TIDMCLSU TIDMTTM
RNS Number : 6947M
ClearStar,Inc.
18 September 2019
18 September 2019
ClearStar, Inc.
("ClearStar" or the "Company")
Interim Results
ClearStar (AIM: CLSU), a provider of Human Capital IntegritySM
technology-based services specialising in background and medical
screening, announces its interim results for the six months ended
30 June 2019.
Financial Summary
-- Revenue increased by 17% to $11.6m (H1 2018: $9.9m)
-- Gross profit of $6.3m (H1 2018: $5.7m)
-- Adj. EBITDA of $191k (H1 2018: $65k)*
-- Loss before tax of $914k (H1 2018: $645k loss)
-- As of 30 June 2019, the Company had cash of $1.1m (31 Dec 2018: $0.9m)
* Adjusted to exclude certain non-recurring expenses (see
Financial Review)
Operational Summary
-- Strong revenue growth in direct sales and Medical Information
Services ("MIS"), which in aggregate accounted for 72% of total
revenue (H1 2018: 62%):
o Direct sales increased by 49% due to expansion of
higher-volume, tier 1 client base
o MIS sales increased by 25%, primarily due to greater volume
with channel partner customers through purchase of additional
services
-- Expanded direct tier 1 client base in key industries of
transport and logistics as well as in new segments:
o Won a contract to provide background screening for a major
shipyard specialising in the design, building and support of
vessels for the U.S. Navy
o Awarded two contract extensions for financial institution
screening by major professional services company
o Won first direct customer in the petrochemical industry with
appointment by an oilfield waste disposal services company in Texas
for drug and background screening
o Leading animal health and mineral nutrition company appointed
ClearStar to provide background and medical screening -
specifically, drug testing and occupational health
-- Enhanced sales & marketing resulting in greater brand
recognition, significant increase in interest and upscaling:
o Expansion of sales pipeline, including transition up-channel
to higher-value prospects
o Average spend per direct customer increased 48% over the first
half of 2018
-- Enhanced MIS offering with the introduction of new services
for ordering breath alcohol screening, including a combined drug
and breath alcohol testing service
Robert Vale, CEO of ClearStar, commented: "We are pleased to
report another period of strong sales growth, driven by our medical
screening solutions and providing background checks to our
expanding direct client base. It also reflects our success in
targeting larger, higher-volume customers, with some notable wins
this year. During the period, we invested in our growth to enable
us to capitalise on the ever-growing demand that we are receiving
as customers increasingly recognise the value that our solutions
can add to their screening programmes - to benefit both the
employer and the employee. As a result, with our expanded pipeline
and sustained sales momentum, we continue to expect to achieve
strong revenue growth for full year 2019 and, with trading in line
with the Board's expectations, we look to the future with
confidence."
Enquiries:
ClearStar, Inc. +1 877 796 2559
Robert Vale, Chief Executive Officer
Jennifer Balleza, Chief Financial Officer
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finnCap Ltd. +44 20 7220 0500
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Jonny Franklin-Adams, Marc Milmo, Simon Hicks
- Corporate Finance
Andrew Burdis - ECM
-----------------
Luther Pendragon Ltd. +44 20 7618 9100
-----------------
Harry Chathli, Claire Norbury, Joe Quinlan
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The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Analyst Presentation
Robert Vale, CEO, and Jennifer Balleza, CFO, will be hosting a
presentation for analysts at 9.30am BST today at the offices of
Luther Pendragon, 48 Gracechurch Street, London, EC3V 0EJ.
About ClearStar
ClearStar, Inc. is a leading provider of Human Capital
Integrity(SM) technology-based services specialising in background
and medical screening. It provides employment intelligence direct
to employers and via channel partners/consumer reporting agencies
("CRAs") to support better recruitment and other decisions
affecting employees by increasing the quality, reliability, and
visibility of information.
A seven-time Inc. 5000 honoree and founding member of the
Professional Background Screening Association (formerly, 'NAPBS'),
ClearStar has provided innovative technology solutions to
businesses in the human capital management industry from its
corporate offices in Alpharetta, Georgia since 1995. For more
information about ClearStar, please visit: www.clearstar.net.
Operational Review
In the first six months of 2019, ClearStar continued to deliver
strong revenue growth, which increased by 17% to $11.6m (H1 2018:
$9.9m). This was driven by sales of the Company's industry-leading
Medical Information Services and onboarding and ramp-up of new
direct customers that were won in 2018, primarily for background
screening. The period also reflected the upscaling of the Company's
direct client base with the average spend per direct customer
increasing by 48% over the same period of the previous year.
The investment that the Company made towards the end of 2018 and
early in 2019 in strengthening its direct sales team enabled an
expansion in the pipeline, including some major client wins during
the period in its key markets of transport and logistics as well as
in new markets. The Company also continued to enhance its offer,
including the introduction of breath alcohol screening as part of
its medical screening services.
Performance by business channel
Sales from direct services increased by 49% to $4.2m for the
first half of 2019 (H1 2018: $2.8m), accounting for 36% of total
revenue (H1 2018: 28%). The growth was driven primarily by the
financial services and transportation and logistics industries,
with home healthcare remaining an important contributor to direct
revenue. There was also a significant increase in revenue generated
from an organisation that provides student exchange programmes, for
which the Company conducts background screening of the students and
host families. In addition, the direct services revenue growth
reflects the continued momentum in the upscaling of the direct
client base to larger, higher-volume businesses, with the average
spend per direct customer in the first half of 2019 increasing 48%
over the first half of 2018.
Following the award, towards the end of 2018, of ClearStar's
first contract for financial institution screening, the client,
which is a professional services company that provides outsourcing
and staffing primarily for the financial services industry, granted
the Company two extensions during the period. Under the contract,
ClearStar provides background screening to ensure compliance with
the US Federal Deposit Insurance Act (FDI Act), which governs the
Federal Deposit Insurance Corporation and the banks insured by that
organisation, and the US Patriot Act.
ClearStar continued to make progress in expanding its customer
base in its target growth market of transportation and logistics
with the appointment to provide background screening by a major
shipyard specialising in the design, building and support of
vessels for the U.S. Navy. The contract includes minimum annual
volumes over a three-year period, which adds to revenue
visibility.
Also, during the period, ClearStar was appointed by a leading
animal health and mineral nutrition company, with over 1,400
employees, to provide background and medical screening -
specifically, drug testing and occupational health. The superior
applicant experience and reduced recruiter touch points were key
considerations in the customer choosing ClearStar, which the
Company is able to deliver as a result of its mobile-friendly
applications, ClearMD and SAP(R) SuccessFactors(R) Recruiting
integration.
In addition, the investment made last year and during the period
in the new sales team and sales & marketing resulted in further
milestones being achieved. In particular, the Company entered a new
market with the award of a contract by Milestone Environmental
Services, a leading provider of oilfield waste disposal services
that is currently operating seven locations in Texas, US, to
provide a combination of drug and background screening services -
representing ClearStar's first direct client in the petrochemical
industry.
In the first half of 2019, sales to channel partners - indirect
services - increased by 4% to $7.4m (H1 2018: $7.1m) as a result of
MIS growth as described below. Indirect services accounted for 64%
of total revenue (H1 2018: 72%).
Performance by service offering
Medical Information Services
MIS continued to be the largest single contributor to revenue by
product, accounting for 43% of total revenue (H1 2018: 40%) and
grew strongly in the first half of 2019 with an increase in MIS
revenue of 25% to $5.0m (H1 2018: $3.9m). This growth was primarily
based on increased volume with existing channel partner customers
for drug testing services. This momentum continued post period with
monthly sales (for July 2019) exceeding $1.0m for the first
time.
Strong regulatory drivers in the area of drug screening have
continued to increase the time-sensitive requirement on ClearStar's
channel partner customers to bring a solution to market.
ClearStar's ability to deliver a white label solution that can be
quickly configured and integrated has made the Company's medical
technology the solution of choice for customers to rapidly resolve
any regulatory requirement gaps.
Sales to channel partners accounted for 83% of MIS revenue (H1
2018: 85%), but MIS revenue generated by direct customers, which
accounted for 17% of MIS sales (H1 2018: 15%), also grew strongly
and is making an increasingly meaningful contribution to total
sales. The growth in direct MIS revenue was primarily based on
increased volume with existing direct customers.
Other services
Excluding MIS, revenue from ClearStar's other services - which
primarily comprise background screening as well as the wholesale
provision of data and global services - increased to $6.6m (H1
2018: $5.9m). This was driven by an increase in sales in background
screening to direct clients, which grew by 50% for the first half
of 2019, and more than mitigated the reduction in revenue from
channel partner background screening.
Investing for growth
During the first half of 2019, ClearStar continued to strengthen
its offering and sales & marketing function to position it for
accelerated growth.
At the beginning of the year, the Company further enhanced its
sales team, establishing a team with combined experience of over 70
years in background screening sales. This investment contributed to
an expanded pipeline with ClearStar receiving an increase in
Request for Proposals (RFPs) of more than 120% year-to-date
compared with the whole of 2018.
In the first half of 2019, ClearStar enhanced its MIS offering
with the introduction of new services for ordering breath alcohol
screening to meet both Department of Transportation (DOT) and
non-DOT requirements. This includes a combined drug and breath
alcohol screening offer, which facilitates the screening process
for the employee and employer by allowing tests to be conducted at
the same location and providing consolidated results reporting.
This marks an important step towards ClearStar's goal of offering
complete medical review services.
The Company gained, post period, ISO/IEC 27001:2013
accreditation, which certifies that ClearStar's information
security, cybersecurity and privacy protection systems and policies
comply with international standards of best practice. This was
based on the successful completion of a formal audit process, which
confirmed that the Company's IT security systems, policies and
procedures met rigorous international standards in ensuring the
confidentiality, integrity and availability of data. The
accreditation also followed the Company having invested during the
period to enhance its security measures, such as for automated
threat monitoring.
Financial Review
ClearStar achieved strong revenue growth with an increase of 17%
for the six months ended 30 June 2019 to $11.6m compared with $9.9m
for the first half of 2018. This was based on strong growth in MIS,
which continues to be the primary growth driver by service, coupled
with increased demand in direct services.
Gross profit increased 12% to $6.3m (H1 2018: $5.7m) and gross
profit margin was 54.5% (H1 2018: 57.2%). The decrease in margin
was primarily due to having a higher percentage of revenue derived
from MIS, which has a lower gross margin than other services,
partially offset by achieving greater purchase economies.
Total operating expenses, including depreciation and
amortisation, were $7.1m (H1 2018: $6.3m). This includes general
and administrative expenses, which increased to $4.7m (H1 2018:
$4.0m), primarily due to two non-recurring items totalling $464k: a
severance payment to a former executive and exit costs associated
with an early lease termination relating to the Company's office
relocation. Selling and marketing expenses were also higher at
$1.2m (H1 2018: $794k) as the Company invested for growth with the
expansion of the direct sales team at the beginning of the year.
Research and development expenses decreased to $724k (H1 2018:
$804k), due to cost reduction measures, and depreciation and
amortisation expenses were also lower at $558k (H1 2018:
$655k).
As a result, loss before tax increased to $914k for the first
half of 2019 compared with $645k for the same period of the prior
year. Loss after tax was $930k (H1 2018: $666k loss).
The Company achieved strong growth in adjusted EBITDA for the
first half of 2019 to $191k (H1 2018: $65k) as a result of
generating higher revenue combined with cost control measures.
EBITDA has been adjusted to exclude the non-recurring items, which
are not reflective of the core business, including severance
payment and lease exit cost referred to above.
As of 30 June 2019, total assets were $9.9m (31 December 2018:
$7.8m), with the largest assets being goodwill and other intangible
assets of $3.9m (31 December 2018: $4.0m), accounts receivable of
$3.3m (31 December 2018: $2.2m) and cash of $1.1m (31 December
2018: $923k). At period end, the Company had up to $2.9m available
under its recurring revenue credit facility with Silicon Valley
Bank.
The Company's total liabilities as of 30 June 2019 were $5.7m
(31 December 2018: $2.7m), with the increase primarily due to the
growth in sales and a credit facility utilisation of $2.1m to
finance periodic technology infrastructure investment and
supporting growth in the business.
The Company utilised $793k in net cash for operating activities
during the period compared with generating $283k in operational
cash flow for the first half of 2018 mainly due to an increase in
the net loss and working capital accounts.
The Company used $1.2m in investment activities in the first
half of 2019 (H1 2018: $333k) due to increased technology-related
capital expenses associated primarily with the purchase of new
hardware and software to support and enhance the Company's
technology platform. The Company used $2.1m in financing
activities, which primarily relates to the credit facility
utilisation for working capital and general corporate purposes,
including the purchase of new hardware and software.
Outlook
The revenue momentum of the first six months of 2019 has been
sustained into the second half of the year with the onboarding and
ramp-up of previously-won contracts. For the year to the end of
August 2019, total revenue increased by 18% over the same period of
the prior year.
The investments that the Company has made over the last two
years in technology improvements, integrations and sales &
marketing are increasing ClearStar's brand awareness and enabling
it to successfully target larger, higher-volume customers. The
Company's sales growth continues to accelerate, and its pipeline is
expanding.
As a result, the Company continues to expect to achieve strong
revenue growth for full year 2019 and, with trading in line with
the Board's expectations, the Board looks to the future with
confidence.
CLEARSTAR, INC.
Consolidated Statements of Operations
(USD, in thousands)
Six Months Six Months Year Ended
Ended Ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited)
$ $ $
-------------- -------------- --------------
Net revenue 11,559 9,886 20,113
Cost of revenue 5,254 4,236 8,773
-------------- -------------- --------------
Gross profit 6,305 5,650 11,340
-------------- -------------- --------------
Operating expenses
Selling and marketing 1,164 794 1,655
Research and development 724 804 1,652
Depreciation and amortisation 558 655 1,226
General and administrative 4,694 4,007 8,141
-------------- -------------- --------------
Total operating expenses 7,140 6,260 12,674
Loss from operations (835) (610) (1,334)
-------------- -------------- --------------
Other expense
Interest expense (79) (35) (68)
-------------- -------------- --------------
Total other expense (79) (35) (68)
-------------- -------------- --------------
Net loss before taxes (914) (645) (1,402)
Provision (benefit) for income taxes 16 21 (65)
Net loss (930) (666) (1,337)
============== ============== ==============
CLEARSTAR, INC.
Consolidated Balance Sheets
(USD, in thousands)
As of As of As of
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited)
$ $ $
--------------------------- ------------------------- ---------------------------
ASSETS
Current assets
Cash 1,088 1,208 923
Accounts receivable --
trade, net 3,264 2,409 2,197
Research and development
tax credits 29 90 90
Prepaid expenses 702 340 358
--------------------------- ------------------------- ---------------------------
Total current assets 5,083 4,047 3,568
--------------------------- ------------------------- ---------------------------
Property and equipment, at cost
Computer equipment 743 588 70
Furniture and fixtures 225 298 283
Leasehold improvements 76 64 57
Less accumulated depreciation (158) (734) (241)
--------------------------- ------------------------- ---------------------------
Total property and
equipment, net 886 216 169
--------------------------- ------------------------- ---------------------------
Other assets
Goodwill and other intangible
assets, net 3,908 4,187 4,028
Deferred debt issuance costs,
net 16 63 40
Deposits 43 12 13
--------------------------- ------------------------- ---------------------------
Total other assets 3,967 4,262 4,081
--------------------------- ------------------------- ---------------------------
Total assets 9,936 8,525 7,818
=========================== ========================= ===========================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable 2,950 2,348 2,348
Accrued liabilities 360 398 179
Deferred revenue 45 30 81
State income taxes - - 7
Current portion of
obligations under capital
lease - 18 -
--------------------------- ------------------------- ---------------------------
Total current
liabilities 3,355 2,794 2,615
--------------------------- ------------------------- ---------------------------
Long-term liabilities
Line of credit 2,100 - -
Accrued liabilities 191 36 32
Deferred income taxes 41 125 27
--------------------------- ------------------------- ---------------------------
Total long--term
liabilities 2,332 161 59
--------------------------- ------------------------- ---------------------------
Stockholders' equity
Common stock, $0.0001 par
value; 100,000,000
shares authorised;
36,362,900 shares issued
and outstanding in 2019 and
36,302,900 in
2018 4 4 4
Additional paid--in capital 13,986 13,706 13,951
Accumulated deficit (9,741) (8,140) (8,811)
--------------------------- ------------------------- ---------------------------
Stockholders' equity 4,249 5,570 5,144
--------------------------- ------------------------- ---------------------------
Total liabilities and
stockholders' equity 9,936 8,525 7,818
=========================== ========================= ===========================
CLEARSTAR, INC.
Consolidated Statements of Changes in Stockholders' Equity
(USD, in thousands, except no. of shares)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
No. $ $ $ $
------------------------------- --------- ----------- ------------ ------
Balances at 1 January 2018 36,302,900 4 13,686 (7,474) 6,216
Non-cash stock compensation 20 20
Net loss (666) (666)
------------------------------- --------- ----------- ------------ ------
Balances at 30 June 2018
(unaudited) 36,302,900 4 13,706 (8,140) 5,570
Non-cash stock compensation 245 245
Net loss (671) (671)
------------------------------- --------- ----------- ------------ ------
Balances at 31 December 2018 36,302,900 4 13,951 (8,811) 5,144
Non-cash stock compensation 4 4
Issuance of common stock 60,000 31 31
Net loss (930) (930)
------------------------------- --------- ----------- ------------ ------
Balances at 30 June 2019
(unaudited) 36,362,900 4 13,986 (9,741) 4,249
=============================== ========= =========== ============ ======
CLEARSTAR, INC.
Consolidated Statements of Cash Flows
(USD, in thousands)
Six Months Six Months Year Ended
Ended Ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited)
$ $ $
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (930) (666) (1,337)
Adjustments to reconcile net loss to net
cash provided by (used for)
operating activities:
Change in allowance for doubtful accounts 3 (22) (22)
Depreciation and amortisation 558 655 1,226
Deferred income taxes 14 24 (73)
Non-cash stock compensation 4 20 265
Non-cash debt issuance costs 24 24 48
Loss on disposal of property and equipment 26 1 1
Loss on early lease exit costs 173 - -
Change in operating assets and liabilities:
Accounts receivable (1,070) (733) (521)
Research and development tax credits 62 (27) (27)
Prepaid expenses (344) (164) (183)
Deposits (30) (1) (1)
Accounts payable 599 893 893
Accrued liabilities 164 263 38
Deferred revenue (36) 22 72
State income taxes (7) (6) 1
-------------- -------------- --------------
Total adjustments 140 949 1,717
-------------- -------------- --------------
Net cash provided by (used for) operating
activities (790) 283 380
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (802) (22) (32)
Capitalised software development costs (374) (311) (665)
-------------- -------------- --------------
Net cash used for investing activities (1,176) (333) (697)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from Line of credit 2,100 - -
Proceeds from sale of common stock 31 - -
Principal payments on capital lease obligations - (45) (63)
-------------- -------------- --------------
Net cash provided by (used for) financing
activities 2,131 (45) (63)
-------------- -------------- --------------
Net cash increase (decrease) for period 165 (95) (380)
Cash at beginning of period 923 1,303 1,303
-------------- -------------- --------------
Cash at end of period 1,088 1,208 923
============== ============== ==============
Consolidated Statements of Cash Flows (continued)
(USD, in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Six Months Six Months Year Ended
Ended Ended
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited)
$ $ $
-------------- -------------- --------------
Cash paid:
Interest 55 10 19
Income taxes 2 1 8
-------------- -------------- --------------
57 11 27
============== ============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
During the year ended 31 December 2018, the Company retired
obsolete and fully-depreciated property and equipment of
approximately $552,000.
During the year ended 31 December 2018, the Company retired
fully-amortised intangible assets of approximately $1,376,000.
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
a) Nature of Operations
ClearStar, Inc. ("ClearStar"), an exempt company incorporated in
the Cayman Islands on 23 April 2014, is a holding company that owns
a 100% interest in ClearStar, Inc. ("ClearStar US"), an entity
formed on 23 March 1995, and incorporated in the state of Delaware,
and ClearStar Limited ("ClearStar UK"), a dormant entity formed in
the United Kingdom on 17 January 2014. ClearStar UK has been
dissolved effective 25 June 2019.
ClearStar together with its subsidiaries (collectively the
"Company") is a provider of Human Capital Integrity(SM)
technology-based services specialising in background and medical
screening, supporting background screening companies, employers and
employees with their recruitment and employment application
decisions. The Company provides employment intelligence to its
clients through a suite of information technology applications for
day-to-day use in their business. Employment intelligence aims to
improve business insight to support better recruitment and other
decisions affecting employees generally, by increasing the quality,
reliability and visibility of information available to
management.
b) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and those entities required to be consolidated under
generally accepted in the United States of America ("U.S. GAAP").
All significant intercompany transactions and balances have been
eliminated in consolidation.
c) Basis of Accounting
The accompanying financial statements have been prepared in
accordance with U.S. GAAP. These principles are established by the
Financial Accounting Standards Board ("FASB").
d) Use of Estimates
The preparation of consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions affecting reported amounts in the consolidated
financial statements and accompanying notes. Management considers
available facts and knowledge of existing circumstances when
establishing these estimates. The most significant items that
involve a greater degree of accounting estimates subject to change
in the future are the allowance for doubtful accounts, depreciable
lives of property and equipment, amortisation of other intangible
assets, certain accrued liabilities, stock-based compensation and
income taxes. Estimates for these and other items are subject to
change and are reassessed by management in accordance with U.S.
GAAP. Actual results could differ from these estimates.
e) Concentration of Credit Risk Arising From Cash Deposits in Excess of Insured Limits
The Company maintains cash balances at certain financial
institutions that at times may exceed federally insured limits.
From time to time, the Company's cash balances exceed such limits.
The Company has not experienced any losses in such accounts. The
Company believes it is not exposed to any significant risks on
cash.
f) Accounts Receivable
The Company extends credit to customers in a broad range of
industries located throughout the United States and abroad based on
the size of the customer, its payment history and other factors.
The Company generally does not require collateral to support
customer receivables. The Company provides an allowance for
doubtful accounts based upon a review of the outstanding accounts
receivable, historical collection information and existing economic
conditions. The Company determines if receivables are past due
based on days outstanding, and amounts are written off when
determined to be uncollectable by management. The maximum
accounting loss from the credit risk associated with accounts
receivable is the amount of the receivable recorded, which is the
face amount of the receivable, net of the allowance for doubtful
accounts. The majority of period-end receivables are collected
within the following fiscal quarter. The Company has not
historically had significant write-offs for these receivables.
g) Property and Equipment
Property and equipment, including assets acquired under capital
leases, is depreciated using the straight-line method over
estimated useful lives or lease terms if shorter. Expenditures for
maintenance and repairs are expensed as incurred, while renewals
and betterments that materially extend the life of an asset are
capitalised. The cost of assets sold, retired, or otherwise
disposed of, and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is
recognised.
Depreciation of property and equipment is provided using the
straight-line method over the estimated useful lives of the assets,
which are as follows:
Computer equipment 3 - 4 years
Furniture and fixtures 5 - 7 years
Leasehold improvements Lesser of estimated useful life or life
of the lease
Depreciation expense for the six months ended 30 June 2019 and
2018, and the year ended 31 December 2018 was approximately
$64,000, $83,000 and $141,000, respectively.
h) Deferred Debt Issuance Costs
Deferred debt issuance costs were incurred by the Company to
obtain a revolving line facility from a lender and are amortised
over the life of the respective debt agreement. The costs totalled
approximately $95,000 with accumulated amortisation of
approximately $79,000 and $32,000 as of 30 June 2019 and 2018,
respectively. The Company amortised approximately $24,000 of these
costs through interest expense for each of the six months ended 30
June 2019 and 2018 and approximately $48,000 for the year ended 31
December 2018. The remaining amortization expense as of 30 June
2019 is expected to be approximately $15,000 and will be fully
amortised as interest expense during the second half of 2019.
i) Goodwill
Goodwill recorded in the consolidated financial statements
represents the excess of the purchase price of an acquisition over
the fair value of acquired net assets on the date of acquisition.
Goodwill is not amortised since it was deemed to have an indefinite
useful life, but it is subject to an annual impairment test.
Accordingly, the carrying value of goodwill is reviewed for
impairment by the Company annually, or more often if events or
circumstances indicate that there may be impairment. The Company
has not recorded any goodwill impairment charges.
In evaluating goodwill impairment, the Company performs a
qualitative assessment to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying
amount. If the qualitative assessment is not conclusive, a two-step
process is used to test goodwill for impairment including comparing
the fair value of the reporting unit to its carrying value
(including attributable goodwill). Fair value for the Company's
reporting unit is determined using an income or market approach,
incorporating market participant considerations and management's
assumptions on revenue growth rates, operating margins, discount
rates and expected capital expenditures. Fair value determinations
may include both internal and third-party valuations. Unless
circumstances otherwise dictate, the Company performs its annual
impairment testing in the fourth quarter. If the carrying amount of
the goodwill exceeds the implied fair value of that goodwill, the
Company will recognise an impairment loss as an expense. No
impairment had occurred in the year ended 31 December 2018 as a
result of the annual goodwill impairment tests performed. There
have been no subsequent events requiring further analysis.
j) Intangible Assets
Intangible assets, other than capitalised software development
costs, arose from the purchase of certain assets in an acquisition
and are reported net of amortisation. These intangible assets,
including customer relationships and trade name, are amortised
using the straight-line method over their estimated useful life of
7 and 1 year(s), respectively.
The Company has capitalised external direct costs of services
consumed in developing and obtaining internal-use computer software
and the payroll and payroll-related costs for employees who are
directly associated with and who devote time to developing the
internal-use computer software.
Management's judgment is required in determining the point at
which various projects enter the application development stage at
which costs may be capitalised, in assessing the ongoing value of
the capitalised costs, and in determining the estimated useful
lives over which the costs are amortised. Costs in relation to the
preliminary stages of projects are expensed in the period in which
they are incurred. The Company expects to continue to invest in
internally developed software and to capitalise costs in accordance
with U.S. GAAP.
k) Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, and purchased
intangible assets subject to amortisation, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset or asset group be tested
for possible impairment, the Company first compares undiscounted
cash flows expected to be generated by that asset or asset group to
its carrying amount. If the carrying amount of the long-lived asset
or asset group is not recoverable on an undiscounted cash flow
basis, an impairment is recognised to the extent that the carrying
amount exceeds its fair value. Fair value is determined through
various valuation techniques including discounted cash flow models,
quoted market values and third-party independent appraisals, as
considered necessary. Management determined that there were no
impairments during the six months ended 30 June 2019 and 2018, and
the year ended 31 December 2018.
l) Revenue Recognition
Revenue from fixed monthly fees are derived primarily from
customers' use of the Company's services that are provided for an
agreed number of transactions. Arrangements for these services
generally have terms of one year or less, and the fixed monthly
fees are recognised as services are provided. The Company
recognises revenue from the per-transaction search results and/or
search result review services and drug testing services at the time
of delivery as the Company has no significant ongoing obligation
after delivery.
Deferred revenue consists of payments received in advance of
revenue recognition and contractual billings in excess of
recognised revenue. Deferred revenue includes one-time setup fees
and annual certification fees. One-time setup fees are based on the
Company's configuring and activating customers on internal and
third-party systems. The Company recognises one- time setup fees
revenue rateably over 12 months. Annual certification fees are
billed annually and are recognised rateably over the contract
period.
See Note 12 (Revenue from Contracts with Customers) for details
related to the Company's revenue recognition policies.
m) Advertising
The Company expenses advertising costs as incurred. Advertising
expenses for the six months ended 30 June 2019 and 2018, and the
year ended 31 December 2018 were approximately $202,000, $249,000
and $470,000, respectively.
n) Income Taxes
ClearStar is incorporated as an exempted company in the Cayman
Islands, which currently does not levy income taxes on individuals
or companies. ClearStar and its operating subsidiary, ClearStar US,
are both taxed as corporations for US federal income tax
purposes.
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of
taxes currently due plus deferred income taxes. Deferred income
taxes are recognised for differences between the basis of assets
and liabilities for financial statement and income tax purposes.
Deferred income tax assets and liabilities represent the future tax
return consequences of those differences, which will either be
taxable or deductible when the assets or liabilities are recovered
or settled. Deferred income taxes are also recognised for operating
losses that are available to offset future taxable income. The tax
provision differs from the expense that would result from applying
federal statutory rates to income before income taxes primarily
because of the marginal tax rates used to compute deferred income
taxes, the effect of state taxes and permanent differences between
determining income for financial statement purposes and taxable
income.
The Company is subject to tax audits in numerous jurisdictions
in the United States. Tax audits by their nature are often complex
and can require several years to complete. In the normal course of
business, the Company is subject to challenges from the Internal
Revenue Service ("IRS") and other tax authorities regarding amounts
of taxes due. These challenges may alter the timing or amount of
taxable income or deductions, or the allocation of income among tax
jurisdictions. The Company accounts for the uncertain tax
provisions using a minimum probability threshold that a tax
position must meet before a financial statement benefit is
recognised. The minimum threshold is defined as a tax position that
is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. The tax benefit to be recognised is measured as the
largest amount of benefit that is greater than fifty per cent.
likely of being realised upon ultimate settlement. The Company
recognises interest and penalties related to unrecognised tax
benefits as part of income tax expense. The cumulative effect of
considering uncertain tax positions resulted in no uncertain tax
liability in the consolidated balance sheets. The Company is not
subject to income tax examinations for the years ending prior to 31
December 2015.
o) Research and Development
Expenditures related to the development of new products and
processes are expensed as incurred. Research and development
expenses were approximately $724,000, $804,000 and $1,652,000, net
of approximately $0 of tax credits, for the six months ended 30
June 2019 and 2018, and the year ended 31 December 2018,
respectively.
p) Stock-Based Compensation
The Company values stock options at the time of grant using a
Black-Scholes model approach and records that fair market value as
compensation expense, adjusted for actual forfeitures, over the
requisite service period, using the straight-line method.
Stock-based compensation expense for the six months ended 30 June
2019 and 2018, and the year ended 31 December 2018 was
approximately $4,000, $20,000 and $265,000, respectively.
q) Fair Value of Financial Instruments
Fair value is the exit price that would be received upon the
sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Company's view on
the market assumption in the absence of observable market
information.
Valuation inputs are classified in the following three level
hierarchy:
(i) Level 1 inputs are unadjusted quoted prices in active
markets for identical assets or liabilities.
(ii) Level 2 inputs are directly or indirectly observable
valuation inputs for the asset or liability, excluding Level 1
inputs.
(iii) Level 3 inputs are unobservable inputs for the asset or
liability.
Highest priority is given to Level 1 inputs and the lowest
priority to Level 3 inputs. Acceptable valuation techniques include
the market approach, income approach and cost approach. In some
cases, more than one valuation technique is used.
Due to the short-term nature of cash, accounts receivable,
prepaid expenses, accounts payable, and accrued liabilities, their
fair value approximates carrying value.
r) New Accounting Principles
In May 2014, the FASB issued Accounting Standards Update No.
2014-09 ("ASC 606"), Revenue from Contracts with Customers (Topic
606). Under ASC 606, recognition of revenue occurs when a customer
obtains control of promised goods or services in an amount that
reflects the consideration to which the providing entity expects to
be entitled in exchange for those goods or services. ASC 606 also
requires additional disclosure about the nature, amount, timing and
uncertainty of revenue that is recognised. The Company adopted the
amendments in ASC 606 on 1 January 2019 using the modified
retrospective method. The adoption of ASC 606 did not result in any
changes in the timing or measurement of revenue recognition for the
Company's revenue.
s) Future Application of Accounting Standards
Recent accounting guidance not discussed above is not
applicable, is immaterial to the Company's consolidated financial
statements, or did not or is not expected to have a material impact
on the Company's business. For additional information on
recently-issued accounting guidance that has not yet been adopted,
see Note 1 (Summary of Significant Accounting Policies) to the
Company's consolidated financial statements within the 2018 Annual
Report.
2. Accounts Receivable
Accounts receivable consisted of the following:
As of 30 As of 30 As of 31
June 2019 June 2018 December
(Unaudited) (Unaudited) 2018
$000 $000 $000
------------- ------------- ----------
Trade accounts receivable 3,274 2,416 2,204
Allowance for doubtful
accounts (10) (7) (7)
------------- ------------- ----------
3,264 2,409 2,197
============= ============= ==========
3. Goodwill and Other Intangible Assets
Goodwill and other intangible assets were comprised of the
following as of 30 June 2019 (unaudited):
Gross Cost Accumulated Amortisation
------- ---------------------------------------------------- ------- ---------
Life Beginning Additions Disposal Ending Beginning Additions Disposal Ending Net
(years) $000 $000 $000 $000 $000 $000 $000 $000 $000
------------ ---------------- ---------------- ------------- ------- ---------------- ---------------- ---------------- ------- ---------
Goodwill Indefinite 2,283 - - 2,283 - - - - 2,283
Software
Development 3 2,172 374 - 2,546 1,145 374 - 1,519 1,027
Customer
Relationships 7 1,673 - - 1,673 955 120 - 1,075 598
---------------- ---------------- ------------- ------- ---------------- ---------------------------------- ------- ---------
6,128 374 - 6,502 2,100 494 - 2,594 3,908
================ ================ ============= ======= ================ ================================== ======= =========
Goodwill and other intangible assets were comprised of the
following as of 30 June 2018 (unaudited):
Gross Cost Accumulated Amortisation
------- ---------------------------------------------------- ------- ---------
Life Beginning Additions Disposal Ending Beginning Additions Disposal Ending Net
(years) $000 $000 $000 $000 $000 $000 $000 $000 $000
------------ ---------------- ---------------- ------------- ------- ---------------- ---------------- ---------------- ------- ---------
Goodwill Indefinite 2,283 - - 2,283 - - - - 2,283
Software
Development 3 2,883 311 - 3,194 1,675 452 - 2,127 1,067
Customer
Relationships 7 1,673 - - 1,673 717 119 - 836 837
---------------- ---------------- ------------- ------- ---------------- ---------------------------------- ------- ---------
6,839 311 - 7,150 2,392 571 - 2,963 4,187
================ ================ ============= ======= ================ ================================== ======= =========
Goodwill and other intangible assets were comprised of the
following as of 31 December 2018:
Gross Cost Accumulated Amortisation
------- ------------------------------------------------------ ------- ---------
Life Beginning Additions Disposal Ending Beginning Additions Disposal Ending Net
(years) $000 $000 $000 $000 $000 $000 $000 $000 $000
------------ ---------------- -------------------- ----------------- ------- ---------------- ---------------- ------------------ ------- ---------
Goodwill Indefinite 2,283 - - 2,283 - - - - 2,283
Software
Development 3 2,883 665 (1,376) 2,172 1,675 846 (1,376) 1,145 1,027
Customer
Relationships 7 1,673 - - 1,673 717 238 - 955 718
---------------- -------------------- ----------------- ------- ---------------- -------------------- -------------- ------- ---------
6,839 665 (1,376) 6,128 2,392 1,084 (1,376) 2,100 4,028
================ ==================== ================= ======= ================ ==================== ============== ======= =========
Approximate aggregate future amortisation expense is as
follows:
Year Ending 30 June:
Amount
$000
-------
2020 787
2021 586
2022 252
1,625
=======
4. Commitments and Contingencies
-- Operating Leases
The Company leases office space and equipment. The lease
agreements expire on various dates through October 2026.
Minimum lease payments under operating leases are recognised on
a straight-line basis over the term of the lease including any
periods of free rent for payment terms subject to escalation.
Aggregate rent, common area maintenance charges and property tax
expense for the six months ended 30 June 2019 and 2018, and the
year ended 31 December 2018 was approximately $117,000, $90,000,
and $186,000, respectively.
Effective 1 April 2019, the Company terminated its lease of an
office space. Pursuant to the terms and condition of the
termination agreement, the Company was required to pay
approximately $173,000 in fees associated with the lease exit
costs, particularly the buyout of the remaining lease obligations.
Concurrent with the execution of the termination agreement, the
Company entered into a new lease agreement with a separate third
party. Under the new lease agreement, the Company was reimbursed
for the lease exit costs made under the termination agreement.
As of 30 June 2019, future minimum lease payments under
non-cancellable operating leases were as follows:
Year Ending 30 June:
Amount
$000
-------
2020 260
2021 417
2022 396
2023 405
2024 416
Thereafter 788
2,682
=======
-- Capital Leases
The Company leased computer equipment under two agreements
classified as capital leases that expired in November 2018. The
lease obligations were subject to an interest rate of up to 8.7 per
cent. per annum and were payable in monthly instalments totalling
$9,334.
Assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the
fair value of the assets. The assets are depreciated over the
shorter of the estimated useful lives or the lease term if
ownership does not transfer to the Company at the end of the lease.
Depreciation of assets under capital leases is included in
depreciation expense.
Computer equipment held under capital leases consisted of the
following:
As of As of As of
30 June 30 June 31 December
2019 (Unaudited) 2018 (Unaudited) 2018
$000 $000 $000
------------------- ------------------- --------------
Cost of equipment and - 390 -
installation
Less: accumulated depreciation - (375) -
- 15 -
=================== =================== ==============
As of 30 June 2018, future minimum lease payments under capital
lease agreements consist of the following:
Amount
$000
-------
2019 19
Less: interest (1)
-------
18
Less: current portion (18)
-------
-
=======
-- Board of Directors Fees
Effective 30 May 2014, the Company contracts with two
non-executive directors ("NEDs") for 3-year terms subjective to
renewal for successive one-year periods. The Company pays
approximately $100,000 per annum to the NEDs. For the six months
ended 30 June 2019 and 2018, and the year ended 31 December 2018,
director fees were approximately $50,000, $50,000 and $100,000,
respectively.
-- Long-Term Vendor Commitment
In January 2019, the Company executed a three-year vendor
contract for an application security service, requiring an annual
fee of approximately $70,000, payable annually through January
2022.
5. Income Taxes
-- Tax effects of temporary differences are as follows:
As of 30 As of 30 As of 31
June 2019 June 2018 December
(Unaudited) (Unaudited) 2018
$000 $000 $000
------------- --------------------------- -------------------------
Allowance for doubtful accounts 2 2 2
Prepaid expenses (12) (48) (12)
Amortisation of software development (251) (251) (241)
Amortisation of intangible (203) 126 29
Amortisation of goodwill (152) (118) (27)
Accrued liabilities 62 10 9
Basis differences in property
and equipment 6 (1) 7
Net operating losses 2,195 1,188 2,043
Stock-based compensation 99 94 95
Tax credits 161 190 211
Other adjustments 12 9 11
------------- --------------------------- -------------------------
Total non-current 1,919 1,201 2,127
Less: valuation allowance (1,960) (1,326) (2,154)
Net deferred tax liabilities (41) (125) (27)
============= =========================== =========================
Deferred tax assets and liabilities are recognised for the
expected tax consequences of temporary differences between the book
and tax bases of the Company's assets and liabilities. Valuation
allowances are recorded to reduce deferred tax assets when it is
more likely than not that a tax benefit will not be realised.
Management does not expect deferred tax assets to be fully realised
in future years. Therefore, a valuation allowance has been
recorded.
-- The components of the provision for income taxes are as follows:
Six Months Six Months Year Ended
Ended 30 Ended 30 31 December
June June 2018 2018
2019 (Unaudited) (Unaudited)
$000 $000 $000
---------------------------- --------------------------- -------------------------
Current tax expense:
Federal - - -
State 2 (3) 8
--------------------------- -------------------------
Total current tax expense
(benefit) 2 (3) 8
---------------------------- --------------------------- -------------------------
Deferred tax expense:
Federal 14 24 (77)
State - - 4
---------------------------- --------------------------- -------------------------
Total deferred tax expense
(benefit) 14 24 (73)
Total provision for income
taxes 16 21 (65)
============================ =========================== =========================
The effective income tax rate differs from the federal statutory
income tax rate due to state income taxes, certain non-deductible
expenses and a decrease of approximately $194,000 in the valuation
allowance for the period.
On 22 December 2017, the Tax Cuts and Jobs Act ("Tax Act") was
enacted in the United States, which includes a broad range of tax
reforms affecting businesses, most notably changes to the U.S.
federal income tax laws, including reduction of the corporate tax
rate from 35.0% to 21.0%, income tax deductions, and international
tax provisions. Under Accounting Standards Codification Topic 740
("ASC 740"), the impact of changes in tax laws must be recorded in
the financial statements in the reporting period that includes the
date of enactment. However, the Securities and Exchange Commissions
("SEC") and the FASB both recognise that the magnitude of this law
change will require companies to perform extensive analysis and
calculations to conform to the new provisions. The SEC issued Staff
Accounting Bulletin ("SAB") 118, which allowed companies to
recognise provisional amounts for the tax effects resulting from
the enactment of the Tax Act for which the accounting under ASC 740
is incomplete, but a reasonable estimate can be determined.
Adjustments to these provisional amounts, if any, are to be
completed within a measurement period not to exceed one year. The
Company completed its accounting for the estimated tax effects of
the Tax Act and identified the following areas:
-- One-time Repatriation Tax on Foreign Earnings: The Tax act
imposed a mandatory one-time tax charge on accumulated,
undistributed foreign earnings, traditionally not subject to U.S.
federal income tax until distributed as a dividend to U.S.
shareholders. As ClearStar UK is dormant and does not have any
accumulated or undistributed foreign earnings, the Company
concluded that is not subject to the repatriation tax associated
with accumulated, undistributed foreign earnings.
-- Global intangible low-taxed income ("GILTI"): Under U.S.
GAAP, companies can make a policy election as to either recognise
Global intangible low-taxed income as incurred or recognised it as
deferred. An entity selection of an accounting policy related to
the GILTI tax provisions depends, in part, on analysing its global
income to determine whether the entity expects to have future U.S.
inclusions in taxable income related to GILTI and, if so, what the
impact is expected to be. As ClearStar UK is dormant, the Company
concluded that GILTI is not expected to apply to 2018 or future
periods. Further, the Company has made a policy decision to record
such taxes, if any, as incurred.
-- Foreign-derived intangible income ("FDII"): While the Company
has foreign sales in 2018, the Company has an overall taxable loss,
and accordingly no FDII deduction should be allowable. If the
Company were in an income position the amount of the FDII deduction
would also be immaterial based on the Company's level of foreign
sales.
As of 30 June 2019, the Company had approximately $8,992,000 in
net operating loss carryforwards ("NOL") available to use against
taxable income. The NOLs will begin to expire starting in 2023 and
through 2038.
As of 30 June 2019, the Company had approximately $211,000 in
federal research and development ("R&D") credits available to
use against taxable income. The R&D credits will begin to
expire starting in 2034.
6. Revolving Line Facility
In October 2017, the Company obtained a revolving line facility
with a Lender ("Revolving Line") to borrow up to $5,000,000,
accruing interest of Prime plus up to 1.75% per annum, payable
monthly. The Revolving Line is also subject to an unused revolving
line facility fee of 0.375% per annum, payable monthly, on the
average unused portion and requires compliance with certain
financial and non-financial covenants that are customary for this
type of lending. The Revolving Line is secured by all assets of the
Company and matures on 19 October 2019. A stock warrant to purchase
90,755 shares of Ordinary Shares was granted to the Lender as
consideration.
As of 30 June 2019, the amount of the Revolving Line outstanding
was $2,100,000. The Company was not in compliance of certain
covenants as of 30 June 2019, and in conjunction with an amendment
in September 2019, the Lender waived the Company's existing
covenant breach. The Revolving Line maturity date has been extended
to October 2021, and certain covenant requirements were amended
accordingly. See Note 15 (Subsequent Events) for additional
discussion on the Revolving Line renewal.
7. Stockholders' Equity
The Board has authorised 100,000,000 shares of Ordinary Shares,
$0.0001 par value. There were 36,362,900, 36,302,900, and
36,302,900 of shares issued and outstanding as of 30 June 2019 and
2018, and 31 December 2018, respectively.
8. Stock-Based Compensation
In June 2014, the Company adopted the 2014 Share Option and
Incentive Plan ("Plan") that authorised the Board to grant options
and restricted stock to employees and directors to acquire up to
3,000,000 shares of the Company's Ordinary Shares. The option price
generally may not be less than the underlying stock's fair market
value on the date of the grant. The options generally vest rateably
up to a three-year period beginning the date of grant and expire as
determined by the Board, but not more than 10 years from the date
of grant. The amounts granted each calendar year is limited
depending on certain terms of the Plan. As of 30 June 2019,
1,138,400 shares remain available for grant under the Plan. The
Plan terminates in June 2024.
The following table summarises activity of the Company's stock
options during the six months ended 30 June 2019 and 2018, and the
year ended 31 December 2018:
Weighted-
Average
Shares Exercise Price
--------------- ---------------
Outstanding as of 1 January 2018 1,776,165 $0.86
Granted 100,000 $0.60
Forfeited or cancelled (1) (1,399,000) $0.89
---------------
Outstanding as of 30 June 2018 (unaudited) 477,165 $0.58
Granted (2) 1,837,600 $0.84
Forfeited or cancelled (231,165) $0.92
---------------
Outstanding as of 31 December 2018 2,083,600 $0.79
Granted 90,000 $0.66
Exercised (60,000) $0.51
Forfeited or cancelled (252,000) $0.85
---------------
Outstanding as of 30 June 2019 (unaudited) 1,861,600 $0.78
---------------
Exercisable as of 30 June 2019 (unaudited) 1,671,600 $0.79
---------------
Exercisable as of 31 December 2018 1,859,600 $0.80
---------------
Exercisable as of 30 June 2018 (unaudited) 342,165 $0.60
---------------
(1) Consists of 442,165 forfeited shares and 1,188,000 of
fully-vested awards that the Board elected to replace.
(2) Consists of 286,000 granted shares and 1,651,600 replacement
awards associated with shares that the Board elected to cancel.
As of 30 June 2019, there was approximately $32,000 of total
unrecognised compensation costs related to unvested stock options,
which is expected to be recognised over a weighted-average period
of 2.43 years.
The following assumptions were used for the Black-Scholes option
pricing model:
3 June
2019 2 July 2018
----------- -------------
Weighted-average fair value on day of grant $0.19 $0.23
Risk-free interest rate 1.83% 1.95%
Expected dividend yield 0.00% 0.00%
Expected volatility 32.29% 30.76%
Weighted-average expected life of option 4.00 years 4.00 years
9. Stock Warrant
In conjunction with the executed Revolving Line in October 2017
as described in Note 6 (Revolving Line Facility), the Company
issued a stock warrant as consideration to the Lender to purchase
90,755 shares of Ordinary Shares at $0.59 per share. The warrant
expires in October 2027 and is fully vested; if the fair market
value of an Ordinary Share is greater than the exercise price on
the Expiration Date, the stock warrant will automatically be deemed
exercised.
The following assumptions were used for the Black-Scholes
warrant pricing model:
19 October 2017
----------------------
Weighted-average fair value on day
of grant $0.22
Risk-free interest rate 2.69%
Expected dividend yield 0.00%
Expected volatility 37.97%
Weighted-average expected life of
warrant 5.00 years
10. Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is computed by dividing
net income by the weighted average number of shares of common stock
and common stock equivalents outstanding during the period.
Dilutive common stock equivalents represent shares issuable upon
assumed exercise of stock options.
Six Months Six Months Year Ended
Ended 30 Ended 30 31 December
June 2019 June 2018 2018
(Unaudited) (Unaudited)
------------- ------------- ------------
Basic income per share ($0.03) ($0.02) ($0.04)
Diluted income per share ($0.03) ($0.02) ($0.04)
Weighted-average common shares outstanding:
Basic and diluted 36,362,900 36,302,900 36,302,900
11. Employee Retirement Plan
The Company sponsors an employee retirement plan known as the
ClearStar, Inc. 401(k) Profit Sharing Plan Trust (the "401k Plan").
Under the 401k Plan, employees may contribute up to the maximum
contributions as set periodically by the Internal Revenue Service.
Additionally, the Company may make a discretionary contribution to
the 401k Plan. Employer profit sharing contributions vest over six
years. Participant contributions and employer safe harbour matching
contributions are 100 per cent. vested.
For the six months ended 30 June 2019 and 2018, and the year
ended 31 December 2018, matching contributions were approximately
$72,000, $78,000 and $153,000, respectively.
12. Revenue from Contracts with Customers:
The Company's revenue is derived from providing background
screening and medical information services to direct and indirect
customers on a transactional basis, in which distinct services are
delivered over time as the customer simultaneously receives and
consumes the benefits of the services provided. Under ASC 606,
revenue is recognized when a performance obligation is satisfied by
transferring control of a promised product or service to the
customer. Revenue is measured based on the amount of consideration
that the Company expects to receive in exchange for those goods or
services. In accordance with ASC 606, revenue is recognized when
all of the following criteria are met: (1) the Company has entered
into a binding agreement, (2) the performance obligations have been
identified, (3) the transaction price to the customer has been
determined, (4) the transaction price has been allocated to the
performance obligations in the contract, and (5) the performance
obligations have been satisfied.
The Company recognizes revenue when it has an agreement with the
customer that creates an enforceable right, the performance
obligations are distinct, and the transaction price is determined.
Revenue is recognized at the point in time the Company's
performance obligation to the customer is satisfied, which is the
transfer date. Payment from the customer is due and subject to
normal terms. Typical payment terms range from 30 to 45 days,
depending on the type of customer and relationship. The Company has
no material obligations to refund fees on contracts with customers
subsequent to completion of its performance obligation. Discounts
provided to customers at the time of sale are recognized as a
reduction in sales as the products or services are provided.
The Company does not enter into commitments to provide goods or
services that have terms greater than one year. Therefore, the
Company expenses direct costs of obtaining a contract when incurred
because the amortization period would have been one year or
less.
13. Concentrations
-- Significant Vendor
A significant vendor is defined as one from which the Company
receives at least 10 per cent. of its total purchases. For the six
months ended 30 June 2019 and 2018, and the year ended 31 December
2018, the Company had purchases from two suppliers totalling
approximately $2,678,000, $2,284,000 and $4,741,000 which comprised
approximately 51, 54 and 54 per cent. of the Company's purchases,
respectively. Accounts payable and accrued liabilities included
approximately $1,623,000, $1,261,000 and $1,440,000 to these
vendors as of 30 June 2019 and 2018, and 31 December 2018,
respectively.
-- Significant Customer
A significant customer is defined as one from whom at least 10
per cent. of reported revenue is derived. For the six months ended
30 June 2019, there is no significant customer whose revenue
individually represented 10 per cent or more of the Company's total
revenue. For the six months ended 30 June 2018 and the year ended
31 December 2018, the Company had sales to one customer totalling
approximately $1,067,000 and $2,254,000, respectively, which
comprised approximately 11 per cent. of the Company's revenue. As
of 30 June 2018 and 31 December 2018, the accounts receivable
balance included approximately $233,000 and $156,000, respectively,
from this customer.
14. Related Party Transactions
The Company contracted with a certain shareholder of the Company
to provide consulting services. During the six months ended 30 June
2019 and 2018, and the year ended 31 December 2018, the Company
incurred approximately $28,000, $19,000 and $38,000, respectively,
in consulting fees to this related party.
15. Subsequent Events
The Company evaluated subsequent events through 18 September
2019, when these consolidated financial statements were available
to be issued.
In September 2019, the Company amended its Revolving Line with
its Lender, including extending the maturity to October 2021.
Except as disclosed above, management is not aware of any other
significant events that occurred subsequent to the consolidated
balance sheet date but prior to the filing of this report that
would have a material impact on the consolidated financial
statements.
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 rns@lseg.com or visit www.rns.com.
END
IR EADNXFSNNEAF
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