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RNS Number : 0794J

Ethernity Networks Ltd

19 August 2021

19 August 2021

ETHERNITY NETWORKS LTD

("Ethernity" or the "Company" or the "Group")

Interim results for the six months ended 30 June 2021 and Update

Ethernity Networks Ltd (AIM: ENET.L), a leading supplier of programable networking solutions utilising patented and innovative network processing technology ported on FPGA (field programmable gate array) for virtualised networking appliances, today announces its interim results for the six months ended 30 June 2021 and provides the following Company update.

Ethernity provides innovative, comprehensive networking and security solutions on programmable hardware for accelerating telco/cloud networks. Ethernity's programmable networking solutions that utilise FPGAs, offer complete Carrier Ethernet Switch Router data plane processing and control software with a rich set of networking features, robust security, and a wide range of virtual function accelerations to optimise telecommunications networks. Ethernity's complete solutions quickly adapt to customers' changing needs, improving time-to-market and facilitating the deployment of 5G, edge computing, and NFV (network functions virtualisation).

Financial summary

   --    Revenues increased by 165.8% to $955,371 over the comparable period (H1 2020: $359,375) 
   --    Gross margin increased by 91.1% to $605,852 over the comparable period (H1 2020: $316,982) 

-- Gross margin percentage declined to 63.42% (H1 2020: 88.20%) due to increased revenues from product sales with lower margins as opposed to the 100% margins from licensing and royalties revenues

-- Research and Development, General and Administrative, and Marketing expenses increased by 6.8% over previous period due mainly to return to normal operations from the COVID-19 cut backs

-- EBITDA loss remained consistent with the previous period, increasing by 2.1% to $2,473,686 (H1 2020 comparable adjusted EBITDA loss: $2,422,574)

   --    Operating loss increased by 1.0% over the comparable period 

-- The cash resources during the period under review were further bolstered following additional investment of GBP1.8m ($2.5m) from the Share Subscription Agreement and GBP1.0m ($1.46m), including support from the Directors, from the exercise of the 30p Warrants originally issued as part of the placing in July 2020.

Company Strategy

The Company is operating in the competitive Telecom industry and is focused on innovative, differentiated offerings related to the 5G router appliance, so as to allow Ethernity to stand out from other standard offerings available in the market. The Directors believe that the current signed contracts and orders received and expected, along with the many other ongoing customer discussions, show that our differentiated, unique and value-added system solutions can capture significant interest in this open RAN market. With our main goal of becoming a supplier of customised and differentiated system solutions as compared to the legacy model of FPGA code licensing, which we have achieved by offering not just the FPGA code, but also the software application and complete system solution, we have elevated our offerings in the value chain. This focused and comprehensive strategy allows us to capture multiple times more revenue per unit as compared to that which can be derived from only selling FPGA code.

Whilst historically most of the Company's principal revenues have been generated from licensing and royalties, in H1 2021, and as evidenced in the results, we saw a change in the mix towards recurrent product revenue streams and the related margin percentages.

With this strategy and our goals of being a solutions provider in mind, the Company intends to focus most of its R&D resources toward delivering complete system solutions as opposed to FPGA code licensing deals, which consume R&D resources but produce only short term revenues and jeopardise our ability to focus on completing the system solutions that are the core of our growth plan.

As we move towards becoming a supplier of system solutions that include FPGA, FPGA routing firmware, add-on differentiated features and complete software applications, during 2021, the Company has not progressed certain FPGA licensing opportunities that are not in line with our system solutions focus. We will continue to focus on opportunities that are aligned with our 5G router activities and its variants, to preserve the R&D resources for future growth versus short-term FPGA code licensing deals.

Operational highlights

During H1 2021 our activities have progressed in multiple domains:

-- With Xilinx, who supply the FPGA device used by Ethernity along with procurement from other sources, we have succeeded in securing supply for the majority of FPGAs required for 2021 so as to fulfill our FPGA SoC orders.

-- $400,000 order received for our ENET FPGA SoC for point to multi-point fixed wireless platforms. Further to this order the Company has received further orders resulting in total orders received to-date of $2.0m. We are hopeful these orders will increase with further engagements through the customer's product deployment and introduction.

   --   $2.0m in orders from a Fixed Wireless Access provider to supply the Company's ENET FPGA SoC. 

5G and DU Router

The Company is now fully focused on supporting the systems contracts signed for our 5G Router offering including our growing demand for our DU with vRouter offload, that are anticipated to generate the change to being a system solutions provider from 2022 onwards as further detailed below and therefore differentiate this from other licensing activities.

   --   5G Router solution: 

Ethernity's 5G router offers a unique proposal to the market as it is populated on a programmable platform (FPGA-based) that allows us not only to provide basic routing, but further proposes a differentiated function that provides answers to the ever-changing market requirements without the need to fabricate new hardware based on the same device. This is in alignment with the trend towards virtualisation that utilises programmable CPUs instead of rigid hardware.

By following this strategy the Company has succeeded in capturing significant momentum for its standalone FPGA-based Universal Edge Platform (UEP) as well as for the ACE-NIC for both DU Router-on-NIC and for UPF.

The significant contract signed with an Indian OEM during Q4 2020 was the first system-level contract that included delivery of the complete offering of system ingredients including hardware, FPGA and application software. The Customer has completed fabrication of the first product (UEP-60), and there is growing interest from large service providers for this product. This product will include the same FPGA code and software application save for minor changes in hardware configuration, that is applicable for two larger customer contracts we have, including the new UEP-60 contract of $930,000 signed on 30 July 2021, which includes integrated wireless bonding and more importantly the DU Router-on-NIC. As detailed below, this is the same system offering as in the UEPs, but runs on a standard network adapter server card, allowing the Company to focus its R&D efforts on a singular goal.

   --   DU's Router-on-NIC: 

o Ethernity nominated for a GSM GLOMO award, demonstrating our leading technology innovation and differentiated system offerings for the open RAN market and further proving our leadership and positioning in this market.

o Gained traction from large service providers as the product offers greater savings in both operational expenses and capital expenses. Once used on a DU, it can eliminate the need for an external switch/router required at the DU location for aggregation of other DUs and for network connectivity. Further details can be found in our blog post https://ethernitynet.com/ethernitys-unique-du-proposition/ .

o The Company believes that its vRouter offload for DU that was initially introduced to the market by Ethernity, has the potential to become a standard requirement for large DU open RAN-based deployment.

   --   5G router with integrated wireless bonding: 

o The Company was granted a patent for a new wireless bonding technology. On a practical level this patent enables Ethernity to overcome operator issues with wireless transmission that is interrupted or slowed due to inclement weather. The primary applications for this patent are SD-WAN and wireless backhaul deployments.

o Furthermore, as highlighted above, the Company announced on 30 July 2021 that it had secured a contract with a customer of $930k for a customised UEP-60 solution incorporating the integrated wireless bonding. The majority of the revenues will be recognised in 2022.

o Following the introduction of the UEP-20 based bonding solution the Company went through different testing and interoperability with radio equipment vendors, and dependent on the vendors' success in selling their radio equipment with our UEP-20 bonding solution for currently deployed radio installations, we currently expect to obtain orders over the next 12 months for our UEP-20 to connect thousands of links, with expected revenues in the range of $800k to $1.0m.

o We are also in ongoing discussions relating to various other UEP customised offerings and further licensing for our software and firmware with other wireless connectivity vendors.

Post-period events

On 30 July 2021 the Company announced a new contract of $930k with an international wireless connectivity vendor to supply its UEP-60 product. Over and above this initial order, there is potential for significant follow-on orders and wider product offerings. This is the second major 5G system contract, following the successful contract with the Indian OEM in Q3 2020, in Ethernity's progression of its transition to a system solutions provider.

Following a delay due to the COVID-19 outbreak in India, fabrication of the UEP-60 product has now been completed by the Indian OEM and was delivered by them to our lab for integration during August 2021. The customer has multiple engagements with operators and government agencies, and subsequent to our delivery and testing of the working product, expects significant deployment from 2022 onwards.

2021 Update and Outlook

The Board remains confident that, on the basis of the current contracts, continued increased customer engagements, focus on delivery of solutions and the anticipated customer deployments now being realised, Ethernity will meet its long-term objectives and is well positioned to become one of the key solutions providers in its marketplace. The Company continues to experience an increase in the outreach by OEMs and operators interested in Ethernity's solutions where these solutions are proving increasingly aligned with operators strategy with their customers in their marketplaces. Network service providers are requiring more flexible solutions to their technology and network needs for offloading support of new data appliances introduced by the market. Ethernity believes it has the best-in-class system solutions to address these needs.

We are pleased to note that the interest for our products is growing, including current discussions with strategic Tier-1 cloud infrastructure suppliers. However, even with orders in place, due to component shortages and the ongoing impact of COVID-19 in the areas where our contracted customers operate (specifically, in India) resulting in significantly late deliveries by our customers of their fabricated product for integration with our UEP software, which product has now finally been fabricated and delivered to the Company by the customer for integration. In light of these delays, we now expect a delayed deployment from our customers from 2021 to the first half of 2022. As a result of these delays, and the worldwide components shortages, we now expect that approximately $1.0m to $1.5m of anticipated revenues may be pushed from H2 2021 into H1 2022. Furthermore, as we focus on systems solutions in preference to licensing deals not aligned with our product deliveries, we are no longer pursuing certain licensing deals so as to focus our resources on delivering the product solutions, our main growth engine in terms of our contracts and the future product solutions business-based roadmap.

In summary, the business and engagements remain positive and intact, being primarily affected by customer and component delays. With the refocused strategy on product sales, the Board now expects 2021 full year revenues to be in a range of $3.5m to $4.5m, displaying continued significant growth over the previously reported periods.

During 2022 and beyond, the Company anticipates generating revenues from its DU Router-on-NIC and UPF, with significant year-on-year revenue growth anticipated from product orders and contracts already signed, in particular our long-term contracts for Fixed Wireless Access, UEP-60 (with further potential upside from UEP-20) and our Indian OEM contract, demonstrating positive momentum and growth from product sales. Resulting from the new contracts and orders, and notwithstanding the delays as mentioned above, the Company is satisfied that is has sufficient financial resources to meet its ongoing obligations and operating requirements for 2022.

David Levi, Chief Executive Officer of Ethernity Networks Ltd, commented:

"The first half results were in-line with our expectations, with a positive mix of product, royalties and licensing revenues. It appears that most of our engaged customers are now returning to more normalised levels of business operations and are finalising their development of new products and architecture. This is expected to lead to demand for our programmable products, and the deal flow forecasts for engagements this year remain intact. We are hopeful that these will continue to be concluded during H2 2021.

We are pleased to be continuing the evolution of the Company, with our strategy to focus on product and system revenue business versus short term licensing deals that are not in line with our system solutions. We do however foresee that delays in roll-out and deployment in India due to the COVID-19 situation along with the component shortage situation in general required for our UEPs and ACE-NIC product will defer planned Q3 and Q4 2021 revenues into the latter portions of Q1 and Q2 2022.

The product contracts already signed, the product orders received (which are expected to grow), and the good progress with our Indian OEM will all fuel our revenue growth to position us not just as a technology company, but as a validated system product supplier with differentiated offerings, resulting in growing revenue streams that will allow us to be considered for larger scale deployments."

For further information, please contact:

 
Ethernity Networks Ltd                       Tel: +972 8 915 0392 
David Levi, Chief Executive Officer 
Mark Reichenberg, Chief Financial Officer 
 
Arden Partners plc (NOMAD and Joint Broker)  Tel: +44 207 614 5900 
Richard Johnson / Oscair McGrath 
 
Peterhouse Capital Limited (Joint Broker)    Tel: +44 20 7562 0930 
Eran Zucker / Lucy Williams / Duncan Vasey 
 
 

MARKET ABUSE REGULATION

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014 (as implemented into English Law). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

OPERATIONAL and financial REVIEW

Over the past six month reporting period we continued with our goals and to progress our strategic transition towards diversifying the Company's offerings to include systems solutions in addition to IP licensing and services, and this has been evidenced in the accomplishments and engagements attained over the past year.

During the period under review, the Company delivered revenues of $955,371 (H1 2020: $359,375) and a gross profit of $605,852 (H1 2020 $316,982). Revenues were significantly higher than the comparable period.

The gross profit percentage decline to 63.42%, as opposed to H1 2020 of 88.2%, is as anticipated due to the different product mix within the revenue. In the past design wins and royalty revenue contributed proportionately significantly more to revenues, however the focus on being a solutions provider has resulted in the mix of revenues trending toward the supply of product with lower margins albeit higher unit sales values.

EBITDA

EBITDA, albeit it not a recognised reportable accounting measure, provides a meaningful insight into the operations of a business when removing the non-cash or intangible elements from trading results along with recognising actual costs versus some IFRS adjustments, in this case being the amortisation and non-cash items charges in operating income and the effects of IFRS 16 treatment of operational leases.

The EBITDA for the period under review for the 6 months ended 30 June 2021 is presented as follows:

 
                 EBITDA                                  US Dollars 
                                            For the 6 months ended    31 December 
                                                    30 June 
                                          -------------------------  ------------ 
                                              2021          2020         2020 
                                          ------------  -----------  ------------ 
 Revenues                                    955,371      359,375      1,853,732 
                                          ------------  -----------  ------------ 
 Gross Margin as presented                   605,852      316,982      1,582,279 
                                          ------------  -----------  ------------ 
 Gross Margin %                              63.42%        88.20%       85.36% 
                                          ------------  -----------  ------------ 
 Operating (Loss) Profit as presented      -3,097,078    -3,065,377   -5,088,929 
                                          ------------  -----------  ------------ 
 Adjusted for: 
                                          ------------  -----------  ------------ 
 Add back Amortisation of Intangible 
  Assets                                     480,690      471,917       952,606 
                                          ------------  -----------  ------------ 
 Add back Share based compensation 
  charges                                    36,969       -15,556       18,209 
                                          ------------  -----------  ------------ 
 Add back vacation accrual charges           -18,154       30,313       81,732 
                                          ------------  -----------  ------------ 
 Add back depreciation charges on 
  fixed assets                               48,793        78,198       156,011 
                                          ------------  -----------  ------------ 
 Add IFRS operating leases depreciation      75,094        77,931       155,862 
                                          ------------  -----------  ------------ 
 EBITDA                                    -2,473,686    -2,422,574   -3,724,509 
                                          ------------  -----------  ------------ 
 

EBITDA loss in the first six months of the year was $2,473,686 (H1 2020 loss: $2,422,574), which has remained consistent with the previously reported comparable period. This loss is impacted by the reduced margin percentage. As previously stated, the margin percentage is a direct result of the revenues mix and it is anticipated that the current margin percentage levels will continue.

Operating Costs

Operating expenses (before amortisation and depreciation), increased by 6.7% in the current period against the same period in 2020 from $2,739,556 to $3,100,340 mainly within the R&D division as operating levels normalised to the pre COVID-19 levels and staff attendance returned to 100%.

General and Administration costs have also returned to normal levels as staff returned from furlough, one off COVID-19 cost reductions were no longer applicable and employee salaries returned to 100% levels.

The decline in the Marketing expenses are a direct result of the reduction in physical marketing activities and attendance at worldwide conferences and exhibitions.

After adjusting for the capitalised Research and Development Costs, amortisation costs of the Development Intangible asset, Depreciation and Share Based Compensation adjustments, the resultant increases (decreases) in Operating costs, as adjusted would have been:

 
          Operating Costs                        US Dollars                 Increase       % 
                                                                            (Decrease) 
                                                                               June 
                                       For the 6 months      31 December 
                                         ended 30 June 
                                    ----------------------  ------------ 
                                       2021        2020         2020 
                                    ----------  ----------  ------------ 
 Research & Development Costs, 
  including capitalised costs, 
  net of amortisation, Share 
  Based Compensation and Vacation 
  accruals                           1,982,075   1,664,772    3,049,659      317,303     10.40% 
                                    ----------  ----------  ------------  ------------  ------- 
 General and Administrative 
  Expenses, net of depreciation, 
  Share Based Compensation, 
  Vacation accruals, impairments.     642,685     520,012     1,245,082      122,673     9.85% 
                                    ----------  ----------  ------------  ------------  ------- 
 Marketing Expenses, net of 
  Share Based Compensation 
  and Vacation accruals.              475,580     554,772     1,052,382      -79,192     -7.53% 
                                    ----------  ----------  ------------  ------------  ------- 
 Total                               3,100,340   2,739,556    5,347,123      360,784     6.75% 
                                    ----------  ----------  ------------  ------------  ------- 
 

Summarised trading results

 
  Net comprehensive loss for the period                   US Dollars 
                                             For the 6 months ended     31 December 
                                                     30 June 
                                           --------------------------  ------------ 
                                               2021          2020          2020 
                                           ------------  ------------  ------------ 
 Revenues                                     955,371       359,375      1,853,732 
                                           ------------  ------------  ------------ 
 Gross Margin                                 605,852       316,982      1,582,279 
                                           ------------  ------------  ------------ 
 Gross Margin %                               63.42%        88.20%        85.36% 
                                           ------------  ------------  ------------ 
 Operating (Loss) Profit                    (3,097,078)   (3,065,377)   (5,088,929) 
                                           ------------  ------------  ------------ 
 Financing costs                            (1,419,468)    (22,136)     (1,462,740) 
                                           ------------  ------------  ------------ 
 Financing income (expenses)                  116,597       177,916       298,016 
                                           ------------  ------------  ------------ 
 (Loss) Profit before tax                   (4,399,949)   (2,909,597)   (6,253,653) 
                                           ------------  ------------  ------------ 
 Tax benefit (reversal of previous 
  deferred tax benefit)                          0             0             0 
                                           ------------  ------------  ------------ 
 Net comprehensive (loss) income for 
  the period                                (4,399,949)   (2,909,597)   (6,253,653) 
                                           ------------  ------------  ------------ 
 Basic and Diluted earnings per ordinary 
  share                                        -0.09         -0.09         -0.17 
                                           ------------  ------------  ------------ 
 Weighted average number of ordinary 
  shares for basic earnings per share       51,347,822    32,673,455    36,590,988 
                                           ------------  ------------  ------------ 
 

Revenue Analysis

Revenues for the 6 months ended 30 June 2021 increased by 165.8% to $955,371 (2020: $359,375). This result is a positive reflection of the upward trend anticipated due to the increased customer engagements and contacted demand and deployment of the Company's solutions.

The revenue mix will continue to evolve as the Company progresses in achieving the desired mix of the revenue streams from network solutions in addition to IP licenses and services.

Segment Reporting

The geographic mix is represented by the makeup of the products supplied, where in the first half of the current financial year the revenues were weighted towards foreign design wins while royalty revenues were earned in Israel. The trend is expected to continue during the second half of the year as design wins and product supply focussing on the Tier-1 OEMs outside of Israel continues to grow.

 
 SEGMENT REPORT SECTOR ANALYSIS 
 
 Region             Six months ended     Six months ended      Year ended 31 
                      30 June 2021         30 June 2020         December 2020 
----------------  -------------------  -------------------  ------------------- 
 
                      US$        %         US$        %         US$        % 
----------------  ----------  -------  ----------  -------  ----------  ------- 
 United States      765,075    80.1%     227,520    63.3%    1,256,613   67.8% 
 Israel             161,796    16.9%     121,855    33.9%     262,119    14.1% 
 Asia               28,500      3.0%     10,000      2.8%     335,000    18.1% 
 Total              955,371    100.0%    359,375    100.0%   1,853,732   100.0% 
                  ----------           ----------           ---------- 
 

Margins

Gross margins were line with Company expectations based on the product sales strategy focus, with the 2021 gross margin for the period being 63.4% as compared to 88.2% in the same period for 2020. As always, the gross margin will vary according to the revenue mix.

As the revenue mix as noted above evolves, this will have a downward pressure on gross margin percentages as revenues from 100% margin sources become less prominent in the mix, being replaced by cost active product sales.

Financing Costs

As noted in the Annual Results for the year ended 31 December 2020, the significant increase in financing costs has come about due to the two equity events referred to below and under the section "Balance Sheet".

It is to be noted that these two equity events, albeit in essence based on raising funds via equity issues, are nonstandard equity arrangements and have been dealt with in terms of the guidance in IFRS9-Financial Instruments. This guidance, albeit that it is not based on the actual cash cost of the financing arrangements to the Company, is significantly complex in its application, forces the recognition of the fair value of the equity issues, and essentially creates a recognition in differences between the market price of the shares issued at time of issue versus the actual price at which the equity is allotted. It is not a reflection of the cash inflows and outflows of the transactions. It is this differential or "derivative style instrument" that needs to be subject to a fair value analysis, and the instruments, the values received and outstanding values due being separated into equity, assets, finance income and finance charges in terms of the IFRS-9 guidance.

Referring to the two fundraise deals the Company completed during the year of 2020 being;

   a.   Issuance of the Share and Warrants bundle (Peterhouse Capital Limited) 

b. Share Subscription Agreement (5G Innovation Leaders Fund)

It has been determined that in terms of IFRS-9, both transactions are to be recognised as equity and a liability of the Company and all adjustments to the liability value are to be recognised through the Income Statement. In both cases the equity differential based on allotment price and fair value at time of allotment charges to the income statement.

The liability in respect of deal a. above represents the outstanding 30p Warrants which had not been exercised as of 31 December 2020 and were finalised and closed by the end of May 2021.

The liability in respect of deal b. represents the cash advances the Company has received during 2020 and to 30 June 2021 and as of 30 June 2021 still has not allotted shares against the advances in settlement of the debt.

The above outlined treatment results in a significant finance expense charged to the Income Statement, however it should be noted that the expense is not an actual cash expense, rather an expense due to the accounting treatment and recognition of an expense instead of an asset in terms of IFRS guidance.

The Finance income is the mirror image to the above and relates to the 880,000 "Allotment Shares" the Company issued in advance as part of the Share Subscription Agreement, the cash payment for which the Company received in April of 2021 being GBP256,766 ($356,443). The increase in value of the asset, being the increase in the value of the Allotment Shares at the time of allotment versus the value at settlement date is recognised as finance income in the Income Statement.

The Financing Expenses and Finance Income in the Income Statement are thus summarised as follows:

 
 Financing expenses for period ending June 30 2021 
 5G Innovation Leaders Fund 
  The Company has received three additional tranches during the period 
  from 1 January 2021 to 30 Jun 2021, being GBP400K (3rd tranche), GBP400K 
  (4th tranche) and GBP750K (5th tranche). The below expenses are split 
  between the tranches as well as general expenses which relate to the 
  entire funding deal and allotment of shares. 
 3rd Tranche            $52,627     Face value premium of GBP38,000 for third 
                                     tranche (GBP400K) 
                      -----------  ---------------------------------------------------- 
 4th Tranche            $52,926     Face value premium of GBP38,000 for fourth 
                                     tranche (GBP400K) 
                      -----------  ---------------------------------------------------- 
                         $9,885     Remaining liability from 4th tranche as of 
                                     June 30 2021 has been adjusted to Fair Value, 
                                     the adjustment is recognised as finance expenses. 
                      -----------  ---------------------------------------------------- 
 5th Tranche            $102,191    Face value premium of GBP73,500 for 5th tranche 
                                     (GBP750K) 
                      -----------  ---------------------------------------------------- 
                        $25,360     Liability from 5th tranche as of June 30 
                                     2021 has been adjusted to Fair Value, the 
                                     adjustment is recognised as finance expenses. 
                      -----------  ---------------------------------------------------- 
 General expenses       $182,795    Upon share allotment of 1,805,054 shares, 
                                     the Company adjusted liability which was 
                                     extinguished to Fair Value right before allotment. 
                                     The adjustment portion is recognised as finance 
                                     expenses. 
                      -----------  ---------------------------------------------------- 
                        $648,972    Upon share allotment of 2,033,898 shares, 
                                     the Company adjusted liability which was 
                                     extinguished to Fair Value right before allotment. 
                                     The adjustment portion is recognised as finance 
                                     expenses. 
                      -----------  ---------------------------------------------------- 
                        $58,236     Initial finance fees for entire deal of $90K 
                                     are being amortizing throughout the entire 
                                     deal term. During the first 6 months of 2021 
                                     the Company expensed 64.7% of the $90K Prepaid 
                                     Finance Expenses to finance expenses 
                      -----------  ---------------------------------------------------- 
 Total 5G Fund         $1,132,992 
                      -----------  ---------------------------------------------------- 
 Peterhouse Capital     $262,035    The liability in respect of the 30p Warrants 
                                     was adjusted to Fair Value right before the 
                                     exercise which took place during the period. 
                                     This adjustment portion is recognised as 
                                     a finance expense. 
                      -----------  ---------------------------------------------------- 
 
 
 Financing Income for the period ending June 30 2021 
 5G Innovation   $49,723   Recording adjustment to cash due for the 
  Leaders Fund              880,000 "Initial Shares", valued at 29.20p 
                            per share which is the conversion price at 
                            settlement date. Asset is worth more at date 
                            of payment then it was on allotment, and 
                            therefore the increase in value is recorded 
                            as finance income. 
                --------  ---------------------------------------------- 
 

The cash resources during the period under review were further bolstered following further investment from the Share Subscription Agreement of GBP1.8m (approximately $2.5m) and the successful completion and closing from the July 2020 Placing of the 30p Warrants in May 2021 raising GBP1.05m (approximately $1.45m) including support from the Directors

COVID-19 Impact and Going Concern

Currently, with the impact of COVID-19 in Israel having been reduced significantly the Company has resumed its planned strategies including the enhancement of the development resources. We remain acutely aware of COVID-19 showing not only increases in Israel but the situation in the geographies that we trade and have development engagements, specifically in India and Taiwan, and as such realise the risk of an impact in delays in the timing of revenues as well as delays in supplies not only to the Company but its customers, whose product deployment could be materially impacted. Without modifying their opinion of the Company remaining a going concern, the Directors, following good practice reporting from the previously audited financial statements, make reference to the existence of a material uncertainty in relation to going concern, drawing attention to Note 3 of the Interim Unaudited Financial Statements enclosed in this announcement.

Other than the points outlined above, there are no items on the Balance Sheet that warrant further discussion outside of the disclosures made in the Interim Unaudited Financial Statements presented below.

FORWARD LOOKING STATEMENTS

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements. Any forward-looking statements in this announcement reflect Ethernity's view with respect to future events as at the date of this announcement. Save as required by law or by the AIM Rules for Companies, Ethernity undertakes no obligation to publicly revise any forward-looking statements in this announcement, following any change in its expectations or to reflect events or circumstances after the date of this announcement.

By order of the Board

Mark Reichenberg

Company Secretary

19 August 2021

Interim Unaudited Financial Statements

as at 30 June 20 2 1

STATEMENTS OF FINANCIAL POSITION

 
                                                                        US dollars 
                                                      ---------------------------------------------- 
                                                               30 June               31 December 
                                                          2021          2020             2020 
                                                      ------------  ------------  ------------------ 
                                                              Unaudited                Audited 
                                                      --------------------------  ------------------ 
ASSETS 
Current 
Cash and cash equivalents                                3,442,309       547,104           2,180,726 
Trade receivables                                          769,919       284,688            778 ,061 
Inventories                                                255,269       169,033             173,494 
Other current assets                                       290,103       176,924           626 , 690 
   Current assets                                        4,757,600     1,177,749           3,758,971 
 
Non-Current 
Property and equipment                                     516,611       459,767             552,112 
Deferred tax assets                                        186,772       186,772             186,772 
Intangible asset                                         6,904,870     7,866,249           7,385,560 
Right-of-use asset                                         199,160       370,150             292,219 
Other long term assets                                      10,338         7,507               7,507 
   Non-current assets                                    7,817,751     8,890,445           8,424,170 
 
   Total assets                                         12,575,351    10,068,194       12, 183 , 141 
                                                      ============  ============  ================== 
 
LIABILITIES AND EQUITY 
Current 
Short Term Borrowings                                      253,988        50,923             411,726 
Trade payables                                             508,434       148,471             290,175 
Liability related to share subscription agreement        1,619,509             -           841 , 944 
Warrants liability                                               -             -            286 ,253 
Other current liabilities                                1,002,185     1,192,324         1, 275 ,849 
   Current liabilities                                   3,384,116     1,391,718        3, 105 , 947 
 
Non-Current 
Lease liability                                             59,403       227,259             146,130 
                                                      ------------  ------------  ------------------ 
   Non-current liabilities                                  59,403       227,259             146,130 
 
   Total liabilities                                     3,443,519     1,618,977        3, 252 , 077 
 
Equity 
Share capital                                               14,910         8,079              12,495 
Share premium                                           31,759,125    23,410,070          27,197,792 
Other components of equity                                 850,225       779,491             813,256 
Accumulated deficit                                   (23,492,428)  (15,748,423)  ( 19 , 092 , 479 ) 
                                                      ------------  ------------  ------------------ 
   Total equity                                          9,131,832     8,449,217       8 , 931 , 064 
 
 
   Total liabilities and equity                         12,575,351    10,068,194       12, 183 , 141 
                                                      ============  ============  ================== 
 

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

STATEMENTS OF COMPREHENSIVE LOSS

 
                                                            US dollars 
                                              -------------------------------------- 
                                                  Six months ended        For the 
                                                       30 June           year ended 
                                                                         31 December 
                                                 20 21        2020          2020 
                                              -----------  -----------  ------------ 
                                        Note         Unaudited            Audited 
                                              ------------------------  ------------ 
 
Revenue                                  7        955,371      359,375     1,853,732 
Cost of sales                                     349,519       42,393      271 ,453 
                                              -----------  -----------  ------------ 
Gross profit                                      605,852      316,982   1, 582 ,279 
                                                                            4, 037 , 
Research and development expenses               2,496,084    2,136,215           904 
                                                                            1, 5 91, 
General and administrative expenses               779,149      685,590           079 
                                                                             1,082 , 
Marketing expenses                                448,499      560,554           560 
Other income                                     (20,802)            -      (40,335) 
                                              -----------  -----------  ------------ 
                                                                           ( 5 , 088 
Operating loss                                (3,097,078)  (3,065,377)       , 929 ) 
                                                                             (1, 462 
Financing costs                          5    (1,419,468)     (22,136)       , 740 ) 
Financing income                         6        116,597      177,916     298 , 016 
                                              -----------  -----------  ------------ 
                                                                             (6, 253 
Loss before tax                               (4,399,949)  (2,909,597)       , 653 ) 
Tax expense                                             -            -             - 
                                              -----------  -----------  ------------ 
                                                                             (6, 253 
Net comprehensive loss for the period         (4,399,949)  (2,909,597)       , 653 ) 
                                              ===========  ===========  ============ 
 
Basic and diluted loss per ordinary 
 share                                             (0.09)       (0.09)        (0.17) 
                                              ===========  ===========  ============ 
 
Weighted average number of ordinary 
 shares for basic and diluted loss 
 per share                                     51,347,740   32,673,455    36,590,988 
                                              ===========  ===========  ============ 
 

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

STATEMENTS OF CHANGES IN EQUITY

 
 
                                              Amounts in US dollars (except number of shares) 
                                ---------------------------------------------------------------------------- 
                                    Number    Share       Share  Other components   Accumulated        Total 
                                 of shares  Capital     premium         of equity       deficit       equity 
                                ----------  -------  ----------  ----------------  ------------  ----------- 
 
 
Balance at 1 January 20 2 1 
 (Audited)                      47,468,497   12,495  27,197,792           813,256  (19,092,479)    8,931,064 
Employee share-based 
 compensation                            -        -           -            36,969             -       36,969 
Exercise of employee options       226,667       71      23,041                 -             -       23,112 
Exercise of options              3,500,010    1,072   2,007,606                 -             -    2,008,678 
Shares issued pursuant to 
 share subscription 
 agreement                       3,838,952    1,176   2,447,346                 -             -    2,448,522 
Expenses paid in shares            305,000       96      83,340                 -             -       83,436 
Net comprehensive loss for the 
 period                                  -        -           -                 -   (4,399,949)  (4,399,949) 
                                ----------  -------  ----------  ----------------  ------------  ----------- 
Balance at 30 June 20 2 1 
 (Unaudited)                    55,339,126   14,910  31,759,125           850,225  (23,492,428)    9,131,832 
                                ==========  =======  ==========  ================  ============  =========== 
 
 
Balance at 1 January 20 20                                                                            11,4 5 
 (Audited)                      32,556,686    8,039  23,396,310           892,891  (12,838,826)      8 ,4 14 
Employee share-based 
 compensation                            -        -           -            16,593             -       16,593 
Cancellation of employee 
 share-based 
 compensation                            -        -           -         (129,993)             -    (129,993) 
Exercise of employee options       138,000       40      13,760                 -             -       13,800 
Net comprehensive loss for the 
 period                                  -        -           -                 -   (2,909,597)  (2,909,597) 
                                ----------  -------  ----------  ----------------  ------------  ----------- 
Balance at 30 June 20 20 
 (Unaudited)                    32,694,686    8,079  23,410,070           779,491  (15,748,423)    8,449,217 
                                ==========  =======  ==========  ================  ============  =========== 
 
 
Balance at 1 January 2020                                                                             11,4 5 
 (Audited)                      32,556,686    8,039  23,396,310           892,891  (12,838,826)      8 ,4 14 
Employee share-based                                                       (7 9 ,                     ( 79 , 
 compensation                            -        -           -             635 )             -        635 ) 
Exercise of employee options       338,000       99      33,701                 -             -       33,800 
Net proceeds allocated to the 
 issuance 
 of ordinary shares              7,333,334    2,140     914,595                 -             -    916 , 735 
                                                                                                     1,633 , 
Exercise of warrants             3,744,426    1,165   1,632,220                 -             -          385 
Shares issued pursuant to 
 share subscription 
 agreement                       2,466,051      750   984 , 732                 -             -    985 , 482 
Shares issued, not yet paid 
 for *                             880,000      258     196,259                 -             -    196 , 517 
Expenses paid in shares and 
 warrants                          150,000      4 4     39, 975                 -             -       40,019 
Net comprehensive loss for the                                                          (6, 253      (6, 253 
 year                                    -        -           -                 -       , 653 )      , 653 ) 
                                ----------  -------  ----------  ----------------  ------------  ----------- 
                                                                                         ( 19 , 
Balance at 31 December 2020                   12,49    27 , 197                       092 , 479      8 , 931 
 (Audited)                      47,468,497        5       , 792           813,256             )        , 064 
 
 

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

STATEMENTS OF CASH FLOWS

 
                                                                               US dollars 
                                                            ------------------------------------------------- 
                                                                   Six months ended            Year ended 
                                                                        30 June                31 December 
                                                               20 2 1           2020              2020 
                                                            -------------  ---------------  ----------------- 
                                                                      Unaudited                  Audited 
                                                            ------------------------------  ----------------- 
Operating activities 
Net comprehensive loss for the period                         (4,399,949)      (2,909,597)  ( 6 , 253 , 653 ) 
 
Non-cash adjustments 
Depreciation of property and equipment                             48,531           78,198            156,012 
Depreciation of operating lease right of use asset                 75,094           77,931            155,862 
Share-based compensation                                           36,969         (15,556)             18,209 
Amortisation of intangible assets                                 480,690        471 , 917            952,606 
Amortisation of liabilities                                       (5,717)                -                  - 
Foreign exchange (gains) losses on cash balances                   50,733         (79,804)            145,258 
Capital loss                                                            -              612              5,275 
Income from change of lease terms                                   (442) 
Revaluation of financial instruments, net                       1,279,477                -        1,335 , 172 
Expenses paid in shares and options                                83,436                -             40,019 
 
Net changes in working capital 
Decrease (increase) in trade receivables                            8,142          142,474        ( 350 ,899) 
Decrease (increase) in inventories                               (81,775)          (2,128)            (6,589) 
Decrease in other current assets                                   34,929          185,867            104,468 
Increase in other long-term assets                                (2,831)          (2,340)            (2,340) 
Increase (decrease) in trade payables                             218,260        (176,769)           (35,064) 
Increase (decrease) in other liabilities                    ( 101 , 184 )           61,735           140 ,837 
Net cash used in operating activities                         (2,275,637)  (2, 167 , 460 )    (3, 594 , 827 ) 
 
Investing activities 
Proceeds from other short-term financial assets                         -        2,553,823          2,553,823 
Purchase of property and equipment                               (13,030)         (13,035)          (187,857) 
Net cash provided by (used in) investing activities              (13,030)        2,540,788          2,365,966 
 
Financing activities 
Proceeds from share subscription agreement                      2,153,856                -          1,164,190 
Proceeds allocated to ordinary shares, net                        356,443                -          916 , 993 
Proceeds allocated to warrants                                          -                -             82,251 
Proceeds from exercise of warrants and options                  1,319,387           13,800          1,027,142 
Proceeds from short term borrowings                               398,656                -            636,993 
Repayment of short-term borrowings                              (550,676)        (961,808)        (1,237,998) 
Repayment of lease liability                                     (76,683)         (74,942)          (151,648) 
Net cash provided by (used in) financing activities             3,600,983      (1,022,950)       2, 437 , 923 
 
Net change in cash and cash equivalents                         1,312,316        (649,622)          1,209,062 
Cash and cash equivalents, beginning of year                    2,180,726        1,116,922          1,116,922 
  Exchange differences on cash and cash equivalents              (50,733)           79,804          (145,258) 
Cash and cash equivalents, end of period                        3,442,309          547,104          2,180,726 
                                                            =============  ===============  ================= 
 
Supplementary information: 
Interest paid during the period                                     8,376           15,912              9,764 
                                                            =============  ===============  ================= 
Interest received during the period                                     -           13,859             63,059 
                                                            =============  ===============  ================= 
 
Supplementary information on non-cash activities: 
Share-based compensation capitalised to intangible assets               -       ( 97,84 4)           (97,844) 
                                                            =============  ===============  ================= 
Shares issued, not yet paid for                                         -                -            196,259 
                                                            =============  ===============  ================= 
Shares issued pursuant to share subscription agreement          2,448,522                -            985,482 
                                                            =============  ===============  ================= 
Expenses paid in shares and warrants                               83,436                -             40,019 
                                                            =============  ===============  ================= 
 

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

NOTES TO THE FINANCIAL STATEMENTS

   NOTE 1         -     NATURE OF OPERATIONS 

ETHERNITY NETWORKS LTD. (hereinafter: the "Company"), was incorporated in Israel on the 15th of December 2003 as Neracore Ltd. The Company changed its name to ETHERNITY NETWORKS LTD. on the 10th of August 2004.

The Company provides innovative, comprehensive networking and security solutions on programmable hardware for accelerating telco/cloud networks performance. Ethernity's FPGA logic offers complete Carrier Ethernet Switch Router data plane processing and control software with a rich set of networking features, robust security, and a wide range of virtual function accelerations to optimise telecommunications networks. Ethernity's complete solutions quickly adapt to customers' changing needs, improving time-to-market and facilitating the deployment of 5G, edge computing, and different NFV appliances including 5G UPF, SD-WAN, vCMTS and vBNG with the current focus on 5G emerging appliances. The Company's customers are situated worldwide.

   NOTE 2         -     SUMMARY OF ACCOUNTING POLICIES 

Basis of presentation of the financial statements and statement of compliance with IFRS

The interim condensed financial statements for the six months ended 30 June 2021 have been prepared in accordance with IAS 34, Interim Financial Reporting. The interim condensed financial statements do not include all the information and disclosures required in the annual financial statements in accordance with IFRS and should be read in conjunction with the Company's annual financial statements as at 31 December 2020 . The accounting policies applied in the preparation of the interim condensed financial statements are consistent with those followed in the preparation of the Company's annual financial statements for the year ended 31 December 2020 .

The interim condensed financial statements for the half-year ended 30 June 2021 (including comparative amounts) were approved and authorized for issue by the board of directors on 18 August 2021 .

   NOTE 3          -      GOING CONCERN 

The Interim Financial Statements have been prepared assuming that the Company will continue as a going concern. Under this assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future unless management intends or has no realistic alternative other than to liquidate the entity or to stop trading for at least, but not limited to 12 months from the reporting date. Whilst the assessment which was made on 24 June 2021 in the publication of the Annual Results for the year ended 31 December 2020 still remains relevant, due to the positive changes in circumstances subsequent to the publication of the last financial results, the Company believes that the going assumption of a going concern stands. The assessment has been made of the Company's prospects, considering all available information about the future, which have been included in the financial budget, from managing working capital and among other factors such as debt repayment schedules. Consideration has been given inter alia, to the current stage of the Company's life cycle, the certainty on contracts signed with customers and with respect to the development of the Company's products, the expected timing and amounts of future revenues, its losses and cash outflows.

Subsequent to the report of 24 June 2021 and based on the current contracts commitments and the expected revenues to be derived therefrom, in conjunction with the available resources in hand, the Company believes it has adequate resources to continue as a going concern to meet trading requirements. This is reinforced by the fact that finally after a long delays due to COVID-19 spread in India, the Indian OEM completed fabrication of the UEP-60 product that has generated significant demand in the Indian market, and the new contract signed with a wireless connectivity vendor for customised UEP-60 with bonding which deliverables in terms of the contracts are now reliant upon the Company delivering and not the customer. To the best knowledge of the Company there is sufficient demand for the products to meet the Company revenue targets for 2022.

In the event of circumstances beyond the control of the Company such as a further significant impact of COVID which may result in component delays or customer deployment delays into their marketplaces, management believes that the proven success and ability of the Directors to raise further funds either through debt, equity or deferral of liabilities would secure additional resources required to meet trading commitments into the future. Cogniscance is given to the Directors current assessment of financial and operational risk and their best estimate of the potential impact of COVID-19 and the availability of components on operations and the continued possible material uncertainties arising therefrom.

As of 30 June 2021, the Company incurred an accumulated deficit of $23.5 million and reported net comprehensive loss of $4.4 million and negative cash flows from operating activities of $2.3 million during the 6 months ended June 30, 2021 (31 December 2020, accumulated deficit $19.1 million, net comprehensive loss of $6.3 million and negative cash flows from operating activities of $3.6 million during the year ended December 31, 2020). That being noted, given the view of the contracts signed, the progress of our customers including the FPGA SoC orders towards the fixed wireless business, the Company and directors anticipate that with current cash available and the anticipated revenues from these contracts, existing engagements and anticipated further engagements, the Company can fund its operations for the foreseeable future without the need for further external sources of funds, excluding circumstances beyond the control of the Company that may then require external sources of financing.

In January 2020, the Company's forecast for the financial year showed a movement into positive operational cash flow from the end of the first half of 2021, having taken into account the effects of the cash flow enhancement measures announced. However, in the market update published on 24 June 2021 with the Annual Results for the year ended 31 December 2020, it announced that in light of the developments in connection with COVID -19, there remains elements of uncertainty over the timing of near-term events due to the challenges faced by our customers regarding both timing of component supply and the meeting of their own plans. This may result in the Company encountering customer driven delays in deliverables dates and revenue recognition during the 2021 which could subsequently result in the deferral of revenues from 2021 to 2022.

The Company has raised in aggregate GBP2.66 million ($3.55 million) via the July 2020 Placing and Warrant issue, all of which closed on 12 May 2021. Funds were received from the initial issue of shares and the exercise of the related Warrants, which included GBP616,667 from the Directors. As of 31 December 2020, the Company had raised a total of GBP2.51m ($3.23m) from the Placing and Share Subscription noted above, with a further GBP2.86m ($3.97m) to date in 2021, bringing the total funds raised as of the date of these Interim Financial Statements announcement of GBP5.37m ($7.26m).

During the six month period ended 30 June 2021, the Company announced further customer engagements or orders from existing customers. These included on 6 April 2021 the initial order from the existing Wireless Broadband Solution customer of $400k, followed by the announcement of the annual results on 24 June 2021 of additional orders totaling $740k for 2021 delivery and $1.26m for delivery in 2022. The Company further announced on 30 July 2021 a new customer contract of $930k that will be earned in 2021 and 2022 along with anticipated additional revenues from this contract of at least $1m for 2022 and subsequent further growth.

In the light of enquiries made by the Directors as to the current liquidity position of the Company, the recent increases in contracted future revenues, as well as bearing in mind the ability and success of the Company to raise funds previously, the Directors have a reasonable expectation that the Company will have access to adequate resources to continue in operational existence for the foreseeable future and therefore have adopted the going concern basis of preparation in the financial statements.

Notwithstanding as described above, there is still material uncertainty that may cast doubt on the Company's ability to continue as a going concern and fulfil its obligations and liabilities in the normal course of business in the near future. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

   NOTE 4         -      SIGNIFICANT EVENTS 

COVID-19

The Company had previously stated that in light of the continued uncertainty on the potential impact and duration of the COVID-19 pandemic, the Board had taken certain steps to both safeguard the well-being of staff and to position the Company for the future. This included that , in common with many other companies, it may need to seek alternative sources of funding. These steps were successfully undertaken, with t otal funds raised by the Company from July 2020 to date from the placing, warrants and the Share Subscription Agreement of GBP5.4m ($7.3m), and the Company managed to maintain its operational capacity and deliverables during the extremely difficult time the world endured due to COVID-19.

Currently, with the impact of COVID-19 in Israel having been reduced significantly, the Company has resumed its planned strategies including the enhancement of the development resources.

Considering the worldwide components shortage issue that albeit has been currently resolved for the Company, along with the residual COVID-19 disruptions worldwide and the current exponential outbreak of COVID-19 in India and Taiwan, there remains elements of uncertainty over the timing of near-term events due to the challenges faced by our customers regarding both timing of component supply and the meeting of their own plans.

EQUITY TRANSACTIONS DURING THE ACCOUNTING PERIOD

During the 6 month period ended 30 June 2021, ordinary shares of the Company were issued, as follows:

 
                                                                 Number of 
                                                 Note      ordinary shares 
                                                ------   ----------------- 
 
 Exercise of warrants                             [1]            3,500,010 
 Shares issued pursuant to share subscription 
  agreement                                       [2]            3,838,952 
 Expenses paid for in shares                                       305,000 
 Exercise of employee options                                      226,667 
                                                         ----------------- 
                                                                 7,870,629 
                                                         ================= 
 

[1] In July 2020 the Company issued 7,333,334 shares attached to 7,333,334 warrants. Every 2 shares and the attached 2 warrants were issued for GBP 0.24 (GBP 0.12 per share and attached warrant). Every 2 warrants were comprised of 1 warrant exercisable at GBP 0.20 ("GBP 0.20 warrants") and 1 warrant exercisable at GBP 0.30 ("GBP 0.30 warrants"), both of which, were not transferable, were not traded on an exchange and had a life term of 12 months. All the GBP 0.20 warrants were either exercised or cancelled during 2020. The GBP 0.30 warrants had an accelerator clause, whereby the warrants would be callable by the Company if the closing mid-market share price of the Company exceeded GBP 0.40 over a 5-consecutive day period, which was triggered in May 2021. Accordingly, the Company served notice on the remaining GBP 0.30 warrant holders to exercise their warrants within 7 calendar days, failing which, such remaining unexercised warrants would be cancelled. Between January 2021 and May 2021, a total of 3,500,010 warrants were exercised (including 833,334 by the directors of the Company) and 166,657 warrants were cancelled.

These warrants represent a derivative financial liability required to be accounted for at fair value through the profit or loss category, under financing costs or financing income, as applicable. The fair value of the derivative warrant liability related to these GBP 0.30 warrants as at 31 December 2020 was approximately $0.29m. The fair value of these warrants as at the time of their exercises between January 2021 to May 2021 was approximately $0.55m, with the difference of $0.26m expensed to financing costs. Upon the exercise of these options the Company received exercise proceeds of approximately $1.45m, which together with the fair value of these warrants at the time of their exercise, were recorded in share capital and share premium.

[2] On 24 September 2020 the Company entered into a share subscription deed / agreement ("SSD") with an institutional investor ("Investor"), to raise up to GBP 3,200,000 (Approx. $4,100,000) as follows:

 
                                                            Amount     Date that 
 Closing                              Subscription      receivable    amount was 
  tranche                                   amount      by Company      received 
 
  1(st)                                                                  25 Sep. 
                                       GBP 547,000     GBP 500,000          2020 
  2(nd)                                                                  31 Dec. 
                                       GBP 438,000     GBP 400,000          2020 
                                    --------------  -------------- 
            Total amounts received 
                             until 
                  31 December 2020     GBP 985,000     GBP 900,000 
  3(rd)                                GBP 438,000     GBP 400,000   4 Mar. 2021 
  4(th)                                                                  16 Apr. 
                                       GBP 438,000     GBP 400,000          2021 
  5 (th)                                                                 30 Apr. 
                                       GBP 823,500     GBP 750,000          2021 
                                    --------------  -------------- 
            Total amounts received 
                             until 
                      30 June 2021   GBP 2,684,500   GBP 2,450,000 
 
  6 (th)                               GBP 823,500     GBP 750,000        * 
                                     GBP 3,508,000   GBP 3,200,000 
                                    ==============  ============== 
 

* This amount has not yet been received and is to be funded by mutual agreement.

In March and April 2021, the Investor subscribed for $1 950, ,000 (GBP 1,550,000), being the 3(rd) , 4(th) and 5(th) closings, with a total face value of $ 2,138,289 (GBP 1,699,500), with the difference of $0.19m being expensed to financing costs.

Pursuant to the share subscription agreement, the Investor has the right, at its sole discretion to require the Company to issue shares in relation to the subscription amount outstanding (or a part of it), under which, the number of shares to be issued for such settlement, shall be determined using an average five daily VWAP share price of the Company's shares as selected by the Investor, during the 20 trading days prior to such settlement notice ("Conversion Price"). However, the company has certain rights to make cash payments in lieu of the above share settlement, while the Investor is entitled to exclude from such cash payment, up to 30% of the cash settlement amount.

The Company's obligation under the share subscription agreement with respect for each subscription amount received by the Company, is designated as a financial "liability related to share subscription agreement" at fair value, with changes in the fair value for the period carried through to profit or loss under financing costs or financing income, as applicable. The fair value of the liability related to the share subscription agreement as at 30 June 2021 was approximately $1.62m (as at 31 December 2020: approximately $0.84m).

Upon settlement or a partial settlement of such liability, such as when the Investor calls for the settlement of the subscription amount outstanding (or any part of it) for a fixed number of shares, the fair value of the liability, related to the settled portion is carried to share equity and share premium.

During the 6 month period ended 30 June 2021, the Investor called for the settlement of subscription amounts in exchange for shares, as follows:

 
                                          Amount converted 
              --------------------  ----------------------  ---------- 
                                                                Shares 
                Date of conversion         GBP         USD      Issued 
              --------------------  ----------  ----------  ---------- 
 
                          16 April 
 Conversion                   2021     500,000     689,250   1,805,054 
                          28 April 
 Conversion                   2021     600,000     834,240   2,033,898 
                                    ----------  ----------  ---------- 
                                     1,100,000   1,523,490   3,838,952 
                                    ==========  ==========  ========== 
 

[3] Concurrent with the initial investment by the Investor in September 2020, the Company issued 880,000 shares to the Investor for the par value of the shares, being $258. The Investor at its discretion, may choose to pay for these 880,000 shares, calculated at the then current Conversion Price. Upon issuance of the shares, the company recognised an amount of $0.2m, representing the fair value of the investor's obligation to payment for the shares under the Other Current Assets caption "proceeds due on account of shares issued" which is a financial asset measured at fair value through profit or loss. As at 31 December 2020 the fair value of this asset was estimated at $0.30m. In April 2021 the Investor chose to pay for these shares for total proceeds of $0.35m, with the $50,000 increase from the value at 31 December 2020, being carried to profit or loss as financing income.

   NOTE 5          -      FINANCING COSTS 
 
                                                US dollars 
                                     -------------------------------- 
                                      Six months ended    Year ended 
                                           30 June        31 December 
                                       202 1      2020       2020 
                                     ----------  ------  ------------ 
                                         Unaudited         Audited 
                                     ------------------  ------------ 
 
Bank fees and interest                   19,092  13,563        23,253 
Lease liability financial expenses        5,349   8,573        15,634 
Revaluation of liability related 
 to share subscription agreement 
 measured at FVTPL                    1,132,992       -     571 , 423 
Revaluation of warrant derivative 
 liability                              262,035       -       852,430 
   Total financing costs              1,419,468  22,136     1,462,740 
                                     ==========  ======  ============ 
 
   NOTE 6          -     FINANCING INCOME 
 
                                              US dollars 
                                 ------------------------------------ 
                                    Six months ended      Year ended 
                                         30 June          31 December 
                                    2021        2020         2020 
                                 ----------  ----------  ------------ 
                                       Unaudited           Audited 
                                 ----------------------  ------------ 
 
Revaluation of proceeds due on 
 account of shares (financial 
 asset measured at FVTPL)            49,723           -       105,399 
Interest received                         -      13,859        63,059 
Exchange rate differences            66,874     164,057       129,558 
                                 ----------  ----------  ------------ 
   Total financing income           116,597     177,916       298,016 
                                 ==========  ==========  ============ 
 
   NOTE 7 -              SEGMENT REPORTING 

The Company has implemented the principles of IFRS 8, in respect of reporting segmented activities. In terms of IFRS 8, the management has determined that the Company has a single area of business, being the development and delivery of high-end network processing technology.

The Company's revenues are divided into the following geographical areas:

 
                                                  US dollars 
                                       -------------------------------- 
                                        Six months ended     Year ended 
                                             30 June        31 December 
                                         2021      2020        2020 
                                       --------  --------  ------------ 
                                           Unaudited            Audited 
                                       ------------------  ------------ 
 
 
                       United States    765,075   227,520     1,256,613 
                       Israel           161,796   121,855       262,119 
                       Asia              28,500    10,000       335,000 
                                       --------  --------  ------------ 
                                        955,371   359,375     1,853,732 
                                       ========  ========  ============ 
 

The Company's revenues are divided into the following geographical areas:

 
                                                      % 
                                       -------------------------------- 
                                        Six months ended     Year ended 
                                             30 June        31 December 
                                         2021      2020        2020 
                                       --------  --------  ------------ 
                                           Unaudited            Audited 
                                       ------------------  ------------ 
 
                       United States      80.1%     63.3%         67.8% 
                       Israel             16.9%     33.9%         14.1% 
                       Asia                3.0%      2.8%         18.1% 
                                       --------  --------  ------------ 
                                         100.0%    100.0%        100.0% 
                                       ========  ========  ============ 
 

Revenue from customers in the company's domicile, Israel, as well as its major market, the United States and Asia, have been identified on the basis of the customer's geographical locations.

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August 19, 2021 02:00 ET (06:00 GMT)

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