Final Results for the year ending 31 December 2019

Balance Sheets

(USD, in thousands, except share data)

 

As at 31 December:	2019	2018
Assets
Current Assets
Cash and cash equivalents	3,647	4,866
Restricted cash	500	525
Accounts receivable - net	3,987	8,225
Unbilled accounts receivable	-	20
Inventory - net	6,141	4,708
Prepaid expenses	218	228
Other assets	387	42
Total Current Assets	14,880	18,614
Property and equipment - net	8,016	8,536
Intangible assets - net	798	788
Operating lease asset - net	808	-
Total Assets	24,502	27,938
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	786	2,912
Payroll and accrued expenses	503	1,950
Deferred revenue	-	125
Customer deposits	864	130
Operating lease obligations - current	282	-
Note payable - current	97	86
Other current liabilities	-	23
Total Current Liabilities	2,532	5,226
Operating lease obligations - long-term	484	-
Note payable - long-term	1,642	1,739
Total Liabilities	4,658	6,965
Stockholders' Equity
Common stock, $0.025 par value, 100,000,000 shares authorised, 19,443,750 and 18,807,617 shares issued and outstanding at 31 December 2019 and 2018, respectively.	486	470
Additional paid-in capital	42,358	40,544
Accumulated deficit	(23,000)	(20,041)
Total Stockholders' Equity	19,844	20,973
Total Liabilities and Stockholders' Equity	24,502	27,938

 

The accompanying notes are an integral part of the financial statements.

 

 

Statements of Stockholders' Equity

(USD, in thousands)

 

Capital	Common Stock		Additional Paid-in $	Accumulated Deficit $	Total $
	Shares	$
Balances at 31 December 2017	18,788	470	40,456	(23,111)	17,815
Exercise of stock options	20	-	8	-	8
Stock-based compensation expense	-	-	80	-	80
Net profit for the period	-	-	-	3,070	3,070
Balances at 31 December 2018	18,808	470	40,544	(20,041)	20,973
Issuance of common stock, net of offering costs	604	15	1,573	-	1,588
Exercise of stock options	32	1	42	-	43
Stock-based compensation expense	-	-	199	-	199
Net loss for the period	-	-	-	(2,959)	(2,959)
Balances at 31 December 2019	19,444	486	42,358	(23,000)	19,844

 

The accompanying notes are an integral part of the financial statements.

 

Statements of Cash Flows

(USD, in thousands)

 

For the Year Ended 31 December:	2019	2018
Cash flow from operating activities
Net (loss) profit	(2,959)	3,070
Adjustments to reconcile net (loss) profit to net cash provided by operating activities:
Depreciation and amortisation	1,269	1,239
Loss from disposition of equipment	13	3
Stock compensation	199	80
Change in operating assets and liabilities:
Accounts receivable - net	4,238	(5,789)
Unbilled accounts receivable	20	378
Inventory - net	(1,338)	(2,082)
Prepaid expenses	10	26
Prepaid operating leases	(42)	-
Other assets	(345)	(9)
Accounts payable	(2,126)	1,930
Payroll and accrued expenses	(1,447)	1,380
Deferred revenue	(125)	(60)
Customer deposits	734	123
Other current liabilities	(23)	9
Net cash (used in) provided by operating activities	(1,922)	298
Cash flow from investing activities
Payments for purchases of property and equipment	(805)	(492)
Payments for internally developed patents	(62)	(23)
Net cash used in investing activities	(867)	(515)
Cash flows from financing activities
Net proceeds from stock issuance	1,588	-
Net proceeds from exercise of stock options	43	8
Payments on notes payable	(86)	(96)
Net cash provided by (used in) financing activities	1,545	(88)
Net decrease in cash, cash equivalents and restricted cash	(1,244)	(305)
Cash, cash equivalents and restricted cash, beginning of year	5,391	5,696
Cash, cash equivalents and restricted cash, end of year	4,147	5,391
Supplemental disclosures of cash flow information:
Cash payments for interest	74	92
Cash payments for income taxes	496	1,128
Non-cash movements of inventory and fixed assets	96	(459)

 

The accompanying notes are an integral part of the financial statements.

 

Notes to the Financial Statements

 

1. Nature of Business and Basis of Presentation

Basis of presentation - These financial statements have been prepared using recognition and measurement principles of Generally Accepted Accounting Principles in the United States of America ('U.S. GAAP').

 

Nature of business - MYCELX Technologies Corporation ('MYCELX' or the 'Company') was incorporated in the State of Georgia on 24 March 1994. The Company is headquartered in Duluth, Georgia with operations in Houston, Texas, Saudi Arabia and the United Kingdom. The Company provides clean water technology equipment and related services to the oil and gas, power, marine and heavy manufacturing sectors and the majority of its revenue is derived from the Middle East and United States.

 

Liquidity - The Company meets its day-to-day working capital and other cash flow requirements through operations and loan facilities. The Company has a Note Payable (Note 9) that matures in March 2023 and access to a line of credit (Note 8) that renews annually. 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.

Currently due to fears over the spread of COVID-19 there has been a significant economic impact in the regions in which the Company operates. Further, for several reasons including COVID-19, there has been a significant decrease in oil demand and therefore a fall in prices. Considering the Company's customer base is concentrated in the Oil and Gas industry, this could have a significant impact on future demand for the Company's clean water technology. Whilst it is too early to predict the impact to the Company's operations, the extent of the effect on the Company's operational and financial performance will depend on future developments, including the duration, spread, and intensity of the pandemic, and governmental, regulatory and private sector responses.

 

Given the future uncertainty, including that the Company's 2019 operations showed a significant decrease in revenues from 2018 due to the delay of certain projects, the Company performed a downside scenario sensitivity analysis taking into account the potential for continuation of low oil prices and uncertainty around COVID-19, whilst considering revenues already under contract and adjusting only for cost of goods sold.

 

On the basis of current financial projections, including the downside scenario sensitivity analysis, and facilities available, the Company believes that it has adequate resources to continue in operational existence for the foreseeable future at least 12 months from the date of the issuance of these financial statements and, accordingly, consider it appropriate to adopt the going concern basis in preparing these Financial Statements.

 

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 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 leases, 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 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 shipment of the equipment to the customer because the contractual terms state that control transfers at 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, thus, they do not represent deferred revenue.

 

Sales tax charged to customers is presented on a net basis within the consolidated 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 good 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. Deferred revenue represents billings in excess of revenue recognised. Deferred revenue at 31 December 2018 included $124,867 recognized as revenue in 2019. There was no unbilled accounts receivable and no deferred revenue at 31 December 2019.

 

Timing of revenue recognition for each of the periods and geographic regions presented is shown below:

 

Year Ending 31 December (USD, in thousands)	Equipment Leases, Turnkey Arrangements, and Services Recognised Over Time		Consumable Filtration Media, Equipment Sales and Service Recognised at a Point in Time
	2019	2018	2019	2018
Middle East	3,931	7,593	4,324	15,473
United States	1	260	2,448	2,205
Other	-	98	916	1,323
Total revenue recognised under ASC 606	3,932	7,951	7,688	19,001
Total revenue recognised under ASC 842	288	-	-	-
Total revenue	4,220	7,951	7,688	19,001

 

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.

 

During the year ended 31 December 2019, 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 31 December 2019, all of the Company's cash and cash equivalent balances were held in checking and money market accounts. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. At 31 December 2019 and 2018, cash in non-U.S. institutions was $7,000 and $13,000, 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. As of 31 December 2019 and 2018, restricted cash included $500,000 cash on deposit in a money market account as required by a lender (see Note 9). The restricted cash balance at 31 December 2018 also included $25,000 in a Certificate of Deposit to secure the Company's corporate credit card.

 

Reconciliation of cash, cash equivalents and restricted cash at 31 December 2019 and 2018:

 

	31 December 2019 US$000	31 December 2018 US$000
Cash and cash equivalents	3,647	4,866
Restricted Cash	500	525
Total cash, cash equivalents and restricted cash	4,147	5,391

 

Accounts receivable - Trade accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company provides credit in the normal course of business to its customers and performs ongoing credit evaluations of those customers and maintains allowances for doubtful accounts, as necessary. Accounts are considered past due based on the contractual terms of the transaction. Credit losses, when realised, have been within the range of the Company's expectations and, historically, have not been significant. The allowance for doubtful accounts at 31 December 2019 and 2018 was $nil and $300,000, respectively, as the Company wrote off the balances reserved at 31 December 2018 during 2019 and no other amounts were reserved during 2019.

 

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 changed their inventory accounting method from the FIFO method (first in; first out) to the Average Cost method. Manufacturing work-in-progress and finished products inventory include all direct costs, such as labour and material, 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.

 

Change of Accounting Principle - On 30 September 2019, the Company changed its inventory accounting method from the FIFO method to the Average Cost method. The change coincided with the migration of the Company's ERP system to NetSuite. While both costing methods are acceptable under U.S. GAAP, the Company decided to use average costing in the new system to best utilise NetSuite capabilities and more accurately account for inventory and cost. A change in prior periods has been deemed both immaterial and impractical due to the significant turnover of inventory over the preceding two years, and thus, the Company has chosen to apply the change prospectively starting on the date of the NetSuite implementation.

 

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:

 

Building	39 years
Leasehold improvements	Lease period or 1-5 years (shorter of)
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	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.

 

Impairment of long-lived assets - Long-lived assets to be held and used, including property and equipment and intangible assets with definite useful lives, are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss, if any, is recognised for the difference between the fair value and carrying value of the assets. Impairment analyses, when performed, are based on the Company's business and technology strategy, management's views of growth rates for the Company's business, anticipated future economic and regulatory conditions, and expected technological availability. For purposes of recognition and measurement, the Company groups its long-lived assets at the lowest level for which there are identifiable cash flows, which are largely independent of the cash flows of other assets and liabilities. No impairment charges were recorded in the years ended 31 December 2019 and 2018.

 

Research and development costs - Research and development costs are expensed as incurred. Research and development expense for the years ended 31 December 2019 and 2018 was approximately $352,000 and $nil, respectively.

 

Advertising costs - The Company expenses advertising costs as incurred. Advertising expense for the years ended 31 December 2019 and 2018 was $nil and is recorded in selling, general and administrative expenses.

 

Rent expense - In 2018, under ASC 840, the Company recorded 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 represented the cumulative difference between rent expense recognised on the straight-line basis and the actual rent paid.

 

In 2019, under ASC 842, the deferred rent liability was recognised within the initial right of use asset as of the transition date and the rent expense was recorded using straight-line amortisation of the right of use asset as calculated under the standard for the remainder of the expected lease term. The lease liability was calculated at the present value of the remainder of the contracted lease payments.

 

Income taxes - The provision for income taxes for annual periods is determined using the asset and liability method, under which deferred tax assets and liabilities are calculated based on the temporary differences between the financial statement carrying amounts and income tax bases of assets and liabilities using currently enacted tax rates. The deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realised in future periods. Decreases to the valuation allowance are recorded as reductions to the provision for income taxes and increases to the valuation allowance result in additional provision for income taxes. The realisation of the deferred tax assets, net of a valuation allowance, is primarily dependent on the ability to generate taxable income. A change in the Company's estimate of future taxable income may require an addition or reduction to the valuation allowance.

 

The benefit from an uncertain income tax position is not recognised if it has less than a 50 percent likelihood of being sustained upon audit by the relevant authority. For positions that are more than 50 percent likely to be sustained, the benefit is recognised at the largest amount that is more-likely-than-not to be sustained. Where a net operating loss carried forward, a similar tax loss or a tax credit carry forward exists, an unrecognised tax benefit is presented as a reduction to a deferred tax asset. Otherwise, the Company classifies its obligations for uncertain tax positions as other non-current liabilities unless expected to be paid within one year. Liabilities expected to be paid within one year are included in the accrued expenses account.

 

The Company recognises interest accrued related to tax in interest expense and penalties in selling, general and administrative expenses. During the years ended 31 December 2019 and 2018 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 antidilutive. Total common stock equivalents consisting of unexercised stock options that were excluded from computing diluted net loss per share were approximately 1,324,968 for the year ended 31 December 2019 and there were no adjustments to net income available to stockholders as recorded on the income statement.

 

The following table sets forth the components used in the computation of basic and diluted net (loss) profit per share for the periods indicated:

 

	Years Ended 31 December
	2019	2018
Basic weighted average outstanding shares of common stock	19,312,664	18,802,981
Effect of potentially dilutive stock options	-	1,200,270
Diluted weighted average outstanding shares of common stock	19,312,664	20,003,251
Anti-dilutive shares of common stock excluded from diluted weighted average shares of common stock	1,324,968	-

 

Fair value of financial instruments - The Company uses the framework in ASC 820, Fair Value Measurements, to determine the fair value of its financial assets. ASC 820 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value and expands financial statement disclosures about fair value measurements.

 

The hierarchy established by ASC 820 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy under ASC 820 are described below:

 

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3: Unobservable inputs for the asset or liability.

 

There were no transfers into and out of each level of the fair value hierarchy for assets measured at fair value for the years ended 31 December 2019 or 2018.

 

All transfers are recognised by the Company at the end of each reporting period.

 

Transfers between Levels 1 and 2 generally relate to whether a market becomes active or inactive. Transfers between Levels 2 and 3 generally relate to whether significant relevant observable inputs are available for the fair value measurement in their entirety.

 

The Company's financial instruments as of 31 December 2019 and 2018 include cash and cash equivalents, restricted cash, accounts receivable, accounts payable, the line of credit, and the note payable. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and the line of credit approximate fair value due to the short-term nature of those assets and liabilities. The Company believes it is impractical to disclose the fair value of the note payable as it is an illiquid financial instrument.

 

Foreign currency transactions - From time to time the Company transacts business in foreign currencies (currencies other than the United States Dollar). These transactions are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign currency transaction gains or losses are included in selling, general and administrative expenses.

 

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 11).

 

Recently issued accounting standards - In February 2016, the Financial Accounting Standards Board ('FASB') issued ASU 2016-02, 'Leases (Topic 842)', which requires lessees to recognise on the balance sheet the assets and liabilities for the rights and obligations created by the leases with lease terms of more than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will continue to primarily depend on its classification as a finance or operating lease. However, unlike prior U.S. GAAP, which required only capital leases be recognised on the balance sheet, the new standard requires both finance and operating leases to be recognised on the balance sheet. The new standard also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The Company adopted this ASU under a modified retrospective approach on 1 January 2019 adopting the standard only from the beginning of the adoption year with a cumulative-effect adjustment recorded as of 1 January 2019, which resulted in no impact to the statement of stockholders' equity. This resulted is the recognition of an Operating Lease Right of Use Asset and an Operating Lease Liability of $1,076,000 and $1,042,000, respectively. The Company adopted the standard with the 'package of three' practical expedient as stated in ASC 842 upon adoption in evaluating its adoption impact from a lessee perspective.

 

Lessor Contracts
The Company evaluated the potential impact of the adoption from a lessor perspective as the Company's business model provides customers with the use of equipment to filter water. The Company determined that in contracts where equipment was leased, there was an identified asset, the most significant economic benefit was the ability of the customer to obtain clean water from their use of the Company's clean water technology, and customers directed the activities most significant to the ability to obtain those economic benefits. Contracts generally contain no purchase options or residual value guarantees. The assets that the Company leases generally have a long useful life of up to 10 or more years and are used by several customers over the useful life of the equipment. The Company believes that the residual value at any point in time is materially consistent with the recorded rate of depreciation as a result.

 

The Company's lease contracts are generally short term in nature and contain non lease components in the form of services, whereby employees operate the equipment, and the media to use with the equipment in order to clean the water. Within these contracts, the predominant value lies in the purchased media, which cleans the water, and is the most significant value received by the customer. As a result, the Company will use the lessor practical expedient to recognise all components under ASC 606 within these contracts.

 

From time to time, customers will lease only the equipment on a trial basis or for a short period of time, as a need arises, without the purchase of services or media. In these instances, revenue is recognised under ASC 842. The amount of lease income to be received under these types of arrangements over the next five years for which a contract currently exists is not significant because of the short-term nature of the Company's lease contracts.

 

In August 2016, the FASB issued ASU 2016-15, 'Clarification on Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows', which amends ASC 230. The FASB issued ASU 2016-15 with the intent of reducing diversity in practice with respect to eight types of cash flows. The Company has adopted this guidance effective 1 January 2019. The adoption of this new guidance did not have a material impact on the consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, 'Statement of Cash Flows (Topic 230): Restricted Cash', that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. The Company has adopted this guidance effective 1 January 2019 using the retrospective transition method and has applied its content to the statement of cash flows for the years ended 31 December 2018 and 2019 presented herein.

 

In August 2018, the FASB issued ASU 2018-13, 'Fair Value Measurement (Topic 820): Disclosure Framework', which removes, modifies and adds to the disclosure requirements on fair value measurements in Topic 820. The amendments on changes in unrealised gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This guidance will become effective for the Company in fiscal years beginning after 15 December 2019, including interim periods within that reporting period. The Company does not expect adoption of this guidance to have a material impact on its financial statements.

 

In December 2019, the FASB issued ASU 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes', which is expected to simplify income tax accounting requirements in areas deemed costly and complex. The amendments under ASU 2019-12 will be effective as of 1 January 2021, and interim periods within that year, with early adoption permitted in its entirety as of the beginning of the year of adoption. At adoption, the guidance allows for modified retrospective application through a cumulative effect adjustment to retained earnings. The Company is currently evaluating the impact of adopting this guidance.

 

Recent accounting pronouncements pending adoption not discussed above are either not applicable or are not expected to have a material impact on the Company.

 

Reclassifications - Certain reclassifications have been made to prior years' financial statements to conform to current year presentation. A reclassification was made on the balance sheet to separately present 'customer deposits' of $130,000 previously included in 'other current liabilities'. A reclassification was made in the cash flow statement to separately present 'customer deposits' of $130,000 previously included in 'other current liabilities' among adjustments to reconcile net income to net cash provided by operating activities. These reclassifications had no effect on reported results of operations, accumulated deficit, or net cash provided by operating activities, as of and for the year ended 31 December 2018.