REG - MyCelx Tech. Corp. MyCelx Tech. Corp.. - Half Yearly Report <Origin Href="QuoteRef">MYXR.L</Origin> - Part 2
10/09/2015 07:01
- Part 2: For the preceding part double click ID:nRSJ6112Ya
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 2015 and 2014, and the year ended 31 December 2014.
Inventories - Inventories consist primarily of raw materials and filter media
finished goods as well as equipment to house the filter media and are stated
at the lower of cost or market value. Equipment that is in the process of
being constructed for sale or lease to customers is also included in inventory
(work-in-progress). The Company applies the FIFO method (first in; first out)
to account for inventory. Manufacturing work-in-progress and finished products
inventory 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 2015 and 2014, and
31 December 2014, the valuation reserve was $54,000, $21,000 and $54,000,
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 3-10 years
Buildings 39 years
Leasehold improvements 1-5 years
Manufacturing equipment 5-15 years
Research and development equipment 5-10 years
Purchased software 1-5 years
Equipment leased to customers 3-10 years
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalised. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation expense includes
depreciation on equipment leased to customers and is included in cost of goods
sold.
Intangible assets - Intangible assets consist of the costs incurred to
purchase patent rights and legal and registration costs incurred to internally
develop patents. Intangible assets are reported net of accumulated
amortisation. Patents are amortised using the straight-line method over a
period based on their contractual lives which approximates their estimated
useful lives.
Revenue recognition - The Company's revenue consists of media product and
equipment sales. Revenues from media sales are recognised, net of sales
allowances and sales tax, when products are shipped and risk of loss has
transferred to customers, collection is probable, persuasive evidence of an
arrangement exists, and the sales price is fixed or determinable. The Company
offers customers the option to lease or purchase their equipment. Lease
agreements range from one to 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, net of sales tax, on the percentage-of-completion basis using
costs incurred compared to total estimated costs. Costs are recognised and
considered for percentage-of-completion as they are incurred in the
manufacture of the equipment. Therefore, revenues may not be related to the
progress billings to customers. Revenues are based on estimates, and the
uncertainty inherent in estimates initially is reduced progressively as work
on the contract nears completion. Revenues on sales in which equipment is
pre-fabricated and stocked in inventory are recognised, net of sales tax, upon
shipment of the equipment to the customer.
Contract costs include all direct labor and benefits, materials unique to or
installed to the project, subcontractor costs, as well as costs relative to
contract performance such as travel to a customer site and shipping charges.
Provision for estimated losses on uncompleted contracts is recorded in the
period in which such losses are probable and estimable. No such provisions
have been recognised as of 30 June 2015 and 2014, and 31 December 2014.
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 2015 and 2014, and the year ended 31 December 2014.
Shipping and handling costs - Consistent with Financial Accounting Standards
Board ("FASB") Accounting Standards Codification ("ASC") 605-45-50 Shipping
and Handling Fees and Costs, the Company classifies shipping and handling
amounts billed to customers as revenue, and shipping and handling costs as a
component of costs of goods sold.
Research and development costs - Research and development costs are expensed
as incurred. Research and development expense for the six months ended 30 June
2015 and 2014, and the year ended 31 December 2014 was approximately $141,000,
$154,000 and $443,000, respectively.
Advertising costs - The Company expenses advertising costs as incurred.
Advertising expense for the six months ended 30 June 2015 and 2014, and the
year ended 31 December 2014 was approximately $7,000, $11,000 and $19,000,
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 other current liabilities in the accompanying
balance sheet represents the cumulative difference between rent expense
recognised on the straight-line basis and the actual rent paid.
Income taxes - The provision for income taxes for 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. An uncertain income tax position is not
recognised if it has less than a 50 percent likelihood of being sustained.
Where a net operating loss carried forward, a similar tax loss or a tax credit
carry forward exists, an unrecognised tax benefit is presented as a reduction
to a deferred tax asset. Otherwise, the Company classifies its obligations for
uncertain tax positions as other non-current liabilities unless expected to be
paid within one year. Liabilities expected to be paid within one year are
included in the accrued expenses account.
The Company recognises interest accrued related to tax in interest expense and
penalties in selling, general and administrative expenses. During the six
months ending 30 June 2015 and 2014, and the year ended 31 December 2014 the
Company recognised no interest or penalties.
Earnings per share - Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
potentially dilutive shares outstanding during the period. Potentially
dilutive shares consist of the incremental common shares issuable upon
conversion of the exercise of common stock options and warrants. Potentially
dilutive shares are excluded from the computation if their effect is
antidilutive. Total common stock equivalents that were excluded from computing
diluted net loss per share were approximately 1,193,324, 1,151,274, and
873,053 for the six months ended 30 June 2015 and 2014, and the year ended 31
December 2014, respectively.
Fair value of financial instruments - The Company uses the framework in ASC
820, Fair Value Measurements and Disclosures, to determine the fair value of
its financial assets. ASC 820 establishes a fair value hierarchy that
prioritises the inputs to valuation techniques used to measure fair value and
expands financial statement disclosures about fair value measurements.
The hierarchy established by ASC 820 gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements).
The three levels of the fair value hierarchy under ASC 820 are described
below:
· Level 1: Unadjusted quoted prices in active markets for identical assets
or liabilities that the Company has the ability to access at the measurement
date.
· Level 2: Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly.
· Level 3: Unobservable inputs for the asset or liability.
There were no significant transfers into or out of each level of the fair
value hierarchy for assets measured at the fair value for the six months ended
30 June 2015 and 2014, and the year ended 31 December 2014.
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 2015 and 2014, and 31
December 2014 include cash and cash equivalents, accounts receivable, accounts
payable, the lines of credit, the note payable, and the warrant liability. The
carrying values of cash and cash equivalents, accounts receivable, accounts
payable, and the lines 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 11). 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 2015 and 2014, and
31 December 2014:
Warrant LiabilityUS$000
Balance at 30 June 2014 383
Adjustments to estimated fair value (320)
Warrant liability removal due to exercises -
Balance at 31 December 2014 63
Adjustments to estimated fair value -
Warrant liability removal due to exercises -
Balance at 30 June 2015 63
Foreign currency transactions - From time to time the Company transacts
business in foreign currencies (currencies other than the United States
Dollar). These transactions are recorded at the rates of exchange prevailing
on the dates of the transactions. Foreign currency transaction gains or losses
are included in selling, general and administrative expenses.
Share-based compensation - The Company issues equity-settled share-based
awards to certain employees, which are measured at fair value at the date of
grant. The fair value determined at the grant date is expensed, based on the
Company's estimate of shares that will eventually vest, on a straight-line
basis over the vesting period. Fair value for the share awards representing
equity interests identical to those associated with shares traded in the open
market is determined using the market price at the date of grant. Fair value
is measured by use of the Black Scholes valuation model (see Note 11).
Recently issued accounting standards - In May 2014, the FASB issued Accounting
Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers
(Topic 606)", which is the new comprehensive revenue recognition standard that
will supersede all existing revenue recognition guidance under U.S. GAAP. The
standards' core principle is that a company will recognise revenue when it
transfers promised goods or services to a customer in an amount that reflects
the consideration to which the company expects to be entitled in exchange for
those goods or services. ASU 2014-09 is now effective for annual and interim
periods of public companies beginning on or after 15 December 2017, 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. The
Company is currently evaluating the impact of adopting this guidance.
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial
Statements - Going Concern (Subtopic 205-40)", which provides guidance about
disclosing an entity's ability to continue as a going concern. The guidance is
intended to define management's responsibility to evaluate whether there is
substantial doubt about an entity's ability to continue as a going concern and
to provide related footnote disclosures. The standard will be effective for
annual periods ending after 15 December 2016, and for interim and annual
periods thereafter, with early application permitted. The Company does not
expect adoption of this guidance to have a material impact on the Company's
financial position or results of operations.
Reclassifications - Certain reclassifications have been made to prior years'
financial statements to conform to current year presentation. These
reclassifications had no effect on previously reported results of operations
or accumulated deficit.
3. Accounts receivable
Accounts receivable and their respective allowance amounts at 30 June 2015 and
2014, and 31 December 2014 follow:
30 June2015US$000 30 June2014US$000 31 December2014US$000
Accounts receivable 3,970 5,257 2,610
Less: allowance for doubtful accounts - - -
Total receivable - net 3,970 5,257 2,610
4. Inventories
Inventories consist of the following at 30 June 2015 and 2014, and 31 December
2014:
30 June2015US$000 30 June2014US$000 31 December2014US$000
Raw materials 1,093 1,601 1,445
Work-in-progress 8 1,606 2,056
Finished goods 3,284 1,490 1,479
Total inventory - net 4,385 4,697 4,980
5. Property and equipment
Property and equipment consists of the following at 30 June 2015 and 2014, and
31 December 2014:
30 June2015US$000 30 June2014US$000 31 December2014US$000
Land 709 709 709
Building 2,724 2,710 2,710
Leasehold improvements 315 315 315
Office equipment 741 687 725
Manufacturing equipment 907 679 841
Research and development equipment 644 531 595
Purchased software 222 211 222
Equipment leased to customers 8,548 6,504 6,620
Equipment available for lease to customers 826 - -
Construction in progress - 243 2,294
15,636 12,589 15,031
Less: accumulated depreciation (3,336) (2,039) (2,646)
Property and equipment - net 12,300 10,550 12,386
Depreciation expense for the six months ended 30 June 2015 and 2014, and the
year ended 31 December 2014 was approximately $690,000, $578,000 and
$1,186,000, 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 2015 and 2014, and the
year ended 31 December 2014 was $443,000, $341,000, and $704,000,
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 $29,000, $23,000, and
$26,000 as of 30 June 2015 and 2014, and 31 December 2014, 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 2015 and 2014, and 31 December 2014 consist of
the following:
Weighted AverageUseful lives 30 June2015US$000 30 June2014US$000 31 December2014US$000
Internally developed patents 15 years 1,200 937 1,064
Purchased patents 17 years 100 100 100
1,200 1,037 1,164
Less accumulated amortisation (427) (390) (408)
Intangible assets - net 773 647 756
Approximate aggregate future amortisation expense is as follows:
Year ending 31 December (USD, in thousands)
2015 20
2016 40
2017 33
2018 33
2019 26
Amortisation expense for the six months ended 30 June 2015 and 2014, and the
year ended 31 December 2014 was approximately $19,000, $19,000 and $37,000,
respectively.
7. Income taxes
The components of income taxes shown in the consolidated statements of
operations are as follows:
30 June2015US$000 30 June2014US$000 31 December2014US$000
Current:
Federal - - (5)
Foreign 225 176 371
State - - 7
Total current provision 225 176 373
Deferred:
Federal - - -
Foreign - - -
State - - -
Total deferred provision - - 373
Total provision for income taxes 225 176 373
The provision for income tax varies from the amount computed by applying the
statutory corporate federal tax rate of 34 percent, primarily due to the
effect of certain nondeductible expenses, foreign withholding tax, and changes
in valuation allowances.
A reconciliation of the differences between the effective tax rate and the
federal statutory tax rate is as follows:
30 June2015 30 June2014 31 December2014
Federal statutory income tax rate 34.0% 34.0% 34.0%
State tax rate, net of federal benefit (1.4%) - 0.5%
Valuation allowance (37.9%) (36.6%) (36.8%)
Other (.5%) (.2%) -
Foreign withholding tax (11.1%) (5.4%) 4.4%
Effective income tax rate (16.9%) (8.2%) (6.7%)
The significant components of deferred income taxes included in the balance
sheets are as follows:
30 June2015US$000 30 June2014US$000 31 December2014US$000
Deferred tax assets
Net operating loss 5,494 3,301 4,628
Equity compensation 452 690 764
Research and development credits 159 159 159
Accrued liability 10 71 122
Charitable contributions 9 6 7
Other 170 241 188
Total gross deferred tax asset 6,294 4,468 5,868
Deferred tax liabilities
Property and equipment (949) (806) (952)
Warrants (3) - (3)
Total gross deferred tax liability (806) (806) (955)
Net deferred tax asset before valuation allowance 5,342 3,662 4,913
Valuation allowance (5,342) (3,662) (4,913)
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 2015, the Company has recorded a
valuation allowance of $5.3 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 2015, the Company has approximately $15.6 million of gross U.S.
federal net operating loss carry forwards and $5.1 million of gross state 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 2015 and 2014, and 31
December 2014, there was no accrual for uncertain tax positions or related
interest.
The Company's tax years 2011 through 2014 remain subject to examination by
federal, state and foreign income tax jurisdictions.
8. Lines 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 capacity 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 the Company was in compliance as of 30 June
2015 and 2014, and 31 December 2014. The balance on the line of credit at 30
June 2015 and 2014, and 31 December 2014 was $1,762,000, $2,345,000 and
$2,927,000, respectively. The interest rate on 30 June 2015 and 2014, and 31
December 2014 was 3.25 percent. Interest expense related to this loan for the
six months ended 30 June 2015 and 2014, and the year ended 31 December 2014
was $30,000, $43,000, and $99,000, respectively.
In October 2014, the Company entered into a bank line of credit that allows
for borrowings up to $500,000. The line of credit is revolving and is payable
on demand. The balance on the line of credit at 30 June 2015 and 31 December
2014 was $0 and $500,000, respectively. The line of credit is secured by the
assignment of a deposit account held by the lender. The line of credit carries
a variable interest rate of 0.5 percentage points under an independent index
which is the Wall Street Journal Prime and is calculated by applying the ratio
of the interest rate over a year of 360 days multiplied by the outstanding
principal balance multiplied by the actual number of days the principal
balance is outstanding. The interest rate on 30 June 2015 and 31 December 2014
was 2.75 percent. Interest expense related to this loan for the six months
ended 30 June 2015 and the year ended 31 December 2014 was $0 and $2,000,
respectively.
9. Notes payable
On 27 March 2013, the Company entered into a term loan agreement with a lender
for the purchase of property and a building for its manufacturing operations
and corporate offices. The note is secured by the property and building. The
Company borrowed proceeds of $2,285,908 at a fixed interest rate of 4.45
percent. The loan has a ten year term with monthly payments based on a twenty
year amortisation. There is a one-time payment at the end of the term of the
note of approximately $1,400,000. In accordance with the terms of the
agreement, the Company is required to keep $500,000 in a deposit account with
the lending bank. As of 30 June 2015 and 2014, and 31 December 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 2015:
Year ending 31 December (USD, in thousands)
2015 32
2016 81
2017 85
2018 89
2019 93
Thereafter 1,740
2,120
10. Public Offering of Common Stock
Authorised shares and shares issuance
In December 2014, the Company issued an additional 5,295,069 shares of common
stock for $2.35 per share. The Company incurred costs in the issuance of these
shares of approximately $657,000. The Company received net proceeds of
approximately $11,786,000. In January 2015, the Company completed the final
closing of the share offering and issued 78,977 shares of common stock for
$2.35 per share raising approximately $186,000.
11. Stock compensation
Stock options
In July 2011, the Company's shareholders approved the Conversion Shares and
the Directors' Shares, as well as the Plan Shares and Omnibus Performance
Incentive Plan ("Plan"). This included the termination of all outstanding
stock incentive plans, cancellation of all outstanding stock incentive
agreements, and the awarding of stock incentives to Directors and certain
employees and consultants. The Company established the Plan to attract and
retain Directors, officers, employees and consultants. The Company reserved an
amount equal to 10 percent of the Common Shares issued and outstanding
immediately following 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 a 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, July 2014 and May 2015. 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 enlarged share capital. The total number of
shares reserved for stock awards and options under this Plan is 1,877,011 with
1,027,596 shares allocated as of 30 June 2015. The shares are allocated as
99,706 shares to current and former Non-Executive Directors and 927,890 shares
to employees, executives and consultants.
The options granted to Non-Executive Directors in August 2011 have an exercise
price equal to $0.86 per share. All other options granted in August 2011 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, options
granted in September 2013 have an exercise price equal to $8.01 per share,
options granted in July 2014 have an exercise price equal to $7.45 per share,
and options granted in May 2015 have an exercise price equal to $2.15 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 and have a ten year life.
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 2014 and 2015 were as follows:
Number of Options Granted Grant Date Risk-Free Interest Rate Expected Term Volatility Exercise Price Fair Value Per Option
2014 100,000 07/08/2014 1.36% 5.5 years 56.00% $7.45 $3.78
2015 299,000 05/20/2015 1.29% 6 years 58.00% $2.15 $1.16
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 2015:
Stock Options Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (in years) Average Grant Date Fair Value
Outstanding at 31 December 2014 1,151,274 $3.79 5.5 $2,544,210
Granted 299,000 $2.15 6.0 $346,840
Exercised (170,007) $0.86
Forfeited (252,671) $5.10
Outstanding at 30 June 2015 1,027,596 $3.48 5.8 $1,838,431
Exercisable at 30 June 2015 667,596
A summary of the status of unvested options as of 30 June 2015 and changes
during the six months ended 30 June 2015 is presented below:
Unvested Options Shares Weighted-Average Fair Value at Grant Date
Unvested at 31 December 2014 105,002 $3.83
Granted 299,000 $1.16
Vested (3,334) $1.65
Forfeited (66,668)
Unvested at 30 June 2015 334,000 $1.47
As of 30 June 2015, total unrecognised compensation cost of $373,000 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 August 2011 issuance of the shares. 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 2015 30 June 2014 31 December 2014
Closing price per share of common stock $2.06 $8.51 $2.73
Exercise price per share $3.30 $3.58 $2.27
Expected volatility 51.0% 46.0% 51.0%
Risk-free interest rate 0.74% 0.88% 0.74%
Remaining expected term of underlying securities (years) 1.1 2.1 1.7
In addition, as of the valuation dates, management assessed the probabilities
of future financing 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.
12. Employee benefit plan
The Company maintains an active defined contribution retirement plan for its
employees (the "Benefit Plan"). All employees satisfying certain service
requirements are eligible to participate in the Benefit Plan. The Company
makes cash contributions each payroll period up to specified percentages of
employees' contributions as approved by the Board of Directors. The Company's
contributions to the Benefit Plan for the six months ended 30 June 2015 and
2014, and the year ended 31 December 2014 were approximately $52,000, $50,000,
and $97,000, respectively.
13. Commitments and contingencies
Operating and capital leases - The Company has entered into capital lease
agreements for equipment through 2018. Equipment under capital leases together
with accumulated depreciation at 30 June 2015 and 2014, and 31 December 2014
is as follows:
30 June2015US$000 30 June2014US$000 31 December2014US$000
Office equipment 38 33 33
Manufacturing equipment 47 47 47
85 80 80
Less: Accumulated depreciation (49) (37) (43)
Equipment under capital leases - net 36 43 37
The Company leases certain facilities and equipment under non-cancelable
operating leases which expire at varying times between August 2015 and May
2019. Certain of these leases have escalating rent payments which result in
the Company recording a deferred rent liability.
Future minimum lease payments under the capital and operating leases, together
with the present value of minimum lease payments as of 30 June 2015 are as
follows:
Capital Leases Operating Leases
US$000 US$000
Year Ending 31 December 20152016201720182019 362-- 9930030711645
Total future lease payments 11 867
Less amount representing interest -
Net capital lease liability 11
Less current portion (6)
Total long-term portion of capital lease obligations 5
Rent expense for the six months ended 30 June 2015 and 2014, and the year
ended 31 December 2014 was approximately $317,000, $178,000 and $453,000,
respectively.
14. Related party transactions
The Company has held a patent rights purchase agreement since 2009 with a
shareholder as described in Note 6.
15. Segment and geographic information
ASC 280-10, Disclosures About Segments of an Enterprise and Related
Information (ASC 280-10), establishes standards for reporting information
about operating segments. ASC 280-10 requires that the Company report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise for which separate
financial information is available that is evaluated regularly by the chief
operating decision maker (CODM) in deciding how to allocate resources and in
assessing performance. The Company's CODM is the Chief Executive Officer
(CEO). While the CEO is apprised of a variety of financial metrics and
information, the business is principally managed on an aggregate basis as of
30 June 2015. For the six months ended 30 June 2015, 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. The Company uses Adjusted EBITDA as the
profitability measure for making decisions regarding allocating resources and
assessing performance. Adjusted EBITDA is net income before interest expense,
provision for income taxes, depreciation and amortisation of fixed and
intangible assets including depreciation of leased equipment which is included
in cost of goods sold.
Revenues from customers by geography are as follows:
(USD, in thousands) Six months ended 30 June2015 Six months ended 30 June2014 Year ended 31 December2014
Middle East 7,210 5,867 10,322
United States 1,060 1,309 2,512
Other 420 306 747
Total 8,690 7,482 13,581
Equipment leased to customers by geography is as follows:
(USD, in thousands) Six months ended 30 June2015 Six months ended 30 June2014 Year ended 31 December2014
Middle East 6,589 5,142 5,180
United States 1,610 1,094 1,171
Other 349 268 269
Total 8,548 6,504 6,620
16. Concentrations
At 30 June 2015, two customers, one with three contracts with three separate
plants represented 81 percent of accounts receivable. During the six months
ended 30 June 2015, the Company received 82 percent of its gross revenue from
two customers, one with four contracts with three separate plants.
At 31 December 2014, two customers, one with four contracts with three
separate plants, represented 78 percent of accounts receivable. During the
year ended 31 December 2014, the Company received 65 percent of its gross
revenue from one customer with three separate plants.
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.
17. Subsequent events
As part of the Company's on-going cost reduction initiatives, the Company has
negotiated with its auditors to control the cost of its annual audit by
undertaking the process at a later date than in previous years. As a result,
the Company intends to release its preliminary unaudited full year results at
the beginning of May. In accordance with AIM Rule 19, MYCELX will publish its
annual report before the end of June and the Board has agreed that the next
AGM should be scheduled to take place on 13 July 2016.
Management has evaluated subsequent events through 10 September 2015, the date
the interim results were available to be issued, and no other 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 the Company's
financial position, business strategy, plans and objectives of management for
future operations (including development plans and objectives relating to the
Company's products and services) are forward-looking statements. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future and
therefore undue reliance should not be placed on such forward-looking
statements. There are a number of factors that could cause the actual results,
performance or achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding the Company's present and future business
strategies and the environment in which the Company will operate in the future
and such assumptions may or may not prove to be correct. Forward-looking
statements speak only as at the date they are made. Neither the Company nor
any other person undertakes any obligation (other than, in the case of the
Company, pursuant to the AIM Rules for Companies) to update publicly any of
the information contained in this announcement, including any forward-looking
statements, in the light of new information, change in circumstances or future
events.
This information is provided by RNS
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