ETHERSTACK PLC — Regulatory Filings 2021

Feb 22, 2021

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Etherstack plc | Sydney (GMT+10) 93A Shepherd Street Chippendale, NSW 2008 Australia Email : info.au@etherstack.com P : +61 2 8399 7500 F : +61 2 8399 7507

Appendix 4E

Preliminary final report

Name of Entity: Etherstack plc

ARBN: 156 640 532

1. Reporting Period (“current period”): Previous corresponding period:

Year ended 31 December 2020 Year ended 31 December 2019

2. Results for announcement to the market

		$	%		31 Dec 2020 USD $000	31 Dec 2019 USD $000
Revenue from ordinary activities	Decreased	93	1.9%	to	4,699	4,792
EBITDA (Note 1)	Decreased	13	1.2%	to	1,080	1,093
Underlying Statutory Profit/(Loss) from ordinary activities after tax attributable to members (Note 2)	Increased	954	109%	to	83	(871)
Statutory (Loss)/Profit from ordinary activities after tax attributable to members	Increased	1,429	164%	to	(2,300)	(871)
Net loss attributable to members	Increased	1,429	164%	to	(2,300)	(871)

EBITDA and Underlying profit/(loss) from ordinary activities after tax, are non-IFRS measures used by management of the company to assess the operating performance of the business. The non-IFRS measures are not subject to audit.

Note 1. EBITDA is statutory net profit before tax adjusted to remove net finance costs, depreciation and amortisation.

Note 2 . Underlying Statutory (Loss)/Profit from ordinary activities after tax attributable to members excludes an extraordinary Non-cash Finance charge of $2,383 as previously reported in the half year financial report. The reasons for excluding this item from the underlying result are further explained in the commentary below.

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English Registered Company No. 7951056 | ARBN 156 640 532

Yokohama (GMT +9) P : +81 45 342 9050 info.jp@etherstack.com

New York (GMT-5) P : +1 917 661 4110 info.na@etherstack.com

London (GMT)

P : +44 207 734 0200 info.eu@etherstack.com

Appendix 4E Preliminary final report: Etherstack plc

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2020 Results Summary and Commentary - all amounts are in USD $000 unless otherwise indicated.

Results Highlights

• Positive EBITDA and Positive Underlying Net profit after Tax: 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.

• Forward Order Book Growth: 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.

• 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.

• Continued Recurring Revenue Growth: Recurring revenues (support and royalty revenue) increased a further 27% in 2020 (year-on-year from FY2019), driven by long term support contracts and new royalty agreements.

• 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 technologies

• AUD$4.1m Contract with the Australian Department of Defence. This was followed by a further Australian defence deal announced in February 2021 of AUD $499,000.

• New technology licensing deal in France with TPL Systemes opening a further royalty stream, including a minimum guaranteed stream of $478.

• Etherstack won and delivered a material deal to supply digital radio network equipment for a major resources sector company in Western Australia

• Expansion Wins: FY2020 saw continued 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.

• Successful Delivery in the face of Covid-19 challenges: 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.

• Significantly Improved Balance Sheet: 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 Department of Defence projects

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Appendix 4E Preliminary final report: Etherstack plc

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Major Projects Update (Samsung & Defence)

Etherstack is generating solid positive operating cash, has a strong EBITDA, significantly improved balance sheet and positive underlying NPAT. 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 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.

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 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. 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, but the Company reports a rebound in contracted orders for FY2021 during Q4 FY2020.

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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Appendix 4E

Preliminary final report: Etherstack plc

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

2,500 60%
Royalty (USD$000) 50%
2,000
40%
1,500
Support (USD$000) 30%
1,000
20%
500
Recurring Revenue as a % of 10%
Total revenue
(FY20 unaudited)
0 0%
2014 2015 2016 2017 2018 2019 2020
----- End of picture text -----

Graph 1 - Recurring revenues from Support contracts and Royalty agreements 2014 to 2020 shown in USD and as a percentage of Total revenue. 2020 data is unaudited

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.

Support revenues 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 CAGR (Compound Annual Growth Rate) of 31.2%.

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.

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Appendix 4E Preliminary final report: Etherstack plc

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Result for 2020

Loss after income tax is $2,300 compared to Loss after income tax of $871 in 2019.

The key reason for the difference is a non cash finance charge of $2,383. This $2,383 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	-
Underlying Statutory Profit/(Loss) after income tax	83	(871)

This improvement in underlying statutory profit/(loss) after tax is due to the combined impacts, favourable and unfavourable, of the following items:

• 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

• 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.

• o 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

EBITDA

EBITDA has decreased slightly to $1,080 from $1,093 in 2019 however EBITDA has remained positive despite the loss after tax of $2,300 predominantly due to the add back of the amortisation charge of $1,183 and the non cash finance charges of $2,216 (which includes the 30 June 2020 non cash finance charge of $2,383 on revaluation of the embedded derivative).

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Appendix 4E

Preliminary final report: Etherstack plc

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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.

Dividends

No dividends are proposed.

Record date for determining entitlements to the dividends

Not applicable.

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Appendix 4E

Preliminary final report: Etherstack plc

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3. Consolidated statement of comprehensive income

Revenue from Contracts with Customers Cost of sales Gross profit Other income Other administrative expenses Net foreign exchange gains/(losses) Total administrative expenses Gross operating (loss)/profit from continuing operations Embedded derivatives revaluation and amortisation (net) Finance expense-borrowing costs Net finance expense Loss before taxation Income tax benefit (Loss) after taxation for the period attributable to the equity holders of the parent Other Comprehensive Income/(Loss) Items that will be classified to profit and loss: Exchange differences on translation of foreign operations Total comprehensive loss for the period attributable to the equity holders of the parent Earnings (loss) per share Basic (in cents) Diluted (in cents)	2020 USD $000 4,699 (2,032) 2,667 125 (3,175) 127 (3,048) (256) (2,216) (149) (2,365) (2,621) 321 (2,300) (285) (2,585) (1.96) (1.96)	2019 USD $000 4,792 (1,507)
		3,285 100 (3,868) (180)
		(4,048)
		(663) (16) (321)
		(337)
		(1,000) 129
		(871)
		35
		(836)
		(0.78) (0.78)

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Appendix 4E Preliminary final report: Etherstack plc

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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 – Australian Govt. Covid19 payment Expenses Included within expenses are the following: Depreciation of property, plant and machinery Depreciation of Right-of-use assets Operating lease costs Amortisation of intangible assets Net foreign exchange (gains)/losses Finance costs – interest on loans and Convertible notes Finance costs – interest on leased assets	2020 USD $000 2,368 1,588 743 4,699 56 69 125 33 120 169 1,183 (127) 116 33	2019 USD $000 2,954 1,490 348
		4,792
		100 -
		100
		25 118 184 1,613 180 279 42

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Appendix 4E

Preliminary final report: Etherstack plc

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4. Condensed consolidated balance sheet

Current assets Cash and cash equivalents Trade and other receivables 8 Inventories 7 Right-of-use assets Non-Current Assets Property, plant and equipment 10 Intangible assets 9 Trade and other receivables 8 Right-of-use assets Total assets Current liabilities Trade and other payables 11 Current tax liabilities Deferred revenue Employee entitlements Lease liabilities Convertible notes Borrowings Non-Current Liabilities Deferred tax liability Deferred revenue Employee entitlements Lease liabilities Convertible notes Total Liabilities Net Assets / (Liabilities) Equity Share capital 12 Share premium account Merger reserve Share based payment reserve Foreign currency translation reserve Retained earnings Total equity	2020 USD $000 4,180 1,410 318 128 6,036 73 3,516 404 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 USD $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)

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Appendix 4E

Preliminary final report: Etherstack plc

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5. Condensed consolidated statement of cash flows

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 flows from Investing activities Additions to intangible assets Purchases of property plant and equipment Net cash (used in) investing activities Cash flows from Financing activities Proceeds from issue of shares Share issue costs Proceeds from convertible notes issue Principal element of lease payments Repayments of loan Interest paid Net cash from/(used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate differences Cash and cash equivalents at end of year	2020 USD $000 5,528 (4,145) (31) 411 (30) 1,733 (1,401) (69) (1,470) 3,827 (238) - (132) (504) (52) 2,901 3,164 931 85 4,180	2019 USD $000 5,628 (4,473) (152) 379 (18)
		1,364
		(1,205) (18)
		(1,223)
		- - 1,398 (110) (534) (15)
		739
		880
		51 -
		931

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Appendix 4E

Preliminary final report: Etherstack plc

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6. Statement of changes in equity

Balance at 1 January 2019 Loss for the year Other Comprehensive Income - gains Total Comprehensive income Issue of Share Capital Transactions with owners Balance at 31 December 2019 Loss for the year Other Comprehensive Income – (losses) Total Comprehensive income Issue of Share Capital Transactions with owners At 31 December 2020	Share Capital USD $000 Share Premium USD $000 Share Based payment USD $000 Merger reserve USD $000 Foreign Currency Translation reserve USD $000 Retained earnings USD $000 Total USD $000 645 7,742 609 3,497 (2,733) (9,807) (47)
	- - - - - (871) (871) - - - - 35 - 35
	- - - - 35 (871) (836)
	7 256 - - - - 263
	7 256 - - - - 263
	652 7,998 609 3,497 (2,698) (10,678) (620) - - - - - (2,300) (2,300) - - - - (285) - (285)
	- - - - (285) (2,300) (2,585) 87 7,214 - - - - 7,301
	87 7,214 - - - - 7,301
	739 15,212 609 3,497 (2,983) (12,978) 4,096

7. Inventories

Finished goods and work in progress Slow moving stock provision Total stock at hand	2020 USD $000 580 (262) 318	2019 USD $000 417 (262)
		155

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Appendix 4E

Preliminary final report: Etherstack plc

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8. Trade and other receivables

Current Trade debtors Accrued income from contracts in progress Other debtors Non current Accrued income from contracts in progress	2020 2019 USD $000 USD $000 581 1,249 173 121 656 500
	1,410 1,870
	404 -

9. Intangible Assets

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

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Appendix 4E

Preliminary final report: Etherstack plc

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10. Property, Plant and equipment

10. Property, Plant and equipment
Leasehold property Furniture and equipment USD $000 USD $000 Cost At 1 January 2020 26 129 Additions - 32 Exchange differences 3 9 At 31 December 2020 29 170 Accumulated depreciation At 1 January 2020 26 124 Charge for the year - 5 Exchange differences 3 8 At 31 December 2020 29 137 Carrying amount At 31 December 2020 - 33 At 31 December 2019 - 5 11. Trade and other payables Current Trade creditors and accruals Other creditors Other taxes and social security costs 12. Share capital Called up, allotted and fully paid 129,580,125 (2019: 112,975,636) ordinary shares of 0.4p	Leasehold property Furniture and equipment USD $000 USD $000			Computer equipment USD $000		Total USD $000
	26	129		342		497
	-	32		36		68
	3	9		19		31
	29	170		397		596
	26	124		312		462
	-	5		28		33
	3	8		17		28
	29	137		357		523
	-	33		40		73
	-	5		30		35
				2020 USD $000 845 1,549 366 2,760 2020 USD $000 739		2019 USD $000 609 1,596 262
						2,467
						2019 USD $000 652

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Appendix 4E

Preliminary final report: Etherstack plc

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13. Earnings per share

Details of basic and diluted EPS are as follows:

	2020	2019
	USD $000	USD $000
(Loss) for the year	(2,300)	(871)
	Number	Number
Weighted average number of ordinary shares for
basic and diluted earnings per share	117,252,736	111,688,848

14. Dividends

There are no dividends paid or proposed in respect of the current period or the prior period.

15. Dividend Reinvestment Plans

There are no dividend or distribution reinvestment plans in operation.

16. Net tangible assets

t tangible assets
	2020	2019
	USD Cents	USD Cents
Net tangible assets per ordinary share	0.4	(3.5)

17. Details of entities over which control has been gained or lost

There are no entities over which control was gained or lost in the current period.

18. Details of associates and joint venture entities

Not applicable.

19. Accounting standards

The preliminary final report has been prepared in accordance with ASX listing rule 4.3A and has been derived from the unaudited financial report. The financial report has been prepared in accordance with measurement and recognition (but not disclosure) requirements of International Financial Reporting Standards (IFRS).

As such, this preliminary final report does not include all the notes of the type included in an annual financial report.

20. Contingent liabilities

There are no Contingent liabilities.

21. Any other significant information

After balance sheet date, 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

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Appendix 4E

Preliminary final report: Etherstack plc

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• 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.

22. The report is based on accounts which are in the process of being audited.

Etherstack Media: Walbrook Investor Relations David Carter, Chief Financial Officer Ben Knowles T: +61 2 8399 7500 T: +61 426 277 760 www.etherstack.com ben.knowles@walbrookir.com.au

About Etherstack plc (ASX: ESK):

Etherstack is a wireless technology company specialising in licensing mission critical radio technologies to equipment manufacturers and network operators around the globe. With a particular focus in the public safety, defence, utilities, transportation and resource sectors, Etherstack's technology can be found in radio communications equipment used in the most demanding situations. The company has R&D facilities in London, Sydney, New York and Yokohama.

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