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RNS Number : 7123H
Ethernity Networks Ltd
08 April 2022
8 April 2022
Ethernity Networks Ltd.
(Ethernity or the "Company")
Results for the Year Ended 31 December 2021
and
Appointment of Non-Executive Director
Ethernity Networks Ltd (AIM: ENET.L), a leading supplier of
networking processing technology ported on FPGA (field programmable
gate array) for virtualised networking appliances, today announces
its results for the year ended 31 December 2021.
Financial Highlights
- Revenues increased by 42.2% to $2.64m (2020: $1.85m)
- Gross margins increased by 22.9% to $1.94m (2020: $1.58m)
- Gross margin percentage declined to 73.8% (2020 85.4%)
- Operating costs before amortisation of intangible assets,
depreciation charges, provisions and other non-operational charges
increased by 32.1% to $6.9m (2020: $5.27m)
- EBITDA loss increased by 35.7% to a loss of $5.05m (2020: loss of $3.72m)
- Cash funds raised during the year of $11.2m before costs
(2020: $3.3m), through placing, share subscription and warrants
exercises.
Operational Highlights and Post-period highlights
Operational Highlights
- 5G Distribution Unit (DU) FPGA implementation on top of our
ACE-NIC100 FPGA SmartNIC delivered to three Tier-1 server vendors
for telco OpenRAN trials.
- Production orders of $2m received for 2021 and 2022 for ENET
Flow Processor FPGA systems-on-chip (SoCs) from American fixed
wireless broadband solution manufacturer customer. The Company has
secured supplies of the required components for this product for
the remainder of the 2021 year and 2022 deliveries.
- Ethernity's 5G DU Aggregation and vRouting on FPGA SmartNIC
solution shortlisted for a prestigious 2021 Global Mobile ("GLOMO")
Award.
- New contract signed in July 2021 ("Contracted UEP Module")
with international wireless connectivity vendor to supply switch
module with ENET patented link bonding UEP product, with an initial
order for $930,000, and anticipated revenue for 22/23 of around
$4m.
- Our UEP-20 (Universal Edge Platform) product equipped with
wireless bonding technology successfully completed live field
trials with a global OEM customer's US-based ISP (internet service
provider), indicating the ability of the solution's
interoperability and flexibility.
- Signed a $400,00 contract with a global wireless OEM based in
Europe to supply its ENET 4840 40Gbps FPGA System-on-Chip (SoC)
with support for Carrier Ethernet Switching, Wireless Bonding, and
IPSec security.
- Signed $3m contract with Chinese broadband network OEM to
supply its ENET 4820 and ENET 5200 FPGA System-on-Chip (SoC).
Post-period Highlights
During the first quarter of 2022 we continued to progress with
our strategy and planned deliveries and engagements.
- Additional $800,000 of orders from our US fixed wireless OEM
customer on top of the $2m announced on 27 May 2021. Orders and
customer deliveries progressing as planned and with timely supply
of the components.
- The Company successfully completed its UEP-60 platform as part
of the contract with the Indian OEM, which will also serve as the
Company's UEP-60 platform .
- Completed fabrication of the hardware for the Contracted UEP
Module system at the end of February 2022 , with a plan to release
for testing during Q3/22.
- The Chinese vendor XGS-PON OLT platform that embeds
Ethernity's XGS-PON MAC FPGA SoC will be fabricated during Q2/22
with planned shipment during Q4/22, with further discussions being
held with system integrators or vendors for delivery of a complete
system based on the system that will be manufactured by the Chinese
OEM, or for a new design based on Ethernity's FPGA SoC.
- With the introduction of the UEP that embeds the patented link
bonding, participation in wireless internet service provider (WISP)
events. During the recent event in March 50% of OEM vendors
presenting in the show either use or have signed with Ethernity to
use our product in their offerings.
- $2m raised via a second Share Subscription Agreement on 25
February 2022 from the 5G Innovation Leaders Fund LLC.
Outlook
The Company expects significant revenue growth from its
FPGA-based programmable system solutions and FPGA SoC, coupled with
further growth in the FPGA Router-on-NIC.
Year-on-year revenue growth is anticipated from product orders
and contracts already signed, in particular from long-term
contracts for Fixed Wireless Access, FPGA-based Universal Edge
Platform systems with Ethernity's patented wireless bonding, FPGA
Router-on-NIC, and the recently announced $3m contract for
FPGA-based 1G/10G PON OLT. The anticipated growth into 2022 and
beyond from existing signed contracts, over and above the initial
contract commitments, is expected to continue the momentum of
increased engagements for Ethernity's solutions-based
offerings.
Revenue during 2022 and 2023 will be derived from a mixture of
sales of FPGA SoC embedding our ENET Flow Processor firmware,
routing software stack, customised UEP offerings, and the FPGA
Smart NIC solution for UPF and DU. The Company also expects further
contracts during 2022, which would lead to additional orders for
2022, 2023 and onwards.
-- Outlook for 2022
In terms of contracted revenues for 2022, these already stand at
$4.3 million from existing customers.
1. FPGA SoC revenues are expected to increase significantly over
2021, attributed to revenue associated from the orders in place
mainly from our U.S fixed wireless system provider and the PON
Chinese OEM customer.
2. Design kit and ongoing royalties, design revenues excluding other licensing deals in plan.
3. System Platforms (UEP and ACE-NIC): commencing growth from
contracted deliveries (with potential for upside, depending on
components supply) associated mainly with current orders and
contracts, which are a priority relating to purchasing of
components.
Further growth is expected from the winning of new contracts
leading to additional licensing fees, and further delivery of
ACE-NICs, UEP devices and the UEP Module.
-- Outlook for 2023
The Company already has significant revenue visibility for 2023,
with $5 million of orders contracted. Importantly, significant
further growth over 2022 is expected from both additional orders
from existing contracts and further contract wins.
1. FPGA SoC: continued significant revenue growth expected over
2022 relating mainly to existing committed orders from existing
customers. Upside opportunities exist from further follow-on
deployments from existing customers' platforms that already embed
the Ethernity ENET FPGA SoC and Flow Processor.
2. System Platforms (UEP and ACE-NIC): resulting mainly from the
UEP revenue anticipated for follow on orders for the Contracted UEP
Module, other new engagements under negotiation for our UEP cell
site router, and ACE-NICs for the 5G and vRouter markets.
Overall, we are expecting growth across many facets of the
business - from the multiple contracts signed, in both sales of
ENET FPGA SoC products from multiple markets including fiber access
(PON), wireless access, and wireless and fiber backhaul, with our
OEM customers' products having matured for mass deployment.
This is underpinned by committed volumes or firm orders received
from our customers for their own deployment. FPGA SoC revenue is a
recurrent revenue associated with the deployment of our OEM
customers' products that embed the ENET FPGA SoC. This represents a
secure link for Ethernity with our customer - once the customer
deploys a product with Ethernity's solutions, it is very difficult
for the customer to roll out a new product without Ethernity's FPGA
SoC.
Over and above the Company's UEP products designed and
manufactured through Ethernity's contractor manufacturers, further
opportunities for growth may be realised through other sources
outside of the existing contract frameworks, in particular:
1. The contract signed with the Indian OEM for the two cell site
router platforms, that, over and above the regular contract
framework where the customer will purchase an FPGA SoC and system
software stack: as Ethernity actually designed the complete system,
we can also purchase the complete system from the customers'
manufacturer and resell this to other OEM customers for different
markets and applications depending on the functionality coded on
the FPGA.
2. The contract signed with the Chinese vendor for XGS-PON and
GPON OLT FPGA SoC, that, over and above the regular contract
framework, where the customer will purchase FPGA SoCs for XGS-PON
and GPON OLT, Ethernity can purchase the customer platform for
reselling to other OEMs that will allow us to propose another ENET
system product for fiber access.
With the disaggregation framework that is progressing within the
CSPs (Communications Service Providers), delivery to the CSPs will
be undertaken by system integrators, server manufacturers, the
Company's OEM customers, or other channels that will supply and
support the deployment at the CSP. The Company does not plan to
sell its products directly to CSPs for large scale deployment and
intends to deliver to the market through the above channels.
David Levi, Chief Executive, said "I am encouraged by the fact
that with the product contracts we have already signed, the product
orders we have received, and the good progress we have experienced
with acceptance of our offerings, this will continue to position us
not just as a technology company, but as a validated system product
supplier with differentiated offerings allowing for continual
increasing revenue streams."
Appointment of Director
Following due process of the Nomination Committee and the Board,
Richard Bennett has been appointed by the board as Independent
Non-Executive Director, effective from 7 April 2022. His
appointment is subject to the ratification of shareholders, which
will be tabled at the forthcoming Annual General Meeting.
Richard Bennett has extensive business and listed company
experience over a career spanning 30 years. During that time, he
has worked for General Electric in Asia and the US and co-founded
and listed on NASDAQ J2Global, an internet telecoms business
currently valued at US$3.5 billion. He has worked in executive,
chairman and non-executive roles with a series of successful
growth-focused technology and clean energy companies, currently
including AIM-quoted GETECH plc (AIM:GTC.L), China New Energy
(HKEX:1156) and previously wireless technology company, MTI
Wireless Edge.
Richard will become a member of the Audit and Risk Committee and
a member of the Remuneration Committee following his ratification
as Independent Non-Executive Director, and at the same time Mark
Reichenberg, CFO and David Levi, CEO who joined the two existing
Independent Non-Executive Directors on the Audit & Risk, and
Remuneration Committees on an interim basis from 1 December 2021
will stand down as members of those committees.
Richard's appointment will be for an initial term of 3 years
from the date of ratification of his appointment by the
shareholders at this AGM and can be extended for two additional
three-year terms. His annual remuneration as a non-executive
director shall be GBP20,000 payable in equal monthly instalments in
arrears. Richard will be included in the relevant Company Directors
and Officers insurance policy and receive the same indemnities as
granted to the other directors of the Company.
Annual Report and Notice of AGM
The annual report and accounts for the year ended 31 December
2021 is being posted to shareholders shortly and will be available
on the Company's website at www.ethernitynet.com . The notice of
annual general meeting to be held on 16 May 2022 will be despatched
in due course.
For further information, please contact:
Ethernity Networks 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 / George Morgan
Peterhouse Capital Limited (Joint Broker) Tel: +44 20 3005 5000
Lucy Williams / Duncan Vasey / Eran Zucker
About Ethernity ( www.ethernitynet.com )
Ethernity Networks (AIM: ENET.L) provides innovative,
comprehensive networking and security solutions on programmable
hardware for accelerating telco/cloud networks. 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 optimize 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.
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.
Chairman's Statement
It gives me great pleasure to present my report as Chairman of
the Board.
Since my appointment as Chair on 10 March 2021, I have spent
considerable time with the CEO and members of the Board and
management both inside and outside of formal meetings so as to
fully appreciate the Company strategy, the challenges and the
current dynamic environment in which the Company operates. I
believe that the strategic direction the Company has taken with its
offerings to include systems and solutions in addition to IP
licensing and services is proving to be the correct strategy as has
been evidenced from the signed contracts, increased engagements and
in line with the market direction in the past year. The continued
level of engagement with more significant market players as well as
progress being made to date is proof to me that the strategic
direction of the Company is the right one and carries my full
support.
We are progressing in achieving the desired mix of revenue
streams from the sale of product and solutions in addition to IP
licenses and services. With the immense opportunities in the market
for not only 5G deployment but also for other desirable solutions,
such as the fixed wireless and 1G/10G PON OLT, I believe this will
fuel our revenue growth to position us as a validated supplier with
differentiated offerings and growing revenue streams.
The past year was not without its challenges for Ethernity, and
while the Company continued with its strategic direction, the
ongoing impacts of COVID-19 remained felt and had an effect on
planned deliveries specifically related to the worldwide components
shortage that emerged during the year. Whilst the Company took
immediate steps to secure components needed for delivery on its
order commitments, the impact was also felt by our customers and
suppliers who inevitable pushed out their planned deliveries. The
offshoot of the worldwide component shortage did however impact on
the realisation of planned revenues for 2021, resulting in certain
revenue delays. Revenue increased by 42.2% for the 2021 financial
year to $2.63 million (FY 2020 $1.85 million), while gross margin
for the year was $1.94m (2020 $1.58m) and an operating loss of
$6.32m (2020 $5.09m). This is further expanded upon in the
Financial Report section of this Annual Report. The Company
continues to invest significantly in planned Research and
Development.
Fundraising
During the year under review the Company finalised and closed
the Investment Facility with the 5G Innovation Leaders Fund LLC
("5G Fund") which introduced a total of GBP3.2m funding commencing
from 25 September 2020 through to 1 November 2021. Additional
funding was realised via the 30p Warrants exercises along with the
Company having concluded a successful oversubscribed placing of
GBP4.6m on 29 September of 2021.
Subsequent to the 2021 year end, the Company entered into a
further Share Subscription Agreement with the 5G Fund on 25
February 2022, raising $2m on significantly more favourable terms
to the Company. This has allowed the Company to accelerate
production of its UEPs and ACE-NIC and provides an increased cash
buffer for the Company.
These fundraising efforts have significantly strengthened the
financial position of the Company and allows the Company to be
well-positioned for the next stage of its development and growth
with significantly larger customers, and to service expected mass
deployment growth from current contracted customers and from
anticipated new contracts from end 2022 onwards.
COVID-19
The Company managed to maintain its operational capacity and
deliverables during the difficult time the world endured due to
COVID-19. I am pleased to report that until the emergence of the
Omicron variant, due to the exceptional and worldwide noted efforts
of both the Israeli government and the population in general, the
country managed the pandemic inside of its borders and the Company
managed to continue meeting its deliverables within the constraints
of its customers and the worldwide component shortages challenges
that emerged. The medium to long term effects of the 5(th) wave of
COVID-19 related to the Omicron variant remain unknown.
Thanks
Neil Rafferty stepped down as a director on 1 December 2021 and
on behalf of the Board I would like to express our appreciation to
him for his contributions to the Company since the date of its
admission to AIM.
Richard Bennett was appointed by the Board as an Independent
Non-Executive Director on 7 April 2022. His appointment will be
ratified by shareholders, as required, at the upcoming AGM of the
Company. The Company is pleased to have Richard join the board with
his wealth of knowledge in the industry as well as deep experience
having served as a non-executive director on various AIM company
boards since 2005.
The Board is very appreciative of the considerable efforts of
the CEO, the CFO, the VP R&D and all our management and staff,
who work tirelessly towards the development, sales, and
administrative goals of the Company. I thank them especially during
these challenging times for their continuing hard work and
commitment to the Company.
Outlook
The current year will be both challenging and exciting as the
Company continues to increase and capitalise on customer
engagements, continues to develop, and deliver its strategy as well
as face the particular challenges, including the shortage of
components, to grow the revenue delivery from current modest
levels, into milestone new contracts. The Board is confident that,
providing customers maintain their technology investment programs
and the effects of COVID-19 remain at their current or lower
levels, progress will be made this year resulting in longer term
value for shareholders.
Yosi Albagli
Chairman
8 April 2022
Chief Executive's Statement
Business and Market Overview
Ethernity Networks has enjoyed a very active past year in
product developments, contracts signed and market acceptance of our
product and solutions offerings, in a market which is undergoing
significant change and that has faced new challenges due to the
worldwide components shortage that has come about due to the
COVID-19 pandemic.
The market changes include the disaggregated 5G and Open RAN
networks which will break the current monolithic 5G offering to
spread the network for use by multiple hardware, NIC, servers,
software and orchestration vendors, and will utilise Cloud Native
Architecture based on computer Servers and Virtualised Software
that has a growing demand for FPGA devices for networking data
plane offload. The Company's disaggregated products and innovative
IP coupled with software appliances covers the Open RAN space
including the actual data fiber and wireless infrastructure from
tower to core. These will all contribute to the Company to
positioning itself as a key player in this market.
5G is needed to enable new types of applications well beyond
today's voice communications and internet access services: powerful
virtual and augmented reality applications that will only become
practical when the Internet of Things (IoT) becomes more responsive
and reliable.
That is why Open RAN is gaining momentum. Open RAN is a series
of standards managed by the O-RAN Alliance and 3GPP that support
disaggregation, open APIs and multi-vendor interoperability, all
attractive features for mobile network operators (MNOs) seeking to
build flexible, responsive networks. SDN and NFV technology in
telecom network transformation and network function virtualization
(NFV) are two separate networking technologies that are becoming
the backbone of any communication network nowadays, and they both
enable a new level of flexibility in network configuration and
support multi-vendor deployments. This has been embraced by an
extensive ecosystem of companies, who are now designing products
and solutions for the Open RAN environment. That is in contrast to
the previous cellular communication generations where RAN platforms
deployed a baseband unit installed on a proprietary vendor-specific
hardware platform to handle signal processing and to communicate
with individual remote radio units (RRUs) installed at or near the
cell tower. The RAN, including its RRUs, made up the bulk of the
cellular base station.
There is no doubt that the anticipated realisation of the NFV
market has started to become a reality worldwide, with the demand
for disaggregation constantly increasing and a greater place for
the use of FPGA devises becoming increasingly apparent,
specifically as the demands for offload functionality from the CPU
increases, freeing up the CPU and CPU cores for other services.
According to the Dell'Oro Group, cumulative Open RAN revenue
from 2020-2025 could be as high as $15 billion, with Open RAN
revenues accounting for more than 10% of the overall RAN market by
2025.
5G continues to gain traction around the world and while the
proportion of devices using 5G is considerably lower, a tipping
point is expected to arrive in 2023, where usage rates are expected
to increase strongly and steadily as customers reach the tech
refresh point in their mobile device upgrade cycles and MNOs solve
their 5G deployment challenges.
The first investment required to build such an Open RAN network
is the infrastructure that is required to connect cellular towers
and with the Open RAN standard. The baseband unit is disaggregated
into a centralised unit (CU) and one or more distributed units
(DUs), coupled with wireless backhaul equipment, fronthaul gateway
and cell site gateways.
For global service providers, each element out of the DU, CU and
UPF are usually situated in a different location in the network and
therefore, following the connection of the mobile users and
increase in usage acceleration of the data plane at the UPF 5G core
is required. However, for 5G private networks, smaller service
providers may locate all the elements into a single server and then
the Company ACE-NIC product can offload routing, CU and UPF onto a
single ACE-NIC element running at lower throughput.
Ethernity operates and sells its product through OEMs, and its
Radio Access Network offering includes a mix of FPGA SoCs embedding
our ENET network flow processor switch/router data plane deployed
in our OEMs' products, FPGA SmartNIC for Fronthaul aggregation,
vRouter offload, Central Unit Data Plane offload and UPF data plane
offload, and a cell site gateway appliance under the Universal Edge
Platform (UEP) product family. The Cell Site Router UEP family of
systems products targets the $2bn cell site router market. On top
of regular cell site routing functions, the UEP differentiates
itself by embedding the Company's patented link bonding to allow
transmission of higher speed throughput over multiple wireless
connections that has already captured two design wins during the
last year.
The Company has built extensive knowledge in this market and
over the last decade signed multiple licensing contracts for use of
our FPGA SoC and ENET Flow Processor IP with many vendors
developing products and systems, and has delivered thousands of
FPGA SoCs into this market, including fixed wireless systems
(proprietary and LTE) base stations, point-to-point microwave
systems and 4(th) gen LTE EPC data plane, all of which are the
backbone of our current 5G offering, with many of today's OEMs that
serve fixed wireless and wireless backhaul embedding Ethernity's
offering in their platforms.
During the year under review, the Company continued its main
focus of delivering complete solutions, including 5G routing
software, network operating systems, and hardware. Under this
strategy, we signed a second large $1m system contract, with an
international wireless connectivity vendor to supply a customised
UEP module that embeds our patented link bonding technology
("Contracted UEP Module") that is expected to generate close to $4m
in revenues during 2022/23. We further delivered the UEP-60
platform and continued our 5G UPF engagement with various partners,
operators and OEMs. Furthermore, we signed a $3m contract with a
Chinese broadband network OEM to supply our ENET 4820 and ENET 5200
FPGA System-on-Chip (SoC) devices which will enable the two types
of PON (XGS-PON and GPON) for use in the OEM's 5G fronthaul
products, as well as other fiber access deployments.
Further to this, the contract signed with an American fixed
wireless broadband solution manufacturer in 2017 has produced
significant orders from the customer as they have rolled out their
solution into market deployment.
While we experienced a challenging period due to COVID-19 and in
light of the component shortage phenomenon that arose as a result
of COVID-19, which resulted in significant increases in component
prices, Ethernity adapted its UEP product hardware to use single
forms of components with different FPGA assembly options, allowing
us to focus on purchasing single sets of components. This will
allow the Company to be well-positioned to meet the planned 22/23
revenue goals for our UEP product.
During the period under review, the Company completed a
successful and over-subscribed share placing and subscription in
September of 2021, and with this fundraising activity along with
the closing out of the 30p Warrants from the 2020 placing and
subscription, in conjunction with the closing out and finalisation
of our Investment Agreement with the 5G Innovation Leaders Fund,
has significantly strengthened the Company's balance sheet and
raised our financial profile positively with vendors.
Overall, our results for the financial year ended 31 December
2021 reflected the results of the positive engagements and new
contracts with revenues increasing by 42.2% to $2.64m (2020:
$1.85m) and the gross margin increased by 22.9% to $ 1.9m.
Significant achievements were realised during 2021 in both our
customer engagements, the move of our customers to mass production
and product offerings:
-- Our 5G Distribution Unit (DU) FPGA implementation on top of
our ACE-NIC100 FPGA SmartNIC was delivered to three Tier-1 server
vendors for telco OpenRAN trials.
-- The Company received production orders of $2m for 2021 and
2022 for its ENET Flow Processor FPGA systems-on-chip (SoCs) from
its American fixed wireless broadband solution manufacturer
customer for Ethernity FPGA SoCs, which provide complete IP
networking functionality, including critical traffic management
features, for the customer's base station product. Despite the
worldwide component shortage, the Company secured supplies of the
required components for this product for both 2021 and 2022
deliveries.
-- Ethernity's 5G DU Aggregation and vRouting on FPGA SmartNIC
solution was shortlisted for a prestigious 2021 Global Mobile
("GLOMO") Award.
-- In July 2021, the Company signed a new contract ("Contracted
UEP Module") with an international wireless connectivity vendor to
supply a switch module with the company's patented link bonding,
with an initial order for $930,000, and anticipated revenue for
22/23 of around $4m. The UEP Module is to serve as a hardened
microwave/millimeter wave Outdoor Unit with Ethernity's integrated
link bonding solution.
-- Our UEP-20 (Universal Edge Platform) product equipped with
wireless bonding technology successfully completed live trails with
a global OEM customer. The customer conducted field trials for
Ethernity's UEP-20 product with a US-based ISP (internet service
provider) and passed the field trials, with bonding successfully
performed on a variety of products from multiple vendors,
indicating the ability of the solution's interoperability and
flexibility.
-- The Company signed a $400,000 contract with a global wireless
OEM based in Europe to supply its ENET 4840 40Gbps FPGA
System-on-Chip (SoC) with support for Carrier Ethernet switching,
wireless bonding, and IPSec security. The ENET 4840 is a customised
version of the device that is used within the UEP-20 Universal Edge
Platform product design, which will also be supplied to the OEM for
manufacturing.
-- Ethernity signed a $3m contract with a Chinese broadband
network OEM to supply its ENET 4820 and ENET 5200 FPGA
System-on-Chip (SoC) devices.
Current Trading
During the first quarter of 2022 we continued to progress with
our strategy and planned deliveries and engagements. Notably to
date in 2022, the following has been achieved:
-- Additional $800,000 of orders from the American fixed
wireless OEM customer already received for 2023, on top of the $2m
announced on 27 May 2021. Orders and customer deliveries are
progressing as planned and with timely supply of the FPGA SoC
required by the customer.
-- We have continued with our process of securing components for
our own UEP hardware platforms to alleviate the effects of the
worldwide components shortage.
-- The Company successfully completed its UEP-60 platform as
part of the contract with the Indian OEM, that will also serve as
the Company's UEP-60 platform (
https://ethernitynet.com/products/enet-network-appliances/uep-60/ )
for sale to other customers.
-- The Company completed fabrication of the hardware for the
Contracted UEP Module system at the end of February 2022, and with
the development done on the UEP-60 described above, the Company
anticipates releasing this product for testing during Q3/22, with
production shipments during Q4/22.
-- The Chinese vendor's XGS-PON OLT platform that embeds
Ethernity's XGSPON MAC FPGA SoC will be fabricated during Q2/22
with planned shipment during Q4/22. Further discussions are ongoing
with system integrators or vendors for delivery of a complete
system based on the system that would be manufactured by the
Chinese OEM, or for a new design based on Ethernity's FPGA SoC.
-- With the introduction of the UEP that embeds the patented link bonding, the Company initiated participation in WISP events that are focused on wireless internet service providers in America, enjoying immense interest for our link bonding solution intended to serve as a network element that facilitates further expansion of the current wireless providers' networks. During the recent event in March, 50% of OEM vendors presenting in the show either use or have signed with Ethernity to use our products in their offerings.
-- Further work is underway with regards to the Company's UPF
offload and its integration into current cloud environments, and
with other large OEMs that will further expand in the due time.
Outlook
The Company expects significant revenue growth from its
FPGA-based programmable system solutions and FPGA SoC, coupled with
further growth in the FPGA Router-on-NIC.
Year-on-year revenue growth is anticipated from product orders
and contracts already signed, in particular from long-term
contracts for Fixed Wireless Access, FPGA-based Universal Edge
Platform systems with Ethernity's patented wireless bonding, FPGA
Router-on-NIC, and the recently announced $3m contract for
FPGA-based 1G/10G PON OLT. The anticipated growth into 2022 and
beyond from existing signed contracts, over and above the initial
contract commitments, is expected to continue the momentum of
increased engagements for Ethernity's solutions-based
offerings.
Revenue during 2022 and 2023 will be derived from a mixture of
sales of FPGA SoC embedding our ENET Flow Processor firmware,
routing software stack, customised UEP offerings, and the FPGA
Smart NIC solution for UPF and DU. The Company also expects further
contracts during 2022, which would lead to additional orders for
2022, 2023 and onwards.
-- Outlook for 2022
In terms of contracted revenues for 2022, these already stand at
$4.3 million from existing customers.
4. FPGA SoC revenues are expected to increase significantly over
2021, attributed to revenue associated from the orders in place
mainly from our U.S fixed wireless system provider and the PON
Chinese OEM customer.
5. Design kit and ongoing royalties, design revenues excluding other licensing deals in plan.
6. System Platforms (UEP and ACE-NIC): commencing growth from
contracted deliveries (with potential for upside, depending on
components supply) associated mainly with current orders and
contracts, which are a priority relating to purchasing of
components.
Further growth is expected from the winning of new contracts
leading to additional licensing fees, and further delivery of
ACE-NICs, UEP devices and the UEP Module.
-- Outlook for 2023
The Company already has significant revenue visibility for 2023,
with $5.0 million of orders contracted. Importantly, significant
further growth over 2022 is expected from both additional orders
from existing contracts and further contract wins.
3. FPGA SoC: continued significant revenue growth expected over
2022 relating mainly to existing committed orders from existing
customers. Upside opportunities exist from further follow-on
deployments from existing customers' platforms that already embed
the Ethernity ENET FPGA SoC and Flow Processor.
4. System Platforms (UEP and ACE-NIC): resulting mainly from the
UEP revenue anticipated for follow on orders for the Contracted UEP
Module, other new engagements under negotiation for our UEP cell
site router, and ACE-NICs for the 5G and vRouter markets.
Overall, we are expecting growth across many facets of the
business - from the multiple contracts signed, in both sales of
ENET FPGA SoC products from multiple markets including fiber access
(PON), wireless access, and wireless and fiber backhaul, with our
OEM customers' products having matured for mass deployment.
This is underpinned by committed volumes or firm orders received
from our customers for their own deployment. FPGA SoC revenue is a
recurrent revenue associated with the deployment of our OEM
customers' products that embed the ENET FPGA SoC. This represents a
secure link for Ethernity with our customer - once the customer
deploys a product with Ethernity's solutions, it is very difficult
for the customer to roll out a new product without Ethernity's FPGA
SoC.
Over and above the Company's UEP products designed and
manufactured through Ethernity's contractor manufacturers, further
opportunities for growth may be realised through other sources
outside of the existing contract frameworks, in particular:
3. The contract signed with the Indian OEM for the two cell site
router platforms, that, over and above the regular contract
framework where the customer will purchase an FPGA SoC and system
software stack: as Ethernity actually designed the complete system,
we can also purchase the complete system from the customers'
manufacturer and resell this to other OEM customers for different
markets and applications depending on the functionality coded on
the FPGA.
4. The contract signed with the Chinese vendor for XGS-PON and
GPON OLT FPGA SoC, that, over and above the regular contract
framework, where the customer will purchase FPGA SoCs for XGS-PON
and GPON OLT, Ethernity can purchase the customer platform for
reselling to other OEMs that will allow us to propose another ENET
system product for fiber access.
With the disaggregation framework that is progressing within the
CSPs (Communications Service Providers), delivery to the CSPs will
be undertaken by system integrators, server manufacturers, the
Company's OEM customers, or other channels that will supply and
support the deployment at the CSP. The Company does not plan to
sell its products directly to CSPs for large scale deployment and
intends to deliver to the market through the above channels.
I am encouraged by the fact that with the product contracts we
have already signed, the product orders we have received, and the
good progress we have experienced with acceptance of our offerings,
this will continue to position us not just as a technology company,
but as a validated system product supplier with differentiated
offerings allowing for continual increasing revenue streams.
David Levi
Chief Executive Officer
8 April 2022
Financial Review
Financial Performance
Through the past financial year we continued with our goals and
to progress our transition towards diversifying the Company's
offerings to include systems and solutions in addition to IP
licensing and services as the correct strategy which has been
proven in the accomplishments and engagements attained over the
past year.
Obviously, as with most companies worldwide, the COVID-19
pandemic continued to create challenges, not only within the
management of the Company, but in aligning ourselves with the
issues within the markets in which we operate and our customers
goals. Further to this, as a direct offshoot of the COVID-19
pandemic, planned deliveries were affected specifically related to
the worldwide components shortage that emerged during the year with
components supply across the board in all market places becoming an
issue. Whilst the Company took immediate steps to secure components
needed for delivery on its order commitments for its 2022 system
solutions delivery (UEP and ACE-NIC100 products), the impact was
also felt by our customers and suppliers who inevitable pushed out
their planned deliveries. This did however impact on the
realisation of planned revenues for 2021, resulting in
approximately $1m revenue delays for the remainder of the 2021
year, to be realised in 2022.
In order to meet the challenges above, ensure funding is in
place for the securing component supply and significantly
strengthened the financial position of the Company, the Investment
Facility with the 5G Innovation Leaders Fund LLC was closed out and
a successful oversubscribed placing of shares in September 2021 was
completed. This is expanded on further in this report.
Highlights
-- Revenues increased by 42.2% to $2.64m (2020: 38.0% to $1.85m)
-- Gross margins increased by 22.92% to $ 1.9m (2020: 37.5% to $1.58m)
-- Gross Margin percentage declined to 73.80% (2020 85.4%)
-- Operating costs before amortisation of intangible assets,
depreciation charges, provisions and other non-operational charges
increased by 32.11% to $6.9m (2020: 23.0% to $5.27m)
-- EBITDA Loss increased by 35.72% to a loss of $ 5.05m (2020: 34.2% to a loss of $3.72m)
-- Cash funds raised during the year of $11.2m before costs (2020: $3.3m)
Key financial results
Recognition of Research and Development Costs.
In line with the change in policy adopted by the Company from 1
July 2019 the Company continues with the policy of no longer
continuing recognising the Research and Development costs as an
intangible asset but recognising these as an expense and charged
against income in the year incurred.
Furthermore, as reported for the financial year end 31 December
2019, an independent Fair Value report was commissioned by the
management to support the management assertion that the underlying
value of the intangible asset exceeded the carrying value on the
balance sheet. The report concluded and supported the management
assertion that no impairment of the intangible asset on the Balance
Sheet is required, which assertion the management continue to
support.
For the year ending 31 December 2020 management performed their
own internal assessment of the fair value of the intangible asset
and concluded that the value of the asset is fair and no impairment
of the intangible asset on the Balance Sheet is required. This
process was repeated by management for the financial year under
review, 31 December 2021 and the assertion that the underlying
value of the intangible asset exceeds the carrying value on the
balance sheet remains unchanged.
EBITDA
EBITDA, albeit it not a recognised reportable accounting
measure, provides a meaningful insight into the operations of a
Company when removing the non-cash or intangible asset 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 year under review for the financial year
ended 31 December 2021 would be presented as follows:
EBITDA US Dollar Increase %
(Dec)
---------------------------------------- ------------ ---------
For the year ended
31 December
---------------------------------------- ------------ ---------
2021 2020
---------------------------------------- ------------ ------------ ------------ ---------
Revenues 2,635,420 1,853,732 781,688 42.17%
---------------------------------------- ------------ ------------ ---------
Gross Margin as presented 1,944,903 1,582,279 362,624 22.92%
---------------------------------------- ------------ ------------ ---------
Gross Margin % 73.80% 85.36%
Operating (Loss) Profit as presented (6,327,475) (5,088,929) (1,238,546) 24.34%
Adjusted for:
Add back Amortisation of Intangible
Assets 961,380 952,606 8,774 0.92%
Add back Share based compensation
charges 77,583 18,209 59,374 326.07%
Add back vacation accrual charges (27,519) 81,732 (109,251) -133.67%
Add back depreciation charges on
fixed assets 87,586 156,011 (68,425) -43.86%
Add IFRS operating leases depreciation 173,675 155,862 17,813 11.43%
---------------------------------------- ------------ ------------ ---------
EBITDA (5,054,770) (3,724,509) (1,330,261) 35.72%
---------------------------------------- ------------ ------------ ---------
The EBITDA losses increased during the 2021 year from $3.72m in
2020 to $5.05m in 2021. The increase in the EBITDA losses were
driven by increases in the Research and Development costs of $1.52m
which arose mainly as a result of staff returning to 100% capacity
during 2021 and increases in General and Administrative costs of
$202,000. Marketing and Sales expenses declined negligibly by
$28,000 as COVID-19 continued to affect marketing activities
abroad. The majority of these increases resulted from the return to
normalised operating levels post the COVID-19 lock-down periods and
following the cash conservation measures taken by management in
early 2020 in response to the COVID-19 pandemic outbreak at the
time and are detailed further in this report under the section
"Operating Costs and Research & Development Costs".
These EBITDA losses should start to reduce reaching into 2023 as
the future revenues increase, albeit there are anticipated
decreases in the gross margin percentage as the product sales mix
evolves weighted more towards sales of products and solutions as
versus the historical skewing towards licensing and design
revenues, along with the planned increases in both R&D resource
costs and the increased marketing activities.
Summarised trading results
Summarised Trading Results US Dollar Increase %
(Dec)
-------------------------- ------------ --------
Audited
------------ --------
For the year ended
31 December
2021 2020
------------ ------------ ------------ --------
Revenues 2,635,420 1,853,732 781,688 42.17%
Gross Margin 1,944,903 1,582,279 362,624 22.92%
Gross Margin % 73.80% 85.36% -11.56% -13.54%
------------ ------------ ------------ --------
Operating (Loss) Profit (6,327,475) (5,088,929) (1,238,546) 24.34%
Financing costs (3,074,452) (1,462,740) (1,611,712) 110.18%
Financing income (expenses) 228,404 298,016 (69,612) -23.36%
------------ ------------ --------
(Loss) Profit before tax (9,173,523) (6,253,653) (2,919,870) 46.69%
Tax benefit (reversal of previous
deferred tax benefit) (186,772) - (186,772)
------------ ------------ --------
Net comprehensive (loss) income
for the year (9,360,295) (6,253,653) (3,106,642) 49.68%
------------ ------------ --------
The operating loss before finance charges increased by $1.24m
over 2020, attributable mainly as explained above to the increase
in R&D costs and lower gross margin percentage. The effect of
the finance costs. Which are based on IFRS recognition and not a
cash cost are discussed further down in this report.
Revenue Analysis
Revenues for the twelve months ended 31 December 2021 increased
by 42.2% to $2.64m (2020: $1.854m) after additional year end IFRS
adjustments. This result is a positive reflection of the upward
trend anticipated due to the recent contracts signed, orders
received on customer deployments and the increased customer
engagements.
The revenue mix will continue to evolve as the Company
progresses in achieving the desired mix of the revenue streams from
the sale of products and solutions in addition to IP licenses and
services.
Margins
Gross margins remained above the 60% - 70% levels that the
Company models its forecasts on, with the 2021 gross margin being
73.8% as compared to 85.4% in 2020. While the gross margin will
vary according to the revenue mix as Royalty and Design Win
revenues generally achieve an approximate 100% gross margin before
any sales commissions are accounted for, as the Company progresses
its strategy of becoming a supplier of customised and
differentiated system solutions as compared to the legacy model of
FPGA code licensing, there will be a continued downward pressure on
margin percentages as product and solutions revenues become an
increasingly larger portion of the revenues mix.
Operating Costs and Research & Development Costs
After adjusting for the capitalised Research and Development
Costs amortisation costs of the Development Intangible Asset,
Depreciation, IFRS, Share Based Compensation and payroll non-cash
accruals adjustments, the resultant increases (decreases) in
Operating costs, as adjusted would have been:
Operating Costs US Dollar Increase %
(Dec)
For the year ended
31 December
----------------------
2021 2020
Total R&D Expenses 5,550,912 4,037,904 1,513,008 37.47%
R&D Intangible amortisation (961,380) (952,606) (8,774) 0.92%
Vacation accrual expenses 33,921 (28,856) 62,777 -217.55%
Share Based Compensation IFRS adjustment (54,962) (6,783) (48,179) 710.29%
---------- ---------- ---------
Research and Development Costs
net of amortisation, Share Based
Compensation, IFRS adjustments
and Vacation accruals 4,568,491 3,049,659 1,518,832 49.80%
------------------------------------------ ---------- ---------- ---------
Total G&A Expenses 1,721,873 1,591,079 130,794 8.22%
Share Based Compensation IFRS adjustment (10,750) (11,168) 418 -3.74%
Vacation accrual expenses 2,181 (22,956) 25,137 -109.50%
Impairment losses of financial
assets (80,000) (75,000) (5,000) 6.67%
Fixed Assets Depreciation Expense (87,586) (156,011) 68,425 -43.86%
Depreciation Leases IFRS16 (173,675) (155,862) (17,813) 11.43%
------------------------------------------ ---------- ---------- ---------- ---------
General and Administrative expenses,
net of depreciation, Share Based
Compensation, IFRS adjustments,
Vacation accruals and impairments. 1,372,043 1,170,082 201,961 17.26%
------------------------------------------ ---------- ---------- ---------- ---------
Total Marketing Expenses 1,044,905 1,082,560 (37,655) -3.48%
Share Based Compensation IFRS adjustment (11,871) (258) (11,613)
Vacation accrual expenses (8,583) (29,920) 21,337 -71.31%
---------- ---------- ---------- ---------
Marketing expenses, net of Share
Based Compensation and Vacation
accruals. 1,024,451 1,052,382 (27,931) -2.65%
------------------------------------------ ---------- ---------- ---------- ---------
Total 6,964,985 5,272,123 1,692,862 32.11%
----------
Operating costs were in line with the Company targets and
expectations as planned with increases in General and
Administrative costs.
Research and Development costs after reducing the costs for the
amortisation of the capitalised Research and Development intangible
asset, depreciation, share based compensation and vacation accruals
increased by $1,518,832 against 2020. These increases were
attributable to the increase in the basic payroll component
increases as planned along with the return to normal levels
operations post COVID-19 of approximately $1,260,000 over 2020.
The increase in General and Administrative costs over 2020 to
$1,372,043 after adjusting out depreciation, share based
compensation, IFRS adjustments and vacation accruals amounted to
approximately 17.26% or $201,961. This increase resulted mainly
from the return to 100% payroll and time after the significant 2020
COVID-19 pay cuts in the finance department, the increase amounting
to approximately $185,000. By the very nature of expenditure
accounted for under the General and Administrative costs there was
little scope for further savings due to the fixed nature of such
expenses.
Following the significant decline in Sales and Marketing costs
during the 2020 financial year due to cessation of many marketing
travel and travel related activities, including conferences as a
result of the COVID-19 pandemic and restrictions in place, Sales
and Marketing costs decreased marginally from 2020 by $27,931. This
decrease resulted mainly from reduced marketing activity and
attendance at market events due to the COVID-19 situation of
approximately $258,000 while the return to 100% payroll activity
within the Marketing department accounted for a payroll increase of
approximately $181,000.
Financing Costs
The continued material levels of financing costs has come about
due to the continued recognition and realization of funds inflows
of the two historical equity events referred to below and under the
section " Balance Sheet " along with the further finance effects of
the over-subscribed Placing and Broker option along with the
corresponding warrants issued in September 2021.
It is to be noted that the three transactions detailed below,
albeit they were 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, which is significantly complex in its application, forces
the recognition of the fair value of the equity issues, and
essentially creating a recognition in differences between the
market price of the shares issued at time of issue versus the
actual price the equity is allotted at. 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 fundraise deals the Company completed during
the year of 2020 and further in 2021 being;
a. Final exercise of the Warrants bundle (Peterhouse Capital
Limited 2020 placing and issue of the GBP 0.30 warrants the
exercise and issue of which concluded on the 12(th) of May
2021.
b. The over-subscribed Placing and Subscription to raise
GBP4.2m, issue of warrants (60p Warrants) at GBP0.60 and the
Over-Subscribed Broker Option that raised an additional GBP402,480
from the 27th to 29th of September 2021.
c. Finalisation and close-out of the Share Subscription
Agreement (5G Innovation Leaders Fund LLC) entered into during 2020
and concluded on 9 November 2021.
It has been determined that in terms of IFRS-9, all the
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 all cases the equity
differential based on allotment price and fair value at time of
allotment is charged to the income statement. The liability in
respect of deal b. above represents the outstanding 60p Warrants
which have not been exercised as of 31 December 2021.
The above outlined treatment results in the 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 $49,723 relates to the 5G Fund transaction
880,000 "Allotment Shares" the Company issued in advance as part of
the Share Subscription Agreement, the cash payment for which the
Company received on 23 April 2021. The $370,758 on the September
share placing led by Peterhouse Capital is the result of the fair
value calculation of the warrants issued based on the placing price
of the shares and the fair value of the warrants at 31 December
2021.
The Financing Expenses and Finance Income in the Income
Statement are thus summarised as follows:
Financing expenses for the full year ending December 31 2021
5G Innovation Leaders Fund LLC
The Company has received three additional tranches during the period
from 1 January 2021 to 30 June 2021, being GBP400K (3rd tranche), GBP400K
(4th tranche) and GBP750K (5th tranche) and an additional tranche during
the period from July 1 2021 to December 31 2021 in the amount of GBP750K
(6th tranche).
The below expenses are split between the tranches as well as general
expenses which relate to the entire funding agreement 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.
------------------------ ----------- ---------------------------------------------
6th Tranche $100,298 Face value premium of GBP73,500 for 6th
tranche (GBP750K)
----------- ---------------------------------------------
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.
---------------------------------------------
$169,451 Upon share allotment of 1,307,190 shares,
the Company adjusted liability which
was extinguished to Fair Value right
before allotment. The adjustment portion
is recognised as finance expenses.
---------------------------------------------
$932,225 Upon share allotment of 2,433,007 shares,
the Company adjusted liability which
was extinguished to Fair Value right
before allotment. The adjustment portion
is recognised as finance expenses.
---------------------------------------------
$540,816 Upon share allotment of 2,642,472 shares,
the Company adjusted liability which
was extinguished to Fair Value right
before allotment. The adjustment portion
is recognised as finance expenses.
---------------------------------------------
$66,708 Initial finance fees for entire deal
of $90K have been amortizing throughout
the entire deal term. During 2021 the
Company expensed 74.1% of the remaining
$90K Prepaid Finance Expenses to finance
expenses
Total 5G Fund $2,884,254
September 2021 placing $127,856 Recording a portion of initial fundraise
expenses (prorated a portion which relates
to the Warrants and not the shares, as
those need to be recognised in the Income
Statement)
----------- ---------------------------------------------
Financing Income for the full year ending December 31 2021
5G Innovation Leaders $49,723 Recording adjustment to cash due for
Fund the 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.
During the financial year ended, the 30p Warrants in terms of the July
2020 placing were exercised and closed by the warrant holders.
Furthermore, the Company undertook a placing of shares led by Peterhouse
Capital in September 2021. The placing which issued ordinary shares
at GBP0.35 (35p), included the issue of Warrants on a 1:1 basis, with
an exercise price of GBP0.60 (60p).
The below figures represent the finance income and expenses in regards
to the two warrant instruments issued as part of both placement deals
Peterhouse Capital Fundraise -$262,035 The liability in respect of the 30p Warrants
July 2020 30p Warrants was adjusted to Fair Value right before
close out. the exercise which took place during
the period. This adjustment portion is
recognised as a finance expense.
September 2021 placing $370,758 Updating value of warrants issued, as
of December 31 2021
------------------------------ ---------------------------------------------
Total net finance income $108,723
------------------------------ ---------------------------------------------
Operating Loss and Net Comprehensive Loss for the Year
Whilst portion of the revenues have been deferred from 2021 to
2022 due to the worldwide components shortage as previously noted,
the operating loss before financing expenses and the effect of the
equity transactions was in line with expectations.
Balance Sheet
During the year under review, the Company continued to
strengthen its balance sheet as follows:
-- Finalisation and close out of the July 2020 Placing and
Subscription 30p Warrants, all of which were exercised and funded
by 12 May 2021.
-- The over-subscribed Placing and Subscription, issue of
Warrants (60p Warrants) at GBP0.60 and the Over-Subscribed Broker
Option from the 27th to 29th of September 2021.
-- The Share Subscription Agreement with 5G Innovation Leaders
Fund LLC ("5G Fund"), a U.S.-based specialist investor, entered
into during September 2020 was concluded and all advances and share
allotments against advances were concluded on 9 November 2021.
The above transactions raised approximately $11.2m which have
significantly strengthened the financial position of the
Company.
Furthermore, there have been some material changes on other
balance sheet items as follows:
-- Resulting from the final funding received on the 5G Fund
agreement and the successful oversubscribed placing, cash and cash
equivalents increased materially compared to the previous period by
$5m.
-- Increases in trade receivables reflect the activity in the
second half of the financial year from the announced contracts.
-- Intangible assets continue to reduce in carrying value due to the amortisation policy.
-- Trade payables increased due to advance purchasing of
components and in line with revenue increases in the latter portion
of the reporting year.
-- Short term liabilities have reduced by $841,000 with regard
to the close out of the 5G Fund and the final allotments of shares
against all advances, however there was an increase in the warrants
liabilities of $928,000, as mentioned earlier in this report, these
liabilities arose due to IFRS recognition standards.
The balance sheet quick and current ratios of the Company for
2021, excluding the "liabilities" relating to the Share
Subscription Agreement and Warrants, strengthened significantly to
4.20 and 4.07 respectively (2020 1.90 and 1.81 respectively).
The net cash utilised and cash reserves are carefully monitored
by the Board. Cash utilised in operating activities for the year is
$5,386,653 (2020 $3,594,827), the increase in consumption being
mainly related to the increases in return to post COVID-19
operating levels, inventories and trade receivables. Gross cash
reserves remained positive at $7,060,824 as of 31 December 2021,
(2020 $2,180,726), which reserves had been substantially bolstered
by the historical fundraising activities carried over from the 2020
financial year along with the Subscription and placement in
September 2021.
Short term borrowings of $422,633 (2020 $411,726) arose mainly
from trade financing facilities raised during 2020 via the
Company's bankers. This is a "rolling facility" and utilised by the
Company on specific customer transactions only.
The Intangible Asset on the Balance Sheet at a carrying value of
$6,424,180 (2020 $7,385,560) is a result of the Company having
adopted from 2015, the provisions of IAS38 relating to the
recognition of Development Expenses, which methodology as noted in
the 2019 Annual Report was ceased from 1 July 2019. The useful life
and the amortisation method of each of the intangible assets with
finite lives are reviewed at least at each financial year end. If
the expected useful life of an asset differs from the previous
estimate, the amortisation period is changed accordingly. Such
change is accounted for as a change in accounting estimate in
accordance with IAS 8. For the year ending 31 December 2021,
management performed their own internal assessment of the fair
value of the intangible asset and concluded that the value of the
asset is fair and no impairment of the intangible asset on the
Balance Sheet is required.
The Right-of-use asset under Non-current assets and the
corresponding Lease liability under Non-current liabilities on the
balance sheet and as referred to in Note 10 of the financial
statements arises in terms of IFRS 16 which became effective from 1
January 2019. This accounting treatment relates to the recognition
of the operating leases of the company premises, and immaterially
to leased company vehicles. In terms of the applicable Standard,
the Company is required to recognise the "benefit" of such
operational leases as it enjoys the rights and benefits as if it
had ownership thereof. Correspondingly, in terms of the Standard,
the liability relating to the future payments under such operating
leases is required to be recognised. The accounting treatment,
simply put, then results in an amortisation of the asset over the
period of the operating lease as a charge to income, and payments
made are charged as a reduction against the liability, essentially
offsetting each other to zero. The liability is not an "amount due"
for repayment in full as a singular payment at any one time, and
both the asset and liability have no impact on planned and actual
cash flows as the real cash flow is the normal monthly instalments
for premises rentals and car leases paid in the normal course of
business as part of planned expenditures in cash flows.
The asset and liability referred to above in respect of the
Company premises is material in that it represents the 5 year lease
commitment plus the 5 year renewal option that the Company has the
right to and benefit of.
Summary of Fundraising Transactions Liabilities in terms of IFRS
Recognition
At year end, as all transactions relating to the 5G Fund had
closed, which included having received value owing on the initial
880,000 "Initial Shares" allotted in 2020, there were no further
outstanding assets relating to the transaction.
The issue of the 60p Warrants in the September 2021 Share
Placing created a liability as explained above in terms of IFRS
recognition principles. This liability reverses to equity once the
warrants are exercised.
As of 31 December 2021 the liabilities in terms of the financing
transactions entered into is:
Liability at 31 December 2021
September 2021 Placing $0 No remaining liabilities as part of the
and issue of 60p Peterhouse July 2020 placing and associated
Warrants warrants issued as of December 31, 2021
------------------------
$0 No remaining liabilities towards 5G innovation
fund as of December 31, 2021
------------------------ -----------
$1,214,993 Warrants liability in regards to September
2021 placing deal, short term and long
term (80p Warrants)
-----------
$1,214,993
------------------------ -----------------------------------------------
COVID-19 Impact and Going Concern
Currently, with the impact of COVID-19 in Israel having being
reduced significantly the Company has resumed its planned
strategies including the enhancement of the development resources.
Coupled with the worldwide components shortage that is a direct
result of the COVID-19 outbreak in 2019, we remain acutely aware of
the COVID-19 situation in the geographies that we trade and have
development engagements, 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. The medium to long term effects of
the 5(th) wave of COVID-19 related to the Omicron variant remain
unknown.
In the presentation of the annual financial statements for the
year ended 31 December 2020, the auditors made reference to the
existence of a material uncertainty in relation to going concern
within the audit report. Due to the positive steps undertaken by
the Company in its fundraising efforts coupled with the positive
trading outlook for 2022 and 2023 onwards arising from existing and
new contract engagements, the directors believe that the previous
uncertainty is no longer relevant and as such any reference to the
uncertainty has been removed from the financial statements as per
Note 2 of the financial statements.
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 Annual Financial statements in this Annual
Report.
Mark Reichenberg
Chief Financial Officer
8 April 2022
Board of Directors
Joseph (Yosi) Albagli (Non-Executive Chairman)
Yosi was formally appointed as the Independent Non-executive
Director and Chairman on 10 March 2021. Yosi comes from an
engineering background, and has over 30 years of experience in
engineering, business strategy and management, and entrepreneurship
in the communications industry. Yosi co-founded and served as
President and CEO of Tdsoft Ltd in 1994, driving the company toward
becoming the leader in V5 solutions. In 2005, he led a reverse
merger with VocalTec (NASDAQ: VOCL) becoming President, CEO and a
board member, growing the company's market share, and establishing
it as a leader in Voice-over-IP technology. Yosi also served as
President and CEO of CTWARE Ltd., as a board member of ITGI Medical
(TASE), and as President of the Satellite Communications division
for Orbit Communication Systems (TLV: ORBI). Yosi is currently
serving as the Co-Founder and Chairman of Over-Sat Ltd, a satellite
communications company. Yosi is a Cum Laude graduate of The
Technion - Israel Institute of Technology with a BSc degree in
Civil Engineering and a veteran of the Israeli navy, in which he
taught electronics.
David Levi (Chief Executive Officer)
David has over 27 years in the telecom industry, with vast
technical and business experience in ATM, voice, TDM, SONET/SDH,
Ethernet and PON. Prior to founding Ethernity, David was the
founder of Broadlight, a semiconductor company that developed BPON
and GPON components and was acquired by Broadcom (BRCM) for $230
million. David invented the GPON protocol with two US patents
registered in his name. Prior to this, David worked as Director of
Product Marketing at ECI Telecom in the Broadband Access division,
and Senior Product Line Manager at RAD, responsible for $50 million
product line sales, a product manager at Tadiran Communication,
sales manager at Dynamode Ltd . David holds an BSc Degree in
Electronic Engineering from The Jerusalem College of Technology and
an MBA from Bar Ilan University, and is a veteran officer (Major)
of the Israeli Defense Forces, in which he served as a Systems
Engineer and project manager..
Mark Reichenberg CA(SA) (Chief Financial Officer)
Mark is a qualified Chartered Accountant from South Africa.
Previously Mark held the position of VP Business Development and
Corporate Affairs Officer of the Magnolia Silver Jewellery Group
Limited, was the CFO of GLV International Ltd, and prior to that,
held the position of Group Financial Director of Total Client
Services Ltd, a company listed on the Johannesburg Stock Exchange.
Mark has held various senior financial director positions in
retail, wholesale, logistics and technology companies. Mark holds a
B. Acc degree from the University of the Witwatersrand (WITS) in
South Africa.
Shavit Baruch (VP Research and Development)
Shavit has over 27 years of experience in the telecom and
datacom industry, with vast technical experience in ATM, Ethernet
and SONET/SDH, both at the components and system level. Prior to
Ethernity Networks, Shavit served as Chief Architect at Native
Networks, a start-up company developing products for the Metro
Ethernet market. Prior to this, in 2002, Shavit established
Crescendo Networks, a start-up company enhancing data center
applications performance. Prior to the venture at Crescendo, Shavit
served as R&D Director at ECI Telecom, where he was in charge
of the development of all transmission cards for one of the world's
most successful broadband systems. Earlier, Shavit worked at Lannet
Data Communication, acquired by AVAYA, designing, together with
Galileo, Ethernet Switch on Silicon. Shavit holds an MSc. Degree in
Electronic Engineering from Tel-Aviv University and is a veteran
officer(Major) of the Israeli Defense Forces, in which he developed
Electronic Systems
Chen Saft-Feiglin (Independent Non-Executive Director)
Chen is a lawyer and notary admitted in Israel with more than 25
years of experience in commercial law, insolvency and recovery
procedures, as well as many years of experience as a business and
family mediator and family business consultant. Chen is the founder
and owner of Chen Saft, People, Processes and Enterprises,
providing consulting services for family firms and enterprises,
mediation in commercial disputes, and divorce mediation.
Previously, Chen was a partner at Saft Walsh Law Offices, a niche
law practice handling corporate, M&A, insolvency, private
client work and general representation of foreign clients (private
and corporate) in Israel. Chen holds an LLB from Bar Ilan
University and an MBA majoring in business and managerial
psychology from the College of Management Academic Studies. Chen
served as a Lieutenant in the Israel Defense Forces.
Zohar Yinon (Independent Non-Executive Director)
Zohar is currently the CEO of Bar Ilan University in Israel and
board member of Birad Ltd (Bar-Ilan Research & Development
commercialising Bar Ilan University inventions). Prior to that
Zohar held the position of CEO of Hagihon Company Ltd, a position
he held from September 2011 to January 2018. Previously, Zohar was
the Chief Financial Officer of Israel Military Industries, Ltd. and
VP Business Development in Granite Hacarmel Ltd. Zohar has held
other roles in Israel's private and public sectors, including with
companies traded on the Tel Aviv Stock Exchange. Zohar holds a B.A.
in Economics and an MBA in Business Administration, both from
Bar-Ilan University (Israel) and he has graduated in managerial
programs of M&A and Corporate Governance from the
Interdisciplinary Center ("IDC") in Herzliya. He was a member of
the CTG global panel of experts evaluating new start-ups in the
field of Clean-tech and has served as a board member in a wide
range of companies including governmental, private, publicly listed
and start-up companies. Zohar served as a Major in the Israel
Defense Forces.
Richard Bennett (Appointed 7 April 2022 subject to ratification
at the upcoming AGM of the Company)
Richard Bennett has extensive business and listed company
experience over a career spanning 30 years. During that time, he
has worked for General Electric in Asia and the US and co-founded
and listed on NASDAQ J2Global, an internet telecoms business
currently valued at US$3.5 billion. He has worked in executive,
chairman and non-executive roles with a series of successful
growth-focused technology and clean energy companies, currently
including AIM-quoted GETECH plc, China New Energy ) and previously
AIM-quoted wireless technology company, MTI Wireless Edge.
Corporate Governance Statement
Introduction
The Board is responsible to shareholders for the effective
direction and control of the Company, with the aim of generating
long-term success for the Company.
The directors recognise the importance of high standards of
corporate governance and in accordance with the AIM Rules for
Companies and their requirement to adopt a recognised corporate
governance code, the Board has adopted the Quoted Companies
Alliance Corporate Governance Code (the "the Code"). The QCA Code
was developed by the QCA's Corporate Governance Expert Group and a
standalone Working Group comprising leading individuals from across
the small & mid-size quoted company ecosystem.
As a company incorporated in Israel the Company also complies
with the corporate governance provisions of Israel's Companies Law,
5759-1999 (the "Companies Law") as may be applicable, the more
relevant of which relates to the constitution of the Board of
Directors, the Audit and Risk Committee and the Remuneration
Committee. Whilst the Israeli Law requirements are more onerous,
these have been incorporated into the requirements and guidance
under the QCA Code.
The Board believes that good corporate governance reduces risks
within the business, promotes confidence and trust amongst
stakeholders and is important in ensuring the effectiveness and
efficiency of the Company's management framework.
The Code is based around ten broad principles of good corporate
governance, aimed at delivering growth, maintaining a dynamic
management framework, and building trust. The application of the
Code requires the Company to apply these ten principles and to
publish certain related disclosures on its website and in its
Annual Report. The Company addresses the key governance principles
defined in the QCA Code as outlined on the Company website.
Further details of the Company's approach to the 10 principles
of the Code and how it applies these principles, which is updated
regularly as required with the most recent Company update being 22
December 2021, can be found on the Company`s Website section for
Investors at
https://ethernitynet.com/investors/#1454056723887-bab53599-82b7
.
The Directors and the Board
The Board is currently comprised of three executive directors,
David Levi, Mark Reichenberg and Shavit Baruch, and four
non-executive directors, Joseph (Yosi) Albagli (Chairman),
appointed on 10 March 2021, Chen Saft-Feiglin, Zohar Yinon and
Richard Bennett appointed as independent non- executive director on
7 April 2022 (subject to ratification of the shareholders at the
forthcoming Annual General Meeting). The balance between executive
and non-executive directors encourages a diversity of views, and
ensures the independence of the directors, not allowing any group
to dominate the Board's decision making.
In accordance with Israel Companies Law, the Board must always
have at least two external directors who meet certain statutory
requirements of independence (the "External Directors"). The
Company's External Directors are currently Chen Saft-Feiglin and
Zohar Yinon. The term of office of an External Director is three
years, which can be extended for two additional three-year terms.
Under the Companies Law, External Directors are elected by
shareholders by a special majority and may be removed from office
only in limited cases. Any committee of the Board must include at
least one External Director and the Audit and Risk Committee and
Remuneration Committee must each include all of the External
Directors (including one External Director serving as the chair of
the Audit and Risk Committee and Remuneration Committee), and a
majority of the members of each of the Audit and Risk Committee and
Remuneration Committee must comply with the director independence
requirements prescribed by the Companies Law.
The detailed composition of the board is as follows:
Joseph (Yosi) Albagli Independent Non-Executive Chairman (Appointed 10 March
2021)
Chairman of the Nomination Committee
(Companies Law precludes the Chairman from being a
member of the Audit and Remuneration Committees)
David Levi Chief Executive Officer
Nomination Committee member
Provisional Remuneration Committee member
Mark Reichenberg Chief Financial Officer and Company Secretary
Nomination Committee member
Provisional Audit and Risk Committee member
Shavit Baruch Vice President R&D (re-elected 22 June 2020)
Chen Saft Feiglin External Director
Remuneration Committee Chairman
Audit and Risk Committee member
Zohar Yinon External Director
Audit and Risk Committee Chairman
Remuneration Committee member
Richard Bennett Independent Non-Executive director (appointed 7 April
2022 subject to ratification at the AGM)
Audit and Risk Committee member
Remuneration Committee member
Nomination Committee member
Biographical details of all the Directors are set out above.
Operation of the Board
The Board is responsible for the overall strategy and financial
performance of the Company and has a formal schedule of matters
reserved for its approval. In order to lead the development of the
strategy of the Company and the progress of financial performance,
the Board is provided with timely information that enables the
Board to review and monitor the performance of the Company and to
ensure it is in line with the Company's objectives in order to
achieve its strategic goals.
The CFO and Company Secretary, Mark Reichenberg is responsible
for ensuring that the Company complies with the statutory and
regulatory requirements and maintains high standards of corporate
governance. He supports and works closely with the Chairman of the
Board; the Chief Executive Officer and the Board committee chairs
in setting agendas for meetings of the Board and its committees and
supports the transfer of timely and accurate information flow from
and to the Board and the management of the Company.
During 2021, the Board met formally on ten occasions. Board
members also hold ad hoc discussions amongst themselves between
formal Board meetings to discuss governance, financial,
operational, and other business matters. A majority of the Board
members constitutes the legal quorum for a board meeting, and all
but three Board members attended all of the board meetings. All
Directors receive a board pack comprising of an agenda and all
relevant operational information in advance of each meeting.
Attendance at Board and Committee meetings by members of the
Board during the year ended 31 December 2021 was as follows:
Board Audit & Remuneration Nominations
Risk Committee Committee Committee
Number of meetings 10 5 4 1
------ ---------------- --------------- ---------------
Yosi Albagli (Note 7 4 (as invitee) 4 (as invitee)
1)
------ ---------------- --------------- ---------------
Graham Woolfman
(Note 2) 2
------ ---------------- --------------- ---------------
David Levi 10 2 ( as invitee) 3 (as invitee) 1
------ ---------------- --------------- ---------------
Mark Reichenberg 10 5 (as invitee) 1 (as invitee) 1 (as invitee)
------ ---------------- --------------- ---------------
Shavit Baruch 10 1 (as invitee)
------ ---------------- --------------- ---------------
Neil Rafferty (Note
3) 9 5 4 1
------ ---------------- --------------- ---------------
Chen Saft-Feiglin 9 4 4 1 (as invitee)
------ ---------------- --------------- ---------------
Zohar Yinon 9 5 4 1 (as invitee)
------ ---------------- --------------- ---------------
Note.
1. Appointed 10 March 2021
2. Resigned 17 November 2020, effective 17 February 2021
3. Resigned 1 December 2021
---------------------------------------------------------------------------------
Re-election of Directors
In accordance with the Company's Articles the Directors are
required to serve for a period of no less than three years from the
date of appointment, or in the case of Admission, for 3 years from
the date of Admission of the Company to AIM.
In terms of the General Meeting of the Company held on 22 June
2020, the term of David Levi and Shavit Baruch, in their capacity
as directors, was extended until 22 June 2023, the term of Mark
Reichenberg and Neil Rafferty, in their capacity as directors, was
extended until 28 June 2023. In terms of the Annual General Meeting
of the Company held on 14 September 2020, Chen Saft-Feiglin and
Zohar Yinon, in their capacity as external directors were
reappointed as Directors for a three year term commencing from 15
November 2020 and ending on 14 November, 2023.
Yosi Albagli was formally appointed as the Independent
Non-Executive Chairman on 10 March 2021 for an initial period of
three years.
Richard Bennett was formally appointed as an Independent
Non-Executive Director on 7 April 2022 for an initial period of
three years.
Board Committees
The Board has established properly constituted Audit and Risk,
Remuneration and Nomination Committees of the Board with formally
delegated duties and responsibilities.
Audit and Risk Committee
The UK Corporate Governance Code recommends that an Audit and
Risk Committee should comprise at least three members who are
independent non-executive directors, and that at least one member
should have recent and relevant financial experience. The Israel
Companies Law requires that at least two the External Directors and
one other non-executive director are members of the Committee, and
that the Chairman of the Company may not be a member of the
Committee.
The Audit and Risk Committee, which comprises the Independent
Non-Executive and External Directors (excluding the Chairman) and
by permanent invite the Chairman and the CFO. The Committee is
chaired by Zohar Yinon with the remaining members being Chen
Saft-Feiglin and, on an interim basis Mark Reichenberg the CFO,
until such time as the appointment of Richard Bennett, the proposed
Independent Non-Executive Director is ratified at the upcoming AGM
of the Company, who will then join the Committee. The Committee
invites other members of the Board as well as the Independent and
Internal Auditors of the Company to attend meetings as appropriate.
The Audit and Risk Committee has responsibilities which include the
review of:
-- The Company's internal control environment;
-- Financial risks and Internal Audit;
-- Financial statements, reports, and announcements, including
the Board's responsibility to present an annual report that is
fair, balanced, and understandable. The Committee evidences this
review in a report to the Board following its meeting with the
auditors to discuss their Report to the Committee and includes an
assessment of the information provided in support of the Board's
statement on going concern and on any significant issues and how
those issues were addressed;
-- Independence of auditors, including a review of the non-audit
services provided and the level of such fees relative to the audit
fee. In reviewing the Annual Financial Statements, discussions take
place with the Auditor`s without executive management present and
discussions are also held on the effectiveness of external audit;
and
-- Ensuring the Company has a policy which allows any member of
staff to raise, in confidence, any concern about possible
impropriety in matters of financial reporting or other matters, and
to ensure that suitable arrangements are in place for a
proportionate independent investigation of such matters including
any follow-up action required.
During the year ended 31 December 2021, the Committee met on
five occasions and the matters considered included the
following:
-- Consideration of the Company`s annual audited financial
statements for the year ended 31 December 2020, review of going
concern, treatment of the equity and finance transactions
undertaken in the financial statements and recommendation to the
Board for publication thereof.
-- Review of the Interim Unaudited Financial Statements as at 30
June 2021, review of going concern and reporting, the COVID-19
continuing situation, treatment of the equity and finance
transactions undertaken, and formal recommendation to the Board for
the Issuance of the Interim Unaudited Financial Statements as at
30th June 2021.
-- Review and recommendation to the Board of the placing and
subscription by the Company in September 2021.
-- Presentation by the Internal Auditors of their report,
initial audit planning for the 2021 annual results, going concern
and possible complexities surrounding the various fund raising
transactions that had taken place during the year.
Remuneration Committee
The Israel Companies Law requires that at least two of the
External Directors and one other non-executive director are members
of the committee, and that the Chairman of the Company may not be a
member of the Committee.
The Remuneration Committee comprising the Independent
Non-Executive and External Directors (excluding the Chairman) is
chaired by Ms. Chen Saft-Feiglin with the remaining members Zohar
Yinon and, on an interim basis David Levi the CEO, until such time
as the appointment of Richard Bennett, the proposed Independent
Non-Executive Director is ratified at the upcoming AGM of the
Company, who will then join the Committee. The Committee invites
other members of the Board to attend meetings as appropriate.
The Remuneration Committee has responsibility for reviewing and
recommending to the Board the remuneration and incentive
arrangements for the executive and non-executive directors, and
delegated authorities to the chief executive relating to senior
staff. The Remuneration Committee also has responsibility for:
-- Recommending to the Board the adoption of or variations to a
Compensation Policy for Office Holders and monitoring its
implementation.
-- Recommending to the Board any changes to the remuneration and
incentive arrangements in accordance with the policy, for each
executive and non-executive director (excluding the External
directors), and senior executives.
The remuneration of all External Directors is fixed in terms of
Israel Companies Law.
During the year ended 31 December 2021, the Remuneration
Committee met formally on four occasions discussing the executive
director remuneration packages, share options in terms of the
Company's registered share option plan and bonus structures for
2022 onward.
Nominations Committee
The Committee's responsibilities include ensuring that the size
and composition of the Board is appropriate for the needs of the
Company including an assessment of the diversity profile, selecting
the most suitable candidate or candidates for the Board and to
oversee succession planning aspects for the Board.
During the year under review, this Committee comprised the Chief
Executive Officer, David Levi and the Independent Non-Executive
Directors Graham Woolfman (resigned effective 17 February 2021),
Neil Rafferty (resigned 1 December 2021) and subsequently the
Non-Executive Chairman Yosi Albagli following his appointment on 10
March 2021.
During the year ended 31 December 2021, the Nominations
Committee met on one occasion in February 2021 to formalise and
recommend the appointment of Yosi Albagli as Independent
Non-Executive Chairman, as subsequently approved and appointed by
the Board on 10 March 2021 and ratified in an Extraordinary General
Meeting of the shareholders on 15 April 2021.
Following the resignation of Neil Rafferty on 1 December 2021,
Mark Reichenberg the CFO was appointed to the Committee. Yosi
Albagli as the Chairman of the Committee, David Levi the CEO, and
Mark Reichenberg the CFO are the current members of the Committee.
Once the appointment of Richard Bennett, the proposed Independent
Non-Executive Director is ratified at the upcoming AGM of the
Company, he will join the Committee. Other board members will
participate as required.
Internal Control
The Board considers on an ongoing basis the process for
identifying, evaluating, and managing significant risks faced by
the Company. This has been in place throughout the year and up to
the date of approval of the Financial Statements. The process is
regularly reviewed by the Board. The Directors are responsible for
the Company's system of internal control and for reviewing its
effectiveness. However, such a system can only provide reasonable,
but not absolute, assurance against material misstatement or loss.
The Company's system of internal control includes appropriate
levels of authorisation and segregation of duties. Financial
information is presented to the Board regularly comprising
management accounts and other financial data which allows for
regular reviews of performance.
The Company's key internal financial control procedures
include:
-- A review by the Board of actual results compared with budget and current forecasts;
-- Reviews by the Board of year end forecasts;
-- The establishment of procedures for capital expenditure and
expenditure incurred in the ordinary course of business.
The external auditors are engaged to express an opinion on the
financial statements. They discuss with management the reporting of
operational results and the financial condition of the Company, to
the extent necessary to express their audit opinion.
Internal Audit
The Internal Auditors, PKF Amit Halfon presented their 2021
review report to the Audit and Risk Committee during the year under
review. Their report for the previous year focussed on:
-- Review of the business, identify key high risk areas and review controls.
-- Identify risks.
-- Assess risks and present findings.
-- Prepare multi-year audit plan.
Due to the size and nature of the Company, the Audit and Risk
Committee had agreed with the Internal Auditors that the review for
2021 would focus on data security and cyber threats. The report was
finalised and presented to the Audit and Risk Committee in November
2021, with the following actions decided:
-- The significant items were highlighted
-- The Audit and Risk Committee recommended to the Board on 13
December 2021 that the significant items be address and it was
agreed that an action plan be presented to the Board and the key
items addressed during the first half of the 2022 financial
year.
The Audit and Risk Committee approved the continuation of the
work plan as outlined by the Internal Auditor.
Insurance
The Company maintains appropriate insurance cover in respect of
litigation against the Directors and Officers of the Company.
Directors' Report
The Directors present their Annual Report and the audited
Financial Statements for the financial year ended 31 December
2021.
Principal Activities
Ethernity Networks is a technology solutions provider that
develops and delivers data processing technology and solutions used
in high-end Carrier Ethernet applications across the telecom,
mobile, security and data center markets. The Company's core
technology, which is populated on programmable logic, enables
delivering data offload functionality at the pace of software
development, improves performance and reduces power consumption and
latency, therefore facilitating the deployment of virtualisation of
networking functionality.
The Company is headquartered in Israel.
Results and Dividends
The Consolidated Statement of Comprehensive Income for the year
is set out under Statements of Comprehensive Loss below. No
dividend is proposed for the year.
Risk Management
The Company's policies for managing risk arising from activities
are set out in Note 25 of the Financial Statements.
Directors
The current Directors of the Company are:
Joseph Albagli Independent Non-Executive Chairman (Appointed 10
March 2021)
David Levi Chief Executive Officer
Mark Reichenberg Chief Financial Officer
Shavit Baruch VP R&D
Chen Saft-Feiglin External Director*
Zohar Yinon External Director*
Richard Bennett Independent Non-Executive Director (Appointed 7
April 2022 subject to ratification at the upcoming AGM)
* An independent director appointed as an External Director in
terms of Israel Companies Law
Directors' Interests
The interests of current Directors in shares and options are
disclosed in the Directors' Remuneration Report set out in Note 27
D of the financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND THE FINANCIAL STATEMENTS
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
(including Director's Report and Strategic Report) and the
financial statements in accordance with applicable laws and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. Under company law the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
The Directors are also required to prepare financial statements in
accordance with the rules of the London Stock Exchange for
companies trading securities on the Alternative Investment Market
(AIM).
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRS
as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
-- recognise the possible impact of COVID-19 on the Company as a whole; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website Publication
The Directors are responsible for ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the Israel and the United Kingdom governing the
preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and
integrity of the Company's website is the responsibility of the
Directors. The Directors' responsibility also extends to the
ongoing integrity of the financial statements contained
therein.
COVID-19 and the Worldwide Components Shortage
In light of the continued duration of the COVID-19 pandemic that
continued to prevail through the entire year of 2021, and the
uncertainty on the potential ongoing and future impact, the Board
took certain steps to both safeguard the well-being of staff and to
position the Company for the future.
The worldwide components shortage presented further challenges
for the Company, which led to the Company taking significant steps
to secure sufficient critical components for its 2022 deliveries
and continues in the process of securing components required to
meet it and its customers delivery plans.
The resources of the Company were further strengthened by the
Placing and Subscription of shares raising GBP 4.6m before costs in
September 2021 and the closing out of the funding arrangements with
the 5G Innovation Leaders Fund LLC during the year raising a
further GBP 2.6m. The implementation of these measures is expected
to allow the Company to meet its planned operational objectives and
planned cash requirements.
The Board continues to closely monitor the situation and will
take further action, if and as appropriate, to manage its working
capital position and strengthen the balance sheet to support the
execution of the Company's plans.
Independent Auditor's Report to the Shareholders of Ethernity
Networks Ltd.
To the Shareholders of
Ethernity Networks Ltd.
Opinion
We have audited the financial statements of Ethernity Networks
Ltd. (the "Company"), which comprise the Statement of financial
position as of 31 December 2021 and the Statement of comprehensive
loss, the Statement of changes in equity and the Statement of cash
flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting
policies.
In our opinion, the accompanying financial statements present
fairly, in all material respects, the financial position of the
Company as of 31 December 2021 and its financial performance and
its cash flows for the year then ended in accordance with
International Financial Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our report. We
are independent of the Company in accordance with the International
Ethics Standards Board for Accountants' International Code of
Ethics for Professional Accountants (including International
Independence Standards) (IESBA Code) together with the ethical
requirements that are relevant to our audit of the financial
statements in Israel, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the
IESBA Code. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements for the year ended 31 December 2021. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. We have determined the
matters described below to be key audit matters to be communicated
in our report.
Description of Key Audit Description of Auditor's Response and
Matter and why a matter Key Observations
of most significance in
the audit
Intangible The intangible assets Our audit work included, but was not restricted
assets include development costs to:
that are directly attributable We assessed the recoverability of intangible
to a project's development assets by testing management's estimation
phase. Such intangible of the value in use as part of the Intangible
assets are required to Asset Impairment Test that was performed
be tested for impairment by management (as described in Note 9).
when there is any indication Such assessment included the evaluation
of impairment. The impairment of the competence of management in accordance
analysis of intangible with ISA 500 (Audit Evidence). The assessment
assets involves significant also included testing of evidence obtained
management judgement and from various areas of the audit including
therefore identified the cash flows forecasts of revenue, expenses
impairment analysis of and profitability, the appropriateness
intangible assets as a of discount rates used related to the
significant risk, which capitalised intangible assets, the most
was one of the most significant recent and updated business plans, Valuation
assessed risks of material model, working capital, useful life and
misstatement the compliance with the requirements of
international accounting standard 36 (IAS
36), impairment of assets.
Based on the audit work performed, we
have not identified any material misstatement
in the impairment of intangibles.
-------------------------------- -----------------------------------------------
Information other than the financial statements and auditor's
report thereon
Management is responsible for the other information. The other
information comprises the information included in the annual report
other than the financial statements and our auditor's report
thereon Our opinion on the financial statements does not cover the
other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of management and the board of directors for
the financial statements
Management is responsible for the preparation and fair
presentation of the financial statements in accordance with IFRS,
and for such internal control as management determines is necessary
to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or
has no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the
Company's financial reporting process.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by management.
-- Conclude on the appropriateness of management's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or
conditions may cause the Company to cease to continue as a going
concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with the Board of Directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit
of the financial statements of the year ended 31 December 2021 and
are therefore the key audit matters. We describe these matters in
our auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
The engagement partner on the audit resulting in this
independent auditor's report is Nir Yenni.
FAHN KANNE & CO. GRANT THORNTON ISRAEL
Tel-Aviv, Israel, April 7 2022
Statements Of Financial Position
For the year ended 31 December 2021
US dollars
--------------------------
31 December
--------------------------
Notes 2021 2020
-------- ------------ ------------
ASSETS
Current
Cash and cash equivalents 5 7,060,824 2,180,726
Trade receivables 6 1,545,598 778 ,061
Inventories 284,810 173,494
Other current assets 7 240,964 626,690
Current assets 9,132,196 3,758,971
Non-Current
Property and equipment 8 660,069 552,112
Deferred tax assets 23 - 186,772
Intangible asset 9 6,424,180 7,385,560
Right -of -use asset 10 3,156,202 292,219
Other long term assets 38,956 7,507
Non-current assets 10,279,407 8,424,170
Total assets 19,411,603 12,183,141
============ ============
LIABILITIES AND EQUITY
Current
Short Term Borrowings 11 422,633 411,726
Trade payables 651,758 290,175
Liability related to share subscription agreement 14.F.[3] - 841 ,944
Warrants liability 14.F.[2] 1,214,993 286 ,253
Other current liabilities 10,12 1,097,359 1,275,849
------------ ------------
Current liabilities 3,386,743 3,105,947
Non-Current
Lease liability 10 3,069,721 146,130
------------ ------------
Non-current liabilities 3,069,721 146,130
Total liabilities 6,456,464 3,252,077
Equity 1 4
Share capital 21,140 12,495
Share premium 40,382,744 26,849,698
Other components of equity 1,004,029 1,161,350
Accumulated deficit (28,452,774) (19,092,479)
------------ ------------
Total equity 12,955,139 8 ,931,064
Total liabilities and equity 19,411,603 12,183,141
============ ============
The accompanying notes are an integral part of the financial
statements.
Statements Of Comprehensive Loss
For the year ended 31 December 2021
US dollars
------------------------
For the year ended
31 December
------------------------
Notes 2021 2020
--------- ----------- -----------
Revenue 1 6 , 2 6 2,635,420 1,853,732
Cost of sales 690,517 271 ,453
----------- -----------
Gross margin 1,944,903 1,582,279
Research and development expenses 1 7 5,550,912 4,037,904
General and administrative expenses 1 8 1,721,873 1,591,079
Marketing expenses 19 1,044,905 1,082 ,560
Other income 20 (45,312) (40,335)
----------- -----------
Operating loss (6,327,475) (5,088,929)
Financing costs 21 (3,074,452) (1,462,740)
Financing income 22 228,404 298 ,016
----------- -----------
Loss before tax (9,173,523) (6,253,653)
Tax expense 23 (186,772) -
----------- -----------
Net comprehensive loss for the year (9,360,295) (6,253,653)
=========== ===========
Basic and diluted loss per ordinary share 24 (0.14) (0.17)
=========== ===========
Weighted average number of ordinary shares for basic loss per share 67,492,412 36,590,988
=========== ===========
The accompanying notes are an integral part of the financial
statements.
Statements Of Changes in Equity
For the year ended 31 December 2021
Number Other
of Share Share components Accumulated Total
Notes shares Capital premium of equity deficit equity
---------- -------- ----------- ----------- ------------ -----------
Balance at 1 January 11,4
2020 32,556,686 8,039 23,396,310 892,891 (12,838,826) 58,414
Employee share-based
compensation - - - (79,635) - (79,635)
Exercise of
employee
options 14.F.[1] 338,000 99 33,701 - - 33,800
Net proceeds
allocated
to the issuance of
ordinary
shares 14.F.[2] 7,333,334 2,140 914,595 - - 916 ,735
Exercise of 1,633
warrants 14.F.[2] 3,744,426 1,165 1,632,220 - - ,385
Shares issued
pursuant
to share
subscription
agreement 14.F.[3] 2,466,051 750 984 ,732 - - 985 ,482
Shares issued, not
yet
paid for * 14.F.[4] 880,000 258 196,259 - - 196 ,517
Expenses paid in
shares
and warrants 14.F.[5] 150,000 4 4 39,975 - - 40,019
Net comprehensive loss
for the year - - - - (6,253,653) (6,253,653)
Balance at 31 December 12,49
2020 47,468,497 5 27 ,197,792 813,256 (19,092,479) 8 ,931,064
Employee share-based
compensation - - - 77,583 - 77,583
Exercise of
employee
options 14.F.[1] 706,667 220 70,893 - - 71,113
Net proceeds
allocated
to the issuance of
ordinary
shares 14.F.[2] 13,149,943 4,053 4,280,265 - - 4,284,318
Exercise of
warrants 14.F.[3] 3,500,010 1,072 2,007,606 - - 2,008,678
Shares issued
pursuant
to share
subscription
agreement 14.F.[3] 10,221,621 3 ,204 6 ,742,848 - - 6 ,746,052
Expenses paid in
shares
and warrants 14.F.[5] 305,000 96 83,340 113,190 - 196 ,626
Net comprehensive loss
for the year - - - - (9,360,295) (9,360,295)
---------- -------- ----------- ----------- ------------ -----------
Balance at 31 December 1,004
2021 75,351,738 21,140 40,382,744 ,029 (28,452,774) 12,955,139
========== ======== =========== =========== ============ ===========
* These shares were not paid for except for the par value of
$258 which was paid for.
The accompanying notes are an integral part of the financial
statements.
Statements Of Cash Flows
For the year ended 31 December 2021
US dollars
--------------------------------
For the year ended 31 December
--------------------------------
2021 2020
--------------- ---------------
Operating activities
Net comprehensive loss for the year (9,360,295) (6,253,653)
Non-cash adjustments
Depreciation of property and equipment 86,168 156,012
Depreciation of operating lease right of use asset 173,675 155,862
Share-based compensation 77,583 18,209
Amortisation of intangible assets 961,380 952,606
Amortisation of liabilities 39,042 -
Deferred tax expenses 186,772 -
Foreign exchange losses (gains) on cash balances 30,214 145,258
Capital Loss 70 5,275
Income from change of lease terms (8,929) -
Revaluation of financial instruments, net 2,691,145 1,335 ,172
Expenses paid in shares and options 196 ,626 40,019
Net changes in working capital
Increase in trade receivables (767,537) (350,899)
Increase in inventories (111,316) (6,589)
Decrease in other current assets 84,068 104,468
Increase in other long-term assets (2,831) (2,340)
Increase (decrease) in trade payables 361,583 (35,064)
(Decrease) increase in other liabilities (24,071) 140 ,837
Net cash used in operating activities (5,386,653) (3,594,827)
Investing activities
Withdrawals from other short-term financial assets - 2,553,823
Deposits to other long-term financial assets (28,618) -
Purchase of property and equipment (194,195) (187,857)
Net cash provided (used) by investing activities (222,813) 2,365,966
Financing activities
Proceeds from share subscription agreement 3,177,306 1,164,190
Proceeds allocated to ordinary shares 5,016,494 916,993
Proceeds allocated to warrants 1,472,561 82,251
Issuance costs (390,398) -
Proceeds from exercise of warrants and options 1,367,388 1,027,142
Proceeds from short term borrowings 900,192 636,993
Repayment of short-term borrowings (887,585) (1,237,998)
Repayment of lease liability (136,180) (151,648)
Net cash provided by financing activities 10,519,778 2,437,923
Net change in cash and cash equivalents 4,910,312 1,209,062
Cash and cash equivalents, beginning of year 2,180,726 1,116,922
Exchange differences on cash and cash equivalents (30,214) (145,258)
Cash and cash equivalents, end of year 7,060,824 2,180,726
=============== ===============
Supplementary information:
Interest paid during the year 13,468 9,764
--------------- ---------------
Interest received during the year 41 63,059
--------------- ---------------
Supplementary information on non-cash activities:
Share-based compensation capitalised to intangible assets - (97,844)
--------------- ---------------
Recognition of right-of-use asset and lease liability 3,776,886 -
--------------- ---------------
Shares issued, not yet paid for - 196,259
--------------- ---------------
Shares issued pursuant to share subscription agreement 6,746,052 985,482
--------------- ---------------
Expenses paid in shares and warrants 83,436 40,019
--------------- ---------------
The accompanying notes are an integral part of the financial
statements.
Notes To The Financial Statements
For the year ended 31 December 2021
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.
In June 2017 the Company completed an Initial Public Offering
("IPO") together with being admitted to trading on the AIM Stock
Exchange and issued 10,714,286 ordinary shares at a price of
GBP1.40 per share, for a total consideration of approximately
$19,444,000 (GBP15,000,000) before underwriting and issuance
expenses. Total net proceeds from the issuance amounted to
approximately $17,800,000.
COVID-19
During Q1 and Q2 of 2020 Company, as with most companies
worldwide, faced much uncertainty as COVID-19 broke out, as a
result the Company experienced a slowdown in new contracts being
signed. The Company undertook succesful steps to counter the
immediate effects of the COVID-19 outbreak and in Q3 and Q4 of 2020
the Company managed to recover from the above slowdowns, with
operations being returned to normal levels in Q1 2021.
The ongoing effects of COVID-19 continue to be felt and the
Company experienced some delays in its deliveries to customers in
the latter part of Q4 2021 due to the worldwide components
shortages and the effects of the components shortages on the
Company suppliers, the Company, and the Company customers. The
Company took mitigating steps to address this and despite the
worldwide component shortage, the Company secured supplies of the
essential required components for the remainder of the 2021 year
and 2022 deliveries.
Furthermore, to ensure that resources were firmly in place to
address the circumstances outlined above, the Company undertook
fund raising events so as to ensure the ongoing development of its
products and solutions in terms of contracts signed with customers
and to ensure the ability to meet the delivery requirements to
customers, along with securing the necessary supply of components
for some of its products and solutions.
Currently, with the impact of COVID-19 in Israel having been
reduced significantly, the Company has continued its planned
strategies including the enhancement of the development
resources.
Considering the worldwide components shortage issue that albeit
has currently been resolved for some of its products and solutions
by the Company, given the residual COVID-19 disruptions worldwide
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.
NOTE 2 - GOING CONCERN
The 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. 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 significant values
of funds raised during the year ended 31 December 2021 and to date,
the current stage of the Company's life cycle, its losses and cash
outflows, including with respect to the development of the
Company's products, the expected timing and amounts of future
revenues.
In May 2020 the Company noted that its cash reserves were
approximately $1.5m and it was likely the Company would need to
seek access to alternative funding. Subsequently, in 2020 the
Company raised gross funds of $3.3m via both a Placing and
Subscription with associated Warrants, and a Share Subscription
Agreement, with the cash reserves at 31 December 2020 having
increased to $2.2m. In 2021 additional funds totalling $11.2m were
raised via the Warrants from the 2020 Placing and Subscription, the
Share Subscription Agreement and a further oversubscribed Placing
and Subscription concluded in September 2021, with cash reserves
having increased significantly to $7m. In February 2022, the
Company raised a further $2m via a new Share Subscription Agreement
with a recurring investor, maintaining the improved reserves.
During the latter portion of 2020 and through 2021, over and
above existing contracts with customers that had continuing revenue
streams or had moved to deployment of their product, the Company
entered into new contracts for supply of the Company solutions and
products along with deployment orders from existing customers, all
of which including customer indications for significant amounts of
revenue billings for the 2022 to 2023 financial years.
Based on the abovementioned significantly increased cash
position and signed contracts, and in the light of enquiries made
by the Directors as to the current liquidity position of the
Company, 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, and that there is no 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.
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
The following accounting policies have been consistently applied
in the preparation and presentation of these financial statements
for all of the periods presented, unless otherwise stated. In 2021,
no new standards that had a material effect on these financial
statements become effective.
A. Basis of presentation of the financial statements and statement of compliance with IFRS
These financial statements have been prepared in accordance with
International Financial Reporting Standards (hereinafter - "IFRS"),
as issued by the International Accounting Standards Board
("IASB").
The financial statements have been prepared on an accrual basis
and under the historical cost convention, except for financial
instruments measured at fair value through profit and loss.
The Company has elected to present profit or loss items using
the function of expense method. Additional information regarding
the nature of the expenses is included in the notes to the
financial statements.
The financial statements for the year ended 31 December 2021
(including comparative amounts) were approved and authorised for
issue by the board of directors on 7 April 2022.
B. Use of significant accounting estimates, assumptions, and judgements
The preparation of financial statements in conformity with IFRS
requires management to make accounting estimates and assessments
that involve use of judgment and that affect the amounts of assets
and liabilities presented in the financial statements, the
disclosure of contingent assets and liabilities at the dates of the
financial statements, the amounts of revenues and expenses during
the reporting periods and the accounting policies adopted by the
Company. Actual results could differ from those estimates.
Estimates and judgements are continually evaluated and are based
on prior experiences, various facts, external items and reasonable
assumptions in accordance with the circumstances related to each
assumption.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Regarding significant judgements and estimate uncertainties, see
Note 4.
C. Functional and presentation currency
The Company prepares its financial statements on the basis of
the principal currency and economic environment in which it
operates (hereinafter - the "functional currency").
The Company's financial statements are presented in US dollars
("US$") which constitutes the functional currency of the Company
and the presentation currency of the Company.
D. Foreign currency transactions and balances
Specifically identifiable transactions denominated in foreign
currency are recorded upon initial recognition at the exchange
rates prevailing on the date of the transaction. Exchange rate
differences deriving from the settlement of monetary items, at
exchange rates that are different than those used in the initial
recording during the period, or than those reported in previous
financial statements, are recognised in the statement of
comprehensive income in the year of settlement of the monetary
item. Other profit or loss items are translated at average exchange
rates for the relevant financial year.
Assets and liabilities denominated in or linked to foreign
currency are presented on the basis of the representative rate of
exchange as of the date of the statement of financial position.
Exchange rate differentials are recognised in the financial
statements when incurred, as part of financing expenses or
financing income, as applicable.
The exchange rates as at the 31st of December, of one unit of
foreign currency to each US dollar, were:
2021 2020
New Israeli Shekel
("NIS") 0.322 0.311
Sterling 1.351 1.366
Euro 1.132 1.227
E. Cash and cash equivalents
Cash and cash equivalents include cash on hand, call deposits
and highly liquid investments, including short-term bank deposits
(with original maturity dates of up to three months from the date
of deposit), that are subject to an insignificant risk of changes
in their fair value and which do not have restrictions as to what
it may be used for.
F. Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost includes all expenses directly attributable to the
manufacturing process as well as suitable portions of related
production overheads, based on normal operating capacity. Costs of
ordinarily interchangeable items are assigned using the first in,
first out cost formula. Net realisable value is the estimated
selling price in the ordinary course of business less any directly
attributable selling expenses.
G. Property and equipment
Property and equipment items are presented at cost, less
accumulated depreciation and net of accrued impairment losses. Cost
includes, in addition to the acquisition cost, all of the costs
that can be directly attributed to the bringing of the item to the
location and condition necessary for the item to operate in
accordance with the intentions of management.
The residual value, useful life span and depreciation method of
fixed asset items are tested at least at the end of the fiscal year
and any changes are treated as changes in accounting estimate.
Depreciation is calculated on the straight -- line method, based
on the estimated useful life of the fixed asset item or of the
distinguishable component, at annual depreciation rates as
follows:
%
Computers 33
Testing equipment 10-33
Furniture and equipment 6-15
Leasehold improvements Over period
of lease
Leasehold improvements are depreciated on a straight-line basis
over the shorter of the lease term (including any extension option
held by the Company and intended to be exercised) and the expected
life of the improvement.
Depreciation of an asset ceases at the earlier of the date that
the asset is classified as held for sale and the date that the
asset is derecognised. An asset is derecognised on disposal or when
no further economic benefits are expected from its use.
H. Basic and diluted earnings (loss) per share
Basic and diluted earnings (loss) per share is computed by
dividing the earnings (loss) for the period applicable to Ordinary
Shares by the weighted average number of ordinary shares
outstanding during the period.
In computing diluted earnings per share, basic earnings per
share are adjusted to reflect the potential dilution that could
occur upon the exercise of options or warrants issued or granted
using the "treasury stock method" and upon the settlement of other
financial instruments convertible or settleable with ordinary
shares using the "if-converted method".
I. Severance pay liability
The Company's liability for severance pay pursuant to Israel's
Severance Pay Law is based on the last monthly salary of the
employee multiplied by the number of years of employment, as of the
date of severance.
Pursuant to section 14 of Severance Pay Law, which covers the
Company's employees, monthly deposits with insurance companies
release the Company from any future severance obligations in
respect of those employees (defined contribution). Deposits under
section 14 are recorded as an expense in the Company's statement of
comprehensive income.
J. Research and development expenses
Expenditures on the research phase of projects to develop new
products and processes are recognised as an expense as
incurred.
Development activities involve a plan or a design for the
production of new or substantially improved products and processes.
Development costs that are directly attributable to a project's
development phase are recognised as intangible assets, provided
they meet all of the following recognition requirements:
-- the technical feasibility of completing the intangible asset
so that it will be available for use or sale.
-- intention to complete the intangible asset and use or sell
it.
-- ability to use or sell the intangible asset.
-- ability to demonstrate how the intangible asset will generate
probable future economic benefits. Among other things, the entity
can demonstrate the existence of a market for the output of the
intangible asset or the intangible asset itself or, if it is to be
used internally, the usefulness of the intangible asset.
-- the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset.
-- ability to measure reliably the expenditure attributable to
the intangible asset during its development.
Development costs not meeting these criteria for capitalisation
are expensed as incurred.
Directly attributable costs include (if relevant) employee costs
incurred on software development along with an appropriate portion
of relevant overheads and borrowing costs.
The Company maintained the policy of recognising as an
intangible asset, the costs arising from the development of its
solutions, specifically the directly associated costs of its
Research and Development center.
The Company periodically reviews the principles and criteria of
IAS 38 as outlined above. Up and until June 2019, the Company has
determined that all the above criteria were met.
Effective as from 1 July 2019 and thereafter, the Company
concluded that it would no longer continue recognising these costs
as an intangible asset due to the fact that the criteria in IAS38
was not met.
An intangible asset that was capitalised but not yet available
for use, is not amortised and is subject to impairment testing once
a year or more frequently if indications exist that there may be a
decline in the value of the asset until the date on which it
becomes available for use (see also Note 9).
The amortisation of an intangible asset begins when the asset is
available for use, i.e., it is in the location and condition needed
for it to operate in the manner intended by management. The
development asset is amortised on the straight-line method, over
its estimated useful life, which is estimated to be ten years.
The useful life and the amortisation method of each of the
intangible assets with finite lives are reviewed at least at each
financial year end. If the expected useful life of an asset differs
from the previous estimate, the amortisation period is changed
accordingly. Such change is accounted for as a change in accounting
estimate in accordance with IAS 8.
K. Government grants
Government grants are recognised where there is reasonable
assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an
expense item (such as research and development of an intangible
asset), it is recognised as 'other income' on a systematic basis
over the periods that the costs, which it is intended to
compensate, are expensed.
Where the grant relates to an asset (such as development
expenses that were recognised as an intangible asset), it is
recognised as deduction of the related asset.
Grants from the Israeli Innovation Authority of the Ministry of
Economy (hereinafter - the "IIA") in respect of research and
development projects are accounted for as forgivable loans
according to IAS 20 Accounting for Government Grants and Disclosure
of Government Assistance, as the company might be required to
refund such amount through payment of royalties.
Grants received from the IIA are recognised as a liability
according to their fair value on the date of their receipt, unless
there is reasonable assurance that the amount received will not be
refunded. The fair value is calculated using a discount rate that
reflects a market rate of interest at the date of initial
recognition. The difference between the amount received and the
fair value on the date of receiving the grant is recognised as a
deduction from the cost of the related intangible asset or as other
income, as applicable.
The amount of the liability is re-examined each period, and any
changes in the present value of the cash flows discounted at the
original interest rate of the grant are recognised in profit or
loss.
Grants which do not include an obligation to pay royalties are
recognised as a deduction of the related asset or as other income,
as applicable (See Note 20).
L. Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
1. Classification and measurement of financial assets and financial liabilities
Initial recognition and measurement
The Company initially recognises trade receivables on the date
that they originated. All other financial assets and financial
liabilities are initially recognised on the date on which the
Company becomes a party to the contractual provisions of the
instrument. A financial asset or a financial liability are
initially measured at fair value with the addition, for a financial
asset or a financial liability that are not presented at fair value
through profit or loss, of transaction costs that can be directly
attributed to the acquisition or the issuance of the financial
asset or the financial liability. Trade receivables that do not
contain a significant financing component are initially measured at
the price of the related transaction.
Financial assets - subsequent classification and measurement
A financial asset is measured at amortised cost if it meets the
two following cumulative conditions and is not designated for
measurement at fair value through profit or loss:
-- The objective of the entity's business model is to hold the
financial asset to collect the contractual cash flows; and
-- The contractual terms of the financial asset create
entitlement on specified dates to cash flows that are solely
payments of principal and interest on the principal amount
outstanding.
On initial recognition, financial assets that do not meet the
above criteria are classified to measurement at fair value through
profit or loss (FVTPL). Further, irrespective of business model
financial assets whose contractual cash flows are not solely
payments of principal and interest are accounted for at FVTPL. All
derivative financial instruments fall into this category.
Financial assets are not reclassified in subsequent periods,
unless, and only to the extent that the Company changes its
business model for the management of financial debt assets, in
which case the affected financial debt assets are reclassified at
the beginning of the reporting period following the change in the
business model.
Financial assets at amortised cost
The Company has balances of trade and other receivables and
deposits that are held under a business model the objective of
which is collection of the contractual cash flows. The contractual
cash flows in respect of such financial assets comprise solely
payments of principal and interest that reflects consideration for
the time-value of the money and the credit risk. Accordingly, such
financial assets are measured at amortised cost.
In subsequent periods, these assets are measured at amortised
cost, using the effective interest method and net of impairment
losses. Interest income, currency exchange gains or losses and
impairment are recognised in profit or loss. Any gains or losses on
derecognition are also carried to profit or loss.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are
carried in the statement of financial position at fair value with
all gains and losses and net changes in fair value recognised in
the statement of comprehensive loss as financing income or cost.
This category includes derivative instruments (including embedded
derivatives that were separated from the host contract).
Financial liabilities - classification, subsequent measurement
and gains and losses
Financial liabilities are classified to measurement at amortised
cost or at fair value through profit or loss. All financial
liabilities are recognised initially at fair value and, in the case
of loans, borrowings, and payables, net of directly attributable
transaction costs.
Financial liabilities are measured at amortised cost
This category includes trade and other payables, loans and
borrowings including bank overdrafts. These financial liabilities
are measured at amortised cost in subsequent periods, using the
effective interest method. Interest expenses and currency exchange
gains and losses are recognised in profit or loss. Any gains or
losses on derecognition are also carried to profit or loss.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the effective interest method. The effective interest
method amortisation is included as finance costs in profit or
loss.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are
measured at fair value, and any net gains and losses, including any
interest expenses, are recognised in profit or loss.
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through profit or loss.
Financial liabilities are classified as held for trading if they
are incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments (including
warrants derivative liability related to warrants with exercise
price denominated in a currency other than the Company's functional
currency) entered into by the Company. Separated embedded
derivatives are also classified as held for trading.
Financial liabilities designated upon initial recognition at
fair value through profit or loss are designated at the initial
date of recognition, and only if the criteria in IFRS 9 are
satisfied. The Company designated its liability to issue variable
number of shares which include certain embedded derivatives (such
as prepayment options) under share subscription agreement at fair
value through profit or loss (see Note 14).
2. Derecognition of financial liabilities
Financial liabilities are derecognised when the contractual
obligation of the Company expires or when it is discharged or
cancelled.
3. Impairment
Financial assets and contract assets
The Company creates a provision for expected credit losses in
respect of Financial assets measured at amortised cost.
Expected credit losses are recognised in two stages. For credit
exposures for which there has not been a significant increase in
credit risk since initial recognition, expected credit losses are
provided for credit losses that result from default events that are
possible within the next 12-months. For those credit exposures for
which there has been a significant increase in credit risk since
initial recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime expected credit losses).
The Company has elected to measure, if relevant, the provision
for expected credit losses in respect of trade receivables,
contract assets at an amount that is equal to the credit losses
expected over the life of the instrument.
In assessing whether the credit risk of a financial asset has
significantly increased since initial recognition and in assessing
expected credit losses, the Company takes into consideration
information that is reasonable and verifiable, relevant and
attainable at no excessive cost or effort. Such information
comprises quantitative and qualitative information, as well as an
analysis, based on the past experience of the Company and the
reported credit assessment, and contains forward-looking
information.
Measurement of expected credit losses
Expected credit losses represent a probability-weighted estimate
of credit losses. Credit losses are measured at the present value
of the difference between the cash flows to which the Company is
entitled under the contract and the cash flows that the Company
expects to receive.
Expected credit losses are discounted at the effective interest
rate of the financial asset.
4. Derivative financial instruments
Derivative financial instruments are accounted for at FVTPL.
Embedded derivatives
A derivative embedded in a hybrid contract, with a financial
liability or non-financial host, is separated from the host and
accounted for as a separate derivative if: the economic
characteristics and risks are not closely related to the host; a
separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative; and the hybrid contract
is not measured at fair value through profit or loss. Embedded
derivatives
are measured at fair value with changes in fair value recognised
in profit or loss. Reassessment only occurs if there is either a
change in the terms of the contract that significantly modifies the
cash flows that would otherwise be required or a reclassification
of a financial asset out of the fair value through profit or loss
category.
As described in Note 14.F.[3]., the Company has determined to
designate its liability with respect to share subscription
agreement which include several embedded derivatives in its
entirety at FVTPL category.
M. Off-set of financial instruments
Financial instruments and financial liabilities are presented in
the statements of financial position at their net value if the
Company has a legal and enforceable right of offset and the Company
intends on settling the asset and the liability on a net basis or
simultaneously.
N. Share-based compensation
Share-based compensation transactions that are settled by equity
instruments that were executed with employees or others who render
similar services, are measured at the date of the grant, based on
the fair value of the granted equity instrument. This amount is
recorded as an expense in profit or loss with a corresponding
credit to equity, over the period during which the entitlement to
exercise or to receive the equity instruments vests.
For purposes of estimating the fair value of the granted equity
instruments, the Company takes into consideration conditions which
are not vesting conditions (or vesting conditions that are
performance conditions which constitute market conditions).
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied. At the end of each reporting period, an estimate
is made of the number of instruments expected to vest. No expense
is recognised for awards that do not ultimately vest because of
service conditions and/or if non-market performance conditions have
not been met. As an expense is recognised over the vesting period,
when an expense has been recorded in one period and the options are
cancelled in the following period, then the previously recorded
expenses for options that never vested, as reversed. Grants that
are contingent upon vesting conditions (including performance
conditions that are not market conditions) which are not ultimately
met are not recognised as an expense. A change in estimate
regarding prior periods is recognised in the statement of
comprehensive income over the vesting period. No expense is
recognised for award that do not ultimately vest because service
condition and/or non-market performance condition have not been
made.
Share-based payment transactions settled by equity instruments
executed with other service providers are measured at the date the
services were received, based on the estimated fair value of the
services or goods received, unless their value cannot be reliably
estimated. In such a case, the transaction is measured by
estimating the fair value of the granted equity instruments. This
amount is carried as an expense or is capitalised to the cost of an
asset (if relevant), based on the nature of the transaction.
O. Fair Value Measurements
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair value measurement is based on the assumption that the
transaction will take place in the asset's or the liability's
principal market, or in the absence of a principal market in the
most advantageous market.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Company uses valuation techniques that are appropriate in
the circumstances and for which sufficient data are available to
measure fair value. Maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities measured at fair value or for which
fair value is disclosed are categorised into levels within the fair
value hierarchy based on the lowest level input that is significant
to the entire fair value measurement:
-- Level 1 - unadjusted quoted prices are available in active
markets for identical assets or liabilities that the Company has
the ability to access as of the measurement date.
-- Level 2 - pricing inputs are other than quoted prices in
active markets that are directly observable for the asset or
liability or indirectly observable through corroboration with
observable market data.
-- Level 3 - pricing inputs are unobservable for the
non-financial asset or liability and only used when there is
little, if any, market activity for the non-financial asset or
liability at the measurement date. The inputs into the
determination of fair value require significant management judgment
or estimation. Level 3 inputs are considered as the lowest priority
within the fair value hierarchy.
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Company
determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation (based on the lowest level
input that is significant to the fair value measurement as a whole)
at the end of each reporting period.
For the purpose of fair value disclosures, the Company has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy, as explained above.
Fair-value related disclosures for financial instruments that
are measured at fair value or where fair values are disclosed, are
summarised in Note 25.
P. Transactions with controlling shareholders
Transactions with controlling shareholders are recognised at
fair value. Any difference between the fair value and the original
terms of the transaction, represent capital contribution or
dividend, as applicable and accordingly, carried to equity.
Q. Revenue recognition
The Company generates revenues mainly from:
-- Sales of solutions-based product offerings
-- sales of programmable devices ("FPGA") with embedded
intellectual property ("IP") developed by the Company,
-- IP developed by the Company together with software
application tools to assist its customers to design their own
systems based on the Company IP and
-- maintenance and support services provided to customers.
The Company recognises revenue when the customer obtains control
over the promised goods or when the Company has delivered the
products or services. The revenue is measured according to the
amount of the consideration to which the Company expects to be
entitled in exchange for the goods or services provided to the
customer.
Identification of the contract
The Company treats a contract with a customer only where all of
the following conditions are fulfilled.
1. The parties to the contract have approved the contract (in
writing, orally or according to other customary business practices)
and they are committed to satisfying their obligations
thereunder;
2. The Company is able to identify the rights of each party in
relation to the goods or services that are to be transferred;
3. The Company is able to identify the payment terms for the
goods or services that are to be transferred;
4. The contract has commercial substance (i.e., the entity's
risk, timing and amount of future cash flows are expected to change
as result of the contract); and
5. It is probable that the consideration to which the Company is
entitled to in exchange for the goods or services transferred to
the customer will be collected.
Identification of performance obligations
On the contract's inception date, the Company assesses the goods
or services committed to in the contract with the customer and
identifies, as a performance obligation, any promise to transfer to
the customer one of the following:
1. Goods or services that are distinct; or
2. A series of distinct goods or services that are substantially
the same and have the same pattern of transfer to the customer.
The Company identifies goods or services promised to the
customer as being distinct when the customer can benefit from the
goods or services on their own or in conjunction with other readily
available resources and the Company's promise to transfer the goods
or services to the customer separately identifiable from other
promises in the contract. In order to examine whether a promise to
transfer goods or services is separately identifiable, the Company
examines whether it is providing a significant service of
integrating the goods or services with other goods or services
promised in the contract into one integrated outcome that is the
purpose of the contract.
Contracted revenues attached to milestone performance in a
contract are recognised by the Company when it has completed a
milestone requirement and the Company has delivered the goods
and/or services connected to such milestone, whether or not the
customer was yet in a position to receive same or not.
Determination of the transaction price
The transaction price is the amount of the consideration to
which the Company expects to be entitled in exchange for the goods
or services promised to the customer, other than amounts collected
for third parties. The Company takes into account the effects of
all the following elements when determining the transaction price;
variable consideration (see below), the existence of a significant
financing component, non-cash consideration, and consideration
payable to the customer.
Variable consideration
The transaction price includes fixed amounts and amounts that
may change as a result of discounts, credits, price concessions,
incentives, penalties, claims and disputes and contract
modifications where the consideration in their respect has not yet
been agreed to by the parties.
In accordance with the requirements in IFRS 15 on constraining
estimates of variable consideration, the Company includes the
amount of the variable consideration, or part of it, in the
transaction price at contract inception, only when it is considered
highly probable that its inclusion will not result in a significant
revenue reversal in the future when the uncertainty has been
subsequently resolved. At the end of each reporting period and if
necessary, the Company revises the amount of the variable
consideration included in the transaction price.
Satisfaction of performance obligations
Revenue is recognised when the Company satisfies a performance
obligation, or by transferring control over promised goods or
having provided services to the customer, as applicable.
Contract costs
Incremental costs of obtaining a contract with a customer, such
as sales fees to agents, are recognised as an asset when the
Company is likely to recover these costs. Costs to obtain a
contract that would have been incurred regardless of the contract
are recognised as an expense as incurred unless the customer can be
billed for those costs.
Costs incurred to fulfil a contract with a customer and that are
not covered by another standard, are recognised as an asset when
they: relate directly to a contract the Company can specifically
identify; they generate or enhance resources of the Company that
will be used in satisfying performance obligations in the future;
and they are expected to be recovered. In any other case the costs
are recognised as an expense as incurred.
Capitalised costs are amortised in profit or loss on a
systematic basis that is consistent with the pattern of transfer of
the goods or services to which the asset relates.
In every reporting period, the Company examines whether the
carrying amount of the asset recognised as aforesaid exceeds the
consideration the entity expects to receive in exchange for the
goods or services to which the asset relates, less the costs
directly attributable to the provision of these goods or services
that were not recognised as expenses, and if necessary, an
impairment loss is recognised in the profit or loss.
Sales of goods
Revenues from the sale of programmable devices are recognised at
the point in time when control of the asset is transferred to the
customer, which is generally upon delivery of the devices.
Contracts with milestone payments
Certain contracts with major customers are structured to provide
the Company with payment upon the achievements of certain
predefined milestones which might include, delivery of existing
schematics, prototypes, software drivers or design kit, or
development of new product offerings or new features of existing
products such as programmable devices ("design tools").
Management has determined that the performance obligations under
such arrangements which are generally based on separate milestones,
are recognised at the point in time when such separate milestone is
transferred to the customer, generally upon completion of the
related milestone.
Amounts received (including specific up-front payments), which
relate to milestones that were not yet achieved, are deferred and
are presented as deferred revenues.
Multiple element transactions
Some of the Company's contracts with customers contain multiple
performance obligations. For these contracts, the Company accounts
for individual performance obligations separately if they are
distinct. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price
basis. The Company determines the standalone selling prices based
on an overall pricing objectives, taking into consideration market
conditions and other factors.
Revenues are then recognised for each separate performance
obligations - sales of goods or designed tools, based on the
criteria described in the above paragraph.
Revenue from royalties
The Company is entitled to royalties based on sales performed by
third parties of products which contain IP developed by the
Company.
For arrangements that include such sales-based royalties,
including milestone payments based on the level of sales, and the
license of the IP developed by the Company is deemed to be the
predominant item to which the royalties relate, the Company
recognises revenue at the later of (i) when the performance
obligation to which some or all of the royalty has been allocated
has been satisfied (or partially satisfied), or (ii) when the
related sales occur.
Accordingly, revenues from royalties that are reported by the
customer are recognised based on the actual sales of products as
reported to the Company.
Revenues from maintenance and support
Revenue from maintenance and support is recognised over the term
of the maintenance and support period.
R. Income taxes
Taxes on income in the statement of comprehensive loss comprises
the sum of deferred taxes and current taxes (when applicable).
Deferred taxes are recognised in the statement of comprehensive
income, except to the extent that the tax arises from items which
are recognised directly in other comprehensive income or in equity.
In such cases, the tax effect is also recognised in the relevant
item.
Deferred tax assets are recognised to the extent that it is
probable that the underlying tax loss or deductible temporary
difference will be utilised against future taxable income. This is
assessed based on the Company's forecast of future operating
results, adjusted for significant non-taxable income and expenses
and specific limits on the use of any unused tax loss or credit.
See also Note 23.
Deferred tax assets are presented in the statement of financial
position as non-current assets.
S. Operating cycle
The normal operating cycle of the Company is a twelve-month
period ending in December 31 of each year.
T. Impairment testing of non-financial assets
For impairment assessment purposes, assets are grouped at the
lowest levels for which there are largely independent cash inflows
(cash-generating units). As a result, some assets are tested
individually for impairment, and some are tested at the
cash-generating unit level.
An impairment loss is recognised for the amount by which the
asset's (or cash-generating unit's) carrying amount exceeds its
recoverable amount, being the fair value less costs of disposal. To
determine the fair value, management estimates expected future cash
flows from each asset or cash-generating unit and determines a
suitable discount rate, in order to calculate the present value of
those cash flows. The data used for impairment testing procedures
are linked to the Company's latest approved budget, adjusted as
necessary to exclude the effects of future reorganisations and
asset enhancements. Discount factors are determined individually
for each cash-generating unit assets and reflect current market
assessments of the time value of money and asset-specific risk
factors, see also Note 9.
U. Ordinary shares
Ordinary shares issued by the Company which do not meet the
definition of financial liability or financial asset, were
recognised as part of equity on the basis of the consideration
received in respect thereof, net of costs attributed directly to
the issue.
V. Equity and reserves
Share capital represents the nominal par value of shares that
have been issued.
Share premium includes any premiums received on issue of share
capital. Any transaction costs associated with the issuing of
shares are deducted from share premium, net of any related income
tax benefits.
W. Provisions, contingent assets and contingent liabilities
Provisions for legal disputes, onerous contracts or other claims
are recognised when the Company has a present legal or constructive
obligation as a result of a past event, it is probable that an
outflow of economic resources will be required to settle the
obligation and amounts can be estimated reliably. Timing or amount
of the outflow may still be uncertain.
No liability is recognised if an outflow of economic resources
as a result of present obligations is not probable. Such situations
are disclosed as contingent liabilities unless the outflow of
resources is remote.
Provisions are measured at the estimated expenditure required to
settle the present obligation, based on the most reliable evidence
available at the reporting date, including the risks and
uncertainties associated with the present obligation. Where there
are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the
class of obligations as a whole. Provisions are discounted to their
present values, where the time value of money is material.
Any reimbursement that the Company is virtually certain to
collect from a third party with respect to the obligation is
recognised as a separate asset. However, this asset may not exceed
the amount of the related provision.
X. Leased assets
The Company considers whether a contract is or contains a lease.
A lease is defined as 'a contract, or part of a contract, which
conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration.' To apply this
definition the Company assesses whether the contract meets three
key evaluations which are whether:
-- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the
Company
-- the Company has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of
the contract
-- the Company has the right to direct the use of the identified
asset throughout the period of use. The Company assesses whether it
has the right to direct 'how and for what purpose' the asset is
used throughout the period of use.
Measurement and recognition of leases as a lessee
At lease commencement date, the Company recognises a
right-of-use asset and a lease liability on the balance sheet. The
right-of-use asset is measured at cost, which is made up of the
initial measurement of the lease liability, any initial direct
costs incurred by the Company, an estimate
of any costs to dismantle and remove the asset at the end of the
lease, and any lease payments made in advance of the lease
commencement date (net of any incentives received).
The Company depreciates the right-of-use assets on a
straight-line basis from the lease commencement date to the earlier
of the end of the useful life of the right-of-use asset or the end
of the lease term. The Company also assesses the right-of-use asset
for impairment when such indicators exist.
At the lease commencement date, the Company measures the lease
liability at the present value of the lease payments unpaid at that
date, discounted using the interest rate implicit in the lease if
that rate is readily available or the Company's incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability are made up of fixed payments (including in substance
fixed), variable payments based on an index or rate, amounts
expected to be payable under a residual value guarantee and
payments arising from options reasonably certain to be
exercised.
Subsequent to initial measurement, the liability is reduced for
payments made and increased for interest. It is re-measured to
reflect any reassessment or modification, or if there are changes
in in-substance fixed payments.
When the lease liability is re-measured, the corresponding
adjustment is reflected in the right-of-use asset, or profit and
loss if the right-of-use asset is already reduced to zero.
The Company has elected to account for short-term leases and
leases of low-value assets using the practical expedients. Instead
of recognising a right-of-use asset and lease liability, the
payments in relation to these are recognised as an expense in
profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets have
been included under non-current assets and the current portion of
lease liabilities have been included in other current
liabilities.
Y. Standards, amendments and interpretations to existing
standards that are not yet effective and have not been adopted
early by the Company.
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to
76 of IAS 1 to specify the requirements for classifying liabilities
as current or non-current. The amendments clarify:
-- What is meant by a right to defer settlement
-- That a right to defer must exist at the end of the reporting
period
-- That classification is unaffected by the likelihood that an
entity will exercise its deferral right
-- That only if an embedded derivative in a convertible
liability is itself an equity instrument would the terms of a
liability not impact its classification
The amendments are effective for annual reporting periods
beginning on or after 1 January 2023 and must be applied
retrospectively. The Company is currently assessing the impact the
amendments will have on current practice and whether existing loan
agreements may require renegotiation.
Other Standards and amendments that are not yet effective and
have not been adopted early by the Company include:
-- References to the Conceptual Framework
-- Proceeds before Intended Use (Amendments to IAS 16)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments
to IAS 37)
-- Annual Improvements to IFRS Standards 2018-2020 Cycle
(Amendments to IFRS 1, IFRS 9, IFRS 16, IAS 41)
-- Amendments to IAS 12 Income Taxes-Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
-- IFRS 9 Financial Instruments - Fees in the '10 per cent' test
for derecognition of financial liabilities
These amendments are not expected to have a significant impact
on the financial statements in the period of initial application
and therefore the disclosures have not been made.
NOTE 4 - SIGNIFICANT MANAGEMENT JUDGEMENT IN APPLYING ACCOUNTING
POLICIES AND ESTIMATION UNCERTAINTY
When preparing the financial statements, management makes a
number of judgements, estimates and assumptions about the
recognition and measurement of assets, liabilities, income and
expenses.
Significant management judgement
-- Capitalisation of internally developed intangible assets
Distinguishing the research and development phases of a new or
substantially improved customised research and development project
and determining whether the recognition requirements for the
capitalisation of development costs are met, requires judgement.
After capitalisation (if relevant), management monitors whether the
recognition requirements continue to be met and whether there are
any indicators that capitalised costs may be impaired (see Note
9).
-- Leases - determination of the appropriate lease period to measure lease liabilities
The Company enters into leases with third-party landlords and In
order to calculate the lease liability, the Company assess if any
lease option extensions will be exercised. The lease for the
Company's offices is for 5 years with an option to extend it for a
further 5 years. The Company expects this lease to be extended for
the additional 5 years - see Note 10.
Estimation uncertainty
-- Impairment of non-financial assets
In assessing impairment of non-financial assets (primarily,
internally developed intangible assets ), management estimates the
fair value of each asset or cash generating units (if relevant)
based on expected future cash flows and uses an interest rate to
discount them. Estimation uncertainty relates to assumptions about
future operating results and the determination of a suitable
discount rate. See Note 9 for assumptions used in determining fair
value.
-- Fair value measurement of financial instruments
When the fair values of financial assets and financial
liabilities recorded in the statement of financial position cannot
be measured based on quoted prices in active markets, Management
uses various valuation techniques to determine the fair value of
such financial instruments and non-financial assets. This involves
developing estimates and assumptions consistent with how market
participants would price the instrument. Management bases its
assumptions on observable data as far as possible but this is not
always available. In that case, management uses the best
information available. Estimated fair values may vary from the
actual prices that would be achieved in an arm's length transaction
at the reporting date. Changes in assumptions relating to these
factors could affect the reported fair value of financial
instruments (see Note 14).
NOTE 5 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
US dollars
---------------------
31 December
---------------------
2021 2020
--------- ----------
In Sterling 5,817,800 1,651,352
In U.S. Dollar 622,042 153,045
In Euro 6,638 4,223
In New Israeli Shekel 614,344 372,106
7,060,824 2,180,726
========= ==========
NOTE 6 - TRADE RECEIVABLES
Trade and other receivables consist of the following:
US dollars
--------------------
31 December
--------------------
2021 2020
--------- ---------
Trade receivables 1,422,280 838,920
Unbilled revenue 353,318 89 ,141
Less: provision for expected credit losses (230,000) (150,000)
Total receivables 1,545,598 778 ,061
========= =========
All amounts are short-term. The net carrying value of these
receivables is considered a reasonable approximation of fair value.
All of the Company's trade and other receivables have been reviewed
for the possibility of loss (an allowance for impairment losses).
See also Note 2 5 A.
NOTE 7 - OTHER CURRENT ASSETS
Other current assets consist of the following:
US dollars
-----------------
31 December
-----------------
2021 2020
------- --------
Prepaid Expenses 167,291 170 ,547
Deferred expenses related to share subscription
agreement facility - see Note 1 4 .F.[3] - 66 ,709
Deposits to suppliers 9,065 8,769
Government institutions 39,650 33,397
Other current assets 24,958 45,610
Proceeds due on account of shares issued
- see Notes 1 4 .F.[4] and 25.B. - 301,658
Total other current assets 240,964 626,690
======= ========
NOTE 8 - PROPERTY AND EQUIPMENT
Details of the Company's property and equipment are as
follows:
US dollars
----------------------------------------------------------------
Testing Furniture Leasehold
equipment Computers and equipment improve-ments Total
---------- --------- -------------- -------------- ---------
Gross carrying
amount
Balance 1 January
2021 725,298 141,565 45,628 60,102 972,593
Additions 156,145 23,248 3,609 11,193 194,195
Disposals * (331) - - (60,102) (60,433)
---------- --------- -------------- -------------- ---------
Balance 31 December
2021 881,112 164,813 49,237 11,193 1,106,355
Depreciation
Balance 1 January
2021 (215,303) (134,269) (13,055) (57,854) (420,481)
Disposals 261 - - 60,102 60,363
Depreciation (71,938) (8,935) (3,041) (2,254) (86,168)
---------- --------- -------------- -------------- ---------
Balance 31 December
2021 (286,980) (143,204) (16,096) (6) (446,286)
Carrying amount
31 December 2021 594,132 21,609 33,141 11,187 660,069
========== ========= ============== ============== =========
* Disposals of assets for zero proceeds.
US dollars
----------------------------------------------------------------
Testing Furniture Leasehold
equipment Computers and equipment improve-ments Total
---------- --------- -------------- -------------- ---------
Gross carrying
amount
Balance 1 January
2020 552,342 242,113 75,846 60,102 930,403
Additions 184,323 2,923 611 - 187,857
Disposals (11,367) (103,471) (30,829) - (145,667)
---------- --------- -------------- -------------- ---------
Balance 31 December
2020 725,298 141,565 45,628 60,102 972,593
Depreciation
Balance 1 January
2020 (136,740) (195,377) (33,140) (39,604) (404,861)
Disposals 11,367 102,647 26,378 - 140,392
Depreciation (89,930) (41,539) (6,293) (18,250) (156,012)
---------- --------- -------------- -------------- ---------
Balance 31 December
2020 (215,303) (134,269) (13,055) (57,854) (420,481)
Carrying amount
31 December 2020 509,995 7,296 32,573 2,248 552,112
========== ========= ============== ============== =========
NOTE 9 - INTANGIBLE ASSET
Details of the Company's intangible asset (R&D) is as follows:
US dollars
----------
Total
----------
Gross carrying amount
Balance 1 January 2021 9,550,657
Additions -
Balance 31 December 2021 9,550,657
Amortisation
Balance 1 January 2021 2,165,097
Amortisation 961,380
----------
Balance 31 December 2021 3,126,477
Carrying amount 31 December
2021 6,424,180
==========
US dollars
----------
Total
----------
Gross carrying amount
Balance 1 January 2020 9,648,501
Disposals -
Other adjustment (*() (97,844)
Balance 31 December 2020 9,550,657
Amortisation
Balance 1 January 2020 1,212,491
Amortisation 952,606
----------
Balance 31 December 2020 2,165,097
Carrying amount 31 December
2020 7,385,560
==========
( *() Relates to a $97,844 reversal of share based compensation,
capitalised in prior years - see Note 15.A.
The Company commissioned an impairment test of the capitalised
intangible assets as of 31 December 2019, by a top-tier independent
international firm with expertise in valuation procedures.
According to such independent report, the recoverable amount of
these intangible assets, based on future forecasted revenues, is
approximately USD 27 million - more than three times the book value
and accordingly there has been no need to record an impairment to
such capitalised assets.
The Company tested the capitalised intangible assets for
impairment as of 31 December 2021. Such analysis revealed a similar
calculation as that determined as at 31 December 2020 and therefore
no impairment is warranted.
In establishing its indications, the Company referred to the
fact that the 2019 independent report placed a value of $27m on the
intangible asset. Having given due consideration to the following,
the Company believes that no further impairment is required.
-- The anticipated outcomes of current discussions and engagements with customers;
-- The customer projections and where the customer believes
engagement, testing, field trials and deployment will take
place;
-- Signed engagements or commercial discussion phases and anticipated outturns;
-- Development resources required to meet all of the above (I
remind you this is a Development Company that is now in a new
market of NFV which is being driven by 5G, connectivity and other
solutions that the Company has developed over the past 17 years and
the market is NOW engaging fully on);
-- Development cost elements (R&D resources);
-- Cash resources required to meet the forecast costs for the developments;
-- Current cash resources at the time;
-- Requirements if any for raising funds to ensure funds are freely available;
-- Ease of fund raising.
The valuation method determined, to best reflect the fair value
of the intangible assets, was the Multi-period Excess Earning
("MEEM") to be generated from such assets between 2022 through
2031.
The primary assumptions used in determining the fair value of
these intangible assets are as follows:
-- Corporate tax rate for the Company remains at 23%.
-- The pre-tax discount rate used to value future cash flows is 30.6% (post-tax 25%).
NOTE 1 0 - LEASES
A. Details of the Company's operating lease right of use assets are as follows:
US dollars
---------------------------------
Buildings Vehicles Total
---------- --------- ----------
Gross carrying amount
Balance 1 January 2021 441,068 129,742 570,810
Terminations (441,068) (34,040) (475,108)
Additions 3,158,849 - 3,158,849
---------- --------- ----------
Balance 31 December 2021 3,158,849 95,702 3,254,551
Accumulated depreciation
Balance 1 January 2021 (225,228) (53,363) (278,591)
Terminations 337,842 16,075 353,917
Depreciation expense (138,938) (34,737) (173,675)
---------- --------- ----------
Balance 31 December 2021 (26,324) (72,025) (98,349)
Total right-of-use assets as
at 31 December 2021 3,132,525 23,677 3,156,202
========== ========= ==========
US dollars
---------------------------------
Buildings Vehicles Total
---------- --------- ----------
Gross carrying amount
Balance 1 January 2020 441,068 129,742 570,810
Additions - - -
---------- --------- ----------
Balance 31 December 2020 441,068 129,742 570,810
Accumulated depreciation
Balance 1 January 2020 (112,614) (10,115) (122,729)
Depreciation expense (112,614) (43,248) (155,862)
---------- --------- ----------
Balance 31 December 2020 (225,228) (53,363) (278,591)
Total right-of-use assets as
at 31 December 2020 215,840 76,379 292,219
========== ========= ==========
The vehicle right-of-use assets comprises 4 vehicles used by
employees, all of which lease terms extend until the second half of
2022. Unexpectedly, one of the leases ended in March 2021
B. Lease liabilities are presented in the statement of financial position as follows:
US dollars
--------------------
31 December
--------------------
202 1 2020
---------- --------
Current 170,350 160,653
Non-current 3,069,721 146,130
3,240,071 306,783
========== ========
C. In December 2017, the Company committed to a three-year lease
agreement for its primary offices in the Industrial area of Lod,
Israel. At the termination of the lease, the Company had an option
to renew it for a further two years. Such renewal option was
considered as reasonably certain to be exercised upon adoption of
IFRS 16. In fact, one year was exercised. In addition, the Company
signed two other one year lease agreements for a total of 26
parking bays, with an option to extend them for another year. With
the exception of short-term leases and leases of low-value
underlying assets (the parking bay leases), each lease is reflected
on the balance sheet as a right-of-use asset and a lease
liability.
In October 2021, the Company committed to a five-year lease
agreement for its primary offices in Airport City Israel. At the
termination of the lease, the Company had an option to renew it for
a further five years. Such renewal option was considered as
reasonably certain to be exercised according to IFRS 16.
Each lease generally imposes a restriction that, unless there is
a contractual right for the Company to sublet the asset to another
party, the right-of-use asset can only be used by the Company.
Leases are either non-cancellable or may only be cancelled by
incurring a substantive termination fee. Some leases contain an
option to extend the lease for a further term or for the employee
who used the leased item, to purchase the underlying leased asset
outright at the end of the lease term. The Company is prohibited
from selling or pledging the underlying leased assets as security.
For leases over office buildings and factory premises the Company
must keep those properties in a good state of repair and return the
properties in their original condition at the end of the lease.
Further, the Company must insure items of property, plant and
equipment and incur maintenance fees on such items in accordance
with the lease contracts.
D. The lease liabilities are secured by the related underlying
assets. Future minimum lease payments at 31 December 2021 were as
follows:
Minimum lease payments due
--------------------------------------
US dollars
--------------------------------------
2022 2023-2031 Total
---------- ------------ ------------
Lease payments 423,939 4,538,360 4,962,299
Finance charges (253,222) (1,252,177) (1,505,399)
---------- ------------ ------------
Net present values 170,717 3,286,183 3,456,900
========== ============ ============
E. Short-term leases.
The Company has elected not to recognise lease liabilities for
leases of low value assets in 2020 (parking bays). Payments made
under such leases are expensed on a straight-line basis. The
expense for the year ended 31 December 2020, relating to payments
not included in the measurement of the lease liability is $12,219.
The lease was terminated November 2021.
NOTE 1 1 - SHORT- TERM BORROWINGS
Borrowings include the following financial liabilities:
Annual
% Interest US dollars
----------------
rate(1) 31 December
----------------
202 1 202 1 2020
----------- ------- -------
Bank borrowings (1) 6.2% 422,633 411,726
Total short- term borrowings 422,633 411,726
======= =======
(1) The loans bore variable interest of 6.2%. The above interest
rate is the weighted average rate as of 31 December 2021. The loan
will be fully repaid by June 2022.
(2) The Company had an unused credit facility of 100,000 NIS
($32,154). The credit facility was cancelled January 2022. I n
addition, the Company has obtained a facility for invoice trade
financing of up to $480,000 which will allow acceleration of cash
flows on invoicing receipts.
NOTE 1 2 - OTHER CURRENT LIABILITIES
Other short-term liabilities consist of:
US dollars
---------------------
31 December
---------------------
202 1 2020
--------- ----------
Salaries, wages and related costs 415,787 344,352
Provision for vacation 226,210 246 ,289
Accrued expenses and other 86,761 112,669
Deferred revenue 72,667 28,500
Short term lease liability 170 ,350 160,653
Related parties (see Note 27.A.) * 125,584 383,386
Total other short-term liabilities 1,097,359 1,275,849
========= ==========
* Relates to compensation from prior years. These amounts do not
bear interest. This liability was partially settled in May
2021.
NOTE 1 3 - IIA ROYALTY LIABILITY
During the years 2005 through 2012, the Company received grants
from the Israel Innovation Authority ("IIA") totalling
approximately $3.05 million, to support the Company's various
research and development programs. The Company is required to pay
royalties to the IIA at a rate of 3.5%, of the Company revenue up
to an amount equal to the grants received, plus interest from the
date of the grant. The total amount including interest is
approximately $3.0 million. However, as the company is not
expecting to produce revenues from products funded by such grants
it was determined that there is reasonable assurance that the
amount received will not be refunded and thus no liability was
recognised with respect to such grants as of December 31, 2021 and
2020. Such contingent obligation has no expiration date.
As of 31 December 2021, the Company has repaid approximately
$532,000 of these grants over numerous years, in the form of
royalties. The maximum amount of royalties that would be payable,
would be approximately $3,000,000 as at 31 December 2021.
NOTE 1 4 - EQUITY
A. Details regarding share capital and number of shares at 31
December 2021 and at 31 December 2020 are:
Share capital:
US dollars
--------------
31 December
--------------
2021 2020
------ ------
Ordinary shares of NIS 0.001 par value 21,140 12,495
Total share capital 21,140 12,495
====== ======
Number of shares:
31 December
-----------------------------
2021 2020
--------------- ------------
Ordinary shares of NIS 0.001 par value
- authorised 100,000,000 100,000,000
--------------- ------------
Ordinary shares of NIS 0.001 par value
- issued and paid up 75,351,738 47,468,497
--------------- ------------
The shareholder extraordinary general meeting held on 22 June
2020, approved that the authorised share capital be increased from
50 million shares to 100 million shares.
B. Description of the rights attached to the Ordinary Shares
All ordinary shares have equal rights including voting rights,
rights to dividends and to distributions upon liquidation. They
confer their holder the rights to receive notices, attend and vote
at general meetings.
C. Share premium
Share premium includes proceeds received from the issuance of
shares, after allocating the nominal value of the shares issued to
share capital. Transaction costs associated with the issuance of
shares are deducted from the share premium, net of any related
income tax benefit. The costs of issuing new shares charged to
share premium during the year ended 31 December 2021 was $375,732
(2020: $134,736).
D. Other components of equity
Other components of equity include the value of equity-settled
share and option-based payments provided to employees and
consultants. When employees and consultants forfeit their options,
the costs related to such forfeited options are reversed out to
other components of equity - see Note 15.A.
E. IPO - Admission to the AIM exchange in London
On 29 June 2017 the Company completed an IPO together with being
admitted to trading on the AIM Stock Exchange and issued 10,714,286
ordinary shares at a price of GBP1.40 per share, for a total
consideration of approximately $19,444,000 (GBP15,000,000) before
underwriting and issuance expenses. Total net proceeds from the
issuance amounted to approximately $17,800,000. Concurrent with the
IPO, all the preferred shares that existed as of that date were
mandatorily converted into ordinary shares on a 1:1 basis. The
Company trades on the AIM Stock Exchange under the symbol
"ENET".
Concurrent with the IPO, the Company issued 162,591 five-year
options to the IPO broker that may be exercised at an exercise
price of GBP1.40 (see Note 15.C.) The Company's last share price as
at 31 December 2021 was GBP0.40 (2020: GBP0.36). These options
expire on 29 June 2022 and to date have not yet been exercised.
F. Shares issued during the accounting periods
During the year ended 31 December 2021, 27,883,241 (2020:
14,911,811) ordinary shares were issued, as follows:
Number of shares issued
during year ended 31 December
---------------------------------
Note 2021 2020
------ ----------------
Exercise of employee options [1] 706,667 338,000
Issuance of ordinary shares
)issued together with warrants( [2] 13,149,943 7,333,334
Exercise of warrants [2] 3,500,010 3,744,426
Shares issued pursuant to
share subscription agreement [3] 10,221,621 2,466,051
Shares issued, not yet paid
for [4] - 880,000
Expenses paid for in shares
and warrants [5] 305,000 150,000
---------------- ---------------
27,883,241 14,911,811
================ ===============
[1] Details of shares issued to employees and former employees,
upon the exercise of their employee options, are as follows:
Exercise Number of shares issued
Date options price of during year ended 31 December
exercised options
-------------- ---------- ---------------------------------
2021 2020
---------------- ---------------
22 January
2020 $ 0.10 - 138,000
14 August
2020 $ 0.10 - 200,000
11 January
2021 $ 0.10 220,000 -
16 February GBP 0.12 6,667 -
2021
11 October
2021 $ 0.10 480,000 -
---------------- ---------------
706,667 338,000
================ ===============
The amount received by the Company upon the exercise of these
options during the year ended 31 December 2021 was $71,113, (2020:
$33,800) - see Note 15.A. for further details related to the
employee options.
[2] Details of the equity raises are as follows:
September 2021 equity raise
In September 2021 the Company issued 13,149,943 shares attached
to 13,149,943 warrants. Each share and attached warrant were issued
for GBP0.35, realising gross proceeds of $6.25 million (GBP4.6
million) and net proceeds after issuance expenses of approximately
$5.85 million (GBP4.3 million).
Each warrant is exercisable at GBP0.60 ("GBP0.60 warrants") with
a life term of 18 months. The warrants are not transferable, are
not traded on an exchange and have an accelerator clause. The
GBP0.60 warrants will be callable by the Company if the closing
mid-market share price of the Company exceeds GBP0.80 over a
5-consecutive day period, within 12 months of the issuance date. If
such 5-consecutive day period condition is met, the Company may
serve notice on the warrant holders to exercise their relevant
warrants within 7 calendar days, failing which, such remaining
unexercised warrants shall be cancelled.
As the exercise price of the warrants is denominated in GBP and
not in the Company's functional currency, it was determined that
the Company's obligation under such warrants cannot be considered
as an obligation to issue a fixed number of equity instruments in
exchange for a fixed amount of cash. Accordingly, it was determined
that such warrants represent a derivative financial liability
required to be accounted for at fair value through the profit or
loss category. Upon initial recognition the Company allocated the
gross proceeds as follows: an amount of approximately $1.59 million
was allocated as a derivative warrants liability with the remainder
of the proceeds amounting to $4.40 million (after deduction of the
allocated issuance costs of $376,000) being allocated to share
capital and share premium. The issuance expenses were allocated in
a consistent manner to the above allocation. The expenses related
to the warrant component were carried to profit or loss as an
immediate expense while the expenses related to the share capital
component were netted against the amount carried to equity. In
subsequent periods the company measures the derivative financial
liability at fair value and the periodic changes in fair value are
carried to profit or loss under financing costs or financing
income, as applicable. The fair value of the derivative warrant
liability is categorised as level 3 of the fair value
hierarchy.
The fair value valuation of the warrants was based on the
Black-Scholes option pricing model, calculated in two stages.
Initially, the fair value of these call warrants issued to
investors were calculated, assuming no restrictions applied to such
call warrants. As the Company, under certain circumstances, has a
right to force the investors to either exercise their warrants or
have them cancelled, the second calculation calculates the value of
the warrants as call warrants that were issued by the investor to
the company. The net fair value results from reducing the call
investor warrants fair value from the call warrants fair value, as
long as the intrinsic value of the call warrants (share price at
year end less exercise price of the warrants) is not greater than
such value. Should the intrinsic value of the warrants be higher
than the Black-Scholes two stage method described above, then the
intrinsic value of the warrants is considered to be a more accurate
measure to use in determining the fair value. The following factors
were used in calculating the fair value of the warrants at their
issuance:
Weighted average Risk
Share price Exercise free
Instrument Term at issuance price rate Volatility
0.60p option 18 months GBP0.519 GBP 0.60 0.19% 81.3%
0.80p option 12 months GBP0.519 GBP 0.80 0.08% 77.6%
Of the 13,149,943 shares and 13,149,943 warrants subscribed for,
the director's participation in this issuance was 253,431 shares
and 253,431 GBP0.60 warrants, on the same terms as outside
investors participated.
None of the GBP0.60 warrants had been exercised by 31 December
2021 and their fair value of $1.2 million at such date is disclosed
as a warrants liability in the statement of financial position,
Upon this successful equity raise being concluded in September
2021, the brokers for this transaction received 257,929 three year
warrants exercisable at GBP0.35 per warrant ("Broker Warrants").
The fair-value of these warrants at the time of issuance was
approximately $113,190. As at 31 December 2021, none of these
warrants have been exercised.
July 2020 equity raise
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 GBP0.24 (GBP0.12 per share and attached warrant),
realising gross proceeds of $1,103,069 (GBP880,000) and net
proceeds after issuance expenses of approximately $999,000
(GBP827,500).
Every 2 warrants were comprised of 1 warrant exercisable at
GBP0.20 ("GBP0.20 warrants") and 1 warrant exercisable at GBP0.30
("GBP0.30 warrants"), both with a life term of 12 months. The
warrants are not transferable and are not traded on an exchange.
The warrants have an accelerator clause. The GBP0.20 warrants will
be callable by the Company if the closing mid-market share price of
the Company exceeds GBP0.30 over a 5-consecutive day period. The
GBP0.30 warrants will be callable by the Company if the closing
mid-market share price of the Company exceeds GBP0.40 over a
5-consecutive day period. If such 5-consecutive day period
condition is met, the Company may serve notice on the warrant
holders to exercise their relevant warrants within 7 calendar days,
failing which, such remaining unexercised warrants shall be
cancelled.
As the exercise price of the warrants is denominated in GBP and
not in the Company's functional currency, it was determined that
the Company's obligation under such warrants cannot be considered
as an obligation to issue a fixed number of equity instruments in
exchange for a fixed amount of cash. Accordingly, it was determined
that such warrants represent a derivative financial liability
required to be accounted for at fair value through the profit or
loss category. Upon initial recognition the Company allocated the
gross proceeds as follows: an amount of approximately $82,000 was
allocated as derivative warrants liability with the remainder of
the proceeds amounting to $917,000 (after deduction of the
allocated issuance costs of $104,000) being allocated to share
capital and share premium. The issuance expenses were allocated in
a consistent manner to the above allocation. The expenses related
to the warrant component were carried to profit or loss as an
immediate expense while the expenses related to the share capital
component were netted against the amount carried to equity. In
subsequent periods the company measures the derivative financial
liability at fair value and the periodic changes in fair value are
carried to profit or loss under financing costs or financing
income, as applicable. The fair value of the derivative warrant
liability is categorised as level 3 of the fair value
hierarchy.
The fair value valuation of the warrants was based on the
Black-Scholes option pricing model, calculated in two stages.
Initially, the fair value of these call warrants issued to
investors were calculated, assuming no restrictions applied to such
call warrants. As the Company, under certain circumstances, has a
right to force the investors to either exercise their warrants or
have them cancelled, The second calculation calculates the value of
the warrants as call warrants that were issued by the investor to
the company. The net fair value results from reducing the call
investor warrants fair value from the call warrants fair value, as
long as the intrinsic value of the call warrants (share price at
year end less exercise price of the warrants) is not greater than
such value. Should the intrinsic value of the warrants be higher
than the Black-Scholes two stage method described above, then the
intrinsic value of the warrants is considered to be a more accurate
measure to use in determining the fair value. The following factors
were used in calculating the fair value of the warrants at their
issuance:
Trigger
Exercise price
price Risk for call
Share price for call free investor
Instrument Term at issuance warrants rate Volatility warrants
0.20p option 1 year GBP 0.135 GBP 0.20 0.16% 66.3% GBP 0.30
0.30p option 1 year GBP 0.134 GBP 0.30 0.17% 66.3% GBP 0.40
Of the 7,333,334 shares and 7,333,334 warrants subscribed for,
the directors' participation in this issuance was 1,666,668 shares,
833,334 GBP0.20 warrants and 833,334 GBP0.30 warrants, on the same
terms as outside investors participated.
During December 2020, the accelerator clause for the GBP0.20
warrants had been activated by the Company and 3,491,676 of these
warrants were exercised for which the Company issued the same
number of shares, while 174,991 warrants not exercised were
cancelled in terms of the Warrant Instrument. The Directors
exercised all their GBP0.20 warrants held.
Upon this successful equity raise being concluded in July 2020,
the broker for this transaction received 252,750 one-year warrants
exercisable at GBP0.12 per warrant ("Broker Warrants"). The
fair-value of these warrants at the time of issuance was
approximately $13,000. As at 31 December 2020, all these warrants
have been exercised. See Note 15.E.b.
The total amount received by the Company upon the exercise of
the GBP0.20 warrants and the Broker Warrants was approximately
$0.99 million. Such amount, together with the fair value of the
warrants derivative liability was recognised within the equity upon
exercise of the warrants totaling an amount of $1.63 million.
None of the GBP0.30 warrants had been exercised by 31 December
2020 and their fair value of $286,253 at such date is disclosed as
a warrants liability in the statement of financial position. The
intrinsic value of the GBP0.30 warrants is higher than the fair
value calculated using the Black-Scholes two stage method described
above. Accordingly, these warrants are fair valued at their
intrinsic value, being GBP0.06 per warrant (GBP0.36 share price at
31 December 2020 less the GBP0.30 exercise price).
In May 2021 the accelerator clause for the GBP0.30 warrants was
activated by the Company and 3,500,010 of these warrants were
exercised for which the Company issued the same number of shares,
while 166,657 warrants not exercised, were cancelled. The Directors
exercised all their GBP0.30 warrants held.
The total amount received by the Company upon the exercise of
the GBP0.30 warrants was approximately $1.45 million. Such amount,
together with the fair value of the warrants derivative liability
was recognised within the equity upon exercise of the warrants
totaling an amount of $2.01 million.
[3] On 24 September 2020 the Company entered into a share
subscription deed / agreement ("SSD") with an institutional
investor ("Investor"), to raise up to GBP3,200,000 (Approx.
$4,100,000) as follows:
Amount Date that
Subscription receivable amount was
Closing Closing date amount by Company received
1(st) Up to 5 business days
following execution 25 Sep.
of the SSD GBP 547,000 GBP 500,000 2020
2(nd) Up to 240 calendar
days following the 31 Dec.
1(st) closing date GBP 438,000 GBP 400,000 2020
-------------- --------------
Amounts received until
31 December 2020 GBP 985,000 GBP 900,000
3(rd) Up to 240 calendar
days following the
2(nd) closing date GBP 438,000 GBP 400,000 4 Mar. 2021
4(th) Up to 240 calendar
days following the 16 Apr.
3(rd) closing date GBP 438,000 GBP 400,000 2021
30 April
5(th) By mutual agreement GBP 823,500 GBP 750,000 2021
6(th) By mutual agreement GBP 823,500 GBP 750,000 1 Nov. 2021
-------------- --------------
Amounts received until GBP 3,508,000 GBP 3,200,000
31 December 2021
============== ==============
According to the subscription agreement, the company is entitled
to terminate the agreement (with respect to any subscription amount
not yet closed), upon payment of a cancellation fee of $48,000.
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,
yet the Investor is entitled to exclude from such cash payment, up
to 30% of the cash settlement amount.
As the company's obligation under the share subscription
agreement with respect for each subscription amount received by the
company, represent an obligation to be settled through the issuance
of variable number of shares and as the agreements include several
embedded derivatives (such as early prepayment options, principal
amounts indexed to an average price of equity instrument) the
company has designated this obligation as financial liability at
fair value through profit or loss under "liability related to share
subscription agreement".
Accordingly, upon initial recognition and at each reporting
period the liability is measured at fair value with changes carried
to profit or loss under financing costs or financing income, as
applicable.
Upon settlement or a partial settlement of such liability, such
when the investor calls for the settlement of the aggregate
subscription amount outstanding (or any part of it), for a fixed
number of shares, as calculated upon such settlement notice, the
fair value of the liability, related to the settled portion is
carried to equity.
The fair value of the liability related to share subscription
agreement is categorised as level 3 of the fair value hierarchy.
See Note 25.B.
Activity for year ending 31 December 2020
As at 31 December 2020, this liability was comprised of:
Total fair value
of liability
Fair value
of 30% portion
70% of that Investor
Unconverted which could can convert
portion be repaid into shares
of subscription by the at Conversion
Closing amount Company Price GBP USD
1(st) GBP 107,000 GBP 74,900 GBP 46,104 GBP 121,004 $ 165,299
2(nd) GBP 438,000 GBP 306,600 GBP 188,724 GBP 495,324 $ 676,645
----------
$ 841,944
==========
The Investor paid $648,417 (GBP500,000) to the Company by
subscribing for an initial amount of $709,368 (GBP547,000), part of
which was converted as follows:
Amount converted
-------------------- ------------------- ----------
Shares
Date of conversion GBP USD Issued
-------------------- --------- -------- ----------
18 December
Conversion 2020 250,000 330,416 1,184,834
31 December
Conversion 2020 190,000 257,888 826,087
----------
2,010,921
The Company paid the
Investor an initial
funding fee which
was converted into 25 September
shares 2020 71,000 90,000 455,130
----------
2,466,051
==========
On 31-December 2020 the Investor subscribed for the second
subscription amount of $546,426 (GBP400,000) with a face value of
$598,337 (GBP438,000).
Pursuant to the SSD as described above, the Investor converts
subscription amounts into shares of the Company at a discounted
price. Upon each conversion, the difference between the actual
market value of shares issued to the Investor and the amount
converted, is recorded in finance costs, which in 2020 amounted to
$347,388.
Activity for year ending 31 December 2021
During 2021, the Investor subscribed for a further $3.18 million
(GBP2.30 million), with a total face value of $3.49 million
(GBP2.52 million).
The Investor converted all remaining outstanding subscription
amounts during 2021 as follows, thereby bringing the relationship
to a conclusion, without any balances remaining as at 31 December
2021:
Amount converted
--------------------------- -------------------- --------------
Notice date of conversion GBP USD Shares Issued
--------------------------- -------- ---------- --------------
16 April 2021 500,000 689,250 1,805,054
28 April 2021 600,000 834,240 2,033,898
19 October 2021 400,000 515,616 1,307,190
3 November 2021 744,500 1,004,439 2,433,007
9 November 2021 823,500 1,098,983 2,642,472
10,221,621
==============
Pursuant to the SSD as described above, the Investor converts
subscription amounts into shares of the Company at a discounted
price. Upon each conversion, the difference between the actual
market value of shares issued to the Investor and the amount
converted, is recorded in finance costs, which in 2021 amounted to
$1,642,492.
[4] 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 $196,259, representing the fair
value of the investor's obligation to payment for the shares under
the caption "proceeds due on account of shares issued" - see Note
7. As the contractual terms of such financial asset do not create
an entitlement to cash flows on specified dates that are solely
payment of principal and interest, the financial asset was
classified to measurement at fair value through profit or loss. As
at 31 December 2020 the fair value of this asset was valued at
$301,658 calculated by using the Conversion Price at that date of
GBP0.251. The difference between the fair value recognised upon
initial recognition and as at 31 December, 2020 was carried to
profit or loss as financing income.
The Investor paid for these shares in April 2021 using the then
applicable Conversion Price of GBP0.292 for proceeds of
approximately $356,000. The approximately $55,000 difference
between the fair value as at 31 December, 2020 and the fair value
upon payment for these shares, was carried to profit or loss as
financing income.
[5] In December 2020, the company agreed to settle amounts due
to two directors in lieu of their directors fees amounting to
approximately $83,000 through the issuance of 305,000 ordinary
shares of the company. The company issued the shares in January
2021- See Notes 15.E.d and 27D.
In June 2020, an advisor was contracted to provide investment
advisory services to the Company and received 150,000 shares as
part payment for their fees. The fair value of these shares at the
time of issuance was approximately $39,300. The advisor also
received 100,000 three year warrants exercisable at GBP1.00,
vesting at the rate of 16,667 warrants every six months. The
contract was terminated after 16,667 warrants had vested. The fair
value of such warrants was approximately $700. See also Note 15.E.a
below.
NOTE 1 5 - SHARE-BASED COMPENSATION
A. In 2013 the Company's Board of Directors approved a share
option plan for the grant of options without consideration, to
employees, consultants, service providers, officers and directors
of the Company. The options are exercisable into the Company's
ordinary shares of NIS 0.01 par value. The exercise price and
vesting period (generally four years) for each grantee of options,
is determined by the Company's Board of Directors and specified in
such grantee's option agreement. In accordance with Section 102 of
the Israel tax code, the Israeli resident grantee's options, are
held by a trustee. The options are not cashless (they need to be
paid for) and expire upon the expiration date determined by the
Board of Directors (generally ten years from the date of the
grant). The expiration date may be brought forward, upon the
termination of grantee's employment or services to the Company.
Options do not vest after the termination of employment or services
to the Company. Options are not entitled to dividends.
The following table summarises the salient details and values
regarding the options granted (all amounts are in US Dollars unless
otherwise indicated):
Option grant dates
23 Nov 18 Mar 19 Nov 19 Nov 28 Jul 6 Jul
2021 2021 2020 2020 2020 2020
Number of options
granted 486,000 240,000 * 470,000 200,000 104,000 240,000
Exercise price in
$ 0.598** 0.461 0.265 0.271 0.158 0.256
Recipients of the Employees Employees Employees Employees Employees Employees
options
Approximate fair value
at grant date (in
$):
Total benefit 122,161 47,198 57,773 24,194 16,047 27,084
Per option benefit 0.25 0.20 0.12 0.12 0.15 0.11
Assumptions used in
computing value:
Risk-free interest
rate 1.67% 1.71% 0.88% 0.88% 0.59% 0.69%
Dividend yield 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Expected volatility 35% 35% 35% 35% 35% 35%
Expected term (in
years) 8.7 9.4 10 10 10 10
Expensed amount recorded
for year ended:
31 December 2020 - - 3,274 13,373 6,770 11,832
31 December 2021 11,880 14,780 26,008 7,162 5,338 7,566
The remaining value of these options at 31 December 2021 which
have yet to be recorded as expenses, amount to $160,991 (2020:
$71,783).
As some of these employees left the employ of the company prior
to 31 December 2021, their options were cancelled.
* 100,000 options were granted to the CFO who is also a director
in the Company.
** Average exercise price. High - $0.715. Low - $0.434
Share based compensation was treated in these financial
statements as follows:
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
---------- ------------
Total expensed amount recorded 77,583 18,209
Total capitalised amount recorded - (97,844)
Total 77,583 (79,635)
========== ============
The following tables present a summary of the status of the
employee option grants by the Company as of 31 December 2021 and
2020:
Weighted
average
exercise
Number price (US$)
--------- -----------
Year ended 31 December 2021
Balance outstanding at beginning of year 3,140,920 0.18
Granted 726,000 0.55
Exercised (706,667) 0.10
Forfeited (208,333) 0.31
Balance outstanding at end of the year 2,951,920 0.27
========= ===========
Balance exercisable at the end of the
year 1,810,753
=========
Weighted
average
exercise
Number price (US$)
--------- -----------
Year ended 31 December 2020
Balance outstanding at beginning of year 3,095,920 0.43
Granted 1,014,000 0.22
Exercised (338,000) 0.10
Forfeited (631,000) 1.25
Balance outstanding at end of the year 3,140,920 0.18
========= ===========
Balance exercisable at the end of the
year 2,203,170
=========
B. The option pool was increase to 6,500,000 options by
resolution on 16 December 2021 and approved by the tax
authorities.
C. The following table summarises information about employee
options outstanding at 31 December 2021:
Weighted Weighted
Outstanding average Weighted Exercisable average
at 31 remaining average at 31 remaining
Exercise December contractual exercise December contractual
price 2021 life (years) price (US$) 2021 life (years)
-------- ----------- ------------ ----------- ----------- ------------
$0.10 1,128,920 1.5 0.10 1,128,920 1.5
$0.20 129,000 5.2 0.20 129,000 5.2
GBP0.12 73,000 8.6 0.16 48,667 8.6
GBP0.20 370,000 8.9 0.26 123,333 8.9
GBP0.21 210,000 8.5 0.26 87,500 8.5
GBP0.21 200,000 8.9 0.27 133,333 8.9
GBP0.33 175,000 8.6 0.46 - 8.6
GBP0.45 486,000 8.6 0.60 - 8.6
GBP1.05 40,000 5.2 1.28 40,000 5.2
GBP1.40 30,000 5.7 1.83 30,000 5.7
GBP1.00 60,000 6.5 1.32 45,000 6.5
GBP1.00 50,000 7.6 1.25 45,000 7.6
2,951,920 1,810,753
=========== ===========
The following table summarises information about employee
options outstanding at 31 December 2020:
Weighted Weighted
Outstanding average Weighted Exercisable average
at 31 remaining average at 31 remaining
Exercise December contractual exercise December contractual
price 2020 life (years) price (US$) 2020 life (years)
-------- ----------- ------------ ----------- ----------- ------------
$0.10 1,828,920 2.5 0.10 1,828,920 2.5
$0.20 129,000 6.2 0.20 101,750 6.2
GBP0.12 93,000 7.5 0.16 - 7.5
GBP0.20 470,000 7.8 0.26 - 7.8
GBP0.21 210,000 9.5 0.26 35,000 9.5
GBP0.21 200,000 9.9 0.27 100,000 9.9
GBP1.05 40,000 6.2 1.28 30,000 6.2
GBP1.43 30,000 0.1 1.84 22,500 0.1
GBP1.40 30,000 6.7 1.83 22,500 6.7
GBP1.00 60,000 7.5 1.32 30,000 7.5
GBP1.00 50,000 8.6 1.25 32,500 8.6
3,140,920 2,203,170
=========== ===========
The fair value of options granted to employees was determined at
of the date of each grant. The fair value of the options granted
are expensed in the profit and loss, except for those that were
allocated to capitalised research and development costs (up to and
including 30 June 2019).
D. Options issued to the IPO broker
Upon the IPO consummation the Company issued five-year options
to the IPO broker to purchase up to 162,591 shares of the Company
at an exercise price of GBP1.40. These options were valued at
approximately $121,000 with the Black Scholes option model, using
the assumptions of a risk-free rate of 1.82% and volatility of 46%.
The options may only be exercised after 28 June 2018. As described
in Note 3.U., costs incurred in raising equity finance were applied
as a reduction from those equity sale proceeds and is recorded in
Other Components of Equity. As of December 31, 2021, such warrants
had not been exercised and expire on 29 June 2022.
E. Shares and equity instruments issued in lieu of payment for services provided
a. In June 2020, an investment advisory firm was contracted to
provide services to the Company and was issued 150,000 shares and
100,000 warrants vesting in 6 month increments over 3 years. This
contract was terminated prior to its first anniversary. 16,667
warrants had exercised prior the contract being terminated, with
the balance of the warrants being cancelled. The fair value of the
shares and warrants issued was approximately $40,000. The amount
relating to the shares issued was allocated to share capital and
share premium, while the warrant's fair value for the warrants that
were exercised, was allocated to share capital - see Note
14.F.[5].
b. Upon the successful equity raise concluded in July 2020, as
described in Note 14.F.[2], the broker responsible for this
transaction received 252,750 one-year warrants exercisable at
GBP0.12 per warrant. The fair-value of these warrants at the time
of issuance was approximately $13,000. As at 31 December 2020, all
these warrants have been exercised.
c. In September 2020 the Company entered into a share
subscription agreement as described in Note 14.F.[3]. The Company
was obliged to pay the Investor a funding fee equivalent to
$90,000, paid by issuing the Investor with 455,130 shares
calculated at the contract Conversion Price. The fair value of
these shares issued was approximately $99,500 which was initially
recorded as prepaid financing costs, which are to be amortised over
the expected period of this agreement. As at 31 December 2020
approx. $23,000 had been amortised to finance expenses with the
balance of approx. $67,000 reflected as prepaid finance costs.
d. In December 2020, the company agreed to settle amounts due to
two directors in lieu of their directors fees amounting to
approximately $83,000 through the issuance of 305,000 ordinary
shares of the company. The company issued the shares in January
2021- See Notes 14.F.5. and 27.D.
e. Upon the successful equity raise concluded in September 2021,
as described in Note 14.F.[2], the brokers responsible for this
transaction received 257,929 three-year warrants exercisable at
GBP0.35 per warrant. The fair-value of these warrants at the time
of issuance was approximately $113,000. As at 31 December 2021,
none of these warrants have been exercised.
NOTE 1 6 - REVENUE
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
----------- -----------
Sales and royalties 2,477,087 1,715,399
Maintenance and support 158,333 138,333
Total revenue 2,635,420 1,853,732
=========== ===========
NOTE 1 7 - RESEARCH AND DEVELOPMENT EXPENSES
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
----------- -----------
Employee remuneration, related costs and
subcontractors (*) 4,435,744 2,977,774
Maintenance of software and computers 115,149 90,597
Insurance and other expenses 31,874 11,475
Amortisation 961,380 952,606
Grant procurement expenses 6,765 5,452
----------- -----------
Total research and development expenses 5,550,912 4,037,904
=========== ===========
(*) Including share based compensation. 54,962 6,783
=========== ===========
NOTE 1 8 - GENERAL AND ADMINISTRATIVE EXPENSES
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
----------- -----------
Employee remuneration and related costs (*) 581,776 406 ,022
Professional fees 510,295 538,159
Rentals and maintenance 289,786 256,156
Depreciation 259 ,843 311,873
Travel expenses 173 3,869
Impairment losses of trade receivables 80,000 75,000
Total general and administrative expenses 1,721 ,873 1,591,079
=========== ===========
(*) Including share based compensation. 10,750 11,168
=========== ===========
NOTE 19 - MARKETING EXPENSES
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
------------ ----------
Employee remuneration and related costs (*) 833,896 624,451
Marketing expenses 203,930 449,609
Travel expenses 7,079 8,500
------------ ----------
Total marketing expenses 1,044,905 1,082,560
============ ==========
(*) Including share based compensation. 11,871 258
============ ==========
NOTE 2 0 - OTHER INCOME
As described in Note 3.K, when a government grant is related to
an expense item, it is recognised as other income.
NOTE 2 1 - FINANCING COSTS
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
------------ ----------
Bank fees and interest 32,147 23,253
Lease liability financial expenses 30 ,195 15,634
Revaluation of liability related to share
subscription agreement measured at FVTPL 2,884,254 571 ,423
Revaluation of warrant derivative liability - 852,430
Expenses allocated to issuing warrants 127,856 -
Total financing costs 3,074,452 1,462,740
============ ==========
NOTE 2 2 - FINANCING INCOME
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
----------- -----------
Revaluation of proceeds due on account of
shares (financial asset measured at FVTPL) 49,723 105,399
Revaluation of warrant derivative liability 108,723 -
Lease liability financial income 8,929 -
Interest received 41 63,059
Exchange rate differences, net 60 ,988 129,558
----------- -----------
Total financing income 228,404 298,016
=========== ===========
NOTE 2 3 - TAX EXPENSE
A. The Company is assessed for income tax in Israel - its
country of incorporation. The Israeli corporate tax rates for the
relevant years is 23%.
B. As of 31 December 2021, the Company has carry-forward losses
for Israeli income tax purposes of approximately $23 million.
According to management's estimation of the Company's future
taxable profits, it is no longer probable in the foreseeable
future, that future taxable profits would utilise all the tax
losses.
C. Deferred taxes
US dollars
------------------------------------------
Year ended 31 December
------------------------------------------
Utilisation
Origination of
and reversal previously Total
recognised tax
of temporary loss Deferred tax
differences carry-forwards expense
------------ -------------- ------------
Balance at 1 January
2020 186,772 - 186,772
Deductions - - -
------------ -------------- ------------
Balance at 31 December
2020 186,772 - 186,772
Deductions (186,772) - (186,772)
Balance at 31 December - - -
2021
============ ============== ============
D. Theoretical tax reconciliation
For the years ended 31 December 2021 and 2020, the following
table reconciles the expected tax expense (benefit) per the
statutory income tax rate to the reported tax expense in profit or
loss as follows:
US dollars
--------------------------
Year ended 31 December
--------------------------
2021 2020
------------ ------------
Loss before tax 9,360,295 6,253,653
Tax expense (benefit) at statutory rate 23% 23%
------------ ------------
Expected tax expense (benefit) at statutory
rate (2,152,868) (1,438,340)
Changes in taxes from permanent differences
in share-based compensation 17,844 (18,316)
Increase in loss carryforwards - not affecting
the deferred tax asset 2,135,024 1,456,656
Income tax expense 186,772 -
============ ============
NOTE 2 4 - BASIC AND DILUTED LOSS PER ORDINARY SHARE
A. The earnings and the weighted average number of shares used
in computing basic loss per ordinary share, are as follows:
US dollars
--------------------------
Year ended 31 December
--------------------------
2021 2020
------------ ------------
Loss for the year attributable to ordinary
shareholders (9,360,295) (6,253,653)
============ ============
Number of shares
------------------------
Year ended 31 December
------------------------
2021 2020
----------- -----------
Weighted average number of ordinary shares
used in the computation of basic loss
per ordinary share 67,492,412 36,590,988
=========== ===========
B. As the Company has losses attributable to the ordinary
shareholders, the effect on diluted loss per ordinary share is
anti-dilutive.
NOTE 2 5 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A. Financial risk management risk
The activity of the Company exposes it to a variety of financial
risks and market risks. The Company re-assesses the financial risks
in each period and makes appropriate decisions regarding such
risks. The risks are managed by Company management which
identifies, assesses and hedges against the risks.
-- Exposure to changes in exchange rates
The Company is exposed to risks relating to changes in the
exchange rate of the NIS and other currencies versus the U.S.
dollar (which constitutes the Company's functional currency). Most
of the revenues of the Company are expected to be denominated in US
dollars, while the substantial majority of its expenses are in
shekels (mainly payroll expenses). Therefore, a change in the
exchange rates may have an impact on the results of operations of
the Company.
Currency basis of financial instruments
US dollars
-----------------------------------------------------
31 December 2021
-----------------------------------------------------
NIS GBP Euro US $ Total
----------- --------- ----- --------- ---------
Assets
Cash and cash equivalents 614,344 5,817,800 6,638 622,042 7,060,824
Trade receivables 424,685 - - 1,120,913 1,545,598
1,039,029 5,817,800 6,638 1,742,955 8,606,422
Liabilities
Short term borrowings 422,633 - - - 422,633
Trade payables 518,745 17,279 5,659 110,075 651,758
Warrants liability - 1,214,993 - - 1,214,993
Non-current lease liabilities 3,069,721 - - - 3,069,721
4,011,099 1,232,272 5,659 110,075 5,359,105
(2,972,070) 4,585,528 979 1,712,880 3,327,317
=========== ========= ===== ========= =========
US dollars
-------------------------------------------------
31 December 2020
-------------------------------------------------
NIS GBP Euro US $ Total
--------- --------- ----- ------- ---------
Assets
Cash and cash equivalents 372,750 1,651,352 4,223 152,401 2,180,726
Trade receivables - - - 778,061 778,061
372,750 1,651,352 4,223 930,462 2,958,787
Liabilities
Short term borrowings 411,726 - - - 411,726
Trade payables 130,330 101,628 - 58,217 290,175
Liability related to
share subscription agreement - 841 ,944 - - 841 ,944
Warrants liability - 286,253 - - 286,253
Non-current lease liabilities 146,130 - - - 146,130
688,186 1,229,825 - 58,217 1,976,228
(315,436) 421,527 4,223 872,245 982,559
========= ========= ===== ======= =========
-- Sensitivity to changes in exchange rates of the NIS and other currencies to the US dollar
A change in the exchange rate of the NIS and other currencies to
the USD as of the dates of the relevant statement of financial
position, at the rates set out below, which according to Management
are reasonably possible, would increase (decrease) the profit and
loss by the amounts set out below. The analysis below was performed
under the assumption that the rest of the variables remained
unchanged.
US dollars
-----------------------------------------------------------------
Sensitivity to changes in exchange rates
of the non US dollar currencies to the
US dollar
-----------------------------------------------------------------
Effect on profit Effect on profit
(loss)/equity (before (loss)/equity (before
tax) from the changes tax) from the changes
caused by the market caused by the market
factor Book value factor
------------------------ ----------- ------------------------
Increase at the Decrease at the
rate of 31 December rate of
------------------------ ----------- ------------------------
10% 5% 2021 5% 10%
----------- ----------- ----------- ------------ ----------
Cash and cash equivalents (643,878) (321,939) 6,438,782 321,939 643,878
Trade receivables (42,469) (21,234) 424,685 21,234 42,469
Short term borrowings 42,263 21,132 (422,633) (21,132) (42,263)
Trade payables 54,168 27,084 (541,683) (27,084) (54,168)
Warrants liability 87,298 43,649 (872,977) (43,649) (87,298)
Non-current lease
liabilities 306,972 153,486 (3,069,721) (153,486) (306,972)
Total (195,646) (97,822) 1,956,453 97,822 195,646
=========== =========== =========== ============ ==========
US dollars
-----------------------------------------------------------------
Sensitivity to changes in exchange rates
of the non US dollar currencies to the
US dollar
-----------------------------------------------------------------
Effect on profit Effect on profit
(loss)/equity (before (loss)/equity (before
tax) from the changes tax) from the changes
caused by the market caused by the market
factor Book value factor
------------------------ ----------- ------------------------
Increase at the Decrease at the
rate of 31 December rate of
------------------------ ----------- ------------------------
10% 5% 2020 5% 10%
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents (202,833) (101,416) 2,028,325 101,416 202,833
Short term borrowings 41,173 20,586 (411,726) (20,586) (41,173)
Trade payables 23,196 11,598 (231,958) (11,598) (23,196)
Liability related
to share subscription
agreement 84,194 42,097 (841,944) (42,097) (84,194)
Warrants liability 28,625 14,313 (286,253) (14,313) (28,625)
Non-current lease
liabilities 14,613 7,307 (146,130) (7,307) (14,613)
Total (11,032) (5,515) 110,314 5,515 11,032
=========== =========== =========== =========== ===========
-- Credit risk
All of the cash and cash equivalents and other short-term
financial assets as of 31 December, 2021 and 2020 were deposited
with one of the major banks in Israel.
Trade receivables as of 31 December 2021 and 2020 were from
customers in Israel, the U.S., Asia and countries of the European
Union, which included the major customers as detailed in Note 26.
The Company performs ongoing reviews of the credit worthiness of
customers, the amount of credit granted to customers and the
possibility of loss therefrom. The Company includes an adequate
allowance for impairment losses (expected credit loss). As at 31
December 2021, more than 90% of net trade receivables were less
than 90 days old.
-- Trade receivables
IFRS 9 provides a simplified model of recognising lifetime
expected credit losses for all trade receivables as these items do
not have a significant financing component.
In measuring the expected credit losses, the trade receivables
have been assessed by management on a collective basis as well as
on a case by case basis. Trade receivables are written off when
there is no reasonable expectation of recovery. Management have
indicated a concern regarding the receivable from one customer, for
which a provision has been made. As at 31 December 2021, the
provision for expected credit losses was $230,000 (2020: $150,000)
- see Note 6 for more details.
Liquidity risk
The Company financed its activities from its operations, issuing
shares and warrants, shareholders' loans and short and long-term
borrowings from the bank. For further details on the Company's
liquidity, refer to Note 2. All the non-current liabilities at 31
December 2021 and 2020 were lease liabilities which are serviced
monthly. The short-term borrowings at 31 December 2021 and 2020 and
the trade payables and other current liabilities are expected to be
paid within 1 year. It is therefore not expected that the Company
will encounter difficulty in meeting its obligations associated
with financial liabilities that are settled by delivering cash or
another financial asset.
B. Fair value of financial instruments
General
The financial instruments of the Company include mainly trade
receivables and debit balances, credit from banking institutions
and others, trade payables and credit balances, IIA liability, and
balances from transactions with shareholders.
The principal methods and assumptions used in calculating the
estimated fair value of the financial instruments are as follows
(fair value for disclosure purposes):
Financial instruments included in current asset items
Certain instruments (cash and cash equivalents, other short-term
financial assets, trade receivables and debit balances) are of a
current nature and, therefore, the balances as of 31 December, 2021
and 2020, approximate their fair value.
Financial instruments included in current liability items
Certain instruments (credit from banking institutions and
others, trade payables and credit balances, suppliers and service
providers and balances with shareholders) - in view of the current
nature of such instruments, the balances as at 31 December, 2021
and 2020 approximate their fair value. Other instruments are
measured at fair value through profit or loss.
Financial instruments' fair value movements
The reconciliation of the carrying amounts of financial
instruments classified within Level 3 (based on unobservable
inputs) is as follows:
US dollars US dollars
--------------- --------------------------------
Financial Financial liabilities
asset
--------------- --------------------------------
Proceeds Liability
due on account related to
of shares share subscription Warrants
issued agreement liability
--------------- ------------------- -----------
Balance at 1 January 2020 - - -
Recognition in asset (liability) 196,259 (1,164,190) (82,251)
Revaluation Adjustment 105,399 (578,783) (267,976)
Exchange rate differences - (25,105) -
Issuance of shares - 926,134 -
Warrants exercised - - 63,974
--------------- ------------------- -----------
Fair Value at 31 December
2020 301,658 (841,944) (286,253)
Recognition in asset (liability) - (3,485,349) (1,585,751)
Proceeds received for shares
issued (355,818) - -
Revaluation Adjustment 49,723 62,193 108,724
Exchange rate differences 4,437 90,744 -
Issuance of shares - 4,174,356 -
Warrants exercised - - 548,287
Fair Value at 31 December
2021 - - (1,214,993)
=============== =================== ===========
Both the financial assets and the two types of financial
liabilities are measured at fair value through profit and loss.
Measurement of fair value of financial instruments
The following valuation techniques are used for instruments
categorised in Level 3:
Liability related to share subscription agreement
The fair value of the liability related to share subscription
agreement is categorised as level 3 of the fair value
hierarchy.
The liability is valued by adding:
- the number of shares that the Investor would receive from a
unilateral exchange for his outstanding subscription amount,
multiplied by the current share price of the Company, and
- the outstanding subscription amount that the Company may
choose to repay in cash amount.
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,
yet the Investor is entitled to exclude from such cash payment, up
to 30% of the cash settlement amount see Note 14.F.[3].
Warrants liability
This liability is valued at the fair value of the GBP0.60
warrants as described in detail in Note 14.F.[2]. Should the
Company's share price increase, then the warrants' fair value will
increase by a lower amount, as is inherent in the Black Scholes
option pricing model. In addition, as the Company has a "put"
warrant which is triggered under certain circumstances when the
Company's share price reaches GBP0.80, the value of the warrants
will not increase indefinitely for the 12 month period that the
"put" option is in place.
C. Capital management
The objectives of the Company's policy are to maintain its
ability to continue operating as a going concern with a goal of
providing the shareholders with a return on their investment and to
maintain a beneficial equity structure with a goal of reducing the
costs of capital. The Company may take different steps toward the
goal of preserving or adapting its equity structure, including a
return of equity to the shareholders and/or the issuance of new
shares for purposes of paying debts and for purposes of continuing
the research and development activity conducted by the Company. For
the purpose of the Company's capital management, capital includes
the issued capital, share premium and all other equity reserves
attributable to the equity holders of the Company.
NOTE 26 - SEGMENT REPORTING
The Company has implemented the principles of IFRS 8 ('Operating
Segments'), 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 from customers are divided into the
following geographical areas:
US dollars
------------------------
Year ended 31 December
------------------------
2021 2020
----------- -----------
Asia 598,858 335,000
Europe 130,000 -
Israel 760,559 262,119
United States 1,146,003 1,256,613
----------- -----------
2,635,420 1,853,732
=========== ===========
%
------------------------
Year ended 31 December
------------------------
2021 2020
----------- -----------
Asia 22.7% 18.1%
Europe 4.9% -
Israel 28.9% 14.1%
United States 43.5% 67.8%
----------- -----------
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.
The Company's revenues from major customers as a percentage of
total revenue was:
%
Year ended 31 December
-------------------------
2021 2020
------------ -----------
Customer A 29% 52%
Customer B 14% 13%
Customer C 14% 12%
Customer D 12% 7%
Customer E 10% 6%
------------ -----------
78% 89%
============ ===========
NOTE 2 7 - RELATED PARTIES
A. Founders
In April 2017, the employment agreement of the two founders of
the Company Mr. David Levi and Mr. Baruch Shavit, was amended, in
terms of which each of them, in addition to their salary, is
entitled to a performance bonus of 5% of the Company's annual
profit before tax. For each year, the bonus shall be capped at
$250,000 each. Such bonus is dependent on their continual
employment by the Company.
Each founder had an amount due to them for compensation
originating in prior years - see Note 12. These amounts were
settled during 2021.
One of the founders participated in the equity and warrant issue
in September 2021 as follows - see Note 14.F.[2].
Number of securities
purchased in September
2021 GBP amount paid
----------------------------------------------------- ----------------------------------
for shares and
GBP0.60
Founder Shares GBP0.60 warrants warrants
David Levi 253,431 253,431 88,701
The two founders participated in the equity and warrant issue in
July 2020 as follows - see Note 14.F.[2].
Number of securities
purchased in July 2020 GBP amount paid
------------------------------------------------------------------------ ----------------------------------------------------------------------
upon
for exercise upon
shares of exercise
and GBP0.20 of
GBP0.20 warrants GBP0.30
and in warrants
GBP0.20 GBP0.30 GBP0.30 December in May
Founder Shares warrants warrants warrants 2020 2021
David
Levi 1,333,334 666,667 666,667 160,000 133,334 200,000
Baruch
Shavit 333,334 166,667 166,667 40,000 33,333 50,000
----------------------- ---------------------- ----------------------- ---------------------- ---------------------- ----------------------
1,666,668 833,334 833,334 200,000 166,667 250,000
======================= ====================== ======================= ====================== ====================== ======================
B. Chief Financial Officer
Mr. Reichenberg, the CFO of the Company, received 109,000 ESOP
options on his appointment in March 2017, vesting over four years,
exercisable at $0.20 per option and with an expiration date in
March 2027.
In November 2020 Mr. Reichenberg received 100,000 ESOP options,
vesting over three years, exercisable at GBP0.20 per option and
with an expiration date in November 2030, the fair value of which,
amounted to $12,292 at the date of grant.
Mr. Reichenberg was initially appointed as a director of the
Company on 29 June 2017 and was reappointed on 22 June 2020.
C. Remuneration of key management personal including directors
for the year ended 31 December 2021
US dollars
--------------------------------------
Salary Share based
Name Position and benefits compe-nsation Total
------------- -------------- -------
Graham Woolfman
(1)(3) Non-Executive Chairman 6,912 - 6,912
Chief Executive Officer
David Levi (2) 237,510 - 237,510
Chief Financial Officer
Mark Reichenberg (2) 200,011 8,133 208,144
VP Research & Development
Shavit Baruch (2) 237,432 - 237,432
Neil Rafferty
(1) (4) Non Executive Director 51,268 - 51,268
Chen Saft-Feiglin
(1) Non Executive Director 18,327 - 18,327
Zohar Yinon (1) Non Executive Director 18,079 - 18,079
Joseph Albagli
(5) Non-Executive Chairman 26,615 16,625 43,240
------------- -------------- -------
796 ,155 24,758 820,912
------------- -------------- -------
(1) Independent director.
(2) Key management personnel as well as director. Long-term
employee benefits and termination benefits account for less than
12.5% of their salary and benefits.
(3) Resigned 17 November 2020, resignation effective from 18 February 2021.
(4) Resigned 1 December 2021.
(5) Appointed 10 March 2021. As part of the agreed compensation,
every month shares equal to the value of GBP1,250 are accrued. The
shares have not yet been allotted.
Remuneration of key management personal including directors for
the year ended 31 December 2020
US dollars
------------- -------------- -------
Salary Share based
Name Position and benefits compe-nsation Total
------------- -------------- -------
Graham Woolfman
(1)(3)(5) Non-Executive Chairman 44,469 44,510 88,979
Chief Executive Officer
David Levi (4) 206,320 - 206,320
Mark Reichenberg Chief Financial Officer
(1) (4) 145,564 8,791 154,355
VP Research & Development
Shavit Baruch (4) 206,321 - 206,321
Neil Rafferty (1)
(3) Non Executive Director 32,370 37,766 70,136
Chen Saft-Feiglin
(2) (3) Non Executive Director 15,928 - 15,928
Zohar Yinon (2)
(3) Non Executive Director 14,638 - 14,638
------------- -------------- -------
665,610 91,067 756,677
============= ============== =======
(1) Reappointed 22 June 2020.
(2) Reappointed with effect from 15 November 2020.
(3) Independent director.
(4) Key management personnel as well as director. Long-term
employee benefits and termination benefits account for less than
12.5% of their salary and benefits.
(5) Resigned 17 November 2020.
D. Directors' equity interests in the Company as at 31 December 202 1
Shares Options and warrants
----------- ---------------------------------------------------------
Name Unexercised
Direct Unexercised Unvested GBP0.60 Total options
holdings vested options options warrants and warrants
----------- ---------------- --------- ------------ --------------
David Levi 9,437,160 60,710 - 253,431 3 14,141
Shavit Baruch 5,091,667 60,710 - - 60,710
Mark Reichenberg - 142,333 66,667 - 209,000
14,833,827 263,753 66,667 253,431 583,851
----------- ---------------- --------- ------------ --------------
Directors' equity interests in the Company as at 31 December
2020
Shares Options and warrants
--------------------------------------- -------------------------------------------------------
Name Unexer-cised Unexer-cised Total
Direct Beneficial Total shares vested Unvested GBP0.30 options
holdings holdings held options options warrants and warrants
----------- ----------- ------------- ------------- --------- ------------- --------------
Graham Woolfman
* 10,715 10,715 - - - -
David Levi 8,767,900 - 8,767,900 60,710 - 666,667 727,377
Shavit Baruch 5,000,000 - 5,000,000 60,710 - 166,667 227,377
Mark Reichenberg
*** - - - 81,750 127,250 - 209,000
Neil Rafferty
** 7,143 - 7,143 - - - -
13,775,043 10,715 13,785,758 203,170 127,250 833,334 1,163,754
----------- ----------- ------------- ------------- --------- ------------- --------------
* 165,000 shares awarded 29 December 2020, issued 6 January 2021,
with a fair value of $44,510.
** 140,000 shares awarded 29 December 2020, issued 6 January
2021, with a fair value of $37,766.
*** 100,000 options granted 19 November 2020 with a fair value
of $12,292.
NOTE 2 8 - RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Lease Liabilities Short Term Total
Borrowings
------------------ ------------ ------------
1 January 2021 306,783 411,726 718,509
Cashflow
* Repayments (136,180) (887,585) (1,023,765)
* Proceeds - 900,192 900,192
Non-cash movement
* Terminations (130,120) - (130,120)
* Additions 3,158,849 - 3,158,849
* Exchange rate differences 40,739 (1,700) 39,039
------------------ ------------ ------------
31 December 2021 (*() 3,240,071 422,633 3,662,704
------------------ ------------ ------------
( *() Including current maturities of $266,531
Lease Liabilities Short Term Total
Borrowings
------------------ ------------ ------------
1 January 2020 458,431 1,012,731 1,471,162
Cashflow
* Repayments (151,648) (1,237,998) (1,389,646)
* Proceeds - 636,993 636,993
------------------ ------------ ------------
31 December 2020 (*() 306,783 411,726 718,509
------------------ ------------ ------------
( *() Including current maturities of $160,653
For financial liabilities to be settled through issuance of
ordinary shares see notes 14.F and 25B.
NOTE 29 - SUBSEQUENT EVENTS
On 25 February 2022, the Company entered into a share
subscription deed with 5G Innovation Leaders Fund LLC ("5G Fund"),
a U.S.-based institutional investor, in relation to the issue of
new ordinary NIS 0.001 shares ("Shares"), to raise $2,000,000. The
5G Fund made one investment of $2,000,000 for new Shares
("Subscription Shares") valued at $2,060,000. The investment under
the Agreement will be made by way of a prepayment for Subscription
Shares, to be issued, at 5G Fund's request, within 18 months of the
date of the prepayment. The number of Subscription Shares to be
issued will be determined by dividing the gross subscription amount
by the Settlement Price.
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END
FR UBUNRUSUSRAR
(END) Dow Jones Newswires
April 08, 2022 02:00 ET (06:00 GMT)
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