist of taxes due plus deferred taxes related
primarily to differences between the basis of depreciation, inventory
capitalisation, and net operating losses, and timing differences of research
and development tax credits for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be deductible or taxable
when the assets and liabilities are recovered or settled. Deferred taxes also
are recognised for operating losses that are available to offset future
taxable income and tax credits that are available to offset future federal
income taxes. Deferred tax assets and liabilities are reflected at income tax
rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realised or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes. The Company has elected to use the reduced
credit method, under section 280C, for calculating federal research and
development tax credits. Under this method research and development costs are
expensed as incurred.
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 2014 and 2013, and the year ended 31 December 2013 the
Company recognised no interest or penalties. The Company's tax years 2010
through 2013 remain subject to examination by federal, state and foreign
income tax jurisdictions.
Earnings per share - Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
potentially dilutive shares outstanding during the period. Potentially
dilutive shares consist of the incremental common shares issuable upon
conversion of the exercise of common stock options and warrants. Potentially
dilutive shares are excluded from the computation if their effect is
antidilutive.
Fair value of financial instruments - The Company uses the framework in ASC
820, Fair Value Measurements and Disclosures to determine the fair value of
its financial assets. ASC 820 establishes a fair value hierarchy that
prioritises the inputs to valuation techniques used to measure fair value and
expands financial statement disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under ASC 820 are described
below:
· Level 1: Unadjusted quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access at the measurement
date.
· Level 2: Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly.
· Level 3: Unobservable inputs for the asset or liability.
There were no significant transfers into or out of each level of the fair
value hierarchy for assets measured at the fair value for the six months ended
30 June 2014 and 2013, and the year ended 31 December 2013.
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 2014 and 2013, and 31
December 2013 include cash and cash equivalents, accounts receivable, accounts
payable, the line of credit, the note payable, and the warrant liability. The
carrying values of cash and cash equivalents, accounts receivable, accounts
payable, and the line of credit approximate fair value due to the short term
nature of those assets and liabilities. The Company believes it is impractical
to disclose the fair value of the note payable as it is an illiquid financial
instrument.
The Company uses Level 3 inputs for its valuation methodology for the warrant
liability. The estimated fair value was determined using a Monte Carlo pricing
model based on various assumptions (see Note 10). The Company's warrant
liability is adjusted to reflect estimated fair value at each period end, with
any decrease or increase in the estimated fair value being recorded in
selling, general and administrative expenses in the statements of operations.
The following table presents the activity for liabilities measured at
estimated fair value using unobservable inputs for 30 June 2014 and 2013, and
31 December 2013:
Warrant LiabilityUS$000
Balance at 30 June 2013 -
Adjustments to estimated fair value 871
Warrant liability removal due to exercises (488)
Balance at 31 December 2013 383
Adjustments to estimated fair value -
Warrant liability removal due to exercises -
Balance at 30 June 2014 383
Foreign currency transactions - From time to time the Company transacts
business in foreign currencies (currencies other than the United States
Dollar). These transactions are recorded at the rates of exchange prevailing
on the dates of the transactions. Foreign currency transaction gains or losses
are included in selling, general and administrative expenses.
Share-based compensation - The Company issues equity-settled share-based
awards to certain employees, which are measured at fair value at the date of
grant. The fair value determined at the grant date is expensed, based on the
Company's estimate of shares that will eventually vest, on a straight-line
basis over the vesting period. Fair value for the share awards representing
equity interests identical to those associated with shares traded in the open
market is determined using the market price at the date of grant. Fair value
is measured by use of the Black Scholes valuation model.
Recently issued accounting standards - In May 2014, the FASB issued ASU
2014-09, "Revenue from Contracts with Customers (Topic 606)", which is the new
comprehensive revenue recognition standard that will supersede all existing
revenue recognition guidance under U.S. GAAP. The standard's core principle is
that a company will recognize revenue when it transfers promised goods or
services to a customer in an amount that reflects the consideration to which
the company expects to be entitled in exchange for those goods or services.
ASU 2014-09 is effective for annual and interim periods beginning on or after
15 December 2016, and early adoption is not permitted. Entities will have the
option of using either a full retrospective approach or a modified approach to
adopt the guidance. We are currently evaluating the impact of adopting this
guidance.
3. Accounts receivable
Accounts receivable and their respective allowance amounts at 30 June 2014 and
2013, and 31 December 2013 follow:
30 June2014US$000 30 June2013US$000 31 December2013US$000
Accounts receivable 5,257 4,790 7,431
Less: allowance for doubtful accounts - - -
Total receivable - net 5,257 4,790 7,431
4. Inventories
Inventories consist of the following at 30 June 2014 and 2013, and 31 December
2013:
30 June2014US$000 30 June2013US$000 31 December2013US$000
Raw materials 1,601 1,503 1,503
Work-in-progress 1,606 1,900 545
Finished goods 1,511 1,206 1,115
4,718 4,609 3,163
Less: Inventory reserve (21) (12) (21)
Total inventory - net 4,697 4,597 3,142
5. Property and equipment
Property and equipment consists of the following at 30 June 2014 and 2013, and
31 December 2013:
30 June2014US$000 30 June2013US$000 31 December2013US$000
Office equipment 687 400 606
Land 709 709 709
Building 2,710 2,460 2,704
Leasehold improvements 315 274 304
Manufacturing equipment 679 665 652
Construction in progress 243 31 1,248
Research and development equipment 531 310 504
Purchased software 211 92 211
Equipment leased to customers 6,504 4,125 5,077
12,589 9,066 12,016
Less: accumulated depreciation (2,039) (1,035) (1,474)
Property and equipment - net 10,550 8,031 10,542
During the year ended 31 December 2013, the Company removed property, plant
and equipment and the associated accumulated depreciation of approximately
$13,000 to reflect the disposal of property, plant and equipment.
Depreciation expense for the six months ended 30 June 2014 and 2013, and the
year ended 31 December 2013 was approximately $578,000, $364,000 and $816,000,
respectively. Depreciation expense includes depreciation on leased equipment
which is included in cost of goods sold. Depreciation expense on leased
equipment included in cost of goods sold for the six months ended 30 June 2014
and 2013, and the year ended 31 December 2013 was $341,000, $240,000, and
$517,000, respectively.
6. Intangible assets
During 2009, the Company entered into a patent rights purchase agreement with
a shareholder. The agreement provided for the immediate payment of $28,000 in
2009 with the possibility of an additional $72,000 based on profits on the
sales of a particular product. During 2010, the Company paid $22,000 based on
profits on the sales of the product and paid the remaining $50,000 in 2011.
The patent is amortised utilising the straight-line method over a useful life
of 17 years which represents the legal life of the patent from inception.
Accumulated amortisation on the patent was approximately $23,000, $17,000, and
$20,000 as of 30 June 2014 and 2013, and 31 December 2013, respectively.
In addition to the purchased patent, the Company has internally developed
patents. Internally developed patents include legal and registration costs
incurred to obtain the respective patents. The Company currently holds various
patents and numerous pending patent applications in the United States, as well
as numerous foreign jurisdiction outside of the United States.
Intangible assets as of 30 June 2014 and 2013, and 31 December 2013 consist of
the following:
Weighted AverageUseful lives 30 June2014US$000 30 June2013US$000 31 December2013US$000
Internally developed patents 15 years 937 798 845
Purchased patents 17 years 100 100 100
1,037 898 945
Less accumulated amortisation (390) (351) (371)
Intangible assets - net 647 547 574
Approximate aggregate future amortisation expense is as follows:
Year ending 31 December (USD, in thousands)
2014 17
2015 34
2016 33
2017 27
2018 27
Amortisation expense for the six months ended 30 June 2014 and 2013, and the
year ended 31 December 2013 was approximately $19,000, $21,000 and $41,000,
respectively.
7. Income taxes
The components of income taxes shown in the consolidated statement of
operations are as follows:
30 June2014US$000 30 June2013US$000 31 December2013US$000
Current:
Federal - - 8
Foreign 176 276 702
State - - 39
Total current provision 176 276 749
Deferred:
Federal - - -
Foreign - - -
State - - -
Total deferred provision - - -
Total provision for income taxes 176 276 749
The provision for income tax varies from the amount computed by applying the
statutory corporate federal tax rate of 34 percent, primarily due to the
effect of certain nondeductible expenses 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 June2014 30 June2013 31 December2013
Federal statutory income tax rates 34.0% 34.0% 34.0%
State tax rate, net of federal benefit - .5% 2.9%
Valuation allowance (36.6)% (5.9%) (17.6%)
Other (.2%) - 2.4%
Foreign withholding tax (5.4%) 54.2% 35.3%
Effective income tax rate (8.2%) 82.8% 57.0%
The significant components of deferred income taxes included in the balance
sheets are as follows:
30 June2014US$000 30 June2013US$000 31 December2013US$000
Deferred tax assets
Other 241 31 211
Accrued liability 71 6 72
Charitable contributions 6 6 6
Research and development credits 159 159 159
Equity compensation 690 521 648
Net operating loss 3,301 2,905 2,561
Total gross deferred tax asset 4,468 3,628 3,657
Deferred tax liabilities
Property and equipment (806) (553) (785)
Total gross deferred tax liability (806) (553) (785)
Net deferred tax asset before valuation allowance 3,662 3,075 2,872
Valuation allowance (3,662) (3,075) (2,872)
Net deferred tax asset - - -
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 2014, the Company has recorded a
valuation allowance of $3.7 million for which it is more likely than not that
the Company will not receive future tax benefits due to the uncertainty
regarding the realisation of such deferred tax assets.
As of 30 June 2014, the Company has approximately $9.2 million of gross U.S.
federal net operating loss carry forwards that will begin to expire in the
2019 tax year.
The Financial Accounting Standards Board issued Interpretation ASC-740-10-25,
Income Taxes, an interpretation of ASC-740 which clarifies the accounting for
income taxes by prescribing the minimum recognition threshold a tax position
is required to meet before being recognised in the financial statements. Under
ASC-740, the impact of an uncertain income tax position on the income tax
return must be recognised at the largest amount that is more likely than not
to be sustained upon audit by the relevant taxing authority. ASC-740 also
provides guidance on derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition. ASC-740
applies to all tax positions related to income taxes.
As a result of the adoption and implementation of ASC-740, a tax position is
recognised as a benefit only if it is "more likely than not" that the tax
position would be sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognised is the largest amount of tax benefit
that has a greater than 50 percent likelihood of being realised on
examination. For tax positions not meeting the "more likely than not" test, no
tax benefit is recorded. The Company recognises interest and penalties related
to tax positions in income tax expense. At 30 June 2014 and 2013, and 31
December 2013, there was no accrual for uncertain tax positions or related
interest.
On 13 September 2013, the Internal Revenue Service released final tangible
property regulations under Sections 162(a) and 263(a) of the Internal Revenue
Code regarding the deduction and capitalisation of expenditures related to
tangible property as well as dispositions of tangible property. These
regulations will be effective for the Company's fiscal year ending 31 December
2014. Taxpayers may elect to apply the regulations to tax years beginning on
or after 1 January 2012. The Company does not anticipate that the regulations
will have a material impact on the Company's consolidated results of
operations, cash flows or financial position.
8. Line of credit
In August 2013, the Company entered into a revolving credit facility with a
bank that permits it to borrow up to 90 percent of eligible accounts
receivable and 75 percent of its eligible inventory with a maximum borrowing
of $5 million. In April 2014, the maximum borrowing was increased to $10
million. Borrowings bear interest at a rate per annum equal to the base rate,
which is the greater of the Prime Rate in effect on a given day, a rate
determined by the lender to be one and one-half percent (1.5%) above Daily One
Month LIBOR, or the Federal Funds Rate plus one and one-half percent (1.5%).
The facility renews annually and is secured by a first security interest in
all of the Company's accounts receivable, general intangibles and inventory.
Under terms of the line of credit, the Company is required to maintain a
specified fixed charge coverage ratio and debt to intangible net worth ratio,
as those terms are defined, and did so throughout 2013 and 2014 and as of 30
June 2014. The balance on the line of credit at 30 June 2014 and 2013, and 31
December 2013 was $2,345,000, $0 and $2,820,000, respectively. The interest
rate on 30 June 2014 was 3.25 percent. Interest expense related to this loan
for the six months ended 30 June 2014 and 2013, and the year ended 31 December
2013 was $43,000, $0 and $17,000, respectively.
Since 2010, the Company had a bank line of credit that allowed for borrowings
up to $400,000. This line of credit was closed in 2013. The line of credit was
revolving and payable on demand. The balance on the line of credit at 30 June
2013 and 31 December 2013 was $0. The line of credit carried an interest rate
of prime plus 0.30 percent. There was no interest expense related to this loan
for the six months ended 30 June 2013 and the year ended 31 December 2013.
9. Notes payable
In April 2011, the Company entered into a lending agreement with a shareholder
in the original amount of $1,500,000, payable within 5 days after the Company
received at least $15,000,000 in cash proceeds from an equity offering. The
note had an interest rate of 10 percent, and the Company issued the
shareholder 50,000 warrants to purchase common stock of the Company with an
exercise price of $0.01 per share. All of the warrants were exercised in
October 2013. The note was recognised net of a discount related to the stock
warrants. The balance of this note was converted to common stock in connection
with the Company's public offering in August 2011.
On 27 March 2013, the Company entered into a term loan agreement with a lender
for the purchase of property and a building for its manufacturing operations
and corporate offices. The Company borrowed proceeds of $2,285,908 at a fixed
interest rate of 4.45 percent. The loan has a ten year term with monthly
payments based on a twenty year amortisation. In accordance with the terms of
the agreement, the Company was required to maintain a minimum cash balance of
$3 million until a 1.25 fixed charge coverage ratio was achieved. As a result
of the financial results during the year ended 31 December 2013, the fixed
charge coverage ratio of 1.25 was achieved. Therefore, the minimum cash
balance requirement was removed by the holder of the note. The Company is also
required to keep $500,000 in a deposit account with the lending bank. As of 30
June 2014, the Company had restricted cash of $500,000 related to the loan
agreement. Future maturities of long-term debt are as follows as of 30 June
2014:
Year ending 31 December (USD, in thousands)
2014 31
2015 78
2016 81
2017 85
2018 89
Thereafter 1,832
2,196
10. Stock compensation
Stock options
In July 2011, the Company's shareholders approved the Conversion Shares and
the Directors' Shares, as well as the Plan Shares and Omnibus Performance
Incentive Plan ("Plan"). This included the termination of all outstanding
stock incentive plans, cancellation of all outstanding stock incentive
agreements, and the awarding of stock incentives to Directors and certain
employees and consultants. The Company established the Plan to attract and
retain Directors, officers, employees and consultants. The Company reserved an
amount equal to 10 percent of the Common Shares issued and outstanding
immediately following completion of the Issuance of additional shares in
2011.
Upon the Issuance of these additional shares, an award of share options was
made to the Directors and certain employees and consultants, and a single
award of restricted shares was made to the former Chief Financial Officer. In
addition, additional stock options were awarded to two employees and a
Director in May and September 2012, one employee in January 2013, and certain
employees and consultants in September 2013. The awards of stock options and
restricted shares made upon the Issuance were in respect of 85 percent of the
Common Shares available under the Plan, equivalent to 8.5 percent of the
enlarged share capital. The total number of shares reserved for stock awards
and options under this Plan is 1,325,773, with 1,071,275 shares allocated as
of 30 June 2014. The shares are allocated as 269,713 shares to Non-Executive
Directors and 801,562 shares to employees and executives.
The options granted to Non-Executive Directors upon the Issuance have an
exercise price equal to $0.86 per share. All other options granted under the
Plan upon the Issuance have an exercise price equal to $3.44 per share.
Options granted in May 2012 have an exercise price equal to $3.87 per share,
options granted in September 2012 and January 2013 have an exercise price
equal to $4.02 per share, and options granted in September 2013 have an
exercise price equal to $8.01 per share. Unless otherwise agreed, all options
vest contingent on continuing service with the Company at the vesting date and
compliance with the covenants applicable to such service.
Employee options either vest over three years with a third vesting ratably
each year, or partially on issuance and partially over the following 24 month
period. Vesting accelerates in the event of a change of control. Options
granted to Non-Executive Directors and one executive vest partially on
issuance and will vest partially one to two years later. All Non-Executive
Director options must be exercised during the course of the 2015 or 2016
calendar years or they will expire and vesting accelerates in the event of a
change of control.
As discussed in Note 2, the Company uses the Black Scholes valuation model to
measure the fair value of options granted. Since the Company does not have a
sufficient trading history from which to calculate its historical volatility,
the Company's expected volatility is based on a basket of comparable
companies' historical volatility. As the Company's initial options were
granted in 2011, the Company does not have sufficient history of option
exercise behavior from which to calculate the expected term. Accordingly, the
expected terms of options are calculated based on the short-cut method
commonly utilised by newly public companies. The risk free interest rate is
based on a blended average yield of two and five year United States Treasury
Bills at the time of grant. The assumptions used in the Black Scholes option
pricing model for options granted in 2011, 2012 and 2013 were as follows:
Number of Options Granted Grant Date Risk-Free Interest Rate Expected Term Volatility Exercise Price Fair Value Per Option
2011 253,805 05/08/2011 0.34% 3.9 years 45.00% $0.86 $2.63
661,188 05/08/2011 0.34% 6 years 45.00% $3.44 $1.46
2012 26,000 09/05/2012 0.42% 3.9 years 45.00% $3.87 $1.35
110,000 09/05/2012 0.42% 6 years 45.00% $3.87 $1.65
90,000 13/09/2012 0.42% 6 years 45.00% $4.02 $1.71
2013 10,000 01/01/2013 0.42% 6 years 45.00% $4.02 $1.75
130,000 20/09/2013 1.20% 6 years 55.00% $8.01 $4.14
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 2014:
Stock Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Average Grant Date Fair Value
Total Outstanding at 31 Dec. 2013 1,072,569 $3.52 5.5 $2,242,935
Granted -
Exercised -
Forfeited (1,294) $3.44
Total Outstanding at 30 June 2014 1,071,275 $3.52 5.5 $2,241,046
Exercisable at 30 June 2014 678,227
A summary of the status of unvested options as of 30 June 2014 and changes
during the six months ended 30 June 2014 is presented below:
Unvested Options Shares Weighted-Average Fair Value at Grant Date
Unvested at 31 December 2013 386,710 $2.11
Granted -
Vested (263,375) $1.49
Forfeited -
Unvested at 30 June 2014 123,335 $3.42
As of 30 June 2014, total unrecognised compensation cost of $238,000 was
related to unvested share-based compensation arrangements awarded under the
Plan.
Stock warrants
On 29 July 2011, the Company and one of its consultants entered into a warrant
agreement for the consultant's assistance in connection with the Company's
initial public offering on 4 August 2011. Pursuant to this agreement, the
Company agreed to grant to the consultant warrants to subscribe for Common
Shares representing 1.5 percent of the total shares outstanding immediately
following the initial public offering, or 193,843 warrant shares. The warrant
vested upon the Issuance. The exercise price of the warrants is 210 pence per
share. The warrants are exercisable in whole or in part at any time in the
period between 5 August 2011 and 5 August 2016.
The warrants are exercisable, at the election of the consultant, without
payment of the exercise price, for such number of Common Shares as is
calculated in accordance with a formula set out in the warrant agreement. In
summary, that formula operates by calculating the notional net gain that the
shareholder would have made if it had exercised its warrants at the exercise
price and then sold its shares at the current market value. The formula then
uses the notional net gain to calculate such lesser number of Common Shares
that the shareholder would need to acquire (at nil acquisition cost) in order
to achieve the same notional net gain. In the event that the shareholder
exercises the warrants (or any part) in this manner, the warrants are deemed
to have been exercised in respect of such number of Common Shares as would
have been required in order to achieve the same notional net gain had the
warrants been exercised at the exercise price.
In addition, either the consultant or the Company may elect, in certain
circumstances, including a merger or sale of substantially all of the assets
of the Company, to receive or provide (as the case may be) a cash payment, in
substitution for the warrants, calculated in accordance with a formula set out
in the warrant agreement. As a result, the fair value of the outstanding
warrants is classified as a liability in accordance with ASC 480,
Distinguishing Liabilities from Equity. As discussed in Note 2, the fair value
of the warrants is measured utilising a Monte Carlo valuation model with the
following assumptions:
30 June 2014
Closing price per share of common stock $8.51
Exercise price per share $3.58
Expected volatility 46.0%
Risk-free interest rate 0.88%
Remaining expected term of underlying securities (years) 2.1
In addition, as of the valuation dates, management assessed the probabilities
of future financings assumptions in the Monte Carlo valuation model.
In May 2013, the consultant exercised 113,843 warrants for consideration paid
to the Company and proceeds of approximately $371,000 were received. The
warrants were revalued as of the date exercised and the change in fair value
was recognised to earnings. Included in the 2013 warrant liability is an
immaterial amount that was misclassified as equity in the 31 December 2012
financial statements.
11. Commitments and contingencies
Operating and capital leases - The Company has entered into capital lease
agreements for equipment through 2017. Equipment under capital leases together
with accumulated depreciation at 30 June 2014 and 2013, and 31 December 2013
is as follows:
30 June2014US$000 30 June2013US$000 31 December2013US$000
Office equipment 33 19 26
Manufacturing equipment 47 47 47
80 66 73
Less: Accumulated depreciation (37) (26) (31)
Equipment under capital leases - net 43 40 42
The Company entered into an operating lease for equipment in July 2011 for a
six month term with monthly lease payments of $15,000. The lease was expanded
in January 2012 to include additional equipment and modified to become a
monthly lease that is cancellable at any time by return of the equipment. The
Company utilised the equipment each month in 2012 and made monthly payments of
$30,000. The lease was terminated in January 2013 and the equipment was
purchased from the lessor.
The Company entered into an operating lease for a commercial building in
Gainesville, Georgia on 1 July 2006. The lease was amended on 19 August 2009.
The amended lease commenced December 2009, with monthly payments of
approximately $6,000 through June 2011. The lease was amended on 22 March 2011
to extend the term through June of 2013 with monthly payments of approximately
$6,000 beginning in July 2011. The amendment also granted a three-year option
through June 2016 with monthly payments ranging from approximately $6,000 to
$7,000. As discussed in Note 9, the Company purchased property and a building
in March 2013 for its manufacturing operations and corporate offices. As such,
the option to extend the lease on the property in Gainesville, Georgia was
allowed to expire.
The Company entered into an operating lease for additional warehouse space in
Gainesville, Georgia on 1 March 2012. The lease was amended on 19 July 2012 to
include additional space. The lease is for a period of three years with
monthly payments of approximately $4,000.
The Company entered into an operating lease for warehouse and office space in
Jubail Industrial City, Kingdom of Saudi Arabia, in May 2012. The lease was
for a period of one year at an annual rate of $68,000 and included an option
to renew for a period of one year. In May 2013 the lease was extended for 13
months and amended to include additional warehouse and office space at an
annual rate of $151,000. In May 2014 a second extension was signed extending
the lease to June 2015 at the same annual rate.
In June 2012, the Company entered into an operating lease for an apartment in
Jubail Industrial City, Kingdom of Saudi Arabia, to accommodate Company
employees visiting the Jubail Industrial City office. The lease was for a
period of one year at an annual rate of $36,000. The lease included an option
to renew for a period of one year or less. In June 2013, the lease was
extended for a period of one year. In June 2014, the lease was extended for
another period of one year.
The Company entered into an operating lease for office space in London, United
Kingdom in September 2012. The lease was for a period of one year at an annual
rate of $33,000. In September 2013, the lease was extended for a period of one
year.
The Company entered into an operating lease for a commercial building in
Houston, Texas on 11 September 2012. The lease commenced October 2012, with
monthly payments of approximately $7,000 through January 2018.
The Company entered into an operating lease for warehouse space in Houston,
Texas in May 2014. The lease commenced 1 June 2014, with monthly payments of
approximately $9,000 through May 2019.
Future minimum lease payments under the capital and operating leases, together
with the present value of minimum lease payments as of 30 June 2014 are as
follows:
Capital Leases Operating Leases
US$000 US$000
Year Ending 31 December 20142015201620172018Thereafter 3551-- 13419218919511645
Total future lease payments 13 871
Less amount representing interest (1)
Net capital lease liability 12
Less current portion (5)
Total long-term portion of capital lease obligations 7
Rent expense for the six months ended 30 June 2014 and 2013, and the year
ended 31 December 2013 was approximately $178,000, $216,000 and $413,000,
respectively.
State sales tax - In 2012, the Company determined that it had a liability for
state sales tax resulting from activities in states where it did not
previously collect sales tax from customers and remit to taxing authorities.
The ultimate amount due depended on a number of factors, including the
jurisdictional tax rates, the amount of sales to customers who already paid
the tax or were exempt, and any penalties and interest. The Company recorded a
liability of $120,000 in accrued expenses in 2012 to cover estimated potential
exposure relating to the sales tax that should have been collected from its
customers and remitted to tax jurisdictions. The Company completed the process
of filing voluntary disclosure agreements with state and local taxing
authorities and resolved all liabilities in H2 2013 resulting in a gain of
$96,000.
12. Related party transactions
The Company has held a patent rights purchase agreement since 2009 with a
shareholder as described in Note 6.
In April 2011, the Company entered into a borrowing agreement with a
shareholder in the original amount of $1,500,000, payable within five days
after the Company received at least $15,000,000 in cash proceeds from an
equity offering. The note had a stated interest rate of 10 percent, and the
Company issued the shareholder 50,000 warrants to purchase common stock of the
Company, as further described in Note 9. All of the warrants were exercised in
October 2013. The note was recognised net of a discount related to the stock
warrant. The effective interest rate relating to this note was 17 percent with
consideration of the discount on the issuance of the note. The note was
repaid at the time of the public offering of stock in August 2011.
13. Concentrations
At 30 June 2014, one customer with four contracts with three separate plants
represented 76 percent of accounts receivable. During the six months ended 30
June 2014, the Company received 71 percent of its gross revenue from one
customer with three separate plants.
At 31 December 2013, one customer with four contracts with three separate
plants represented 80 percent of accounts receivable. During the year ended 31
December 2013, the Company received 57 percent of its gross revenue from one
customer with three separate plants.
At 30 June 2013, three customers represented 95 percent of accounts
receivable. During the six months ended 30 June 2013, the Company received 50
percent of its gross revenue from one customer with three separate plants.
14. Subsequent events
Management has evaluated subsequent events through 12 September 2014, the date
the interim results were available to be issued, and no events have occurred
which require further disclosure.
Forward Looking Statements
This release contains certain statements that are or may be "forward-looking
statements". These statements typically contain words such as "intends",
"expects", "anticipates", "estimates" and words of similar import. All the
statements other than statements of historical facts included in this
announcement, including, without limitation, those regarding MYCELX's
financial position, business strategy, plans and objectives of management for
future operations (including development plans and objectives relating to
MYCELX's products and services) are forward-looking statements. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future and
therefore undue reliance should not be placed on such forward-looking
statements. There are a number of factors that could cause the actual results,
performance or achievements of MYCELX to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding MYCELX's present and future business strategies
and the environment in which MYCELX will operate in the future and such
assumptions may or may not prove to be correct. Forward-looking statements
speak only as at the date they are made. Neither MYCELX nor any other person
undertakes any obligation (other than, in the case of MYCELX, pursuant to the
AIM Rules for Companies) to update publicly any of the information contained
in this announcement, including any forward-looking statements, in the light
of new information, change in circumstances or future events.
This information is provided by RNS
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