leadf
logo-loader
RNS
viewEthernity Networks Ltd

Ethernity Networks - Half-year Report

RNS Number : 5265Y
Ethernity Networks Ltd
10 September 2020
 

10 September 2020

 

 

ETHERNITY NETWORKS LTD

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

 

Interim results for the six months ended 30 June 2020

 

Ethernity Networks Ltd (AIM: ENET.L), announces its interim results for the six months ended 30 June 2020.

 

Ethernity Networks Ltd. (AIM: ENET) provides innovative, comprehensive networking and security solutions on programmable hardware for accelerating telco/cloud networks performance. Ethernity's FPGA logic offers complete Carrier Grade 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 and edge computing.

 

Financial summary:

·    Revenues decrease to $359,375 over the comparable period (H1 2019: $971,709)

·    Gross margin decreased to $316,982 over the comparable period (H1 2019: $843,002)

·    Gross margin percentage consistent at 88.20% (H1 2019: 86.75%)

·    Research and Development, General and Administrative, and Marketing expenses reduced by 24% over previous period

·    EBITDA loss (adjusted for R&D capitalisation normalisation) reduced by 12% to $2,497,517 (H1 2019: comparable adjusted loss: $2,823,652)

·    Comprehensive net loss (adjusted for R&D capitalisation normalisation) decreased by 13% over the comparable period

·    Cash and cash deposits balances at 30 June 2020 of $0.55m (31 December 2019: $2.66m) (30 June 2019: $5.9m).

o Net cash usage rate during H1 2020 ($2.69m) reduced by 27% compared to H2 2019 ( $3.24m )

o Additional cut in expenses implemented for H2 2020 have further reduced our cash consumption. Subject to contract wins, R&D expenditure may be increased in the latter part of 2020.

o Cash resources bolstered following successful placing in July 2020 raising £880,000 (approximately $1.1m) before expenses

 

Operational highlights:

 

Following on from the FiberHome 5G User Plane Functionality (UPF) collaboration started at the end of 2019, H1 2020 continued the momentum  around the 5G UPF offering to other potential customers.

·    In February 2020 we finalised an agreement with TietoEVRY to create a joint offering of an open source concept based on VPP for 5G UPF to accelerate 5G packet processing at the network edge. The intention is to deliver to customers an end-to-end open UPF platform that includes the UPF control utilising the VPP open source and the UPF data plane running and offloaded by the ACE-NIC100. Following completion of the enablement with the VPP we have delivered the offering for lab testing to two operators and to two strategic partners. Furthermore, major go-to-market activities are managed jointly with TietoEVRY in China, with a global go to market collaboration planned for 2021.

·    In March 2020 we achieved a further design win with another Chinese OEM that is working on integrating their UPF control software running over DPDK to operate on top of our ACE-NIC for UPF data plane offload with delivery of the complete offering for service provider testing planned during Q4 2020.

·    In April 2020 we shipped a number of ACE-NIC100 cards to a large Chinese operator following an order received for product introduction and integration, and further progress will be managed through our OEM customers.

·    We have commenced a process with two strategic world technology industry leaders to support the introduction and dissemination in the open compute(r) industry of our 5G UPF offload.

·    In early June 2020 we received a further order directly from another Asian service provider planning to deliver their own UPF control and offload, with Ethernity's ACE-NIC, the UPF data plane. Assuming the  deployment plan is successful, commencing in the second half of 2021, this may lead to 500-1000 ACE-NIC card sales in the two years following starting of deployment.

 

The Company now has a direct relationship with three major telecom service providers in China - China Mobile, China Telecom and China Unicom - all either planning to use an FPGA SmartNIC offering for 5G UPF, or already under development in their laboratories for integrating their own open UPF software to be offloaded by the ACE-NIC. Further business and revenue from the Chinese operators will flow through our OEM customers.

 

Further to the above, the Company has continued to achieve recognition with the following other notable events:

 

·    The Company was named as a Vendor to Watch in a February 2020 Gartner research report titled Market Trends: Function Accelerator Cards Disrupting Traditional Ethernet Adapter Market.

·    On 30 April 2020, the Company announced a design contract with a North American Tier-1 OEM for Ethernity flow processor technology, including ENET Switch and Traffic Manager firmware, to support 200Gbps performance on customer's xPON Optical Line Termination device.

·    On 22 June 2020, the Company announced that it signed a contract with Hong Kong Techtronics Electronic Technology Limited to manage distribution of its 100Gbps ACE-NIC100 FPGA SmartNIC throughout the Chinese market.

 

Post-period events

 

·    On 14 July 2020 the Company completed a successful placing of new shares and warrants, including participation by Directors, to raise funds of approximately $1,110,000 (before expenses). The net proceeds were used to strengthen the balance sheet, to allow the Company to support the growing number of engagements for its 5G offering towards successful field deployments, and for general working capital purposes. This placing included the issue of c. 3.7 million warrants at 20p and c. 3.7 million warrants at 30p to participating shareholders for a 12 month period.

 

·    On 5 August 2020, the Company announced that it had signed a new contract with an existing OEM customer, based in St Petersburg, to upgrade an existing hardware platform with new FPGA-firmware to serve the enterprise router business.

 

·    Share based compensation and Directors options

Due to the Directors' cuts in remuneration, as previously announced, along with the substantial additional time requirements of the non-Israel Non-Executive Directors, the Company intends to issue certain shares and options, details of which will be announced in due course.

 

The Company continues to focus in the short term on entering into licensing deals as was completed with the St. Petersburg based customer. The upfront cash benefits generated by the licensing deals contributes to the Company`s financial resources to meet the anticipated 5G deployment that is anticipated to commence in 2021.

 

We are experiencing a continued positive reception to the Company's product offerings with Tier1 OEM's and anticipate that more design wins will be achieved in the next 6 months.

 

Over the last two months the Company has had ongoing positive progress with our 5G ACE-NIC100 OEM customers for UPF offload toward completion of a solution that can be delivered to the market by our OEM customers, and further completed a 400Gbps fabric switch design that can cascade two ACE-NIC100s to support 200G UPF offload. In addition the Company is engaged in discussions on the existing Company's Router-on-a-NIC for vRouter Offload on 5G Distribution Units as part of the Cloud Radio Access Network which may lead to additional market share for Ethernity in the upcoming 5G network. 5G mobile networks are expected to start deployment during 2021 and are based on virtualised environments. With the increased throughput of the 5G mobile network, acceleration of the UPF data plane at the edge of the network has become a core requirement compared to existing 4G mobile networks.

 

The Company anticipates continuing to conclude  licensing agreements before the end of the year within the markets in which it operates, with both existing and new customers.

 

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

 

"The first half results were not in-line with our initial expectations at the beginning of the year, as some licensing deals were delayed beyond our expectations, as well as the impact of COVID-19, albeit first half revenue expectations were much lower than that estimated for the second half of 2020.  However, we have experienced that our customers have now returned to certain levels of normal business operations and are finalising their thought process relating to development of new products and architecture that is expected to lead to demand of our ENET Flow Processor. The deals forecast for this year are intact and we hope that these will be concluded during H2 2020 or Q1 2021 at the latest. Our core focus remains on the Company moving from an IP/technology provider to a solutions provider for virtual networking and security appliances with greater focus on 5G, with licensing contracts targeting the broader market to cover other opportunities that require the use of our technology. This should leverage our OEM's investment in go-to-market and product solution development while utilising our technology to develop into stable recurrent revenue from royalties. The goals of the Company's development activities are to build stable recurrent revenues from technology licensing and the supply of our ACE-NIC FPGA SmartNIC product family.

 

We remain confident that Ethernity`s technology is well positioned to become one of the key technology solutions providers in its marketplace."

 

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 / Benjamin Cryer

 

 

 

Peterhouse Capital Limited (Joint Broker)

Tel: +44 20 7562 0930

Lucy Williams / Duncan Vasey / Eran Zucker

 

 

 

VSA Capital Limited (Joint Broker)

Tel: +44 20 3005 5000

Andrew Monk, Corporate Broking

 

Simon Barton, Corporate Finance

 

 

 

 

 

 

 

[email protected]

 

 

 

 

MARKET ABUSE REGULATION

The information communicated in this Announcement is inside information for the purposes of Article 7 of Market Abuse Regulation 596/2014 ("MAR"). For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Mark Reichenberg, Chief Financial Officer
 

OPERATIONAL and financial REVIEW

 

The challenging market trends continued through the first six months of 2020, exacerbated by the worldwide COVID-19 pandemic, including the discussion and evaluation process with potential customers not being entirely within our control. However, the Company is experiencing positive results from focusing on becoming a solutions provider and from the engagement with customers previously during 2019 with resultant design wins during the first half of 2020 and continuing in 2020 ongoing customer engagement activity continues to increase substantially. There has been significant progress related to the ACE-NIC, and licensing deals, some of which we are hoping to be completed over the remaining months of 2020.

 

Whilst we had  previously commented  that the adoption of the new networking virtualisation market in which we operate has been delayed from when originally anticipated, we are now beginning to experience the market entering engagement and deployment stages. We remain confident in the long term prospects of the Company and this is  supported by the number of ongoing project collaborations around the Company's ACE-NIC and royalty revenues streams. 

 

During the period under review, the Company delivered revenues of $359,375 (H1 2019: $971,709) and a gross profit of $316,982 (H1 2019 $843,002). Revenues are lower than the comparable period and not unexpected as announced in previous market updates prior to the release of the 2019 annual results,, regardless of which, the first half revenue expectations were initially much lower than that estimated for the second half of 2020, however we still remain confident that the existing and new customer engagements and relationships in the forthcoming 12 months will provide more than $2m in revenues from licensing and royalties.

 

The revenues reported are directly related to the timing of design wins, licensing deals and contracts anticipated for the year, with the management growth expectations being aligned for the second half of the 2020 year. As previously announced, revenues in the second half of 2020 will be bolstered from the following:

 

·    On 30 April 2020, the Company announced a design contract with North American Tier-1 OEM for Ethernity flow processor technology, including ENET Switch and Traffic Manager firmware, to support 200Gbps performance on customer's xPON optical light termination device with a total revenue of $740k for the following 12 months period

·    On 5 August 2020, the Company announced that it signed a new contract with an existing OEM customer, based in St Petersburg, to upgrade an existing hardware platform with new FPGA-firmware, with a total of $190k for a 12 months period and, pending successful execution, anticipated FPGA revenues of c. $1m during 2021.

 

The gross profit percentage of 88.2% (H1 2019: 86.8%) remains consistent with the year ended 31 December 2019 and the comparable period in 2019 due to the different product mix within the revenue, where design wins and royalty revenue, which are near 100% gross margin, contributed 85.2% of revenue in H1 2020 compared to 76.9% in H1 2019.

 

 

 

 

Net Comprehensive Loss

US Dollar

Six months ended

Year ended 31 December

30 June 2020

30 June 2019

2019

Revenues

359,375

971,709

1,343,844

Gross Margin

316,982

843,002

1,150,832

Gross Margin %

88.20%

86.75%

85.64%

Operating (Loss) Profit

-3,065,377

-981,774

-4,542,773

Net Financing income (expenses)

155,780

-8,530

-5,259

(Loss) Profit before tax

-2,909,597

-990,304

-4,548,032

Tax benefit (reversal of previous deferred tax benefit)

-

-

-613,228

Net comprehensive (loss) income for the period (note 1)

-2,909,597

-990,304

-5,161,260

Basic earnings per ordinary share

-0.09

-0.03

-0.16

Diluted earnings per ordinary share

-0.09

-0.03

-0.16

Weighted average number of ordinary shares for basic earnings per share

32,673,455

32,556,686

32,556,686

Note 1
The comprehensive loss at 30 June 2019  would have been $3,331,817 had the R&D costs of $2,341,513 not been capitalised to the Intangible Asset. On a comparable basis, the operating loss has decreased by $422,220 - 13%

 

EBITDA loss in the first six months of the year was $2,497,517 (H1 2018 loss: $482,139), which is primarily as a result of the change in treatment of recognising R&D costs as an expense from H2 2019.

 

When comparing the current period EBITDA to the comparable period, taking account of the change in treatment, the EBITDA loss of $2,497,517 versus the adjusted loss in the same period 2019 of $2,823,652 shows an improvement of 12%, mainly attributable to the announced COVID-19 and cash conservation measures undertaken by the Company in the first half of the current year.

 

EBITDA

US Dollar

Six months ended

Year ended 31 December

30 June 2020

30 June 2019

2019

Revenues

359,375

971,709

1,343,844

Gross Margin as presented

316,982

843,002

1,150,832

Gross Margin %

88.20%

86.75%

85.64%

Operating (Loss) Profit as presented

-3,065,377

-981,774

-4,542,773

Adjusted for:

 

 

 

   Add back Amortisation of Intangible Assets

471,917

367,378

743,752

   Add back Share based compensation charges

-15,556

16,769

69,654

   Add back vacation accrual charges

30,312

37,275

14,454

   Add back depreciation charges on fixed assets

78,198

72,638

151,977

   IFRS16 operating leases depreciation net of rent and lease fees

2,989

5,575

10,350

EBITDA

-2,497,517

-482,139

-3,581,494

Adjusted for R&D expenses capitalised in H1 19

 

-2,341,513

-2,341,513

Comparable EBITDA

-2,497,517

-2,823,652

-5,923,007

 

Operating expenses (before amortisation and depreciation), declined by 24% in the current period against the same period in 2019 from $3,736,726 to $2,832,244 which underpin the conservation measures taken during the period under review.

 

OPERATING COSTS BEFORE AMORTISATION AND DEPRECIATION

30 June 2020

30 June 2019

Increase (Decrease)

Increase (Decrease)

 

US Dollar

US Dollar

US Dollar

US Dollar

Research and Development Costs

1,664,298

2,254,016

-589,718

-26.2%

General and Administrative expenses

607,392

645,502

-38,110

-5.9%

Marketing expenses

560,554

837,208

-276,654

-33.0%

Total

2,832,244

3,736,726

-904,482

-24.2%

 

Net cash, cash deposits and cash equivalents are $0.55m as at 30 June 2020 (31 December 2019 $2.66m)  (H1 2019: $5.94m). Cash utilisation remains a key focus for the board which has continued to take measures to ensure the cash reserves remain sufficient to allow the Company to meet the 2021 product deployment plans as has been updated previously.

 

The cash reserves were further bolstered in July 2020 when the Company successfully raised gross funds before expenses of $1.11m. This share placing event included the issue of Warrants as described in note 9.A. of the attached financial statements

 

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 Tier1 OEMs outside of Israel continues to grow.

 

SEGMENT REPORT sector analysis

 

 

 

 

 

 

Region

Six months ended 30 June 2020

2020
%

Six months ended 30 June 2019

2019
%

Year ended 31  December 2019

2019
%

 

 

 

 

 

 

United States

227,520

63.3%

588,680

60.6%

845,525

62.9%

 

 

Israel

121,855

33.9%

277,188

28.5%

437,479

32.6%

 

 

Asia

10,000

2.8%

105,840

10.9%

60,840

4.5%

 

 

Europe

0

0.0%

0

0.0%

0

0.0%

 

 

Total

100.0%

971,708

100.0%

1,343,844

100.0%

 

 

 

Outlook

 

The Board remains confident that, on the basis of continued increased customer engagements, succesful licensing deals and timely completion of major contracts in the current pipeline,  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.

 

COVID-19 impact and funding

 

The Company has previously stated that in light of the continued uncertainty on the potential impact and duration of

the COVID-19 pandemic, the Board had taken certain steps to both safeguard the well-being of staff and to position

the Company for the future.

 

The Board remains conscious of the uncertainties over the timing of the securing of customer orders and receipt of revenues from product sales and licensing transactions both in relation to general market delays as well as delays from the impact of COVID-19 on customers and engagements. This remains a challenge for the executive management in predicting when substantive revenues and related profits will be earned, including for the current financial year.

 

The Company provided update announcements in April, May and June 2020, regarding the impact on the Company`s operations and markets of the COVID-19 pandemic. This included requirements for and management of cash resources pending further financing.

 

The auditors made reference to the existence of a material uncertainty in relation to going concern within the audit report for the year ended 31 December 2019, which opinion, due to the continued COVID-19 situation worldwide, the Company maintains in these unaudited financial statements for the 6 months ended 30 June 2020, to which we draw your attention, and this is further described in Note 3 to these statements. Further to  that reported in the Annual Report released on 26 June 2020 and in light of the change in status of the engagement with the Military/Aerospace T1 vendor the Company stated that it would need to secure additional short term funding in the latter half of H2 2020 either via short term finance arrangements or an additional issue of equity. Additional funds were secured via a further issue of equity completed on 14 July 2020, whereby the company raised $1,110,000 before expenses, and the Company continues to closely monitor its funding levels and requirements.

 

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 Networks' 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 Networks 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

10 September 2020

 

Interim Unaudited Financial Statements

as at 30 June 2020

 

STATEMENTS OF FINANCIAL POSITION

 

 

 

US dollars

 

 

 

30 June

31 December

 

 

 

2020

2019

2019

 

Note

 

Unaudited

Audited

ASSETS

 

 

 

 

 

Current

 

 

 

 

 

Cash and cash equivalents

 

 

547,104

3,418,538

1,116,922

Other short-term financial assets

 

 

-

2,520,023

2,553,823

Trade receivables

 

 

284,688

551,812

427,162

Inventories

 

 

169,033

114,390

166,905

Other current assets

 

 

176,924

234,392

362,791

Current assets

 

 

1,177,749

6,839,155

4,627,603

 

 

 

 

 

 

Non-Current

 

 

 

 

 

Property and equipment

 

 

459,767

589,895

525,542

Deferred tax assets

 

 

186,772

800,000

186,772

Intangible asset

5

 

7,866,249

8,843,950

8,436,010

Right-of-use asset

 

 

370,150

384,761

448,081

Other long term assets

 

 

7,507

-

5,167

Non-current assets

 

 

8,890,445

10,618,606

9,601,572

 

 

 

 

 

 

Total assets

 

 

10,068,194

17,457,761

14,229,175

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current

 

 

 

 

 

Short Term Borrowings

 

 

50,923

-

1,012,731

Trade payables

 

 

148,471

346,708

325,240

Other current liabilities

 

 

1,192,324

1,250,310

1,126,007

Current liabilities

 

 

1,391,718

1,597,018

2,463,978

 

 

 

 

 

 

Non-Current

 

 

 

 

 

Lease liability

 

 

227,259

284,258

306,783

Non-current liabilities

 

 

227,259

284,258

306,783

 

 

 

 

 

 

Total liabilities

 

 

1,618,977

1,881,276

2,770,761

 

 

 

 

 

 

Equity

 

 

 

 

 

Share capital

 

 

8,079

8,039

8,039

Share premium

 

 

23,410,070

23,396,310

23,396,310

Other components of equity

 

 

779,491

840,006

892,891

Accumulated deficit

 

 

(15,748,423)

 (8,667,870)

(12,838,826)

Total equity

 

 

8,449,217

15,576,485

11,458,414

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

 

10,068,194

17,457,761

14,229,175

 

               

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

STATEMENTS OF COMPREHENSIVE LOSS

 

 

 

 

 

 

US dollars

 

 

 

Six months ended

30 June

For the year ended
31 December

 

 

 

2020

2019

2019

 

Note

 

Unaudited

Audited

 

 

 

 

 

 

Revenue

8

 

359,375

971,709

1,343,844

Cost of sales

 

 

42,393

128,707

193,012

Gross profit

 

 

316,982

843,002

1,150,832

Research and development expenses

 

 

2,136,215

279,881

2,855,896

General and administrative expenses

 

 

685,590

718,140

1,426,376

Marketing expenses

 

 

560,554

837,208

1,434,670

Other income (loss)

 

 

-

 (10,453)

(23,337)

Operating loss

 

 

(3,065,377)

 (981,774)

(4,542,773)

Financing costs

6

 

(22,136)

 (59,235)

(93,584)

Financing income

7

 

177,916

50,705

88,325

Loss before tax

 

 

(2,909,597)

(990,304)

(4,548,032)

Tax expense

 

 

-

-

(613,228)

Net comprehensive loss for the period

 

 

(2,909,597)

 (990,304)

(5,161,260)

 

 

 

 

 

 

Basic and diluted loss per ordinary share

 

 

(0.09)

 (0.03)

(0.16)

 

 

 

 

 

 

Weighted average number of ordinary shares for basic and diluted loss per share

 

 

32,673,455

          32,556,686

32,556,686

 

 

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)

 

Capital

 

Share

 

Share

 

Other components

 

Accumulated

 

Total

 

of shares

 

Capital

 

premium

 

of equity

 

deficit

 

equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020 (Audited)

32,556,686

 

           8,039

 

23,396,310

 

892,891

 

(12,838,826)

 

11,458,414

Employee share-based compensation

-

 

-

 

-

 

16,593

 

-

 

16,593

Cancellation of employee share-based compensation

-

 

-

 

-

 

(129,993)

 

-

 

(129,993)

Exercise of employee options

138,000

 

40

 

13,760

 

-

 

-

 

13,800

Net comprehensive loss for the period

-

 

-

 

-

 

-

 

(2,909,597)

 

(2,909,597)

Balance at 30 June 2020 (Unaudited)

32,694,686

 

8,079

 

23,410,070

 

779,491

 

(15,748,423)

 

8,449,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019 (Audited)

32,556,686

 

           8,039

 

23,396,310

 

     760,849

 

 (7,677,566)

 

16,487,632

Employee share-based compensation

-

 

-

 

-

 

79,157

 

-

 

79,157

Net comprehensive loss for the period

-

 

-

 

-

 

-

 

(990,304)

 

(990,304)

Balance at 30 June 2019 (Unaudited)

32,556,686

 

           8,039

 

23,396,310

 

840,006

 

(8,667,870)

 

15,576,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019 (Audited)

32,556,686

 

           8,039

 

23,396,310

 

     760,849

 

 (7,677,566)

 

16,487,632

Employee share-based compensation

-

 

                    -

 

-

 

132,042

 

-

 

132,042

Net comprehensive loss for the year

-

 

                    -

 

 -

 

-

 

(5,161,260)

 

(5,161,260)

Balance at 31 December 2019 (Audited)

32,556,686

 

          8,039

 

23,396,310

 

892,891

 

(12,838,826)

 

11,458,414

 

 

 

 

 

 

 

 

 

 

 

 

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

 

STATEMENTS OF CASH FLOWS

 

US dollars

 

Six months ended

30 June 

Year ended

31 December

 

2020

2019

2019

 

Unaudited

Audited

Operating activities

 

 

 

Net comprehensive loss for the period

(2,909,597)

(990,304)

(5,161,260)

 

 

 

 

Non-cash adjustments

 

 

 

Depreciation of property and equipment

78,198

72,638

151,997

Capital loss

612

-

-

Depreciation of operating lease right of use asset

77,931

56,307

122,729

Share-based compensation

(15,556)

16,769

69,654

Amortisation of intangible assets

471,917

367,378

734,752

Amortisation of liabilities

-

2,048

3,499

Deferred tax expenses

-

-

613,228

Foreign exchange (gains) losses on cash balances

(79,804)

5,251

(7,878)

 

 

 

 

Net changes in working capital

 

 

 

Decrease in trade receivables

142,474

90,273

214,923

Decrease (increase) in inventories

(2,128)

1,622

 (50,893)

Decrease in other current assets

185,867

174,858

46,459

Increase in other long-term assets

(2,340)

-

 (5,167)

Increase (decrease) in trade payables

(176,769)

58,400

36,932

Increase (decrease) in other liabilities

61,735

63,348

 (99,612)

Net cash used in operating activities

(2,167,460)

 (81,412)

 (3,330,637)

 

 

 

 

Investing activities

 

 

 

Proceeds from other short-term financial assets

2,553,823

11,563,686

11,529,886

Deposits to other short-term financial assets

-

(6,000,000)

(6,000,000)

Purchase of property and equipment

(13,035)

 (56,476)

 (71,482)

Amounts carried to intangible assets

-

 (2,279,125)

 (2,238,559)

Net cash provided by (used in) investing activities

2,540,788

    3,228,085

3,219,845

 

 

 

 

Financing activities

 

 

 

Proceeds from exercise of options

13,800

-

-

Repayment of IIA liability

-

 (12,470)

 (20,834)

Proceeds from short term borrowings

-

 -

1,012,731

Repayment of short-term borrowings

(961,808)

-

-

Repayment of long-term borrowings

-

(133,497)

(133,497)

Repayment of lease liability

(74,942)

(50,732)

 (112,379)

Net cash provided by (used in) financing activities

(1,022,950)

 (196,699)

746,021

 

 

 

 

Net change in cash and cash equivalents

(649,622)

2,949,974

635,229

Cash and cash equivalents, beginning of year

1,116,922

473,815

473,815

   Exchange differences on cash and cash equivalents

79,804

 (5,251)

 7,878

Cash and cash equivalents, end of period

547,104

3,418,538

1,116,922

 

 

 

 

Supplementary information:

 

 

 

Interest paid during the period

15,912

9,874

2,727

Interest received during the period

13,859

50,705

88,325

 

 

 

 

Supplementary information on non-cash activities:

 

 

 

Share-based compensation capitalised to intangible assets

(97,844)

62,388

62,388

Recognition of right-of-use asset and lease liability

-

441,068

570,810

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 develops and delivers high-end network processing technology for Carrier Ethernet switching, including broadband access, mobile backhaul, Carrier Ethernet demarcation and data centres. The Company's customers are situated throughout the world.

 

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 2020 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 2019. 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 2019.

 

The interim condensed financial statements for the half-year ended 30 June 2020 (including comparative amounts) were approved and authorized for issue by the board of directors on 24 August 2020.

 

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 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 and the ability of the Directors to raise further funds either through debt, equity, or asset sales, or deferral of liabilities, their current assessment of financial and operational risk and their best estimate of the potential impact of COVID-19 on operations and the material uncertainties arising therefrom. As of 30 June 2020, the Company incurred an accumulated deficit of $15.7 million and reported net comprehensive loss of $2.9 million and negative cash flows from operating activities of $2.2 million during the period ended June 30, 2019. The Company successfully completed a further raise of capital on 14 July 2020 with gross proceeds before expenses of £880,000 (approximately $1,110,000) - see note 9.

 

                           Current internal forecasts based on information available at the date of these unaudited financial statements and using a variety of scenarios indicate that the Company has sufficient resources in order to meet its current plans and liabilities as they fall due in the next 12 months. In the light of enquiries made, as well as bearing in mind the ability of the Company to raise funds previously, the Directors have a reasonable expectation that the Company will have access to adequate resources to continue in operational existence for the foreseeable future and therefore have adopted the going concern basis of preparation in the financial statements.

 

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

 

NOTE 4         -      SIGNIFICANT EVENTS

 

                              COVID-19 

On March 11, 2020, the World Health Organization recognized the novel strain of coronavirus, COVID-19, as a pandemic. This coronavirus outbreak has severely restricted the level of economic activity around the world. In response to this coronavirus outbreak, the governments of many countries, states, cities, and other geographic regions have taken preventive or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes.

 

In light of the continued duration of the COVID-19 pandemic, 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. Where possible a work-from-home policy was implemented and all non-discretionary expenditure was curtailed. The Company also took prudent steps to mitigate any impact through certain short-term cash conservation measures, including a reduction by all directors of up to 50% of their remuneration, with 20% of the reduction deferred.

 

In addition, the Company recognises that revenues are likely to be delayed due to COVID-19 uncertainty, including where engaged customers' functions are affected through remote working arrangements. The Board continues to closely monitor the situation and will take further action, as appropriate, to manage its working capital position and strengthen the balance sheet to support the execution of the Company's plans.

 

 

NOTE 5         -     INTANGIBLE ASSET

Details of the Company's intangible asset is as follows:

 

 

 

 

US dollars

 

 

 

 

Total

 

 

 

 

 

Gross carrying amount

 

 

 

 

Balance 1 January 2020

 

 

 

9,648,501

Disposals (*)  (**)

 

 

 

(97,844)

Balance 30 June 2020

 

 

 

9,550,657

 

 

 

 

 

Amortisation

 

 

 

 

Balance 1 January 2020

 

 

 

1,212,491

Amortisation

 

 

 

471,917

Balance 30 June 2020

 

 

 

1,684,408

 

 

 

 

 

Carrying amount 30 June 2020

 

 

 

7,866,249

 

(*) The Disposals include $97,844 reversal of share based compensation.

 

 

 

 

US dollars

 

 

 

 

Total

 

 

 

 

 

Gross carrying amount

 

 

 

 

Balance 1 January 2019

 

 

 

7,347,554

Additions (*)  (**)

 

 

 

2,300,947

Balance 31 December 2019

 

 

 

9,648,501

 

 

 

 

 

Amortisation

 

 

 

 

Balance 1 January 2019

 

 

 

477,739

Amortisation

 

 

 

734,752

Balance 31 December 2019

 

 

 

1,212,491

 

 

 

 

 

Carrying amount 31 December 2019

 

 

 

8,436,010

 

(*) The additions include $62,388 of share based compensation.

(**) Applicable development costs were capitalized and were recognized as intangible assets. However, as the Company did not meet all the measurement criteria of IAS 38 specifically with regard to being confident of sufficient financial resources for the 12 months following the date of this report, the Company ceased to capitalize development costs commencing the second half of 2019.

 

The Company commissioned an impairment test of the capitalized 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 value in use of these intangible assets 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 capitalized assets.

 

The valuation method determined, to best reflect the fair value of the intangible assets, was the discounted future cash flows expected to be generated from such assets between 2020 through 2029.

 

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%).

 

 

 

 

 

US dollars

 

 

 

 

Total

 

 

 

 

 

Gross carrying amount

 

 

 

 

Balance 1 January 2019

 

 

 

7,347,554

Additions (*)  (**)

 

 

 

2,341,513

Balance 30 June 2019

 

 

 

9,689,067

 

 

 

 

 

Amortisation

 

 

 

 

Balance 1 January 2019

 

 

 

477,739

Amortisation

 

 

 

367,378

Balance 30 June 2019

 

 

 

845,117

 

 

 

 

 

Carrying amount 30 June 2019

 

 

 

8,843,950

 

(*) The additions include $62,388 of share based compensation.

 

NOTE 6         -      FINANCING COSTS

 

 

US dollars

 

Six months ended

30 June 

Year ended

31 December

 

2020

2019

2019

 

Unaudited

Audited

 

 

 

 

Bank fees and interest

13,563

6,726

16,144

Lease liability financial expenses

8,573

8,820

17,584

Exchange rate differences

-

43,689

59,856

Total financing costs

22,136

59,235

93,584

 

 

NOTE 7         -     FINANCING INCOME

 

US dollars

 

Six months ended

30 June 

Year ended

31 December

 

2020

2019

2019

 

Unaudited

Audited

 

 

 

 

Interest received

13,859

50,705

88,325

Exchange rate differences

164,057

-

-

Total financing income

177,916

50,705

88,325

 

 

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 from customers are recognised as follows:

 

 

US dollars

 

Six months ended

30 June 

Year ended

31 December

 

2020

2019

2019

 

Unaudited

Audited

 

 

 

 

 

 

 

 

Revenues recognised over time

140,000

565,000

471,665

Revenues recognised at a point of time

219,375

406,709

872,179

 

359,375

971,709

1,343,844

 

 

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

 

US dollars

 

Six months ended

30 June 

Year ended

31 December

 

2020

2019

2019

 

Unaudited

Audited

 

 

 

 

 

 

 

 

United States

227,520

588,680

845,525

Israel

121,855

277,189

437,479

Asia

10,000

105,840

60,840

 

359,375

971,709

1,343,844

 

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

 

%

 

Six months ended

30 June

Year ended

31 December

 

2020

2019

2019

 

Unaudited

Audited

 

 

 

 

United States

63.3%

60.6%

62.9%

Israel

33.9%

28.5%

32.6%

Asia

2.8%

10.9%

4.5%

 

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.

 

 

NOTE 9 -              SUBSEQUENT EVENTS

 

A.    Issuance of shares and warrants

 

On 14 July 2020, the Company placed 7,333,334 ordinary shares ("New Shares") and warrants, at an issue price of 12p per share, raising gross proceeds of $1,110,000 (£880,000) in order to strengthen its balance sheet, to allow the Company to support the growing number of engagements for its 5G offering towards successful field deployments, and for general working capital purposes.

 

As part of the placement, on 16 July 2020, the Company issued 12 month non-transferable, warrants, as follows:

-      252,750 warrants exercisable at 12p per share, to the placing agent,

-      3,666,667 warrants exercisable at 20p per share, to the subscribers of the New Shares,

-      3,666,667 warrants exercisable at 30p per share, to the subscribers of the New Shares.

 

The warrants issued to the subscribers of the New Shares, contain an accelerator clause, whereby if the closing mid-market share price of the Company, exceeds the exercise price of the relevant warrant, by 10p over a 5-consecutive day period, then the Company has the right to request that these warrant holders choose to either exercise their warrants within 7 calendar days, or, to have their warrants cancelled.

 

In addition, parties associated with the Company participated in the shares and warrants placement by subscribing to the following amounts of shares (and equal number of above-mentioned warrants) as follows:

Members of the board of directors                           1,666,666 New Shares (gross proceeds of $250,000)

Employees                                                                      333,333 New Shares (gross proceeds of $50,000)

 

 

B.    Amendments to Employee Stock Option Program ("ESOP")

 

On 30 July 2020, the Board of Directors resolved to amend the 2013 Employee Stock Option Program, by increasing the option share pool in terms of the plan to 4.4 million ordinary shares and by extending the Program until 8 April 2030.

 

C.    Share based compensation

 

On 6 July 2020, the Board of Directors' approved the granting of 240,000 employee stock options to employees, vesting over a four-year period and expiring 10 years from the date of the grant. The exercise price of these options is £ 0.205.

 

On 28 July 2020, the Board of Directors' approved the granting of 104,000 employee stock options to employees, vesting over an 18-month period and expiring 10 years from the date of the grant. The exercise price of these options is £ 0.12.

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
IR FLFVEALIAIII

Quick facts: Ethernity Networks Ltd

Price: 17.5

Market: AIM
Market Cap: £7.3 m
Follow

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

55 min read