ETHERSTACK PLC - Regulatory Filings 2021

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Etherstack plc | Sydney (GMT+10) 93A Shepherd Street Chippendale, NSW 2008 Australia Email :[email protected] P :+61 2 8399 7500 F :+61 2 8399 7507

19 March 2021

ASX Market Announcements Office ASX Limited 20 Bridge Street SYDNEY NSW 2000

31 December 2020 financial statements of Etherstack plc (ESK)

The attached 31 December 2020 financial statements are authorised for release to the ASX.

Authorised by

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David Carter Chief Financial Officer & Company Secretary

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English Registered Company No. 7951056 | ARBN 156 640 532

New York (GMT-5) P : +1 917 661 4110 [email protected]

London (GMT) P : +44 207 734 0200 [email protected]

Yokohama (GMT +9) P : +81 45 342 9050 [email protected]

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AND CONTROLLED ENTITIES Etherstack plc

COMPANY REGISTRATION NUMBER 7951056 ARBN 156 640 532

FINANCIAL REPORT

FOR THE YEAR ENDED 31 DECEMBER 2020

Etherstack is a wireless technology company specialising in developing, manufacturing and licensing mission critical radio technologies.

With a particular focus in the public safety, defence, utilities, transportation and resource sectors, Etherstack's technology and solutions can be found in radio communications equipment used in the most demanding situations.

Etherstack plc Financial report for the year ended 31 December 2020

Contents	Page
Strategic Report
2020 Highlights	3
Etherstack Activities and Differentiation	4
CEO Review	5
Principal Risks and uncertainties	10
Report of the Directors
Directors and Key Management	12
Company Directory	14
Directors Report	15
Corporate Governance report	17
Directors' Responsibilities Statement	26
Financial Statements
Independent auditor's report to the members of Etherstack plc	27
Consolidated statement of comprehensive income	37
Consolidated statement of financial position	38
Company statement of financial position	39
Consolidated statement of changes in equity	40
Company statement of changes in equity	41
Consolidated statement of cash flows	42
Company statement of cash flows	43
Notes to the Consolidated and Company financial statements	44
ASX Additional Information	79

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

2020 Highlights

(all amounts are in USD $000 unless otherwise stated)

Strong Positive Cashflow: Net operating cash inflow of US $1.7 million in 2020 following strong operating cash inflow of US $1.4 million in 2019 and $1.5 million in 2018.
Positive EBITDA: US $1.1 million EBITDA on revenue of US $4.7 million, following FY2019 EBITDA US $1.1 million. FY2020 revenue was also in-line (slightly down 1.9%) with FY2019 revenues of $4.8 million due to negligible variations in project timing during the second half of the year. The underlying NPAT for FY2020, was $83, compared to a loss of $871 in FY2019.
Solid Outlook: Management has previously provided guidance that it expects FY2021 EBITDA and revenues to significantly outperform FY2020 on the basis of contract wins and strategic partnerships announced during FY2020, when combined with underlying recurring revenues.
Strategic Business Wins:
The company entered a Global Teaming Agreement with Samsung Electronics in June 2020 to deliver next generation Mission Critical Push-To-Talk (MCPTT) over LTE solutions to telecommunications carriers and governments across the globe, utilising Etherstack’s digital LMR (Land Mobile Radio) softswitching and MCPTX technologies.
Integration activities between the Samsung and Etherstack engineering teams are well advanced ahead of initial carrier deployments planned for 2021
AUD$4.1m Contract with the Australian Department of Defence to supply Etherstack technology to the Commonwealth of Australia. This was followed by a further Australian defence deal announced in February 2021 of AUD $.
New technology licensing deal in France with TPL Systemes opening a further royalty stream.
Etherstack won and delivered a material deal to supply digital radio network equipment for a major resources sector company in Western Australia. Follow-on expansion orders for this resources client are expected in FY2021.
Continued Recurring Revenue Growth: Recurring revenues (support and royalty revenue) increased a further 27% in 2020, driven by long term support contracts and new royalty agreements.
Expansion Wins: the first half of 2020 saw repeat business for the Company’s deployed large digital radio networks as used in the public safety and electric utilities industries including Ergon Energy (Queensland) and North American network customers.
Successful Delivery in challenging times
The Company successfully delivered and commissioned a digital radio network for the Royal Canadian Mounted Police (RCMP), the federal policing agency of Canada, within the Arctic Circle.
COVID-19 impact: In general, the impact on the business is expected to be at the lesser end of the range and while there have been some timing impacts in winning and delivering projects especially in the second half of the year, the company has been able to manage these issues to minimise disruption.
Improved Balance Sheet and Working Capital: The Company successfully completed a capital raise in December 2020, raising AUD$5 million in December 2020 before costs, providing additional working capital in support of development activities in particular activities related to the Samsung agreement and Australian defence projects.

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

Etherstack Activities and Differentiation

The principal activities of the Group are design, development and deployment of wireless communications software and products.

Etherstack specialises in wireless technology. Specifically, Etherstack develops software for use in transceivers which enable the transceiver to communicate with a radio network and other transceivers.

Etherstack licenses its software and designs to companies who manufacture telecommunication equipment primarily for government public safety agencies and utilities.

Etherstack derives revenues from:

Mission critical radio products and networks; these products may carry Etherstack brands or be sold as “white labelled” equipment (where customer puts its own brand on and sells under its own brand).
Specialised tactical communications equipment.
Technology licences and royalties; where Etherstack licenses its software and designs to companies who manufacture telecommunication equipment primarily for government public safety agencies and utilities.
System solution sales; where Etherstack sells its products and software and then provides ongoing support services.
Customisation and Integration services; and
Ongoing Support services provided to the customer.

Etherstack has invested over $22 million into our suite of intellectual property assets over an extended period and has developed a substantial intellectual property portfolio that generates a diverse range of revenue streams from multiple technology areas, clients and regions, and from a mix of mature, new and emerging product lines.

Etherstack seeks to differentiate our Network offerings by:

Focussing on specific industry sectors where our technology has a track record of uninterrupted performance such as government public safety services, electric utilities and mining & resources
Providing local support in the Americas, Asia and Europe with global back up
Ongoing investment in developing new capabilities such as unique “push-to-talk” over satellite and 4G/5G products aimed at the public safety market

Etherstack seeks to differentiate our Specialised Radio Product offerings by:

Identifying and supplying market “gaps” where our products offer a competitive edge in terms of features, functions or price
Leveraging small company agility to be first to market with innovative products

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

CEO Review

Revenue

(All amounts are in USD $000 unless otherwise indicated)

Total revenue in 2020 of $4,699 was comparable to 2019 of $4,792 with the decrease being 1.9%.

Project Revenues

Project revenues comprising Licence fees, installation/integration and supply of wireless communications technology were $2,368 in 2020 compared to $2,954 in 2019. Etherstack’s revenues can be impacted by a small number of large projects and the revenue growth of the first half being 56% higher than the 2019 first half was not sustained in the second half of 2020. While some of this volatility is the inherent nature of Etherstack project activities whereby any delay or change to project schedules can cause revenue volatility between periods, the Company witnessed slowing of project activity and revenue due to travel restrictions and uncertainty arising from COVID-19 in the second half.

Recurring revenues:

2020 has seen continued growth of recurring revenue streams. Aggregate recurring revenues comprising Royalties and Support revenue streams are $2,331 for 2020 compared to $1,838 for 2019. The increase in 2020 represents a 27% increase over 2019. This KPI has increased 234% over the 6 years from $697 in 2014 to $2,331 in 2020.

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2500 60%
50%
2000
40%
Royalty (USD$000)
1500
30% Support (USD$000)
1000
20% Recurring Revenue as a %
of Total revenue
500
10%
0 0%
2014 2015 2016 2017 2018 2019 2020
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Graph 1 - Recurring revenues from Support contracts and Royalty agreements 2014 to 2019 shown in USD and as a percentage of Total revenue

These recurring revenues contributed 50% of total revenue in 2020 (2019: 38%). This contribution can fluctuate, however, over the medium term, recurring revenues have grown in both absolute terms, from $697 in 2014 through to $2,331 in 2020 and, as a percentage of total revenue, 10% in 2014 through to 50% in 2020.

Recurring revenue streams reduce overall revenue volatility and cash flow volatility and reduce dependence upon a small number of large contracts where the scale of the project and nature of the end users means timing of revenue recognition is difficult to accurately predict.

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

Support revenues

Support increased in 2020 to $1,588 from $1,490 in 2019 following the rollout of digital radio networks in 2020 as well as incremental growth to other supported networks. Support revenues have increased from $312 in 2014 to $1,588 in 2020. This is a compound annual growth rate of 31.2%.

Royalty revenues

Royalty revenues are generated from licence agreements whereby equipment manufacturers pay Etherstack a licence fee per item manufactured, for the use of Etherstack technology in their products, such as base stations and handsets.

Royalty revenues increased in 2020 to $743 from $348 in 2019. In general, the royalties earned by Etherstack follow the increase or decrease in sales achieved by manufacturers whose products include Etherstack technology however royalty revenues can also increase when Etherstack signs a new royalty arrangement and the licensee provides minimum guaranteed volumes. In 2020, the TPL Systemes agreement provided a minimum guaranteed royalty revenue stream of $478.

Strategic Business Wins:

2020 has seen a number of strategically important contracts signed.

Samsung - Foremost amongst these contracts is the Global teaming agreement with Samsung Electronics signed in June 2020. The agreement sets out the framework for delivery of next generation Mission Critical Push-To-Talk (MCPTT) over LTE solutions to Samsung customers and targets being telecommunications carriers and governments, utilising Etherstack’s digital LMR (Land Mobile Radio) softswitching technologies. Etherstack and Samsung currently have a number of joint pursuits underway.

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Defence sector - The Defence sector is a key target for Etherstack’s technology and in December 2020, Etherstack Pty Limited announced a AUD$4.1m Contract with the Australian Department of Defence to supply Etherstack technology to the Commonwealth of Australia. This was followed by a further Australian defence deal announced in February 2021 of AUD $499,000.

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Resources sector - Etherstack won and delivered a material deal to supply digital radio network equipment for a major resources sector company in Western Australia and is looking to leverage this success into other opportunities within this sector.

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Government - The Company continues to achieve important contract wins and repeat business in the Government radio communications for public safety and electric utility sectors in Australia, USA and Canada. In particular Company saw network expansion wins in the first half of 2020 with repeat business for the Company’s deployed large digital radio networks as used in the public safety and electric utilities industries including Ergon Energy and North American network customers.

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

Result for 2020

Loss after income tax is $2,300 compared to Loss after income tax of $871 in 2018.

The key reason for the difference is a non cash finance charge of $2,383. This charge is a result of the sharp increase in the Company share price on 30 June 2020 and its effect on the convertible notes valuation. While the Company has issued convertible notes in the past and continues to have convertible notes on issue at 31 December 2020, the impact on the results of the 30 June 2020 revaluation is significant and not considered to be part of the underlying result.

	2020	2019
Statutory Loss after income tax	(2,300)	(871)
Less: Non-cash finance charge as at 30 June 2020	2,383	0
Underlying Statutory Profit/(Loss) after income tax	83	(871)

This improvement in underlying statutory profit/loss after tax is due to the combined effects of:

The gross margin on Etherstack projects varies significantly depending on the mix of Etherstack hardware, software and services content, which are at a higher margin, and third-party products where the margins earnt by Etherstack are much lower. The nature of the projects in 2020 was different to the projects in 2019 and as a result the cost of sales was higher in 2020
Administrative costs have decreased overall due to:
reduced travel and marketing costs in the COVID-19 environment
o reduced amortisation charge in 2020 of $1,183 compared to $1,612. There is no change to the amortisation rate however a number of projects became fully amortised in 2019 and 2020 thereby leading to a reduced amortisation charge.
Increased recruitment costs as the group increased the engineer labour force
The Etherstack group has operations in Australia, United States, United Kingdom and Japan and as a consequence is exposed to gains and losses from foreign currency fluctuations between the reporting currency USD and the other currencies in which transactions are undertaken; Australian dollar, Yen, Euro and GBP. In 2020 there was a currency translation gain of $127 compared to a loss of $180 in 2019
Interest costs have decreased predominantly as a large proportion of convertible notes were converted into fully paid ordinary shares on 30 June 2020 and 1 July 2020
Decreased revenues, as outlined above

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

EBITDA

EBITDA has decreased to $1,080 from $1,093 in 2019 however EBITDA has remained positive despite the loss after tax of $2,300 predominantly due to add back of the finance charges of $2,365 and amortisation charge of $1,183.

	2020	2019
Statutory profit/(loss) after tax	(2,300)	(871)
After tax effect of:
Depreciation	33	25
Depreciation of right-of-use assets	120	118
Amortisation and impairment	1,183	1,613
Interest and embedded derivatives revaluation and amortisation	2,365	337
Income tax	(321)	(129)
EBITDA	1,080	1,093

The Directors consider EBITDA to be a useful measure of performance as it excludes the significant noncash amortisation expense.

Intellectual property development

Etherstack remains committed to developing new technology and intellectual property assets as well as refreshing, maintaining and enhancing its existing suite of intellectual property assets.

Accordingly, Etherstack continues to invest in intellectual property development and has invested $1,401 in the current year compared to $1,205 in 2019. Etherstack has now invested in excess of $22,000 into its portfolio of intellectual property assets.

Etherstack maintains the engineering skillsets and capacities to complete the developments in progress and to develop new technology to respond to opportunities in the future.

Etherstack is actively recruiting engineers across its four research and development locations in support of increased activity and a strong order book and pipeline.

Key Performance indicators

The primary performance indicator for the Group continues to be revenue. Current period consolidated revenue totalled $4,699 compared to $4,792 in 2019. The major reasons for the decrease in revenues have been outlined above.

The second key performance indicator is recurring revenues representing royalty revenues and revenues from support and maintenance contracts. These revenues are important as they reduce reliance on projectbased revenues which, although significant, can be volatile in nature. Combined royalty revenue and support for 2020 was $2,331 compared to $1,838 in 2019 representing an increase of $493 or 27%.

The Groups’ expectation is that royalty and support/maintenance income will continue to increase as a result of the commercial maturity of a number of our products and a growing installed base of supported customer networks.

Another key performance indicator for the Group is the investment in the development of intellectual property assets. As noted above, Etherstack invested $1,401 (2019 $1,205) representing 30% (2019:25%) of its revenue into intellectual property development in 2020.

Capital raise/Convertible notes converted

The company successfully completed a capital raising in December 2020 via an institutional placement with new institutional investors and high net worth investors, raising AUD$5 million before costs. The placement was undertaken at an issue price of AUD$0.58 per CDI and the proceeds of the raise will provide balance sheet flexibility to:

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

Enable and accelerate the pursuit of evolving market opportunities in Government Infrastructure, Defence and Public safety markets in particular those opportunities involving Etherstack’s Mission Critical Push-To-Talk and PTT over satellite solutions;
Enable and accelerate intellectual property developments needed for success in these market sectors; and
Strengthen working capital resources.

In addition to the capital raise in December 2020 which raised $3,549 after costs, convertible notes were converted during the year into fully paid ordinary shares which further strengthened the balance sheet. The increase in shareholders’ funds as result of the conversion was $3,692.

2020 Overall and Major Projects Update (Samsung & Defence)

Etherstack is generating solid positive operating cash, has a strong EBITDA , significantly improved balance sheet and positive underlying NPAT[(Note 1).] Management believe the Company is poised for growth.

In June 2020, the Company announced a Global Teaming Agreement with Samsung in relation to the supply of certain Etherstack technologies to Samsung for use in the global telecommunications carrier market.

By June 2020, Etherstack and Samsung were already co-operating on multiple carrier pursuits in an emerging area of technologies related to the global public safety/first responder markets. The agreement was to formalise that partnership so that both companies could commit significant further resources in the joint development and marketing of solutions incorporating their respective technologies.

Last week, Etherstack announced the award of a US$1.2m integration agreement in relation to the global partnership arrangement, which is to provide additional client funding to accelerate integration activities between the companies ahead of the initial carrier deployments.

It is anticipated that initial carrier deployments will be announced in the near term, during 2021.

Etherstack has announced two significant new Australian Department of Defence projects in the past three months, for which the initial phases total over AUD $4.6 million. The Company has other pursuits underway and has previously advised the market of a positive exposure to Australian defence and public safety infrastructure spending.

Globally, as a result of the pandemic and its associated economic impact, management believe that unprecedented global stimulus spending will be directed to health, emergency services, infrastructure, public safety and security projects. Focus on sovereign supply chains and technology sourcing create an excellent background environment for Etherstack to operate in.

The Board looks forward to 2021 with confidence

Note 1 - Underlying EBITDA is a non IFRS performance measure. The calculation is outlined on page 7 of this report under Result for 2020.

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

Principal Risks and uncertainties

The management of the business and the execution of the Group’s strategy expose it to a number of risks. These risks are formally reviewed by the Board and appropriate processes are put in place to monitor and mitigate them.

Key business risks affecting the Group are set out below.

• Dependence on key contracts

Etherstack is dependent on a number of key contracts. Growing the total revenue of the Group will reduce the significance of individual contracts or projects relative to the Groups total revenue. In addition, growth of royalty revenue streams stemming from products reaching commercial maturity and growth of support revenue streams reduces dependence on individually significant contracts. However, the impact of individually significant contracts remains in existence at the balance sheet date.

• Ability to continue as a going concern

For the year ending 31 December 2020, and through to the date of this report, the Group maintains a strong cash position. The Group has increased its net cash position during 2020 and based on current and forecasted performance, including consideration of the impacts of Covid 19, the directors reasonably expect there to continue to be sufficient cash resources to be able to pay liabilities as they fall due for at least 12 months from the date of approval of these financial statements. Accordingly, the directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.

• Technology risk

Etherstack relies on its ability to develop and further commercialise the technologies and products of the Company. Etherstack’s operations include the design and delivery of products for secure communication, homeland security, defence and aerospace related markets. This is a fast-moving industry and there can be no assurance that future products and systems introduced into the market by the Group will be profitable and cash generative.

To manage this risk, Etherstack closely monitors the markets for our products and is a member of industry associations and Standards Committees. Successfully managing this technology risk and identifying product innovations is a key part of Etherstack operations and receives the appropriate resources to manage the risks.

• Intellectual property and know-how risk

Securing rights to the intellectual property and the know-how behind the technologies is an integral part of the value of Etherstack’s products. Etherstack ensures legal protection of our intellectual property is included in all customer and employee contracts and ensures that IT controls are in place to control access to sensitive intellectual property and associated documentation and information.

• Economic and exchange rate risk

The Group operates in four different countries/regions each using their own currency. The Group’s presentational currency is US$, as a result, Etherstack is subject to currency and foreign exchange pricing swings, which may have a positive or negative effect on the performance of the Group. General economic conditions, movements in interest and inflation rates may have an adverse effect on the Group’s activities, as well as on its ability to fund those activities. The Group has natural hedges which reduce the exposure to currency fluctuations and from time to time enters forward rate agreements in the event that additional currency protection is considered necessary. Further information on these risks is set out in Note 16 to the financial statements.

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Etherstack plc Financial report for the year ended 31 December 2020

Strategic Report

Product liability

The Group is exposed to potential product liability risks which are inherent in the research and development, manufacturing, marketing and use of its products and technologies. The Group has secured insurance to help manage such risks.

Liquidity risk

The Group aims to mitigate liquidity risk by managing cash generation by its operations. Investment is carefully controlled, with authorisation limits operating up to board level and cash payback periods applied as part of the investment appraisal process. In this way the Group aims to maintain a good credit rating to facilitate appropriate levels of working capital and when necessary to facilitate fund raising activities.

COVID-19 impacts

Management and the Board of Directors are continuously monitoring the impact of COVID-19 on the business generally and especially employees. In general, the impact on our business is expected to be at the lesser end of the range as:

Project delivery timeframes have been extended as a consequence of COVID-19 measures and may continue to be extended however alternative arrangements have been made for delivery of projects and to date effective workaround arrangements are in place for all projects in progress. Notwithstanding the current arrangements have been effective and Etherstack has engineers in Australia, North America, Europe and Japan, it is possible that an inability to travel or travel restrictions, will impact our ability and efficiency in the delivery of projects in the future.
Our engineers and the broader Etherstack workforce routinely worked remotely pre- COVID-19 and the nature of the work, being software development, means the majority can continue to work remotely on a full time or part time basis with minimal impact upon productivity.
Etherstack revenues may be negatively impacted if the Company or our suppliers are unable to procure components for some of our Tactical communications products or lead times become protracted.
The impact of COVID-19 is inherently uncertain. As many of our projects are long term infrastructure projects often funded by governments or semi-government entities, with funding agreed, we are not expecting a significant impact on short term revenues although signing of certain new contracts could experience some delays. The outlook over the medium term is less certain however it is important to note that government stimulus spending on infrastructure projects and public safety in general may provide additional opportunities in the medium term.

Notwithstanding the above, a very high degree of caution will continue to be exercised through this uncertain period. Management and the Board of Directors will continue to monitor the impact and take all necessary actions to protect the business and all stakeholders.

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David Deacon Chief Executive Officer

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Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Directors and Key Management

Peter Stephens – Non-Executive Chairman

Peter is currently Chairman of Etherstack, a director of various private companies and also runs a venture capital practice. He was previously Head of European Equities Sales at Salomon Brothers and Credit Lyonnais. He raised the initial funding for Tristel plc in 2003 and remained a director of Tristel plc from flotation on London Stock Exchange’s AIM market in 2005 until 2013. He was Chairman of Getech on flotation on AIM in 2005 until 2013 and remains a director. Peter has recently become Chairman of True Luxury Travel, a long-haul holiday specialist currently focused on Africa having been Chairman and initial investor in Scott Dunn which was sold in 2014 for £77m. He is also Chairman of Boisdale Canary Wharf, a Scottish themed restaurant and Chairman of Noble Rot Fine Wines.

He has an MA in Jurisprudence from Oxford University and qualified and practised as a Barrister in 197882.

Peter has been on the board of Etherstack Wireless Limited since September 2007 and was appointed to the Board of Etherstack plc in 2012 as Chairman.

Paul Barnes, FCCA MCSI – Non-Executive Director

Paul has wide experience in venture development, financial strategy and management, corporate finance and M&A disciplines.

Paul started his career with the City of London accounting firm Melman Pryke & Co (now part of Grant Thornton). Following qualification, he then worked in both accountancy practice and commerce, specialising in developing businesses in a wide range of activities from software development and commercial property to regulated commodities brokers, taking senior management positions with a successful freight importer and a full-service executive jet aviation company.

Paul co-founded and raised funds for various successful “start-up” businesses in property and telecommunication sectors including UK Telecom plc and subsequently in the securities industry and healthcare and biomass renewable sectors.

Paul has been a key member of the teams in the development and admission to the London Stock Exchange’s AIM market of both Tristel plc and Oxford Catalysts plc raising substantial funds for both companies, where he served as the Executive Finance Director and in the establishment of Amersham Investment Management Limited an FCA regulated investment management firm.

Paul is a Fellow of the Association of Chartered Certified Accountants, a registered auditor in the UK and a member of the UK’s Chartered Institute for Securities and Investment.

Paul joined Etherstack in 2002 as Finance Director and CFO, and held these positions throughout the development and expansion of Etherstack until December 2011. Paul was appointed a Director of Etherstack plc in February 2012.

Scott Minehane – Non-Executive Director

Scott is an international regulatory and strategy expert in the telecommunications sector and has been involved in advising investors, operators, Governments and regulators in Australia, Asia, the Pacific and Africa. His expertise extends to spectrum management and new generation fixed and mobile technologies including optical fibre and 4G/LTE and 5G services.

Scott has a separate consultancy practice, through which he has advised a range of leading corporates and organisations including the Commonwealth, South Australian and Victorian Governments, APEC Business Advisory Council, NBNCo, Macquarie Group, World Bank, International Telecommunications Union (ITU), Asian Development Bank (ADB), ASEAN, GSMA, Australian Competitive Carriers Coalition ('Commpete'), SDPPI (Indonesia’s spectrum regulator), ARCIA, Macquarie Telecommunications, Malaysian Communications and Multimedia Commission (MCMC), National Broadcasting and Telecommunications Commission (Thailand), Myanmar Government, TRA (UAE), KPMG, Telekom

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Malaysia, Axiata Group, edotco Group, and Telkom South Africa. In the past 12 months, he was the principal author of the ITU Report Pandemic in the Internet Age: communications industry responses: GSR Discussion paper on ensuring connectivity and business continuity key lessons learned (15 June 2020), and GSMA report with Network Strategies of New Zealand entitled Legacy mobile network rationalisation: Experience of 2G and 3G migrations in Asia-Pacific , (May 2020).

Scott has a Bachelor of Economics and a Bachelor of Laws from the University of Queensland and holds a Master of Laws specialising in Communications and Asian Law from the University of Melbourne.

Scott joined the Board as an Independent Non-Executive Director in 2012 and became chairman of the Audit & Risk Management Committee in 2012. In 2016, Scott became chairman of the Remuneration and Nomination committees.

David Deacon – Chief Executive Officer, Executive Director

David has over 20 years’ experience in the wireless communications industry. Prior to Etherstack, David founded and ran an Australian wireless technology company, Indian Pacific Communications Pty Ltd, for six years until it was sold to a public company in April 2000. Before this, David led software development teams involved in wireless research and development in Perth and Sydney.

David founded Etherstack in 2002 and has been Chief Executive Officer since that date. In this time, David has overseen Etherstack’s growth into a global operation and the development of industry leading wireless communications technology assets.

Senior management

David Carter – Chief Financial Officer and Company Secretary

David worked within the audit and assurance practice of Coopers & Lybrand and PricewaterhouseCoopers for 12 years in Australia and The Netherlands.

David has held senior finance roles in IT companies including Dimension Data and Computer Science Corporation and was CFO and company secretary of a software reseller and engineering services provider before joining Etherstack as CFO in September 2011.

David has a Bachelor of Commerce degree from University of New South Wales, is a member of Chartered Accountants Australia and New Zealand, and holds an Executive MBA from the Australian Graduate School of Management.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Company Directory

Company Registration No. 7951056

ARBN 156 640 532

Directors

Peter Stephens (Non-Executive Chairman) David Deacon (Executive Director and Chief Executive Officer) Paul Barnes FCCA (Non-Executive Director) Scott W. Minehane (Non-Executive Director)

Company Secretaries

Paul Barnes FCCA (United Kingdom) David Carter (Australia)

United Kingdom Registered Office

3rd Floor South, 30-31 Friar Street, Reading, Berkshire, RG1 1DX United Kingdom

Australian Office

93A Shepherd St Chippendale, NSW, 2008 Australia

Auditor

Grant Thornton UK LLP Statutory Auditor London, UK Stock Exchange Listing Australian Securities Exchange (Code: ESK)

Share Registrars Computershare Investor Services Pty Limited

452 Johnston Street Abbotsford, VIC, 3067 Australia

Computershare Investor Services plc

The Pavilions, Bridgwater Road Bristol BS99 6ZY United Kingdom

Website

www.etherstack.com

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Directors Report

The Directors present their annual report with the statutory financial statements of the Group for the year ended 31 December 2020. All amounts are in USD $000 unless otherwise indicated.

This report should be read in conjunction with the Strategic Report on pages 3 to 11.

1. Board of Directors and Officers of the company

The names of the Directors who held office during the 2020 year and to the date of this report are:

Director Name	Position	Appointed
Peter Stephens	Non-Executive Chairman	22 May 2012
Paul Barnes, FCCA	Non-Executive Director	15 February 2012
David Deacon	Executive Director and CEO	15 February 2012
Scott Minehane	Non-Executive Director	22 May 2012

The joint company secretaries are Paul Barnes and David Carter.

2. Results

The Group incurred a loss after tax for the year of $2,300 (2019 loss of $871).

Earnings/(Loss) per share

Basic loss per share from continuing operations of 1.96 US dollars in 2020 compares to 2019 Basic earnings per share of 0.78 US cents.

3. Going Concern

4. Dividend

The Directors do not recommend the payment of a final dividend for the year ended 31 December 2020 (2019: $nil).

5. Directors’ indemnity insurance

The Company has arranged appropriate Directors’ and Officers’ insurance to indemnify the Directors against liability in respect of proceedings brought about by third parties. Such provisions remain in place at the date of this report.

6. Auditor

Grant Thornton UK LLP were appointed as auditors of Etherstack plc at the Annual General Meeting in June 2020 and Grant Thornton UK LLP will be proposed for re- appointment at the next Annual General Meeting.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

7. Financial risk management objectives

The Group’s financial risk management objectives and policies and exposures to risk are outlined in Note 16 to the financial statements.

8. Rounding of amounts and presentational Currency

Amounts in the Directors Report and the accompanying financial report have been rounded to the nearest thousand dollars, or in certain cases to the nearest dollar, unless otherwise expressly stated. The Group financial statements are presented in US Dollars (“$”) which is the Group’s presentational currency.

On behalf of the Board

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Paul Barnes FCCA Director 15 March 2021

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Corporate Governance Report

The Board of Directors is responsible for the overall strategy, governance and performance of the Etherstack plc Group of companies (the Group). The Group is a wireless communications technology provider whose strategy is to add substantial shareholder value through the design, development and deployment of products for radio communication networks used by governments, such as those used by defence and police forces, public safety departments, such as ambulance and fire, and radio networks used by utilities, such as electricity companies and resource companies. The Board has adopted a corporate governance framework, based upon ASX Corporate Governance Principles, which it considers to be suitable given the size and strategy of the Company and its operating environment.

The Board of Directors of Etherstack plc consider, both individually and collectively, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole (having regard to the stakeholders and matters set out in s172(1)(a-f) of the Companies Act) in the decisions taken during the year ended 31 December 2020.

The Board oversees the business in such a way to ensure the long-term success of the business. The key driver of the long-term success of the business is sustained appropriate investment into technology research and development activities.

In turn this investment requires building and maintaining the skills of our employees who are fundamental to the success of the business. Etherstack aims to be a responsible employer in every location. The health, safety and well-being of our employees is one of our primary considerations in the way we do business.

Determining which products to develop and where to invest in research and development requires extensive engagement with customers and end-users and through this engagement, we are able to gain an understanding of their views, priorities and challenges.

An appropriate and positive relationship with suppliers and customers is a pre-requisite to the successful operation of the Company and exists in all areas of the business

As the Board of Directors, our intention is to behave responsibly and ensure that management operate the business in a responsible manner, operating to the highest standards of business conduct and good governance.

This intention includes behaving responsibly toward our shareholders, convertible note holders and option holders and treat them fairly and equally, so they too may benefit from the success of the company.

Further details relating to the Company’s corporate governance practices can be found on the Company’s website at www.etherstack.com in the “Investor” section under “Corporate Governance”.

Principle 1: Lay solid foundations for management and oversight

The Board of Directors is responsible for the overall strategy, governance and performance of the Company.

Board Charter

The Board has adopted a formal Board Charter which clearly details its functions and responsibilities and delineates the role of the Board from that of the senior executives. The Board’s function and responsibilities include strategy and planning, corporate governance, appointment of the Chief Executive Officer (CEO), remuneration, capital expenditure and financial reporting, performance monitoring, risk management, audit and compliance, developing and monitoring diversity policies and objectives.

Executive Directors are provided with executive contracts of employment and Non-Executive Directors are provided with service agreements setting out the key terms and conditions relative to that appointment.

The Board Charter is available on the website in the “Investor” section under “Corporate Governance”.

The Company Secretary is responsible for supporting the effectiveness of the Board and is directly accountable to the Board, through the Chairman, on all matters to do with the proper functioning of the Board.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Principle 2: Structure the board to add value

Structure of the Board

The Board currently consists of four directors comprising, Non-executive Chairman, two Independent NonExecutive Directors and one Executive Director:

Mr Peter Stephens, Chair – Non-Executive Director

Mr Paul Barnes – Independent, Non-Executive Director

Mr Scott Minehane – Independent, Non-Executive Director

Mr David Deacon – Chief Executive Officer and Executive Director

The term of office held by each Director is set out in the Directors Report.

The skills, experience and expertise of each Director are set out on pages 12 and 13. At all times, the Board is to have a complementary mix of financial, industry and technical skills. The Board believes the current members have the necessary knowledge and experience to direct the Group. A summary of Board members skills is set out below.

	Number of
Experience and skills
	directors

International business	4
Strategy and innovation	4
Management and leadership	4
Accounting, finance and banking	2
Equity, capital markets, mergers and acquisitions	4
Corporate governance	2
Regulatory and compliance	2
IT/Technology	4
Legal	2
Chief Executive Officer, Chief Financial Officer or Chief Operating Officer experience	4

Chairman’s responsibilities and independence

The Board Charter provides that the Chairman of the Board is responsible for the leadership of the Board, ensuring the Board is effective, setting the agenda of the Board, conducting Board meetings and conducting shareholder meetings.

The Chairman of the Board, Peter Stephens, is a Non-Executive Director.

In 2016, following participation in the Entitlement issue and shortfall offer in which Peter Stephens increased his shareholding, Peter Stephens is no longer considered an independent director. Peter Stephens was an independent director from the date of his appointment in 2012 through to 2016. Peter Stephens remains as Chairman of the Board of Directors of Etherstack plc.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Board independence

An independent Director, in the opinion of the Board, must be independent of management and have no business or other relationship that could materially interfere with – or could reasonably be perceived materially to interfere with – the independent exercise of that director’s judgement. Any independent Director will meet the definition of what constitutes independence as set out in the ASX Recommendations. The materiality thresholds are assessed on a case-by-case basis, taking into account the relevant Director’s specific circumstances, rather than referring to a general materiality threshold.

At this time, there are two Directors the Board has classified as independent - Paul Barnes and Scott Minehane. Accordingly, the Board does not have a majority of independent Directors however the Board composition is considered appropriate for the Company in its current circumstances.

Paul Barnes is a significant shareholder holding 5.28% of the issued capital of Etherstack plc however the Board is of the opinion this shareholding does not compromise Paul Barnes’ independence. The Board has formed this view on the basis of Paul Barnes ability to demonstrate the judgements required of an independent director from his appointment as a director of Etherstack plc in 2012 up to 2016 when participation in Entitlement issue and shortfall offer led to Paul Barnes’ shareholding exceeding 5%.

The Board Charter states that the Board aims to have at all times a Board of directors with at least two independent Non-Executive Directors and having the appropriate mix of skills, experience, expertise and diversity relevant to the Company’s businesses and the Board’s responsibilities.

Board committees

To assist the Board in carrying out its functions, the Board has established:

an Audit and Risk Management Committee (refer Principle 4 summary);
a Remuneration Committee (refer Principle 8 summary); and
a Nomination Committee.

Each Committee is established according to a Charter that is approved by the Board. Each Committee is entitled to the resources and information it requires to discharge its responsibilities, including direct access to senior executives, employees and advisers as needed. Terms of reference of each committee, explaining its role and the authority delegated to it by the Board, are available on the Company‘s website. The committee chairmen report regularly to the whole board and are required to confirm that the committees have sufficient resources to undertake their duties.

Nomination Committee

The Nomination Committee must have a majority of independent Directors. Peter Stephens, Scott Minehane, and Paul Barnes are members of this committee. Scott Minehane acts as Chairman of the committee. When appointing members of each committee, the Board shall take account of the skills and experience appropriate for that committee as well as any statutory or regulatory requirements. The responsibilities of the committee include assessing the skills, diversity and necessary industry, technical or functional experience required by the Board, recommending directors for re-election and conducting searches for new Board members when required.

Director selection process and Board renewal

The composition of the Board is reviewed regularly to ensure the appropriate mix of skills, diversity and expertise is present to facilitate successful strategic direction.

As detailed in the Board Charter, in appointing new members to the Board, consideration is given to the ability of the appointee to contribute to the ongoing effectiveness of the Board, to exercise sound business judgement, to commit the necessary time to fulfil the requirements of the role effectively and to contribute to the development of the strategic direction of the Company. Consideration will also be given to achieving a Board with a diverse range of backgrounds.

The process used for selecting new members for the Board, as set out in the Board Charter, may be assisted by the use of external search organisations as appropriate. An offer of a Board appointment will be made by the Chairman of the Board only after having consulted all Directors. Detailed background information in relation to a potential candidate is provided to all Directors.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Board, Committee and Director performance evaluation

The Board undertakes ongoing self-assessment. The review process in 2020 included an assessment of the performance of the Board, the Board Committees, and each Director. The review:

compared the performance of the Board and each Committee with the requirements of its Charter;
critically reviewed the composition of the Board; and
reviewed the Board and each Committee Charter to consider whether any amendments to the Charters were deemed necessary or appropriate.

The Board discussed the results of the review and follow up actions on matters relating to Board process and priorities.

Induction

The Company Secretary facilitates an induction program for new Directors. The program will include meetings with senior executives, briefings on the Company’s strategy and operations, provision of all relevant corporate governance material and policies and discussions with the Chairman and other Directors.

Continuing education

Directors are provided with continuing education opportunities to update and enhance their skills and knowledge. This consists of regular updates for the Board from management, separate to Board meetings to ensure Non-Executive Directors are well-informed of the Company’s operations and any recent developments.

Access to information, indemnification and independent advice

The Company Secretary provides assistance to the Board, and Directors also have access to senior executives at any time to request any relevant information. The Board Charter provides that:

all Directors have unrestricted access to company records and information except where the Board determines that such access would be adverse to the Company’s interests;
all Directors may consult management and employees, as required, to enable them to discharge their duties as Directors; and
the Board, Board Committees or individual Directors may seek independent external professional advice as considered necessary at the expense of the Company, subject to prior consultation with the Chairman. A copy of any such advice received is made available to all members of the Board.

Conflicts of interest

The Constitution and Code of Business Conduct and Ethics sets out the obligations of Directors in dealing with any conflicts of interest. Pursuant to the Constitution and the Code of Business Conduct and Ethics, Directors are obliged to:

disclose to the Board any actual or potential conflicts of interest which may exist as soon as they become aware of the issue;
take any necessary and reasonable measures to resolve the conflict; and
comply with all laws in relation to disclosure of interests and restrictions on voting.

Unless the Board determines otherwise, a Director with any actual or potential conflict of interest in relation to a matter before the Board, does not:

receive any Board papers in relation to that matter; and
participate in any discussion or decision making in relation to that matter.

Operation of the Board

The Board met 7 times during the year. The agenda for each meeting allows an opportunity for the Chairman and Non-Executive Directors to meet without executives present. The agenda and relevant briefing papers are distributed by the company secretary on a timely basis.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

The following table summarises the number of board and committee meetings held during the year and the attendance record of each directors:

	Board	meetings	Audit	and Risk	Remuneration	Remuneration	Nomination	Nomination
			Committee		Committee		Committee
	Eligible to	Attended	Eligible to	Attended	Eligible to	Attended	Eligible	Attended
	attend		attend		attend		to attend
Peter Stephens	7	7	5	5	3	3	1	1
Paul Barnes	7	7	5	5	3	3	1	1
David Deacon	7	7	-	-	-	-	-	-
Scott Minehane	7	7	5	5	3	3	1	1

Principle 3: Promote ethical and responsible decision making

Corporate Code of conduct

The Company has implemented a corporate Code of Business Conduct and Ethics (the Code) which applies to Directors and all employees. The Code provides a framework for decisions and actions for ethical conduct. It underpins the Company’s commitment to integrity and fair dealing in its business affairs and to a duty of care to all employees, clients and stakeholders. The Code sets out the principles covering appropriate conduct in a variety of contexts and outlines the minimum standard of behaviour expected from Directors and employees.

Employees are encouraged to raise any matters of concern in good faith with the head of their business unit without fear of retribution. Where the matter is inappropriate to be raised with the head of their business unit, employees are able to raise the matter with the CEO or CFO as appropriate.

The CFO reviews and reports directly to the Board on any material breaches of the Code. The Audit and Risk Committee oversees procedures for whistleblower protection.

A copy of the Code is available on the Company’s website in the “Investor” section under “Corporate Governance”.

Dealings in securities

The Company has implemented a Securities Trading Policy which covers dealings in the Company’s securities by its Key Management Personnel (Directors and those employees reporting to the CEO). The Securities Trading Policy sets out the guidelines for trading in the Company’s securities, including closed periods, exceptions and approval and notification requirements.

A copy of the Securities Trading Policy is available on the Company’s website in the “Investor” section under “Corporate Governance”.

Diversity

The Company has implemented a Diversity Policy.

The Company considers that the gender ratio of employees reflects the gender ratio of the qualified engineer pool. The Company does not, therefore, believe that establishing measurable objectives for achieving gender diversity would provide any benefit above that already achieved via the Diversity Policy.

At the date of this report, the gender ratio is as follows:

4 Board members: all male,
Chief Financial Officer: male,
Workforce (excluding senior management and executive directors); 28 Employees: 2 female, 26 male

The Diversity Policy is available on the Company’s website in the “Investor” section under “Corporate Governance”.

Principle 4: Safeguard integrity in financial reporting Audit and Risk Management Committee

The Board has established an Audit and Risk Management Committee governed by the Audit and Risk Committee Charter, which is available on the Company’s website in the “Investor” section under “Corporate Governance”.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

The objective of the Audit and Risk Committee is to assist the Board in monitoring and reviewing any matters of significance affecting financial reporting and compliance. The Audit and Risk Management Committee’s responsibilities include:

Oversee the Company’s relationship with the external auditor and the external audit function generally;
Oversee the preparation of the financial statements and reports;
Oversee the Company’s financial controls and systems;
Review, monitor and approve risk management policies, procedures and systems; and
Manage the process of identification and assessment of any material financial and nonfinancial risks (including enterprise risks and risks in relation to occupational health and safety) that may impact the business.

Audit and Risk Management Committee composition

The Audit and Risk Management Committee consists only of Non-Executive Directors and the Chairman is not the Chairman of the Board. The members of the Audit and Risk Management Committee are Scott Minehane, Chair of the Committee, Peter Stephens and Paul Barnes. Both Scott Minehane and Paul Barnes are Independent Non-Executive Directors.

During the year, 4 meetings of the Committee were attended by the lead external audit partner and, by invitation, the Chief Executive Officer and the Chief Financial Officer attended 5 meetings.

The Board of Directors has received from the Chief Executive Officer and the Chief Financial Officer a declaration the financial information included in the annual report is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

Etherstack’s external auditor attends the Company’s Annual General Meeting and is available to answer questions which shareholders may have about the conduct of the external audit for the relevant financial year and the preparation and content of the Audit Report.

Principle 5: Make timely and balanced disclosure

The Company is committed to ensuring:

compliance with the requirements of the ASX Listing Rules, all relevant regulations and the ASX Recommendations;
facilitation of an efficient and informed market in the Company’s securities by keeping the market appraised through ASX announcements of all material information.

The Company has implemented a Disclosure Policy which is designed to support the commitment to a fully informed market in the Company’s securities by ensuring that announcements are:

made to the market in a timely manner, are factual and contain all relevant material information; and
expressed in a clear and objective manner that allows investors to assess the impact of the information when making investment decisions.

The Disclosure Policy is available on the Company’s website in the “Investor” section under “Corporate Governance”.

Principle 6: Respect the rights of shareholders

The Company has adopted a Communications Policy which aims to ensure that shareholders are informed of all major developments affecting the Company’s state of affairs. Information is communicated to shareholders through:

half yearly and annual reports;
disclosures and announcements made to the Australian Securities Exchange (ASX);
notices and explanatory memoranda of Annual General Meetings and Extraordinary General Meetings and addresses or presentations made at those meetings; and
the Company’s website.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

The Board also encourages participation by shareholders at all shareholder meetings.

The Communications Policy is available on the Company’s website in the “Investor” section under “Corporate Governance”.

Principle 7: Recognise and manage risk

The Company is committed to ensuring that:

its culture, processes and structures facilitate realisation of the Company’s business objectives whilst material risks are identified, managed, monitored and wherever appropriate and possible, mitigated; and
to the extent practicable, its systems of risk oversight, management and internal control comply with ASX Recommendations.

The Board determines the Company’s risk profile and is responsible for overseeing and approving the Company’s risk management strategy and policies, internal compliance and internal control.

The Board has delegated to the Audit and Risk Management Committee responsibility for implementing the risk management system and reporting to the Board. Key business risks affecting the Group have been outlined in the Strategic Report.

The Audit and Risk Committee reviews the entity’s risk management framework at least annually to satisfy itself that it continues to be sound and such a review has taken place in relation to 2020.

The Company does not have an internal audit function. The responsibility for undertaking and assessing risk management and internal control effectiveness is delegated to management. Management is required to assess risk management and associated internal compliance and control procedures and report to the Audit and Risk Management Committee.

Etherstack does not have any material exposure to environmental and social sustainability risks.

A copy of the Company’s risk management policy is available on the Company’s website in the “Investor” section under “Corporate Governance”.

Principle 8: Remunerate fairly and responsibly

The Board has established a Remuneration Committee, which is governed by the Remuneration Committee Charter. The Charter is available on the Company’s website in the “Investor” section under “Corporate Governance”.

The primary purpose of the Committee is to support and advise the Board in fulfilling its responsibilities to shareholders by:

reviewing and approving the executive remuneration policy to enable the Company to attract and retain executives and Directors who will create value for shareholders;
ensuring that the executive remuneration policy demonstrates a clear relationship between key executive performance and remuneration;
recommending to the Board the remuneration of executive Directors;
fairly and responsibly rewarding executives having regard to the performance of the Company, the performance of the executive and the prevailing remuneration expectations in the market;
reviewing the Company’s recruitment, retention and termination policies and procedures for senior management;
reviewing and approving the remuneration of direct reports to the Chief Executive Officer, and as appropriate other senior executives and conducting an annual review of remuneration by gender; and
• reviewing and approving any equity based plans and other incentive schemes.

A performance evaluation was undertaken in the reporting period in accordance with the periodic performance evaluation process.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

The Remuneration Committee consists only of Non-Executive Directors. The members of the Remuneration Committee are Peter Stephens, Paul Barnes and Scott Minehane, Chair of the Committee. Scott Minehane and Paul Barnes are Independent Non-Executive Directors.

There is no regulatory requirement, other than Companies Act 2006 disclosure requirements, for Etherstack plc to disclose information on the remuneration arrangements in place for Directors and Executives of Etherstack plc, however the Remuneration Committee is committed to good corporate standards and has disclosed information considered relevant to the shareholders.

Remuneration policy for Executive Directors

The remuneration policy for Executive Directors has been designed to ensure Executive Directors receive appropriate incentive and reward given their performance, responsibility and experience. When assessing this, the Remuneration Committee seeks to ensure the policy aligns the interests of the Executive Directors with those of the shareholders.

The Company’s remuneration policy for Executive Directors is to:

Consider the individuals experience and the nature and complexity of their work in order to set a competitive salary that attracts and retains management of the highest quality;
Link individual remuneration packages to the Group’s long term performance through both bonus schemes and share option plans; and
Provide post-retirement benefits through payment into pension schemes.

Remuneration package for Executive Directors

Executive Directors’ remuneration packages are considered annually by the Remuneration Committee in line with Company policy, with a view to attracting, retaining and motivating Executive Directors of the calibre necessary to deliver the strategic milestones of the Board. Remuneration packages comprise a number of elements as follows:

Base salary

The base salary is reviewed annually. Within the review process, which is undertaken by the Remuneration Committee, regard is given to the profitability and on-going development of the Group and the contribution that each individual makes. Consideration is also given to the need to retain and motivate individuals, with reference made to available information on salary levels in comparable organisations as well as that of the wider workforce of the company. To assist in this process the Remuneration Committee may draw on the findings of external salary surveys and undertakes its own research.

Annual performance incentive

The Executive Directors are eligible to receive, at the discretion of the Remuneration Committee, an annual bonus. The Remuneration Committee considers the implementation of bonus awards based upon both corporate and personal performance targets and measures, which align to the long term interests of shareholders.

Pensions and other benefits

The Group does not operate a Group pension scheme; instead individuals receive contributions to their private pension plans

Share options/performance rights

Executive Directors may, at the discretion of the Remuneration Committee, be awarded share options or performance rights.

The performance of Executive Directors is evaluated by the Remuneration Committee on an annual basis with a view to ensuring that there is a sufficiently strong link between performance and reward. The results of performance evaluations are taken into consideration as part of the annual remuneration review.

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Remuneration policy for Non-Executive Directors

Non-Executive Directors are paid a fixed annual fee for acting as a Director of Etherstack plc which is paid for services rendered as a Director. Additionally, under the Articles of Association, a Director may also be paid such special or additional remuneration as the Directors decide, if the Director performs extra services or makes special exertions for the benefit of the company. Such amounts do not form part of the aggregate remuneration permitted under the Articles of Association (the current aggregate remuneration may not exceed $300,000 per annum).

The remuneration of the Non-Executive Directors is determined by the Board as a whole, based on a review of current practices in other equivalent companies. The Non-Executive Directors each have service agreements that are reviewed annually by the Board.

Directors’ remuneration

The Directors earned the following remuneration:

2020 Long-term benefits Salary/fees Superannuation USD USD Executive Directors David Deacon 260,000 1,968 260,000 1,981 Non-Executive Directors Peter Stephens 49,013 - Paul Barnes 52,067 - Scott Minehane 39,882 3,789 140,962 3,789 TOTAL 400,962 5,757 2019 Long-term benefits Salary/fees Superannuation USD USD Executive Directors David Deacon 260,000 1,981 260,000 1,981 Non-Executive Directors Peter Stephens 33,179 - Paul Barnes 45,190 - Scott Minehane 31,284 2,972 109,653 2,972 TOTAL 369,653 4,953	Total USD 261,968
	261,981
	49,013 52,067 43,671
	144,751
	406,719
	Total USD 261,981
	261,981
	33,179 45,190 34,256
	112,625
	374,606

Etherstack plc Financial report for the year ended 31 December 2020

Report of the Directors

Directors’ interests

The Directors’ interests in shares and other securities in Etherstack plc are set out below:

Director	Number of ordinary Shares 31 December 2020	Number of ordinary Shares 31 December 2019
David Deacon	48,241,850	48,241,850
Peter Stephens	17,382,587	17,322,587
Paul Barnes	6,850,000	6,850,000
Scott Minehane	81,875	81,875

Directors Responsibilities Statement

The directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have to prepare the financial statements in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company and Group for that period. In preparing these financial statements, the directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable International Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors confirm that:

so far as each director is aware, there is no relevant audit information of which the company’s auditor is unaware; and
the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Paul Barnes FCCA, Director 15 March 2021

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

Opinion

Our opinion on the financial statements is unmodified

We have audited the financial statements of Etherstack plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2020 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company statement of Financial Position, the Consolidated and Company statement of changes in equity, the Consolidated and Company statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2020 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006;
the parent company financial statements have been properly prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the group or the parent company to cease to continue as a going concern.

Our evaluation of the directors’ assessment of the group’s and the parent company’s ability to continue to adopt the going concern basis of accounting included audit of cash and net assets position as at 31 December 2020, current year performance, projections for the period until March 2022 which are higher than current year performance and post balance sheet events. We note that the Group and the parent is a single cash generating unit and we observe that the Group has a cash balance of $4.2m as at 31 December 2020 and operating cashflow of $1.7m for the year ended 31 December 2020. We also note the post balance sheet crystallisation of a new revenue contract which supports their future projections.

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the group’s and the parent company’s business model including effects arising from Covid -19, we assessed and challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how those risks might affect the group’s and the parent company’s financial resources or ability to continue operations over the going concern period.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the financial statements’ section of this report.

Our approach to the audit

Overview of our audit approach

Overall materiality:

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$ 79,780 KAMs :
(Group Revenue;
Materiality) Intangibles,
Coverage:
Etherstack Plc
Group
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Group: $79,780, which represents 2% of the group’s projected revenue for FY 2020.

Parent company: $59,835. Materiality was calculated at 1.5% of total assets as benchmark which was capped at 75% of the Group materiality.

Key audit matters were identified as

capitalisation of development cost (same as previous year);
carrying value of intangible assets (same as previous year);
revenue recognition (same as previous year)

We performed an audit of the financial information of the components and parent using component materiality (fullscope audit).

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.

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Audit
Description
reponse
KAM
Disclosures Our results
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Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

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Key audit matter & Significant risk Other risk Significant risk

Key Audit Matter – Group

How our scope addressed the matter – Group

Capitalisation of development costs

We identified capitalisation of development costs as one of the most significant assessed risks of material misstatement due to error.

At the year end the group had $3.5m of intangible assets (2019: $3.3m) including $3.4m (2019: $3.1m) of capitalised development costs. During 2020 $1.4m (2019: $1.2m) of internal costs were capitalised.

The Directors and Management assess each project according to the capitalisation criteria set out in International Accounting Standard (IAS) 38: Intangible Assets throughout the project life. Judgement is required to determine whether the criteria are met, in particular whether future economic benefits will be generated and the intention of the Group to complete development and use or sell the asset. These judgements are dependent on expectations of future events.

In responding to the key audit matter, we performed the following audit procedures:

assessing product development activities alongside the qualifying nature of the projects to ensure that capitalisation is in accordance with the recognition criteria for capitalisation under IAS 38;
recalculation of the mathematical accuracy of the capitalised amounts;
agreeing amounts capitalised to supporting evidence including timesheets on a sample basis
assessment of management’s cash flow forecasts, including challenging assumptions used in the calculations through comparison to prior year forecasts and results achieved, supporting the generation of future economic benefits from the capitalised costs; and
obtaining an understanding from management of the details of projects capitalised and assessing whether they relate to additional functionality that can be capitalised in accordance with IAS 38.

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

Key Audit Matter – Group How our scope addressed the matter – Group

Relevant disclosures in the Annual Report and Accounts FY 2020 Our results • Financial statements: Note 9, Intangible Our testing did not identify any material assets and accounting policies misstatements with the capitalisation of intangible assets in accordance with stated accounting policies and IAS 38. The detailed calculations and supporting evidence were consistent with the amounts capitalised.

Carrying value of intangible assets

We identified carrying value of intangible assets as one of the most significant assessed risks of material misstatement due to error.

At the year end the Group had $3.5m of intangible assets (2019: $3.3m) consisting of capitalised development costs, engineering software and customer contract intangibles.

The Group is required to perform an impairment review of assets not brought into use and to consider other assets for indicators of impairment in accordance with IAS 36: Impairment of Assets. The losses reported in this year and over previous years are an indicator of potential impairment, and a risk that the carrying value of these assets may be higher than the recoverable amount.

The Group’s impairment review of its intangible assets incorporated significant judgements in assumptions, such as timing and extent of future revenues, gross margin and discount rate used.

The Directors consider that there is one cash generating unit (CGU) and all intangibles are allocated to this CGU.

Relevant disclosures in the Annual Report and Accounts FY 2020

Financial statements: Note 9, Intangible assets and accounting policies

In responding to the key audit matter, we performed the following audit procedures:

inquiry and consideration of the appropriateness of the methodology applied in the impairment review process and the judgement applied in the determination of the CGUs of the business against the requirements of IAS 36;
• assess the adequacy of disclosures against the requirements of IAS 36; and
• assessing the impairment models and value in use calculations by:
recalculation of the mathematical accuracy of the impairment models;
- comparing forecast revenue growth to internal supporting information and pipeline contract discussions;
- comparing the discount rate applied to future cash flows against external indicators such as borrowing rate available to the group; and
- evaluating the information included in the impairment models through our knowledge of the business gained through reviewing trading plans and discussions with management;
- inquiry into any assets that have been abandoned or will no longer be developed;
- comparison of the market capitalisation of the business against the carrying value of the group’s single CGU.
- review of post balance sheet events to support the projected cashflows

Our results

Our testing did not identify any material misstatements with regards to the carrying value of the intangible assets in accordance with IAS 36 Impairment of Assets and the Group’s stated accounting policies.

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

Revenue recognition

In responding to the key audit matter, we performed the following audit procedures:

We identified revenue recognition as one of the most significant assessed risks of material misstatement due to fraud.

misstatement due to fraud. • assessing whether revenue recorded in the period was consistent with the Group’s Under ISA 240 (UK) there is a presumed risk that accounting policy for all material revenue revenue may be misstated due to the improper transactions and whether that was compliant recognition of revenue. The revenue cycle might with IFRS 15; include fraudulent transactions and transactions • agreeing significant licence fees design not recognised in correct accounting period development and supply of wireless specifically revenue occurred/ deferred around communications technology revenue and end of the period. royalty amounts to customer contracts and purchase orders, delivery notes and cash During 2020 the Group generated $4.7m (2019: receipts, ; $4.8m) of revenue. The Group has revenue from • for a sample of support contracts, obtaining four income streams; licence fees design copies of signed contracts and purchase development and supply of wireless orders and recalculating the amounts of communications technology, support and revenue recognised and deferred; royalties. Determining the amount of revenue to be • selecting a sample of debtor invoices recognised can require management to make outstanding at the year end and comparing significant judgements around timing and extent of year end balances to post year end receipts or recognition, ensuring all revenue is recognised in other supporting documentation; accordance with IFRS 15, and specifically that • assessed significant contracts entered into product revenue and royalty revenue is recognised during the period for revenue recognition in accordance with the terms of the contract and compliance in accordance with IFRS15; support revenue is recognised over the • testing of the occurance of revenue during the appropriate support contract period. year from the opening deferred revenue; • testing the amounts deferred and accrued at the period end, as well as a review of income Relevant disclosures in the Annual Report recognised in January 2021, to assess and Accounts FY 2020 whether revenues were recorded in the • Financial statements: Note 2, Revenue and appropriate period.

Financial statements: Note 2, Revenue and accounting policies

Our results

Our audit work did not identify any material misstatements in revenue recognised in the year or any material instances of revenue not being recognised in accordance with stated accounting policies.

Our application of materiality

We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report.

Materiality was determined as follows:

Materiality measure	Group Parent company
Materiality for financial statements	We define materiality as the magnitude of misstatement in the financial
as a whole	statements that, individually or in the aggregate, could reasonably be
	expected to influence the economic decisions of the users of these financial

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

Materiality measure	Group	Parent company
	statements. We use materiality in determining the nature, timing and extent
	of our audit work.
Materiality threshold	$79,780 which is 2% of projected	$59,835 which is 1.5% of projected
	revenue for FY 2020.	total assets as at 31 December 2020,
		capped at 75% of Group materiality.
Significant judgements	In determining materiality, we made	In determining materiality, we made
made by auditor in	the following significant judgements:	the following significant judgements:
determining the materiality	Group has been making losses in prior years and the losses have been	The parent is a non-trading entity and holds investments in other group
	volatile so it was considered not	trading entities. We calculated
	appropriate to use PBT as	materiality using total projected
	benchmark.	assets as at 31 December 2020 as
	Revenue is a key performance indicator used by management and shareholders in assessing performance of the business and is a	benchmark but capped materiality to 75% of the group materiality as the standalone materiality was higher than group performance materiality.
	generally accepted audit benchmark	Materiality for the current year is
	and therefore this benchmark is	higher than the level that we
	considered the most appropriate.	determined for the year ended 31
		December 2019 based on
	In determining the materiality at planning stage we considered 2% of	assessment of current year financial information.
	the extrapolated 12 months figures of
	year to date 10 months revenue. The
	actual revenue for 12 months did not
	require change to original materiality.
	Materiality for the current year is
	slightly higher than the level that we
	determined for the year ended 31
	December 2019 mainly due to the
	increase from 1.5% to 2% of the
	projected revenue which is lower in
	current year based on assessment of
	current year financial information. .
Performance
materiality used to drive the extent of	We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to an appropriately low level the
our testing	probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
Performance	$ 59,835 which is 75% of financial	$ 44,876 which is 75% of financial
materiality threshold	statement materiality.	statement materiality.
Significant judgements	In determining materiality, we made	In determining materiality, we made
made by auditor in	the following significant judgements :	the following significant judgements :
determining the performance materiality	We determined that 75% would be an appropriate threshold considering following points :	We determined 75% would be an appropriate threshold considering the following points :
	• Group’s business at current stage	• The parent is a non-trading entity
	is non complex due to low volume	and holds investments in other
	of transactions and operations.	group trading entities. Also, there
	Also, there are no complex	are no complex transactions
		involved in the current year.

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

Materiality measure	Group	Parent company
	transactions involved in current	• No misstatements identified in the
	year.	prior year audit.
	• We identified few misstatements in	•
	prior year audit which had
	immaterial impact on overall
	financial statement.
Specific materiality	We determine specific materiality for one or more particular classes of
	transactions, account balances or disclosures for which misstatements of
	lesser amounts than materiality for the financial statements as a whole could
	reasonably be expected to influence the economic decisions of users taken
	on the basis of the financial statements.
Communication of
misstatements to the	We determine a threshold for reporting unadjusted differences to the audit
audit committee	committee.
Threshold for	$4,000 and misstatements below that	$3,000 and misstatements below that
communication	threshold that, in our view, warrant	threshold that, in our view, warrant
	reporting on qualitative grounds.	reporting on qualitative grounds.

The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements.

– – Overall materiality Group Overall materiality Parent company

==> picture [407 x 146] intentionally omitted <==

----- Start of picture text -----

Projected 12 months PM Projected total assets PM
$3,989,000revenue $59,835, 75% $12,268,000 FSM $44,876, 75%
$59,835,
FSM
capped at 75%
$79,780, 2%
of Group
materiality
TFPUM TFPUM
$4000, 5% $3000, 5%
----- End of picture text -----

FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected misstatements

An overview of the scope of our audit

Our audit approach was a risk-based approach founded on a thorough understanding of the Group's business. We took into account the size and risk profile of each entity, any changes in the business and other factors when determining the level of work to be performed at each entity, which in particular included the following considerations:

the group has centralised processes and controls over the key areas of our audit focus. Group management are responsible for all judgemental processes and significant risk areas. All accounting is centralised and we tailored our audit response accordingly with all audit work being undertaken by the audit team. In assessing

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

the risk of material misstatement to the Group financial statements we considered the transactions undertaken by each entity and therefore where the focus of our work was required;

We performed full scope audits of the financial statements of the group and it’s subsidiaries and the parent company based on the group and component materiality determined.
the total percentage coverage of full-scope over revenues was 100%
the total percentage coverage of full scope over total assets was 100%
Our audit approach was fully substantive in nature in current year. In last year we performed full scope audits of the financial statements of the parent company Etherstack plc, Etherstack Wireless Limited and Etherstack Pty Limited based on their materiality to the group and a targeted audit approach was undertaken for Etherstack Inc and Auria Wireless Pty Limited based on their size and due to the revenue recognised by each entity. However in current year we changed our approach and have performed full scope audit of all components as this was deemed more efficient.

Other information

The directors are responsible for the other information. The other information comprises the information included in the financial report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the oth er information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Our opinion on other matters prescribed by the Companies Act 2006 is unmodified

In our opinion, based on the work undertaken in the course of the audit:

the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matter on which we are required to report under the Companies Act 2006

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

Responsibilities of directors for the financial statements

As explained more fully in the directors’ responsibilities statement set out on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK).

We understood how Etherstack plc is complying with those legal and regulatory frameworks by making enquiries of management, those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes, meeting of minutes with Audit Committee and correspondence received from regulatory bodies and review of legal and professional expense ledger.

The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:

We enquired of management about all the laws and regulations which are required to be complied by the group and based on our enquiry they are required to comply the follo wing laws and regulations:
Etherstack is incorporated in the UK and has adopted International accounting standards in conformity with the requirements of the Companies Act 2006
Etherstack is also required to comply with Australian Corporation Law, employment law, Income tax law, Goods and service tax (GST) act, health and safety regulations, data protection act/GDPR, consumer credit licensing, modern slavery act and equivalent in the respective countries of operation.
We understand from management that the finance team ensures compliance with all the laws and regulations. Management review compliance with laws and regulation on a regular basis. They have a compliance schedule to ensure completeness of all compliance obligations.
As Etherstack is listed on the Australian Securities Exchange (ASX) and therefore is required to comply with the Corporate Governance and ASX Listing Rules. We assessed whether Etherstack is in conformity with this framework.
We assessed the susceptibility of the group's financial statements to material misstatement, including how fraud might occur by meeting with management from different parts of the business to understand where it is considered there was a susceptibility of fraud. We also considered performance targets and their propensity to influence efforts made by management to manage earnings. We considered the controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk.

Etherstack plc Financial report for the year ended 31 December 2020

Independent auditor’s report to the members of Etherstack plc

Our audit procedures involved: journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our understanding of the business, group management. In addition, we completed audit procedures to conclude on the compliance of disclosures in the annual report and accounts with applicable financial reporting requirements.
These audit procedures were designed to provide reasonable assurance that the financial statements were free of fraud or error.
We enquired from management on any non-compliance, notification from the local governing authorities, legal notices received during the year. We reviewed their legal and professional expenses ledger to identify any lawyer or other professional fees specifically for any non -compliance. During the course of our audit procedures we have not identified any specific non comp liance.
The engagement team collectively had the appropriate competence and capabilities to identify or recognize non-compliance with laws and regulations;

Use of our report

This report is made solely to the company’s members, as a body, in accordance wi th Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

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Nicholas Page Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 17 March 2021

Etherstack plc Financial report for the year ended 31 December 2020

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2020

Note *Revenue from Contracts with Customers* 2,3 Cost of sales *Gross Profit* Other income; research & development and COVID-19 incentives 2 Amortisation and impairment of intangible assets 4 Other administrative expenses 4 Net foreign exchange gains/(losses) 4 Total administrative expenses Group operating (loss) / profit from continuing operations Embedded derivatives revaluation and amortisation (net) Finance income-interest 7 Finance expense-borrowing costs 7 Net finance expense Loss before taxation Income tax benefit 8 (Loss)/Profit after taxation for the year attributable to the equity holders of the parent Other comprehensive income/(Loss) Items that may be classified subsequently to profit and loss: Exchange differences on translation of foreign operations Total comprehensive loss for the year attributable to the equity holders of the parent Basic earnings/(loss) per share 21 Diluted earnings/(loss) per share 21	2020 $’000 4,699 (2,032) 2,667 125 (1,183) (1,992) 127 (3,048) (256) (2,216) - (149) (2,365) (2,621) 321 (2,300) (285) (2,585) Cents (1.96) (1.96)	2019 $’000 4,792 (1,507) 3,285 100 (1,613) (2,255) (180) (4,048) (663) (16) - (321) (337) (1,000) 129 (871) 35 (836) Cents (0.78) (0.78)

The accompanying notes form an integral part of the financial statements.

Etherstack plc Financial report for the year ended 31 December 2020

Consolidated Statement of Financial Position

as at 31 December 2020

as at 31 December 2020
Note Current assets Cash and cash equivalents Trade and other receivables 13 Inventories 12 Right-of-use assets 17 Non-current assets Property, plant and equipment 11 Trade and other receivables 13 Intangible assets 9 Right-of-use assets 17 TOTAL ASSETS Current liabilities Trade and other payables 14(a) Current tax liabilities Deferred revenue 15 Employee entitlements Lease liabilities 14(c) Convertible notes 14(b) Borrowings 14(b) Non-current liabilities Deferred tax liability 8(b) Deferred revenue 15 Employee entitlements Lease liabilities 14(c) Convertible notes 14(c) TOTAL LIABILITIES NET ASSETS Capital and reserves Share capital 18 Share premium account Merger reserve Share based payment reserve Foreign currency translation reserve Retained earnings TOTAL EQUITY	2020 $’000 4,180 1,410 318 128 6,036 73 404 3,516 75 4,068 10,104 2,760 61 1,641 357 145 233 572 5,769 14 103 10 112 - 239 6,008 4,096 739 15,212 3,497 609 (2,983) (12,978) 4,096	2019 $’000 931 1,870 155 92
		3,048
		35 - 3,295 84
		3,414

		6,462
		2,467 46 1,248 236 109 - 1,262
		5,368
		40 84 43 130 1,417
		1,714

		7,082

		(620)
		652 7,998 3,497 609 (2,698) (10,678)
		(620)

The financial statements of Etherstack plc (company registration 7951056) were approved by the Board of Directors and authorised for issue on 15 March 2021. Signed on behalf of the Board of Directors by:

==> picture [145 x 40] intentionally omitted <==

Paul Barnes FCCA, Director

The accompanying notes form an integral part of the financial statements.

Etherstack plc Financial report for the year ended 31 December 2020

Company Statement of Financial Position

as at 31 December 2020

Note Current assets Cash and cash equivalents Trade and other receivables 13 Non-current Assets Investments in subsidiaries 10 Trade and other receivables 13 TOTAL ASSETS Current Liabilities Trade and other payables 14(a) Convertible notes 14(b) Borrowings 14(b) Non-current Liabilities Convertible notes TOTAL LIABILITIES NET ASSETS Capital and reserves Share capital 18 Share premium account Merger reserve Foreign currency reserve Share-based payment reserve Retained earnings TOTAL EQUITY	2020 $’000 4 20 24 - 12,244 12,244 12,268 195 233 617 1,045 - - 1,045 11,223 739 15,212 6,742 100 609 (12,179) 11,223	2019 $’000 - 18 18 - 8,034 8,034 8,052 253 - 1,269 1,522 1,417 1,417 2,939 5,113 652 7,998 6,742 100 609 (10,988) 5,113

As permitted by section 408 of the Companies Act 2006, the income statement of the parent company, Etherstack plc, is not presented as part of the financial statements. The parent company’s loss for the financial year was $1,191 (2019 loss $3,040).

The financial statements of Etherstack plc (company registration number 7951056) were approved by the Board of Directors and authorised for issue on 15 March 2021.

Signed on behalf of the Board of Directors

Paul Barnes FCCA, Director

The accompanying notes form an integral part of the financial statements

At 31 December 2020 739 15,212	Transactions with owners 87 7,214	Issue of Share Capital 87 7,214	Total comprehensive income for the year - -	Other comprehensive income - -	Loss for the year - -	Balance at 31 December 2019 652 7,998	Transactions with owners 7 256	Issue of Share Capital 7 256	At 31 December 2018 645 7,742	Total comprehensive income for the year - -	Other comprehensive income - -	Loss for the year - -	At 1 January 2019 645 7,742	$’000 $’000		Account	Capital Premium	Share Share
3,497	-	-	-	-	-	3,497	-	-	3,497	-	-	-	3,497	$’000			Reserve	Merger
609	-	-	-	-	-	609	-	-	609	-	-	-	609	$’000	Reserve	Payment	Based	Share
(2,983)	-	-	(285)	(285)	-	(2,698)	-	-	(2,733)	35	35	-	(2,733)	$’000	Reserve	Translation	Currency	Foreign
(12,978)	-	-	(2,300)	-	(2,300)	(10,678)	-	-	(9,793)	(871)	-	(871)	(9,807)	$’000			Earnings	Retained
4,096	7,301	7,301	(2,585)	(285)	(2,300)	(620)	263	263	(33)	(836)	35	(871)	(47)	$’000			Equity	Total

Balance at 31 December 2020 739 15,212	Transactions with owners 87 7,214	Issue of Share Capital 87 7,214	Total comprehensive income - -	_ __	Loss for the period - -	Balance at 31 December 2019 652 7,998	Transactions with owners 7 256	Issue of Share Capital 7 256	At 31 December 2019 645 7,742	Total comprehensive income - -	Loss for the period - -	Balance at 1 January 2019 645 7,742	$’000	$’000 account	capital premium	Share Share
6,742	-	-	-	____	-	6,742	-	-	6,742	-	-	6,742	$’000	Reserve	Merger
609	-	-	-	_____	-	609	-	-	609	-	-	609	$’000	reserve	payment	Share based
100	-	-	-	______	-	100	-	-	100	-	-	100	$’000	reserve	currency	Foreign
(12,179)	-	-	(1,191)	_____	(1,191)	(10,988)	-	-	(7,948)	(3,040)	(3,040)	(7,948)	$’000	earnings	Retained
11,223	7,301	7,301	(1,191)	____	(1,191)	5,113	263	263	7,890	(3,040)	(3,040)	7,890	$’000	equity	Total

Etherstack plc Financial report for the year ended 31 December 2020

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

Note Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest paid Government grants and tax incentives Income tax paid Net cash generated from operating activities Cash flow from Investing activities Additions to intangible assets 9 Payments for property, plant and equipment 11 Net cash flow (used in) investing activities Cash flows Financing activities Proceeds from issue of shares capital Share issue cost Proceeds from convertible notes issue Principal element of lease payments Repayments of loan Interest paid Net cash flow (used in) from financing activities Net increase/ (decrease) in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December	2020 $’000 5,528 (4,145) (31) 411 (30)	2019 $’000 5,628 (4,473) (152) 379 (18)
	1,733 (1,401) (69) (1,470) 3,827 (238) - (132) (504) (52) 2,901 3,164 85 931 4,180	1,364 (1,205) (18) (1,223) - - 1,398 (110) (534) (15) 739 880 - 51 931

The accompanying notes form an integral part of the financial statements.

Etherstack plc Financial report for the year ended 31 December 2020

Company Statement of Cash Flows

For the year ended 31 December 2020

Cash flows from operating activities Intercompany (payments)/ receipts Payments to suppliers and employees Net cash generated from/ (used in) operating activities Cash flows Financing activities Proceeds from issue of shares capital Share issue cost Proceeds from convertible notes issue Re-payments of loan Interest paid Net cash flow (used in) from financing activities Net increase/ (decrease) in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December	2020 $’000 (2,727) (338)	2019 $’000 (845) (237)
	(3,085) 3,827 (238) - (469) (52) 3,068 3 1 - 4	(1,082) - - 1,398 (293) (15) 1,090 8 (8) - -

The accompanying notes form an integral part of the financial statements.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Section I: Basis of Accounting

Note 1: Basis of Accounting

Section II: Revenue and Expenses

Note 2: Revenue and Other income Note 3: Segment information Note 4: Group operating profit/(loss) Note 5-7: Expenses Note 8: Taxation

Section III: Assets

Note 9: Intangible Assets Note 10: Subsidiary undertakings Note 11: Property Plant and Equipment Note 12: Inventories Note 13: Trade and other receivables

Section IV: Liabilities

Note 14: Financial Liabilities Note 15: Deferred Revenue Note 16: Financial Instruments Note 17: Leases

Section V: Share Capital

Note 18: Called up Share Capital Note 19: Reserves Note 20: Share based payments Note 21: Earnings/(Loss) per Share

Section VI: Other Notes

Note 22: Related party transactions Note 23: Reconciliation of borrowings arising from financing activities Note 24: Changes in accounting policy and disclosures Note 25: Events after balance date

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Section I: Basis of Accounting

1 Basis of Accounting

1.1 General Information

The financial statements of Etherstack plc and its subsidiaries (the Group) for the year ended 31 December 2020 were authorised for issue by the Board of Directors on 15 March 2021 and the Statement of Financial Position was signed on the Board‘s behalf by Mr Paul Barnes. Etherstack plc is a public limited company incorporated and domiciled in England and Wales. The Company‘s ordinary shares, when held as a Chess Depository Interest (CDI) and registered on the CDI register, are tradable on the Australian Securities Exchange (ASX). Ordinary shares on the UK share register cannot be traded on the ASX.

1.2 Basis of Preparation

The Group‘s financial statements have been prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006 as they apply to the financial statements of the Group for the year ended 31 December 2020.

The Group financial statements are presented in US Dollar (“$”) which is the Group’s presentational currency. The Group operates in international markets and the US Dollar provides the most comparable currency for peer companies.

All values are rounded to the nearest thousand dollars ($000) except where otherwise indicated.

1.3 Basis of consolidation

The Group financial statements consolidate the financial statements of Etherstack plc and the entities it controls (its subsidiaries) drawn up to 31 December each year.

Control is achieved where the Group has the power to govern the financial and operating policies of a Group undertaking so as to obtain economic benefits from its activities. Subsidiary undertakings’ results are adjusted, where appropriate, to conform to group accounting policies.

1.4 Going concern

1.5 Foreign currency translation

US$ has been adopted as the presentational currency in these financial statements. The Directors have considered the appropriate functional currency for each individual operation.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Exchange differences are recognised in profit or loss in the period in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity.

1.6 Judgements and key sources of estimation uncertainty

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. However, the nature of estimation means that actual outcomes could differ from those estimates.

Capitalisation of development costs
Impairment of intangible assets and investments
Assessment of the Group as a going concern
Timing and measurement of revenue recognition
Valuation of the embedded derivative

These judgements and estimates are further explained in the applicable notes.

1.7 Other Accounting Policies

Significant and other accounting policies that summarise the measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. In addition, changes to accounting policies are set out in Note 24.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Section II: Revenue and Expenses

2. Revenue and Other income

An analysis of the Group’s revenue and Other income is as follows: Revenue from Contracts with Customers Licence fees, installation/integration and supply of wireless communications technology Support services Royalties Other income Grant receipts – research and development incentives Cash flow boost- COVID-19 incentive 2020 $’000 Timing of revenue recognition At a point in time Over time Total Revenue from Contracts with Customers Licence fees, design, development and supply of wireless communications technology 2,368 - 2,368 Support services - 1,5881,588 Royalties 743 - 743 3,111 1,588 4,699 Other income Grant receipts – research and development Incentives - 56 56 Cash flow boost- COVID-19 incentive 69 - 69 3,180 1,644 4,824	2020 $’000 2019 $’000 2,368 2,954 1,588 1,490 743 348 4,699 4,792 56 100 69 - 125 100 4,824 4,892 2019 $’000 At a point in time Over time Total 2,954 - 2,954 - 1,4901,490 348 - 348	2019 $’000 2,954 1,490 348
		4,792
		100 -
		100

		4,892
	3,302 1,490 4,792
	- 100 100 - - -
	3,302 1,590 4,892

Revenue recognition accounting policies

The Group recognises revenue in accordance with IFRS 15 Revenue from Contracts with Customers, and Clarifications to IFRS 15- Revenue from Contracts with Customers (IFRS 15).

Many of the Group’s contracts comprise a variety of performance obligations including, but not limited to, supply of hardware, software licences including royalties, installation/integration services and support services.

The Group evaluates the separability of the promised goods or services based on whether they are ‘distinct’. A promised good or service is ‘distinct’ if both:

the customer benefits from the item either on its own or together with other readily available resources, and

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

it is ‘separately identifiable’ (ie the Group does not provide a significant service integrating, modifying or customising it).
To determine whether to recognise revenue, the Group follows a 5-step process:
1 Identifying the contract with a customer
2 Identifying the performance obligations
3 Determining the transaction price
4 Allocating the transaction price to the performance obligations
5 Recognising revenue when/as performance obligation(s) are satisfied

The Group enters into transactions involving a range of the Group’s products and services, for example for the delivery of hardware, software and related services. In such cases, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand -alone selling prices.

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as Deferred revenue in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.

Licence fees and revenue from the sale of goods

Revenue from the sale of goods, including manufactured equipment sales and white labelled equipment sales, is recognised at a point in time when the performance obligations are satisfied.

Technology access licences revenues are recognised at a point in time on the same basis as the sale of goods unless there are ongoing performance obligations associated with them. Revenue attributable to any ongoing performance obligation is recognised as the ongoing performance is fulfilled.

Rendering of services

Services include wireless technology design, customisation and integration services.

Depending on the circumstances of the agreement and the performance obligations identified within the contract, revenue from these services may be recognised either on a time-and-materials basis as the services are provided or where the Group enters into a contract for a fixed fee, the related revenue will be recognised over time. Revenue is recognised over time as the asset does not have an alternative use and the Group has a right to receive payment for work to date. To determine when and to what extent revenue can be recognised on a fixed fee arrangement, the Group measures its progress towards satisfaction of the performance obligation by comparing actual time spent to date with the total estimated time.

Revenue from support contracts

Revenue from support contracts is recognised evenly over the period of the support contract as the customer receives and consumes the benefit as the Group performs support.

Royalties

Royalties that are sales or usage based are recognised at a point in time at the later of when the sale or usage occurs or the performance obligation is satisfied. Minimum royalty commitments are recognised as Royalty revenue when licences are granted as these are not dependent on sales or usage.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Government grants

Government grants are recognised over time when it is reasonable to expect that the grants will be received and that all related conditions will be met. Government grants in respect of capital expenditure are credited to a deferred income account and are released as income by equal annual amounts over the expected useful lives of the relevant assets. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.

Key Judgements: revenue recognition

Judgement may be required in determining the timing and measurement across all revenue streams at contract commencement, in unbundling revenues and assigning revenue to separate and distinct deliverables or in estimating costs to complete.

3. Segment information

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Group Chief Executive Officer, being the chief operating decision maker to allocate resources and to assess performance. The Group is operational in geographical locations including the United Kingdom, United States, Japan and Australia. The Group operates and reports as one business segment and is not analysed by management in either separate functions or geographical regions, as due to the nature of the work and complexity of the software, there is a large degree of collaboration and integration across countries for any given project.

Geographical information

Revenue from external customers by region Country/region of domicile North America Australia and New Zealand Japan, UK and other countries Non-current assets by region Country/region of domicile United Kingdom North America Australia, New Zealand and other countries Revenues from a single customer amounting to more than 10% of Group revenue Customer A Customer B Customer C	2020 $’000 1,894 1,959 846 4,699 3,473 21 574 4,068 2020 $’000 960 688 557 2,205	2019 $’000 2,441 1,708 643 4,792 3,155 5 254 3,414 2019 $’000 1,188 663 - 1,851

Revenues from customers which do not amount to more than 10% of Group revenue in a particular period are not disclosed.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

4. Group operating profit/(loss)

This is stated after charging/(crediting):

Depreciation of property, plant and machinery Depreciation of Right-of-use-assets Operating lease costs Foreign exchange Losses /(Gains) Finance costs - interest on loans and convertible notes Finance costs – interest on leased assets Inventory costs charged to costs of sales Amortisation and impairment of intangible assets: Amortisation of intangible assets Impairment of intangible assets Amortisation and impairment of intangible assets - Total	2020 $’000 2019 $’000 33 25 120 118 169 184 (127) 180 116 279 33 42 719 413 1,183 1,523 - 90
	1,183 1,613

Depreciation of property, plant and machinery
Depreciation of Right-of-use-assets
Operating lease costs
Foreign exchange Losses /(Gains)
Finance costs - interest on loans and convertible notes
Finance costs – interest on leased assets
Inventory costs charged to costs of sales
Amortisation and impairment of intangible assets:
Amortisation of intangible assets
Impairment of intangible assets
Amortisation and impairment of intangible assets - Total

2020
$’000
2019
$’000
33
25
120
118
169
184
(127)
180
116
279
33
42
719
413
1,183
1,523
-
90

1,183
1,613

5. Auditor’s remuneration

The Group paid the following amounts to its auditor in respect of the audit of the financial statements and for other services provided to the Group:

Grant Thornton UK LLP Fees payable to the company auditors for the audit of the company’s annual accounts Fees payable to the company’s auditors and its associates for other services Audit of the accounts of subsidiaries Audit related assurance services Tax compliance services Tax advisory services	2020 $’000 137 30 31 6 5 209	2019 $’000 97 30 28 6 15 176

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

6. Staff costs and Directors’ emoluments

a) Staff costs Wages and salaries Social security costs Pension costs	2020 $’000 3,065 160 33 3,258	2019 $’000 2,666 136 124 2,926

$Nil share-based payments included in wages and salaries for the current year (2019: $nil).

The staff costs set out above include $1,080 (2019 $864) which have been capitalised in accordance with the accounting policies outlined in Note 9.

The average number of employees during the year was:

2020
Number
Executive Directors
1
Engineering
17
Management, sales & administrative
8
26
b) Directors’ emoluments
2020
$’000
Emoluments
401
Amounts paid to third parties
-
401
Pension costs
6
Details of the highest paid director are included in the Directors Remuneration section
of the Report of the Directors.
The number of directors who are accruing benefits under:
2020
Number
Defined contribution schemes
2

2019
Number
1
15
9
25
2019
$’000
369
-
369
5
2019
Number
2

Employee benefits and retirement benefits - Accounting policies

Short-term employee benefits

The cost of short-term employee benefits, (those expected to be settled wholly within 12 months after the service is rendered, such as paid annual leave and sick leave, bonuses and non-monetary benefits), are recognised in the period in which the service is rendered and are not discounted.

Long-term employee benefits

Liabilities for long service leave expected to be settled within the next 12 months are recognised in the provision for long service leave and are measured at the amounts expected to be paid when the liabilities are settled.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Liabilities for long service leave expected to be settled more than 12 months from the balance date are also recognised in the provision for long service leave and consider expected employee service periods, and salary increases and are measured at a discounted amount based upon estimated settlement dates.

Employee benefit on-costs

A liability is also carried for on-costs, including payroll tax and other insurances, in respect of provisions for certain employee benefits which attract these costs.

Payments to defined contribution retirement benefit schemes

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

7. Finance Costs

7. Finance Costs
Related party loans (see Note 22) Convertible Notes Interest-Leased assets Other interest (net) Revaluation and amortisation of embedded derivative (net) 8. Taxation *(a) Tax (credited)/charged in the statement of comprehensive* *income.* Current income tax: UK corporation tax and income tax Foreign tax Current income tax benefit Amounts under /(over) provided in previous years Tax (income)/expense in the statement of comprehensive income The tax (income)/expense in the statement of comprehensive income is disclosed as follows: Income tax (income)/expense on continuing operations		2020 $’000 64 62 33 (10) 2,216 2,365 2020 $’000 (310) 41 (269) (52) (321) 2020 $’000 (321)		2019 $’000 66 138 42 75 16 337 2019 $’000 (251) 24 (227) 98 (129) 2019 $’000 (129)

8. Taxation

Reconciliation of the total tax (credit)/charge

The tax expense in the statement of comprehensive income for the year is higher than the standard rate of corporation tax in the UK of 19% (2019: 19%). The differences are reconciled below:

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Loss before income tax Tax at the UK corporation tax rate of 19% (2019: 19%) Expenses not deductible for tax purposes Tax losses not recognised Losses surrendered Difference in overseas tax rates Deferred tax liability Amounts under /(over) provided in previous years Total tax (benefit)/expense in the statement of comprehensive income (b) Deferred tax liabilities/(assets) 1 January 2020 $’000 Deferred tax liability re customer contract intangible 40 Deferred tax asset - 40	Loss before income tax Tax at the UK corporation tax rate of 19% (2019: 19%) Expenses not deductible for tax purposes Tax losses not recognised Losses surrendered Difference in overseas tax rates Deferred tax liability Amounts under /(over) provided in previous years Total tax (benefit)/expense in the statement of comprehensive income (b) Deferred tax liabilities/(assets) 1 January 2020 $’000 Deferred tax liability re customer contract intangible 40 Deferred tax asset - 40		2020 $’000 (2,621)	2019 $’000 (1,000) (190) 45 (398) 366 (23) (27) 98 (129) 31 December 2020 $’000 14 -
			(498) 20 (242) 451 25 (26) (51) (321) Recognised in Profit & Loss $’000 (26) -
	40		(26)	14

Accounting policies

The tax currently payable is based on taxable profit or loss for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all material taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

No deferred tax liabilities have been recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, as the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity or when it relates to items in other comprehensive income, in which case it is recognised in other comprehensive income.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

The Group is subject to income and other tax in the UK, USA, Australia, Japan and other countries. Judgement is required in determining the provision for income and other taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the tax provisions in the period in which such determination is made. Deferred tax assets are recognised relating to tax losses only to the extent that it is probable future taxable profits will arise in that jurisdiction.

Unrecognised tax losses

The Group has tax losses in the United Kingdom of $11,404 (2019 $11,232) that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. No deferred tax asset has been recognised in respect of losses carried forward as it is not considered probable that these will reverse in the near future. No deferred tax liability is recognised on temporary differences relating to the unremitted earnings of overseas subsidiaries as the Group is able to control the timings of the reversal of these temporary differences.

Income tax incentives

There has been a significant income tax benefit realised by the Group in 2020 and 2019 as a consequence of research and development activities by UK resident companies in the Group. The benefit is recognised in the year in which the research and development activities are undertaken. There may be judgement required in determining the likely benefit to be received. Eligible expenditure gives rise to enhanced tax deductions which has created tax losses. Under current legislation, a portion of these losses may be surrendered in return for cash refunds. The tax effect of losses surrendered in 2020 were $451 and in 2019 were $366.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

SECTION III: ASSETS

9. Intangible assets (Group)

Capitalised development costs $000 Cost At 1 January 2019 19,614 Additions 1,205 Disposals - Exchange differences - At 31 December 2019 20,819 Additions 1,401 Exchange differences 1 At 31 December 2020 22,221 Accumulated amortisation 1 January 2019 16,214 Charge for the year 1,400 Impairment 90 Exchange differences - At 31 December 2019 17,704 At 1 January 2020 17,704 Charge for the year 1,073 Impairment - Exchange differences - At 31 December 2020 18,777 Carrying amount At 31 December 2020 3,444 At 31 December 2019 3,115	Engineering software $000 431 - - - 431 - - 431 368 27 - - 395 395 17 - - 412 19 36	Customer contract intangible $000 808 - - (6) 802 - 79 881 566 96 - (4) 658 658 93 - 77 828 53 144	Goodwill $000 353 - - - 353 - - 353 353 - - - 353 353 - - - 353 - -	Total $000 21,206 1,205 - (6) 22,405 1,401 80 23,886 17,501 1,523 90 (4) 19,110 19,110 1,183 - 77 20,370 3,516 3,295

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Intangible assets accounting policies

Intangible assets comprise internal and external costs incurred on the development of intellectual property assets that meet the criteria under IAS 38 Intangible assets, Acquired customer relationship assets, goodwill and engineering software.

Research and development expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from the Group’s intellectual property development is recognised if all of the following conditions are met:

an asset is created that can be identified (such as software and new processes);
the technical feasibility of completing the asset so that it will be available for use or sale;
the Group intends to complete the asset and use or sell it;
the Group has available adequate technical, financial and other resources to complete the development and to use or sell the asset;
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.

These criteria are assessed on a project by project basis from the outset and continuing through to project completion. This assessment requires management judgement to determine whether the criteria are met, which is often reliant on expectations of future events in particular potential customer contracts and technical feasibility assessments in project management reports.

Internally-generated intangible assets have a finite useful life, and are amortised on a straight-line basis over that useful life, determined as the shorter of 6 years or the estimated delivery model. Where material research and development expenditure is incurred to increase the functionality or performance of an existing asset and thereby extends the useful commercial life of the existing asset, this additional expenditure is capitalised and amortised over the shorter of 3 years and the estimated useful life. Amortisation of the asset begins when development is complete and the asset is available for use, such that it can be deployed to customers. During the period of development, the asset is tested for impairment annually.

Acquired Customer relationships

Intangible assets classified as customer relationships are recognised when acquired as part of a business combination and are measured initially at fair value. Customer relationships are amortised on a straight line basis over the estimated period over which benefits are derived from the Acquired Customer Relationship. For the purpose of impairment testing, Acquired Customer Relationship assets are allocated to a cashgenerating unit.

Business combinations and goodwill

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.

Goodwill represents the future economic benef its arising from a business combination that are not individually identified and separately recognised. Goodwill is carried at cost less accumulated impairment losses.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Engineering software

Purchased engineering software (including licences) is stated at cost less accumulated amortisation and impairment losses. Amortisation is charged on a straight line basis over 5 years from the date the software is installed. The asset is tested for impairment where there are indicators of impairment.

Impairment testing of intangible assets

At each balance sheet date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. In addition, a line by line assessment of individual assets is undertaken for assets that no longer meet the recognition criteria under IAS 38 or have been otherwise abandoned. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life and an intangible asset not yet ready for use are tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Except where there is an impairment of Goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Impairments of goodwill are not reversed.

As part of the impairment testing at each balance sheet date, the Group assesses the number of cashgenerating units in operation. This assessment is based upon how management monitors operations and makes decisions about continuing or disposing of assets and operations. In 2020, all assets have been considered to be part of one cash-generating unit (2019 one cash-generating unit).

Intangible Assets: Significant judgements

Capitalisation and recoverability of Development costs

During the year, the Group recognised internally-generated intangible assets totalling $1,401 (2019 $1,205). Significant judgement is required in assessing whether development costs met the conditions for capitalisation as set out in the Group’s accounting policy.

Impairment Testing

The Group performed its impairment test as at reporting date. The Group considers the relationship between its market capitalisation and its book value, and the intentions to proceed with planned and in progress developments amongst other factors when reviewing for indicators of impairment. The outcome of this 2020 review is a $Nil (2019 $90) impairment adjustment.

Following the impairment of assets, if any, which no longer satisfy criteria for continued recognition, the remaining value of intangible assets in the CGU is reviewed for impairment. The recoverable amount of the CGU has been determined based on a value in use calculation using cashflow projections from detailed financial forecasts prepared by management extrapolated to cover a 6 year period. 6 years has been selected as this is the estimated useful life of these assets and is therefore considered to be an appropriate period to assess the cashflows to be used in an impairment assessment. The outcome of this review was that no impairment adjustment was required.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

The key assumptions are:

Revenues are based upon the budget for financial year 2021. For subsequent years a growth rate of nil is assumed in the financial models from the base year 2021 budget. The expectation is for positive growth over the medium and longer term however noting that revenues are volatile for the company and throughout the industry and in the interests of producing a conservative model an assumption of no growth has been made and cashflows beyond 6 years have been excluded.
Constant gross margins have been assumed. No efficiency or productivity improvements have been built into the projections.
Pre-tax discount rate of 18%.

Management has considered the sensitivity of the value in use calculation to changes in assumptions in particular changes to the discount rate and earnings (EBITDA). A 1% increase in the assumed discount rate creates a $211 decrease in the value in use. There is no impairment required by a 1% change in the assumed discount rate. A 1% to 10% decrease in assumed earnings creates a $76,000 to $763,000 decrease in the value in use. There is no impairment required by a 1 to 10% decrease in the assumed earnings.

The review of recoverability encompasses consideration of the expected cash flows and margins to be generated by these assets and the expected period over which future benefits are likely to be derived. The outcome of the review supports the expectation that future revenues and profits will be derived from the intellectual property assets developed by the Group.

Expected revenues and margins generated by these assets will continue to be closely monitored, and adjustments made in future periods if future market activity indicates that such adjustments are appropriate.

10. Subsidiary undertakings Subsidiary undertakings at cost Less impairment provision	Company 2020 $000 7,311 (7,311) -	Company 2019 $000 7,311 (7,311) -

The Company’s investments at 31 December 2020 in the share capital of other companies comprises:

Subsidiary undertakings	Holding	Class of share	Country of incorporation
Etherstack Wireless Limited	100%	Ordinary	England and Wales
Indian Pacific Nederland BV *	100%	Ordinary	Netherlands
Etherstack Inc.*	100%	Ordinary	USA
Etherstack Pty Limited *	100%	Ordinary	Australia
Auria Wireless Pty Limited*	100%	Ordinary	Australia
Etherstack Japan Limited *	100%	Ordinary	Japan

These companies are owned via another Group entity, with Etherstack plc the ultimate parent company of the Group.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

All of the companies in the Group develop and sell wireless software communications products.

Accounting policies: Investments in subsidiaries

Investments are carried at their historic cost, and are reviewed annually for impairment. Any impairment losses are booked in the year that they arise.

Subsidiaries are consolidated from the date of their acquisition. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All intra-Group balances and transactions, including unrealised profits arising from them, are eliminated in full.

Significant judgement: Impairment adjustment

There is no impairment adjustment in 2020 however, in the prior year, an impairment adjustment of $2,660 was recognised. Etherstack plc is a holding company and the listed vehicle within the Group. Operating subsidiaries have incurred losses requiring Etherstack plc, as the parent company, to review the carrying value of the investments in these operating subsidiaries.

11. Property, plant and equipment (Group)

Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Total $’000 471 18 - 8

26	129	342	497


-	32	36	68
3	9	19	31


29	170	397	596



26	120	282	428
-	2	23	25
-	-	-	-
-	2	7	9


26	124	312	462


-	5	28	33
3	8	17	28


29	137	357	523



-	33	40	73


-	5	30	35

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Accounting policy:

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised so as to write-off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Leasehold improvements over 5 years (or the length of the lease, whichever is shorter) Computer equipment over 3 years Furniture and equipment over 5 years

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.

12. Inventories

Work in Progress Slow moving stock provision	2020 $’000 580 (262) 318	2019 $’000 417 (262) 155

Accounting policy

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

13. Trade and other receivables

Current Trade debtors Accrued Income from contracts in progress Other debtors Research and development incentives Non-current Accrued Income from contracts in progress Amounts receivable from Group undertakings Less: Impairment	Group 2020 $’000 2019 $’000 581 1,249 173 121 328 242 328 258 1,410 1,870 404 - - - - - 404 -	Company 2020 $’000 2019 $’000 5 4 - - 15 14 - - 20 18 - - 13,179 8,969 (935) (935) 12,244 8,034

The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Accounting policy

Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.

Accrued income from contracts in progress represents unbilled fees and licence income derived from projects and contracts in progress at the end of the period.

The average credit period taken on sales of goods is 27 days (2019: 21). No interest is charged on the receivables for the first 30 days from the date of the invoice. Thereafter, the Group reserves its right to charge interest at various rates on the outstanding balance. The Group recognises, where appropriate, an allowance for expected credit losses.

Due to the nature of the Group's business, potential customers tend to have sound credit status. Before accepting a new customer, the Group assesses the likely credit risk of the potential customer principally by reference against the complexity and nature of the project. There are 3 (2019: 3) customers who each represent more than 5 per cent of the total balance of trade receivables.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

SECTION IV: LIABILITIES

14. Financial Liabilities

14. Financial Liabilities
(a) Trade and other payables Current Trade payables and accruals Other payables Other taxes and social security costs Non-current Trade payables and accruals Trade and other payables-Total (b) Borrowings Current Convertible notes at amortised cost Embedded derivative at fair value Other loans Non-current Convertible notes at amortised cost Embedded derivative at fair value Borrowings -Total (c) Lease liabilities Current Lease liabilities Non-current Lease liabilities Lease liabilities -Total	Group 2020 $’000 2019 $’000 845 609 1,549 1,596 366 262 2,760 2,467 - - 2,760 2,467 107 - 126 - 572 1,262 805 1,262 - 1,097 - 320 - 1,417 805 2,679 145 108 145 108 112 130 112 130 257 238	Company 2020 $’000 2019 $’000 38 30 157 223 - - 195 253 - - 195 253 107 - 126 - 617 1,269 850 1,269 - 1,097 - 320 - 1,417 850 2,686 - - - - - - - - - -
			253
			-
			253
			- - 1,269
			1,269
			1,097 320
			1,417
			2,686
			-
			-
			-
			-
			-

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.

The directors consider that the carrying amount of trade and other payables approximates their fair value.

The embedded derivative relates to conversion rights attached to the convertible notes.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Convertible notes

On 31 December 2019, 1,290,323 convertible notes were converted into fully paid ordinary shares of the Company and 1,690,323 of the Notes were redeemed by the note holders.

On 27 August 2019, the Company raised AUD $2 million (USD 1.398 million) from the issue of Convertible Notes. The key terms of the issue are set out below:

The Notes are Convertible at the note holders’ option at any time prior to maturity, being 2 years after the date of issue.
The Convertible Notes may be repaid prior to maturity. Early repayment within 12 months of the issue date is possible if the Company and the Convertible Note holder agree. Early repayment later than 12 months after the issue date is possible at the option of Etherstack plc
The Convertible Notes shall convert into ordinary fully paid shares in the capital of Etherstack plc at a conversion price of AUD$0.30. Up to 6,666,667 fully paid ordinary shares may be issued.
The Convertible Notes are unlisted

On 30 June 2020 and 1 July 2020 all of these Convertible notes were converted into 6,666,667 fully paid Ordinary shares.

On 17 Feb 2020 the Company issued 499,377 additional Convertible notes. The key terms are:

The Notes are Convertible at the note holders’ option at any time prior 22 August 2021.
The Convertible Notes may be repaid prior to maturity. Early repayment within 12 months of the issue date is possible if the Company and the Convertible Note holder agree. Early repayment later than 12 months after the issue date is possible at the option of Etherstack plc
The Convertible Notes shall convert into ordinary fully paid shares in the capital of Etherstack plc at a conversion price of AUD$0.30. Up to 499,377 fully paid ordinary shares may be issued.
The Convertible Notes are unlisted

These convertible notes remain on issue at 31 December 2020.

Other loans

Information on other loans is set out in Note 22, Related Party Transactions.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

15. Deferred Revenue

At 1 January Deferred during the year Released to the income statement during the year At 31 December Current Non-current	Group 2020 2019 $’000 $’000 1,332 1,176 2,584 2,355 (2,172) (2,199) 1,744 1,332 1,641 1,248 103 84	Group 2020 2019 $’000 $’000 1,332 1,176 2,584 2,355 (2,172) (2,199) 1,744 1,332 1,641 1,248 103 84
		1,332
		1,248
		84

16. Financial instruments

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Financial assets

Trade and receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘Financial assets’. The Group’s financial assets comprise of trade and other receivables which are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any provisions for impairment.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and fixed-term deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash.

Convertible notes

Convertible notes include an equity conversion right which is an embedded derivative. The embedded derivative is recorded separately and measured at fair value through profit and loss while the Convertible notes are recognised as a financial liability of the Group and measured at amortised cost.

Other financial liabilities

Other financial liabilities, including trade and other payables, are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders. The Group has funded itself through share issues, convertible note issues and cash generation from the business. The capital structure of the Group consists of equity attributable to

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

equity holders of the Parent, comprising issued capital, reserves and retained profits as disclosed in notes 18 and 19 and the Statement of Changes in Equity.

Externally imposed capital requirement

The Group is not subject to externally imposed capital requirements

Fair Value Hierarchy

There is one financial liability measured at fair value at 31 December 2020 (2019: one). The financial liability represented the fair value of the embedded derivative contained in the Convertible Notes. This financial liability is $126 (2019 $320) and the valuation is categorised as Level 3 – Valuation technique.

Categories of financial instruments

Categories of financial instruments
	Group: Carrying value		Company: Carrying	value
	2020	2019	2020	2019
	$’000	$’000	$’000	$’000
Loans and receivables measured at amortised cost
Cash and cash equivalents	4,180	931	4	-
Trade and other receivables	1,486	1,612	12,244	8,034
	5,666	2,543	12,248	8,034
Financial liabilities at amortised cost
Convertible note at amortised cost	107	1,097	107	1,097
Current borrowings at amortised cost	572	1,262	617	1,269
Trade and other payables	2,394	2,205	195	253
	3,073	4,564	919	2,619
Financial liabilities at Fair value through	profit and loss (FVTPL)
Embedded derivative at FVTPL	126	320	126	320

The table below summarises the maturity profile of the Group’s and the Company’s financial liabilities based on undiscounted payments:

Group: Year ended 31 December 2020 On demand Less than 3 months 3 to 12 months $’000 $’000 $’000 Trade payables and accruals - 845 - Related party loans - - 572 Other payables - 1,549 - Convertible notes - - 233 - 2,394 805	1 to 5 years $’000 - - - - -	> 5 years $’000 - - - - -	Total $’000 845 572 1,549 233 3,199

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Group: Year ended 31 December 2019 On demand Less than 3 months 3 to 12 months $’000 $’000 $’000 Trade payables and accruals - 609 - Related party loans - - 1,262 Other payables - 1,596 - Convertible notes - - - - 2,205 1,262 Company: Year ended 31 December 2020 On demand Less than 3 months 3 to 12 months $’000 $’000 $’000 Trade payables and accruals - 38 - Related party loans - - 617 Other payables - 157 - Convertible Notes - - 233 - 195 850 Company: Year ended 31 December 2019 On demand Less than 3 months 3 to 12 months $’000 $’000 $’000 Trade payables and accruals - 30 - Related party loans - - 1,269 Other payables - 223 - Convertible Notes - - - - 253 1,269	1 to 5 years $’000 - - - 1,417 1,417 1 to 5 years $’000 - - - - - 1 to 5 years $’000 - - - 1,417 1,417	>5 Years $’000 - - - - - > 5 years $’000 - - - - - > 5 years $’000 - - - - -	Total $’000 609 1,262 1,596 1,417
			4,884
			Total $’000 38 617 157 233 1,045 Total $’000 30 1,269 223 1,417 2,939

Group and Company Financial risk management objectives

The Group’s management monitors and manages the financial risks relating to the operations of the Group through internal risk evaluations which analyse exposure by degree and magnitude of risks. These risks include market risk, including currency risk, credit risk and liquidity risk.

The Group may use derivative financial instruments to hedge these risk exposures although no derivatives were used in 2020 (2019 $nil). The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Market risk

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates.

The Group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

A sensitivity analysis has been prepared for foreign currency exchange rates in the foreign currency risk section.

Credit risk management

Credit risk refers to the risk a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure is continuously monitored.

The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at 31 December, as summarised below:

Trade and other receivables - Current (Note 13) - Non-Current (Note 13) Cash and cash equivalents	2020 $’000 2019 $’000 1,410 1,870 404 - 4,180 931
	5,994 2,801

Trade receivables consist of a number of customers, spread across geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable and at year end the trade receivables are assessed on an individual basis for any expected credit losses. The expected credit loss for trade and other receivables is $nil (2019 $nil).

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The Company’s exposure to credit risk is limited to the amounts advanced to subsidiary companies $13,179 (2019 $8,969). The Company assesses the recoverability of these receivables by reference to the cash flow forecast prepared for assessing the recoverable amount of the intangible assets and judgements of the probability of defaults and the loss in the event of default.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking (cash) facilities, and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

Foreign currency risk

The Group operates in the United Kingdom, Europe, North America, Australia, and Japan and has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of the Group entities. The Group and Company also have trade and other receivables and trade and other payables denominated in foreign currencies; and also hold cash and cash equivalents denominated in foreign currencies for working capital purposes.

The Group closely monitors foreign currency risk and enters into hedging transactions when deemed necessary. No hedging transactions were entered into in 2020 (2019 $nil).

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

The Group’s and Company’s currency exposure is as follows:

Foreign currency sensitivity

The following tables demonstrate the sensitivity to a reasonably possible change in the US dollar and Pound sterling and Australian dollar exchange rates, with all other variables held constant for the Group . The impact on the Group’s and the Company’s profit before tax is due to changes in the fair value of monetary assets and liabilities. The Group’s and Company’s exposure to foreign currency changes for all other currencies is not considered material.

		Group	Group	Company	Company
	Change in	Effect on	Effect on	Effect on	Effect
	GBP rate	(loss)/profit	equity	(loss)/profit	on
		before tax		before tax	equity
		$’000	$’000	$’000	$’000
2020	+10%	(575)	(169)	598	598
	-10%	575	169	(598)	(598)
2019	+10%	(571)	(210)	531	531
	-10%	571	210	(531)	(531)
	Change in	Effect on	Effect on	Effect on	Effect
	AUD rate	(loss)/profit	equity	(loss)/profit	on
		before tax		before tax	equity
		$’000	$’000	$’000	$’000
2020	+10%	517	252	562	562
	-10%	(517)	(252)	(562)	(562)
2019	+10%	(8)	(179)	33	33
	-10%	8	179	(33)	(33)

17. Leases

Right-of-use assets

Right-of-use assets are presented in the statement of financial position as follows:

Current Non-current Total	Group 2020 2019 $’000 $’000 128 92 75 84 203 176	Group 2020 2019 $’000 $’000 128 92 75 84 203 176
		176

Lease liabilities

Lease liabilities are presented in the statement of financial position as follows:

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements


	2020	2019
	$’000	$’000
Current	145	109
Non-current	112	130
Total	257	239

The Group has leases for offices in Australia and Japan. With the exception of short-term leases and leases of low-value underlying assets, leases are reflected on the balance sheet as a right-of-use asset and a lease liability. Variable lease payments which do not depend on an index or a rate (such as lease payments based on a percentage of Group sales) are excluded from the initial measurement of the lease liability and asset. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment.

Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right-of-use asset can only be used by the Group. Leases are either noncancellable or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to extend the lease for a further term. The Group is prohibited from selling or pledging the underlying leased assets as security. For leases of office buildings, the Group 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 Group must insure items of property, plant and equipment and incur maintenance fees on such items in accordance with the lease contracts.

The table below describes the nature of the Group’s leasing activities by type of right-of-use asset recognised on balance sheet:

Right-of- use asset	Number of Right- of-use assets leased	Range of remaining lease term	Average remaining lease term	No. of leases with extension options	No. of leases with options to purchase	No. of leases with variable payments linked to an index	No. of leases with termination options
Office building	2	1.5 years	1.5 years	2	0	1	0

The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 31 December 2020 were as follows:

	Within 1 year	1-2 years	After 2 years
31 December 2020
Lease payments	172	118	-
Interest charges	(27)	(6)	-
Net present values	145	112	-

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Additional information on the right-of-use assets is as follows:

	Carrying amount	Depreciation expense	Impairment
31 December 2020
Office buildings	202	120	-

SECTION V: SHARE CAPITAL

18. Called up share capital

18. Called up share capital
	Company
	2020	2019
	$’000	$’000
Issued, allotted and fully paid
129,580,125 (2019: 112,975,636) ordinary shares of 0.4p each	739	652

During 2020 there were the following shares issues:

On 17 February 2020 516,129 fully paid ordinary shares were issued on settlement of Convertible Notes and accrued interest liabilities.
On 30[th] June 2020 3,333,334 fully paid ordinary shares were issued and 1[st] July 2020 a further 3,333,333 fully paid ordinary shares were issued on conversion of Convertible Notes.
On 25 August 2020 800,000 fully paid ordinary shares were issued as a consequence of employee options being exercised.
On 24 December 2020 8,620,693 fully paid ordinary shares were issued as a result of a capital raise via placement.

On 31 December 2019 1,290,323 fully paid ordinary shares were issued on conversion of Convertible Notes.

The Company has one class of ordinary shares which carry no rights to fixed income. Each ordinary share carries the right to a vote at Shareholder meetings, rights to dividends and a right to participate in any surplus on the winding up of the Company.

19. Reserves

Details of movements in reserves are included in the Consolidated and Company Statements of changes in equity respectively.

Merger Reserve

A merger reserve was originally created upon the acquisition of a commonly controlled entity in 2006 and increased as part of the Group reorganisation on 19 March 2012.

Share Premium Account

The share premium account is used to record the premium of the issue price for new issues of shares over the par value of those shares. The share premium account also records the costs directly attributable to the issue of new shares.

Foreign currency translation reserve

The Group foreign currency translation reserve represents exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Group’s presentation currency. The company foreign currency translation reserve was created as part of the Group reorganisation on 19 March 2012.

20. Share based payments

The Group has an equity settled share option scheme. Details of the share options outstanding during the year are as follows:

Outstanding at beginning of year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year	2020 Number of share options Weighted average exercise price (AUD) 2,900,000 0.10 - - (800,000) 2,100,000 0.10 2,100,000	2019 Number of share options Weighted average exercise price (AUD) 2,900,000 0.10 - - - 2,900,000 0.10 2,900,000

During the year, 800,000 options were exercised.

There were 3,000,000 options issued on 10 August 2016. 2,900,000 of these options were fully vested, have an exercise price of AUD$0.10 and expire on 10 August 2026.

The options outstanding at 31 December 2020 had a weighted average exercise price of AUD 0.10 (2019 AUD 0.10), and a weighted average remaining contractual life of 5.6 years (2019: 6.6 years).

The Group recognized total expenses of $nil (2019 $nil) relating to equity-settled share-based payment transactions.

Share-based payments accounting policy

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non marketbased vesting conditions. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equitysettled employee benefits reserve.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

21. Earnings/(Loss) per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the profit attributable to ordinary equity holders of the parent (before deducting interest on the convertible shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

Reconciliation of earnings used in the calculation of earnings per share Net profit/ (loss) attributable to equity holders of the parent for basic earnings Net profit/ (loss) attributable to equity holders of the parent adjusted for the effect of dilution Weighted average number of ordinary shares for basic earnings per share Options Weighted average number of ordinary shares adjusted for the effect of dilution Earnings/ (Loss) per share (cents)*	2020 Basic Diluted $’000 $’000 (2,300) (2,300) (2,300) (2,300) ‘000 ‘000 117,253 117,253 - 2,181 111,689 119,434 (1.96) (1.96)	2019 Basic Diluted $’000 $’000 (871) (871) (871) (871) ‘000 ‘000 111,689 111,689 - 1,692 111,689 113,381 (0.78) (0.78)

options have been excluded from the calculation of diluted earnings per share where they are anti-dilutive.

There are no ordinary share transactions or potential ordinary share transactions occurring after the reporting period but before the financial statements are authorized for issue that would significantly change the ordinary shares or potential ordinary shares outstanding if those transactions had occurred before the end of the reporting period.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Section VI: Other Notes

22. Related party transactions

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in these financial statements.

Remuneration of key management personnel

The remuneration of the Directors and Chief Financial Officer, who are the key management personnel of the Group and the Company, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures .

Short-term employee benefits Post-employment benefits (defined contribution schemes)	2020 $’000 581 23 604	2019 $’000 550 22 572

Loans to/ from related parties

The Company has provided its subsidiaries with loans at 5% (2019 5%) interest rates. The Company provided loans to its subsidiaries and, at balance date, an amount of $13,179 (2019 $8,969) was receivable. From time to time, operating expenses of Etherstack plc are settled by Group companies and the cost passed back to Etherstack plc. During the year $436 (2019 $451) of operating expenses were paid for by Group companies.

Directors and Director-related entities

David Deacon is a director of the company. During the year:

Net repayment of $28 (2019 advance to company of $6) was made by the company.
Interest accrued in the period is nil.

At 31 December 2020, $174 remains owing to David Deacon. The loan amount due being $174 (31 December 2019 $187) represented by deferred wages and expenses is unsecured, not subject to specific repayment terms and interest free.

Peter Stephens is a director of the company. During the year:

Loans of $Nil (2019 $33) were advanced and $245 repayments were made.
Opted to convert Convertible notes into equity of $Nil (2019 $262)
Interest of $62 (2019 $64) was accrued for the year.
Interest of $Nil (2019 $20) was accrued on Convertible notes held.

At 31 December 2020, $876 (2019 $1,017) is owing to Peter Stephens. The loan of $230 is unsecured, not subject to specific repayment terms and bears interest is at 10% pa. The remainder of the amount due being $646 represented by deferred wages and expenses is unsecured, not subject to specific repayment terms and interest free.

Paul Barnes is a director of the company. During the year:

Loans of $Nil (2019 $36) were advanced and $36 (including $13 interest on loan) repayments were made.
Interest of $2 (2019 $2) was accrued for the year.

At 31 December 2020, $275 (2019 $281) is owing to Paul Barnes. The amount due being $275 represented by deferred wages and expenses is unsecured, not subject to specific repayment terms and interest free.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

Other related parties

In 2018 the consolidated entity entered into formal, short term, interest bearing loan agreements with a wholly owned subsidiary of iSignthis Ltd of which Mr Scott Minehane is a director. At 31 December 2018 an amount of $228 was payable. This was repaid in January 2019 in accordance with the terms of the agreement.

The transactions were completed at arm’s length. There were no further transactions in 2019 and no transactions in 2020.

LEXGP LLP, an incorporated Limited liability partnership registered in the UK of which Paul Barnes is a director and shareholder has provided certain payroll support services to the Group in the year. The services totalled $3 (2019 nil) and were provided under arm’s length terms and conditions. At 31 December 2020 $Nil (2019 $nil) was due to LexGP LLP.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

23. Reconciliation of borrowings arising from financing activities

Group At 1 January 2020 Cash-flows: Repayments of loan Non-cash: Interest on borrowings Amortisation of convertible notes Revaluation of Embedded derivative Convertible notes converted into equity Exchange difference At 31 December 2020 At 1 January 2019 Cash-flows: Proceeds of convertible note issues Repayments of loan Non-cash: Interest on convertible notes Interest on borrowings Amortisation of convertible notes Revaluation of Embedded derivative Convertible notes converted into equity Reclassification Exchange difference At 31 December 2019 Company At 1 January 2020 Cash-flows: Repayments of loan Non-cash: Interest on borrowings Amortisation of convertible notes Revaluation of Embedded derivative Convertible notes converted into equity Exchange difference At 31 December 2020 At 1 January 2019 Cash-flows: Proceeds of convertible note issues Repayments of loan Non-cash: Interest on convertible notes Interest on borrowings Amortisation of convertible notes Revaluation of Embedded derivative Convertible notes converted into equity Reclassification Exchange difference At 31 December 2019	Current Non-current Total $’000 $’000 $’000 1,262 1,417 2,679 (556) - (556) - - - 56 - 56 2 76 78 115 2,120 2,235 (103) (3,593) (3,696) 29 (20) 9
	805 - 805

	1,967 - 1,967

	- 1,398 1,398
	(549) - (549)

	45 93 138
	69 - 69
	162 - 162
	(108) (38) (146)
	(263) - (263)
	(98) (39) (137)
	37 3 40
	1,262 1,417 2,679
	Current Non-current Total $’000 $’000 $’000 1,269 1,417 2,686 (522) - (522) 56 - 56 2 76 78 115 2,120 2,235 (103) (3,593) (3,696)) 33 (20) 13
	850 - 850

	1,730 - 1,730

	- 1,398 1,398
	(308) - (308)

	45 93 138
	69 - 69
	162 - 162
	(108) (38) (146)
	(263) - (263)
	(98) (39) (137)
	40 3 43
	1,269 1,417 2,686

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

24. Changes in accounting policy and disclosures

The group has adopted IFRS 16 Leases and IFRIC 23 Uncertain tax positions in the prior financial year. IFRS 16 has a significant impact on the Group’s results and financial position.

New standard IFRS 16 Leases adopted by the Group

The group has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.

Adjustments recognised on adaptation of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate as of 1 January 2019. The weighted average incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 14%.

	2019 $000
Operatinglease commitments disclosed as at 31 December 2018	350
Discounted using the lessee’s incremental borrowing rate of at the date of initial application	(106)
Lease liability recognised as at 1 January 2019	244
Of which are:
Current Lease liabilities	51
Non-current lease liabilities	193
	244

The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. There were no other right-of-use assets recognised.

The change in accounting policy affected the following items in the balance sheet on 1 January 2019:

right-of-use assets – increase by $295,000
trade and other payables– decrease by $42,000
lease liabilities – increase by $351,000

The net impact on retained earnings on 1 January 2019 was a decrease of $14,000.

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

the use of a single discount rate to a portfolio of leases with reasonably similar characteristics
reliance on previous assessments on whether leases are onerous
the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases
the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

The Group’s leasing activities and how these are accounted for

The Group leases various offices. Rental contracts are typically made for fixed periods of 3 to 5 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.

Until the 2018 financial year, leases were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straightline basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

fixed payments less any lease incentives receivable
variable lease payments that are based on an index or a rate
amounts expected to be payable by the lessee under residual value guarantees
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

Right-of-use assets are measured at cost comprising the following:

the amount of the initial measurement of lease liability
any lease payments made at or before the commencement date less any lease incentives received
any initial direct costs, and
restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straightline basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.

Extension and termination options are included in a number of property leases across the group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

Critical judgements in determining the lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Potential future cash outflows of $415 have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated).

Etherstack plc Financial report for the year ended 31 December 2020

Notes to the Consolidated and Company Financial Statements

IFRIC 23 Uncertain tax positions

The Group adopted IFRIC 23 from 1 January 2019. The interpretation clarifies how to apply the recognition and measurement requirements of IAS 12 'Income Taxes' in circumstances where uncertain tax treatments exist. The interpretation requires:

the Group to determine whether each uncertain tax treatment should be treated separately or together, based on which approach better predicts the resolution of the uncertainty;
the Group to consider whether it is probable that a taxation authority will accept an uncertain tax treatment; and if the Group concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, it shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates, measuring the tax uncertainty based on either the most likely amount or the expected value.

In making the assessment it is assumed that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations.

IFRIC 23 was adopted using the modified retrospective approach and as such comparatives have not been restated.

There was no material impact on the financial statements following adoption of this interpretation.

Standards, amendments and Interpretations to existing Standards that are not yet effective and have not been adopted early by the Group

At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published. None of these Standards or amendments to existing Standards have been adopted early by the Group.

Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group’s financial statements.

25. Events after balance date

After balance sheet date the group companies have entered into two significant contracts with customers:

Etherstack Pty Ltd has entered into a subcontract with EOS Defence Systems Pty Ltd, a member of the Electro Optic Systems Holdings Limited (ASX: EOS) group, to supply services in relation to a project with the Australian Department of Defence. The value of services to be provided under the contract is approximately $385 which the Company expects will be fully recognised in FY2021.
Etherstack Wireless Ltd, will provide Samsung a license to existing technology for the purposes of assisting integration of the joint solution aimed at the telecommunications carrier market, as previously disclosed in the Global Teaming Agreement announcement to the ASX in June 2020. This contract will generate US$1.2m in revenue however this does not represent a sale of the solution to an end carrier customer, but instead is related to ongoing development and integration activities between the companies.

Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Total $’000 471 18 - 8

26	129	342	497


-	32	36	68
3	9	19	31


29	170	397	596



26	120	282	428
-	2	23	25
-	-	-	-
-	2	7	9


26	124	312	462


-	5	28	33
3	8	17	28


29	137	357	523



-	33	40	73


-	5	30	35

Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Total $’000 471 18 - 8

26	129	342	497


-	32	36	68
3	9	19	31


29	170	397	596



26	120	282	428
-	2	23	25
-	-	-	-
-	2	7	9


26	124	312	462


-	5	28	33
3	8	17	28


29	137	357	523



-	33	40	73


-	5	30	35

AI assistant

ETHERSTACK PLC — Regulatory Filings 2021

64877_rns_2021-03-18_0bca7b70-09bc-49b5-ac63-9ddf7ad80b28.pdf

31 December 2020 financial statements of Etherstack plc (ESK)

AND CONTROLLED ENTITIES Etherstack plc

FINANCIAL REPORT

Strategic Report

2020 Highlights

Strategic Report

Etherstack Activities and Differentiation

Strategic Report

CEO Review

Project Revenues

Recurring revenues:

Strategic Report

Support revenues

Royalty revenues

Strategic Business Wins:

Strategic Report

Result for 2020

Strategic Report

EBITDA

Intellectual property development

Key Performance indicators

Capital raise/Convertible notes converted

Strategic Report

2020 Overall and Major Projects Update (Samsung & Defence)

Strategic Report

Principal Risks and uncertainties

• Dependence on key contracts

• Ability to continue as a going concern

• Technology risk

• Intellectual property and know-how risk

• Economic and exchange rate risk

Strategic Report

Report of the Directors

Directors and Key Management

Peter Stephens – Non-Executive Chairman

Paul Barnes, FCCA MCSI – Non-Executive Director

Scott Minehane – Non-Executive Director

Report of the Directors

David Deacon – Chief Executive Officer, Executive Director

Senior management

David Carter – Chief Financial Officer and Company Secretary

Report of the Directors

Company Directory

Company Registration No. 7951056

ARBN 156 640 532

Directors

Company Secretaries

United Kingdom Registered Office

Australian Office

Auditor

Share Registrars Computershare Investor Services Pty Limited

Computershare Investor Services plc

Website

Report of the Directors

Directors Report

1. Board of Directors and Officers of the company

2. Results

Earnings/(Loss) per share

3. Going Concern

4. Dividend

5. Directors’ indemnity insurance

6. Auditor

Report of the Directors

7. Financial risk management objectives

8. Rounding of amounts and presentational Currency

Report of the Directors

Corporate Governance Report

Principle 1: Lay solid foundations for management and oversight

Board Charter

Report of the Directors

Principle 2: Structure the board to add value

Structure of the Board

Chairman’s responsibilities and independence

Report of the Directors

Board independence

Board committees

Nomination Committee

ETHERSTACK PLC Regulatory Filings 2021

Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Leasehold property improvements Furniture and equipment Computer equipment $’000 $’000 $’000 27 127 317 - - 18 - - - (1) 2 7	Total $’000 471 18 - 8

26	129	342	497


-	32	36	68
3	9	19	31


29	170	397	596



26	120	282	428
-	2	23	25
-	-	-	-
-	2	7	9


26	124	312	462


-	5	28	33
3	8	17	28


29	137	357	523



-	33	40	73


-	5	30	35