TIDMENET
RNS Number : 9804M
Ethernity Networks Ltd
20 September 2023
20 September 2023
ETHERNITY NETWORKS LTD
("Ethernity" or the "Company" or the "Group")
Interim results for the six months ended 30 June 2023
Ethernity Networks Ltd (AIM: ENET.L; OTCMKTS: ENETF), a leading
supplier of networking processing semiconductor technology ported
on field programmable gate arrays ("FPGAs") for virtualised
networking appliances, announces its interim results for the six
months ended 30 June 2023.
Financial summary
-- Revenues increased by 98% to $1,398,871 (H1 2022: $704,853).
-- Gross profit increased by 87% to $802,494 over the comparable
period (H1 2022: $428,761), and an underlying gross profit of
$996,031 without the non-recurring IFRS impairment which reflects
an increase of 132% vs H1 2022.
-- Gross margin of 57.37% (H1 2022 60.83%) and an underlying
gross margin of 71.2% without the non-recurring IFRS
impairment.
-- Net comprehensive loss for the period increased by $111,716
to $3,614,449 (H1 2022: $3,502,733). This is due to IFRS finance
income recognized in H1 2022 in respect of the fundraising
undertaken in that period.
-- Research and Development, General and Administrative, and
Marketing expenses (before amortisation, depreciation and IFRS
adjustments) decreased overall by 3%.
-- Adjusted EBITDA loss decreased by 19% to $3,045,037 (H1 2022: $3,782,342).
Current trading
The Company is targeting the achievement of positive cash flow
generation from operations during the second half of 2023 by
continuing to fulfill customers' orders and from anticipated
revenue from new contracts, in combination with a reduction in
expenses. The Company anticipates that revenue growth will be
achieved as a result of the modified business model which focuses
on the licensing of data processing, passive optical network
("PON") and software technology.
As of today, 950,000 platforms have been deployed with the ENET
data processing technology, in various types of platforms including
Carrier Ethernet Demarcation devices, wireless backhaul, cellular
base stations, Broadband fiber and DSL platform, Broadband fix
wireless platforms and aerospace aviation platforms. The Company
continues to generate steady revenue from existing customers in all
the above fields.
Recently, after immense efforts and logistics, the Company's
U.S. based Tier 1 Aerospace client received U.S. Government
approval to work with the Company on a military project that is
based on the ENET Data processor adapted for the aviation
market.
Additionally, the Company has expanded the offering of its
standard ENET data processing solution with a network operating
system that delivers a complete software stack for system
operation. This expansion provides an opportunity for revenue
growth and an increase in gross margin for each delivery of an ENET
Flow processor. It also allows the Company to expand its customer
base among those that do not obtain the complete software
capabilities for networking functions to deliver customized FPGAs,
customized FPGA based systems, or customized eASIC for medium
volume platforms.
Company Strategy
Ethernity's data processing and PON firmware and software can be
ported into AMD's low-cost FPGA, Microchip's FPGAs, Intel's FPGAs
or Intel's eASIC, dependent on the application, the platform and
the volume of the business, for use in mass production with
customized features. The ASIC process requires large investment,
however the same Firmware that runs on a FPGA can be repurposed for
a reduced cost through an eASIC, which requires c. 20% of the
investment needed for fabricating a pure ASIC and has a
significantly shorter time to market. Therefore, the eASIC can be
used for medium volume markets, such as telecom equipment, and
provides a considerably lower cost and lower power option than an
FPGA. Furthermore, for large volume markets such as Residential
Gateways Customer Premises Equipment ("CPE") devices that
represents a market of tens of millions of units a year, the ENET
Data processing and PON firmware can be utilized on pure ASIC to
capture the right price for customer located devices.
The Company's PON technology spans into different market
segments including Fiber-To-The-Room, PON Optical Line Terminal
("OLT") Sticks that utilize PON OLT MAC within optical transceiver,
remote OLTs with main requirements to support Combo PON, that
essentially runs 10G PON and legacy Giga Bit PON ("GPON") over
single fibre, and traditional OLTs with multiple PON ports that
will be severed by an eASIC process. Furthermore, the Company plans
further PON business expansion with 25Gbps PON and 50Gbps PON.
The business model for both the PON and the ENET Flow processor
is based on licensing the technology to be implemented on FPGA or
eASIC, along with an associated software package, which lowers the
time to market for the customers and reduces the time it takes for
Ethernity to earn revenue.
The combination of this model of delivering our solution on FPGA
for unique and customized platform or an eASIC offering for larger
volume markets, should allow the Company to generate cash with
higher profit margins, and position the Company as a semiconductor
and software provider, offering customized semiconductor solution
ported on FPGA/eASIC based devices or a complete system for the
telecom access market that will utilize the Company's intellectual
property and software framework, to secure the future growth of the
Company focusing on its strengths.
Half Year Review
Operational highlights
During the first six months of 2023, development was completed
on several critical products and solutions including the XGS-PON,
GPON and UEP2025 with wireless link bonding. These products and
solutions are currently in discussion, testing and evaluation with
customers and are targeted to generate licensing revenues and NRE
for customised product developments.
The completion of the first release of the UEP-2025 product, the
XGS-PON OLT, and fiber-to-the-room ("FTTR") OLT development has
enabled the Company to maintain reduced R&D staff while still
pursuing future revenue opportunities with these products and
technologies.
During H1 2023, the Company's activities have progressed in
multiple domains:
-- First release of the UEP bonding product delivered to our
existing bonding OEM customer who intends to complete its product
for integration during Q4/23.
-- We completed development of the XGS-PON OLT firmware ported
onto our Asian vendor's XGS-PON OLT platform, which embeds
Ethernity's XGSPON MAC FPGA SoC.
-- Completion of the FTTR gateway - we expect delays in
deployment by the customer due to the customer's own constraints,
and therefore FTTR revenues for the current year from the customer
are uncertain.
-- Received a purchase order for $1.5 million from our existing
fixed wireless customer to supply the Company's data processing
system-on-chip (SoC) in staged deliveries during Q2 and Q3
2023.
Outlook
With the modified business model, the Company anticipates it
will be able to accelerate growth from its software operation
stack, FPGAs, and future eASIC based engagements. This, together
with and reduction in costs already implemented, will contribute
towards the Company's ability to generate cash for future
expansion.
In parallel to the Company's existing FPGA business and the
progress with existing customers, the Company is in discussions to
expand its UEP-2025 link bonding offering with potential new OEM
customers.
David Levi, Chief Executive Officer of Ethernity Networks
Limited, commented:
"While it is a challenging period due to the global 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."
For further information, please contact:
Ethernity Networks Ltd Tel: +972 3 748 9846
David Levi, Chief Executive Officer
Allenby Capital Limited (Nominated Adviser and Tel: +44 (0)20 3328 5656
Joint Broker)
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
MARKET ABUSE REGULATION
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse (amendment) (EU Exit) Regulations 2019/310
("MAR"). With the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to
be in the public domain.
OPERATIONAL and financial REVIEW
During the period under review, the Company delivered revenues
of $1,398,871 (H1 2022: $704,853), an increase of 98% over H1
2022.
The underlying gross profit increased to $996,031 (H1 2022:
$428,761), and the underlying gross margin increased to 71.2% (H1
2022: 60.83%). However, due to a non-recurring IFRS raw material
inventory impairment charge of $194K, which the Company recorded in
H1 2023, the gross profit and gross margin have been reduced to
$802,494 and 57.37% respectively.
EBITDA
The EBITDA for the six months ended 30 June 2023 is presented as
follows:
EBITDA US Dollar Increase %
For the 6 months ended 12 months (Decrease)
ended 31-Dec June
------------------------------ ----------------- -----------------
30-Jun
------------------------------ ----------------- -----------------
2023 2022 2022
----------- ----------------- ----------------- -----------------
Revenues 1,398,871 704,853 2,937,424 694,018 98%
----------- ----------------- ----------------- ----------------- -----
COGS 402,840 276,092 1,339,096 126,748 46%
----------- ----------------- ----------------- ----------------- -----
Inventory impairment 193,537 - - 193,537
----------- ----------------- ----------------- ----------------- -----
Gross Profit 802,494 428,761 1,598,328 373,733 87%
----------- ----------------- ----------------- ----------------- -----
Gross Margin % 57.37% 60.83% 54.41% -3pps
----------- ----------------- ----------------- ----------------- -----
Operating Loss -3,774,255 -4,478,031 -8,696,876 703,776 -16%
----------- ----------------- ----------------- ----------------- -----
Add back Amortisation
of Intangible Assets 480,690 480,690 961,380 -
----------- ----------------- ----------------- ----------------- -----
Add back depreciation
charges on fixed assets 67,614 53,052 108,673 14,562
----------- ----------------- ----------------- ----------------- -----
Add back IFRS 16 operating
leases depreciation
net of rent expenses -46,324 -501 -38,567 -45,823
----------- ----------------- ----------------- ----------------- -----
EBITDA -3,272,275 -3,944,790 -7,665,390 672,515 -17%
----------- ----------------- ----------------- ----------------- -----
Add back Share based
compensation charges 56,025 127,444 221,362 -71,419
----------- ----------------- ----------------- ----------------- -----
Add back impairments 193,537 20,200 599,200 173,337
----------- ----------------- ----------------- ----------------- -----
Add back vacation
accrual charges -22,324 22,782 35,646 -45,106
----------- ----------------- ----------------- ----------------- -----
Adjusted EBITDA -3,045,037 -3,774,364 -6,809,182 729,327 -19%
----------- ----------------- ----------------- ----------------- -----
Adjusted EBITDA loss in the first six months of the year
decreased by 19% to $3,045,037 (H1 2022: $3,774,364). This decrease
in adjusted EBITDA loss is attributed to the cost savings steps the
Company took in its efforts to control spending and to progress
towards generating positive cash flow. These steps, together with
the significant increase in reported revenues of $1,398,871 vs. H1
2022 revenues of $704,853, resulted in the above-mentioned decrease
in the EBITDA loss and adjusted EBITDA loss. The gross margin is a
direct result of the revenue mix and it is anticipated that the
current margin level will continue.
Operating Costs
Operating expenses (before amortisation, depreciation and IFRS
adjustments) decreased by 4% from $4,203,125 to $4,041,068 during
the period against the same period in 2022.
Within the R&D division, the Company has cut operating
expenses with further cost cuts coming into effect during July and
August. The impact of the cost savings attributed to the above cuts
will be visible in the 2023 full year figures.
General and Administration costs (before amortisation,
depreciation and IFRS adjustments) have not materially changed,
however G&A cost will be reduced during second half of
2023.
The decrease in Marketing expenses (before amortisation,
depreciation and IFRS adjustments) is attributed to headcount cuts
in the department and further costs reduction will be visible
during H2 2023.
After adjusting for the amortisation costs of the Development
Intangible asset, Depreciation, Share Based Compensation
adjustments, and IFRS adjustments the resultant increases
(decreases) in Operating costs, as adjusted would have been:
US Dollar Increase
(Decrease)
June
For the 6 months 31-Dec
ended
---------------------- ----------
30-Jun
---------------------- ----------
Operating Costs 2023 2022 2022 %
---------- ---------- ----------
Research and Development
Costs net of amortisation,
Share Based Compensation,
IFRS adjustments and Vacation
accruals 2,727,389 2,689,191 5,475,581 38,198 1%
---------- ---------- ---------- ------------ -----
General and Administrative
expenses, net of depreciation,
Share Based Compensation,
IFRS adjustments, Vacation
accruals and impairments 895,691 901,286 1,799,794 -5,595 -1%
---------- ---------- ---------- ------------ -----
Marketing expenses, net
of Share Based Compensation
and Vacation accruals 417,988 612,648 1,147,176 -194,660 -32%
---------- ---------- ---------- ------------ -----
Total 4,041,068 4,203,125 8,422,551 -162,057 -4%
---------- ---------- ---------- ------------ -----
Summarised trading results
Summarised Trading Results US Dollar Increase %
(Decrease)
June
For the 6 months 31-Dec
ended
------------------------- -----------
30-Jun
------------------------- -----------
2023 2022 2022
------------ ----------- -----------
Revenues 1,398,871 704,853 2,937,424 -694,018 98%
------------ ----------- ----------- ------------ -----
Gross Profit 802,494 428,761 1,598,328 -373,733 87%
------------ ----------- ----------- ------------ -----
Gross Margin % 57.37% 60.83% 54.41% 3% -6%
------------ ----------- ----------- ------------ -----
Operating Loss -3,774,255 -4,478,031 -8,696,876 -703,776 -16%
------------ ----------- ----------- ------------ -----
Financing costs -179,529 -274,565 -573,388 -95,036 -35%
------------ ----------- ----------- ------------ -----
Financing income (expenses) 339,335 1,249,863 1,267,652 910,528 -73%
------------ ----------- ----------- ------------ -----
Net comprehensive loss for
the year -3,614,449 -3,502,733 -8,002,612 111,716 3%
------------ ----------- ----------- ------------ -----
Basic and Diluted earnings
per ordinary share -0.03 -0.05 -0.11 -0.02 -33%
------------ ----------- ----------- ------------ -----
Weighted average number of
ordinary shares for basic
earnings per share 108,252,292 75,367,394 76,013,296
------------ ----------- ----------- -------------------
Revenue Analysis
Revenues for the six months ended 30 June 2023 of $1,398,871
(2022: $704,853) are influenced by the timing of deliveries which
is dependent on the terms of the various contracts and orders.
The revenue mix will continue to evolve as the Company
progresses, however with the new business model based on licensing
of FPGA and ASICs, and projects involved in delivering systems
which are based on the Company's IP, the Board anticipates that
gross margin should improve.
Segment Reporting
The geographic mix is represented by the makeup of the products
supplied, and the main increase in revenues is attributed to sales
to the Company's U.S. based customers.
SEGMENT REPORT geographic
analysis
---------- ------- ----------- -------
Region Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
------------------- ------------------- --------------------
US$ % US$ % US$ %
---------- ------- ---------- ------- ----------- -------
United States 1,193,868 85.3% 512,650 72.7% 2,085,670 71.0%
---------- ------- ---------- ------- ----------- -------
Israel 137,912 9.9% 149,403 21.2% 429,954 14.6%
---------- ------- ---------- ------- ----------- -------
Asia 54,700 3.9% 42,800 6.1% 290,800 9.9%
---------- ------- ---------- ------- ----------- -------
Europe 12,390 0.9% 0 0.0% 131,000 4.5%
---------- ------- ---------- ------- ----------- -------
Total 1,398,870 100.0% 704,853 100.0% 2,937,424 100.0%
---------- ------- ---------- ------- ----------- -------
Financing Costs
As noted in the Annual Results for the year ended 31 December
2022, the majority of the financing expenses and income relate to
the various fundraise deals the Company has executed.
It is to be noted that these equity events, albeit in essence
based on raising funds via equity issues, are nonstandard equity
arrangements and have been dealt with in terms of the guidance in
IFRS9-Financial Instruments. This guidance, albeit that it is not
based on the actual cash cost of the financing arrangements to the
Company, is significantly complex in its application, forces the
recognition of the fair value of the equity issues, and essentially
creates a recognition in differences between the market price of
the shares issued at time of issue versus the actual price at which
the equity is allotted. It is not a reflection of the cash inflows
and outflows of the transactions. It is this differential or
"derivative style instrument" that needs to be subject to a fair
value analysis, and the instruments, the values received and
outstanding values due being separated into equity, assets, finance
income and finance charges in terms of the IFRS-9 guidance.
Referring to the two fundraise deals the Company completed
during the year of 2022 and the first half of 2023 being;
a. Share Subscription Agreement (5G Innovation Leaders Fund) in February 2022
b. Issuance of the Share and Warrants bundle in January 2023 and May 2023
It has been determined that in terms of IFRS-9, part of these
transactions is to be recognised as equity and part as a liability
of the Company and all adjustments to the liability value are to be
recognised through the Income Statement. In both cases the equity
differential based on allotment price and fair value at time of
allotment charges to the income statement.
The Financing Expenses and Finance Income in the Income
Statement that relate to the above-mentioned transactions are thus
summarised as follows:
Financing expenses for the period ended June 30 2023
01.2023 Placing warrants $10,096 Initial expense in respect of warrants
issued to broker
-------- ---------------------------------------
Total $10,096
-------- ---------------------------------------
Financing income for the period ended June 30 2023
01.2023 Placing warrants $105,329 Finance income in respect of 6p
warrants liability adjusted to fair
value as of June 30 2023
--------- ----------------------------------------
5G Innovation Leaders $80,034 Net adjustment to fair value of
Fund remaining unsettled share subscription
agreement as at June 30 2023
--------- ----------------------------------------
Total $185,363
-------------------------- ----------------------------------------
Going Concern
Based on the major cut in expenses and the modified business
model, licensing discussion and negotiations with major Telecom
manufacturers, and in the light of enquiries made by the Directors
as to business status of the Company, as well as bearing in mind
the ability and success of the Company to raise funds previously,
the Directors have a reasonable expectation that the Company will
have access to adequate resources to continue in operational
existence for the foreseeable future and therefore have adopted the
going concern basis of preparation in the financial statements.
Other than the points outlined above, there are no items on the
Balance Sheet that warrant further discussion outside of the
disclosures made in the Interim Unaudited Financial Statements
presented below.
FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Actual results may, and
often do, differ materially from any forward-looking statements.
Any forward-looking statements in this announcement reflect
Ethernity's view with respect to future events as at the date of
this announcement. Save as required by law or by the AIM Rules for
Companies, Ethernity undertakes no obligation to publicly revise
any forward-looking statements in this announcement, following any
change in its expectations or to reflect events or circumstances
after the date of this announcement.
By order of the Board
Ayala Deutsch
VP Finance
20 September 2023
Interim Unaudited Financial Statements
as at 30 June 2023
STATEMENTS OF FINANCIAL POSITION
US dollars
----------------------------------------
30 June 31 December
2023 2022 2022
------------ ------------ ------------
Unaudited Audited
-------------------------- ------------
ASSETS
Current
Cash and cash equivalents 136,872 4,164,415 715,815
Trade receivables 1,465,637 1,273,328 1,299,072
Inventories 5 890,897 771,122 773,076
Other current assets 577,290 234,263 343,872
Current assets 3,070,696 6,443,128 3,131,835
Non-Current
Property and equipment 891,478 800,194 810,326
Intangible asset 4,982,110 5,943,490 5,462,800
Right-of-use asset 2,658,699 2,982,310 2,816,641
Other long term assets 34,524 35,767 35,689
Non-current assets 8,566,811 9,761,761 9,125,456
Total assets 11,637,507 16,204,889 12,257,291
============ ============ ============
LIABILITIES AND EQUITY
Current
Short Term Borrowings 403,492 74,286 428,935
Trade payables 1,010,240 739,258 785,583
Liability related to share subscription agreement 1,510,000 2,060,000 1,836,555
Warrants liability 27,215 5,033 -
Other current liabilities 1,247,660 1,100,706 1,121,909
Current liabilities 4,198,607 3,979,283 4,172,982
Non-Current
Lease liability 2,278,634 2,625,598 2,505,777
------------ ------------ ------------
Non-current liabilities 2,278,634 2,625,598 2,505,777
Total liabilities 6,477,241 6,604,881 6,678,759
Equity
Share capital 38,500 21,152 21,904
Share premium 43,873,332 40,402,890 40,786,623
Other components of equity 1,318,269 1,131,473 1,225,391
Accumulated deficit (40,069,835) (31,955,507) (36,455,386)
------------ ------------ ------------
Total equity 5,160,266 9,600,008 5,578,532
Total liabilities and equity 11,637,507 16,204,889 12,257,291
============ ============ ============
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF COMPREHENSIVE LOSS
US dollars
--------------------------------------
Six months ended For the
30 June year ended
31 December
2023 2022 2022
----------- ----------- ------------
Note Unaudited Audited
------------------------ ------------
Revenue 8 1,398,871 704,853 2,937,424
Cost of sales 596,377 276,092 1,339,096
Gross profit 802,494 428,761 1,598,328
Research and development expenses 3,241,579 3,276,067 6,618,795
General and administrative expenses 926,293 1,001,705 2,523,916
Marketing expenses 408,877 629,020 1,167,534
Other income - - (15,041)
Operating loss (3,774,255) (4,478,031) (8,696,876)
Financing costs 6 (163,008) (274,565) (573,388)
Financing income 7 322,814 1,249,863 1,267,652
Loss before tax (3,614,449) (3,502,733) (8,002,612)
Tax expense - - -
Net comprehensive loss for the period (3,614,449) (3,502,733) (8,002,612)
=========== =========== ============
Basic and diluted loss per ordinary
share (0.03) (0.05) (0.11)
=========== =========== ============
Weighted average number of ordinary
shares for basic and diluted loss
per share 108,252,292 75,367,394 76,013,296
=========== =========== ============
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF CHANGES IN EQUITY
US dollars
-----------------------------------------------------------------
Number Share Share Other components Accumulated Total
of shares capital premium of equity deficit equity
----------- -------- ---------- ---------------- ------------ -----------
Balance at 1 January 2023
(Audited) 78,084,437 21,904 40,786,623 1,225,391 (36,455,386) 5,578,532
Employee share-based
compensation - - - 56,025 - 56,025
Net proceeds allocated to
the issuance
of ordinary shares 49,688,097 14,073 2,638,711 - - 2,652,784
Shares issued pursuant to
share
subscription agreement 6,629,236 1,816 244,705 - - 246,521
Expenses paid in shares and
warrants 2,388,771 707 203,293 36,853 - 240,853
Net comprehensive loss for
the
period - - - - (3,614,449) (3,614,449)
----------- -------- ---------- ---------------- ------------ -----------
Balance at 30 June 2023
(Unaudited) 136,790,541 38,500 43,873,332 1,318,269 (40,069,835) 5,160,266
=========== ======== ========== ================ ============ ===========
Balance at 1 January 2022
(Audited) 75,351,738 21,140 40,382,744 1,004 ,029 (28,452,774) 12,955,139
Employee share-based
compensation - - - 127,444 - 127,444
Expenses paid in shares 37,106 12 20,146 - - 20,158
Net comprehensive loss for
the
period - - - - (3,502,733) (3,502,733)
----------- -------- ---------- ---------------- ------------ -----------
Balance at 30 June 2022
(Unaudited) 75,388,844 21,152 40,402,890 1,131,473 (31,955,507) 9,600,008
=========== ======== ========== ================ ============ ===========
Balance at 1 January 2022
(Audited) 75,351,738 21,140 40,382,744 1,004 ,029 (28,452,774) 12,955,139
Employee share-based
compensation - - - 221,362 - 221,362
Shares issued pursuant to
share
subscription agreement 2,695,593 752 383,733 - - 384,485
Expenses paid in shares and
warrants 37,106 12 20,146 - - 20,158
Net comprehensive loss for
the
year - - - - (8,002,612) (8,002,612)
----------- -------- ---------- ---------------- ------------ -----------
Balance at 31 December 2022
(Audited) 78,084,437 21,904 40,786,623 1,225,391 (36,455,386) 5,578,532
The accompanying notes are an integral part of the interim
financial statements.
STATEMENTS OF CASH FLOWS
US dollars
--------------------------------------
Six months ended Year ended
30 June 31 December
2023 2022 2022
----------- ----------- ------------
Unaudited Audited
------------------------ ------------
Operating activities
Net comprehensive loss for the period (3,614,449) (3,502,733) (8,002,612)
Non-cash adjustments
Inventory write off 193,537 - -
Depreciation of property and equipment 67,614 53,052 108,581
Depreciation of right of use asset 157,942 173,892 339,561
Share-based compensation 56,025 127,444 221,362
Amortisation of intangible assets 480,690 480,690 961,380
Amortisation of liabilities (140,693) (206,755) (396,434)
Foreign exchange losses on cash balances 17,328 369,053 381,480
Revaluation of financial instruments, net (212,120) (1,149,960) (984,001)
Expenses paid in shares and options 240,853 20,158 20,158
Net changes in working capital
(Increase) decrease in trade receivables (166,565) 272,270 246,526
(Increase) in inventories (311,358) (486,312) (488,266)
(Increase) decrease in other current assets (233,418) 6,701 (102,908)
Decrease in other long-term assets 1,165 3,189 3,267
Increase in trade payables 224,657 87,500 133,825
Increase (decrease) in other liabilities 127,872 (17,733) (12,261)
Net cash used in operating activities (3,110,920) (3,769,544) (7,570,342)
Investing activities
Purchase of property and equipment (148,766) (193,177) (258,838)
Net cash used in investing activities (148,766) (193,177) (258,838)
Financing activities
Proceeds from share subscription agreement - 2,000,000 2,000,000
Proceeds allocated to ordinary shares 2,864,790 - -
Proceeds allocated to warrants 132,544 - -
Issuance costs (185,249) - (9,952)
Proceeds from short term borrowings 956,382 100,283 527,790
Repayment of short-term borrowings (970,872) (448,630) (493,338)
Repayment of lease liability (99,524) (216,288) (158,849)
Net cash provided by financing activities 2,698,071 1,435,365 1,865,651
Net change in cash and cash equivalents (561,615) (2,527,356) (5,963,529)
Cash and cash equivalents, beginning of year 715,815 7,060,824 7,060,824
Exchange differences on cash and cash equivalents (17,328) (369,053) (381,480)
Cash and cash equivalents, end of period 136,872 4,164,415 715,815
=========== =========== ============
Supplementary information:
Interest paid during the period 38,499 6,049 13,321
----------- ----------- ------------
Interest received during the period 76 1,418 1,507
----------- ----------- ------------
Supplementary information on non-cash activities:
Shares issued pursuant to share subscription agreement 246,521 - 384,485
----------- ----------- ------------
Expenses paid in shares and warrants 240,853 20,158 20,158
----------- ----------- ------------
The accompanying notes are an integral part of the interim
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
ETHERNITY NETWORKS LTD. (hereinafter: the "Company"), was
incorporated in Israel on the 15th of December 2003 as Neracore
Ltd. The Company changed its name to ETHERNITY NETWORKS LTD. on the
10th of August 2004.
The Company provides innovative, comprehensive networking and
security solutions on programmable hardware for accelerating
telco/cloud networks performance. Ethernity's FPGA logic offers
complete Carrier Ethernet Switch Router data plane processing
firmware, PON MAC firmware 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 wireless
backhaul with wireless link bonding, 5G UPF, 5G CU and vRouter
offload with the current focus on 5G emerging appliances. The
Company's customers are situated worldwide.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
Basis of presentation of the financial statements and statement
of compliance with IFRS
The interim condensed financial statements for the six months
ended 30 June 2023 have been prepared in accordance with IAS 34,
Interim Financial Reporting. The interim condensed financial
statements do not include all the information and disclosures
required in the annual financial statements in accordance with IFRS
and should be read in conjunction with the Company's annual
financial statements as at 31 December 2022. The accounting
policies applied in the preparation of the interim condensed
financial statements are consistent with those followed in the
preparation of the Company's annual financial statements for the
year ended 31 December 2022.
The interim condensed financial statements for the half-year
ended 30 June 2023 (including comparative amounts) were approved
and authorized for issue by the board of directors on 19 September
2023.
NOTE 3 - GOING CONCERN
The financial statements have been prepared assuming that the
Company will continue as a going concern. Under this assumption, an
entity is ordinarily viewed as continuing in business for the
foreseeable future unless management intends or has no realistic
alternative other than to liquidate the entity or to stop trading
for at least, but not limited to, 12 months from the reporting
date. The assessment has been made of the Company's prospects,
considering all available information about the future, which have
been included in the financial budget, from managing working
capital and among other factors such as debt repayment schedules.
Consideration has been given inter alia to the significant values
of funds raised during the year ended 31 December 2022 and to date,
the current stage of the Company's life cycle, its losses and cash
outflows, including with respect to the development of the
Company's products, the expected timing and amounts of future
revenues.
As set out in the Company's annual report and the results for
the year ended 31 December 2022, the Company is taking careful
steps towards generating positive cash flow from its operations
during FY2023, which includes a combination of the modified
business model to focus on licensing and a reduction in costs. The
delays in existing customer contracts, combined with the extended
sales cycles being experienced by the Company place significant
uncertainty over the Company's ability to achieve the revenues
previously targeted for FY2023. Whilst revenue is therefore
expected to be lower than previously anticipated, the focus on the
higher margin licensing contracts is expected to contribute to an
improved gross margin once licensing sales commence and combined
with the cost savings, an improved EBITDA.
Based on the above-mentioned description, 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
recognize that their expectations are based on the success of the
new business model as well as the Company succeeding to raise
funds, however should events occur that could materially impact the
forecasts and cashflows of the Company, a material uncertainty
remains 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 4 - SIGNIFICANT EVENTS
EQUITY RELATED TRANSACTIONS DURING THE ACCOUNTING PERIOD
During the 6 month period ended 30 June 2023, ordinary shares of
the Company were issued, as follows:
Number of
ordinary
Note shares
------ -----------
Issuance of ordinary shares (issued
together with warrants) [1] 49,688,097
Shares issued pursuant to share subscription
agreement [2] 6,629,236
Expenses paid for in shares and warrants 2,388,771
-----------
58,706,104
===========
[1] Details of the equity raises are as follows:
January 2023 equity raise
In January 2023 the Company issued 23,571,430 shares with
23,571,430 warrants attached. Each share and attached warrant were
issued for GBP0.07, realising gross proceeds of $2.02 million
(GBP1.65 million) and net proceeds after issuance expenses of
approximately $1.89 million (GBP1.54 million).
Each warrant was initially exercisable at GBP0.15 with a life
term of approximately 24 months. The warrants are not transferable,
are not traded on an exchange and have an accelerator clause,
whereby these warrants may be called by the Company if the closing
mid-market share price of the Company exceeded GBP0.20 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 $133,000 was
allocated as a derivative warrants liability with the remainder of
the proceeds amounting to $1.75 million (after deduction of the
allocated issuance costs of $0.14 million) 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 categorized 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
the period 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:
Risk free rate 4.2%
Volatility 82.3%
In May 2023, the Company changed the terms of the warrants as
follows:
Changed: From To
Exercise price of warrants GBP 0.15 GBP 0.060
Share price at which accelerator clause GBP 0.20 GBP 0.075
may be activated
Of the 23,571,430 shares and 23,571,430 warrants subscribed for,
the director's participation in this issuance was 3,697,342 shares
and 3,697,342 warrants, on the same terms that outside investors
participated.
None of these warrants had been exercised by 30 June 2023 and
their fair value of approximately $27,000 at such date is disclosed
as a warrants liability in the statement of financial position,
Upon this successful equity raise being concluded, the brokers
for this transaction received 573,429 two year warrants exercisable
at GBP0.07 per warrant. The fair-value of these warrants at the
time of issuance was approximately $23,000. As at 30 June 2023,
none of these warrants have been exercised.
May 2023 equity raise
In May 2023 the Company issued 26,116,667 shares at GBP0.03 per
share, realising gross proceeds of $0.98 million (GBP0.78 million)
and net cash proceeds after issuance expenses paid out of $0.92
million (GBP0.74 million).
Of the 26,116,667 shares subscribed for, the director's
participation in this issuance was 916,668 shares, on the same
terms that outside investors participated.
The gross proceeds, after deduction of the issuance costs of
$54,000, were allocated to share capital and share premium.
Upon this successful equity raise being concluded, the brokers
for this transaction received 772,500 two year warrants exercisable
at GBP0.03 per warrant. The fair-value of these warrants at the
time of issuance was approximately $14,000. As at 30 June 2023,
none of these warrants have been exercised.
[2] Shares issued pursuant to the share subscription agreement
In February 2022, an institutional investor signed a follow-on
share subscription agreement 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
the 6 month period ended 30 June 2023 as follows:
Amount converted Shares Issued
Notice date of conversion - USD
--------------------------- ----------------- --------------
21 May 2023 230,000 6,629,236
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 the 6 month period ended 30 June 2023
amounted to approximately $16,000.
NOTE 5 - INVENTORIES
US dollars
-----------------------------
30 June 31 December
2023 2022 2022
------- ------- -----------
Unaudited Audited
---------------- -----------
Components and raw materials 731,039 645,852 613,218
Finished cards 159,858 125,270 159,858
Total inventories 890,897 771,122 773,076
======= ======= ===========
NOTE 6 - FINANCING COSTS
US dollars
---------------------------------
Six months ended Year ended
30 June 31 December
2023 2022 2022
---------- ------- ------------
Unaudited Audited
------------------- ------------
Bank fees and interest 48,170 20,321 35,150
Lease liability financial expenses 104,742 114,244 227,246
Revaluation of liability related
to share subscription agreement
measured at FVTPL - 60,000 230,992
Expenses allocated to issuing
warrants 10,096 - -
Expenses allocated to share subscription
agreement - 80,000 80,000
---------- ------- ------------
Total financing costs 163,008 274,565 573,388
========== ======= ============
NOTE 7 - FINANCING INCOME
US dollars
--------------------------------------
Six months ended Year ended
30 June 31 December
2023 2022 2022
---------- ------------ ------------
Unaudited Audited
------------------------ ------------
Revaluation of proceeds due on
account of shares (financial
asset measured at FVTPL) 80,034 - -
Revaluation of warrant derivative
liability 105,329 1,209,960 1,214,993
Interest received 76 1,418 1,507
Exchange rate differences, net 137,375 38,485 51,152
---------- ------------ ------------
Total financing income 322,814 1,249,863 1,267,652
========== ============ ============
NOTE 8 - SEGMENT REPORTING
The Company has implemented the principles of IFRS 8, in respect
of reporting segmented activities. In terms of IFRS 8, the
management has determined that the Company has a single area of
business, being the development and delivery of high-end network
processing technology.
The Company's revenues are divided into the following
geographical areas:
US dollars
--------------------------------
Six months ended Year ended
30 June 31 December
2023 2022 2022
--------- ------- ------------
Unaudited Audited
------------------ ------------
Asia 54,700 42,800 290,800
Europe 12,390 - 131,000
Israel 137,912 149,403 429,954
United States 1,193,869 512,650 2,085,670
--------- ------- ------------
1,398,871 704,853 2,937,424
========= ======= ============
The Company's revenues are divided into the following
geographical areas:
%
--------------------------------
Six months ended Year ended
30 June 31 December
2023 2022 2022
-------- -------- ------------
Unaudited Audited
------------------ ------------
Asia 3.9% 6.1% 9.9%
Europe 0.9% - 4.5%
Israel 9.9% 21.2% 14.6%
United States 85.3% 72.7% 71.0%
-------- -------- ------------
100.0% 100.0% 100.0%
======== ======== ============
Revenue from customers in the company's domicile, Israel, as
well as its major market, the United States and Asia, have been
identified on the basis of the customer's geographical
locations.
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END
IR SFMFWUEDSEFU
(END) Dow Jones Newswires
September 20, 2023 02:00 ET (06:00 GMT)
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