REG - Ethernity Networks - Final Results
19/04/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240419:nRSS2439La&default-theme=true
RNS Number : 2439L Ethernity Networks Ltd 19 April 2024
19 April 2024
Ethernity Networks Ltd.
("Ethernity" or the "Company")
Results for the Year Ended 31 December 2023
Ethernity Networks Ltd (AIM: ENET.L; OTCMKTS: ENETF), a leading supplier of
data processing semiconductor technology for networking appliances, today
announces its audited results for the year ended 31 December 2023.
Highlights
· FY 2023 revenue of $3.8 million represents 29% growth vs. 2022
revenues (2022: $2.9 million).
· FY 2023 cash collections from customers amounted to $4.9 million.
· Gross profit increased by 46% to $2.3 million (2022: $1.6 million).
· Operating loss decreased from $8.7 million in 2022 to $5.3 million in
2023 reflecting a decrease of 27%.
· EBITDA loss for 2023 decreased by 47% to $3.9 million (2022: $7.3
million).
· EBITDA loss for H2 2023 decreased by 74% to $0.8 million from $3.1
million in H1 2023.
· Net cash funds raised during the year amounted to $3.6 million.
· Cash at 31 December 2023 of $2 million (31 December 2022: $0.7
million)
David Levi, Chief Executive, said "During this past year, we achieved
significant growth in revenue and gross margin, with a major turnaround in the
second half. This success came despite facing headwinds from the global
economic climate. Based on the scopes of work being discussed with potential
new customers, Ethernity expects to secure new contracts for our Carrier
Ethernet and PON technology, in incremental non-recurring engineering (NRE)
revenue in 2024 on top of our established business. This momentum positions us
for significant future growth as our OEM partners leverage our solutions to
win market share and generate revenue for themselves. We anticipate this will
translate into substantial new revenue opportunities for Ethernity in 2025".
Posting of Annual Report
The annual report and accounts for the year ended 31 December 2023 is being
posted to shareholders shortly and will be available on the Company's website
at www.ethernitynet.com (http://www.ethernitynet.com) . The notice of annual
general meeting will be dispatched in due course.
For further information, please contact:
Ethernity Networks Ltd Tel: +972 3 748 9846
David Levi, Chief Executive Officer
Ayala Deutsch, Chief Financial Officer
Allenby Capital Limited (Nominated Adviser and Joint Broker) Tel: +44 (0)20 3328 5656
James Reeve / Piers Shimwell (Corporate Finance)
Amrit Nahal / Stefano Aquilino (Sales and Corporate Broking)
CMC Markets UK plc (Joint Broker) Tel: +44 (0)20 3003 8632
Douglas Crippen
Peterhouse Capital Limited (Joint Broker) Tel: +44 (0)20 7562 0930
Lucy Williams / Duncan Vasey / Eran Zucker
About Ethernity (www.ethernitynet.com (http://www.ethernitynet.com) )
Ethernity Networks (AIM: ENET.L OTCMKTS: 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.
The year 2023 commenced with several unfortunate events and challenges, yet
following strategic measures taken by the Board and Management, the year
concluded with notable improved results and growth.
The Chinese PON contract which failed to deliver the expected results,
together with a slow market in the first half of the year, necessitated the
Board and Management to implement several restructuring measures, including a
meaningful cut of expenses and reduction of headcount, together with adopting
an improved business model. Consequently, during the second half of the year
several major, high margin contracts were signed resulting in revenue growth
and improved cash flow.
Outlook
Since the beginning of 2024, the Company appointed a highly experienced and
knowledgeable VP Marketing and a talented and professional new CFO. In
addition, two External Directors have joined the board, bringing deep know-how
in finance, marketing, and strategy.
With a robust technology and IP foundation, a diverse portfolio of products
and services, an efficient R&D structure, and recent additions of
professional talent, the Company is now better positioned than ever to face
the future and capitalize on the growing market opportunities.
Yosi Albagli
Chairman
19 April 2024
Chief Executive's Statement
In 2023, we achieved significant growth in revenue and gross margin, with a
major turnaround in the second half. This success came despite facing
headwinds from the global economic climate and a disappointing performance in
the Chinese PON market. We delivered 29% revenue growth and a 46% improvement
in gross profit. To further strengthen our position, we streamlined our
R&D efforts to optimize resource allocation and accelerate the completion
of our Universal Edge Platform (UEP) platform. We also optimized our workforce
to enhance efficiency and position the Company for positive cash flow in 2024.
To capitalize on our strengths, we strategically focused on two key areas.
First, we leveraged our core competence in Carrier Ethernet, where we have a
proven track record of supporting OEM partners in deploying over one million
products globally. This established leadership position gives us a strong
foundation for further growth. Second, we are actively pursuing opportunities
in the high-growth PON market, particularly in North America. The US
government's BEAD initiative, allocating $42 billion to bridge the digital
divide by deploying and expanding broadband specifically in underserved areas,
presents a significant opportunity for us to contribute our expertise and
expand our market share.
The Ethernity UEP is a powerful platform that combines an FPGA with our ENET
flow processor and a comprehensive suite of application software. This
innovative solution delivers MEF-compliant Carrier Ethernet functionality,
along with precise timing synchronization and Link Bonding capabilities.
Throughout the second half of 2023 and the first quarter of 2024, the UEP
underwent rigorous testing by two new OEM vendors. We are working with these
vendors with the target of them launching solutions based on our technology.
The Ethernity UEP extends its capabilities beyond Carrier Ethernet by
incorporating industry-leading Remote OLT (GPON and XGS-PON) functionality for
the PON market. This versatile platform delivers a comprehensive feature set,
including MEF-compliant Carrier Ethernet, precise timing synchronization, Link
Bonding, and advanced PON capabilities. This unified solution empowers OEM
customers to address a broad range of markets and applications while
significantly reducing integration efforts. Furthermore, the UEP's FPGA-based
architecture provides Ethernity with the flexibility to adapt its capabilities
to meet the ever-evolving needs of the market.
Throughout the past year, the Company remained committed to delivering
comprehensive solutions, encompassing both software and hardware. Notably, we
placed a strong emphasis on mobile backhaul products that integrate our
patented wireless link bonding technology. Additionally, we've made
significant progress on our ENET 5200 FPGA System-on-Chip (SoC) as well as
Quad XGS-PON OLT and GPON OLT MAC capabilities and is now available for
customer adoption.
We are pleased to report continued revenue growth in 2023 from our U.S. fixed
wireless broadband solution customer. Furthermore, we are actively engaged in
the development of a second-generation product for this customer. This
development effort is ongoing in 2024, and we have been advised that the
customer anticipates placing new orders for both the first and second
generation products throughout the second half of 2024. The customer's rollout
ramp-up plan for the second-generation product is scheduled to take place
during 2025. We ended 2023 with two significant contract wins from existing
customers:
· Tier-1 U.S. Aerospace and Defence Company: Following government
approval, this longstanding customer signed a $475,000 contract extension to
leverage Ethernity's technology on a critical military project. We are
committed to supporting them throughout 2024 with ongoing paid maintenance and
support.
· Long-Term Networking Customer: We secured a substantial $800,000
contract with a customer who has been a loyal partner since 2008. They
initially adopted our Carrier Ethernet technology and have since deployed
hundreds of thousands of Ethernity-inside products, generating tens of
millions in annual revenue for the customer. Both Ethernity and the customer
are actively exploring new market opportunities to expand our collaboration.
Ethernity Networks stands out for its cost-effective routing data plane
functionality on FPGAs, enabling a versatile solution that supports services
from 1Gbps to 100Gbps. This translates to significant advantages for our
customers. They can leverage the base data processing engine to offer Carrier
Ethernet services at a competitive price point, with the option to unlock
premium features by enabling the routing application. Furthermore, for
high-volume applications, Ethernity offers a seamless migration path to eASIC
or ASICs, ensuring dramatic cost reductions as customer needs evolve.
Ethernity Networks offers a compelling value proposition for OEM customers by
combining the power of our cost-effective Data Processing Unit (DPU) SoC with
our innovative low-latency PON technology. This comprehensive suite provides a
versatile umbrella of wired, fiber, and wireless access solutions.
Fueled by market growth:
· Surging Bandwidth Demands: The ever-increasing demand for
bandwidth, driven by cloud services and artificial intelligence at the network
edge, creates a significant opportunity for Ethernity's solutions.
· IP-Based Network Expansion: The growth of IP-based
next-generation networks is a key market driver for our high-performance
offerings.
· Fiber Access Boom: The widespread deployment of fiber optics and
the dominance of PON technology for fiber access perfectly align with
Ethernity's strengths.
· Rise of Edge Computing: The growing adoption of edge computing
deployments creates a strong demand for our low-latency solutions.
· 5G Expansion: The global rollout of 5G networks fuels the need
for innovative wireless backhaul solutions, a core competency of Ethernity.
· Carrier Ethernet Adoption: The increasing adoption of Carrier
Ethernet for wireless backhaul applications presents a significant growth
opportunity.
Outlook
While 2023 presented its share of challenges, Ethernity successfully finalised
its UEP as a complete system product. This marks a significant step forward,
enabling us to evolve beyond offering just FPGA SoCs and provide comprehensive
solutions which all integrate ENET implementation of FPGA SoC, hardware and
software application. This shift empowers our customers to achieve faster
time-to-market and accelerate revenue generation. Previously, deploying
products based on our FPGA SoCs typically took 18 months. With the UEP all
integrated system, the time to revenue or deployment from sign-off can be
dramatically reduced to just six months. This enhanced efficiency positions
Ethernity to capitalize on planned customer wins and drive near-term growth.
By transitioning to a system-based approach, Ethernity unlocks significant
value for a broader customer base. Our comprehensive solutions, combining
powerful FPGA SoCs with Ethernity's semiconductor expertise and application
software, eliminate the need for in-house product development by our
customers. This empowers companies without extensive engineering resources to
leverage our technology and quickly launch their own solutions. This strategic
shift positions Ethernity to strengthen its market position, expand its OEM
customer base, and attract new partners who can significantly contribute to
our revenue growth.
Based on the scopes of work being discussed with potential new customers,
Ethernity expects to secure new contracts for our Carrier Ethernet and PON
technology, generating approximately $2.2- $3 million in incremental
non-recurring engineering (NRE) revenue in 2024 on top of our established
business. This momentum positions us for significant future growth as our OEM
partners leverage our solutions to win market share and generate revenue for
themselves. We anticipate this will translate into substantial new revenue
opportunities for Ethernity in 2025.
David Levi
Chief Executive Officer
19 April 2024
Financial Review
Financial Performance
I am pleased to present my first Annual Report as CFO of the Company. Since
assuming the CFO duties in August 2023, it has been a period of both
excitement and challenge for the Company from a financial standpoint. On the
one hand, we achieved substantial growth in every financial metric; and on the
other hand, we encountered significant cashflow and legal challenges. I am
pleased to present that despite these obstacles, we succeeded to conclude the
2023 fiscal year with exceptionally robust financial results.
Highlights and achievements:
· FY 2023 revenue of $3.8 million represents 29% growth vs. 2022
revenues (2022: $2.9 million).
· FY 2023 cash collections from customers amounted to $4.9 million.
· Gross profit increased by 46% to $2.3 million (2022: $1.6 million).
· Operating loss decreased from $8.7 million in 2022 to $5.3 million in
2023 reflecting a decrease of 27%.
· EBITDA loss decreased by 47% to $3.9 million (2022: $7.3 million).
· Net cash funds raised during the year amounted to $3.6 million.
· Cash at 31 December 2023 of $2 million (31 December 2022: $0.7
million)
Key financial results
EBITDA
Although EBITDA is not a recognised reportable accounting measure, it provides
a meaningful insight into the operations of the Company when removing the
non-cash or intangible asset elements from trading results along with
recognising actual costs versus various IFRS adjustments, in this case being
the amortisation and non-cash items charged in operating income and the
effects of IFRS 16 treatment of operating leases.
The EBITDA for the financial year ended 31 December 2023 is as follows:
EBITDA US Dollar Increase %
(Decrease)
For the year ended
31 December
2023 2022
Revenues 3,777,919 2,937,424 840,495 29%
Gross Profit 2,340,142 1,598,328 741,814 46%
Gross Margin % 61.9% 54.4% 7.5 ppts
Operating loss (5,280,652) (8,696,876) (2,369,401) 27%
Adjusted for:
Amortisation of intangible assets 961,380 961,380 -
Depreciation charges on fixed assets 138,782 108,673 30,109
Depreciation in respect of IFRS16 lease assets 315,884 339,561 (23,677)
EBITDA (3,864,606) (7,287,262) 3,422,656 (47%)
Add back share based compensation charges 72,287 221,362 (149,075)
Add back vacation accrual charges (109,026) 35,646 (144,672)
Add back impairments 220,220 599,200 (378,980)
Adjust IFRS16 rent expense reversals (398,033) (378,128) (19,905)
Adjusted EBITDA (4,079,158) (6,809,182) 2,730,024 (40%)
The EBITDA losses decreased during the 2023 year by 47% from $7.3 million in
2022 to $3.9 million in 2023. The decrease is attributed to the significant
growth in revenues as well as the cost savings which have been implemented
across the board in the various operating department expenses.
The adjusted EBITDA measure which adds back various non-cash items improved by
40% in comparison to the previous year from an adjusted EBITDA loss of $6.8
million in 2022 to $4.1 million in 2023.
When comparing the EBITDA figures of the first six months of 2023 with those
of the latter half of 2023, notable growth is evident in the second half of
2023, as detailed below:
EBITDA US Dollar Increase %
(Decrease)
For the six months ended
31-Dec-23 30-Jun-23
Revenues 2,379,048 1,398,871 980,177 70%
Gross Profit 1,537,648 802,494 735,154 92%
Gross Margin % 64.6% 57.4% 7.2 ppts
Operating loss (1,506,397) (3,774,255) 2,267,858 (60%)
Adjusted for:
Amortisation of intangible assets 480,690 480,690 -
Depreciation charges on fixed assets 71,168 67,614 3,554
Depreciation in respect of IFRS16 lease assets 157,942 157,942 -
EBITDA (796,597) (3,068,009) 2,271,412 (74%)
Add back share-based compensation charges 16,262 56,025 (39,763)
Add back vacation accrual charges (86,702) (22,324) (64,378)
Add back impairments 26,683 193,537 (166,854)
Adjust IFRS16 rent expense reversals (193,767) (204,266) 10,499
Adjusted EBITDA (1,034,121) (3,045,037) 2,010,916 (66%)
Summarised trading results
Summarised Trading Results US Dollar Increase %
(Decrease)
For the year ended
31 December
2023 2022
Revenues 3,777,919 2,937,424 840,495 29%
Gross Profit 2,340,142 1,598,328 741,814 46%
Gross Margin % 61.9% 54.4% 7.5 ppts
Operating Loss (5,280,652) (8,696,876) 3,416,224 (39%)
Financing costs (1,267,906 (573,388 (694,518) 121%
Financing income 183,811 1,267,652 (1,083,841) (85%)
Net comprehensive loss for the year (6,364,747) (8,002,612) 1,637,865 (20%)
Basic and Diluted earnings per ordinary share (0.04) (0.11) 0.06 (58%)
Weighted average number of ordinary shares for basic earnings per share 143,876,859 76,013,296
Revenue Analysis
Revenues for the twelve months ended 31 December 2023 increased by 29% to $3.8
million (2022: $2.9 million).
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 software revenue and NRE from IP licenses and services.
Margins
The gross margin percentage increased to 61.9% in 2023 from 54.4 % in 2022
reflecting an increase of 7.5 percentage points which is mainly attributed to
the increased licensing revenues which carry a 100% profit margin.
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
2023 2022
Total R&D Expenses 5,160,697 6,618,795 (1,458,098) (22%)
R&D Intangible amortisation (961,380) (961,380) -
Vacation accrual reversals (expenses) 57,569 (21,700) 79,269
Share Based Compensation IFRS adjustment (58,755) (160,134) 101,379
Research and Development Costs net of amortisation, Share Based Compensation, 4,198,131 5,475,581 (1,277,450) (23%)
IFRS adjustments and Vacation accruals
Total G&A Expenses 1,841,842 2,523,916 (682,074) (27%)
Share Based Compensation IFRS adjustment (17,710) (51,627) 33,917
Vacation accrual reversals (expenses) 21,196 (3,189) 24,385
Impairment losses of financial assets (220,220) (599,200) 378,980
Fixed Assets Depreciation Expense (138,782) (108,673) (30,109)
Depreciation in respect of IFRS16 (315,884) (339,561) 23,677
General and Administrative expenses, net of depreciation, Share Based 1,170,442 1,421,666 (251,224) (18%)
Compensation, IFRS adjustments, Vacation accruals and impairments.
Total Sales and Marketing Expenses 621,052 1,167,534 (546,482) (47%)
Share Based Compensation IFRS adjustment 4,178 (9,601) 13,779
Vacation accrual reversals (expenses) 30,261 (10,757) 41,018
Sales and Marketing expenses, net of Share Based Compensation and Vacation 655,491 1,147,176 (491,685) (43%)
accruals.
Total 6,024,064 8,044,423 (2,020,359) (25%)
Research and Development costs after reducing the costs for the amortisation
of the capitalised Research and Development intangible asset, share based
compensation and add back for vacation accrual adjustment have decreased by
23% from $5.5 million in 2022 to $4.2 million in 2023. This is mainly
attributed to the headcount cost savings announced during 2023.
A further decrease of 18% is noted in the General and Administrative costs
over 2022 to $1.2 million after adjusting for depreciation, share based
compensation, IFRS adjustments, impairments and vacation accrual adjustments.
This decrease as well is attributable to the headcount cost savings as well as
further administrative cost savings.
Similar decrease in the Sales and Marketing costs during the 2023 financial
year due to cessation of many marketing travel and travel related activities
resulted in a decrease of 43% of the Sales and Marketing costs net of the
non-cash item adjustments of IFRS share based compensation adjustment as well
as the vacation accrual adjustment from $1.1 million in 2022 to $655K in 2023.
Recognition of Research and Development Costs
In line with the change in policy adopted by the Company from 1 July 2019 the
Company continues to no longer recognise the Research and Development costs as
an intangible asset and is recognising them as an expense being charged
against income in the year incurred.
For the years ending 31 December 2021 and 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. This process was repeated by management for
the financial year under review, the year ended 31 December 2023, and the
assertion that the underlying value of the intangible asset exceeds the
carrying value on the balance sheet remains unchanged.
Balance Sheet
The Company presents a stronger cash position for 31 December 2023 as a result
of the cash collections from customers for the year which amounted to $4.9
million. In addition, the Company completed three placings during the year
which resulted in net cash inflows amounting to $3.6 million.
Furthermore, there have been other changes on balance sheet items as follows:
· Reduction in Trade receivables due to the successful collection of
outstanding debts from 2022.
· Inventories reduced as the Company no longer stocks up on high-cost
inventory following the ease of the global components' shortage and reduction
in the inventory lead-times.
· Intangible asset on the balance sheet continues to reduce in carrying
value due to the annual amortisation with an approximate 4.5 years of
amortisation remaining. The current carrying value of $4.5 million is a result
of the Company historically adopting the provisions of IAS38 relating to the
recognition of Development Expenses, which methodology as noted in the 2019
Annual Report has ceased from 1 July 2019.
· Operating lease right of use asset and the lease liability - in October
2021 the Company committed to a five-year agreement for its primary offices in
Airport City Israel. At the termination of the lease, the Company has an
option to renew it for a further five years. As at 31 December 2022 such
renewal option was considered as reasonably certain to be exercised according
to IFRS16. As at 31 December 2023, the Company's assessment was that such the
option for the five year extension may not be exercised due to the decline in
rental prices within the premises market. In light of the reassessment, the
lease asset as well as the lease liability have been adjusted to reflect the
current state of the Company's asset and commitment given the end of lease in
November 2026. Under the signed contract, the remaining liability as at 31
December 2023 is $1.1 million.
· Trade payables and other liabilities increased in light of the signing
of the settlement plan following the Company's exit of the Temporary
Suspension of Proceedings ("TSP"). According to the settlement plan, the
Company will repay in full all debts outstanding as of 16 October 2023 (date
at which the Company entered into the TSP) in quarterly instalments in the
order of the debts' seniority and in compliance with the settlement plan. To
date, the Company has fully repaid its guaranteed debts and has partially paid
the priority creditors.
Summary of fundraising transactions, related liabilities and finance expense
in respect of fundraising transactions.
During the twelve-month period ended on 31 December 2023, the Company has
completed the following placing deals:
· January 2023 - Gross proceeds of £1.65 million (approximately $2
million)
· May 2023 - Gross proceeds of £780K (approximately $980K)
· December 2023 - Gross proceeds of £700K (approximately $880K)
At the year end, the Company holds zero liability in respect of the share
subscription agreement first announced in February 2022 with 5G Innovation
Leaders Fund LLC.
In accordance with IFRS, the Company recognised a net finance expense of $975K
as a result of adjusting the fair value of the shares allotted to 5G
Innovation Leaders Fund LLC as part of the liability exhaustion.
The Company holds a liability for the outstanding warrants it has issued as
part of the January 2023 placing amounting to $2,841.
Going Concern
In the presentation of the annual financial statements for the year ended 31
December 2023, 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.
Ayala Deutsch
Chief Financial Officer
19 April 2024
STATEMENT OF FINANCIAL POSITION
US dollars
31 December
Notes 2023 2022
ASSETS
Current
Cash 5 1,993,808 715,815
Trade receivables 6 186,145 1,299,072
Inventories 7 535,689 773,076
Other current assets 8 427,875 343,872
Current assets 3,143,517 3,131,835
Non-Current
Property and equipment 9 820,310 810,326
Intangible asset 10 4,501,420 5,462,800
Right -of -use asset 11 1,175,950 2,816,641
Other long term assets 35,144 35,689
Non-current assets 6,532,824 9,125,456
Total assets 9,676,341 12,257,291
LIABILITIES AND EQUITY
Current
Short Term Borrowings 12 96,306 428,935
Trade payables 1,237,113 785,583
Liability related to share subscription agreement 15.E. 2 - 1,836,555
Warrants liability 15.E. 1 2,841 -
Other current liabilities 11,13 1,607,897 1,121,909
Current liabilities 2,944,157 4,172,982
Non-Current
IIA royalty liability 14 50,645 -
Lease liability 11 764,366 2,505,777
Non-current liabilities 815,011 2,505,777
Total liabilities 3,759,168 6,678,759
Equity 15
Share capital 103,417 21,904
Share premium 47,299,358 40,786,623
Other components of equity 1,334,531 1,225,391
Accumulated deficit (42,820,133) (36,455,386)
Total equity 5,917,173 5,578,532
Total liabilities and equity 9,676,341 12,257,291
14
50,645
-
Lease liability
11
764,366
2,505,777
Non-current liabilities
815,011
2,505,777
Total liabilities
3,759,168
6,678,759
Equity
15
Share capital
103,417
21,904
Share premium
47,299,358
40,786,623
Other components of equity
1,334,531
1,225,391
Accumulated deficit
(42,820,133)
(36,455,386)
Total equity
5,917,173
5,578,532
Total liabilities and equity
9,676,341
12,257,291
The accompanying notes are an integral part of the financial statements.
STATEMENT OF COMPREHENSIVE LOSS
US dollars
For the year ended
31 December
Notes 2023 2022
Revenue 17,27 3,777,919 2,937,424
Cost of sales 1,437,777 1,339,096
Gross margin 2,340,142 1,598,328
Research and development expenses 18 5,160,697 6,618,795
General and administrative expenses 19 1,841,842 2,523,916
Marketing expenses 20 621,052 1,167,534
Other income 21 (2,797) (15,041)
Operating loss (5,280,652) (8,696,876)
Financing costs 22 (1,267,906) (573,388)
Financing income 23 183,811 1,267,652
Loss before tax (6,364,747) (8,002,612)
Tax expense 24 - -
Net comprehensive loss for the year (6,364,747) (8,002,612)
Basic and diluted loss per ordinary share 25 (0.04) (0.11)
Weighted average number of ordinary shares for basic loss per share 143,876,859 76,013,296
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CHANGES IN EQUITY
Notes Number of Share Share Other components Accumulated Total
shares Capital premium of equity deficit equity
Balance at 1 January 2022 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
Exercise of employee options - - - - - -
Shares issued pursuant to share subscription agreement 15.E. 2 2,695,593 752 383,733 - - 384,485
Expenses paid in shares and warrants 15.E. 3 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
Employee share-based compensation - - - 72,287 - 72,287
Net proceeds allocated to the issuance of ordinary shares 127,188,097 35,441 3,530,205 - - 3,565,646
15.E. 1
Shares issued pursuant to share subscription agreement 15.E. 2 168,933,439 45,331 2,762,249 - - 2,807,580
Expenses paid in shares and warrants 15.E. 3 2,515,118 741 220,281 36,853 - 257,875
Net comprehensive loss for the year - - - - (6,364,747) (6, 364,747)
Balance at 31 December 2023 376,721,091 103,417 47,299,358 1,334,531 (42,820,133) 5,917,173
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
STATEMENT OF CASH FLOWS
US dollars
For the year ended 31 December
2023 2022
Operating activities
Net comprehensive loss for the year (6,364,747) (8,002,612)
Non-cash adjustments
Depreciation of property and equipment 138,129 108,581
Depreciation of right of use asset 315,884 339,561
Share-based compensation 72,287 221,362
Amortisation of intangible assets 961,380 961,380
Amortisation of liabilities (113,078) (396,434)
Lease liability Interest 200,261 235,204
Foreign exchange losses on cash balances 3,377 381,480
Revaluation of financial instruments, net 818,521 (984,001)
Expenses paid in shares and options 257,875 20,158
Net changes in working capital
Decrease in trade receivables 1,112,927 246,526
Decrease (Increase) in inventories 237,387 (488,266)
Increase in other current assets (84,003) (102,908)
Increase in other long-term assets 545 3,267
Increase in trade payables 451,530 133,825
Increase (decrease) in other liabilities 422,658 (12,261)
Increase in IIA royalty liability 73,645 -
Net cash used in operating activities (1,495,422) (7,335,138)
Investing activities
Purchase of property and equipment (148,113) (258,838)
Net cash used by investing activities (148,113) (258,838)
Financing activities
Proceeds from share subscription agreement - 2,000,000
Proceeds allocated to ordinary shares 3,756,391 -
Proceeds allocated to warrants 132,544 -
Issuance costs (262,444) (9,952)
Proceeds from exercise of warrants and options - -
Proceeds from short term borrowings 1,239,657 527,790
Repayment of short-term borrowings (1,543,210) (493,338)
Repayment of lease liability (398,033) (394,053)
Net cash provided by financing activities 2,924,905 1,630,447
Net change in cash 1,281,370 (5,963,529)
Cash beginning of year 715,815 7,060,824
Exchange differences on cash (3,377) (381,480)
Cash end of year 1,993,808 715,815
Supplementary information:
Interest paid during the year 64,239 13,321
Interest received during the year 226 1,507
Supplementary information on non-cash activities:
Shares issued pursuant to share subscription agreement 1,778,468 384,485
Expenses paid in shares and options 257,875 20,158
Non-cash issuance costs 26,757 -
Update of lease liability 1,324,807 -
The accompanying notes are an integral part of the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND GENERAL
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 £1.40 per share, for a total consideration of
approximately $19,444,000 (£15,000,000) before underwriting and issuance
expenses. Total net proceeds from the issuance amounted to approximately
$17,800,000. The Company trades on the AIM Stock Exchange under the symbol
"ENET".
On 12 October 2023, the Company voluntarily applied to the court in Tel Aviv,
Israel for a Temporary Suspension of Proceedings order ("TSP") and the
convening of a meeting of creditors in accordance with the Israeli Insolvency
and Economic Rehabilitation Law. This TSP order, which was granted by the
court, was requested by the Company to protect the Company's business, as the
Company experienced liquidity issues from the delay in payments from expected
debtors. At the time of this application, the Company's cash balance was
approximately $107,000, while the creditors amounts due approximated $1.6
million. The TSP order prevented the creditors of the Company from enforcing
any payments due to them.
Following an equity raise in December 2023 and the collection of funds from
the Company's debtors, the Company was able to make a settlement proposal,
whereby valid creditors at the time of the TSP order, will be repaid in full
per the timetable and conditions of the TSP court approved settlement plan
over a period of 12 months. Guaranteed and priority creditors would have
priority for repayment, followed by general creditors. The creditors approved
this proposal which was endorsed by the court on 4 February 2024 and the
Company exited the TSP process. To date the Company has fully repaid its
guaranteed creditors and partially paid the priority creditors, all in
compliance with the settlement plan. Following conclusion of the TSP, and
approval of the settlement plan, the Company continues to undertake its
business and operations as usual with no restrictions.
NOTE 2 - GOING CONCERN
As of December 31, 2023 the Company has an accumulated deficit of $42.8
million and during the year ended December 31, 2023, the Company incurred a
net comprehensive loss of $6.4 million (2022: $8 million) and negative cash
flows from operating activities of $1.5 million (2022: $7.5 million). 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 ($3.64 million) and cash collections from
customers during the year ended 31 December 2023 ($4.9 million). Furthermore,
the Company implemented a cost reduction plan during the second half of 2023
and going forward, the results of which are apparent in the 60% reduction of
the H2 2023 operating loss (of $1.5 million) compared to the H1 2023 operating
loss (of $3.8 million).
The Company depends on potential growth derived from the indicated growing
interest of original equipment manufacturers (OEM) to adopt the Company's
offerings and solutions, as well as on the successful execution of new
contracts with new and existing customers, and income from existing contracts.
Considering the outlined factors, including reduction in expenses, and based
on experience, the directors have an expectation that the Company will have
access to adequate resources to continue in operational existence for the
foreseeable future.
However, the success of the Company's plans as outlined above is not assured
and thus 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.
The financial statements do not include any adjustments relating to
recoverability and classification of the recorded asset amounts, and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 3 - MATERIAL 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 2023, 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 applicable law jurisdiction in which the Company operates is in Israel.
The financial statements for the year ended 31 December were approved and
authorised for issue by the board of directors on April 18, 2024.
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:
2023 2022
New Israeli Shekel ("NIS") 0.276 0.284
Great British Pound ("GBP") 1.274 1.204
Euro 1.106 1.066
E. 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.
F. 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 15-33
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.
G. 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.
H. 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
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 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.E. 2 ., 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.
I. 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.
J. 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.
K. 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.
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.
L. 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.
M. 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.
N. 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 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 was for 5
years with an option to extend it for a further 5 years. The Company initially
expected this lease to be extended for an additional 5 years. At the end of
2023, the Company's assessment was that it may not exercise the additional
5-year option given the decline in rental prices within the premises market -
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
2023 2022
In Great British Pounds 855,348 89,695
In U.S. Dollar 470,595 205,285
In Euro - 2,751
In New Israeli Shekel 667,865 418,084
1,993,808 715,815
The cash does not have any restrictions as to what it may be used for.
NOTE 6 - TRADE RECEIVABLES
Trade receivables consist of the following:
US dollars
31 December
2023 2022
Trade receivables and unbilled revenue 885,145 1,878,072
Less: provision for expected credit losses (699,000) (579,000)
Total receivables 186,145 1,299,072
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
2023 2022
Components and raw materials 331,815 613,218
Finished cards and boards 203,874 159,858
Total inventories 535,689 773,076
NOTE 8 - OTHER CURRENT ASSETS
Other current assets consist of the following:
US dollars
31 December
2023 2022
Prepaid Expenses 377,419 203,955
Deposits to suppliers - 1,857
Government institutions 50,456 129,659
Other current assets - 8,401
Total other current assets 427,875 343,872
NOTE 9 - PROPERTY AND EQUIPMENT
Details of the Company's property and equipment are as follows:
US dollars
Testing equipment Computers Furniture and equipment Leasehold improve-ments Total
Gross carrying amount
Balance 1 January 2023 1,122,474 176,129 55,397 11,193 1,365,193
Additions 147,333 780 - - 148,113
Balance 31 December 2023 1,269,807 176,909 55,397 11,193 1,513,306
Depreciation
Balance 1 January 2023 (378,576) (155,512) (19,473) (1,306) (554,867)
Depreciation (121,330) (11,942) (3,460) (1,397) (138,129)
Balance 31 December 2023 (499,906) (167,454) (22,933) (2,703) (692,996)
Carrying amount 31 December 2023 769,901 9,455 32,464 8,490 820,310
US dollars
Testing equipment Computers Furniture and equipment Leasehold 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
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 2023 9,550,657
Additions -
Balance 31 December 2023 9,550,657
Amortisation
Balance 1 January 2023 4,087,857
Amortisation 961,380
Balance 31 December 2023 5,049,237
Carrying amount 31 December 2023 4,501,420
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
The Company tested the capitalised intangible assets for impairment as of 31
December 2023. Such analysis revealed a similar calculation as that determined
as at 31 December 2022 and therefore no impairment is warranted.
Having given due consideration to the following, the Company believes that no
impairment is required.
· Considering the past and future expected revenues from the
capitalized R&D assets;
· 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;
· Revenues recognised and collected to date which are attributed to
the intangible asset technology.
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 2024 through 2033.
The primary assumptions used in determining the value-in-use 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%).
The possibility exists that there could be a change in these key assumptions
used to calculate the value-in-use of the intangible assets, which could cause
the balance recorded in these financial statements to exceed such
value-in-use. As at 31 December 2023 the value-in-use of the intangible assets
exceeds the amount shown in these financial statements by $4.8 million.
NOTE 11 - LEASES
A. Details of the Company's right of use assets are as follows:
US dollars
Buildings
Gross carrying amount
Balance 1 January 2023 3,158,849
Expectation change, of option to exercise the lease (1,324,807)
Balance 31 December 2023 1,834,042
Accumulated depreciation
Balance 1 January 2023 (342,208)
Depreciation expense (315,884)
Balance 31 December 2023 (658,092)
Total right-of-use assets as at 31 December 2023 1,175,950
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
B. Lease liabilities are presented in the statement of financial
position as follows:
US dollars
31 December
2023 2022
Current 341,991 207,161
Non-current 764,366 2,505,777
1,106,357 2,712,938
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 has an option to renew it for a further five years.
As at 31 December 2022 such renewal option was considered as reasonably
certain to be exercised according to IFRS 16. At 31 December 2023, the
Company's assessment was that it may not exercise the additional 5-year option
given the change in the Company's needs and the decline in rental market
prices. As such the Company recalculated the lease liability using an updated
discount rate. The amount of such reduction in the liability, was accordingly
reduced from the right-of-use asset value.
Each lease generally imposes a restriction that, 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 2023 were as follows:
Minimum lease payments due
US dollars
2024 2025-2026 Total
Lease payments 442,011 847,186 1,289,197
Finance charges (100,020) (82,820) (182,840)
Net present values 341,991 764,366 1,106,357
NOTE 12 - SHORT- TERM BORROWINGS
Borrowings include the following financial liabilities:
Annual % Interest US dollars
rate((1)) 31 December
2023 2023 2022
Bank borrowings P+4.5% 96,306 428,935
Total short- term borrowings 96,306 428,935
((1) ) The loans bore variable interest of prime + 4.5%. The
loans were fully repaid by February 2024.
NOTE 13 - OTHER CURRENT LIABILITIES
Other short-term liabilities consist of:
US dollars
31 December
2023 2022
Salaries, wages and related costs 458,435 426,211
Provision for vacation 118,955 235,442
Current portion of IIA royalty liability (see Note 14) 23,000 -
Accrued expenses and other 127,691 121,770
Deferred revenue 250,200 20,337
Short term lease liability 341,991 207,161
Related parties * 287,625 110,988
Total other short-term liabilities 1,607,897 1,121,909
* Relates to compensation from prior years and the outstanding
preferred loan to the Company (see Note 28.A.). These amounts do not bear
interest.
NOTE 14 - IIA ROYALTY LIABILITY
During the years 2005 through 2012, the Company received grants from the
Israel Innovation Authority ("IIA") totaling approximately $3.1 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's
revenue attributable to the technology funded by the IIA, up to an amount
equal to the grants received plus interest from the date of the grant, which
after having repaid approximately $543,000 (2022: $535,000) of these grants
over numerous years, as at 31 December 2023 the amount still due is
approximately $4.4 million. Such contingent obligation has no expiration date.
NOTE 15 - EQUITY
A. Details regarding share capital and number of shares at 31
December 2023 and at 31 December 2022 are:
Share capital:
US dollars
31 December
2023 2022
Ordinary shares of NIS 0.001 par value 103,417 21,904
Total share capital 103,417 21,904
Number of shares:
31 December
2023 2022
Ordinary shares of NIS 0.001 par value - authorised 600,000,000 100,000,000
Ordinary shares of NIS 0.001 par value - issued and paid up 376,721,091 78,084,437
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 2023 was
$262,484 (2022: $9,952).
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. Shares issued during the accounting periods
During the year ended 31 December 2023, 298,636,654 (2022: 2,732,699) ordinary
shares were issued, as follows:
Number of shares issued during year ended 31 December
Note 2023 2022
Issuance of ordinary shares )issued together with warrants( 1 127,188,097 -
Shares issued pursuant to share subscription agreement 2 168,933,439 2,695,593
Expenses paid for in shares 3 2,515,118 37,106
298,636,654 2,732,699
1 Details of the equity raises are as follows:
January 2023 equity raise
In January 2023 the Company issued 23,571,430 shares attached to a
corresponding 23,571,430 warrants. Each share with its attached warrant was
issued for £0.07, realising gross proceeds of $2.02 million (£1.65 million)
and net proceeds after issuance expenses of approximately $1.89 million
(£1.54 million).
Each warrant was initially exercisable at £0.15 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 £0.20 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 £ 0.15 £ 0.060
Share price at which accelerator clause may be activated £ 0.20 £ 0.075
David Levi and Shavit Baruch hold 3,028,571 and 668,771 warrants respectively,
by virtue of their participation in the January 2023 fundraise as outlined
below. The terms of the warrants David Levi and Shavit Baruch hold were varied
alongside the other warrants issued as detailed above.
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 as detailed
below:
· David Levi subscribed for 3,028,571 placing shares for an aggregate
sum of £212,000.
· Shavit Baruch subscribed for 668,771 placing shares for an aggregate
sum of £46,814.
None of these warrants had been exercised by 31 December 2023 and their fair
value of approximately $3,000 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 £0.07 per
warrant. The fair-value of these warrants at the time of issuance was
approximately $23,000. As at 31 December 2023, none of these warrants have
been exercised.
May 2023 equity raise
In May 2023 the Company issued 26,116,667 shares at £0.03 per share,
realising gross proceeds of $0.98 million (£0.78 million) and net cash
proceeds after issuance expenses of $0.92 million (£0.74 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 as detailed below:
· David Levi, subscribed for 833,334 Placing Shares for an aggregate
sum of £25,000
· Yosi Albagli, subscribed for 83,334 Placing Shares for an aggregate
sum of £2,500
The gross proceeds, after deduction of the issuance costs 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 £0.03 per
warrant. The fair-value of these warrants at the time of issuance was
approximately $14,000. As at 31 December 2023, none of these warrants have
been exercised.
December 2023 equity raise
In December 2023 the Company issued 70,000,000 shares at £0.01 per share,
realising gross proceeds of $0.88 million (£0.70 million) and net cash
proceeds after issuance expenses of $0.83 million (£0.66 million).
Concurrent with this equity raise the Company's CEO and director, David Levi,
converted $94,500 (£75,000) of loans owed to him, into 7,500,000 shares.
The gross proceeds, after deduction of the issuance costs were allocated to
share capital and share premium.
No warrants were issued in this equity raise.
2 Shares issued pursuant to share subscription agreement
In February 2022, an institutional investor ("Investor") who had previously
subscribed for shares in the Company, signed a new $2.0 million share
subscription agreement bearing a face value of $2,060,000.
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.
Accounting treatment
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 a variable number of shares
and as the agreements include embedded derivatives (such as 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, 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 2022
In March 2022 the full $2.0 million was funded as a prepayment for the
subscription shares.
The Investor converted the following subscription amount during 2022:
Notice date of conversion Face value converted - USD Shares Issued
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.
Activity for year ending 31 December 2023
All remaining outstanding subscription amounts were converted during 2023,
thereby bringing the relationship to a conclusion, without any balances
remaining as at 31 December 2023:
The following subscription amounts were converted during 2023:
Notice date of conversion Face value converted - USD Shares Issued
22 May 2023 230,000 6,629,236
31 July 2023 100,000 4,897,352
29 September 2023 74,000 7,406,851
(*) 10 November 2023 1,336,000 150,000,000
168,933,439
(*) Per settlement deed, described below.
As mentioned 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
amounts converted amounted to $22,771 in 2023, which is recorded as a
reduction to finance income.
In November 2023 the Company and the Investor entered into a settlement deed,
whereby the Company would issue 150,000,000 shares to the Investor (the
"Settlement Shares") to terminate the Subscription Agreement and extinguish
the Company's liability to the Investor. The Settlement Shares would be issued
in tranches, to comply with a restriction that the Investor cannot hold an
interest in more than 24.99% of the Company's issued share capital. The
Settlement Shares were issued in tranches. 44.9 million shares on 10 November
2023, 43.6 million shares on 29 November 2023 and 61.5 million shares on 14
December 2023. The resulting finance charges recognized from this transaction
was approximately $1,030,000.
3 Expenses paid for in shares
As part of the agreed remuneration as non-Executive Chairman for the period
from 10 March 2021 to 28 February 2022, Joseph Albagli is entitled to receive
shares equal to a monthly amount of £1,250. On 14 April 2022 the Company
issued 37,106 shares in lieu of the $20,158 owing to Joseph Albagli for the
above-mentioned period. On 6 July 2023 the Company issued 126,347 shares in
lieu of the £15,000 owing to Joseph Albagli for the period from 1 March 2022
to 28 February 2023. See Note 28.C.
In January 2023, service providers to the Company agreed to receive 2,388,771
shares at the January 2023 equity raise issue price of GBP 0.07 in
satisfaction of £167,214 of outstanding fees due to them. These shares are
subject to a one-year lock-in period.
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, service
providers and directors of the Company, which are exercisable into the
Company's ordinary shares. 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.
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
22 Feb 17 Feb 17 Feb
2023 2022 2022
Number of options granted 590,000 130,000 751,000
Exercise price in $ 0.166 0.545 0.395
Recipients of the options Employees Employees Employees
Approximate fair value at grant date (in $):
Total benefit 31,685 35,902 219,220
Per option benefit 0.2905 0.29 0.29
Assumptions used in computing value:
Risk-free interest rate 3.93% 2.98% 2.98%
Dividend yield 0.00% 0.00% 0.00%
Expected volatility 70% 70% 70%
Expected term (in years) 10.0 10.0 10.0
Expensed amount recorded for year ended:
31 December 2022 - 22,477 119,599
31 December 2023 7,296 19,739 101,316
The remaining value of these options at 31 December 2023, which have yet to be
recorded as expenses, amount to $45,045 (2022: $159,127).
As some of these employees left the employ of the company prior to 31 December
2023, their options were cancelled.
Share based compensation was treated in these financial statements as follows:
US dollars
Year ended 31 December
2023 2022
Total expensed amount recorded 72,287 221,362
Total 72,287 221,362
The following tables present a summary of the status of the employee option
grants by the Company as of 31 December 2023 and 2022:
Weighted
average
exercise
Number price (US$)
Year ended 31 December 2023
Balance outstanding at beginning of year 3,691,920 0.31
Granted 590,000 0.17
Exercised - 0.10
Forfeited (2,524,920) (0.26)
Balance outstanding at end of the year 1,757,000 0.37
Balance exercisable at the end of the year 1,177,333
Weighted
average
exercise
Number price (US$)
Year ended 31 December 2022
Balance outstanding at beginning of year 2,951,920 0.27
Granted 881,000 0.42
Exercised - 0.10
Forfeited (141,000) 0.36
Balance outstanding at end of the year 3,691,920 0.31
Balance exercisable at the end of the year 2,333,503
B. The option pool was increased to 6,500,000 options by a
resolution passed on 16 December 2021 and approved by the tax authorities.
C. The following table summarises information about employee options
outstanding at 31 December 2023:
Weighted Weighted
Outstanding average Weighted Exercisable average
at 31 remaining average at 31 remaining
Exercise December contractual exercise December contractual
price 2023 life (years) price (US$) 2023 life (years)
$0.20 20,000 3.2 0.20 20,000 3.2
£0.12 33,000 6.6 0.16 33,000 6.6
£0.14 130,000 6.3 0.17 50,000 6.3
£0.20 230,000 6.9 0.26 230,000 6.9
£0.21 70,000 6.5 0.26 70,000 6.5
£0.21 200,000 6.9 0.27 200,000 6.9
£0.29 164,000 8.1 0.39 41,000 8.1
£0.29 400,000 8.1 0.39 233,333 8.1
£0.33 65,000 6.6 0.46 32,500 6.6
£0.40 130,000 5.0 0.54 65,000 5.0
£0.45 225,000 6.6 0.60 112,500 6.6
£1.05 40,000 3.2 1.28 40,000 3.2
£1.00 30,000 4.5 1.32 30,000 4.5
£1.00 20,000 5.6 1.25 20,000 5.6
1,757,000 1,177,333
The following table summarises information about employee options outstanding
at 31 December 2022:
Weighted Weighted
Outstanding average Weighted Exercisable average
at 31 remaining average at 31 remaining
Exercise December contractual exercise December contractual
price 2022 life (years) price (US$) 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
£0.12 73,000 7.6 0.16 73,000 7.6
£0.20 370,000 7.9 0.26 246,667 7.9
£0.21 140,000 7.5 0.26 105,000 7.5
£0.21 200,000 7.9 0.27 166,667 7.9
£0.29 311,000 9.1 0.39 14,250 9.1
£0.29 400,000 9.1 0.39 100,000 9.1
£0.33 175,000 7.6 0.46 43,750 7.6
£0.40 130,000 5.6 0.54 32,500 5.6
£0.45 455,000 7.6 0.60 113,750 7.6
£1.05 40,000 4.2 1.28 40,000 4.2
£1.40 30,000 4.7 1.83 30,000 4.7
£1.00 60,000 5.5 1.32 60,000 5.5
£1.00 50,000 6.6 1.25 50,000 6.6
3,691,920 2,333,503
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
£1.40. 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. 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. Upon the successful equity raise concluded in January 2023, as
described in Note 15.E. 1 , the brokers responsible for this transaction
received 573,429 two year warrants exercisable at £0.07 per warrant. The
fair-value of these warrants at the time of issuance was approximately
$23,000.
b. Upon the successful equity raise concluded in May 2023, as described in
Note 15.E. 1 , the brokers responsible for this transaction received 573,429
two year warrants exercisable at £0.07 per warrant. 772,500 two year warrants
exercisable at £0.03 per warrant. The fair-value of these warrants at the
time of issuance was approximately $14,000.
c. During 2023 the Company issued 126,347 (2022: 37,106) shares to the
Company's non-executive chairman in lieu of $19,000 (2022: $20,000) owing as
part of his agreed remuneration. See also Note 15.E. 3 and Note 28.C.
d. In January 2023, service providers to the Company agreed to receive
2,388,771 shares at the January 2023 equity raise issue price of GBP 0.07 in
satisfaction of £167,214 of outstanding fees due to them. See also Note
15.E. 3 .
NOTE 17 - REVENUE
US dollars
Year ended 31 December
2023 2022
Sales 3,386,583 2,546,289
Royalties 231,344 232,805
Maintenance and support 159,992 158,330
Total revenue 3,777,919 2,937,424
NOTE 18 - RESEARCH AND DEVELOPMENT EXPENSES
US dollars
Year ended 31 December
2023 2022
Employee remuneration, related costs and subcontractors ((*)) 3,845,860 5,458,163
Maintenance of software and computers 151,473 134,651
Insurance and other expenses 120,719 57,006
Amortisation 961,380 961,380
Grant procurement expenses 81,265 7,595
Total research and development expenses 5,160,697 6,618,795
((*)) Including share based compensation. 58,755 160,134
NOTE 19 - GENERAL AND ADMINISTRATIVE EXPENSES
US dollars
Year ended 31 December
2023 2022
Employee remuneration and related costs ((*)) 459,345 666,500
Professional fees 488,198 496,865
Rentals and maintenance 220,066 305,927
Depreciation 454,013 446,816
Travel expenses - 8,608
Impairment losses of trade receivables 220,220 599,200
Total general and administrative expenses 1,841,842 2,523,916
((*)) Including share based compensation. 17,710 51,627
NOTE 20 - MARKETING EXPENSES
US dollars
Year ended 31 December
2023 2022
Employee remuneration and related costs ((*)) 541,674 903,834
Marketing expenses 66,669 258,094
Travel expenses 12,709 5,606
Total marketing expenses 621,052 1,167,534
((*)) Including share based compensation. (4,178) 9,601
NOTE 21 - OTHER INCOME
This is a government grant related to an expense item and is recognised as
other income.
NOTE 22 - FINANCING COSTS
US dollars
Year ended 31 December
2023 2022
Bank fees, interest and others 82,570 35,150
Lease liability financial expenses 200,260 227,246
Revaluation of liability related to share subscription agreement measured at 974,980
FVTPL
230,992
Expenses allocated to issuing warrants 10,096 -
Expenses allocated to share subscription agreement - 80,000
Total financing costs 1,267,906 573,388
NOTE 23 - FINANCING INCOME
US dollars
Year ended 31 December
2023 2022
Revaluation of warrant derivative liability 129,703 1,214,993
Interest received 226 1,507
Exchange rate differences, net 53,882 51,152
Total financing income 183,811 1,267,652
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 2023, the Company has carry-forward losses for
Israeli income tax purposes of approximately $35 million (2022: $31 million).
These tax losses have no expiry date. 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. Theoretical tax reconciliation
For the years ended 31 December 2023 and 2022, 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
2023 2022
Loss before tax 6,364,747 8,002,612
Tax expense (benefit) at statutory rate 23% 23%
Expected tax expense (benefit) at statutory rate (1,463,892) (1,840,601)
Changes in taxes from permanent differences in share-based compensation 16,626 50,913
Increase in loss carryforwards 1,447,266 1,789,688
Income tax expense - -
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
2023 2022
Loss for the year attributable to ordinary shareholders (6,364,747) (8,002,612)
Number of shares
Year ended 31 December
2023 2022
Weighted average number of ordinary shares used in the computation of basic 143,876,859 76,013,296
loss per ordinary share
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 2023
NIS GBP US $ Total
Assets
Cash 667,865 855,348 470,595 1,993,808
Trade receivables 31,145 - 155,000 186,145
699,010 855,348 625,595 2,179,953
Liabilities
Short term borrowings 96,309 - - 96,309
Trade payables 899,920 22,417 314,776 1,237,113
Warrants liability - 2,841 - 2,841
IIA royalty liability - - 50,645 50,645
Non-current lease liabilities 764,366 - - 764,366
1,760,595 25,258 365,421 2,151,274
(1,061,582) 830,090 260,174 28,682
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)
· 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 (loss)/equity (before tax) from the changes caused by the Book value Effect on profit (loss)/equity (before tax) from the changes caused by the
market factor market factor
Increase at the rate of 31 December Decrease at the rate of
10% 5% 2023 5% 10%
Cash (152,321) (76,161) 1,523,213 76,161 152,321
Trade receivables (3,115) (1,557) 31,145 1,557 3,115
Short term borrowings 9,631 4,815 (96,306) (4,815) (9,631)
Trade payables 92,234 46,117 (922,337) (46,117) (92,234)
Warrants liability 284 142 (2,841) (142) (284)
Non-current lease liabilities 76,437 38,218 (764,366) (38,218) (76,437)
Total 23,150 11,574 (231,492) (11,574) (23,150)
US dollars
Sensitivity to changes in exchange rates
of the non US dollar currencies to the US dollar
Effect on profit (loss)/equity (before tax) from the changes caused by the Book value Effect on profit (loss)/equity (before tax) from the changes caused by the
market factor market factor
Increase at the rate of 31 December Decrease at the rate of
10% 5% 2022 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)
· Credit risk
All of the cash and cash equivalents and other short-term financial assets as
of 31 December, 2023 and 2022 were deposited with one of the major banks in
Israel.
Trade receivables as of 31 December 2023 and 2022 were from customers in
Israel, the U.S., Europe, 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).
· 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 2023, the provision for expected credit losses was $699,000 (2022:
$579,000) - see Note 6 for more details.
US dollars
Balance at 1 January 2022 230,000
Additions 589,000
Reductions (240,000)
Balance at 31 December 2022 579,000
Additions 150,000
Reductions (30,000)
Balance at 31 December 2023 699,000
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 2023 and 2022 were lease liabilities
which are serviced monthly. The short-term borrowings at 31 December 2023 and
2022 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.
The Company's non-derivative financial liabilities have contractual maturities
as summarized below:
US dollars
31 December 2023
Within 6 months 6 to 12 months 1 to 3 More than
years 3 years
Short term borrowings 96,306 - - -
Trade payables 123,711 1,113,402 - -
Other short-term liabilities 1,033,123 232,783 - -
Lease liabilities 163,726 178,265 764,366 -
Total 1,416,866 1,524,450 764,366 -
US dollars
31 December 2022
Within 6 months 6 to 12 months 1 to 3 More than
years 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
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, 2023 and 2022, 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, 2023 and 2022 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
Financial liabilities
Liability related to share subscription agreement Warrants liability
Balance at 1 January 2022 - (1,214,993)
Recognition in asset (liability) (2,000,000) -
Proceeds received for shares issued 320,000 -
Warrants exercised (156,555) 1,214,993
Fair Value at 31 December 2022 (1,836,555) -
Recognition in asset (liability) - (132,544)
Liability exchanged for shares issued 1,778,468 -
Revaluation Adjustment 58,087 129,703
Fair Value at 31 December 2023 - (2,841)
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 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. As at 31 December 2023, this liability had been extinguished - see Note
15.E. 2 .
Warrants liability
This liability is valued at the fair value of the £0.60 Warrants as described
in detail in Note 15.E. 1 . 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 £0.80, 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
A. 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
2023 2022
Asia 154,700 290,800
Europe 12,390 131,000
Israel 758,445 429,954
United States 2,852,384 2,085,670
3,777,919 2,937,424
%
Year ended 31 December
2023 2022
Asia 4.1% 9.9%
Europe 0.3% 4.5%
Israel 20.1% 14.6%
United States 75.5% 71.0%
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.
The Company's revenues from major customers as a percentage of total revenue
was:
%
Year ended 31 December
2023 2022
Customer A 54% 58%
Customer B 19% 10%
Customer C 15% 8%
Customer D 5% 6%
Customer E 3% 5%
96% 88%
B. All of the Company's non-current assets are located in the Company's
country of domicile.
NOTE 28 - RELATED PARTIES
A. Founders
In April 2017, the employment agreement of the two founders of the Company Mr.
David Levi and Mr. Shavit Baruch, 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.
Shavit Baruch had an amount due to him for compensation originating in prior
years. As at 31 December 2023, the Company owed him in this regard a balance
of $106,683 (2022: $110,988) - see Note 13.
In October 2023, David Levi, a co-founder of the Company provided a
non-interest bearing loan to the Company of 1,000,000 NIS (approx. £200,000
or $250,000), This loan was approved by the court and, entitles David Levi to
be repaid as a priority creditor in any event.
In December 2023, David Levi subscribed for 7,500,000 shares at the same price
as outside investors paid in the Company's equity raise of £700,000
($880,000). David Levi settled the purchase price for these shares in exchange
for the satisfaction of £75,000 ($ 94,500) of his non-interest bearing
priority loan.
B. Chief Financial Officer
Mark Reichenberg stepped down from the board on 31 July 2023, when his tenure
as CFO terminated and the 209,000 ESOP options he held were cancelled.
From August 2023, Ayala Deutsch took over the CFO duties and was formally
appointed as permanent CFO in February 2024, when she was also appointed to
the board of directors.
C. Remuneration of key management personal including directors for the
year ended 31 December 2023
US dollars
Name Position Salary and benefits Share based compe-nsation
Total
David Levi Chief Executive Officer ((1)) 260,700 17,177 277,877
Mark Reichenberg ((3)) Chief Financial Officer ((1)) 116,408 - 116,408
Shavit Baruch VP Research & Development ((1)) 249,908 17,177 267,085
Chen Saft-Feiglin ((4)) Non Executive Director 17,959 - 17,959
Zohar Yinon ((4)) Non Executive Director 16,712 - 16,712
Joseph Albagli ((2)) Non Executive Chairman 31,493 18,655 50,148
Richard Bennett Non Executive Director 24,864 - 24,864
718,044 53,009 771,053
((1) ) 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.
((2) ) As part of the agreed compensation, monthly shares equal to
the value of £1,250 are accrued. In July 2023 - 126,347 shares accrued have
been allotted. The remaining accrued shares as of year-end were allotted in
March 2024, amounting to 921,152 shares.
((3) ) Terminated employment and ended directorship on 31 July
2023.
((4) ) Ceased to act as directors on 14 November 2023.
Remuneration of key management personal including directors for the year ended
31 December 2022
US dollars
Name Position Salary and benefits Share based compe-nsation
Total
David Levi Chief Executive Officer ((2)) 288,495 37,661 326,156
Mark Reichenberg Chief Financial Officer ((2)) 201,038 3,173 204,211
Shavit Baruch VP Research & Development ((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
851,309 97,027 948,336
((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 £1,250 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.
D. Directors' equity interests in the Company as at 31 December 2023
Shares Options and warrants
Name Direct holdings Unexercised vested options Unvested options Unexercised 6p warrants Total options and warrants
20,949,065 177,379 83,331 3,028,571 3,289,281
David Levi
Shavit Baruch 5,760,438 177,379 83,331 668,771 929,481
Joseph Albagli 256,787 - - - -
26,966,290 354,758 166,662 3,697,342 4,218,762
As set out further in note 15E, the above directors have participated in
certain of the placings and the variation of the warrant instruments during
the year ended 31 December 2023.
Directors' equity interests in the Company as at 31 December 2022
Shares Options and warrants
Name Direct holdings Unexercised vested options Unvested options Total options and warrants
9,587,160 110,710 150,000 260,710
David Levi
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
NOTE 29 - RECONCILIATION OF LIABILITIES ARISING FROM
FINANCING ACTIVITIES
Lease Liabilities Short Term Borrowings Total
2,712,938 428,935 3,141,873
1 January 2023
Cashflow
- Repayments (197,772) (1,543,210) (1,740,982)
- Proceeds - 1,239,657 1,239,657
Non-cash movement
- Terminations (1,324,807) - (1,324,807)
- Exchange rate differences (84,002) (29,076) (113,078)
31 December 2023 (()*()) 1,106,357 96,306 1,202,663
( )
(()*()) Including current maturities of $341,991.
Lease Liabilities Short Term Borrowings Total
3,240,071 422,633 3,662,704
1 January 2022
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.
For financial
liabilities to be settled through issuance of ordinary shares see notes 15.E
and 26B.
NOTE 30 - SUBSEQUENT EVENTS
1. On 14 February 2024, Ayala Deutsch was appointed as Chief
Financial Officer, together with her joining the board of directors.
2. On 16 April 2024, Aviva Banczewski and Julie Kunstler were
appointed as external directors of the Company.
3. On 16 April 2024, 17,377,225 options to the following directors
were approved at the General Meeting of the Company. These options have an
exercise price of 1.5p, vest over three years in 12 equal portions, with 1/12
of the options vesting at the end of each quarter.
Director Number of options
David Levi (CEO) 11,447,309
Shavit Baruch (VP R&D) 4,235,247
Ayala Deutsch (CFO) 1,200,000
Yosi Albagli (Chairman) 494,669
17,377,225
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR UWORRSWUSAURRecent news on Ethernity Networks
See all newsREG - Ethernity Networks - Grant of options
AnnouncementREG - Ethernity Networks - Final Results
AnnouncementREG - Ethernity Networks - Result of Adjourned GM and Board Changes
AnnouncementREG - Ethernity Networks - Adjournment of General Meeting
AnnouncementREG - Ethernity Networks - Business update
Announcement