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RNS Number : 4575E
Ethernity Networks Ltd
30 June 2023
30 June 2023
Ethernity Networks Ltd.
("Ethernity" or the "Company")
Results for the Year Ended 31 December 2022
Ethernity Networks Ltd (AIM: ENET.L), a leading supplier of data
processing semiconductor technology for networking appliances,
today announces its audited results for the year ended 31 December
2022.
Financial Highlights
-- Revenues increased by 11.5% to $2.94m (2021: $2.64m)
-- Gross margins declined by 17.82% to $ 1.6m (2021: $1.9m)
-- Gross Margin percentage declined to 54.41% (2021: 73.80%)
-- Operating costs before amortisation of intangible assets,
depreciation charges, provisions and other non-operational charges
increased by 15.5% to $8.0m (2021: $6.9m)
-- EBITDA Loss increased by 27.6% to a loss of $ 6.4m (2021: $5.05m)
-- Cash funds raised during the year of $2m before costs (2021: $11.2m)
Operational Highlights
-- The Company's sales of its DPU SoC increased by 200% with the
majority being the shipment of the ENET DPU SoC to its U.S. fixed
wireless system provider customer, with 2023 orders remaining on
track for supply, and an increased forecast from the customer for
2024;
-- the Company signed a contract for a second-generation
platform, based on a scaled-up version of the Company's DPU SoC
offering, with its U.S. fixed wireless OEM customer;
-- the Company progressed with the delivery of the $3 million
GPON and XGS-PON OLT SoC contract for its Chinese/Indian OEM, and
is now progressing with the customer for deployment;
-- the Company signed a follow-on contract of $4.6 million with
that customer for delivery of a PON device for Fiber-to-the-Room
deployment;
-- the Company delivered a UEP2025 for testing and integration
with an existing prominent microwave wireless OEM customer and is
working with the customer on joint go-to-market plans.
Post-period Highlights
-- First release of the UEP bonding product provided to our
existing Bonding OEM customer, with the customer planning to
commence field trials during Q3 2023 and initiate deployment during
Q4 2023.
-- The Asian vendor's XGS-PON OLT platform, that embeds
Ethernity's XGSPON MAC FPGA SoC, plans to commence deployment
during this year.
-- The FTTR gateway was completed, however we expect delays in
deployment by the customer, due to the customer's own constraints,
therefore FTTR revenues for the current year from the customer are
uncertain.
-- The Company built a new plan for a two layer PON solution
that utilizes the FTTR platform with more functionality and at a
higher price to serve high-rise buildings such as
Multi-Dwelling-Units (MDUs).
-- Received a purchase order for $1.5 million from its existing
fixed wireless customer to supply the Company's data processing
system-on-chip (SoC) in staged deliveries during Q3 2023.
-- The Company is in discussions regarding the licensing of its
PON technology with other potential vendors.
David Levi, Chief Executive, said "While it is a challenging
period due to the world financial situation, I am encouraged by the
fact that there is demand for our PON offerings that have captured
interest from larger corporations, and I am hopeful that, with the
cost reductions implemented and the modified business plan,
engagement in multiple design wins for our PON technology will
fulfil our further anticipated growth."
Re-Election of Directors
In accordance with the Company's Articles of Association, the
Company's Directors serve for a period of three years. In terms of
the General Meeting of the Company held on 22 June 2020, the term
of David Levi and Shavit Baruch, in their capacity as directors,
had been extended until 22 June 2023, the term of Mark Reichenberg
in his capacity as director, had been extended until 28 June
2023.
The re-election of Messrs. Levi, Baruch and Reichenberg as
directors for a further three years was approved by the Board of
Directors on 29 June 2023 and are to be ratified at the Company's
2023 annual general meeting ("AGM").
Posting of Annual Report
The annual report and accounts for the year ended 31 December
2022 is being posted to shareholders shortly and will be available
on the Company's website at www.ethernitynet.com . The notice of
annual general meeting will be despatched in due course.
For further information, please contact:
Ethernity Networks Ltd Tel: +972 8 915 0392
David Levi, Chief Executive Officer
Mark Reichenberg, Chief Financial Officer
Allenby Capital Limited (Nominated Adviser Tel: +44 (0)20 3328
and Joint Broker) 5656
James Reeve / Piers Shimwell (Corporate
Finance)
Amrit Nahal / Stefano Aquilino (Sales and
Corporate Broking)
Peterhouse Capital Limited (Joint Broker) Tel: +44 (0)20 7562
0930
Lucy Williams / Duncan Vasey / Eran Zucker
About Ethernity ( www.ethernitynet.com )
Ethernity Networks (AIM: ENET.L OTCQB: ENETF) provides
innovative, comprehensive networking and security solutions on
programmable hardware that increase telco/cloud network
infrastructure capacity. Ethernity's semiconductor logic offers
data processing functionality for different networking
applications, innovative patented wireless access technology, and
fibre access media controllers, all equipped with control software
with a rich set of networking features. Ethernity's solutions
quickly adapt to customers' changing needs, improving
time-to-market, and facilitating the deployment of 5G over wireless
and fibre infrastructure.
Chairman's Statement
I am pleased to present my report as Chairman of the Board.
Since my appointment as Chair on 10 March 2021, I have spent
considerable time with the CEO and members of the Board and
management both inside and outside of formal meetings so as to
fully understand the Company's strategy, the challenges and the
current dynamic environment in which the Company operates. I
believe that the general strategic direction the Company has taken
was in line with the market direction in the past year. The
continued level of interest and engagement with more significant
market players was proof to me that the strategic direction of the
Company was the right one.
2022 was not without its challenges for Ethernity, and while the
Company continued with its strategic direction, the remaining
impacts of COVID-19, the components shortage, the instability in
the world stock markets and the world financial economic inflation
and uncertainty had an effect on planned deliveries during the
year, resulting in revenue delays. Revenue increased by 11.46% for
the 2022 financial year to $2.94 million (FY 2021 $2.63 million),
while gross margin for the year was $1.60 million (2021 $1.94
million) and an operating loss of $8.70 million (2021 $6.32
million). This is further expanded upon in the Financial Report
section of the Annual Report.
Outlook
The first six months of the current year have presented
unexpected challenges, due to delays in expected orders from
existing customers. As a result, the Company was required to
undertake a placing in May 2023 to provide short term working
capital, and has taken several steps to reduce cash burn, including
cuts to resources. The Company is also changing its business model
to meet the current situation, as described by the CEO in his
report. Notwithstanding the challenging market conditions, positive
progress has been made in the current year with a number of
customer engagements, as recently demonstrated by our $1.5 million
order from our existing fixed wireless customer.
Yosi Albagli
Chairman
30 June 2023
Chief Executive's Statement
During 2021 and 2022, Ethernity Networks enjoyed very active
years in contracts signed and market acceptance of our product and
solutions offerings, as evidenced by the major growth in sales of
our DPU SoC during 2022 resulting in an increase in FPGA product
sales of 200%. Yet, on the other hand, the Company faced new
challenges due to the world wide component shortage, especially as
the Company had planned to introduce its complete system product to
the market, which required tight supply chain management.
During the year under review, the Company continued its main
focus of delivering complete solutions, including network operating
systems, and hardware. We further continued development of our ENET
5200 FPGA System-on-Chip (SoC) Quad XGS-PON OLT devices as per the
$3 million contract with an Asian broadband network OEM, first
announced on 18 October 2021, which will enable two types of PON
(XGS-PON and GPON) for use in the OEM's 5G fronthaul products, as
well as other fiber access deployments, which resulted in a follow
on $4.6 million contract for Fiber-To-The-Room FPGA SoC Device
(announced on 20 September 2022).
The Company continued the UEP system product development
targeting the estimated $2 billion cell site router market, where
over and above the regular cell site routing functions, the UEP
differentiates itself by embedding the Company's patented link
bonding to allow transmission of higher speed throughput over
multiple wireless connections. In March 2023, the Company announced
the delivery of the first release of the product to an existing
microwave OEM customer, who plans commencing field trials during Q3
2023, with the initiation of deployment production targeted in Q4
2023.
Further to this, following on from the successful rollout of our
DPU SoC delivered for the Company's American fixed wireless
broadband solution customer, the customer signed a further $340k
contract to adapt Ethernity's solution for the customer's
first-generation product with extended performance into a
second-generation product.
Ethernity operates and sells its product through OEMs, and its
Radio Access Network offering includes a mix of FPGA SoCs embedding
our ENET network flow processor switch/router data plane, which is
deployed in our OEMs' products, FPGA SmartNIC for Fronthaul
aggregation, vRouter offload, Central Unit Data Plane offload and
UPF data plane offload, and a cell site gateway appliance under the
Universal Edge Platform (UEP) product family.
Over the last decade, the Company ENET DPU SoC devices have been
deployed into 850,000 systems over more than 20 different
platforms, with different solutions and configurations into
Ethernet access devices, broadband access, aggregation platforms,
wireless access, cellular base stations and the aviation
market.
The Company has built extensive knowledge in the wireless and
cellular market, and over the last decade signed multiple licensing
contracts for use of our ENET Flow Processor IP with vendors
developing products and systems. The Company has delivered
thousands of FPGA SoCs into this market, including fixed wireless
systems (proprietary and LTE) base stations, point-to-point
microwave systems and 4(th) gen LTE EPC data plane. All of which
are the backbone of our current 5G offering, with many of today's
OEMs that serve fixed wireless and wireless backhaul embedding
Ethernity's offering in their platforms.
Current Trading
During the first half of 2023, we continued to progress with
releases of our new products including 10G and GPON intellectual
property ported on FPGA, and the release of the UEP bonding
product.
Notably to date in 2023, the following has been achieved:
-- First release of the UEP bonding product provided to our
existing Bonding OEM customer, with the customer planning to
commence field trials during Q3 2023 and initiate deployment during
Q4 2023, followed by mass deployment during 2024.
-- The Asian vendor's XGS-PON OLT platform, that embeds
Ethernity's XGSPON MAC FPGA SoC, plans to commence deployment
during this year.
-- The FTTR gateway was completed, however we expect delays in
deployment by the customer, due to the customer's own constraints,
therefore FTTR revenues for the current year from the customer are
uncertain.
-- The Company built a new plan for a two layer PON solution
that utilizes the FTTR platform with more functionality and at a
higher price to serve high-rise buildings such as
Multi-Dwelling-Units (MDUs).
-- Received a purchase order for $1.5 million from its existing
fixed wireless customer to supply the Company's data processing
system-on-chip (SoC) in staged deliveries during Q3 2023.
-- The Company is in discussions regarding the licensing of its
PON technology with other potential vendors.
Outlook
The discounted fundraising undertaken in May 2023 resulted in
the Company modifying its business both in terms of costs and the
revenue model, to progress the Company towards generating positive
cash flows from operations in the latter half of 2023 without
requiring the need for further funding, as it has proven difficult
under current market conditions to raise funds at a fair value
representing the underlying IP and signed contracts. We appreciate
that raising funds under such conditions may impair existing
shareholder value.
With that in mind it was decided to take careful steps towards
generating positive cash flow from operations during FY2023, which
will include a combination of a modified business model, a
reduction in costs, combined with the anticipated growth in
licensing sales.
The PON technology business model will be converted into a
licensing model that will position the Company to generate 100%
gross margin on the licensing revenues and, together with the cost
reductions being implemented within the development area, it is
anticipated to reduce resource costs by 35%. Once these plans are
implemented, the Company anticipates it will be sufficiently funded
to allow it to generate further growth business for the UEP 2025
with link bonding.
While it is a challenging period due to the world financial
situation, I am encouraged by the fact that there is demand for our
PON offerings that have captured interest from larger corporations,
and I am hopeful to engage in multiple design wins for our PON
technology, that will fulfil our further anticipated growth during
2024.
David Levi
Chief Executive Officer
30 June 2023
Financial Review
Financial Performance
Through the past financial year we continued to progress our
current strategy of becoming a supplier of customised and
differentiated solutions and technology. The Company has made
significant progress during 2022 in the commercialisation of its
Data Processing Unit (DPU) System-on-Chip (SoC) devices with a 200%
growth over 2021 and the development of the Passive Optical
Networks (PON) SoC devices which has been proven in the
accomplishments, engagements, contracts and progress over the past
year.
During 2022, the following highlights were achieved that are
expected to support revenue growth in 2023 and onward:
-- The Company's sales of its DPU SoC increased by 200% with the
majority being the shipment of the ENET DPU SoC to its U.S. fixed
wireless system provider customer, with 2023 orders remaining on
track for supply, and an increased forecast from the customer for
2024;
-- the Company signed a contract for a second-generation
platform, based on a scaled-up version of the Company's DPU SoC
offering, with its U.S. fixed wireless OEM customer;
-- the Company progressed with the delivery of the $3 million
GPON and XGS-PON OLT SoC contract for its Chinese/Indian OEM, and
is now progressing with the customer for deployment;
-- the Company signed a follow-on contract of $4.6 million with
that customer for delivery of a PON device for Fiber-to-the-Room
deployment;
-- the Company delivered a UEP2025 for testing and integration
with an existing prominent microwave wireless OEM customer and is
working with the customer on joint go-to-market plans.
The knock-on effect of COVID-19 pandemic continued to create
challenges in aligning ourselves with the issues within the markets
in which we operate, and our customers goals. Planned deliveries
were affected, which was specifically caused by the worldwide
components shortage during the year and the supply of components in
all marketplaces continues to be an issue. Whilst the Company took
immediate steps to secure components needed for delivery on its
order commitments for its 2022 deliveries, the impact was also felt
by our customers and suppliers who inevitably pushed out their
planned deliveries. This did impact on the realisation of planned
revenues for 2022, resulting in approximately $0.6 million of
revenue delays for the remainder of the 2022 year as a result of
delays in projects resulting from component shortages, and certain
customers informing the Company that they were not ready to receive
milestone deliveries as had previously been anticipated.
Highlights
-- Revenues increased by 11.5% to $2.94m (2021: $2.64m)
-- Gross margins declined by 17.82% to $ 1.60m (2021: $1.94m)
-- Gross Margin percentage declined to 54.41% (2021: 73.80%)
-- Operating costs before amortisation of intangible assets,
depreciation charges, provisions and other non-operational charges
increased by 15.5% to $8.0m (2021: $6.9m)
-- EBITDA Loss increased by 29.27% to a loss of $ 6.4m (2021: loss of $ 4.98m)
-- Cash funds raised during the year of $2m before costs (2021: $11.2m)
Key financial results
Recognition of Research and Development Costs.
In line with the change in policy adopted by the Company from 1
July 2019 the Company continues with the policy of no longer
continuing to recognise the Research and Development costs as an
intangible asset but recognising these as an expense and charged
against income in the year incurred.
For the years ending 31 December 2020 and 2021 management
performed their own internal assessment of the fair value of the
intangible asset and concluded that the value of the asset is fair
and no impairment of the intangible asset on the balance sheet is
required. This process was repeated by management for the financial
year under review, 31 December 2022, and the assertion that the
underlying value of the intangible asset exceeds the carrying value
on the balance sheet remains unchanged.
EBITDA
EBITDA, albeit it not a recognised reportable accounting
measure, provides a meaningful insight into the operations of a
company when removing the non-cash or intangible asset elements
from trading results along with recognising actual costs versus
some IFRS adjustments, in this case being the amortisation and
non-cash items charges in operating income and the effects of IFRS
16 treatment of operational leases.
The EBITDA for the financial year ended 31 December 2022 is
presented as follows:
EBITDA US Dollar Increase %
(Decrease)
------------------------------------- ---------
For the year ended
31 December
------------------------------------- ---------
2022 2021
------------------------------------- ----------- ---------
Revenues 2,937,424 2,635,420 302,004 11.46%
Gross Margin as presented 1,598,328 1,944,903 -346,575 -17.82%
Gross Margin % 54.41% 73.80% 0
----------- ------------ ---------
Operating (Loss) as presented -8,117,844 -6,327,475 -1,790,369 28.30%
Adjusted for:
Add back Amortisation of Intangible
Assets 961,380 961,380 0 0%
Add back Share based compensation
charges 221,362 77,583 143,779 185.32%
Add back vacation accrual charges 35,646 -27,519 63,165 -229.53%
Add back impairments 599,200 80,000 519,200 649.00%
Add back depreciation charges on
fixed assets 108,581 86,168 21,087 26.01%
Add back IFRS operating leases
depreciation 339,561 173,675 165,886 95.52%
------------------------------------- ---------
EBITDA -6,431,146 -4,976,188 -1,454,958 29.24%
------------------------------------- ---------
The EBITDA losses increased during the 2022 year from $4.98
million in 2021 to $6.43 million in 2022. The increase in the
EBITDA losses were driven mainly by increases in Research and
Development costs of $1.07m which arose largely as a result of
staff resources being increased for the new product developments
during the 2022 financial year. Increases in General and
Administrative costs of $236,000 before IFRS fixed assets and lease
depreciation derived mainly from increases in property costs and
the increase in listed company fees and costs. Marketing and Sales
expenses increased slightly by $123,000 as marketing activities
abroad increased as trade shows and conferences re-opened
subsequent to COVID-19.
These EBITDA losses are anticipated to start reducing during the
latter half of 2023 as the future gross margins and margin
percentages increase based on the revised business model are
realised.
Summarised trading results
Summarised Trading Results US Dollar Increase %
(Decrease)
------------------------ ---------
Audited
For the year ended
31 December
---------
2022 2021
----------- ----------- ---------
Revenues 2,937,424 2,635,420 302,004 11.46%
Gross Margin 1,598,328 1,944,903 -346,575 -17.82%
Gross Margin % 54.41% 73.80%
----------- ------------ ---------
Operating (Loss) -8,696,876 -6,327,475 -2,369,401 37.45%
Financing costs -573,388 -3,074,452 2,501,064 -81.35%
Financing income 1,267,652 228,404 1,039,248 455.00%
----------- ------------ ---------
(Loss) before tax -8,002,612 -9,173,523 1,170,911 -12.76%
Tax benefit (reversal of previous
deferred tax benefit) 0 -186,772 186,772 -100.00%
----------- ------------ ---------
Net comprehensive (loss) for the
year -8,002,612 -9,360,295 1,357,683 -14.50%
----------------------------------- ----------- ------------ ---------
The operating loss before finance charges and after IFRS
adjustments increased by $2.40 million over 2021, attributable
mainly as explained above to the increase in R&D costs, asset
impairments and a lower gross margin percentage. The effect of the
finance costs and incomes, which resulted in the Comprehensive loss
for the year reducing by $1.36 million over 2021, are based on IFRS
recognition, and not a cash cost, are expanded on further in this
report.
Revenue Analysis
Revenues for the twelve months ended 31 December 2022 increased
by 11.5% to $2.94 million (2021: $2.64 million) after additional
year end IFRS adjustments and deferrals of approximately $600,000
in revenues to 2023 as outlined above.
The revenue mix will continue to evolve as the Company
progresses in achieving the desired mix of the revenue streams from
the sale of products and solutions in addition to IP licenses and
services based on the revised business model as presented in the
CEO report.
Margins
The gross margin percentage reduced to 54.4% in 2022 from 73.8%
in 2021, related mainly to increased component costs incurred in
securing components for deliveries. The gross margin will vary
according to the revenue mix as IP Licensing, Royalty and Design
Win revenues generally achieve an approximate 100% gross margin
before any sales commissions are accounted for.
Operating Costs and Research & Development Costs
After adjusting for the amortisation of the capitalised Research
and Development Costs, Depreciation, IFRS Share Based Compensation
and payroll non-cash accruals adjustments, the resultant increases
(decreases) in Operating costs, as adjusted would have been:
Operating Costs US Dollar Increase %
(Decrease)
------------------------------------------ ---------------------- ---------
For the year ended
31 December
------------------------------------------ ---------
2022 2021
------------------------------------------ ---------- ---------- ---------
Total R&D Expenses 6,618,795 5,550,912 1,067,883 19.24%
R&D Intangible amortisation -961,380 -961,380
Vacation accrual expenses -21,700 33,921 -55,621 -163.97%
Share Based Compensation IFRS adjustment -160,134 -54,962 -105,172 191.35%
---------- ---------- ---------
Research and Development Costs
net of amortisation, Share Based
Compensation, IFRS adjustments and
Vacation accruals 5,475,581 4,568,491 907,090 19.86%
---------- ---------- ---------
Total G&A Expenses 2,523,916 1,721,873 802,043 46.58%
Share Based Compensation IFRS adjustment -51,627 -10,750 -40,877 380.25%
Vacation accrual expenses -3,189 2,181 -5,370 -246.22%
Impairment losses of financial assets -599,200 -80,000 -519,200 649.00%
Fixed Assets Depreciation Expense -108,581 -86,168 -21,087 24.08%
Depreciation Leases IFRS16 -339,561 -173,675 -165,886 95.52%
------------------------------------------ ---------- ---------
General and Administrative expenses,
net of depreciation, Share Based
Compensation, IFRS adjustments,
Vacation accruals and impairments. 1,421,758 1,373,461 48,297 3.62%
Total Marketing Expenses 1,167,534 1,044,905 122,629 11.74%
Share Based Compensation IFRS adjustment -9,601 -11,871 2,270 -19.12%
Vacation accrual expenses -10,757 -8,583 -2,174 25.33%
---------- ---------
Marketing expenses, net of Share
Based Compensation and Vacation
accruals. 1,147,176 1,024,451 122,725 11.98%
---------- ---------- ---------
Total 8,044,423 6,964,985 1,079,438 15.50%
----------
Research and Development costs after reducing the costs for the
amortisation of the capitalised Research and Development intangible
asset, depreciation, share based compensation and vacation accruals
increased by $907,090 against 2021. These increases were mainly
attributable to the increase in the basic payroll component as
planned of approximately $873,000 over 2021.
The increase in General and Administrative costs over 2021 to
$1,421,666 after adjusting for depreciation, share based
compensation, IFRS adjustments, impairments and vacation accruals
amounted to approximately 3.62% or $49,623. A portion of this
increase of $31,800 resulted mainly from the increase in fees and
costs for UK Brokers/Nominated Advisers due to the Company's
previous Nominated Adviser foregoing their license in April 2022
with duplicated fees being paid in Q1 and Q2 of 2022. There were
increases in payroll costs of $44,495, with other increases in
costs offset by other savings. By the very nature of expenditure
accounted for under the General and Administrative costs there
remains little scope for further savings due to the fixed nature of
such expenses.
Following the significant decline in Sales and Marketing costs
during the 2020 financial year due to cessation of many marketing
travel and travel related activities as a result of the COVID-19
pandemic and the further modest decrease in 2021 over 2020 of
$27,931, Sales and Marketing costs increased marginally from 2021
by $122,725. This increase resulted mainly from increased marketing
activity and attendance at market events of approximately $95,000
while the return to 100% payroll and related costs accounted for an
increase of approximately $26,000.
Financing Costs
The continued material levels of financing costs and finance
income has come about due to the continued recognition and
realization of funds inflows, outflows and IFRS valuations of the
$2 million Subscription Agreement entered into with the 5G
Innovation Leaders Fund LLC on the 25 February 2022 referred to
below and under the section "Balance Sheet" along with the further
finance effects of the over-subscribed Placing and Broker option
along with the corresponding warrants issued in September 2021.
It is to be noted that the transactions detailed below, although
they are in essence based on raising funds via equity issues, are
nonstandard equity arrangements and have been dealt with in terms
of the guidance in IFRS9-Financial Instruments. This guidance,
which is significantly complex in its application, forces the
recognition of the fair value of the equity issues, and essentially
creating a recognition in differences between the market price of
the shares issued at the time of issue versus the actual price the
equity is allotted at. It is this differential or "derivative style
instrument" that needs to be subject to a fair value analysis, and
the instruments, the values received and outstanding values due
being separated into equity, assets, finance income and finance
charges in terms of the IFRS-9 guidance.
Referring to the fundraise deals the Company completed during
the year of 2021 and further in 2022 being;
a. The resulting issue of warrants at 60p (60p Warrants) from
the over-subscribed Placing and Subscription to raise GBP4.2
million, from the 27th to 29th of September 2021. It is to be noted
that these Warrants were not exercised and lapsed on 4 April
2023.
b. The Share Subscription Agreement with the 5G Innovation
Leaders Fund LLC of $2 million entered into on 25 February
2022.
It has been determined that in terms of IFRS-9, all the
transactions are to be recognised as equity and a liability of the
Company and all adjustments to the liability value are to be
recognised through the Income Statement. In all cases the equity
differential based on allotment price and fair value at time of
allotment is charged to the income statement. The liability in
respect of deal a. above represents the outstanding 60p Warrants
which have not been exercised as of 31 December 2022, however these
expired on 4 April 2023 and at the year ended 31 December 2022 had
a fair value of nil.
The above outlined treatment results in the finance expense
charged to the Income Statement, however it should be noted that
the expense is not an actual cash expense.
The Finance income $1,214,993 relates to the fair valuation
adjustment to the 60p Warrants referred to above having been
reduced to nil and the previous liability relating thereto being
reduced to nil. As stated above, any adjustments to the liabilities
are taken through the income statement, however these are non-cash
adjustments.
The Financing Expenses and Finance Income in the Income
Statement are thus summarised as follows:
Financing expenses for the full year ended December 31 2022
The Company completed a $2 million Subscription Agreement with the 5G
Innovation Leaders Fund LLC on the 25 February 2022.
5G Innovation Leaders $60,000 Face value premium of $60,000 on $2,000,000
Fund funded to the Company in February 2022
--------- ------------------------------------------------
$74,437 Adjustment to fair value of $320,000 settled
portion in October 2022
--------- ------------------------------------------------
$96,555 Adjustment to fair value of remaining unsettled
share subscription agreement as at December
31 2022
--------- ------------------------------------------------
Total 5G Fund $230,992
--------- ------------------------------------------------
Financing Income for the full year ended December 31 2022
Peterhouse Capital $1,214,993 Reversal of prior valuation of 60p Warrants
September 2021 issued
placing
----------- --------------------------------------------
Operating Loss and Net Comprehensive Loss for the Year
Whilst a portion of the revenues have been deferred from 2022 to
2023 due to the worldwide components shortage as previously noted,
the operating loss before financing expenses and the effect of the
equity transactions was in line with expectations.
Balance Sheet
During the year under review, the Company strengthened its
balance sheet via the $2 million Share Subscription Agreement
entered into with the 5G Innovation Leaders Fund LLC ("5G Fund"), a
U.S.-based specialist investor in February 2022.
Furthermore, there have been other changes on balance sheet
items as follows:
-- Increases in trade receivables reflect the activity in the
second half of the financial year from the announced contracts.
-- Inventories increased almost threefold, as a result of
procurement of components inventory due to the worldwide component
shortage.
-- Intangible assets continue to reduce in carrying value due to
the amortisation policy with an estimated 5.5 years of amortisation
remaining.
-- Trade payables increased by approximately $134,000 over 2021
due to advance purchasing of components for delivery commitments in
the latter portion of the reporting year and 2023.
-- Resulting from the funding received on the 5G Fund agreement
the liability on the convertible share subscription, including IFRS
adjustments increased from $0 at 31 December 2021 to $1,820,181 at
31 December 2022. The difference between the amount per the balance
sheet and the face value of the $1,740,000 unconverted liability at
31 December of $80,181 represents the IFRS valuation differential
of the liability at year end. This additional amount does not
however add to the face value of the liability for settlement
purposes, but rather is extinguished on the settlement and closure
of the instrument.
-- Other liabilities represent in the main the accrual of
payroll and the related costs, short term portion of the lease
liability and other accrued expenses at year end.
The balance sheet quick and current ratios of the Company for
2022, excluding the "liabilities" relating to the Share
Subscription Agreement and Warrants, reduced to 1.59 and 1.26
respectively (2021 4.20 and 4.07 respectively). This change is due
to the reduction of cash reserves at year end 31 December 2022
effecting both the quick and current ratios, while the increase in
inventories contributed further to the decline in the quick
ratio.
The net cash utilised and cash reserves are carefully monitored
by the Board. Cash utilised in operating activities for the year is
$8,333,302 (2021 $5,386,653), the increase in consumption being
mainly related to the increases in return to post COVID-19
operating levels, inventories and trade receivables. Gross cash
reserves remained positive at $715,815 as of 31 December 2022,
which have been bolstered by the fundraising activities carried out
during January and May of 2023.
Short term borrowings of $428,935 (2021 $422,633) arose mainly
from trade financing facilities via the Company's bankers. This is
a "rolling facility" and utilised by the Company on specific
customer transactions only.
The Intangible Asset on the Balance Sheet at a carrying value of
$5,462,800 (2021: $6,424,180) is a result of the Company having
adopted from 2015, the provisions of IAS38 relating to the
recognition of Development Expenses, which methodology as noted in
the 2019 Annual Report was ceased from 1 July 2019. The useful life
and the amortisation method of each of the intangible assets with
finite lives are reviewed at least at each financial year end. If
the expected useful life of an asset differs from the previous
estimate, the amortisation period is changed accordingly. Such
change is accounted for as a change in accounting estimate in
accordance with IAS 8. For the year ended 31 December 2022,
management performed their own internal assessment of the fair
value of the intangible asset and concluded that the value of the
asset is fair and no impairment of the intangible asset on the
Balance Sheet is required.
The Right-of-use asset under Non-current assets and the
corresponding Lease liability under Non-current liabilities on the
balance sheet and as referred to in Note 11 of the financial
statements arises in terms of IFRS 16 which became effective from 1
January 2019. This accounting treatment relates to the recognition
of the operating leases of the company premises, and immaterially
to leased company vehicles. In terms of the applicable Standard,
the Company is required to recognise the "benefit" of such
operational leases as it enjoys the rights and benefits as if it
had ownership thereof. Correspondingly, in terms of the Standard,
the liability relating to the future payments under such operating
leases is required to be recognised. The accounting treatment,
simply put, then results in an amortisation of the asset over the
period of the operating lease as a charge to income, and payments
made are charged as a reduction against the liability, essentially
offsetting each other to zero. The liability is not an "amount due"
for repayment in full as a singular payment at any one time, and
both the asset and liability have no impact on planned and actual
cash flows as the real cash flow is the normal monthly instalments
for premises rentals and car leases paid in the normal course of
business as part of planned expenditures in cash flows.
The asset and liability referred to above in respect of the
Company premises is material in that it represents the remainder of
the 5 year lease commitment plus the 5 year renewal option that the
Company has the right to and benefit of.
Summary of Fundraising Transactions Liabilities in terms of IFRS
Recognition
At year end, the remaining $1,740,000 face value of the
$2,000,000 of the funding initiated in February 2022 relating to
the 5G Fund is recognised in the balance sheet.
The issue of the 60p Warrants in the September 2021 Share
placing created a liability as explained above in terms of IFRS
recognition principles. This liability reverses to equity once the
warrants are exercised.
As of 31 December 2022, the liability in terms of the financing
transaction entered into during the 2022 financial year is:
Liability as at 31 December 2022
5G Innovation $1,836,555 Remaining liability to 5G representing fair
Leaders Fund value of the shares not yet called for allocation
of the $2,000,000 share subscription funded
in February 2022.
The face value of the outstanding amount
at 31 December 2022 is $1,740,000 against
which future allotments of shares will be
made. The differential of $96,555 fair value
adjustment is recognised under the requirements
of IFRS as a finance cost, no shares are allotted
against this, nor is cash paid out for this.
----------- ---------------------------------------------------
$1,836,555
----------- ---------------------------------------------------
Subsequent Financial Events
Subsequent to the financial year end, the Company completed
fundraising transactions as follows:
a. On 17 to 19 January 2023, the Company completed a Placing and
the Broker Option raising a gross amount of million GBP1.65 million
(before expenses).
This included investors in the Placing receiving one warrant for
every placing share subscribed for, exercisable at a price of 15p
per share. These warrants will be exercisable for a period of 24
months from the date of grant.
In terms of the Placing and Broker Option, and under the
authorities granted to the directors at the EGM of 9 February 2023,
Company has granted 23,571,430 warrants to investors in the Placing
and Broker Option.
The warrants contain an accelerator clause such that the Company
may serve notice ("Notice") on the Warrant holders to exercise
their Warrants in the event that the closing mid-market share price
of the Company's Ordinary Shares trade at 20p or more over a
consecutive five-day trading period from date of Admission. In the
event the Company serves Notice, any Warrants remaining unexercised
after seven calendar days following the issue of the Notice will be
cancelled.
b. On 11 to 12 May 2023, the Company completed a further
Placing, Subscription and Broker Option raising a gross amount of
GBP783,500 (before expenses).
c. On 25 May 2023, the Company announced a variation of the
exercise price of the warrant instruments that were granted in
connection with the fundraise undertaken by the Company in January
2023 as per a. above.
The initial 15p exercise price of the Warrants represented a
premium of over 400% to the closing midmarket price of an Ordinary
Share on 24 May 2023. The Directors considered therefore that it
would be appropriate to amend the exercise price of the Warrants to
a level that is more attractive to Warrant holders and which would
still provide meaningful funding to the Company should the Warrants
be exercised in full.
The Company therefore on 24 May 2023, varied the exercise price
of the 23,571,430 Warrants from 15p to 6p per new ordinary share in
the Company, representing a 107% premium to the closing mid-market
price of an Ordinary Share on 24 May 2023. In addition, the
accelerator clause as noted under a. above, was varied from 20p to
7.5p, applicable on the same basis as outlined above.
All of the terms of the Warrants remain unchanged and as
announced on 17 January 2023. The expiry date of the Warrants
remains as 8 February 2025.
COVID-19 Impact and Going Concern
Currently, with the impact of COVID-19 worldwide reduced
significantly the Company has continued its planned strategies.
With the still ongoing worldwide components shortage we remain
acutely aware of the risk of an impact in delays in the timing of
revenues and cash inflows, as well as delays in supplies not only
to the Company but its customers, whose product deployment could be
materially impacted.
In the presentation of the annual financial statements for the
year ended 31 December 2022, the Company makes reference to going
concern within the audit report. Reference to this is further made
in Note 2 to the Annual Financial Statements presented herein.
Other than the points outlined above, there are no items on the
Balance Sheet that warrant further discussion outside of the
disclosures made in the Annual Financial statements of the Annual
Report.
Mark Reichenberg
Chief Financial Officer
30 June 2023
STATEMENTS OF FINANCIAL POSITION
US dollars
--------------------------
31 December
--------------------------
Notes 2022 2021
-------- ------------ ------------
ASSETS
Current
Cash 5 715,815 7,060,824
Trade receivables 6 1,299,072 1,545,598
Inventories 7 773,076 284,810
Other current assets 8 343,872 240,964
Current assets 3,131,835 9,132,196
Non-Current
Property and equipment 9 810,326 660,069
Intangible asset 10 5,462,800 6,424,180
Right -of -use asset 11 2,816,641 3,156,202
Other long term assets 35,689 38,956
Non-current assets 9,125,456 10,279,407
Total assets 12,257,291 19,411,603
============ ============
LIABILITIES AND EQUITY
Current
Short Term Borrowings 12 428,935 422,633
Trade payables 785,583 651,758
Liability related to share subscription agreement 15.F.[3] 1,836,555 -
Warrants liability 15.F.[2] - 1,214,993
Other current liabilities 11,13 1,121,909 1,097,359
------------ ------------
Current liabilities 4,172,982 3,386,743
Non-Current
Lease liability 11 2,505,777 3,069,721
------------ ------------
Non-current liabilities 2,505,777 3,069,721
Total liabilities 6,678,759 6,456,464
Equity 1 5
Share capital 21,904 21,140
Share premium 40,786,623 40,382,744
Other components of equity 1,225,391 1,004,029
Accumulated deficit (36,455,386) (28,452,774)
------------ ------------
Total equity 5,578,532 12,955,139
Total liabilities and equity 12,257,291 19,411,603
============ ============
The accompanying notes are an integral part of the financial
statements.
STATEMENTS OF COMPREHENSIVE LOSS
US dollars
------------------------
For the year ended
31 December
------------------------
Notes 2022 2021
------ ----------- -----------
Revenue 1 7,27 2,937,424 2,635,420
Cost of sales 1,339,096 690,517
----------- -----------
Gross margin 1,598,328 1,944,903
Research and development expenses 18 6,618,795 5,550,912
General and administrative expenses 19 2,523,916 1,721,873
Marketing expenses 20 1,167,534 1,044,905
Other income 21 (15,041) (45,312)
----------- -----------
Operating loss (8,696,876) (6,327,475)
Financing costs 22 (573,388) (3,074,452)
Financing income 23 1,267,652 228,404
----------- -----------
Loss before tax (8,002,612) (9,173,523)
Tax expense 24 - (186,772)
----------- -----------
Net comprehensive loss for the year (8,002,612) (9,360,295)
=========== ===========
Basic and diluted loss per ordinary share 25 (0.11) (0.14)
=========== ===========
Weighted average number of ordinary shares for basic loss per share 76,013,296 67,492,412
=========== ===========
The accompanying notes are an integral part of the financial
statements.
STATEMENTS OF CHANGES IN EQUITY
Number Other
of Share Share components Accumulated Total
Notes shares Capital premium of equity deficit equity
----------- -------- ----------- ----------- ------------- ------------
12,49
Balance at 1 January 2021 47,468,497 5 27 ,197,792 813,256 (19,092,479) 8 ,931,064
Employee share-based
compensation - - - 77,583 - 77,583
Exercise of
employee
options 15 .F.[1] 706,667 220 70,893 - - 71,113
Net proceeds
allocated to
the
issuance of
ordinary shares 15.F.[2] 13,149,943 4,053 4,280,265 - - 4,284,318
Exercise of
warrants 15.F.[2] 3,500,010 1,072 2,007,606 - - 2,008,678
Shares issued
pursuant to
share
subscription
agreement 15.F.[3] 10,221,621 3 ,204 6 ,742,848 - - 6 ,746,052
Expenses paid in
shares and
warrants 15.F.[5] 305,000 96 83,340 113,190 - 196 ,626
Net comprehensive loss for
the year - - - - (9,360,295) (9,360,295)
1,004
Balance at 31 December 2021 75,351,738 21,140 40,382,744 ,029 (28,452,774) 12,955,139
Employee share-based
compensation - - - 221,362 - 221,362
Exercise of 15.F.[1] - - - - - -
employee options
Shares issued
pursuant to
share
subscription
agreement 15.F.[3] 2,695,593 752 383,733 - - 384,485
Expenses paid in
shares and
warrants 15.F.[5] 37,106 12 20,146 - - 20,158
Net comprehensive loss for
the year - - - - (8,002,612) (8,002,612)
----------- -------- ----------- ----------- ------------- ------------
Balance at 31 December 2022 78,084,437 21,904 40,786,623 1,225,391 (36,455,386) 5,578,532
=========== ======== =========== =========== ============= ============
STATEMENTS OF CASH FLOWS
US dollars
--------------------------------
For the year ended 31 December
--------------------------------
2022 2021
--------------- ---------------
Operating activities
Net comprehensive loss for the year (8,002,612) (9,360,295)
Non-cash adjustments
Depreciation of property and equipment 108,581 86,168
Depreciation of right of use asset 339,561 173,675
Share-based compensation 221,362 77,583
Amortisation of intangible assets 961,380 961,380
Amortisation of liabilities (396,434) 39,042
Deferred tax expenses - 186,772
Foreign exchange losses on cash balances 381,480 30,214
Capital Loss - 70
Income from change of lease terms - (8,929)
Revaluation of financial instruments, net (984,001) 2,691,145
Expenses paid in shares and options 20,158 196 ,626
Net changes in working capital
Decrease (Increase) in trade receivables 246,526 (767,537)
Increase in inventories (488,266) (111,316)
Increase (decrease) in other current assets (102,908) 84,068
Increase (decrease) in other long-term assets 3,267 (2,831)
Increase in trade payables 133,825 361,583
Decrease in other liabilities (12,261) (24,071)
Net cash used in operating activities (7,570,342) (5,386,653)
Investing activities
Deposits to other long-term financial assets - (28,618)
Purchase of property and equipment (258,838) (194,195)
Net cash provided (used) by investing activities (258,838) (222,813)
Financing activities
Proceeds from share subscription agreement 2,000,000 3,177,306
Proceeds allocated to ordinary shares - 5,016,494
Proceeds allocated to warrants - 1,472,561
Issuance costs (9,952) (390,398)
Proceeds from exercise of warrants and options - 1,367,388
Proceeds from short term borrowings 527,790 900,192
Repayment of short-term borrowings (493,338) (887,585)
Repayment of lease liability (158,849) (136,180)
Net cash provided by financing activities 1,865,651 10,519,778
Net change in cash (5,963,529) 4,910,312
Cash beginning of year 7,060,824 2,180,726
Exchange differences on cash (381,480) (30,214)
Cash end of year 715,815 7,060,824
=============== ===============
Supplementary information:
Interest paid during the year 13,321 13,468
--------------- ---------------
Interest received during the year 1,507 41
--------------- ---------------
Supplementary information on non-cash activities:
Recognition of right-of-use asset and lease liability - 3,776,886
Shares issued pursuant to share subscription agreement 384,485 6,746,052
--------------- ---------------
Expenses paid in shares and warrants 20,158 83,436
--------------- ---------------
The accompanying notes are an integral part of the financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
ETHERNITY NETWORKS LTD. (hereinafter: the "Company"), was
incorporated in Israel on the 15th of December 2003 as Neracore
Ltd. The Company changed its name to ETHERNITY NETWORKS LTD. on the
10th of August 2004.
The Company provides innovative, comprehensive networking and
security solutions on programmable hardware for accelerating
telco/cloud networks performance. Ethernity's FPGA logic offers
complete Carrier Ethernet Switch Router data plane processing and
control software with a rich set of networking features, robust
security, and a wide range of virtual function accelerations to
optimise telecommunications networks. Ethernity's complete
solutions quickly adapt to customers' changing needs, improving
time-to-market and facilitating the deployment of 5G, edge
computing, and different NFV appliances including 5G UPF, SD-WAN,
vCMTS and vBNG with the current focus on 5G emerging appliances.
The Company's customers are situated worldwide.
In June 2017 the Company completed an Initial Public Offering
("IPO") together with being admitted to trading on the AIM Stock
Exchange and issued 10,714,286 ordinary shares at a price of
GBP1.40 per share, for a total consideration of approximately
$19,444,000 (GBP15,000,000) before underwriting and issuance
expenses. Total net proceeds from the issuance amounted to
approximately $17,800,000.
NOTE 2 - GOING CONCERN
The financial statements have been prepared assuming that the
Company will continue as a going concern. Under this assumption, an
entity is ordinarily viewed as continuing in business for the
foreseeable future unless management intends or has no realistic
alternative other than to liquidate the entity or to stop trading
for at least, but not limited to, 12 months from the reporting
date. An 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 revenues anticipated in
terms of the material contracts signed in the 2021 and 2022
financial years, the funds raised during the year ended 31 December
2022 and to date, expected inflows from the exercise of the 6p
(GBP0.06) Warrants, 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.
During the latter portion of 2021 and through 2022, the Company
entered into new contracts for supply of the Company solutions and
products along with deployment orders from existing customers, all
of which including customer indications for significant amounts of
revenue billings for the latter portion of the 2022 and 2023
financial years, and into 2024. In September 2022, the Company
noted that its cash reserves were approximately $4.2m at 30 June
2022. During the year ended December 31, 2022, the Company incurred
a net comprehensive loss of $ 8 million and negative cash flows
from operating activities of $7.6million. The Company recognises
that its cash reserves remain under pressure until the customer
commitments in terms of the signed contracts are met from the end
of H1 2023 and in mitigating this, in January 2023 the Company
raised net funds (after costs) of $1.9m via both a Placing and
Subscription with associated Warrants, and further in May 2023,
raised further net funds via a Placing of $0.9m.
Further to this, in May and June 2023 the Company entered into
significant cost reduction exercises to align the internal
resources with the current contracts and expected deliveries
thereon, with further cost reductions to be implemented in July and
August 2023 as the demand on resources reduces. These steps, in
conjunction with the reasonable expectation that the Company has
reasonable access to raise further financing and funding during the
year, are expected to produce short to medium term reductions in
the use of cash resources as well as boost the cash reserves, with
the anticipation that the resultant revenue flows in the second
half of 2023 will start producing positive monthly cash flows
during this period continuing in to 2024.
Based on the abovementioned cash position, signed contracts,
cost reduction measures undertaken, and in the light of enquiries
made by the Directors as to the current liquidity position of the
Company, as well as bearing in mind the ability and success of the
Company to raise funds previously, the Directors have a reasonable
expectation that the Company will have access to adequate resources
to continue in operational existence for the foreseeable future and
therefore have adopted the going concern basis of preparation in
the financial statements. The Directors recognise that their
expectations are based on the projected revenues and expenses
remaining as forecast, however should events occur that could
materially impact the forecasts and cashflows of the Company,
including but not limited to disruptions in the supply of
inventories or delays imposed by customers, as a result a material
uncertainty exists that may cast a significant 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
future.
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
The following accounting policies have been consistently applied
in the preparation and presentation of these financial statements
for all of the periods presented, unless otherwise stated. In 2022,
no new standards that had a material effect on these financial
statements become effective.
A. Basis of presentation of the financial statements and statement of compliance with IFRS
These financial statements have been prepared in accordance with
International Financial Reporting Standards (hereinafter - "IFRS"),
as issued by the International Accounting Standards Board
("IASB").
The financial statements have been prepared on an accrual basis
and under the historical cost convention, except for financial
instruments measured at fair value through profit and loss.
The Company has elected to present profit or loss items using
the function of expense method. Additional information regarding
the nature of the expenses is included in the notes to the
financial statements.
The financial statements for the year ended 31 December were
approved and authorised for issue by the board of directors on 30
June 2023.
B. Use of significant accounting estimates, assumptions, and judgements
The preparation of financial statements in conformity with IFRS
requires management to make accounting estimates and assessments
that involve use of judgment and that affect the amounts of assets
and liabilities presented in the financial statements, the
disclosure of contingent assets and liabilities at the dates of the
financial statements, the amounts of revenues and expenses during
the reporting periods and the accounting policies adopted by the
Company. Actual results could differ from those estimates.
Estimates and judgements are continually evaluated and are based
on prior experiences, various facts, external items and reasonable
assumptions in accordance with the circumstances related to each
assumption.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Regarding significant judgements and estimate uncertainties, see
Note 4.
C. Functional and presentation currency
The Company prepares its financial statements on the basis of
the principal currency and economic environment in which it
operates (hereinafter - the "functional currency").
The Company's financial statements are presented in US dollars
("US$") which constitutes the functional currency of the Company
and the presentation currency of the Company.
D. Foreign currency transactions and balances
Specifically identifiable transactions denominated in foreign
currency are recorded upon initial recognition at the exchange
rates prevailing on the date of the transaction. Exchange rate
differences deriving from the settlement of monetary items, at
exchange rates that are different than those used in the initial
recording during the period, or than those reported in previous
financial statements, are recognised in the statement of
comprehensive income in the year of settlement of the monetary
item. Other profit or loss items are translated at average exchange
rates for the relevant financial year.
Assets and liabilities denominated in or linked to foreign
currency are presented on the basis of the representative rate of
exchange as of the date of the statement of financial position.
Exchange rate differentials are recognised in the financial
statements when incurred, as part of financing expenses or
financing income, as applicable.
The exchange rates as at the 31st of December, of one unit of
foreign currency to each US dollar, were:
2022 2021
New Israeli Shekel
("NIS") 0.284 0.322
Sterling 1.204 1.351
Euro 1.066 1.132
E. Cash and cash equivalents
Cash and cash equivalents include cash on hand, call deposits
and highly liquid investments, including short-term bank deposits
(with original maturity dates of up to three months from the date
of deposit), that are subject to an insignificant risk of changes
in their fair value and which do not have restrictions as to what
it may be used for.
F. Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost includes all expenses directly attributable to the
manufacturing process as well as suitable portions of related
production overheads, based on normal operating capacity. Costs of
ordinarily interchangeable items are assigned using the first in,
first out cost formula. Net realisable value is the estimated
selling price in the ordinary course of business less any directly
attributable selling expenses.
G. Property and equipment
Property and equipment items are presented at cost, less
accumulated depreciation and net of accrued impairment losses. Cost
includes, in addition to the acquisition cost, all of the costs
that can be directly attributed to the bringing of the item to the
location and condition necessary for the item to operate in
accordance with the intentions of management.
The residual value, useful life span and depreciation method of
fixed asset items are tested at least at the end of the fiscal year
and any changes are treated as changes in accounting estimate.
Depreciation is calculated on the straight -- line method, based
on the estimated useful life of the fixed asset item or of the
distinguishable component, at annual depreciation rates as
follows:
%
Computers 33
Testing equipment 10-33
Furniture and equipment 6-15
Leasehold improvements Over period
of lease
Leasehold improvements are depreciated on a straight-line basis
over the shorter of the lease term (including any extension option
held by the Company and intended to be exercised) and the expected
life of the improvement.
Depreciation of an asset ceases at the earlier of the date that
the asset is classified as held for sale and the date that the
asset is derecognised. An asset is derecognised on disposal or when
no further economic benefits are expected from its use.
H. Basic and diluted earnings (loss) per share
Basic and diluted earnings (loss) per share is computed by
dividing the earnings (loss) for the period applicable to Ordinary
Shares by the weighted average number of ordinary shares
outstanding during the period.
In computing diluted earnings per share, basic earnings per
share are adjusted to reflect the potential dilution that could
occur upon the exercise of options or warrants issued or granted
using the "treasury stock method" and upon the settlement of other
financial instruments convertible or settleable with ordinary
shares using the "if-converted method".
I. Severance pay liability
The Company's liability for severance pay pursuant to Israel's
Severance Pay Law is based on the last monthly salary of the
employee multiplied by the number of years of employment, as of the
date of severance.
Pursuant to section 14 of Severance Pay Law, which covers the
Company's employees, monthly deposits with insurance companies
release the Company from any future severance obligations in
respect of those employees (defined contribution). Deposits under
section 14 are recorded as an expense in the Company's statement of
comprehensive income.
J. Research and development expenses
Expenditures on the research phase of projects to develop new
products and processes are recognised as an expense as
incurred.
Development activities involve a plan or a design for the
production of new or substantially improved products and processes.
Development costs that are directly attributable to a project's
development phase are recognised as intangible assets, provided
they meet all of the following recognition requirements:
-- the technical feasibility of completing the intangible asset
so that it will be available for use or sale.
-- intention to complete the intangible asset and use or sell
it.
-- ability to use or sell the intangible asset.
-- ability to demonstrate how the intangible asset will generate
probable future economic benefits. Among other things, the entity
can demonstrate the existence of a market for the output of the
intangible asset or the intangible asset itself or, if it is to be
used internally, the usefulness of the intangible asset.
-- the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset.
-- ability to measure reliably the expenditure attributable to
the intangible asset during its development.
Development costs not meeting these criteria for capitalisation
are expensed as incurred.
Directly attributable costs include (if relevant) employee costs
incurred on software development along with an appropriate portion
of relevant overheads and borrowing costs.
The Company maintained the policy of recognising as an
intangible asset the costs arising from the development of its
solutions, specifically the directly associated costs of its
Research and Development center.
The Company periodically reviews the principles and criteria of
IAS 38 as outlined above. Up to and until June 2019, the Company
has determined that all the above criteria were met.
Effective as from 1 July 2019 and thereafter, the Company
concluded that it would no longer continue recognising these costs
as an intangible asset due to the fact that the criteria in IAS38
was not met.
An intangible asset that was capitalised but not yet available
for use, is not amortised and is subject to impairment testing once
a year or more frequently if indications exist that there may be a
decline in the value of the asset until the date on which it
becomes available for use (see also Note 10).
The amortisation of an intangible asset begins when the asset is
available for use, i.e., it is in the location and condition needed
for it to operate in the manner intended by management. The
development asset is amortised on the straight-line method, over
its estimated useful life, which is estimated to be ten years.
The useful life and the amortisation method of each of the
intangible assets with finite lives are reviewed at least at each
financial year end. If the expected useful life of an asset differs
from the previous estimate, the amortisation period is changed
accordingly. Such a change is accounted for as a change in
accounting estimate in accordance with IAS 8.
K. Government grants
Government grants are recognised where there is reasonable
assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an
expense item (such as research and development of an intangible
asset), it is recognised as 'other income' on a systematic basis
over the periods that the costs, which it is intended to
compensate, are expensed.
Where the grant relates to an asset (such as development
expenses that were recognised as an intangible asset), it is
recognised as deduction of the related asset.
Grants from the Israeli Innovation Authority of the Ministry of
Economy (hereinafter - the "IIA") in respect of research and
development projects are accounted for as forgivable loans
according to IAS 20 Accounting for Government Grants and Disclosure
of Government Assistance, as the company might be required to
refund such amount through payment of royalties.
Grants received from the IIA are recognised as a liability
according to their fair value on the date of their receipt, unless
there is a reasonable assurance that the amount received will not
be refunded. The fair value is calculated using a discount rate
that reflects a market rate of interest at the date of initial
recognition. The difference between the amount received and the
fair value on the date of receiving the grant is recognised as a
deduction from the cost of the related intangible asset or as other
income, as applicable.
The amount of the liability is re-examined each period, and any
changes in the present value of the cash flows discounted at the
original interest rate of the grant are recognised in profit or
loss.
Grants which do not include an obligation to pay royalties are
recognised as a deduction of the related asset or as other income,
as applicable (See Note 21).
L. Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
1. Classification and measurement of financial assets and financial liabilities
Initial recognition and measurement
The Company initially recognises trade receivables on the date
that they originated. All other financial assets and financial
liabilities are initially recognised on the date on which the
Company becomes a party to the contractual provisions of the
instrument. A financial asset or a financial liability are
initially measured at fair value with the addition, for a financial
asset or a financial liability that are not presented at fair value
through profit or loss, of transaction costs that can be directly
attributed to the acquisition or the issuance of the financial
asset or the financial liability. Trade receivables that do not
contain a significant financing component are initially measured at
the price of the related transaction.
Financial assets - subsequent classification and measurement
A financial asset is measured at amortised cost if it meets the
two following cumulative conditions and is not designated for
measurement at fair value through profit or loss:
-- The objective of the entity's business model is to hold the
financial asset to collect the contractual cash flows; and
-- The contractual terms of the financial asset create
entitlement on specified dates to cash flows that are solely
payments of principal and interest on the principal amount
outstanding.
On initial recognition, financial assets that do not meet the
above criteria are classified to measurement at fair value through
profit or loss (FVTPL). Further, irrespective of the business
model, financial assets whose contractual cash flows are not solely
payments of principal and interest are accounted for at FVTPL. All
derivative financial instruments fall into this category.
Financial assets are not reclassified in subsequent periods,
unless, and only to the extent that the Company changes its
business model for the management of financial debt assets, in
which case the affected financial debt assets are reclassified at
the beginning of the reporting period following the change in the
business model.
Financial assets at amortised cost
The Company has balances of trade and other receivables and
deposits that are held under a business model, the objective of
which is collection of the contractual cash flows. The contractual
cash flows in respect of such financial assets comprise solely
payments of principal and interest that reflects consideration for
the time-value of the money and the credit risk. Accordingly, such
financial assets are measured at amortised cost.
In subsequent periods, these assets are measured at amortised
cost, using the effective interest method and net of impairment
losses. Interest income, currency exchange gains or losses and
impairment are recognised in profit or loss. Any gains or losses on
derecognition are also carried to profit or loss.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are
carried in the statement of financial position at fair value with
all gains and losses and net changes in fair value recognised in
the statement of comprehensive loss as financing income or cost.
This category includes derivative instruments (including embedded
derivatives that were separated from the host contract).
Financial liabilities - classification, subsequent measurement
and gains and losses
Financial liabilities are classified to measurement at amortised
cost or at fair value through profit or loss. All financial
liabilities are recognised initially at fair value and, in the case
of loans, borrowings, and payables, net of directly attributable
transaction costs.
Financial liabilities are measured at amortised cost
This category includes trade and other payables, loans and
borrowings including bank overdrafts. These financial liabilities
are measured at amortised cost in subsequent periods, using the
effective interest method. Interest expenses and currency exchange
gains and losses are recognised in profit or loss. Any gains or
losses on derecognition are also carried to profit or loss.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the effective interest method. The effective interest
method amortisation is included as finance costs in profit or
loss.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are
measured at fair value, and any net gains and losses, including any
interest expenses, are recognised in profit or loss.
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through profit or loss, including derivative financial instruments
entered into by the Company, including warrants derivative
liability related to warrants with an exercise price denominated in
a currency other than the Company's functional currency and also
including the Company's liability to issue a variable number of
shares, which include certain embedded derivatives (such as
prepayment options) under a share subscription agreement - see Note
15.
Separated embedded derivatives are classified as held for
trading.
Financial liabilities designated upon initial recognition at
fair value through profit or loss are designated at the initial
date of recognition, and only if the criteria in IFRS 9 are
satisfied.
2. Derecognition of financial liabilities
Financial liabilities are derecognised when the contractual
obligation of the Company expires or when it is discharged or
cancelled.
3. Impairment
Financial assets and contract assets
The Company creates a provision for expected credit losses in
respect of Financial assets measured at amortised cost.
Expected credit losses are recognised in two stages. For credit
exposures for which there has not been a significant increase in
credit risk since initial recognition, expected credit losses are
provided for credit losses that result from default events that are
possible within the next 12 months. For those credit exposures for
which there has been a significant increase in credit risk since
initial recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime expected credit losses).
The Company measures, if relevant, the provision for expected
credit losses in respect of trade receivables, contract assets at
an amount that is equal to the credit losses expected over the life
of the instrument.
In assessing whether the credit risk of a financial asset has
significantly increased since initial recognition and in assessing
expected credit losses, the Company takes into consideration
information that is reasonable and verifiable, relevant and
attainable at no excessive cost or effort. Such information
comprises quantitative and qualitative information, as well as an
analysis, based on the past experience of the Company and the
reported credit assessment, and contains forward-looking
information.
Measurement of expected credit losses
Expected credit losses represent a probability-weighted estimate
of credit losses. Credit losses are measured at the present value
of the difference between the cash flows to which the Company is
entitled under the contract and the cash flows that the Company
expects to receive.
Expected credit losses are discounted at the effective interest
rate of the financial asset.
4. Derivative financial instruments
Derivative financial instruments are accounted for at FVTPL.
Embedded derivatives
A derivative embedded in a hybrid contract, with a financial
liability or non-financial host, is separated from the host and
accounted for as a separate derivative if: the economic
characteristics and risks are not closely related to the host; a
separate instrument with the same terms as the embedded derivative
would meet the definition of a derivative; and the hybrid contract
is not measured at fair value through profit or loss. Embedded
derivatives are measured at fair value with changes in fair value
recognised in profit or loss. Reassessment only occurs if there is
either a change in the terms of the contract that significantly
modifies the cash flows that would otherwise be required or a
reclassification of a financial asset out of the fair value through
profit or loss category.
As described in Note 15.F.[3]., the Company has determined to
designate its liability with respect to the share subscription
agreement which include several embedded derivatives in its
entirety at FVTPL category.
M. Off-set of financial instruments
Financial instruments and financial liabilities are presented in
the statements of financial position at their net value if the
Company has a legal and enforceable right of offset and the Company
intends on settling the asset and the liability on a net basis or
simultaneously.
N. Share-based compensation
Share-based compensation transactions that are settled by equity
instruments that were executed with employees or others who render
similar services, are measured at the date of the grant, based on
the fair value of the granted equity instrument. This amount is
recorded as an expense in profit or loss with a corresponding
credit to equity, over the period during which the entitlement to
exercise or to receive the equity instruments vests.
For the purpose of estimating the fair value of the granted
equity instruments, the Company takes into consideration conditions
which are not vesting conditions (or vesting conditions that are
performance conditions which constitute market conditions).
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied. At the end of each reporting period, an estimate
is made of the number of instruments expected to vest. No expense
is recognised for awards that do not ultimately vest because of
service conditions and/or if non-market performance conditions have
not been met. As an expense is recognised over the vesting period,
when an expense has been recorded in one period and the options are
cancelled in the following period, then the previously recorded
expenses for options that never vested, as reversed. Grants that
are contingent upon vesting conditions (including performance
conditions that are not market conditions) which are not ultimately
met are not recognised as an expense. A change in estimate
regarding prior periods is recognised in the statement of
comprehensive income over the vesting period. No expense is
recognised for award that do not ultimately vest because service
condition and/or non-market performance condition have not been
made.
Share-based payment transactions settled by equity instruments
executed with other service providers are measured at the date the
services were received, based on the estimated fair value of the
services or goods received, unless their value cannot be reliably
estimated. In such a case, the transaction is measured by
estimating the fair value of the granted equity instruments. This
amount is carried as an expense or is capitalised to the cost of an
asset (if relevant), based on the nature of the transaction.
O. Fair Value Measurements
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair value measurement is based on the assumption that the
transaction will take place in the asset's or the liability's
principal market, or in the absence of a principal market in the
most advantageous market.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Company uses valuation techniques that are appropriate in
the circumstances and for which sufficient data are available to
measure fair value. Maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities measured at fair value or for which
fair value is disclosed are categorised into levels within the fair
value hierarchy based on the lowest level input that is significant
to the entire fair value measurement:
-- Level 1 - unadjusted quoted prices are available in active
markets for identical assets or liabilities that the Company has
the ability to access as of the measurement date.
-- Level 2 - pricing inputs are other than quoted prices in
active markets that are directly observable for the asset or
liability or indirectly observable through corroboration with
observable market data.
-- Level 3 - pricing inputs are unobservable for the
non-financial asset or liability and only used when there is
little, if any, market activity for the non-financial asset or
liability at the measurement date. The inputs into the
determination of fair value require significant management judgment
or estimation. Level 3 inputs are considered as the lowest priority
within the fair value hierarchy.
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Company
determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation (based on the lowest level
input that is significant to the fair value measurement as a whole)
at the end of each reporting period.
For the purpose of fair value disclosures, the Company has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy, as explained above.
Fair-value related disclosures for financial instruments that
are measured at fair value or where fair values are disclosed, are
summarised in Note 26.
P. Transactions with controlling shareholders
Transactions with controlling shareholders are recognised at
fair value. Any difference between the fair value and the original
terms of the transaction represent capital contribution or
dividend, as applicable and accordingly, carried to equity.
Q. Revenue recognition
The Company generates revenues mainly from:
-- Sales of solutions-based product offerings
-- sales of programmable devices ("FPGA") with embedded
intellectual property ("IP") developed by the Company,
-- IP developed by the Company together with software
application tools to assist its customers to design their own
systems based on the Company IP and
-- maintenance and support services provided to customers.
The Company recognises revenue when the customer obtains control
over the promised goods or when the Company has delivered the
products or services. The revenue is measured according to the
amount of the consideration to which the Company expects to be
entitled in exchange for the goods or services provided to the
customer.
Identification of the contract
The Company treats a contract with a customer only where all of
the following conditions are fulfilled.
1. The parties to the contract have approved the contract (in
writing, orally or according to other customary business practices)
and they are committed to satisfying their obligations
thereunder;
2. The Company is able to identify the rights of each party in
relation to the goods or services that are to be transferred;
3. The Company is able to identify the payment terms for the
goods or services that are to be transferred;
4. The contract has commercial substance (i.e., the entity's
risk, timing and amount of future cash flows are expected to change
as result of the contract); and
5. It is probable that the consideration to which the Company is
entitled to in exchange for the goods or services transferred to
the customer will be collected.
Identification of performance obligations
On the contract's inception date, the Company assesses the goods
or services committed to in the contract with the customer and
identifies, as a performance obligation, any promise to transfer to
the customer one of the following:
-- Goods or services that are distinct; or
-- A series of distinct goods or services that are substantially
the same and have the same pattern of transfer to the customer.
The Company identifies goods or services promised to the
customer as being distinct when the customer can benefit from the
goods or services on their own or in conjunction with other readily
available resources and the Company's promise to transfer the goods
or services to the customer separately identifiable from other
promises in the contract. In order to examine whether a promise to
transfer goods or services is separately identifiable, the Company
examines whether it is providing a significant service of
integrating the goods or services with other goods or services
promised in the contract into one integrated outcome that is the
purpose of the contract.
Contracted revenues attached to milestone performance in a
contract are recognised by the Company when it has completed a
milestone requirement and the Company has delivered the goods
and/or services connected to such milestone.
Determination of the transaction price
The transaction price is the amount of the consideration to
which the Company expects to be entitled in exchange for the goods
or services promised to the customer, other than amounts collected
for third parties. The Company takes into account the effects of
all the following elements when determining the transaction price;
variable consideration (see below), the existence of a significant
financing component, non-cash consideration, and consideration
payable to the customer.
Variable consideration
The transaction price includes fixed amounts and amounts that
may change as a result of discounts, credits, price concessions,
incentives, penalties, claims and disputes and contract
modifications where the consideration in their respect has not yet
been agreed to by the parties.
In accordance with the requirements in IFRS 15 on constraining
estimates of variable consideration, the Company includes the
amount of the variable consideration, or part of it, in the
transaction price at contract inception, only when it is considered
highly probable that its inclusion will not result in a significant
revenue reversal in the future when the uncertainty has been
subsequently resolved. At the end of each reporting period and if
necessary, the Company revises the amount of the variable
consideration included in the transaction price.
Satisfaction of performance obligations
Revenue is recognised when the Company satisfies a performance
obligation, or by transferring control over promised goods or
having provided services to the customer, as applicable.
Contract costs
Incremental costs of obtaining a contract with a customer, such
as sales fees to agents, are recognised as an asset when the
Company is likely to recover these costs. Costs to obtain a
contract that would have been incurred regardless of the contract
are recognised as an expense as incurred unless the customer can be
billed for those costs.
Costs incurred to fulfil a contract with a customer and that are
not covered by another standard, are recognised as an asset when
they: relate directly to a contract the Company can specifically
identify; they generate or enhance resources of the Company that
will be used in satisfying performance obligations in the future;
and they are expected to be recovered. In any other case the costs
are recognised as an expense as incurred.
Capitalised costs are amortised in profit or loss on a
systematic basis that is consistent with the pattern of transfer of
the goods or services to which the asset relates.
In every reporting period, the Company examines whether the
carrying amount of the asset recognised as aforesaid exceeds the
consideration the entity expects to receive in exchange for the
goods or services to which the asset relates, less the costs
directly attributable to the provision of these goods or services
that were not recognised as expenses, and if necessary, an
impairment loss is recognised in the profit or loss.
Sales of goods
Revenues from the sale of programmable devices are recognised at
the point in time when control of the asset is transferred to the
customer, which is generally upon delivery of the devices.
Contracts with milestone payments
Certain contracts with major customers are structured to provide
the Company with payment upon the achievements of certain
predefined milestones which might include, delivery of existing
schematics, prototypes, software drivers or design kit, or
development of new product offerings or new features of existing
products such as programmable devices ("design tools").
Management has determined that the performance obligations under
such arrangements which are generally based on separate milestones,
are recognised at the point in time when such separate milestone is
transferred to the customer, generally upon completion of the
related milestone.
Amounts received (including specific up-front payments), which
relate to milestones that were not yet achieved, are deferred and
are presented as deferred revenues.
Multiple element transactions
Some of the Company's contracts with customers contain multiple
performance obligations. For these contracts, the Company accounts
for individual performance obligations separately if they are
distinct. The transaction price is allocated to the separate
performance obligations on a relative standalone selling price
basis. The Company determines the standalone selling prices based
on an overall pricing objectives, taking into consideration market
conditions and other factors.
Revenues are then recognised for each separate performance
obligations - sales of goods or designed tools, based on the
criteria described in the above paragraph.
Revenue from royalties
The Company is entitled to royalties based on sales performed by
third parties of products which contain IP developed by the
Company.
For arrangements that include such sales-based royalties,
including milestone payments based on the level of sales, and the
license of the IP developed by the Company is deemed to be the
predominant item to which the royalties relate, the Company
recognises revenue at the later of (i) when the performance
obligation to which some or all of the royalty has been allocated
has been satisfied (or partially satisfied), or (ii) when the
related sales occur.
Accordingly, revenues from royalties that are reported by the
customer are recognised based on the actual sales of products as
reported to the Company.
Revenues from maintenance and support
Revenue from maintenance and support is recognised over the term
of the maintenance and support period.
R. Income taxes
Taxes on income in the statement of comprehensive loss comprises
the sum of deferred taxes and current taxes (when applicable).
Deferred taxes are recognised in the statement of comprehensive
income, except to the extent that the tax arises from items which
are recognised directly in other comprehensive income or in equity.
In such cases, the tax effect is also recognised in the relevant
item.
Deferred tax assets are recognised to the extent that it is
probable that the underlying tax loss or deductible temporary
difference will be utilised against future taxable income. This is
assessed based on the Company's forecast of future operating
results, adjusted for significant non-taxable income and expenses
and specific limits on the use of any unused tax loss or credit.
See also Note 24.
Deferred tax assets are presented in the statement of financial
position as non-current assets.
S. Operating cycle
The normal operating cycle of the Company is a twelve-month
period ending in December 31 of each year.
T. Impairment testing of non-financial assets
For impairment assessment purposes, assets are grouped at the
lowest levels for which there are largely independent cash inflows
(cash-generating units). As a result, some assets are tested
individually for impairment, and some are tested at the
cash-generating unit level.
An impairment loss is recognised for the amount by which the
asset's (or cash-generating unit's) carrying amount exceeds its
recoverable amount, being the value in use. To determine the value
in use, management estimates expected future cash flows from each
asset or cash-generating unit and determines a suitable discount
rate, in order to calculate the present value of those cash flows.
The data used for impairment testing procedures are linked to the
Company's latest approved budget, see also Note 10.
U. Ordinary shares
Ordinary shares issued by the Company which do not meet the
definition of financial liability or financial asset, were
recognised as part of equity on the basis of the consideration
received in respect thereof, net of costs attributed directly to
the issue.
V. Equity and reserves
Share capital represents the nominal par value of shares that
have been issued.
Share premium includes any premiums received on issue of share
capital. Any transaction costs associated with the issuing of
shares are deducted from share premium, net of any related income
tax benefits.
W. Provisions, contingent assets and contingent liabilities
Provisions for legal disputes, onerous contracts or other claims
are recognised when the Company has a present legal or constructive
obligation as a result of a past event, it is probable that an
outflow of economic resources will be required to settle the
obligation and amounts can be estimated reliably. Timing or amount
of the outflow may still be uncertain.
No liability is recognised if an outflow of economic resources
as a result of present obligations is not probable. Such situations
are disclosed as contingent liabilities unless the outflow of
resources is remote.
Provisions are measured at the estimated expenditure required to
settle the present obligation, based on the most reliable evidence
available at the reporting date, including the risks and
uncertainties associated with the present obligation. Where there
are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the
class of obligations as a whole. Provisions are discounted to their
present values, where the time value of money is material.
Any reimbursement that the Company is virtually certain to
collect from a third party with respect to the obligation is
recognised as a separate asset. However, this asset may not exceed
the amount of the related provision.
X. Leased assets
The Company considers whether a contract is or contains a lease.
A lease is defined as 'a contract, or part of a contract, which
conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration.' To apply this
definition the Company assesses whether the contract meets three
key evaluations which are whether:
-- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the
Company
-- the Company has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of
the contract
-- the Company has the right to direct the use of the identified
asset throughout the period of use. The Company assesses whether it
has the right to direct 'how and for what purpose' the asset is
used throughout the period of use.
Measurement and recognition of leases as a lessee
At the lease commencement date, the Company recognises a
right-of-use asset and a lease liability on the balance sheet. The
right-of-use asset is measured at cost, which is made up of the
initial measurement of the lease liability, any initial direct
costs incurred by the Company, an estimate of any costs to
dismantle and remove the asset at the end of the lease, and any
lease payments made in advance of the lease commencement date (net
of any incentives received).
The Company depreciates the right-of-use assets on a
straight-line basis from the lease commencement date to the earlier
of the end of the useful life of the right-of-use asset or the end
of the lease term. The Company also assesses the right-of-use asset
for impairment when such indicators exist.
At the lease commencement date, the Company measures the lease
liability at the present value of the lease payments unpaid at that
date, discounted using the interest rate implicit in the lease if
that rate is readily available or the Company's incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability are made up of fixed payments (including in substance
fixed), variable payments based on an index or rate, amounts
expected to be payable under a residual value guarantee and
payments arising from options reasonably certain to be
exercised.
Subsequent to initial measurement, the liability is reduced for
payments made and increased for interest. It is re-measured to
reflect any reassessment or modification, or if there are changes
in in-substance fixed payments.
When the lease liability is re-measured, the corresponding
adjustment is reflected in the right-of-use asset, or profit and
loss if the right-of-use asset is already reduced to zero.
The Company has elected to account for short-term leases and
leases of low-value assets using the practical expedients. Instead
of recognising a right-of-use asset and lease liability, the
payments in relation to these are recognised as an expense in
profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets have
been included under non-current assets and the current portion of
lease liabilities have been included in other current
liabilities.
Y. Standards, amendments and interpretations to existing
standards that are not yet effective and have not been adopted
early by the Company.
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to
76 of IAS 1 to specify the requirements for classifying liabilities
as current or non-current. The amendments clarify:
-- What is meant by a right to defer settlement
-- That a right to defer must exist at the end of the reporting
period
-- That classification is unaffected by the likelihood that an
entity will exercise its deferral right
-- That only if an embedded derivative in a convertible
liability is itself an equity instrument would the terms of a
liability not impact its classification
The amendments are effective for annual reporting periods
beginning on or after 1 January 2024 and must be applied
retrospectively. The Company is currently assessing the impact the
amendments will have on current practice and whether existing loan
agreements may require renegotiation.
Other Standards and amendments that are not yet effective and
have not been adopted early by the Company include:
-- Amendments to IAS 12 Income Taxes-Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
These amendments are not expected to have a significant impact
on the financial statements in the period of initial application
and therefore the disclosures have not been made.
NOTE 4 - SIGNIFICANT MANAGEMENT JUDGEMENT IN APPLYING ACCOUNTING
POLICIES AND ESTIMATION UNCERTAINTY
When preparing the financial statements, management makes a
number of judgements, estimates and assumptions about the
recognition and measurement of assets, liabilities, income and
expenses.
Significant management judgement
-- Leases - determination of the appropriate lease period to measure lease liabilities
The Company enters into leases with third-party landlords and in
order to calculate the lease liability, the Company assess if any
lease option extensions will be exercised. The lease for the
Company's offices is for 5 years with an option to extend it for a
further 5 years. The Company expects this lease to be extended for
an additional 5 years - see Note 11.
Estimation uncertainty
-- Impairment of non-financial assets
In assessing impairment of non-financial assets (primarily,
internally developed intangible assets), management estimates the
recoverable amount of each asset or cash generating units (if
relevant) based on expected future cash flows and uses an interest
rate to discount them (i.e.,the value in use. Estimation
uncertainty relates to assumptions about future operating results
and the determination of a suitable discount rate. See Note 10 for
assumptions used in determining fair value.
-- Fair value measurement of financial instruments
When the fair values of financial assets and financial
liabilities recorded in the statement of financial position cannot
be measured based on quoted prices in active markets, Management
uses various valuation techniques to determine the fair value of
such financial instruments and non-financial assets. This involves
developing estimates and assumptions consistent with how market
participants would price the instrument. Management bases its
assumptions on observable data as far as possible but this is not
always available. In that case, management uses the best
information available. Estimated fair values may vary from the
actual prices that would be achieved in an arm's length transaction
at the reporting date. Changes in assumptions relating to these
factors could affect the reported fair value of financial
instruments (see Note 15).
NOTE 5 - CASH
Cash consist of the following:
US dollars
------------------
31 December
------------------
2022 2021
------- ---------
In Sterling 89,695 5,817,800
In U.S. Dollar 205,285 622,042
In Euro 2,751 6,638
In New Israeli Shekel 418,084 614,344
715,815 7,060,824
======= =========
NOTE 6 - TRADE RECEIVABLES
Trade and other receivables consist of the following:
US dollars
--------------------
31 December
--------------------
2022 2021
--------- ---------
Trade receivables 1,373,718 1,422,280
Unbilled revenue 504,354 353,318
Less: provision for expected credit losses (579,000) (230,000)
Total receivables 1,299,072 1,545,598
========= =========
All amounts are short-term. The net carrying value of these
receivables is considered a reasonable approximation of fair value.
All of the Company's trade and other receivables have been reviewed
for the possibility of loss (an allowance for impairment losses).
See also Note 26A.
NOTE 7 - INVENTORIES
US dollars
----------------
31 December
----------------
2022 2021
------- -------
Components and raw materials 613,218 165,095
Finished cards 159,858 119,715
Total inventories 773,076 284,810
======= =======
NOTE 8 - OTHER CURRENT ASSETS
Other current assets consist of the following:
US dollars
----------------
31 December
----------------
2022 2021
------- -------
Prepaid Expenses 203,955 167,291
Deposits to suppliers 1,857 9,065
Government institutions 129,659 39,650
Other current assets 8,401 24,958
Total other current assets 343,872 240,964
======= =======
NOTE 9 - PROPERTY AND EQUIPMENT
Details of the Company's property and equipment are as
follows:
US dollars
----------------------------------------------------------------
Testing Furniture Leasehold
equipment Computers and equipment improve-ments Total
---------- --------- -------------- -------------- ---------
Gross carrying
amount
Balance 1 January
2022 881,112 164,813 49,237 11,193 1,106,355
Additions 241,362 11,316 6,160 - 258,838
Balance 31 December
2022 1,122,474 176,129 55,397 11,193 1,365,193
Depreciation - - - - -
Balance 1 January
2022 (286,980) (143,204) (16,096) (6) (446,286)
Depreciation (91,596) (12,308) (3,377) (1,300) (108,581)
---------- --------- -------------- -------------- ---------
Balance 31 December
2022 (378,576) (155,512) (19,473) (1,306) (554,867)
Carrying amount
31 December 2022 743,898 20,617 35,924 9,887 810,326
========== ========= ============== ============== =========
US dollars
----------------------------------------------------------------
Testing Furniture Leasehold
equipment Computers and equipment improve-ments Total
---------- --------- -------------- -------------- ---------
Gross carrying
amount
Balance 1 January
2021 725,298 141,565 45,628 60,102 972,593
Additions 156,145 23,248 3,609 11,193 194,195
Disposals * (331) - - (60,102) (60,433)
---------- --------- -------------- -------------- ---------
Balance 31 December
2021 881,112 164,813 49,237 11,193 1,106,355
Depreciation
Balance 1 January
2021 (215,303) (134,269) (13,055) (57,854) (420,481)
Disposals 261 - - 60,102 60,363
Depreciation (71,938) (8,935) (3,041) (2,254) (86,168)
---------- --------- -------------- -------------- ---------
Balance 31 December
2021 (286,980) (143,204) (16,096) (6) (446,286)
Carrying amount
31 December 2021 594,132 21,609 33,141 11,187 660,069
========== ========= ============== ============== =========
* Disposals of assets for zero proceeds.
NOTE 10 - INTANGIBLE ASSET
Details of the Company's intangible asset (R&D) is as
follows:
US dollars
----------
Total
----------
Gross carrying amount
Balance 1 January 2022 9,550,657
Additions -
Balance 31 December 2022 9,550,657
Amortisation
Balance 1 January 2022 3,126,477
Amortisation 961,380
----------
Balance 31 December 2022 4,087,857
Carrying amount 31 December
2022 5,462,800
==========
US dollars
----------
Total
----------
Gross carrying amount
Balance 1 January 2021 9,550,657
Additions -
Balance 31 December 2021 9,550,657
Amortisation
Balance 1 January 2021 2,165,097
Amortisation 961,380
----------
Balance 31 December 2021 3,126,477
Carrying amount 31 December
2021 6,424,180
==========
The Company commissioned an impairment test of the capitalised
intangible assets as of 31 December 2019, by a top-tier independent
international firm with expertise in valuation procedures.
According to such independent report, the recoverable amount of
these intangible assets, based on future forecasted revenues, is
approximately USD 27 million - more than three times the book value
and accordingly there has been no need to record an impairment to
such capitalised assets.
The Company tested the capitalised intangible assets for
impairment as of 31 December 2022. Such analysis revealed a similar
calculation as that determined as at 31 December 2021 and therefore
no impairment is warranted.
In establishing its indications, the Company referred to the
fact that the 2019 independent report placed a value of $27m on the
intangible asset. Having given due consideration to the following,
the Company believes that no further impairment is required.
-- The anticipated outcomes of current discussions and engagements with customers;
-- The customer projections and where the customer believes
engagement, testing, field trials and deployment will take
place;
-- Signed engagements or commercial discussion phases and anticipated outturns;
-- Development cost elements (R&D resources);
-- Cash resources required to meet the forecast costs for the developments;
-- Current cash resources at the time;
-- Requirements if any for raising funds to ensure funds are freely available;
-- Ease of fund raising.
The valuation method determined, to best reflect the fair value
of the intangible assets, was the Discounted Cash Flow ("DCF") to
be generated from such assets between 2023 through 2032.
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 28.3% (post-tax 23.5%).
NOTE 11 - LEASES
A. Details of the Company's operating lease right of use assets are as follows:
US dollars
---------------------------------
Buildings Vehicles Total
---------- --------- ----------
Gross carrying amount
Balance 1 January 2022 3,158,849 95,702 3,254,551
Terminations - (95,702) (95,702)
Balance 31 December 2022 3,158,849 - 3,158,849
Accumulated depreciation
Balance 1 January 2022 (26,324) (72,025) (98,349)
Terminations - 95,702 95,702
Depreciation expense (315,884) (23,677) (339,561)
---------- --------- ----------
Balance 31 December 2022 (342,208) - (342,208)
Total right-of-use assets
as at 31 December 2022 2,816,641 - 2,816,641
========== ========= ==========
US dollars
---------------------------------
Buildings Vehicles Total
---------- --------- ----------
Gross carrying amount
Balance 1 January 2021 441,068 129,742 570,810
Terminations (441,068) (34,040) (475,108)
Additions 3,158,849 - 3,158,849
---------- --------- ----------
Balance 31 December 2021 3,158,849 95,702 3,254,551
Accumulated depreciation
Balance 1 January 2021 (225,228) (53,363) (278,591)
Terminations 337,842 16,075 353,917
Depreciation expense (138,938) (34,737) (173,675)
---------- --------- ----------
Balance 31 December 2021 (26,324) (72,025) (98,349)
Total right-of-use assets
as at 31 December 2021 3,132,525 23,677 3,156,202
========== ========= ==========
The vehicle right-of-use assets comprises 4 vehicles used by
employees, all of which lease terms extend until the second half of
2022. Unexpectedly, one of the leases ended in March 2021.
B. Lease liabilities are presented in the statement of financial position as follows:
US dollars
----------------------
31 December
----------------------
2022 2021
---------- ----------
Current 207,161 170,350
Non-current 2,505,777 3,069,721
2,712,938 3,240,071
========== ==========
C. In October 2021, the Company committed to a five-year lease
agreement for its primary offices in Airport City Israel. At the
termination of the lease, the Company had an option to renew it for
a further five years. Such renewal option was considered as
reasonably certain to be exercised according to IFRS 16.
Each lease generally imposes a restriction that, unless there is
a contractual right for the Company to sublet the asset to another
party, the right-of-use asset can only be used by the Company.
Leases are either non-cancellable or may only be cancelled by
incurring a substantive termination fee. Some leases contain an
option to extend the lease for a further term or for the employee
who used the leased item to purchase the underlying leased asset
outright at the end of the lease term. The Company is prohibited
from selling or pledging the underlying leased assets as security.
For leases over office buildings and factory premises the Company
must keep those properties in a good state of repair and return the
properties in their original condition at the end of the lease.
Further, the Company must insure items of property, plant and
equipment and incur maintenance fees on such items in accordance
with the lease contracts.
D. The lease liabilities are secured by the related underlying
assets. Future minimum lease payments at 31 December 2022 were as
follows:
Minimum lease payments due
------------------------------------
US dollars
------------------------------------
2023 2024-2031 Total
---------- ---------- ------------
Lease payments 416,709 3,402,870 3,819,579
Finance charges (209,548) (897,091) (1,106,639)
---------- ---------- ------------
Net present values 207,161 2,505,779 2,712,940
========== ========== ============
NOTE 12 - SHORT- TERM BORROWINGS
Borrowings include the following financial liabilities:
Annual
% Interest US dollars
----------------
rate(1) 31 December
----------------
2022 2022 202 1
------------- ------- -------
Bank borrowings (2) P+4.5% 428,935 422,633
Total short- term borrowings 428,935 422,633
======= =======
(1) The loans bore variable interest of prime + 4.5%. The above
interest rate is the weighted average rate as of 31 December 2022.
The loans were fully repaid by March 2023.
(2) The Company has obtained a facility for invoice trade
financing of up to approximately $430,000 which will allow
acceleration of cash flows on invoicing receipts.
NOTE 13 - OTHER CURRENT LIABILITIES
Other short-term liabilities consist of:
US dollars
--------------------
31 December
--------------------
2022 202 1
--------- ---------
Salaries, wages and related costs 426,211 415,787
Provision for vacation 235,442 226,210
Accrued expenses and other 121,770 86,761
Deferred revenue 20,337 72,667
Short term lease liability 207,161 170 ,350
Related parties (see Note 28.A.) * 110,988 125,584
Total other short-term liabilities 1,121,909 1,097,359
========= =========
* Relates to compensation from prior years. These amounts do not
bear interest. This liability was partially settled in May
2021.
NOTE 14 - IIA ROYALTY LIABILITY
During the years 2005 through 2012, the Company received grants
from the Israel Innovation Authority ("IIA") totaling approximately
$3.05 million, to support the Company's various research and
development programs. The Company is required to pay royalties to
the IIA at a rate of 3.5%, of the Company revenue up to an amount
equal to the grants received, plus interest from the date of the
grant. The total amount including interest is approximately $3.1
million. However, as the Company is not expecting to produce
revenues from products funded by such grants it was determined that
there is reasonable assurance that the amount received will not be
refunded and thus no liability was recognised with respect to such
grants as of December 31, 2022 and 2021. Such contingent obligation
has no expiration date.
As of 31 December 2022, the Company has repaid approximately
$532,000 (2021: $532,000) of these grants over numerous years, in
the form of royalties. The maximum amount of royalties that would
be payable would be approximately $3,100,000 as at 31 December 2022
(2021: $3,000,000).
NOTE 15 - EQUITY
A. Details regarding share capital and number of shares at 31
December 2022 and at 31 December 2021 are:
Share capital:
US dollars
--------------
31 December
--------------
2022 2021
------ ------
Ordinary shares of NIS 0.001 par value 21,904 21,140
Total share capital 21,904 21,140
====== ======
Number of shares:
31 December
----------------------------------
2022 2021
--------------- -----------------
Ordinary shares of NIS 0.001 par value
- authorised 100,000,000 100,000,000
--------------- -----------------
Ordinary shares of NIS 0.001 par value
- issued and paid up 78,084,437 75,351,738
--------------- -----------------
B. Description of the rights attached to the Ordinary Shares
All ordinary shares have equal rights including voting rights,
rights to dividends and to distributions upon liquidation. They
confer their holder the rights to receive notices, attend and vote
at general meetings.
C. Share premium
Share premium includes proceeds received from the issuance of
shares, after allocating the nominal value of the shares issued to
share capital. Transaction costs associated with the issuance of
shares are deducted from the share premium, net of any related
income tax benefit. The costs of issuing new shares charged to
share premium during the year ended 31 December 2022 was $9,952
(2021: $375,732).
D. Other components of equity
Other components of equity include the value of equity-settled
share and option-based payments provided to employees and
consultants. When employees and consultants forfeit their options,
the costs related to such forfeited options are reversed out to
other components of equity - see Note 16.A.
E. IPO - Admission to the AIM exchange in London
On 29 June 2017 the Company completed an IPO together with being
admitted to trading on the AIM Stock Exchange. Total net proceeds
from the issuance amounted to approximately $17,800,000. The
Company trades on the AIM Stock Exchange under the symbol
"ENET".
Concurrent with the IPO, the Company issued 162,591 five-year
options to the IPO broker that could have been exercised at an
exercise price of GBP1.40 (see Note 16.C.) These options expired on
29 June 2022.
F. Shares issued during the accounting periods
During the year ended 31 December 2022, 2,732,699 (2021:
27,883,241) ordinary shares were issued, as follows:
Number of shares issued
during year ended 31 December
---------------------------------
Note 2022 2021
------- ---------------
Exercise of employee options [1] - 706,667
Issuance of ordinary shares
)issued together with warrants( [2] - 13,149,943
Exercise of warrants [2] - 3,500,010
Shares issued pursuant to
share subscription agreement [3] 2,695,593 10,221,621
Expenses paid for in shares
and warrants [5] 37,106 305,000
--------------- ----------------
2,732,699 27,883,241
=============== ================
[1] Details of shares issued to employees and former employees,
upon the exercise of their employee options, are as follows:
Exercise Number of shares issued
Date options price of during year ended 31 December
exercised options
-------------- ---------- ---------------------------------
2022 2021
------------ -------------------
11 January
2021 $ 0.10 - 220,000
16 February
2021 GBP 0.12 - 6,667
11 October
2021 $ 0.10 - 480,000
------------ -------------------
- 706,667
============ ===================
The amount received by the Company upon the exercise of these
options during the year ended 31 December 2021 was $71,113- see
Note 16.A. for further details related to the employee options.
[2] Details of the equity raises are as follows:
September 2021 equity raise
In September 2021 the Company issued 13,149,943 shares attached
to 13,149,943 warrants. Each share and attached warrant were issued
for GBP 0.35, realising gross proceeds of $6.25 million (GBP 4.6
million) and net proceeds after issuance expenses of approximately
$5.85 million (GBP 4.3 million).
Each warrant is exercisable at GBP 0.60 ("GBP 0.60 warrants")
with a life term of 18 months. The warrants are not transferable,
are not traded on an exchange and have an accelerator clause. The
GBP 0.60 Warrants will be callable by the Company if the closing
mid-market share price of the Company exceeds GBP 0.80 over a
5-consecutive day period, within 12 months of the issuance date. If
such 5-consecutive day period condition is met, the Company may
serve notice on the warrant holders to exercise their relevant
warrants within 7 calendar days, failing which, such remaining
unexercised warrants shall be cancelled.
As the exercise price of the warrants is denominated in GBP and
not in the Company's functional currency, it was determined that
the Company's obligation under such warrants cannot be considered
as an obligation to issue a fixed number of equity instruments in
exchange for a fixed amount of cash. Accordingly, it was determined
that such warrants represent a derivative financial liability
required to be accounted for at fair value through the profit or
loss category. Upon initial recognition the Company allocated the
gross proceeds as follows: an amount of approximately $1.59 million
was allocated as a derivative warrants liability with the remainder
of the proceeds amounting to $4.40 million (after deduction of the
allocated issuance costs of $376,000) being allocated to share
capital and share premium. The issuance expenses were allocated in
a consistent manner to the above allocation. The expenses related
to the warrant component were carried to profit or loss as an
immediate expense while the expenses related to the share capital
component were netted against the amount carried to equity. In
subsequent periods the company measures the derivative financial
liability at fair value and the periodic changes in fair value are
carried to profit or loss under financing costs or financing
income, as applicable. The fair value of the derivative warrant
liability is categorised as level 3 of the fair value
hierarchy.
The fair value valuation of the warrants was based on the
Black-Scholes option pricing model, calculated in two stages.
Initially, the fair value of these call warrants issued to
investors were calculated, assuming no restrictions applied to such
call warrants. As the Company, under certain circumstances, has a
right to force the investors to either exercise their warrants or
have them cancelled, the second calculation calculates the value of
the warrants as call warrants that were issued by the investor to
the company. The net fair value results from reducing the call
investor warrants fair value from the call warrants fair value, as
long as the intrinsic value of the call warrants (share price at
year end less exercise price of the warrants) is not greater than
such value. Should the intrinsic value of the warrants be higher
than the Black-Scholes two stage method described above, then the
intrinsic value of the warrants is considered to be a more accurate
measure to use in determining the fair value. The following factors
were used in calculating the fair value of the warrants at their
issuance:
Weighted average
Share price Exercise Risk free
Instrument Term at issuance price rate Volatility
0.60p option 18 months GBP 0.519 GBP 0.60 0.19% 81.3%
0.80p option 12 months GBP 0.519 GBP 0.80 0.08% 77.6%
Of the 13,149,943 shares and 13,149,943 warrants subscribed for,
the director's participation in this issuance was 253,431 shares
and 253,431 GBP 0.60 warrants, on the same terms as outside
investors participated.
None of the GBP 0.60 Warrants had been exercised by 31 December
2022 and their fair value of zero (2021: $1.2 million) at such date
is disclosed as a warrants liability in the statement of financial
position.
Upon this successful equity raise being concluded in September
2021, the brokers for this transaction received 257,929 three year
warrants exercisable at GBP 0.35 per warrant ("Broker Warrants").
The fair value of these warrants at the time of issuance was
approximately $113,190. As at 31 December 2022, none of these
warrants have been exercised.
July 2020 equity raise
In July 2020 the Company issued 7,333,334 shares attached to
7,333,334 warrants. Every 2 shares and the attached 2 warrants were
issued for GBP 0.24 (GBP 0.12 per share and attached warrant),
realising gross proceeds of $1,103,069 (GBP 880,000) and net
proceeds after issuance expenses of approximately $999,000 (GBP
827,500).
Every 2 warrants were comprised of 1 warrant exercisable at
GBP0.20 ("GBP0.20 Warrants") and 1 warrant exercisable at GBP0.30
("GBP0.30 Warrants"), both with a life term of 12 months. The
warrants are not transferable and are not traded on an exchange.
The Warrants have an accelerator clause. The GBP0.20 Warrants will
be callable by the Company if the closing mid-market share price of
the Company exceeds GBP0.30 over a 5-consecutive day period. The
GBP0.30 Warrants will be callable by the Company if the closing
mid-market share price of the Company exceeds GBP0.40 over a
5-consecutive day period. If such 5-consecutive day period
condition is met, the Company may serve notice on the warrant
holders to exercise their relevant warrants within 7 calendar days,
failing which, such remaining unexercised warrants shall be
cancelled.
As the exercise price of the warrants is denominated in GBP and
not in the Company's functional currency, it was determined that
the Company's obligation under such warrants cannot be considered
as an obligation to issue a fixed number of equity instruments in
exchange for a fixed amount of cash. Accordingly, it was determined
that such warrants represent a derivative financial liability
required to be accounted for at fair value through the profit or
loss category. Upon initial recognition the Company allocated the
gross proceeds as follows: an amount of approximately $82,000 was
allocated as derivative warrants liability with the remainder of
the proceeds amounting to $917,000 (after deduction of the
allocated issuance costs of $104,000) being allocated to share
capital and share premium. The issuance expenses were allocated in
a consistent manner to the above allocation. The expenses related
to the warrant component were carried to profit or loss as an
immediate expense while the expenses related to the share capital
component were netted against the amount carried to equity. In
subsequent periods the company measures the derivative financial
liability at fair value and the periodic changes in fair value are
carried to profit or loss under financing costs or financing
income, as applicable. The fair value of the derivative warrant
liability is categorised as level 3 of the fair value
hierarchy.
The fair value valuation of the warrants was based on the
Black-Scholes option pricing model, calculated in two stages.
Initially, the fair value of these call warrants issued to
investors were calculated, assuming no restrictions applied to such
call warrants. As the Company, under certain circumstances, has a
right to force the investors to either exercise their warrants or
have them cancelled, The second calculation calculates the value of
the warrants as call warrants that were issued by the investor to
the company. The net fair value results from reducing the call
investor warrants fair value from the call warrants fair value, as
long as the intrinsic value of the call warrants (share price at
year end less exercise price of the warrants) is not greater than
such value. Should the intrinsic value of the warrants be higher
than the Black-Scholes two stage method described above, then the
intrinsic value of the warrants is considered to be a more accurate
measure to use in determining the fair value. The following factors
were used in calculating the fair value of the warrants at their
issuance:
Trigger
Exercise price
price Risk for call
Share price for call free investor
Instrument Term at issuance warrants rate Volatility warrants
0.20p option 1 year GBP 0.135 GBP 0.20 0.16% 66.3% GBP 0.30
0.30p option 1 year GBP 0.134 GBP 0.30 0.17% 66.3% GBP 0.40
Of the 7,333,334 shares and 7,333,334 warrants subscribed for,
the directors' participation in this issuance was 1,666,668 shares,
833,334 GBP0.20 warrants and 833,334 GBP 0.30 warrants, on the same
terms as outside investors participated.
During December 2020, the accelerator clause for the GBP 0.20
warrants had been activated by the Company and 3,491,676 of these
warrants were exercised for which the Company issued the same
number of shares, while 174,991 warrants not exercised were
cancelled in terms of the Warrant Instrument. The Directors
exercised all their GBP 0.20 warrants held.
Upon this successful equity raise being concluded in July 2020,
the broker for this transaction received 252,750 one-year warrants
exercisable at GBP0.12 per warrant ("Broker Warrants"). The
fair-value of these warrants at the time of issuance was
approximately $13,000. All of these warrants were exercised in
2020. See Note 16.E.b.
The total amount received by the Company upon the exercise of
the GBP0.20 Warrants and the Broker Warrants was approximately
$0.99 million. Such amount, together with the fair value of the
warrants derivative liability was recognised within the equity upon
exercise of the warrants totaling an amount of $1.63 million.
In May 2021 the accelerator clause for the GBP0.30 Warrants was
activated by the Company and 3,500,010 of these warrants were
exercised for which the Company issued the same number of shares,
while 166,657 warrants not exercised, were cancelled. The Directors
exercised all their GBP0.30 Warrants held.
The total amount received by the Company upon the exercise of
the GBP0.30 Warrants was approximately $1.45 million. Such amount,
together with the fair value of the warrants derivative liability
was recognised within the equity upon exercise of the warrants
totaling an amount of $2.01 million.
[3] On 24 September 2020 the Company entered into a share
subscription deed / agreement ("SSD") with an institutional
investor ("Investor"), to raise up to GBP3,200,000 (Approx.
$4,100,000) as follows:
Amount Date that
Subscription receivable amount was
Closing Closing date amount by Company received
1(st) Up to 5 business days
following execution 25 Sep.
of the SSD GBP 547,000 GBP 500,000 2020
2(nd) Up to 240 calendar
days following the 31 Dec.
1(st) closing date GBP 438,000 GBP 400,000 2020
-------------- --------------
Amounts received
until 31 December
2020 GBP 985,000 GBP 900,000
3(rd) Up to 240 calendar
days following the
2(nd) closing date GBP 438,000 GBP 400,000 4 Mar. 2021
4(th) Up to 240 calendar
days following the 16 Apr.
3(rd) closing date GBP 438,000 GBP 400,000 2021
30 April
5(th) By mutual agreement GBP 823,500 GBP 750,000 2021
6(th) By mutual agreement GBP 823,500 GBP 750,000 1 Nov. 2021
-------------- --------------
Amounts received GBP 3,508,000 GBP 3,200,000
until 31 December
2021
============== ==============
According to the subscription agreement, the company is entitled
to terminate the agreement (with respect to any subscription amount
not yet closed), upon payment of a cancellation fee of $48,000.
Pursuant to the share subscription agreement, the investor has
the right, at its sole discretion to require the Company to issue
shares in relation to the subscription amount outstanding (or a
part of it), under which, the number of shares to be issued for
such settlement, shall be determined using an average five daily
VWAP share price of the Company's shares as selected by the
Investor, during the 20 trading days prior to such settlement
notice ("Conversion Price"). However, the company has certain
rights to make cash payments in lieu of the above share settlement,
yet the Investor is entitled to exclude from such cash payment, up
to 30% of the cash settlement amount.
As the company's obligation under the share subscription
agreement with respect for each subscription amount received by the
company, represent an obligation to be settled through the issuance
of variable number of shares and as the agreements include several
embedded derivatives (such as early prepayment options, principal
amounts indexed to an average price of equity instrument) the
company has designated this obligation as financial liability at
fair value through profit or loss under "liability related to share
subscription agreement".
Accordingly, upon initial recognition and at each reporting
period the liability is measured at fair value with changes carried
to profit or loss under financing costs or financing income, as
applicable.
Upon settlement or a partial settlement of such liability, such
when the investor calls for the settlement of the aggregate
subscription amount outstanding (or any part of it), for a fixed
number of shares, as calculated upon such settlement notice, the
fair value of the liability, related to the settled portion is
carried to equity.
The fair value of the liability related to share subscription
agreement is categorised as level 3 of the fair value hierarchy.
See Note 26.B.
Activity for year ending 31 December 2021
During 2021, the Investor subscribed for a further $3.18 million
(GBP2.30 million), with a total face value of $3.49 million
(GBP2.52 million).
The Investor converted all remaining outstanding subscription
amounts during 2021 as follows, thereby bringing the relationship
to a conclusion, without any balances remaining as at 31 December
2021:
Amount converted
--------------------------- -------------------- --------------
Notice date of conversion GBP USD Shares Issued
--------------------------- -------- ---------- --------------
16 April 2021 500,000 689,250 1,805,054
28 April 2021 600,000 834,240 2,033,898
19 October 2021 400,000 515,616 1,307,190
3 November 2021 744,500 1,004,439 2,433,007
9 November 2021 823,500 1,098,983 2,642,472
10,221,621
==============
Pursuant to the SSD as described above, the Investor converts
subscription amounts into shares of the Company at a discounted
price. Upon each conversion, the difference between the actual
market value of shares issued to the Investor and the amount
converted is recorded in finance costs, which in 2021 amounted to
$1,642,492.
Activity for year ending 31 December 2022
In February 2022, the Investor signed a new share subscription
with the Company, subscribing for a further $2.0 million, with a
total face value of $2,060,000. In March 2022 the full $2.0 million
was funded as a prepayment for the subscription shares.
The number of subscription shares to be issued is determined by
dividing the face value of the subscription amount by the
Settlement Price.
The Settlement Price is equal to the sum of (i) the Reference
Price and (ii) the Additional Price.
The Reference Price is the average of the 3 daily
volume-weighted average prices ("VWAPs") of Shares selected by the
Investor during a 15 trading day period immediately prior to the
date of notice of their issue, rounded down to the next one tenth
of a penny. The Additional Price is equal to half of the excess of
85% of the average of the daily VWAPs of the Shares during the 3
consecutive trading days immediately prior to the date of notice of
their issue over the Reference Price.
The Investor converted the following subscription amount during
2022 as follows:
Amount converted Shares Issued
Notice date of conversion - USD
--------------------------- ----------------- --------------
22 September 2022 320,000 2,695,593
As described above, the Investor converts subscription amounts
into shares of the Company at a discounted price. Upon each
conversion, the difference between the actual market value of
shares issued to the Investor and the amount converted, is recorded
in finance costs, which in 2022 amounted to $74,437.
[4] Concurrent with the initial investment by the Investor in
September 2020, the Company issued 880,000 shares to the Investor
for the par value of the shares, being $258. The Investor at its
discretion, may choose to pay for these 880,000 shares, calculated
at the then current Conversion Price. Upon issuance of the shares,
the company recognised the amount of $196,259, representing the
fair value of the investor's obligation to payment for the shares
under the caption "proceeds due on account of shares issued" - see
Note 8. As the contractual terms of such financial asset do not
create an entitlement to cash flows on specified dates that are
solely payment of principal and interest, the financial asset was
classified to measurement at fair value through profit or loss. As
at 31 December 2020 the fair value of this asset was valued at
$301,658 calculated by using the Conversion Price at that date of
GBP 0.251. The difference between the fair value recognised upon
initial recognition and as at 31 December, 2020 was carried to
profit or loss as financing income.
The Investor paid for these shares in April 2021 using the then
applicable Conversion Price of GBP 0.292 for proceeds of
approximately $356,000. The approximately $55,000 difference
between the fair value as at 31 December, 2020 and the fair value
upon payment for these shares, was carried to profit or loss as
financing income.
[5] In June 2020, an advisor was contracted to provide
investment advisory services to the Company and received 150,000
shares as part payment for their fees. The fair value of these
shares at the time of issuance was approximately $39,300. The
advisor also received 100,000 three year warrants exercisable at
GBP 1.00, vesting at the rate of 16,667 warrants every six months.
The contract was terminated after 16,667 warrants had vested. The
fair value of such warrants was approximately $700. See Note 16.E.a
below.
In December 2020, the company agreed to settle amounts due to
two directors in lieu of their directors' fees amounting to
approximately $83,000 through the issuance of 305,000 ordinary
shares of the company. The company issued the shares in January
2021- See Notes 16.E.d and 28D.
As part of the agreed r emuneration as non-Executive Chairman
for the period from 10 March 2021 to 28 February 2022, Joseph
Albagli is entitled to receive ordinary shares equal to a monthly
amount of GBP1,250. On 14 April 2022 the Company issued 37,106
ordinary shares in lieu of the $20,158 owing to Joseph Albagli for
the above-mentioned period . See Note 28.C.
NOTE 16 - SHARE-BASED COMPENSATION
A. In 2013 the Company's Board of Directors approved a share
option plan for the grant of options without consideration, to
employees, consultants, service providers, officers and directors
of the Company. The options are exercisable into the Company's
ordinary shares of NIS 0.01 par value. The exercise price and
vesting period (generally four years) for each grantee of options,
is determined by the Company's Board of Directors and specified in
such grantee's option agreement. In accordance with Section 102 of
the Israel tax code, the Israeli resident grantee's options, are
held by a trustee. The options are not cashless (they need to be
paid for) and expire upon the expiration date determined by the
Board of Directors (generally ten years from the date of the
grant). The expiration date may be brought forward upon the
termination of grantee's employment or services to the Company.
Options do not vest after the termination of employment or services
to the Company. Options are not entitled to dividends.
The following table summarises the salient details and values
regarding the options granted (all amounts are in US Dollars unless
otherwise indicated):
Option grant dates
17 Feb 17 Feb 17 Feb 23 Nov 18 Mar
2022 2022 2022 2021 2021
Number of options
granted 130,000 400,000 351,000 486,000 240,000
Exercise price in
$ 0.545 0.395 0.395 0.598* 0.461
Recipients of the Employees Employees Employees Employees Employees
options
Approximate fair value
at grant date (in
$):
Total benefit 35,902 116,762 102,458 122,161 47,198
Per option benefit 0.29 0.29 0.29 0.25 0.20
Assumptions used in
computing value:
Risk-free interest
rate 2.98% 2.98% 2.98% 1.67% 1.71%
Dividend yield 0.00% 0.00% 0.00% 0.00% 0.00%
Expected volatility 70% 70% 70% 35% 35%
Expected term (in
years) 10.0 10.0 10.0 8.7 9.4
Expensed amount recorded
for year ended:
31 December 2021 - - - 11,880 14,780
31 December 2022 22,477 75,322 44,277 59,309 6,603
The remaining value of these options at 31 December 2022, which
have yet to be recorded as expenses, amount to $159,127 (2021:
$160,991).
As some of these employees left the employ of the company prior
to 31 December 2022, their options were cancelled.
* Average exercise price. High - $0.715. Low - $0.434
Share based compensation was treated in these financial
statements as follows:
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
------------ ----------
Total expensed amount recorded 221,362 77,583
Total capitalised amount recorded - -
Total 221,362 77,583
============ ==========
The following tables present a summary of the status of the
employee option grants by the Company as of 31 December 2022 and
2021:
Weighted
average
exercise
Number price (US$)
--------- -----------
Year ended 31 December 2022
Balance outstanding at beginning of year 2,951,920 0.27
Granted 881,000 0.42
Exercised - 0.10
Forfeited (141,000) 0.36
Balance outstanding at end of the year 3,691,920 0.31
========= ===========
Balance exercisable at the end of the
year 2,333,503
=========
Weighted
average
exercise
Number price (US$)
--------- -----------
Year ended 31 December 2021
Balance outstanding at beginning of year 3,140,920 0.18
Granted 726,000 0.55
Exercised (706,667) 0.10
Forfeited (208,333) 0.31
Balance outstanding at end of the year 2,951,920 0.27
========= ===========
Balance exercisable at the end of the
year 1,810,753
=========
B. The option pool was increased to 6,500,000 options by a
resolution passed on 16 December 2021 and approved by the tax
authorities.
C. The following table summarises information about employee
options outstanding at 31 December 2022:
Weighted Weighted
Outstanding average Weighted Exercisable average
at 31 remaining average at 31 remaining
Exercise December contractual exercise December contractual
price 2022 life (years) price (US$) 2022 life (years)
-------- ----------- ------------ ----------- ----------- ------------
$0.10 1,128,920 0.5 0.10 1,128,920 0.5
$0.20 129,000 4.2 0.20 129,000 4.2
GBP0.12 73,000 7.6 0.16 73,000 7.6
GBP0.20 370,000 7.9 0.26 246,667 7.9
GBP0.21 140,000 7.5 0.26 105,000 7.5
GBP0.21 200,000 7.9 0.27 166,667 7.9
GBP0.29 311,000 9.1 0.39 14,250 9.1
GBP0.29 400,000 9.1 0.39 100,000 9.1
GBP0.33 175,000 7.6 0.46 43,750 7.6
GBP0.40 130,000 5.6 0.54 32,500 5.6
GBP0.45 455,000 7.6 0.60 113,750 7.6
GBP1.05 40,000 4.2 1.28 40,000 4.2
GBP1.40 30,000 4.7 1.83 30,000 4.7
GBP1.00 60,000 5.5 1.32 60,000 5.5
GBP1.00 50,000 6.6 1.25 50,000 6.6
3,691,920 2,333,503
=========== ===========
The following table summarises information about employee
options outstanding at 31 December 2021:
Weighted Weighted
Outstanding average Weighted Exercisable average
at 31 remaining average at 31 remaining
Exercise December contractual exercise December contractual
price 2021 life (years) price (US$) 2021 life (years)
-------- ----------- ------------ ----------- ----------- ------------
$0.10 1,128,920 1.5 0.10 1,128,920 1.5
$0.20 129,000 5.2 0.20 129,000 5.2
GBP0.12 73,000 8.6 0.16 48,667 8.6
GBP0.20 370,000 8.9 0.26 123,333 8.9
GBP0.21 210,000 8.5 0.26 87,500 8.5
GBP0.21 200,000 8.9 0.27 133,333 8.9
GBP0.33 175,000 8.6 0.46 - 8.6
GBP0.45 486,000 8.6 0.60 - 8.6
GBP1.05 40,000 5.2 1.28 40,000 5.2
GBP1.40 30,000 5.7 1.83 30,000 5.7
GBP1.00 60,000 6.5 1.32 45,000 6.5
GBP1.00 50,000 7.6 1.25 45,000 7.6
2,951,920 1,810,753
=========== ===========
The fair value of options granted to employees was determined at
the date of each grant. The fair value of the options granted are
expensed in the profit and loss, except for those that were
allocated to capitalised research and development costs (up to and
including 30 June 2019).
D. Options issued to the IPO broker
Upon the IPO consummation the Company issued five-year options
to the IPO broker to purchase up to 162,591 shares of the Company
at an exercise price of GBP1.40. These options were valued at
approximately $121,000 with the Black Scholes option model, using
the assumptions of a risk-free rate of 1.82% and volatility of 46%.
The options may only be exercised after 28 June 2018. As described
in Note 3.U., costs incurred in raising equity finance were applied
as a reduction from those equity sale proceeds and is recorded in
Other Components of Equity. Such warrants expired on 29 June
2022.
E. Shares and equity instruments issued in lieu of payment for services provided
a. In September 2020 the Company entered into a share
subscription agreement as described in Note 15.F.[3]. The Company
was obliged to pay the Investor a funding fee equivalent to
$90,000, paid by issuing the Investor with 455,130 shares
calculated at the contract Conversion Price. The fair value of
these shares issued was approximately $99,500 which was initially
recorded as prepaid financing costs, which are to be amortised over
the expected period of this agreement. Approximately $23,000 was
amortised to finance expenses in 2020 with the balance of
approximately $67,000 amortised in 2021.
b. In December 2020, the company agreed to settle amounts due to
two directors in lieu of their directors fees amounting to
approximately $83,000 through the issuance of 305,000 ordinary
shares of the company. The company issued the shares in January
2021- See Notes 15.F.5. and 28.D.
c. Upon the successful equity raise concluded in September 2021,
as described in Note 15.F.[2], the brokers responsible for this
transaction received 257,929 three-year warrants exercisable at GBP
0.35 per warrant. The fair value of these warrants at the time of
issuance was approximately $113,000. As at 31 December 2022, none
of these warrants have been exercised.
d. On 14 April 2022 the Company issued 37,106 ordinary shares to
the Company's non-executive chairman in lieu of $20,158 owing a s
part of his agreed remuneration. See also Note 15.F.[5] and Note
28.C.
NOTE 17 - REVENUE
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Sales 2,546,289 2,225,134
Royalties 232,805 251,953
Maintenance and support 158,330 158,333
Total revenue 2,937,424 2,635,420
=========== ===========
NOTE 18 - RESEARCH AND DEVELOPMENT EXPENSES
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Employee remuneration, related costs and
subcontractors (*) 5,458,163 4,435,744
Maintenance of software and computers 134,651 115,149
Insurance and other expenses 57,006 31,874
Amortisation 961,380 961,380
Grant procurement expenses 7,595 6,765
----------- -----------
Total research and development expenses 6,618,795 5,550,912
=========== ===========
(*) Including share based compensation. 160,134 54,962
=========== ===========
NOTE 19 - GENERAL AND ADMINISTRATIVE EXPENSES
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Employee remuneration and related costs (*) 689,721 581,776
Professional fees 496,865 510,295
Rentals and maintenance 282,706 289,786
Depreciation 446,816 259 ,843
Travel expenses 8,608 173
Impairment losses of trade receivables 599,200 80,000
Total general and administrative expenses 2,523,916 1,721 ,873
=========== ===========
(*) Including share based compensation. 51,627 10,750
=========== ===========
NOTE 20 - MARKETING EXPENSES
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Employee remuneration and related costs (*) 903,834 833,896
Marketing expenses 258,094 203,930
Travel expenses 5,606 7,079
----------- -----------
Total marketing expenses 1,167,534 1,044,905
=========== ===========
(*) Including share based compensation. 9,601 11,871
=========== ===========
NOTE 21 - OTHER INCOME
As described in Note 3.K, when a government grant is related to
an expense item, it is recognised as other income.
NOTE 22 - FINANCING COSTS
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Bank fees and interest 35,150 32,147
Lease liability financial expenses 227,246 30 ,195
Revaluation of liability related to share
subscription agreement measured at FVTPL 230,992 2,884,254
Revaluation of warrant derivative liability - -
Expenses allocated to issuing warrants - 127,856
Expenses allocated to share subscription
agreement 80,000 -
Total financing costs 573,388 3,074,452
=========== ===========
NOTE 23 - FINANCING INCOME
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
------------- ---------
Revaluation of proceeds due on account of
shares (financial asset measured at FVTPL) - 49,723
Revaluation of warrant derivative liability 1,214,993 108,723
Lease liability financial income - 8,929
Interest received 1,507 41
Exchange rate differences, net 51,152 60 ,988
------------- ---------
Total financing income 1,267,652 228,404
============= =========
NOTE 24 - TAX EXPENSE
A. The Company is assessed for income tax in Israel - its
country of incorporation. The Israeli corporate tax rates for the
relevant years is 23%.
B. As of 31 December 2022, the Company has carry-forward losses
for Israeli income tax purposes of approximately $31 million.
According to management's estimation of the Company's future
taxable profits, it is no longer probable in the foreseeable
future, that future taxable profits would utilise all the tax
losses.
C. Deferred taxes
US dollars
------------------------------------------
Year ended 31 December
------------------------------------------
Utilisation
Origination of
and reversal previously Total
recognised
of temporary tax loss Deferred tax
differences carry-forwards expense
------------ -------------- ------------
Balance at 1 January
2021 186,772 - 186,772
Deductions (186,772) - (186,772)
------------ -------------- ------------
Balance at 31 December - - -
2021
Deductions - - -
Balance at 31 December - - -
2022
============ ============== ============
D. Theoretical tax reconciliation
For the years ended 31 December 2022 and 2021, the following
table reconciles the expected tax expense (benefit) per the
statutory income tax rate to the reported tax expense in profit or
loss as follows:
US dollars
-------------------------
Year ended 31 December
-------------------------
2022 2021
----------- ------------
Loss before tax 8,002,612 9,360,295
Tax expense (benefit) at statutory rate 23% 23%
----------- ------------
Expected tax expense (benefit) at statutory
rate (1,840,601) (2,152,868)
Changes in taxes from permanent differences
in share-based compensation 50,913 17,844
Increase in loss carryforwards - not affecting
the deferred tax asset 1,789,688 2,135,024
Income tax expense - 186,772
=========== ============
NOTE 25 - BASIC AND DILUTED LOSS PER ORDINARY SHARE
A. The earnings and the weighted average number of shares used
in computing basic loss per ordinary share, are as follows:
US dollars
--------------------------
Year ended 31 December
--------------------------
2022 2021
------------ ------------
Loss for the year attributable to ordinary
shareholders (8,002,612) (9,360,295)
============ ============
Number of shares
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Weighted average number of ordinary shares
used in the computation of basic loss
per ordinary share 76,013,296 67,492,412
=========== ===========
B. As the Company has losses attributable to the ordinary
shareholders, the effect on diluted loss per ordinary share is
anti-dilutive and therefore the outstanding warrants and employee
options have not been taken into account - see Note 16.
NOTE 26 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A. Financial risk and risk management
The activity of the Company exposes it to a variety of financial
risks and market risks. The Company re-assesses the financial risks
in each period and makes appropriate decisions regarding such
risks. The risks are managed by Company management which
identifies, assesses and hedges against the risks.
-- Exposure to changes in exchange rates
The Company is exposed to risks relating to changes in the
exchange rate of the NIS and other currencies versus the U.S.
dollar (which constitutes the Company's functional currency). Most
of the revenues of the Company are expected to be denominated in US
dollars, while the substantial majority of its expenses are in
shekels (mainly payroll expenses). Therefore, a change in the
exchange rates may have an impact on the results of the operations
of the Company.
Currency basis of financial instruments
US dollars
--------------------------------------------------
31 December 2022
--------------------------------------------------
NIS GBP Euro US $ Total
----------- ------ ----- --------- -----------
Assets
Cash 418,084 89,695 2,751 205,285 715,815
Trade receivables 259,368 - - 1,039,704 1,299,072
677,452 89,695 2,751 1,244,989 2,014,887
Liabilities
Short term borrowings 428,935 - - - 428,935
Trade payables 626,256 21,909 - 137,418 785,583
Liability related
to share subscription
agreement - - - 1,836,555 1,836,555
Non-current lease
liabilities 2,505,777 - - - 2,505,777
3,560,968 21,909 - 1,973,973 5,556,850
(2,883,516) 67,786 2,751 (728,984) (3,541,963)
=========== ====== ===== ========= ===========
US dollars
------------------------------------------------------
31 December 2021
------------------------------------------------------
NIS GBP Euro US $ Total
----------- --------- ------ --------- -----------
Assets
Cash 614,344 5,817,800 6,638 622,042 7,060,824
Trade receivables 424,685 - - 1,120,913 1,545,598
1,039,029 5,817,800 6,638 1,742,955 8,606,422
Liabilities
Short term borrowings 422,633 - - - 422,633
Trade payables 518,745 17,279 5,659 110,075 651,758
Warrants liability - 1,214,993 - - 1,214,993
Non-current lease
liabilities 3,069,721 - - - 3,069,721
4,011,099 1,232,272 5,659 110,075 5,359,105
(2,972,070) 4,585,528 979 1,712,880 3,327,317
=========== ========= ======= ========= ==========
-- Sensitivity to changes in exchange rates of the NIS and other currencies to the US dollar
A change in the exchange rate of the NIS and other currencies to
the USD as of the dates of the relevant statement of financial
position, at the rates set out below, which according to Management
are reasonably possible, would increase (decrease) the profit and
loss by the amounts set out below. The analysis below was performed
under the assumption that the rest of the variables remained
unchanged.
US dollars
-----------------------------------------------------------------
Sensitivity to changes in exchange rates
of the non US dollar currencies to the
US dollar
-----------------------------------------------------------------
Effect on profit Effect on profit
(loss)/equity (before (loss)/equity (before
tax) from the changes tax) from the changes
caused by the market caused by the market
factor Book value factor
------------------------ ----------- ------------------------
Increase at the Decrease at the
rate of 31 December rate of
------------------------ ----------- ------------------------
10% 5% 202 2 5% 10%
----------- ----------- ----------- ----------- -----------
Cash (51,053) (25,527) 510,530 25,527 51,053
Trade receivables (25,937) (12,968) 259,368 12,968 25,937
Short term borrowings 42,894 21,447 (428,935) (21,447) (42,894)
Trade payables 64,817 32,408 (648,165) (32,408) (64,817)
Non-current lease
liabilities 250,578 125,289 (2,505,777) (125,289) (250,578)
Total 281,299 140,649 (2,812,979) (140,649) (218,299)
=========== =========== =========== =========== ===========
US dollars
-----------------------------------------------------------------
Sensitivity to changes in exchange rates
of the non US dollar currencies to the
US dollar
-----------------------------------------------------------------
Effect on profit Effect on profit
(loss)/equity (before (loss)/equity (before
tax) from the changes tax) from the changes
caused by the market caused by the market
factor Book value factor
------------------------ ----------- ------------------------
Increase at the Decrease at the
rate of 31 December rate of
------------------------ ----------- ------------------------
10% 5% 2021 5% 10%
----------- ----------- ----------- ------------ ----------
Cash (643,878) (321,939) 6,438,782 321,939 643,878
Trade receivables (42,469) (21,234) 424,685 21,234 42,469
Short term borrowings 42,263 21,132 (422,633) (21,132) (42,263)
Trade payables 54,168 27,084 (541,683) (27,084) (54,168)
Warrants liability 87,298 43,649 (872,977) (43,649) (87,298)
Non-current lease
liabilities 306,972 153,486 (3,069,721) (153,486) (306,972)
Total (195,646) (97,822) 1,956,453 97,822 195,646
=========== =========== =========== ============ ==========
-- Credit risk
All of the cash and cash equivalents and other short-term
financial assets as of 31 December, 2022 and 2021 were deposited
with one of the major banks in Israel.
Trade receivables as of 31 December 2022 and 2021 were from
customers in Israel, the U.S., and Asia, which included the major
customers as detailed in Note 27. The Company performs ongoing
reviews of the credit worthiness of customers, the amount of credit
granted to customers and the possibility of loss therefrom. The
Company includes an adequate allowance for impairment losses
(expected credit loss). As at 31 December 2022, more than 90% of
net trade receivables were less than 90 days old.
-- Trade receivables
IFRS 9 provides a simplified model of recognising lifetime
expected credit losses for all trade receivables as these items do
not have a significant financing component.
In measuring the expected credit losses, the trade receivables
have been assessed by management on a collective basis as well as
on a case by case basis. Trade receivables are written off when
there is no reasonable expectation of recovery. Management have
indicated a concern regarding the receivable from a few customers,
for which a provision has been made. As at 31 December 2022, the
provision for expected credit losses was $579,000 (2021: $230,000)
- see Note 6 for more details.
US dollars
----------
Balance at 1 January 2021 150,000
Additions 80,000
Reductions -
Balance at 31 December 2021 230,000
Additions 589,000
Reductions (240,000)
Balance at 31 December 2022 579,000
==========
Liquidity risk
The Company financed its activities from its operations, issuing
shares and warrants, shareholders' loans and short and long-term
borrowings from the bank. For further details on the Company's
liquidity, refer to Note 2. All the non-current liabilities at 31
December 2022 and 2021 were lease liabilities which are serviced
monthly. The short-term borrowings at 31 December 2022 and 2021 and
the trade payables and other current liabilities are expected to be
paid within 1 year. It is therefore not expected that the Company
will encounter difficulty in meeting its obligations associated
with financial liabilities that are settled by delivering cash or
another financial asset.
As at 31 December 2022, the Company's non-derivative financial
liabilities have contractual maturities as summarized below:
US dollars
--------------------------------------
31 December 2022
--------------------------------------
Within 6 to 12 1 to 3 later
6 months months years then
3 years
--------- ------- ------- ---------
Short term borrowings 428,935 - - -
Trade payables 785,583 - - -
Other short-term liabilities 686,039 228,709 - -
Lease liabilities 101,516 105,645 467,331 2,038,446
Total 2,002,073 334,354 467,331 2,038,446
========= ======= ======= =========
As at 31 December 2022, the Company's derivative financial
liabilities have contractual maturities as summarized below:
US dollars
------------------
31 December 2022
------------------
Within later
8 months then 8
months
--------- -------
Liability related to share subscription agreement 1,836,555 -
Total 1,836,555 -
========= =======
B. Fair value of financial instruments
General
The financial instruments of the Company include mainly trade
receivables and debit balances, credit from banking institutions
and others, trade payables and credit balances, IIA liability, and
balances from transactions with shareholders.
The principal methods and assumptions used in calculating the
estimated fair value of the financial instruments are as follows
(fair value for disclosure purposes):
Financial instruments included in current asset items
Certain instruments (cash and cash equivalents, other short-term
financial assets, trade receivables and debit balances) are of a
current nature and, therefore, the balances as of 31 December, 2022
and 2021, approximate their fair value.
Financial instruments included in current liability items
Certain instruments (credit from banking institutions and
others, trade payables and credit balances, suppliers and service
providers and balances with shareholders) - in view of the current
nature of such instruments, the balances as at 31 December, 2022
and 2021 approximate their fair value. Other instruments are
measured at fair value through profit or loss.
Financial instruments' fair value movements
The reconciliation of the carrying amounts of financial
instruments classified within Level 3 (based on unobservable
inputs) is as follows:
US dollars US dollars
--------------- --------------------------------
Financial Financial liabilities
asset
--------------- --------------------------------
Proceeds Liability
due on account related to
of shares share subscription Warrants
issued agreement liability
--------------- ------------------- -----------
Balance at 1 January 2021 301,658 (841,944) (286,253)
Recognition in asset (liability) - (3,485,349) (1,585,751)
Proceeds received for shares (355,818)
issued - -
Revaluation Adjustment 49,723 62,193 108,724
Exchange rate differences 4,437 90,744 -
Issuance of shares - 4,174,356 -
Warrants exercised - - 548,287
--------------- ------------------- -----------
Fair Value at 31 December
2021 - - (1,214,993)
Recognition in asset (liability) - (2,000,000) -
Liability exchanged for
shares issued - 320,000 -
Revaluation Adjustment - (156,555) 1,214,993
Fair Value at 31 December
2022 - (1,836,555) -
=============== =================== ===========
Both the financial assets and the two types of financial
liabilities are measured at fair value through profit and loss.
Measurement of fair value of financial instruments
The following valuation techniques are used for instruments
categorised in Level 3:
Liability related to share subscription agreement
The fair value of the liability related to share subscription
agreement is categorised as level 3 of the fair value
hierarchy.
The liability is valued by adding:
-- the number of shares that the Investor would receive from a
unilateral exchange for his outstanding subscription amount,
multiplied by the current share price of the Company, and
-- the outstanding subscription amount that the Company may choose to repay in cash amount.
Pursuant to the September 2020 share subscription agreement, the
investor has the right, at its sole discretion to require the
Company to issue shares in relation to the subscription amount
outstanding (or a part of it), under which, the number of shares to
be issued for such settlement, shall be determined using an average
five daily VWAP share price of the Company's shares as selected by
the Investor, during the 20 trading days prior to such settlement
notice ("Conversion Price"). However, the Company has certain
rights to make cash payments in lieu of the above share settlement,
yet the Investor is entitled to exclude from such cash payment up
to 30% of the cash settlement amount. As at 31 December 2021, this
liability had been extinguished - see Note 15.F.[3].
Pursuant to the February 2022 share subscription agreement, the
investor has the right, at its sole discretion to require the
Company to issue shares in relation to the subscription amount
outstanding (or a part of it), under which, the number of shares to
be issued for such settlement, shall be determined by dividing the
face value of the subscription amount by the Settlement Price. The
Settlement Price is equal to the sum of (i) the Reference Price and
(ii) the Additional Price. The Reference Price is the average of
the 3 daily volume-weighted average prices ("VWAPs") of Shares
selected by the Investor during a 15 trading day period immediately
prior to the date of notice of their issue, rounded down to the
next one tenth of a penny. The Additional Price is equal to half of
the excess of 85% of the average of the daily VWAPs of the Shares
during the 3 consecutive trading days immediately prior to the date
of notice of their issue over the Reference Price - see Note
15.F.[3].
Warrants liability
This liability is valued at the fair value of the GBP0.60
Warrants as described in detail in Note 15.F.[2]. Should the
Company's share price increase, then the warrants' fair value will
increase by a lower amount, as is inherent in the Black Scholes
option pricing model. In addition, as the Company has a "put"
warrant which is triggered under certain circumstances when the
Company's share price reaches GBP0.80, the value of the Warrants
will not increase indefinitely for the 12 month period that the
"put" option is in place.
C. Capital management
The objectives of the Company's policy are to maintain its
ability to continue operating as a going concern with a goal of
providing the shareholders with a return on their investment and to
maintain a beneficial equity structure with a goal of reducing the
costs of capital. The Company may take different steps toward the
goal of preserving or adapting its equity structure, including a
return of equity to the shareholders and/or the issuance of new
shares for purposes of paying debts and for purposes of continuing
the research and development activity conducted by the Company. For
the purpose of the Company's capital management, capital includes
the issued capital, share premium and all other equity reserves
attributable to the equity holders of the Company.
NOTE 27 - SEGMENT REPORTING
The Company has implemented the principles of IFRS 8 ('Operating
Segments'), in respect of reporting segmented activities. In terms
of IFRS 8, the management has determined that the Company has a
single area of business, being the development and delivery of
high-end network processing technology.
The Company's revenues from customers are divided into the
following geographical areas:
US dollars
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Asia 290,800 598,858
Europe 131,000 130,000
Israel 429,954 760,559
United States 2,085,670 1,146,003
----------- -----------
2,937,424 2,635,420
=========== ===========
%
------------------------
Year ended 31 December
------------------------
2022 2021
----------- -----------
Asia 9.9% 22.7%
Europe 4.5% 4.9%
Israel 14.6% 28.9%
United States 71.0% 43.5%
----------- -----------
100.0% 100.0%
=========== ===========
Revenue from customers in the Company's domicile, Israel, as
well as its major market, the United States and Asia, have been
identified on the basis of the customer's geographical
locations.
The Company's revenues from major customers as a percentage of
total revenue was:
%
Year ended 31 December
-------------------------
2022 2021
------------ -----------
Customer A 58% 29%
Customer B 10% 14%
Customer C 8% 14%
Customer D 6% 12%
Customer E 5% 10%
------------ -----------
88% 78%
============ ===========
NOTE 28 - RELATED PARTIES
A. Founders
In April 2017, the employment agreement of the two founders of
the Company Mr. David Levi and Mr. Baruch Shavit, was amended, in
terms of which each of them, in addition to their salary, is
entitled to a performance bonus of 5% of the Company's annual
profit before tax. For each year, the bonus shall be capped at
$250,000 each. Such bonus is dependent on their continual
employment by the Company.
Baruch Shavit had an amount due to him for compensation
originating in prior years. As at 31 December 2022, the Company
owed a balance of $110,988 (2021: $125,584) to him - see Note
13.
One of the founders participated in the equity and warrant issue
in September 2021 as follows - see Note 15.F.[2].
Number of securities
purchased in September
2021 GBP amount paid
---------------------------------------------- ------------------------------------
GBP0.60 for shares and GBP0.60
Founder Shares warrants warrants
David Levi 253,431 253,431 88,701
The two founders participated in the equity and warrant issue in
July 2020 as follows - see Note 15.F.[2].
Number of securities
purchased in July 2020 GBP amount paid
------------------------------------------------------------------------ ----------------------------------------------------------------------
upon
for exercise upon
shares of exercise
and GBP0.20 of
GBP0.20 warrants GBP0.30
and in warrants
GBP0.20 GBP0.30 GBP0.30 December in May
Founder Shares warrants warrants warrants 2020 2021
David
Levi 1,333,334 666,667 666,667 160,000 133,334 200,000
Baruch
Shavit 333,334 166,667 166,667 40,000 33,333 50,000
----------------------- ---------------------- ----------------------- ---------------------- ---------------------- ----------------------
1,666,668 833,334 833,334 200,000 166,667 250,000
======================= ====================== ======================= ====================== ====================== ======================
B. Chief Financial Officer
Mr. Reichenberg, the CFO of the Company, received 109,000 ESOP
options on his appointment in March 2017, vesting over four years,
exercisable at $0.20 per option and with an expiration date in
March 2027.
In November 2020 Mr. Reichenberg received 100,000 ESOP options,
vesting over three years, exercisable at GBP0.20 per option and
with an expiration date in November 2030, the fair value of which,
amounted to $12,292 at the date of grant.
Mr. Reichenberg was initially appointed as a director of the
Company on 29 June 2017 and was reappointed on 22 June 2020.
C. Remuneration of key management personal including directors
for the year ended 31 December 2022
US dollars
-----------------------------------------------
Salary Share
Name Position and benefits based compe-nsation Total
--------------- -------------------- --------
Chief Executive Officer
David Levi (2) 288,495 37,661 326,156
Chief Financial Officer
Mark Reichenberg (2) 201,038 3,173 204,211
VP Research & Development
Shavit Baruch (2) 276,691 37,661 314,352
Chen Saft-Feiglin
(1) Non Executive Director 18,318 - 18,318
Zohar Yinon (1) Non Executive Director 18,806 - 18,806
Joseph Albagli
(3) Non Executive Chairman 34,582 18,532 53,114
Richard Bennett
(1)(4) Non Executive Director 13,379 - 13,379
--------------- -------------------- --------
851,308 97,027 948,335
--------------- -------------------- --------
(1) Independent director.
(2) Key management personnel as well as directors long-term
employee benefits and termination benefits account for less than
12.5% of their salary and benefits.
(3) As part of the agreed compensation, monthly shares equal to
the value of GBP1,250 are accrued. On 14 April 2022 - 37,106 shares
accrued to that date have been allotted. The remaining accrued
shares as of year-end have not yet been allotted.
(4) Appointed 7 April 2022 .
Remuneration of key management personal including directors for
the year ended 31 December 2021
US dollars
-----------------------------------------------
Salary Share
Name Position and benefits based compe-nsation Total
--------------- -------------------- --------
Graham Woolfman
(1)(3) Non-Executive Chairman 6,912 - 6,912
Chief Executive Officer
David Levi (2) 237,510 - 237,510
Chief Financial Officer
Mark Reichenberg (2) 200,011 8,133 208,144
VP Research & Development
Shavit Baruch (2) 237,432 - 237,432
Neil Rafferty
(1) (4) Non Executive Director 51,268 - 51,268
Chen Saft-Feiglin
(1) Non Executive Director 18,327 - 18,327
Zohar Yinon (1) Non Executive Director 18,079 - 18,079
Joseph Albagli
(5) Non Executive Chairman 26,615 16,625 43,240
--------------- -------------------- --------
796 ,155 24,758 820,912
--------------- -------------------- --------
(1) Independent director.
(2) Key management personnel as well as director's long-term
employee benefits and termination benefits account for less than
12.5% of their salary and benefits.
(3) Resigned 17 November 2020, resignation effective from 18
February 2021.
(4) Resigned 1 December 2021.
(5) Appointed 10 March 2021. As part of the agreed compensation,
every month shares equal to the value of GBP1,250 are accrued. The
shares have not yet been allotted.
D. Directors' equity interests in the Company as at 31 December 2022
Shares Options and warrants
----------- -------------------------------------------
Name Direct Unexercised Unvested Total options
holdings vested options options and warrants
----------- ---------------- --------- --------------
David Levi 9,587,160 110,710 150,000 260,710
Shavit Baruch 5,091,667 110,710 150,000 260,710
Joseph Albagli 47,106 - - -
Mark Reichenberg - 175,667 33,333 209,000
14,725,933 397,087 333,333 730,420
----------- ---------------- --------- --------------
Directors' equity interests in the Company as at 31 December 202
1
Shares Options and warrants
----------- ---------------------------------------------------------
Name Unexercised
Direct Unexercised Unvested GBP0.60 Total options
holdings vested options options warrants and warrants
----------- ---------------- --------- ------------ --------------
David Levi 9,437,160 60,710 - 253,431 3 14,141
Shavit Baruch 5,091,667 60,710 - - 60,710
Mark Reichenberg - 142,333 66,667 - 209,000
14,528,827 263,753 66,667 253,431 583,851
----------- ---------------- --------- ------------ --------------
NOTE 29 - RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
Lease Liabilities Short Total
Term Borrowings
------------------ ----------------- ----------
1 January 2022 3,240,071 422,633 3,662,704
Cashflow
* Repayments (158,849) (493,338) (652,187)
* Proceeds - 527,790 527,790
Non-cash movement
* Exchange rate differences (368,284) (28,150) (396,434)
------------------ ----------------- ----------
31 December 2022 (*() 2,712,938 428,935 3,141,873
------------------ ----------------- ----------
( *() Including current maturities of $ 207 , 161
Lease Liabilities Short Total
Term Borrowings
------------------ ----------------- ------------
1 January 2021 306,783 411,726 718,509
Cashflow
* Repayments (136,180) (887,585) (1,023,765)
* Proceeds - 900,192 900,192
Non-cash movement
* Terminations (130,120) - (130,120)
* Additions 3,158,849 - 3,158,849
* Exchange rate differences 40,739 (1,700) 39,039
------------------ ----------------- ------------
31 December 2021 (*() 3,240,071 422,633 3,662,704
------------------ ----------------- ------------
( *() Including current maturities of $ 266 , 531
For financial liabilities to be settled through issuance of
ordinary shares see notes 15.F and 26B.
NOTE 30 - SUBSEQUENT EVENTS
1. In January and February 2023, the Company, through a placing
agent, issued 23,571,430 ordinary shares and 23,571,430 warrants,
at a price of GBP0.07 for each share and corresponding warrant,
raising gross proceeds of GBP1.65m (approx. $2m). The warrants
expire on 8 February 2025 and initially were exercisable at a price
of GBP0.15. The warrants contain an accelerator clause, whereby
should the closing mid-market price of the Company's shares equal
or exceed GBP0.20 over consecutive 5 trading days, then the Company
may serve notice on the Warrant holders to exercise their warrants
within 7 calendar days, following which the un-exercised warrants
will be cancelled. In May 2023, the Company reduced the exercise
price of these warrants to 6p (from 15p) and the accelerator
trigger may be activated based on a price of 7.5p (instead of 20p).
Two of the Company's officers participated in this share placement
as follows:
Subscription details
--------------------------------------------------------------------------------------------------------------------
Officer Position Amount Shares Warrants
Chief
Executive GBP
David Levi Officer 212,000 3,028,571 3,028,571
VP Research
Shavit &
Baruch Development GBP 46,814 668,771 668,771
GBP 258,814 3,697,342 3,697,342
2. Concurrent with the share placement in 1. above, 573,429
warrants were issued to the placing agent. These warrants are
exercisable at GBP0.07 and expire in January 2025.
3. In January 2023, the Company issued 2,388,771 ordinary shares
in lieu of GBP167,214 (approx. $204K) owing for outstanding fees to
service providers. These shares have a one year lock-up.
4. In February 2023, an Extraordinary General Meeting of the
Company approved an increase of the Company's authorised share
capital to 200,000 New Israeli Shekel, consisting of 200,000,000
ordinary shares.
5. In May 2023, the Company, through a placing agent, issued
26,116,667 ordinary shares at a price of GBP 0.03 for each share,
raising gross proceeds of GBP783,500 (approx. $975K). Two of the
Company's officers participated in this share placement as
follows:
Subscription details
---------------------------------------------
Officer Position Amount Shares
David Levi Chief Executive Officer GBP 25,000 833,334
Joseph Albagli Non Executive Chairman GBP 2,500 83,334
GBP 27,500 916,668
6. Concurrent with the share placement in 5. above, 772,500
warrants were issued to the placing agent. These warrants are
exercisable at GBP 0.03 and expire in May 2025.
7. In May 2023, the Investor described in Note 15.F.[3]
converted an additional $230,000 into 6,629,236 ordinary shares at
a conversion price of 2.8p.
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END
FR UKSBROSUNUAR
(END) Dow Jones Newswires
June 30, 2023 02:00 ET (06:00 GMT)
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