REG - Ethernity Networks - Interim Results
26/09/2024 09:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240926:nRSZ8012Fa&default-theme=true
RNS Number : 8012F Ethernity Networks Ltd 26 September 2024
26 September 2024
ETHERNITY NETWORKS LTD
("Ethernity" or the "Company" or the "Group")
Interim results for the six months ended 30 June 2024
Ethernity Networks Ltd (AIM: ENET.L; OTCMKTS: ENETF), a leading supplier of
data processing semiconductor technology for networking appliances, announces
its interim results for the six months ended 30 June 2024.
Financial summary
· Revenues decreased by 58% to $582,008 (H1 2023: $1,398,871).
· Gross profit decreased by 29% to $566,602 over the comparable period
(H1 2023: $802,494).
· Gross margin of 97.4% (H1 2023: 57.4%) reflecting an increase of 40
percentage points.
· Research and Development, General and Administrative, and Marketing
expenses (before amortisation, depreciation IFRS and other adjustments)
decreased overall by 45%.
· EBITDA and Adjusted EBITDA loss decreased by 48% and 46% to
$1,590,542 and $1,657,094 respectively (H1 2023: $3,068,009 and $3,045,037).
CEO STATEMENT
Overview and current trading
In 2024 to date, Ethernity has made positive commercial progress and is
currently executing multiple customer projects, whilst simultaneously engaging
in active discussions with prominent global OEM potential customers.
Ethernity stands out for its cost-effective switching and routing data plane
functionality on field programmable gate arrays ("FPGAs"), enabling a
versatile solution that supports services from 40Gbps to 300Gbps. This
translates to significant advantages for our customers who can leverage the
Company's state of the art data processing engine and offer Carrier Ethernet
services at a competitive price point. In addition, customers have the option
to unlock premium features by enabling Ethernity's routing application.
Furthermore, for high-volume applications, Ethernity offers a seamless
migration path to ASICs, ensuring dramatic cost reductions as customer needs
evolve.
Ethernity offers a compelling value proposition for OEM customers by combining
the power of its cost-effective Data Processing Unit ("DPU") systems on a chip
("SoC") with the innovative low-latency passive optical network ("PON")
technology. This comprehensive suite provides a versatile solution for active
and passive services, using both wired and wireless infrastructure.
The Ethernity universal edge platform ("UEP") is a powerful platform that
combines an FPGA with the ENET flow processor and a comprehensive suite of
application software. This innovative solution delivers Carrier Ethernet
Switch/Router functionality, along with precise timing synchronization,
security and link bonding capabilities.
The Ethernity UEP2025 extends its capabilities beyond Carrier Ethernet by
incorporating industry-leading Remote OLT (GPON and XGS-PON) functionality for
the Broadband market. This versatile platform delivers a comprehensive feature
set, including Carrier Ethernet switching and routing, 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, while
still delivering hardware-based performances.
Additionally, Ethernity has enhanced its standard ENET data processing
solution with comprehensive network operating software. This new software
stack offers a complete system solution, expanding Ethernity's revenue
potential and increasing gross margins for ENET Flow processor units. It also
enables Ethernity to reach a broader customer base, including those seeking
tailored networking capabilities, with production ready network operating
software, but without the need for a fully customized FPGA or ASIC.
During the first six months of 2024, the Company was mainly focused on
enhancement of the UEP2025 software application functionality and engaged with
several large OEMs. These OEMs are evaluating the Company's UEP product
offering, and this has so far generated excellent results. We are confident
that these relationships will fuel the Company's future growth.
Following the Company's strategy to complement its silicon tuned offering with
a fully integrated Software application, the Company is in the advanced stages
of completing the integration of the PON OLT (GPON/XGS-PON) running on the
UEP2025, with cloud-based software which will provide the Company's OEM
customers with a complete end-to-end product offering for Remote OLT.
As first announced on 28 June 2024, the Company signed a new $1.05m licensing
contract with a leading U.S. Aerospace company. As part of this project, the
Company will deliver its silicon-tuned software to enable specific networking
functionalities on the customer's unique platform. The project was pending
U.S. Government approval to allow the customer to work with a non-U.S. vendor.
Approval was obtained on September 9, 2024. For the first project deliverable,
Ethernity provided its UEP2025, in order to enable the customer to speed up
development of their product. The Company is now fully engaged with the
customer to support and expedite its product development and market
readiness.
Furthermore, the majority of the delivery associated with the $200k product
enhancement order from another customer, that was announced in August 2024,
has been completed. This product enhancement leverages on Ethernity's data
processing technology and will enable the customer to secure additional orders
for its remote 10G PON OLT product, which would contribute to Ethernity's
future revenue growth.
Outlook
By transitioning to a system-based approach that is based on the Company's
silicon tuned technology, Ethernity unlocks significant value for a broader
customer base. The comprehensive solutions, combining powerful FPGA SoCs with
Ethernity's semiconductor expertise and application software, reduces the need
for in-house product development by its OEM customers. This enables customers
to leverage the Company's technology for a more agile and rapid go to market
strategy. This strategic shift positions Ethernity to strengthen its market
position, expand its OEM customer base, and attract new partners who can
significantly contribute to the Company's revenue growth.
Furthermore, over the past several months, the Company has been engaged in
discussions with two Tier-1 wireless backhaul solutions providers. They both
have prior experience with the Company's technology, and one has been
successfully testing Ethernity's solution for the past nine months. Whilst no
contracts have been secured to date, these vendors have expressed an interest
in Ethernity's evolving FPGA technology and solution to an ASIC, as they
believe that it would enable them to gain market share while simultaneously
improving their respective gross margins.
To meet this anticipated demand, Ethernity intends to leverage its significant
skill and know-how as a networking technology provider, along with its
existing patented ENET data processing technology, to build a
higher-performance networking ASIC at groundbreaking price and performance
levels. This will allow Ethernity to address various networking use cases and
to support the customers' growth opportunities. The future ASIC will leverage
on the current Ethernity field proven Silicon and software offering, currently
running on the UEP2025 as a complete product.
The Company has received interest from two Global Tier-1 OEMs to co-fund and
adopt an ASIC solution from Ethernity. Should they choose to proceed this
could lead to a significant increase in NRE payments to the Company in
2025-2026. Management believes that there is an addressable market that could
enable the Company to achieve significant revenue growth over the coming years
and aspire for the Company to reach annual revenues exceeding $35 million in
five years.
The Directors believe that Ethernity is strategically positioned to capitalize
on a unique transformative business opportunity within the growing
FrontHaul/Backhaul mobile industry, driven by the ever-increasing demand for
more bandwidth driven by mass migration to cloud based solutions.
A new report from Dell'Oro Group shows that worldwide telecom equipment
revenues are down in the first half of 2024 by 17% due to excess inventory
fueled by the panic around the chip shortage period that followed Covid.
However, the report suggests there may be some recovery during the remainder
of 2024 to result in a total decline for the year of 8% to 10%.
While analysts predict modest telecom business growth from 2025 and beyond,
Ethernity's primary growth area is in the Mobile backhaul market, where the
Company delivers a fully integrated product supporting Switch/Router,
Security, and wireless link bonding, which targets the growing Millimeter wave
technology market (i.e E-BAND). As indicated in Transparency market Research
(June 2024
(https://www.transparencymarketresearch.com/millimeter-wave-technology-market.html)
), the Global mmWave wireless technology market represented $4.4B in 2023
(~1.2M units), and will reach close to $20B by 2034 (~8M units) with a CAGR of
14.7%. That could potentially represent an addressable market of 800,000
ENET devices for 2025, or two million devices for FY-2034.
As indicated above, 2024 has been a challenging year in the telecom industry
and it has affected the Company's customers. However, management sees a
positive transition during the second half of 2024 and anticipates further
revenue growth in royalties, licensing, NRE and hardware components sales,
both from existing customers and from new customers for our IP and UEP FPGA
based solutions. Together with the above detailed transformative ASIC business
operation, we anticipate a bright future for the Company.
By order of the Board
David Levi
CEO
26 September 2024
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)
Peterhouse Capital Limited (Joint Broker) Tel: +44 (0)20 7562 0930
Lucy Williams/ Duncan Vasey/ Eran Zucker
MARKET ABUSE REGULATION
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse (amendment)
(EU Exit) Regulations 2019/310 ("MAR"). With the publication of this
announcement via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
OPERATIONAL and financial REVIEW
Revenues
During the period under review, the Company delivered revenues of $582,008 (H1
2023: $1,398,871), a decrease of 58% over H1 2023.
The decline in revenue for the period is primarily attributable to a decline
in revenues of hardware components (i.e FPGA SoC). This decline in hardware
component sales is primarily due to excess inventory stocked up in the telecom
market during 2022-2023, driven by the panic surrounding the chip shortage as
elaborated in the 'Outlook' section above. We anticipate that demand will
return back to previous levels during H2 2024.
Additionally, with respect to the remaining revenue streams, this decline
reflects the Company's strategic focus on transformative business efforts,
which are expected to drive long-term growth.
Gross profit and margin
The gross profit decreased to $566,602 (H1 2023: $802,494), and the gross
margin increased to 97.4% (H1 2023: 57.4%) reflecting an increase of 40
percentage points.
The significant increase in gross margin is a direct result of the revenue
recognized during the period, which was mainly derived from licensing and
royalty revenues with no COGS.
EBITDA
The EBITDA for the six months ended 30 June 2024 is presented as follows:
EBITDA For the 6 months ended For the 12 months ended 6-month change of 2024 vs 2023
(US Dollars)
30-Jun-2024 30-Jun-2023 31-Dec-2023 %
Revenues 582,008 1,398,871 3,777,919 (816,863) (58%)
Gross Profit 566,602 802,494 2,340,142 (235,892) (29%)
Gross Margin % 97.4% 57.4% 61.9% 40%
Operating Loss (2,397,002) (3,774,255) (5,280,652) 1,377,253 (36%)
Amortisation of Intangible Assets 480,690 480,690 961,380 -
Depreciation charges on fixed assets 158,570 67,614 138,782 90,956
Depreciation in respect of IFRS16 lease assets 167,200 157,942 315,884 9,258
EBITDA (1,590,542) (3,068,009) (3,864,606) 1,477,467 (48%)
Add back Share based compensation charges 140,900 56,025 72,287 84,875
Add back impairments - 193,537 220,220 (193,537)
Add back vacation accrual charges 9,540 (22,324) (109,026) 31,864
Adjust IFRS16 rent expense reversals (216,992) (204,266) (398,033) (12,726)
Adjusted EBITDA (1,657,094) (3,045,037) (4,079,158) 1,387,943 (46%)
EBITDA loss for the first six-month period of the year decreased by 48% to
$1,590,542 (H1 2023: $3,068,009). The Adjusted EBITDA loss in the first six
months of the year decreased by 46% to $1,657,094 (H1 2023: $3,045,037). These
improvements are attributed to the cost savings steps the Company applied
during the second half of 2023 in its efforts to control spending.
Operating costs
Operating expenses (before amortisation, depreciation and IFRS adjustments)
decreased by an overall 45% from $4,041,068 to $2,223,696 during the period
against the same period in 2023.
Within the R&D division, the Company reduced its operating expenses
(including headcount and other R&D expenses) by a total of 55%.
General and Administration costs (before amortisation, depreciation and IFRS
adjustments) have decreased by 19%, also mainly attributed to headcount
savings.
The decrease in Marketing expenses (net of share-based compensation and
vacation accruals) of 33% is also mainly attributed to headcount savings.
After adjusting for non-cash items; amortisation costs of the Development
Intangible asset, Depreciation, Share Based Compensation adjustments, and IFRS
adjustments the resultant decreases in Operating costs, as adjusted are:
Operating costs For the 6 months ended For the 12 months ended 6-month change of 2024 vs 2023
(US Dollars)
30-Jun-2024 30-Jun-2023 31-Dec-2023 %
Research and Development Costs net of amortisation, Share Based Compensation, 1,220,252 2,727,389 4,198,131 (1,507,137) (55%)
IFRS adjustments and Vacation accruals
General and Administrative expenses, net of depreciation, Share Based 724,132 895,691 1,170,442 (171,559) (19%)
Compensation, IFRS adjustments, Vacation accruals and impairments
Marketing expenses, net of Share Based Compensation and Vacation accruals 279,312 417,988 655,491 (138,676) (33%)
Total 2,223,696 4,041,068 6,024,064 (1,817,372) (45%)
Summarised trading results
Summarised Trading Results For the 6 months ended For the 12 months ended 6-month change of 2024 vs 2023
(US Dollars)
30-Jun-2024 30-Jun-2023 31-Dec-2023 %
Revenues 582,008 1,398,871 3,777,919 816,863 (58%)
Gross Profit 566,602 802,494 2,340,142 235,892 (29%)
Gross Margin % 97.4% 57.4% 61.9% 40%
Operating Loss (2,397,002) (3,774,255) (5,280,652) (1,377,253) (36%)
Financing costs (1,202,765) (163,008) (1,267,906) 1,039,757
Financing income (expenses) 61,753 322,814 183,811 261,061
Net comprehensive loss for the year (3,538,014) (3,614,449) (6,364,747) (76,435) (2%)
Basic and Diluted earnings per ordinary share (0.01) (0.03) (0.04) (0.03) (73%)
Weighted average number of ordinary shares for basic earnings per share 385,600,025 108,252,292 143,876,859
Financing costs
The majority of the financing costs recognised during the first 6-month period
of 2024 relate to the structured investment deed signed in May 2024. The
expense will be further increased or decreased based on the actual date of any
warrant exercise and will be determined by the share price at the date of
exercise. Refer to note 4 1 of the interim unaudited financial statements
which discusses the accounting treatment applied in this regard.
Going Concern
Based on the major cut in expenses and the modified business model, licensing
discussion and negotiations with major Telecom manufacturers, as well as
bearing in mind the ability and success of the Company to raise funds
previously, the Directors have a reasonable expectation that the Company will
have access to adequate resources to continue in operational existence for the
foreseeable future and therefore have adopted the going concern basis of
preparation in the financial statements.
Other than the points outlined above, there are no items on the Balance Sheet
that warrant further discussion outside of the disclosures made in the Interim
Unaudited Financial Statements presented below.
FORWARD LOOKING STATEMENTS
This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". By their nature, forward-looking statements
involve risk and uncertainty since they relate to future events and
circumstances. Actual results may, and often do, differ materially from any
forward-looking statements. Any forward-looking statements in this
announcement reflect Ethernity's view with respect to future events as at the
date of this announcement. Save as required by law or by the AIM Rules for
Companies, Ethernity undertakes no obligation to publicly revise any
forward-looking statements in this announcement, following any change in its
expectations or to reflect events or circumstances after the date of this
announcement.
By order of the Board
Ayala Deutsch
CFO
26 September 2024
Interim Unaudited Financial Statements
as at 30 June 2024
STATEMENT OF FINANCIAL POSITION
US dollars
30 June 31 December
2024 2023 2023
Unaudited Audited
ASSETS
Current
Cash and cash equivalents 580,711 136,872 1,993,808
Trade receivables 459,209 1,465,637 186,145
Inventories 411,035 890,897 535,689
Other current assets 381,144 577,290 427,875
Current assets 1,832,099 3,070,696 3,143,517
Non-Current
Property and equipment 663,014 891,478 820,310
Intangible asset 4,020,730 4,982,110 4,501,420
Right-of-use asset 1,008,750 2,658,699 1,175,950
Other long term assets 107,274 34,524 35,144
Non-current assets 5,799,768 8,566,811 6,532,824
Total assets 7,631,867 11,637,507 9,676,341
LIABILITIES AND EQUITY
Current
Short Term Borrowings - 403,492 96,306
Trade payables 1,212,380 1,010,240 1,237,113
Liability related to share subscription agreement - 1,510,000 -
Warrants liability 1,962,859 27,215 2,841
Other current liabilities 1,186,358 1,247,660 1,607,897
Current liabilities 4,361,597 4,198,607 2,944,157
Non-Current
IIA royalty liability 48,866 - 50,645
Lease liability 559,138 2,278,634 764,366
Non-current liabilities 608,004 2,278,634 815,011
Total liabilities 4,969,601 6,477,241 3,759,168
Equity
Share capital 114,562 38,500 103,417
Share premium 47,430,420 43,873,332 47,299,358
Other components of equity 1,475,431 1,318,269 1,334,531
Accumulated deficit (46,358,147) (40,069,835) (42,820,133)
Total equity 2,662,266 5,160,266 5,917,173
Total liabilities and equity 7,631,867 11,637,507 9,676,341
The accompanying notes are an integral part of the interim financial
statements.
STATEMENT OF COMPREHENSIVE LOSS
US dollars
Six months ended For the year ended
31 December
30 June
2024 2023 2023
Note Unaudited Audited
Revenue 7 582,008 1,398,871 3,777,919
Cost of sales 15,406 596,377 1,437,777
Gross profit 566,602 802,494 2,340,142
Research and development expenses 1,844,393 3,241,579 5,160,697
General and administrative expenses 837,735 926,293 1,841,842
Marketing expenses 281,476 408,877 621,052
Other income - - (2,797)
Operating loss (2,397,002) (3,774,255) (5,280,652)
Financing costs 5 (1,202,765) (163,008) (1,267,906)
Financing income 6 61,753 322,814 183,811
Loss before tax (3,538,014) (3,614,449) (6,364,747)
Tax expense - - -
Net comprehensive loss for the period (3,538,014) (3,614,449) (6,364,747)
Basic and diluted loss per ordinary share (0.01) (0.03) (0.04)
Weighted average number of ordinary shares for basic and diluted loss per 385,600,025 108,252,292 143,876,859
share
The accompanying notes are an integral part of the interim financial
statements.
STATEMENT OF CHANGES IN EQUITY
US dollars
Number of shares Share capital Share premium Other components of equity Accumulated deficit Total equity
Balance at 1 January 2024 (Audited) 376,721,091 103,417 47,299,358 1,334,531 (42,820,133) 5,917,173
Employee share-based compensation - - 140,900 - 140,900
Net proceeds allocated to the issuance of ordinary shares 40,000,000 10,893 112,228 - - 123,121
Expenses paid in shares and warrants 921,152 252 18,834 - - 19,086
Net comprehensive loss for the period - - - - (3,538,014) (3,538,014)
Balance at 30 June 2024 (Unaudited) 417,642,243 114,562 47,430,420 1,475,431 (46,358,147) 2,662,266
Balance at 1 January 2023 (Audited) 78,084,437 21,904 40,786,623 1,225,391 (36,455,386) 5,578,532
Employee share-based compensation - - - 56,025 - 56,025
Net proceeds allocated to the issuance of ordinary shares 49,688,097 14,073 2,638,711 - - 2,652,784
Shares issued pursuant to share subscription agreement 6,629,236 1,816 244,705 - - 246,521
Expenses paid in shares and warrants 2,388,771 707 203,293 36,853 - 240,853
Net comprehensive loss for the period - - - - (3,614,449) (3,614,449)
Balance at 30 June 2023 (Unaudited) 136,790,541 38,500 43,873,332 1,318,269 (40,069,835) 5,160,266
Balance at 1 January 2023 (Audited) 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
Shares issued pursuant to share subscription agreement 168,933,439 45,331 2,762,249 - - 2,807,580
Expenses paid in shares and warrants 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 (Audited) 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 interim financial
statements.
STATEMENT OF CASH FLOWS
US dollars
Six months ended Year ended
30 June 31 December
2024 2023 2023
Unaudited Audited
Operating activities
Net comprehensive loss for the period (3,538,014) (3,614,449) (6,364,747)
Non-cash adjustments
Inventory write off - 193,537 -
Depreciation of property and equipment 158,570 67,614 138,129
Depreciation of right of use asset 167,200 157,942 315,884
Share-based compensation 140,900 56,025 72,287
Amortisation of intangible assets 480,690 480,690 961,380
Amortisation of liabilities (35,241) (140,693) (113,078)
Lease liability Interest 53,489 104,742 200,261
Foreign exchange losses on cash balances 27,649 17,328 3,377
Revaluation of financial instruments, net 1,074,518 (212,120) 818,521
Expenses paid in shares and options 19,086 240,853 257,875
Net changes in working capital
Decrease (Increase) in trade receivables (273,064) (166,565) 1,112,927
Decrease (Increase) in inventories 124,654 (311,358) 237,387
Decrease (Increase) in other current assets 46,731 (233,418) (84,003)
Decrease (Increase) in other long-term assets (72,130) 1,165 545
Increase (decrease) in trade payables (24,733) 224,657 451,530
Increase (decrease) in other liabilities (427,237) 127,872 422,658
Increase (decrease) in IIA royalty liability (1,779) - 73,645
Net cash used in operating activities (2,078,711) (3,006,178) (1,495,422)
Investing activities
Purchase of property and equipment (1,274) (148,766) (148,113)
Net cash used in investing activities (1,274) (148,766) (148,113)
Financing activities
Proceeds allocated to ordinary shares 133,324 2,864,790 3,756,391
Proceeds allocated to warrants 885,500 132,544 132,544
Issuance costs (10,203) (185,249) (262,444)
Proceeds from short term borrowings (138,148) 956,382 1,239,657
Repayment of short-term borrowings 41,056 (970,872) (1,543,210)
Repayment of lease liability (216,992) (204,266) (398,033)
Net cash provided by financing activities 694,537 2,593,329 2,924,905
Net change in cash and cash equivalents (1,385,448) (561,615) 1,281,370
Cash and cash equivalents, beginning of year 1,993,808 715,815 715,815
Exchange differences on cash and cash equivalents (27,649) (17,328) (3,377)
Cash and cash equivalents, end of period 580,711 136,872 1,993,808
Supplementary information:
Interest paid during the period 1,206 38,499 64,239
Interest received during the period 1,193 76 226
Supplementary information on non-cash activities:
Shares issued pursuant to share subscription agreement - 246,521 1,778,468
Expenses paid in shares and warrants 19,086 240,853 257,875
Non-cash issuance costs - - 26,757
Update of lease liability - - 1,324,807
The accompanying notes are an integral part of the interim financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
ETHERNITY NETWORKS LTD. (hereinafter: the "Company"), was incorporated in
Israel on the 15th of December 2003 as Neracore Ltd. The Company changed its
name to ETHERNITY NETWORKS LTD. on the 10th of August 2004.
The Company provides innovative, comprehensive networking and security
solutions on programmable hardware for accelerating telco/cloud networks
performance. Ethernity's FPGA logic offers complete Carrier Ethernet Switch
Router data plane processing firmware, PON MAC firmware and control software
with a rich set of networking features, robust security, and a wide range of
virtual function accelerations to optimise telecommunications networks.
Ethernity's complete solutions quickly adapt to customers' changing needs,
improving time-to-market and facilitating the deployment of 5G, edge
computing, and different NFV appliances including wireless backhaul with
wireless link bonding, 5G UPF, 5G CU and vRouter offload with the current
focus on 5G emerging appliances. The Company's customers are situated
worldwide.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
Basis of presentation of the financial statements and statement of compliance
with IFRS
The interim condensed financial statements for the six months ended 30 June
2024 have been prepared in accordance with IAS 34, Interim Financial
Reporting. The interim condensed financial statements do not include all the
information and disclosures required in the annual financial statements in
accordance with IFRS and should be read in conjunction with the Company's
annual financial statements as at 31 December 2023. The accounting policies
applied in the preparation of the interim condensed financial statements are
consistent with those followed in the preparation of the Company's annual
financial statements for the year ended 31 December 2023.
The interim condensed financial statements for the half-year ended 30 June
2024 (including comparative amounts) were approved and authorized for issue by
the board of directors on 26 September 2024.
NOTE 3 - GOING CONCERN
The financial statements have been prepared assuming that the Company will
continue as a going concern. Under this assumption, an entity is ordinarily
viewed as continuing in business for the foreseeable future unless management
intends or has no realistic alternative other than to liquidate the entity or
to stop trading for at least, but not limited to, 12 months from the reporting
date. This 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
value of funds raised during 2024 to date, and the Company's ability to raise
funds in the past. Furthermore, the Company has made positive commercial
progress and is currently executing multiple customer projects, whilst
simultaneously engaging in active discussions with prominent global OEM
potential customers.
Considering the outlined factors above 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 4 - SIGNIFICANT EVENTS
EQUITY RELATED
TRANSACTIONS DURING THE ACCOUNTING PERIOD
During the 6-month period ended 30 June 2024, ordinary shares of the Company
were issued, as follows:
Note Number of
ordinary shares
Shares issued pursuant to structured investment deed 1 40,000,000
Expenses paid for in shares 2 921,152
40,921,152
1 Details of the shares issued pursuant to structured investment deed:
In May 2024 the Company entered into a structured investment deed and issued
40,000,000 shares ("Subscription Shares") and a contingent warrant in exchange
for gross proceeds of £800,000 ($1.01m).
The Warrant is initially exercisable at a price of 1 pence per share for a
period of 44 days from the closing. The exercise price is reset on the 45th
day after closing, following which it will be calculated as the average (in
pounds Sterling, rounded down to three decimal places) of the lowest five,
daily Volume Weighted Average Price ("VWAP") of the Company's share price on
the stock-market, during the 20 trading days before the receipt of a warrant
exercise notice by the Company, less a 15% discount, rounded down to the
nearest one tenth of a penny.
The Warrant has an 8-month exercise period and can be exercised in full or in
part. The amount available to be exercised under the Warrant is £800,000,
less the value of the 40,000,000 Subscription Shares, calculated by reference
to the relevant exercise price, such that the investor will be entitled to
exercise the Warrant only for an amount exceeding the difference between the
maximum amount of £800,000 (or a lower amount outstanding at the time
following prior exercise of the Warrant) and the value of 40,000,000
Subscription Shares at the relevant exercise price. The exercise price of the
Warrant is prefunded by way of the £800,000 gross fundraise amount and,
accordingly, no additional payment will be made by the investor to the Company
in connection with the exercise of the Warrant.
Accounting treatment:
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 investment amount of
£800,000 ($1.01m) as follows:
a. $0.9m as a derivative warrants liability (see below for the valuation
details).
b. $0.1m being the remainder of the proceeds, to share capital and share
premium.
The issuance expenses of approximately $0.07m were allocated to the equity
components in the same proportion as they were initially recorded. These
expenses were accounted for as follows:
a. The expenses related to the warrant component were carried to
profit or loss as an immediate expense.
b. The expenses related to the share capital component were netted off
against the amount carried to equity.
Initial warrant valuation:
At issuance, the structured warrant is a hybrid instrument containing
components which feature in regular options and other components which are
different to regular options. The valuation method considered to be
appropriate for such an instrument is the Naïve approach, which is calculated
by multiplying:
a. the share price of the Company at such date, by
b. the total number of shares that the warrant holder would have been
issued if the entire warrant was exercised at such issuance date, assuming
that the 1 pence per share exercise price had already expired.
None of these warrants had been exercised by 30 June 2024 and their fair value
at such date, using the method described above, of approximately $1.96m is
disclosed as a warrants' liability in the statement of financial position. The
periodic change in the fair value is carried to profit or loss under financing
costs or financing income, as applicable. The fair value of the derivative
warrant liability is categorised as level 3 of the fair value hierarchy.
On 12 July 2024 the Company received a warrant exercise notice for £395,000
and issued 98,750,000 shares to satisfy this exercise.
2 Expenses paid for in shares
Mr. Yosi Albagli, our non-Executive Chairman, contractually receives a portion
of his annual remuneration in shares of the Company. Consequently, the Company
has issued 921,152 shares to Mr Albagli, in satisfaction of the share element
of his remuneration for the period from 1 March 2023 to 29 February 2024 at an
average issue price of 2.5p per share.
NOTE 5 - FINANCING COSTS
US dollars
Six months ended Year ended
30 June 31 December
2024 2023 2023
Unaudited Audited
Bank fees and interest 6,989 48,170 82,570
Lease liability financial expenses 53,489 104,742 200,260
Revaluation of liability related to share subscription agreement measured at - - 974,980
FVTPL
Expenses allocated to issuing warrants 67,769 10,096 10,096
Revaluation of warrant derivative liability 1,074,518 - -
Total financing costs 1,202,765 163,008 1,267,906
NOTE 6 - FINANCING INCOME
US dollars
Six months ended Year ended
30 June 31 December
2024 2023 2023
Unaudited Audited
Revaluation of proceeds due on account of shares (financial asset measured at - 80,034 -
FVTPL)
Revaluation of warrant derivative liability - 105,329 129,703
Interest received 1,193 76 226
Exchange rate differences, net 60,560 137,375 53,882
Total financing income 61,753 322,814 183,811
NOTE 7 - SEGMENT REPORTING
The Company has implemented the principles of IFRS 8, in respect of reporting
segmented activities. In terms of IFRS 8, the management has determined that
the Company has a single area of business, being the development and delivery
of high-end network processing technology.
The Company's revenues are divided into the following geographical areas:
US dollars
Six months ended Year ended
30 June 31 December
2024 2023 2023
Unaudited Audited
Asia - 54,700 154,700
Europe - 12,390 12,390
Israel 142,512 137,912 758,445
United States 439,496 1,193,869 2,852,384
582,008 1,398,871 3,777,919
The Company's revenues are divided into the following geographical areas:
%
Six months ended Year ended
30 June 31 December
2024 2023 2023
Unaudited Audited
Asia 0.0% 3.9% 4.1%
Europe 0.0% 0.9% 0.3%
Israel 24.5% 9.9% 20.1%
United States 75.5% 85.3% 75.5%
100.0% 100.0% 100.0%
Revenue from customers in the company's domicile, Israel, as well as its major
market, the United States and Asia, have been identified on the basis of the
customer's geographical locations.
NOTE 8 - SUBSEQUENT EVENTS
1. On 12 July 2024 the Company received a warrant exercise notice for
£395,000 and issued 98,750,000 shares to satisfy this exercise - See Note 4
1 .
2. In September 2024, the Company raised gross proceeds of £540,500 in
a private placement, by issuing 180,166,666 shares at 0.3p per share.
Investors will receive one warrant for every share subscribed for, exercisable
at 0.75p for 18 months from the date of grant. The warrants are not
transferable and will not be traded on a stock exchange. The warrants contain
an accelerator clause such that the Company may serve notice on the warrant
holders to exercise their warrants in the event that the closing mid-market
share price of the Company's shares trade at 1.5p or more over a consecutive
five-day trading period. In the event the Company serves notice, any warrants
remaining unexercised after seven calendar days following the issue of the
notice will be cancelled.
David Levi, the Company's CEO, has confirmed his intention to subscribe for an
additional 9,008,333 shares (and will receive a like number of warrants) which
will yield gross proceeds of a further £27,025.
The Company issued 1,666,667 new shares to an adviser at a price of 0.3p per
share, in settlement of amounts owed by the Company in respect of this private
placement.
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 IR SEFSAMELSEFURecent news on Ethernity Networks
See all newsREG - Ethernity Networks - Fundraising & update re. creditor settlement plan
AnnouncementREG - Ethernity Networks - Result of EGM
AnnouncementREG - Ethernity Networks - Correction re EGM time
AnnouncementREG - Ethernity Networks - Trading Update
AnnouncementREG - Ethernity Networks - Result and Notice of General Meeting
Announcement