REG - Ethernity Networks - Placing, Broker Option and Trading Update

Ethernity NetworksAnnouncement

17/01/2023 07:00

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RNS Number : 8997M  Ethernity Networks Ltd  17 January 2023

The information contained within this announcement is deemed by the Company to
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Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this
announcement via a Regulatory Information Service, this inside information is
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17 January 2023

 

ETHERNITY NETWORKS LTD

("Ethernity" or the "Company")

 

Placing, Broker Option and Trading Update

 

Ethernity Networks (AIM: ENET.L; OTCQB: ENETF), a leading supplier of data
processing semiconductor technology for virtualized networking appliances, is
pleased to announce a placing (the "Placing") to raise £1.55 million (gross)
through the issue of 22,142,858 new ordinary shares of NIS 0.001 each
("Ordinary Shares") at 7p per share (the "Issue Price"). Peterhouse Capital
Limited ("Peterhouse") is acting as placing agent to the Placing. The Placing
has not been underwritten.

 

Highlights

 

·  Placing to raise £1.55 million through the issue of 22,142,858 new
Ordinary Shares (the "Placing Shares") at the Issue Price

 

·   David Levi, Director and CEO, in support of the Placing has subscribed
for 3,028,571 Placing Shares for an aggregate sum of £212,000

 

·   Participants in the Placing to receive one warrant for every Placing
Share subscribed for, exercisable at 15p, subject to the passing of the
relevant resolutions at an extraordinary general meeting of the Company

 

·   Broker option (the "Broker Option") for a further 2,142,857 new
Ordinary Shares which will raise up to a further £150,000 enabling existing
shareholders to participate in the Placing via Peterhouse

 

·   Shavit Baruch, Director and VP R&D, has indicated that he intends to
participate in the Broker Option up to an amount of £46,814

 

·   Net proceeds of approximately £1.46 million will strengthen the balance
sheet, to allow the Company to support the growing number of engagements for
its offerings towards successful developments, field deployments, and for
general working capital purposes

 

·  In addition to the Placing, various service providers to the Company have
agreed to subscribe for 2,388,771 new Ordinary Shares in lieu of outstanding
fees (the "Fee Shares") totalling £167,214 (the Fee Shares and the Placing
Shares are, together, the "New Ordinary Shares")

 

·  Admission of the New Ordinary Shares is expected to occur on or around 20
January 2023 ("Admission")

 

David Levi, CEO, commented: "Ethernity continues to progress its current
strategy, and advance the opportunities being presented by the components
shortages to leverage our data processing SoC technology and IP, as well as
our PON semiconductor technology. The Placing allows the Company to be
financially positioned for the next stage of its development to service
anticipated mass deployment growth on existing contracts and capitalise on new
opportunities."

 

Trading Update

 

The Company has made significant progress during 2022 in the development and
commercialisation of its Data Processing Unit (DPU) System-on-Chip (SoC)
devices, Passive Optical Networks (PON) SoC devices, and Universal Edge
Platform (UEP) offerings and anticipates further growth from the Company's
progress for its FPGA SmartNIC data plane offload.

 

2022 trading update

 

Subject to completion of the audit, the Company anticipates that revenues for
2022 will be not less than $2.9 million, an increase of 10% (2021: $2.64
million). Approximately $600,000 of revenue that was expected to be recorded
in 2022 is now expected to be reported in 2023 as a result of delays in
projects resulting from component shortages, and certain customers informing
the Company that they were not ready to receive milestone deliveries as had
previously been anticipated.

 

During 2022, the following highlights were achieved that are expected to
support revenue growth in 2023:

 

· the Company completed the delivery of all the FPGA SoC orders planned for
2022 to its U.S. fixed wireless system provider customer;

 

·   FPGA SoC sales increased by 200% compared to 2021;

 

· the Company signed with its U.S. fixed wireless OEM customer a contract for
a second-generation platform based on a scaled-up version of the Company's DPU
SoC offering;

 

· the Company progressed with the delivery of the $3 million GPON and
XGS-PON OLT SoC contract for its Chinese/Indian OEM, and is currently working
with the customer to complete the hardware integration of the customer
platform, to be ready for deployment;

 

· the Company signed a follow-on contract of $4.6 million with that customer
for delivery of a PON device for Fiber-to-the-Room deployment; and

 

· the Company delivered a UEP2025 for testing and integration with an
existing prominent microwave wireless OEM customer and is working with the
customer on joint go-to-market plans for the U.S. wireless internet service
provider (WISP) market.

 

2023 outlook

 

The Company will continue to focus its resources towards either existing or
new contracts that produce revenues and cash flows for the Company in the
short and medium term, be that the revenues in the form of licensing fees or
sale of devices and systems. To this end, development resources will only be
added on the basis of further contracts that contribute towards the generation
of such revenue streams. Given the opportunities that are presenting
themselves to the Company for further expanded or new engagements on PON, SoC
and other system product expansion, the resources will be best utilised in
these areas that will produce revenues and cash flows in the short and medium
term. With this in mind, the Company is currently re-evaluating whether to
continue the work with an Indian OEM customer, the contract of which was
announced on 22 September 2020, as the customer continues to experience
repeated delays from their side, and the Company does not wish to continually
apply resources where no progress is being made with the customer.

 

The Company has good revenue visibility for 2023 and, based on contracted
orders and conservative estimates of the potential orders that are under
discussion with prospective customers, the Directors believe that revenues of
$9 million for 2023 are achievable.  The contracted revenues for 2023
include:

 

·   continued supply of FPGA SoC devices for its U.S. fixed wireless OEM
customer and expected initial revenues for the deployment of the
second-generation product;

 

·  commencement of shipment of FPGA PON SoC devices under the $7.6 million
of contracts signed with the Chinese/Indian broadband network OEM customer;
and

 

·  other royalties, maintenance, licensing fees and payments due under
existing contracts for various DPU SoC projects, including second generation
products from a U.S. fixed wireless OEM customer, a U.S. Tier 1 broadband
provider, a U.S. based aviation company, and various Israeli OEMs for 4G
cellular base stations, Ethernet Access devices and a European OEM bonding SoC
project.

 

On top of the contracted revenues above, the Company anticipates further
modest revenue from:

 

· discussions with four new OEMs for the potential deployment of the
Company's PON OLT (optical line termination) SoC for optimised SFP (small
form-factor pluggable), and remote low power PON OLT complete system solutions
that would result in licensing revenue towards further deployment of SoC or
systems during 2024 and beyond;

 

·  the Company's existing prominent microwave wireless OEM customer contract
for the sale of the Company's wireless link bonding UEP system offering, with
sales targeted for 2023 with focus on U.S. WISPs; and

 

·  anticipated sales of the complete OLT product manufactured by the
Company's Chinese/Indian OEM customer that is based on the Company's PON SoC
devices into the WISPs U.S. market in conjunction with the UEP2025 wireless
link bonding, targeting the same market.

 

Reasons for the Placing and Use of Proceeds

 

As Ethernity continues to implement its strategy of becoming a supplier of
customised and differentiated solutions and technology, the Placing will serve
to place the Company in a stronger position for the next stage of its
development and growth towards successful developments and field deployments.

 

The net proceeds of the Placing, along with any funds raised via the Broker
Option, will be applied to strengthen the balance sheet, providing additional
working capital to allow the Company to support the delivery of recently
secured contracts and engagements.

 

Details of the Placing

 

The Company has resolved to issue 22,142,858 Placing Shares at the Issue Price
raising gross proceeds of £1.55 million. In addition, conditional on the
approval of shareholders of resolutions granting the necessary share capital
authorities under Israeli law at an Extra General Meeting ("EGM") of the
Company, investors in the Placing will receive one warrant for every Placing
Share subscribed for, exercisable at a price of 15p per share (the
"Warrants"). The Warrants will be exercisable for a period of 24 months from
the date of grant. The Warrants are not transferable and will not be traded on
an exchange. The Warrants contain an accelerator clause such that the Company
may serve notice ("Notice") on the Warrant holders to exercise their Warrants
in the event that the closing mid-market share price of the Company's Ordinary
Shares trade at 20p or more over a consecutive five-day trading period from
date of Admission. In the event the Company serves Notice, any Warrants
remaining unexercised after seven calendar days following the issue of the
Notice will be cancelled.

 

The Company will shortly be convening the EGM to seek shareholder approval for
an increase in the authorised share capital and disapplication of pre-emption
rights, details of which are set out below.

 

The Company has entered into a placing agreement pursuant to which Peterhouse,
as agent for the Company, has agreed to use its reasonable endeavours to
procure placees for the Placing at the Issue Price. The placing agreement
contains warranties from the Company in favour of Peterhouse in relation to,
inter alia, the accuracy of the information contained in the documents
relating to the Placing and also certain other matters relating to the Company
and its affairs. In addition, the Company has agreed to indemnify Peterhouse
in relation to certain liabilities that they may incur in respect of the
Placing.

 

Peterhouse may terminate the placing agreement in certain circumstances,
including for breach of warranty at any time prior to Admission, if such
breach is reasonably considered by Peterhouse to be material in the context of
the Placing, and in the event of a force majeure event or material adverse
change occurring at any time prior to Admission.

 

The Placing Shares are being issued under the Company's existing share
authorities and are not conditional on the passing of the resolutions at the
EGM. Should the resolutions at the EGM not be passed, the Placing will still
proceed but the Company will not be able to grant the Warrants to participants
in the Placing.

 

Broker Option

 

In order to provide qualified Ethernity shareholders ("Existing Shareholders")
and other qualified investors with an opportunity to participate on the same
basis as the investors in the Placing, the Company has granted Peterhouse a
Broker Option over 2,142,857 new Ordinary Shares (or such other number of
Ordinary Shares as agreed between the Company and Peterhouse) ("Broker Option
Shares"). Full take up of this number of new Ordinary Shares under the Broker
Option would raise a further £150,000 for the Company, before expenses.

 

Existing Shareholders who hold shares in the Company and are on the register
of members as at the close of business on 16 January 2023, will be given a
priority right to participate in the Broker Option and all orders from such
Existing Shareholders will be accepted and processed by Peterhouse, subject to
scale-back in the event of over-subscription under the Broker Option. The
Broker Option has not been underwritten. Peterhouse is entitled to participate
in the Broker Option as principal.

 

The Broker Option is exercisable by Peterhouse on more than one occasion, at
any time from the time of this announcement to 4.45 p.m. UK time on 18 January
2023, at its absolute discretion, following consultation with the Company.
There is no obligation on Peterhouse to exercise the Broker Option or to seek
to procure subscribers for the Broker Option. Peterhouse may also, subject to
prior consent of the Company, allocate new shares after the time of any
initial allocation to any person submitting a bid after that time.

 

The Broker Option Shares are not being made available to the public and none
of the Broker Option Shares are being offered or sold in any jurisdiction
where it would be unlawful to do so. No Prospectus will be issued in
connection with the Broker Option.

 

To subscribe for Broker Option Shares, Existing Shareholders and other
qualified investors should communicate their bid to Peterhouse via their
stockbroker as Peterhouse cannot take direct orders from individual private
investors. Existing Shareholders or other interested parties who wish to
register their interest in participating in the Broker Option Shares should
instruct their stockbroker to call Peterhouse on STX: 76086 or 020 7469 0938
or 020 7469 0936 or 020 7220 9797.  Each bid should state the number of
Broker Option Shares the Existing Shareholder wishes to subscribe for at the
Issue Price.

 

Director dealings

 

David Levi, CEO, has subscribed for 3,028,571 Placing Shares. On Admission,
David Levi's interest in the Company's Ordinary Shares shall comprise
12,615,731 Ordinary Shares representing approximately 12.29% of the Company
issued share capital as enlarged by issue of the New Ordinary Shares. Further
details of David Levi's share purchase are set out in the table at the end of
this announcement.

 

Shavit Baruch has notified the Company of his intention to apply for 668,771
Ordinary Shares pursuant to the Broker Option and a further update will be
provided once the Broker Option has closed.

 

Related party transaction

 

As a Director and substantial shareholder of Ethernity, David Levi is a
related party of the Company pursuant to the AIM Rules for Companies.  The
Directors of the Company (excluding David Levi and Shavit Baruch, who may be
participating in the Broker Option), having consulted with the Company's
Nominated Adviser, Allenby Capital Limited, consider that the terms of David
Levi's participation in the Placing are fair and reasonable in so far as the
Company's shareholders are concerned.

 

Broker warrant

 

In connection with the Placing, Peterhouse will be granted warrants to
subscribe for new ordinary shares in the capital of the Company, exercisable
at the Issue Price (the "Broker Warrants"). The number of Broker Warrants
granted to Peterhouse will be determined following the closing of the Broker
Option. The Broker Warrants can be exercised for a period of 24 months from
the date of Admission.

 

Fee Shares

 

In addition to the Placing, service providers to the Company have agreed to
receive 2,388,771 Fee Shares at the Issue Price in satisfaction of £167,214
of outstanding fees due to them. The Fee Shares are subject to a one-year
lock-in period. There are no Warrants attached to the Fee Shares.

 

Admission to trading

 

The New Ordinary Shares (comprising the Placing Shares and the Fee Shares)
will rank pari passu with the Company's existing Ordinary Shares. Application
is being made to for the admission of the 24,531,629 New Ordinary Shares to
trading on AIM and Admission is expected to occur at 8.00 a.m. on or around 20
January 2023.

 

Total voting rights

 

Following Admission (and prior to the issue of any new Ordinary Shares
pursuant to the Broker Option) the Company's enlarged issued share capital
will be 102,616,066 Ordinary Shares. The Company holds no Ordinary Shares in
Treasury. This figure of 102,616,066 Ordinary Shares may be used by
shareholders in the Company as the denominator for the calculations by which
they will determine if they are required to notify their interest in, or a
change in their interest in, the share capital of the Company under the FCA's
Disclosure Guidance and Transparency Rules.

 

Notice of EGM

 

The Company will shortly be posting to shareholders a notice convening the EGM
to seek approval for the dis-application of the pre-emption rights required to
be able to issue the Warrants. The EGM will be held at 3rd Floor Beit Golan, 1
Golan St. Corner HaNegev, Airport City 7019900, Israel at 11.00 a.m. Israel
time (9.00 a.m. UK time) on 9 February 2023. A copy of the EGM notice will be
made available on the Company's website, www.ethernitynet.com
(http://www.ethernitynet.com) .

 

For further information, please contact:

 

 Ethernity Networks Ltd                                        Tel: +972 8 915 0392
 David Levi, Chief Executive Officer
 Mark Reichenberg, Chief Financial Officer

 Allenby Capital Limited (Nominated Adviser and Joint Broker)  Tel: +44 (0)20 3328 5656
 James Reeve / Piers Shimwell (Corporate Finance)

 Amrit Nahal (Sales and Corporate Broking)

 Peterhouse Capital Limited (Joint Broker)                     Tel: +44 (0)20 7562 0930
 Lucy Williams / Duncan Vasey / Eran Zucker

 Harbor Access Inc (US Investor Relations)                     Tel: +1 (475) 477 9401

 Jonathan Paterson

 

About Ethernity (www.ethernitynet.com (http://www.ethernitynet.com) )

Ethernity Networks (AIM: ENET.L OTCQB: ENETF) provides innovative,
comprehensive networking and security solutions on programmable hardware for
accelerating telco/cloud networks. Ethernity's semiconductor 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 optimize 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 NFV.

 

Notification and public disclosure of transactions by persons discharging
managerial responsibilities and persons closely associated with them

 

 1    Details of the person discharging managerial responsibilities / person closely
      associated
 a)   Name                                                         David Levi
 2    Reason for the notification
 a)   Position/status                                              CEO
 b)   Initial notification /Amendment                              Initial notification
 3    Details of the issuer, emission allowance market participant, auction
      platform, auctioneer

      or auction monitor
 a)   Name                                                         Ethernity Networks Ltd.
 b)   LEI                                                          213800LZJO33QBNXU496
 4    Details of the transaction(s): section to be repeated for (i) each type of
      instrument;

      (ii) each type of transaction; (iii) each date; and (iv) each place where
      transactions have been conducted
 a)   Description of the financial instrument, type of instrument   ordinary shares of NIS 0.001 nominal value each

      Identification code                                          ISIN: IL0011410359
 b)   Nature of the transaction                                    Placing for new ordinary shares
 c)   Price(s) and volume(s)

                                                                                     Price(s)          Volume(s)
                                                                                     7p                3,028,571
 d)   Aggregated information                                       N/A - single transaction
 e)   Date of the transaction                                      16 January 2023 to be completed on 20 January 2023
 f)   Place of the transaction                                     Outside a trading venue

 

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