TIDMENET
RNS Number : 2047A
Ethernity Networks Ltd
22 September 2022
22 September 2022
ETHERNITY NETWORKS LTD
("Ethernity" or the "Company" or the "Group")
Interim results for the six months ended 30 June 2022
Ethernity Networks Ltd (AIM: ENET.L; OTCQB: ENETF), a leading
supplier of networking processing semiconductor technology ported
on FPGA (field programmable gate array) for virtualised networking
appliances, announces its interim results for the six months ended
30 June 2022.
Financial summary
-- Revenues lower than the comparable period by 26.22% to $704,853 (H1 2021: $955,371).
-- Gross margin lower by 29.23% at $428,761 over the comparable
period (H1 2021: $605,852) due to mix of product sales.
-- Gross margin percentage of 60.83% (H1 2021: 63.42%).
-- Net Comprehensive Loss for the period reduced by $897,216 to
$3,502,733 (H1 2021: $4,399,949).
-- Research and Development, General and Administrative, and
Marketing expenses (before amortisation, depreciation and IFRS
adjustments) increased by an overall 29.94% due mainly to the
planned increase in Research and Development resources.
-- EBITDA loss increased by 46.35% to $3,620,171 (H1 2021:
$2,473,686), driven by the increase in the planned Research and
Development costs.
-- Component inventories increased by $520,000 to $646,000 (H1
2021: $124,000) as the Company increased inventories on hand to
meet deliveries due to the effects of the ongoing worldwide
component shortages.
Current trading
Revenues to 31 August 2022 were 36% higher than the comparable
period of 2021, as a result of an increase in activity in the
second half of the year to date, with the July and August 2022
revenues being similar in value to the entire H1 2022 revenue.
The Company signed a new $4.6 million contract with an existing
customer, a broadband network OEM as a follow-on to a prior
contract, to supply system-on-chip (SoC) devices with support for
Gigabit Passive Optical Networking (GPON) Optical Line Termination
(OLT), adapted to enable Fiber-to-the-Room (FTTR) deployments.
Fiber-to-the-Room is a disruptive trend that is built on top of
the Fiber-to-the-Home market estimated by Global Industry Analysts
Inc. to reach $29.7 billion by 2026) and that uses passive optical
fiber to reach residential, retail and enterprise deployments.
Passive fiber optic deployments provide greater reliability and
performance than Wi-Fi and a greener and more power efficient
solution than traditional copper cabling. By bringing fiber into
the individual rooms of an apartment or small office, end users can
benefit from higher throughput with an unmatched level of service
to enable today's most data-hungry applications without
experiencing lags.
On 8 September 2022, the Company announced the commencement of
trading in the Company's ordinary shares ("Ordinary Shares") on the
OTCQB Venture Market ("OTCQB"), in the United States, under the
ticker symbol "ENETF". Cross trading on the OTCQB allows the
Company access to one of the world's largest investment markets to
expand its reach into a broader pool of investors. Ethernity's
shares are available to US investors during US working hours and
priced in US dollars, which has the potential to enable greater
liquidity in the Company's Ordinary Shares on AIM by easing
cross-border trading for potential US investors.
Company Strategy
The Company is operating in the competitive and growing Telecom
industry offering and delivering innovative semiconductor
technology, system platforms and differentiated offerings related
to the 5G infrastructure market all based on the Company's
semiconductor data processing technology, as patented programmable
technical innovations to accelerate the telco/cloud network, each
with its own set of rich networking and security features, to
address the requirements of various markets.
As they do not detract from our continued strategy, the
opportunities that are arising for the Company from the worldwide
component shortages as outlined further in this report will be
pursued, as they remain within the overall strategy.
The Management believes that the current signed contracts and
orders received and expected, along with the many other ongoing
customer discussions and potential opportunities, show that our
unique and value-added offerings can capture significant interest
in this market. With our main goal of becoming a supplier of
customised and differentiated system and SoC solutions, we have
elevated our offerings in the value chain. This focused and
comprehensive strategy allows us to capture multiple times more
revenue per unit as compared to that which can be derived from only
selling FPGA code.
Whilst historically most of the Company's principal revenues
have been generated from licensing and royalties, in H1 2022, 59%
of revenues were derived from the change in the mix towards supply
of our data processing FPGA SoC and Devices.
Half Year Review
The worldwide component shortage
The first half of 2022 was a challenging period for the Company
as, subsequent to the Company having concluded a number of systems
contracts, the worldwide component shortage and the unforeseen
effects thereof started to impact on the Company and its customers.
The Company was proactive in this area by procuring and investing
in component inventory where it could, to ensure it was capable of
delivering on various contracts. This is evidenced by the
significant increase of inventories as shown in the balance
sheet.
Impact on the Company
As the Company faced the components challenges, while
progressing talks with new and existing customers, we could not
commit to new possible contracts and opportunities because of the
uncertainty of component supply. Along with this, the components
shortages not only delayed deliveries to customers, but our
customer orders were also extended by them as they felt the effects
of the shortages on their own operations and deployments.
Furthermore, the situation resulted in exponential increases in
the price of components, bringing the costs of the systems
solutions and their economic viability for the customers into
question.
Opportunities for the Company due to the worldwide shortages
During the period under review, supply chain issues created
opportunities for the Company. As component shortages continued, we
experienced a slight impact, as did larger system vendors.
This has created opportunities for the Company in that the
system vendor customers are searching for alternative solutions,
which include evaluating options to design their own Application
Specific Integrated Circuit (ASIC) so as to allow them to overcome
and control the critical components of their solutions and to
control their costs. Therefore, the vendors have started looking to
development of ASICs as an alternative, as these allow for a
significantly lower cost alternative for them.
This has built new industry verticals and market opportunities
for the Company to leverage our existing semiconductor technology
and IP for use on potentially larger volume ASICs. To this end, the
Company is currently in advanced discussions with existing and
potential customers. There is significant interest in both our data
processing SoC technology and our PON MAC SoC technology.
Operational highlights
During H1 2022 our activities have progressed in multiple
domains:
-- Continued deliveries and growth in our fixed wireless OEM
business, expecting to complete shipment by the end of 2022 of the
entire $2.2 million order for our Data processing SoC on FPGA as
planned for 2021 and 2022.
-- Further development on a 2(nd) generation FPGA product based on Ethernity's advanced offering.
-- Progress in the development of our UEP2025 product, in
preparation for supply as a completed product towards the end of
the year to potential customers.
-- Significant progress on the PON devices for current contracts
and for offerings to potential customers, to expand significantly
over and above the current $3 million delivery contract for PON,
where the first 10G PON (XGS-PON platform) completed development by
our Customer, with planned deployment during Q1/23.
-- The Company continues with engagements and discussions on our
groundbreaking offering based on the ACE-NIC100 for Distribution
Unit (DU) vRouter offload for 5G private networks.
Outlook for 2022 and 2023
2022
-- The shortage of components, including the current schedule of
FGPA deliveries from suppliers, as well as the cancelled customer
contract announced on 1 September 2022, has reduced the Company's
previously notified revenue expectations for 2022.
-- Based on the current contract pipeline and component delivery
schedule, the Management expect full year revenue to be in the
region of $3.6 million
-- Further discussions anticipated with customers for the Company's offerings of the UEP2025.
-- New discussions for a second generation (Gen2) product and
development for the fixed wireless customer.
-- Our PON technology offering is now creating great interest
for use on low port count OLT platforms, as well as for optical SFP
with single-port XGS-PON and GPON.
-- Currently in discussions with large companies for channel
market and sales of our UEP2025 and its variants for the WISPs
(wireless internet service providers) in the USA.
2023
-- Outlook remains as previously noted, with increased
visibility based on the PON and XGS-PON contracts signed and $6
million in orders under current contracts.
-- Potential for further revenue contribution, over and above the contracted orders, from:
-- Anticipated contract wins from existing customers of FPGA
SoC, which would lead to growth over 2022 with upside opportunities
from follow-on platform deployments.
-- New discussions progressing for UEP cell site routers and
ACE-NICs for the 5G and vRouter markets.
-- Continued positive engagements and discussions with current
and potential new customers on the UEP2025.
-- Continued positive engagements and discussions for our
existing semiconductor technology and IP for use on a potentially
larger volume ASIC.
The Board remains confident that, based on the current
contracts, continued increased customer engagements, focus on
delivery of solutions and the anticipated customer deployments now
being realised, Ethernity will meet its long-term objectives and is
well positioned to become one of the key solutions providers in its
marketplace. The Company continues to experience an increase in the
outreach by OEMs and operators interested in Ethernity's solutions,
where these solutions are proving increasingly aligned with
operators' strategy with their customers in their marketplaces.
Network service providers are requiring more flexible solutions to
their technology and network needs for offloading support of new
data appliances introduced by the market. Ethernity believes it has
the best-in-class system solutions to address these needs.
In summary, the business, engagements and new opportunities
remain positive and intact, however the Company recognises possible
effects due to customer and component delays.
During 2023 and beyond, the Company anticipates generating
further revenues from its FPGA SoC, UEP cell site routers and
ACE-NICs for the 5G and vRouter markets, PON devices, and advances
on ASIC developments with significant year-on-year revenue growth
anticipated from product orders and contracts already signed, in
particular our long-term contracts for Fixed Wireless Access and
PON business. Resulting from the new contracts and orders, and
notwithstanding the delays as mentioned above, the Company is
satisfied that is has sufficient financial resources to meet its
ongoing obligations and operating requirements for 2022.
David Levi, Chief Executive Officer of Ethernity Networks Ltd,
commented:
"The positive mix of product, royalties and licensing revenues
reflects the progress in our current strategy and are pleased to be
continuing the evolution of the Company, with our strategy to focus
on product and system revenue business. We do, however, continue to
be mindful of the fact that delays from the component shortage
situation experienced by our customers could defer planned Q3 and
Q4 2022 revenues into the latter portions of Q1 and Q2 2023. We are
excited by the opportunities being presented by the components
shortages to leverage our data processing SoC technology and IP, as
well as our PON semiconductor technology.
"The product contracts already signed, the product orders
received (which are expected to grow), and the good progress in the
PON devices business will all fuel our revenue growth to position
us not just as a technology company, but as a validated
semiconductor and system product supplier with differentiated
offerings, resulting in growing revenue streams that will allow us
to be considered for larger scale deployments."
For further information, please contact:
Ethernity Networks Ltd Tel: +972 8 915 0392
David Levi, Chief Executive Officer
Mark Reichenberg, Chief Financial Officer
Allenby Capital Limited (Nominated Adviser Tel: +44 (0)20 3328
and Joint Broker) 5656
James Reeve / Piers Shimwell (Corporate
Finance)
Amrit Nahal (Sales and Corporate Broking)
Peterhouse Capital Limited (Joint Broker) Tel: +44 (0)20 7562
0930
Lucy Williams / Duncan Vasey / Eran Zucker
Harbor Access Inc (US Investor Relations) Tel: +1 (475) 477
Jonathan Paterson 9401
MARKET ABUSE REGULATION
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse (amendment) (EU Exit) Regulations 2019/310
("MAR"). With the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to
be in the public domain.
OPERATIONAL and financial REVIEW
Over the past six-month reporting period we continued with our
goals to progress and diversify the Company's offerings to include
systems solutions in addition to IP licensing and services, and
this has been evidenced in the accomplishments and engagements
attained over the 18 months.
During the period under review, the Company delivered revenues
of $704,853 (H1 2021: $955,371) and a gross profit of $428,761 (H1
2021 $605,852). Revenues, while lower than the comparable period,
are a reflection of the timing on deliveries as per the orders. In
July and August 2022, revenues were similar in value to that of the
entire H1 2022 period. As in the past, the greater majority of
revenues are expected to be earned in the second half of the
financial year. Booked revenues for the year to 31 August 2022 were
36% higher than the comparable period of 2021.
The gross profit margin of 60.83% is similar in range to H1 2021
of 63.42%, due to the different product mix within the revenue. In
the past, design wins and royalty revenue contributed
proportionately significantly more to revenues, however the focus
on being a solutions provider has resulted in the mix of revenues
trending toward the supply of product with lower margins albeit
higher unit sales values.
EBITDA
The EBITDA for the period under review for the six months ended
30 June 2022 is presented as follows:
EBITDA US Dollar Increase %
(Decrease)
For the 6 months 31 December
ended
30 June
------------------------ ------------
2022 2021 2021
----------- ----------- ------------
Revenues 704,853 955,371 2,635,420 -250,518 -26.22%
----------- ----------- ------------ ------------ ---------
Gross Margin as presented 428,761 605,852 1,944,903 -177,091 -29.23%
----------- ----------- ------------ ------------ ---------
Gross Margin % 60.83% 63.42% 73.80% - -
----------- ----------- ------------ ------------ ---------
Operating Loss as presented -4,478,031 -3,097,078 -6,327,475 -1,380,953 44.59%
----------- ----------- ------------ ------------ ---------
Add back Amortisation of
Intangible Assets 480,690 480,690 961,380 - -
----------- ----------- ------------ ------------ ---------
Add back Share based compensation
charges 127,444 36,969 77,583 90,475 244.73%
----------- ----------- ------------ ------------ ---------
Add back vacation accrual
charges 22,782 -18,154 -27,519 40,936 -225.49%
----------- ----------- ------------ ------------ ---------
Add back depreciation charges
on fixed assets 53,052 48,793 87,586 4,259 8.73%
----------- ----------- ------------ ------------ ---------
Add back IFRS operating
leases depreciation 173,892 75,094 173,675 98,798 131.57%
----------- ----------- ------------ ------------ ---------
EBITDA -3,620,171 -2,473,686 -5,054,770 -1,146,485 46.35%
----------- ----------- ------------ ------------ ---------
EBITDA loss in the first six months of the year widened to
$3,620,171 (H1 2021 loss: $2,473,686), which was anticipated over
the previously reported comparable period. This loss is impacted by
the planned increase in the Research and Development resource
costs. As previously stated, the margin percentage is a direct
result of the revenues mix and it is anticipated that the current
margin percentage levels will continue.
Operating Costs
Operating expenses (before amortisation, depreciation and IFRS
adjustments), increased by 29.9% in the current period against the
same period in 2021 from $3,100,340 to $4,028,732.
Within the R&D division, as planned resource recruitment
continued, the majority of the increased operating costs of
$707,116 were made up of staffing resources increases of
approximately $594,000.
General and Administration costs (before amortisation,
depreciation and IFRS adjustments), increased by approximately
$84,000, driven by the once off costs related to the required
take-on of a new Nominated Advisor, planned increases in audit
fees, and costs relating to the new premises.
The increase in the Marketing expenses (before amortisation,
depreciation and IFRS adjustments) are a direct result of the
increase in planned resources and attendance at worldwide
conferences and exhibitions.
After adjusting for the capitalised Research and Development
Costs, amortisation costs of the Development Intangible asset,
Depreciation and Share Based Compensation adjustments, the
resultant increases (decreases) in Operating costs, as adjusted
would have been:
US Dollar Increase
(Decrease)
June
For the 6 months 31 December
ended
30 June
---------------------- ------------
Operating Costs 2022 2021 2021 %
---------- ---------- ------------
Research and Development Costs
net of amortisation, Share
Based Compensation, IFRS adjustments
and Vacation accruals 2,689,191 1,982,075 4,568,491 707,116 35.68%
---------- ---------- ------------ ------------ -------
General and Administrative
expenses, net of depreciation,
Share Based Compensation, IFRS
adjustments, Vacation accruals
and impairments. 726,893 642,685 1,372,043 84,208 13.10%
---------- ---------- ------------ ------------ -------
Marketing expenses, net of
Share Based Compensation and
Vacation accruals. 612,648 475,580 1,024,451 137,068 28.82%
---------- ---------- ------------ ------------ -------
Total 4,028,732 3,100,340 6,964,985 928,392 29.94%
---------- ---------- ------------ ------------ -------
Summarised trading results
Summarised Trading Results US Dollar Increase %
(Decrease)
For the 6 months ended 31 December
30 June
------------------------- ------------
2022 2021 2021
------------ ----------- ------------
Revenues 704,853 955,371 2,635,420 -250,518 -26.22%
------------ ----------- ------------ ------------ --------
Gross Margin 428,761 605,852 1,944,903 -177,091 -29.23%
------------ ----------- ------------ ------------ --------
Gross Margin % 60.83% 63.42% 73.80% - -
------------ ----------- ------------ ------------ --------
Operating Loss Profit -4,478,031 -3,097,078 -6,327,475 -1,380,953 44.59%
------------ ----------- ------------ ------------ --------
Financing costs -274,565 -1,419,468 -3,074,452 1,144,903 -80.66%
------------ ----------- ------------ ------------ --------
Financing income (expenses) 1,249,863 116,597 228,404 1,133,266 971.95%
------------ ----------- ------------ ------------ --------
(Loss) Profit before tax -3,502,733 -4,399,949 -9,173,523 897,216 -20.39%
------------ ----------- ------------ ------------ --------
Tax benefit (reversal of previous
deferred tax benefit) 0 0 -186,772 - -
------------ ----------- ------------ ------------ --------
Net comprehensive loss for the year -3,502,733 -4,399,949 -9,360,295 897,216 -20.39%
------------ ----------- ------------ ------------ --------
Basic and Diluted earnings per ordinary
share -0.05 -0.09 -0.14 0.09
------------ ----------- ------------ ------------ --------
Weighted average number of ordinary
shares for basic earnings per share 75,367,394 51,347,740 67,492,412
------------ ----------- ------------ ----------------------
Revenue Analysis
Revenues for the six months ended 30 June 2022 of $704,853
(2021: $955,371) reflect the timing of deliveries as laid out in
the various contracts.
The revenue mix will continue to evolve as the Company
progresses in achieving the desired mix of the revenue streams from
network solutions in addition to IP licenses and services.
Segment Reporting
The geographic mix is represented by the makeup of the products
supplied, where in the first half of the current financial year the
revenues were weighted towards foreign design wins while royalty
revenues were earned in Israel. The trend is expected to continue
during the second half of the year as design wins and product
supply focussing on the Tier-1 OEMs outside of Israel continues to
grow.
SEGMENT REPORT sector analysis
---------- ------- ----------- -------
Region Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
------------------- ------------------- --------------------
US$ % US$ % US$ %
---------- ------- ---------- ------- ----------- -------
United States 512,650 72.7% 765,075 80.1% 1,146,003 43.5%
---------- ------- ---------- ------- ----------- -------
Israel 149,403 21.2% 161,796 16.9% 760,559 28.9%
---------- ------- ---------- ------- ----------- -------
Asia 42,800 6.1% 28,500 3.0% 598,858 22.7%
---------- ------- ---------- ------- ----------- -------
Europe 0 0.0% 0 0.0% 130,000 4.9%
---------- ------- ---------- ------- ----------- -------
Total 704,853 100.0% 955,371 100.0% 2,635,420 100.0%
---------- ------- ---------- ------- ----------- -------
Margins
Gross margins were line with Company expectations based on the
product sales strategy focus, and the 2022 gross margin for the
period was 60.83%. The gross margin will vary according to the
revenue mix and as the revenue mix as noted above evolves, this
will have a downward pressure on gross margin percentages as
revenues from 100% margin sources become less prominent in the mix,
being replaced by cost active product sales.
Financing Costs
As noted in the Annual Results for the year ended 31 December
2021, the financing costs have come about due to the two equity
events referred to below and under the section "Balance Sheet".
It is to be noted that these two equity events, albeit in
essence based on raising funds via equity issues, are nonstandard
equity arrangements and have been dealt with in terms of the
guidance in IFRS9-Financial Instruments. This guidance, albeit that
it is not based on the actual cash cost of the financing
arrangements to the Company, is significantly complex in its
application, forces the recognition of the fair value of the equity
issues, and essentially creates a recognition in differences
between the market price of the shares issued at time of issue
versus the actual price at which the equity is allotted. It is not
a reflection of the cash inflows and outflows of the transactions.
It is this differential or "derivative style instrument" that needs
to be subject to a fair value analysis, and the instruments, the
values received and outstanding values due being separated into
equity, assets, finance income and finance charges in terms of the
IFRS-9 guidance.
Referring to the two fundraise deals the Company completed
during the year of 2021 and the first half of 2022 being;
a. Issuance of the Share and Warrants bundle (Peterhouse Capital Limited) in September 2021
b. Share Subscription Agreement (5G Innovation Leaders Fund) in
February 2022
It has been determined that in terms of IFRS-9, both
transactions are to be recognised as equity and a liability of the
Company and all adjustments to the liability value are to be
recognised through the Income Statement. In both cases the equity
differential based on allotment price and fair value at time of
allotment charges to the income statement.
The liability in respect of deal a. above represents the
outstanding 60p Warrants which had not been exercised as of 30 June
2022.
The liability in respect of deal b. represents the cash the
Company has received during in February 2022 and that as of 30 June
2022 still has not allotted shares against the advance in
settlement of the debt.
The above outlined treatment results in a significant
adjustments to finance incomes and expenses 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 Financing Expenses and Finance Income in the Income
Statement are thus summarised as follows:
Financing expenses for period ended June 30 2022
5G Innovation Leaders $60,000 Face value premium of $60,000 on $2,000,000 funded to the Company
Fund in February 2022.
--------- ------------------------------------------------------------------
$80,000 Facility fee for the funding received by the Company in February
2022.
--------- ------------------------------------------------------------------
$140,000
--------- ------------------------------------------------------------------
Financing Income for the period ended June 30 2022
Peterhouse September $1,209,960 Updating value of warrants issued, to fair value as at 30
2021 placing June 2022.
----------- ----------------------------------------------------------
Liability at 30 June 2022
5G Innovation Leaders $2,060,000 Liability to 5G representing the $2,000,000 funded to the
Fund Company in February 2022, together with a $60,000 premium.
This was not revalued as there was no material difference
between market price and conversion price at 30 June 2022.
----------- -------------------------------------------------------------
$53,333 Liability to 5G for balance of $80,000 facility fee for the
funding received by the Company in February 2022.
----------- -------------------------------------------------------------
Peterhouse September $5,033 Warrants liability in regard to September 2021 placing deal,
2021 placing short term and long term (60p. Warrants)
----------- -------------------------------------------------------------
$2,118,366
----------- -------------------------------------------------------------
The cash resources during the period under review were further
bolstered following further investment from the Share Subscription
Agreement of $2m.
COVID-19 Impact and Going Concern
Currently, with the impact of COVID-19 in Israel and worldwide
having been reduced significantly, we remain acutely aware that the
ongoing effects of COVID-19 and potential for further outbreaks is
something that can neither be predicted nor negated, not only in
Israel but in the geographies that we trade and have development
engagements. As such, we do realise the risk of an impact in
current and possible further 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,
as evidenced by the ongoing worldwide component shortage which is a
direct result of the COVID-19 pandemic.
Based on the abovementioned 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.
Other than the points outlined above, there are no items on the
Balance Sheet that warrant further discussion outside of the
disclosures made in the Interim Unaudited Financial Statements
presented below.
FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Actual results may, and
often do, differ materially from any forward-looking statements.
Any forward-looking statements in this announcement reflect
Ethernity's view with respect to future events as at the date of
this announcement. Save as required by law or by the AIM Rules for
Companies, Ethernity undertakes no obligation to publicly revise
any forward-looking statements in this announcement, following any
change in its expectations or to reflect events or circumstances
after the date of this announcement.
By order of the Board
Mark Reichenberg
Company Secretary
21 September 2022
Interim Unaudited Financial Statements
as at 30 June 2022
STATEMENTS OF FINANCIAL POSITION
US dollars
----------------------------------------
30 June 31 December
2022 2021 2021
------------ ------------ ------------
Unaudited Audited
-------------------------- ------------
ASSETS
Current
Cash and cash equivalents 4,164,415 3,442,309 7,060,824
Trade receivables 1,273,328 769,919 1,545,598
Inventories 5 771,122 255,269 284,810
Other current assets 234,263 290,103 240,964
Current assets 6,443,128 4,757,600 9,132,196
Non-Current
Property and equipment 800,194 516,611 660,069
Deferred tax assets - 186,772 -
Intangible asset 5,943,490 6,904,870 6,424,180
Right-of-use asset 2,982,310 199,160 3,156,202
Other long term assets 35,767 10,338 38,956
Non-current assets 9,761,761 7,817,751 10,279,407
Total assets 16,204,889 12,575,351 19,411,603
============ ============ ============
LIABILITIES AND EQUITY
Current
Short Term Borrowings 74,286 253,988 422,633
Trade payables 739,258 508,434 651,758
Liability related to share subscription agreement 2,060,000 1,619,509 -
Warrants liability 5,033 - 1,214,993
Other current liabilities 1,100,706 1,002,185 1,097,359
Current liabilities 3,979,283 3,384,116 3,386,743
Non-Current
Lease liability 2,625,598 59,403 3,069,721
------------ ------------ ------------
Non-current liabilities 2,625,598 59,403 3,069,721
Total liabilities 6,604,881 3,443,519 6,456,464
Equity
Share capital 21,152 14,910 21,140
Share premium 40,402,890 31,759,125 40,382,744
Other components of equity 1,131,473 850,225 1,004,029
Accumulated deficit (31,955,507) (23,492,428) (28,452,774)
------------ ------------ ------------
Total equity 9,600,008 9,131,832 12,955,139
Total liabilities and equity 16,204,889 12,575,351 19,411,603
============ ============ ============
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF COMPREHENSIVE LOSS
US dollars
--------------------------------------
Six months ended For the
30 June year ended
31 December
2022 2021 202 1
----------- ----------- ------------
Note Unaudited Audited
------------------------ ------------
Revenue 8 704,853 955,371 2,635,420
Cost of sales 276,092 349,519 690,517
----------- ----------- ------------
Gross profit 428,761 605,852 1,944,903
Research and development expenses 3,276,067 2,496,084 5,550,912
General and administrative expenses 1,001,705 779,149 1,721,873
Marketing expenses 629,020 448,499 1,044,905
Other income - (20,802) (45,312)
----------- ----------- ------------
Operating loss (4,478,031) (3,097,078) (6,327,475)
Financing costs 6 (274,565) (1,419,468) (3,074,452)
Financing income 7 1,249,863 116,597 228,404
----------- ----------- ------------
Loss before tax (3,502,733) (4,399,949) (9,173,523)
Tax expense - - (186,772)
----------- ----------- ------------
Net comprehensive loss for the period (3,502,733) (4,399,949) (9,360,295)
=========== =========== ============
Basic and diluted loss per ordinary
share (0.05) (0.09) (0.14)
=========== =========== ============
Weighted average number of ordinary
shares for basic and diluted loss
per share 75,367,394 51,347,740 67,492,412
=========== =========== ============
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF CHANGES IN EQUITY
Amounts in US dollars (except number of shares)
------------------------------------------------------------------------
Other
Number Share Share components Accumulated Total
of shares Capital premium of equity deficit equity
---------- ------- ----------- ----------- ------------ -----------
Balance at 1 January 2022 1,004
(Audited) 75,351,738 21,140 40,382,744 ,029 (28,452,774) 12,955,139
Employee share-based compensation - - - 127,444 - 127,444
Expenses paid in shares 37,106 12 20,146 - - 20,158
Net comprehensive loss for the
period - - - - (3,502,733) (3,502,733)
---------- ------- ----------- ----------- ------------ -----------
Balance at 30 June 2022
(Unaudited) 75,388,844 21,152 40,402,890 1,131,473 (31,955,507) 9,600,008
========== ======= =========== =========== ============ ===========
Balance at 1 January 2021
(Audited) 47,468,497 12,495 27,197,792 813,256 (19,092,479) 8,931,064
Employee share-based compensation - - - 36,969 - 36,969
Exercise of employee options 226,667 71 23,041 - - 23,112
Exercise of options 3,500,010 1,072 2,007,606 - - 2,008,678
Shares issued pursuant to share
subscription agreement 3,838,952 1,176 2,447,346 - - 2,448,522
Expenses paid in shares 305,000 96 83,340 - - 83,436
Net comprehensive loss for the
period - - - - (4,399,949) (4,399,949)
---------- ------- ----------- ----------- ------------ -----------
Balance at 30 June 2021
(Unaudited) 55,339,126 14,910 31,759,125 850,225 (23,492,428) 9,131,832
========== ======= =========== =========== ============ ===========
Balance at 1 January 2021 12,49
(Audited) 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 706,667 220 70,893 - - 71,113
Net proceeds allocated to the
issuance
of ordinary shares 13,149,943 4,053 4,280,265 - - 4,284,318
Exercise of warrants 3,500,010 1,072 2,007,606 - - 2,008,678
Shares issued pursuant to share
subscription agreement 10,221,621 3 ,204 6 ,742,848 - - 6 ,746,052
Expenses paid in shares and
warrants 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 2021 1,004
(Audited) 75,351,738 21,140 40,382,744 ,029 (28,452,774) 12,955,139
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF CASH FLOWS
US dollars
--------------------------------------
Six months ended Year ended
30 June 31 December
2022 2021 2021
----------- ----------- ------------
Unaudited Audited
------------------------ ------------
Operating activities
Net comprehensive loss for the period (3,502,733) (4,399,949) (9,360,295)
Non-cash adjustments
Depreciation of property and equipment 53,052 48,531 86,168
Depreciation of operating lease right of use asset 173,892 75,094 173,675
Share-based compensation 127,444 36,969 77,583
Amortisation of intangible assets 480,690 480,690 961,380
Amortisation of liabilities (206,755) (5,717) 39,042
Deferred tax expenses - - 186,772
Foreign exchange losses on cash balances 369,053 50,733 30,214
Capital loss - - 70
Income from change of lease terms - (442) (8,929)
Revaluation of financial instruments, net (1,149,960) 1,279,477 2,691,145
Expenses paid in shares and options 20,158 83,436 196 ,626
Net changes in working capital
Decrease (increase) in trade receivables 272,270 8,142 (767,537)
Increase in inventories (486,312) (81,775) (111,316)
Decrease in other current assets 6,701 34,929 84,068
Increase (decrease) in other long-term assets 3,189 (2,831) (2,831)
Increase in trade payables 87,500 218,260 361,583
Decrease in other liabilities (17,733) (101,184) (24,071)
Net cash used in operating activities (3,769,544) (2,275,637) (5,386,653)
Investing activities
Proceeds from other short-term financial assets - (28,618)
Purchase of property and equipment (193,177) (13,030) (194,195)
Net cash used in investing activities (193,177) (13,030) (222,813)
Financing activities
Proceeds from share subscription agreement 2,000,000 2,153,856 3,177,306
Proceeds allocated to ordinary shares, net - 356,443 5,016,494
Proceeds allocated to warrants - - 1,472,561
Issuance costs - - (390,398)
Proceeds from exercise of warrants and options - 1,319,387 1,367,388
Proceeds from short term borrowings 100,283 398,656 900,192
Repayment of short-term borrowings (448,630) (550,676) (887,585)
Repayment of lease liability (216,288) (76,683) (136,180)
Net cash provided by financing activities 1,435,365 3,600,983 10,519,778
Net change in cash and cash equivalents (2,527,356) 1,312,316 4,910,312
Cash and cash equivalents, beginning of year 7,060,824 2,180,726 2,180,726
Exchange differences on cash and cash equivalents (369,053) (50,733) (30,214)
Cash and cash equivalents, end of period 4,164,415 3,442,309 7,060,824
=========== =========== ============
Supplementary information:
Interest paid during the period 6,049 8,376 13,468
=========== =========== ============
Interest received during the period 1,418 - 41
=========== =========== ============
Supplementary information on non-cash activities:
Recognition of right-of-use asset and lease liability - - 3,776,886
=========== =========== ============
Shares issued pursuant to share subscription agreement - 2,448,522 6,746,052
=========== =========== ============
Expenses paid in shares and warrants 20,158 83,436 83,436
=========== =========== ============
The accompanying notes are an integral part of the interim
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
ETHERNITY NETWORKS LTD. (hereinafter: the "Company"), was
incorporated in Israel on the 15th of December 2003 as Neracore
Ltd. The Company changed its name to ETHERNITY NETWORKS LTD. on the
10th of August 2004.
The Company provides innovative, comprehensive networking and
security solutions on programmable hardware for accelerating
telco/cloud networks performance. Ethernity's FPGA logic offers
complete Carrier Ethernet Switch Router data plane processing and
control software with a rich set of networking features, robust
security, and a wide range of virtual function accelerations to
optimise telecommunications networks. Ethernity's complete
solutions quickly adapt to customers' changing needs, improving
time-to-market and facilitating the deployment of 5G, edge
computing, and different NFV appliances including 5G UPF, SD-WAN,
vCMTS and vBNG with the current focus on 5G emerging appliances.
The Company's customers are situated worldwide.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
Basis of presentation of the financial statements and statement
of compliance with IFRS
The interim condensed financial statements for the six months
ended 30 June 2022 have been prepared in accordance with IAS 34,
Interim Financial Reporting. The interim condensed financial
statements do not include all the information and disclosures
required in the annual financial statements in accordance with IFRS
and should be read in conjunction with the Company's annual
financial statements as at 31 December 2021. The accounting
policies applied in the preparation of the interim condensed
financial statements are consistent with those followed in the
preparation of the Company's annual financial statements for the
year ended 31 December 2021.
The interim condensed financial statements for the half-year
ended 30 June 2022 (including comparative amounts) were approved
and authorized for issue by the board of directors on 21 September
2022.
NOTE 3 - 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.
At 30 June 2022 the Company noted that its cash reserves were
approximately $4.2m.
During the latter portion of 2020 and through 2021, 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 2022,2023 financial years and onwards.
Based on the abovementioned 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 4 - SIGNIFICANT EVENTS
EQUITY RELATED TRANSACTIONS DURING THE ACCOUNTING PERIOD
a. During the six month period ended 30 June 2022, ordinary
shares of the Company were issued, as follows:
Number of
ordinary
shares
----------
Expenses paid for in shares 37,106
----------
37,106
==========
b. On 25 February 2022 the Company entered into an agreement
with 5G Innovation Leaders Fund, LLC ("5G Fund") to invest
US$2,000,000 into the Company in exchange for new Shares
("Subscription Shares") valued at US$2,060,000. The Subscription
Shares, will be issued, at 5G Fund's request, within 18 months of
the date of the investment at a price per share determined by
dividing the subscription value by the settlement price.
The Settlement Price will be equal to the sum of:
- the Reference Price (The Reference Price will be the average
of 3 daily volume-weighted average prices ("VWAPs") of Shares
selected by 5G Fund during a 15-trading day period immediately
prior to the date of notice of their issue, rounded down to the
next one tenth of a penny) and
- the Additional Price (The Additional Price will be equal to
half of the excess of 85% of the average of the daily VWAPs of the
Shares during the three consecutive trading days immediately prior
to the date of notice of their issue over the Reference Price). As
of 30 June 2022, no amounts have been converted into shares.
NOTE 5 - INVENTORIES
US dollars
-----------------------------
30 June 31 December
2022 2021 2021
------- ------- -----------
Unaudited Audited
---------------- -----------
Components and raw materials 645,852 124,354 165,095
Finished cards 125,270 130,915 119,715
Total inventories 771,122 255,269 284,810
======= ======= ===========
NOTE 6 - FINANCING COSTS
US dollars
--------------------------------
Six months ended Year ended
30 June 31 December
2022 2021 2021
------- --------- ------------
Unaudited Audited
------------------ ------------
Bank fees and interest 20,321 19,092 32,147
Lease liability financial expenses 114,244 5,349 30 ,195
Revaluation of liability related
to share subscription agreement
measured at FVTPL 60,000 1,132,992 2,884,254
Revaluation of warrant derivative
liability - 262,035 -
Expenses allocated to issuing
warrants - - 127,856
Expenses allocated to share subscription
agreement 80,000 - -
Total financing costs 274,565 1,419,468 3,074,452
======= ========= ============
NOTE 7 - FINANCING INCOME
US dollars
--------------------------------------
Six months ended Year ended
30 June 31 December
2022 2021 2021
------------ ---------- ------------
Unaudited Audited
------------------------ ------------
Revaluation of proceeds due on
account of shares (financial
asset measured at FVTPL) - 49,723 49,723
Revaluation of warrant derivative
liability 1,209,960 - 108,723
Lease liability financial income - - 8,929
Interest received 1,418 - 41
Exchange rate differences 38,485 66,874 60 ,988
------------ ---------- ------------
Total financing income 1,249,863 116,597 228,404
============ ========== ============
NOTE 8 - SEGMENT REPORTING
The Company has implemented the principles of IFRS 8, in respect
of reporting segmented activities. In terms of IFRS 8, the
management has determined that the Company has a single area of
business, being the development and delivery of high-end network
processing technology.
The Company's revenues are divided into the following
geographical areas:
US dollars
--------------------------------
Six months ended Year ended
30 June 31 December
2022 2021 2021
-------- -------- ------------
Unaudited Audited
------------------ ------------
Asia 42,800 28,500 598,858
Europe - - 130,000
Israel 149,403 161,796 760,559
United States 512,650 765,075 1,146,003
-------- -------- ------------
704,853 955,371 2,635,420
======== ======== ============
The Company's revenues are divided into the following
geographical areas:
%
--------------------------------
Six months ended Year ended
30 June 31 December
2022 2021 202 1
-------- -------- ------------
Unaudited Audited
------------------ ------------
Asia 6.1% 3.0% 22.7%
Europe 0.0% 0.0% 4.9%
Israel 21.2% 16.9% 28.9%
United States 72.7% 80.1% 43.5%
-------- -------- ------------
100.0% 100.0% 100.0%
======== ======== ============
Revenue from customers in the Company's domicile, Israel, as
well as its major market, the United States and Asia, have been
identified on the basis of the customer's geographical
locations.
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END
IR SEFFIFEESEIU
(END) Dow Jones Newswires
September 22, 2022 02:00 ET (06:00 GMT)
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