TIDMCLSU TIDMTTM
RNS Number : 8940A
ClearStar,Inc.
17 September 2018
17 September 2018
ClearStar, Inc.
("ClearStar" or the "Company")
Interim Results
ClearStar (AIM: CLSU), a leading technology and service provider
to the background check industry, announces its unaudited results
for the six months ended 30 June 2018.
Financial Highlights
-- Revenue increased by 11% to $9.9 million (H1 2017: $8.9 million)
-- Achieved adj. EBITDA positive of $65,000 (H1 2017: $165,000 loss)
-- Total operating expenses were flat at $6.3 million (H1 2017: $6.3 million)
-- Operational cash flow improved to inflow of $283,000 (H1 2017: $323,000 outflow)
-- As at 30 June 2018, the Company had net cash of $1.2 million
(31 December 2017: $1.3 million), with full $5.0 million revolving
credit facility with Silicon Valley Bank still available
Operational Highlights
-- Sales of Medical Information Services ("MIS") increased by
27% and accounted for 40% of total Company revenue:
o Signed integration agreement with eScreen, Inc., which
launched post period - ClearStar is now the only provider offering
paperless medical screening with a fully-customisable user platform
across all three major laboratories in the US
o Launched a self-service portal for ordering drug and clinical
tests that enables customisation and management by channel
partners
-- Expanded tier 1 direct client base - winning new customers
such as Parsons Corporation and Stevens Worldwide Van Lines - and
sales increased by 22%
-- Strengthened the foundations for accelerated future growth:
o Achieved "touchless" automated integration with SAP(R)
SuccessFactors(R) Recruiting
o Established partnerships with Veritas Prime and iCIMS Inc.,
providing further routes-to-market
o Enhanced sales & marketing efforts and infrastructure,
including appointment of CRO with 17 years' industry experience and
raising brand awareness through aggressive video marketing
campaign
Robert Vale, CEO of ClearStar, commented: "In our core growth
streams of medical information services and direct sales, we saw a
strong increase in revenue as we capitalised on our
competitive-lead in product offering and our expanding brand
awareness. This revenue growth, combined with a stable cost base,
has enabled us to deliver our stated aim of translating higher
revenue into EBITDA earnings. We also established new
channels-to-market and implemented measures to strengthen our sales
& marketing infrastructure, which are already helping to add to
our pipeline. With good visibility over revenue and increasing
interest in ClearStar's services, especially for medical screening,
we are confident of achieving full year 2018 revenue growth in line
with market expectations and being EBITDA positive, and we expect
to deliver accelerated revenue growth in 2019."
Enquiries:
ClearStar, Inc. +1 770 416 1900
Robert Vale, Chief Executive Officer
David Pattillo, Chief Financial Officer
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finnCap Ltd. +44 20 7220 0500
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Jonny Franklin-Adams, Simon Hicks
- Corporate Finance
Andrew Burdis - ECM
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Luther Pendragon Ltd. +44 20 7618 9100
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Harry Chathli, Claire Norbury
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The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Robert Vale, CEO, and David Pattillo, CFO, will be hosting a
presentation for analysts at 9.30am BST on 17 September 2018 at the
offices of Luther Pendragon, 48 Gracechurch Street, London, EC3V
0EJ
About ClearStar
ClearStar, Inc. is a leading and trusted background check
technology, strategic services and decision-making information
provider to employers and background screening companies.
A seven-time Inc. 5000 honouree and founding member of the
National Association of Professional Background Screeners,
ClearStar has provided innovative technology solutions to
businesses in the human capital management industry from its
corporate offices in Alpharetta, Georgia since 1995. For more
information about ClearStar, please visit: www.clearstar.net.
Operational Review
ClearStar achieved its highest-ever revenue for a six-month
period of $9.9 million, growth of 11% over the same period of the
prior year, which was driven by the onboarding of new direct
customers that were won in 2017, primarily for background
screening, and the increased adoption by channel partner customers
of the Company's industry-leading medical screening services.
Importantly, this increase in revenue, combined with tight control
over costs, enabled ClearStar to generate positive EBITDA for the
first half of 2018. The Company also continued to strengthen its
platform and expand its routes-to-market, with these measures
already contributing ClearStar signing new customers.
Investing for growth
ClearStar continued to strengthen the foundations of the
business and position it for accelerated growth through
establishing further integrations to expand its offer and
channels-to-market, enhancing its technology and expanding its
sales & marketing efforts.
Establishing integrations
Towards the end of the period, ClearStar signed an agreement for
the integration of its ClearMD mobile drug testing solution with
eScreen, Inc., an Alere company. Launched post period, this doubled
- to over 9,500 - the number of test collection sites where
ClearStar's mobile solution for medical test ordering can be used,
and has particularly expanded coverage in rural areas. In addition
to the Company's existing integrations with LabCorp and Quest
Diagnostics, ClearStar is now the only provider offering paperless
medical screening with a fully-customisable user platform across
all three of the major laboratories in the US - and the Company
expects to benefit from the economies of scale associated with
engaging multiple large suppliers.
Following achieving integration with SAP(R) SuccessFactors(R)
Recruiting last year, during the period ClearStar became among the
first to achieve "touchless" automated integration. This
streamlines the recruitment process by auto-initiating the
background check when a candidate reaches a particular stage in the
hiring process that can be set by the employer, which enables
consistency across different recruiters as well as accelerating the
overall recruitment process. This was further enhanced with the
deployment of an integrated solution that allows the applicant to
confidentially input their data into SAP(R) SuccessFactors(R) via
the Company's portal while at the same time scheduling their
clinical or drug tests.
As a result of the SAP(R) SuccessFactors(R) integration,
ClearStar formed a strategic partnership with Veritas Prime, a
leading provider in SAP(R) SuccessFactors(R) sales, services and
support, to offer Veritas' clients an opportunity to quickly and
seamlessly adopt the Company's background screening solutions.
During the period, the Company commenced winning new business
through this partnership with Veritas and its integration with
SAP(R) SuccessFactors(R), such as being appointed by Spark
Therapeutics, Inc., a NASDAQ-listed late clinical stage gene
therapy company.
In addition, ClearStar also partnered with iCIMS Inc. to
integrate its background screening and drug testing solutions into
the iCIMS Talent Platform, a suite of talent acquisition tools with
a client base of over 3,500.
Enhancing technology
During the period, ClearStar launched a new portal for
self-service ordering of drug and clinical screening. This enables
channel partner clients to choose which ClearStar products to make
available for the employer and decide on pricing as well as to
customise the display to their own branding. The Company also
introduced an auto-register function, called Fast Pass, that
automatically collects information that has already been gathered
by an integrated platform with the need for user interaction, which
enables a quicker and more user-friendly registration process.
As noted above, ClearStar enhanced its SAP(R) SuccessFactors(R)
integration with the deployment of a "touchless" automatic solution
- and was one of the first companies to enable this feature.
The Company achieved a key milestone during the period with all
of its US-based applications becoming responsive software design
compliant. As a result, all users of ClearStar's solutions in the
US can access the services via a mobile device.
Expanding sales & marketing
ClearStar continued to expand its sales & marketing efforts
during the period. In particular, it deployed the second phase of
its award-winning "We Work" marketing campaign, which is proving
disruptive to the industry and is enhancing the Company's brand
recognition with over 1.5 million views of its video campaign
during the period. The Company also strengthened its sales team
with the appointment of a new Chief Revenue Officer who brings over
17 years' experience of leading large sales teams in the background
screening market. The Company also created three new enterprise
sales roles and, post period, appointed a Sales Force administrator
for sales funnel management. The creation of these roles is to
enable the Company to capitalise on the growing demand for
ClearStar's services and optimise the efficiency of the team's
operations.
Performance by business channel
Sales from direct services increased by 22% to $2.8 million in
the first half of 2018 (H1 2017: $2.3 million), accounting for 28%
of total revenues (H1 2017: 26%). This growth was driven by the
transportation and logistics and elderly home healthcare
industries, and the momentum gained by ClearStar in 2017 in
upscaling the direct client base to larger, higher-volume business
was maintained. This includes being appointed by Parsons
Corporation, a global digital engineering business focused on the
defence, security and infrastructure markets, to implement a
monitoring system with monthly background screening, and by
relocation service-provider Stevens Worldwide Van Lines for
background screening and drug testing its drivers. The Company also
progressed the onboarding of a number of significant customers that
were won during 2017, such as a large aerospace manufacturer.
Sales to channel partners - indirect services - increased by 7%
to $7.1 million (H1 2017: $6.7 million), which was due to growth in
medical information services, as described below, and was primarily
as a result of increased business from some of the Company's
largest clients. Indirect services accounted for 72% of total
revenues (H1 2017: 74%).
Performance by service offering
Medical Information Services
Medical information services ("MIS") continued to be the largest
single contributor to revenues by product offering, accounting for
40% of total revenues (H1 2017: 35%), and grew strongly
year-on-year with an increase in MIS revenue of 27% to $3.9 million
(H1 2017: $3.1 million).
Sales to channel partners accounted for 85% of MIS revenue and
15% was direct sales. This reflects growth in MIS sales across
direct and indirect channels.
The greatest sales growth in MIS was among channel partner
customers, with an increase of 25% compared with the same period of
the prior year. This growth was due to increased volume with
existing channel partner customers based on the purchase of
additional services, such as clinical testing services and
occupational health screening. The largest growth rate in MIS
continued to be direct MIS sales, which increased by 40% over the
same period of the first half of 2017 as the large MIS clients won
last year completed the on-boarding phase and began to ramp to full
volume.
The Company continues to receive strong demand for its MIS
services and solutions, and expects this to account for an
increasing proportion of the Company's sales, albeit at slightly
lower gross margins than the rest of our business.
Other Services
ClearStar grew its revenues from providing background screening
to direct clients, which increased by 18% compared with the same
period of the prior year. However, this was offset by some
attrition among the Company's channel partners resulting in total
background screening sales being 5% lower than the first half of
2017.
Financial Review
ClearStar experienced solid revenue growth with total revenues
increasing 11% for the six months ended 30 June 2018 to $9.9
million compared with $8.9 million for the first half of 2017. This
was based on growth across direct and indirect services, with
strong demand for medical information services.
Gross profit increased 7% to $5.7 million (H1 2017: $5.3
million) and gross profit margin declined slightly to 57.2% (H1
2017: 59.5%). This decrease was primarily due to having a higher
percentage of revenue derived from MIS, which has a lower gross
margin than other services, partially offset by achieving greater
purchase economies.
Total operating expenses, including depreciation and
amortisation, were flat at $6.3 million, demonstrating cost
efficiencies throughout the Company. Selling and marketing expenses
were 5% lower at $794,000 (H1 2017: $838,000) due to the Company
having invested, in the first half of 2017, in a significant
campaign to raise brand awareness to support the growth of its
direct services offer. Research and Development expenses decreased
by 14% to $804,000 (H1 2017: $940,000), with the reduction due to
the investment the Company had made in the earlier period as part
of the set-up of its global platform. General and administrative
expenses increased 6% to $4.0 million (H1 2017: $3.8 million).
The Company achieved adjusted EBITDA for the first half of 2018
of $65,000 earnings compared with a $165,000 loss for the same
period of 2017, an improvement of $230,000 as a result of
generating higher revenue while maintaining control over costs.
Loss after tax was reduced to $666,000 loss for the period compared
with $1.0 million loss for the first half of 2017.
As at 30 June 2018, total assets were $8.5 million (31 December
2017: $8.0 million) with the largest assets being goodwill and
other intangible assets of $4.2 million (31 December 2017: $4.4
million), accounts receivable of $2.4 million (31 December 2017:
$1.7 million) and net cash of $1.2 million (31 December 2017: $1.3
million). As at period end, the Company had its recurring revenue
credit facility with Silicon Valley Bank for up to $5.0 million
fully available.
The Company's total liabilities as at 30 June 2018 were $2.9
million (31 December 2017: $1.8 million; 30 June 2017: $2.2
million), with the increase compared with the same period of the
prior year primarily due to the growth in sales and change in sales
mix to include a greater proportion from MIS.
The Company generated $283,000 in net cash from operating
activities during the period compared with utilising $323,000 in
net cash for the first half of 2017. This represents an improvement
of $606,000, mainly due to a reduction in the net loss and
improvement in working capital accounts.
The Company used $333,000 in investment activities in the first
half of 2018 (H1 2017: $398,000), with the reduction due to lower
capitalised software development costs. The Company paid $45,000 in
financing activities related to capital lease obligations.
Outlook
ClearStar entered the second half of 2018 with sustained revenue
momentum, particularly in sales of MIS, and good visibility over
revenue. MIS is expected to remain the largest contributor to
revenue by product offering, with growth to be driven by the
addition of clinical testing and occupational health services.
The Company anticipates continued growth in revenue generated by
direct clients, primarily for background screening services, as
previously-won customers are onboarded and expand their use of
ClearStar's services. At the same time, the Company continues to
add to its pipeline by signing new, high-calibre customers as it
benefits from the actions taken in the first half of 2018 to
strengthen its offer, routes-to-market and sales
infrastructure.
The growth among channel partners for the Company's MIS is
expected to more-than offset the anticipated ongoing attrition
among some of these customers for background screening services -
resulting in continued increase in revenue among both direct and
indirect customers.
The strong growth in MIS means that it will account for a
greater proportion of the Company's revenue mix and, therefore,
ClearStar expects a lower blended margin for the Company as a
whole.
As a result of the current visibility over revenue and the
increasing interest in ClearStar's services, the Board is confident
of achieving full year 2018 revenue growth in line with market
expectations and being EBITDA positive, and expects to deliver
accelerated revenue growth in 2019.
CLEARSTAR, INC.
Consolidated Statements of Operations
(USD, in thousands)
Six Months Six Months Year Ended
Ended Ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited)
$ $ $
Net revenue 9,886 8,919 17,785
Cost of revenue 4,236 3,609 7,436
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Gross profit 5,650 5,310 10,349
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Operating expenses
Selling and marketing 794 838 1,632
Research and development 804 940 1,886
Depreciation and amortisation 655 739 1,470
General and administrative 4,007 3,767 7,293
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Total operating expenses 6,260 6,284 12,281
Loss from operations (610) (974) (1,932)
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Other expense
Interest expense (35) (6) (17)
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Total other expense (35) (6) (17)
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Net loss before taxes (645) (980) (1,949)
Provision for income taxes 21 51 9
Net loss (666) (1,031) (1,958)
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The accompanying notes are an integral part of the consolidated
financial statements.
CLEARSTAR, INC.
Consolidated Balance Sheets
(USD, in thousands)
As of As of As of
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited)
ASSETS $ $ $
Current assets
Cash 1,208 1,648 1,303
Accounts receivable -- trade, net 2,409 2,273 1,654
Research and development tax credits 90 78 63
Prepaid expenses 340 254 175
-------------- -------------- --------------
Total current assets 4,047 4,253 3,195
-------------- -------------- --------------
Property and equipment, at cost
Computer equipment 588 665 577
Furniture and fixtures 298 291 294
Leasehold improvements 64 58 60
Less accumulated depreciation (734) (652) (652)
-------------- -------------- --------------
Total property and equipment, net 216 362 279
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Other assets
Goodwill and other intangible assets,
net 4,187 4,741 4,447
Deferred debt issuance costs, net 63 - 87
Deposits 12 12 12
-------------- -------------- --------------
Total other assets 4,262 4,753 4,546
-------------- -------------- --------------
Total assets 8,525 9,368 8,020
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 2,348 1,621 1,455
Accrued liabilities 398 282 132
Deferred revenue 30 35 8
State income taxes - - 6
Current portion of obligations under
capital lease 18 97 63
-------------- -------------- --------------
Total current liabilities 2,794 2,035 1,664
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Long-term liabilities
Accrued liabilities 36 44 40
Deferred income taxes 125 142 100
Obligations under capital lease,
net of current portion - 18 -
-------------- -------------- --------------
Total long--term liabilities 161 204 140
-------------- -------------- --------------
Stockholders' equity
Common stock, $0.0001 par value;
100,000,000 shares authorised; 36,302,900
shares issued and outstanding 4 4 4
Additional paid--in capital 13,706 13,672 13,686
Accumulated deficit (8,140) (6,547) (7,474)
-------------- -------------- --------------
Stockholders' equity 5,570 7,129 6,216
-------------- -------------- --------------
Total liabilities and stockholders'
equity 8,525 9,368 8,020
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The accompanying notes are an integral part of the consolidated
financial statements.
CLEARSTAR, INC.
Consolidated Statements of Changes in Stockholders' Equity
(USD, in thousands, except no. of shares)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
No. $ $ $ $
Balances at 1 January 2017 36,302,900 4 13,602 (5,516) 8,090
Non-cash stock compensation - - 70 - 70
Net loss - - - (1,031) (1,031)
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Balances at 30 June 2017
(unaudited) 36,302,900 4 13,672 (6,547) 7,129
Non-cash stock compensation (6) (6)
Non-cash debt issuance
costs 20 20
Net loss (927) (927)
----------------- -------------- -------------- -------------- --------
Balances at 31 December
2017 36,302,900 4 13,686 (7,474) 6,216
Non-cash stock compensation 20 20
Net loss (666) (666)
----------------- -------------- -------------- -------------- --------
Balances at 30 June 2018
(unaudited) 36,302,900 4 13,706 (8,140) 5,570
================= ============== ============== ============== ========
The accompanying notes are an integral part of the consolidated financial
statements.
CLEARSTAR, INC.
Consolidated Statements of Cash Flows
(USD, in thousands)
Six Months Six Months Year Ended
Ended Ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited)
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (666) (1,031) (1,958)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Change in allowance for doubtful accounts (22) 11 (1)
Depreciation and amortisation 655 739 1,470
Deferred income taxes 24 43 1
Non-cash stock compensation 20 70 64
Non-cash debt issuance costs 24 - 8
Loss on disposal
of property and
equipment 1 - -
Change in
operating assets
and liabilities:
Accounts receivable (733) (842) (211)
Research and development tax credits (27) 60 75
Prepaid expenses (164) 2 82
Deposits (1) (1) (1)
Accounts payable 893 491 325
Accrued liabilities 263 160 7
Deferred revenue 22 (20) (46)
State income taxes (6) (5) 1
Total adjustments 949 708 1,774
-------------- -------------- --------------
Net cash provided by (used in) operating
activities 283 (323) (184)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (22) (15) (42)
Capitalised software development costs (311) (383) (712)
Net cash used in investing activities (333) (398) (754)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs - - (75)
Principal payments on capital lease
obligations (45) (51) (104)
-------------- -------------- --------------
Net cash used in financing activities (45) (51) (179)
-------------- -------------- --------------
Net cash decrease for period (95) (772) (1,117)
Cash at beginning of period 1,303 2,420 2,420
Cash at end of period 1,208 1,648 1,303
============== ============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Six Months Six Months Year Ended
Ended Ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited)
$ $ $
-------------- -------------- --------------
Cash paid:
Interest 10 6 10
Income taxes 1 12 5
-------------- -------------- --------------
11 18 15
============== ============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
During the six months ended 30 June 2018 and 2017, the Company
retired obsolete and fully-depreciated property and equipment of
approximately $0 and $28,000, respectively.
During the year ended 31 December 2017, the Company retired
obsolete and fully-depreciated property and equipment of
approximately $137,000.
During the six months ended 30 June 2018 and 2017, the Company
retired fully-amortised intangible assets of approximately $0 and
$329,000, respectively.
During the year ended 31 December 2017, the Company retired
fully-amortised intangible assets of approximately $792,000.
In conjunction with the executed Revolving Line in October 2017
(see Note 6 and 9), the Company issued a stock warrant to purchase
90,755 shares of Ordinary Shares as consideration to the Lender. At
the issuance date, the fair value of the warrant was determined to
be approximately $20,000.
The accompanying notes are an integral part of the consolidated
financial statements.
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
a) Nature of Operations
ClearStar, Inc. ("ClearStar"), an exempt company incorporated in
the Cayman Islands on 23 April 2014, is a holding company that owns
a 100% interest in ClearStar, Inc. ("ClearStar US"), an entity
formed on 23 March 1995, and incorporated in the state of Delaware,
and ClearStar Limited ("ClearStar UK"), a dormant entity formed in
the United Kingdom on 17 January 2014. The Company is a technology
and service provider to the background check industry, supporting
background screening companies, employers and employees with their
recruitment and employment application decisions. The Company
provides employment intelligence to its clients through a suite of
IT applications for day-to-day use in their business. Employment
intelligence aims to improve business insight to support better
recruitment and other decisions affecting employees generally, by
increasing the quality, reliability and visibility of information
available to management.
b) Principles of Consolidation
The consolidated financial statements include the accounts of
ClearStar and its 100% owned subsidiaries, ClearStar US and
ClearStar UK (collectively the "Company").
All significant intercompany transactions and balances have been
eliminated in consolidation.
c) Basis of Accounting
The historical financial information has been prepared on the
accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America ("US
GAAP").
d) Use of Estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Estimates are
used for, but not limited to, the allowance for doubtful accounts,
depreciable lives of property and equipment, certain accrued
liabilities, amortisation of other intangible assets, stock-based
compensation and income taxes. Actual results could differ from
these estimates.
e) Concentration of Credit Risk Arising From Cash Deposits in Excess of Insured Limits
The Company maintains cash balances at certain financial
institutions that at times may exceed federally insured limits.
From time to time, the Company's cash balances exceed such limits.
The Company has not experienced any losses in such accounts. The
Company believes it is not exposed to any significant risks on
cash.
f) Accounts Receivable
The Company extends credit to customers in a broad range of
industries located throughout the United States and abroad based on
the size of the customer, its payment history and other factors.
The Company generally does not require collateral to support
customer receivables. The Company provides an allowance for
doubtful accounts based upon a review of the outstanding accounts
receivable, historical collection information and existing economic
conditions. The Company determines if receivables are past due
based on days outstanding, and amounts are written off when
determined to be uncollectable by management. The maximum
accounting loss from the credit risk associated with accounts
receivable is the amount of the receivable recorded, which is the
face amount of the receivable, net of the allowance for doubtful
accounts.
g) Property and Equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are expensed currently, while renewals and
betterments that materially extend the life of an asset are
capitalised. The cost of assets sold, retired, or otherwise
disposed of, and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is
recognised.
Depreciation of property and equipment is provided using the
straight-line method over the estimated useful lives of the assets,
which are as follows:
Computer equipment 3 - 4 years
Furniture and fixtures 5 - 7 years
Leasehold improvements Lesser of estimated useful life or life
of the lease
Depreciation expense for the six months ended 30 June 2018 and
2017, and the year ended 31 December 2017 was approximately
$83,000, $120,000 and $229,000, respectively.
h) Deferred Debt Issuance Costs
Deferred debt issuance costs were incurred by the Company to
obtain debt and are amortised over the life of the respective debt
agreement. The costs totalled approximately $95,000 with
accumulated amortisation of approximately $32,000 at 30 June 2018.
The Company amortised approximately $24,000 and $8,000 of these
costs through interest expense for the six months ended 30 June
2018 and the year ended 31 December 2017, respectively.
Approximately $24,000 and $40,000 of these costs will be
additionally amortised as interest expense during the years ended
31 December 2018 and 2019, respectively.
i) Goodwill
Goodwill recorded in the consolidated financial statements
represents the excess of the purchase price of an acquisition over
the fair value of acquired net assets on the date of acquisition.
Goodwill is not amortised since it has an indefinite life.
Accordingly, the carrying value of goodwill is reviewed for
impairment by the Company annually, or more often if events or
circumstances indicate that there may be impairment. The Company
has not recorded any goodwill impairment charges.
In our evaluation of goodwill impairment, we perform a
qualitative assessment to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying
amount. If the qualitative assessment is not conclusive, we proceed
to a two-step process to test goodwill for impairment including
comparing the fair value of the reporting unit to its carrying
value (including attributable goodwill). Fair value for our
reporting unit is determined using an income or market approach,
incorporating market participant considerations and management's
assumptions on revenue growth rates, operating margins, discount
rates and expected capital expenditures. Fair value determinations
may include both internal and third-party valuations. Unless
circumstances otherwise dictate, we perform our annual impairment
testing in the fourth quarter. If the carrying amount of the
goodwill exceeds the implied fair value of that goodwill, the
Company will recognise an impairment loss as an expense.
j) Intangible Assets
Intangible assets, other than capitalised software development
costs, arose from the purchase of certain assets in an acquisition
and are reported net of amortisation. These costs are amortised
using the straight-line method over their estimated useful life.
The estimated useful life for customer relationships and trade name
are 7 and 1 year(s), respectively.
The Company has capitalised external direct costs of services
consumed in developing and obtaining internal-use computer software
and the payroll and payroll-related costs for employees who are
directly associated with and who devote time to developing the
internal-use computer software.
Management's judgment is required in determining the point at
which various projects enter the application development stage at
which costs may be capitalised, in assessing the ongoing value of
the capitalised costs, and in determining the estimated useful
lives over which the costs are amortised. Costs in relation to the
preliminary stages of projects are expensed in the period in which
they are incurred. The Company expects to continue to invest in
internally developed software and to capitalise costs in accordance
with US GAAP.
k) Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, and purchased
intangible assets subject to amortisation, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset or asset group be tested
for possible impairment, the Company first compares undiscounted
cash flows expected to be generated by that asset or asset group to
its carrying amount. If the carrying amount of the long-lived asset
or asset group is not recoverable on an undiscounted cash flow
basis, an impairment is recognised to the extent that the carrying
amount exceeds its fair value. Fair value is determined through
various valuation techniques including discounted cash flow models,
quoted market values and third party independent appraisals, as
considered necessary. Management determined that there were no
impairments during the six months ended 30 June 2018 and 2017, and
the year ended 31 December 2017.
l) Revenue Recognition
The Company requires that four basic criteria be met before
revenue can be recognised for all transactions: (i) persuasive
evidence of an arrangement exists; (ii) the price is fixed or
determinable; (iii) collectability is reasonably assured; and (iv)
delivery has occurred. Fixed monthly fees are derived primarily
from customers' use of services that are provided for an agreed
number of transactions. Arrangements for these services generally
have terms of one year or less, and the fixed monthly fees are
recognised as services are provided. One-time setup fees are
recognised based on the Company's configuring and activating
customers on internal and third party systems. The Company
recognises one-time setup fees revenue rateably over 12 months or
the period beyond which the initial contract term is expected to
extend and the customer continues to benefit, whichever is longer.
Annual certification fees are billed annually and are recognised
rateably over the contract period. The Company recognises revenue
from the per-transaction search results and/or search result review
services and drug testing services at the time of delivery as the
Company has no significant ongoing obligation after delivery.
Deferred revenue consists of payments received in advance of
revenue recognition and contractual billings in excess of
recognised revenue.
m) Advertising
The Company expenses advertising costs as incurred. Advertising
expenses for the six months ended 30 June 2018 and 2017, and the
year ended 31 December 2017 were approximately $249,000, $218,000
and $412,000, respectively.
n) Income Taxes
ClearStar is incorporated as an exempted company in the Cayman
Islands which currently does not levy income taxes on individuals
or companies. ClearStar and its operating subsidiary, ClearStar US,
are both taxed as corporations for US federal income tax
purposes.
Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of
taxes currently due plus deferred income taxes. Deferred income
taxes are recognised for differences between the basis of assets
and liabilities for financial statement and income tax purposes.
Deferred income tax assets and liabilities represent the future tax
return consequences of those differences, which will either be
taxable or deductible when the assets or liabilities are recovered
or settled. Deferred income taxes are also recognised for operating
losses that are available to offset future taxable income. The tax
provision differs from the expense that would result from applying
federal statutory rates to income before income taxes primarily
because of the marginal tax rates used to compute deferred income
taxes, the effect of state taxes and permanent differences between
determining income for financial statement purposes and taxable
income.
The Company is subject to tax audits in numerous jurisdictions,
including the United States, individual states and localities, and
abroad. Tax audits by their nature are often complex and can
require several years to complete. In the normal course of
business, the Company is subject to challenges from the Internal
Revenue Service ("IRS") and other tax authorities regarding amounts
of taxes due. These challenges may alter the timing or amount of
taxable income or deductions, or the allocation of income among tax
jurisdictions. The Company accounts for the uncertain tax
provisions using a minimum probability threshold that a tax
position must meet before a financial statement benefit is
recognised. The minimum threshold is defined as a tax position that
is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. The tax benefit to be recognised is measured as the
largest amount of benefit that is greater than fifty per cent.
likely of being realised upon ultimate settlement. The Company
recognises interest and penalties related to unrecognised tax
benefits as part of income tax expense. The cumulative effect of
considering uncertain tax positions resulted in no uncertain tax
liability in the consolidated balance sheets.
The Company is not subject to income tax examinations for the
years ending prior to 31 December 2015.
o) Research and Development
Expenditures related to the development of new products and
processes are expensed as incurred. Research and development
expenses were approximately $804,000, $940,000 and $1,886,000, net
of approximately $0 of tax credits, for the six months ended 30
June 2018 and 2017, and the year ended 31 December 2017,
respectively.
p) Stock-Based Compensation
The Company values stock options at the time of grant using a
Black-Scholes model approach and records that fair market value as
compensation expense, less an estimate for forfeitures, over the
requisite service period, using the straight-line method.
Stock-based compensation expense for the six months ended 30 June
2018 and 2017, and the year ended 31 December 2017 was
approximately $20,000, $70,000 and $64,000, respectively.
q) Fair Value of Financial Instruments
Due to the short-term nature of cash, accounts receivable,
prepaid expenses, accounts payable, and accrued liabilities, their
fair value approximates carrying value.
In specific circumstances, certain assets and liabilities are
reported or disclosed at fair value. Fair value is the exit price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date in the Company's principal market for such
transactions. If there is not an established principal market, fair
value is derived from the most advantageous market.
Valuation inputs are classified in the following hierarchy:
(i) Level 1 inputs are unadjusted quoted prices in active
markets for identical assets or liabilities.
(ii) Level 2 inputs are directly or indirectly observable
valuation inputs for the asset or liability, excluding Level 1
inputs.
(iii) Level 3 inputs are unobservable inputs for the asset or
liability.
Highest priority is given to Level 1 inputs and the lowest
priority to Level 3 inputs. Acceptable valuation techniques include
the market approach, income approach and cost approach. In some
cases, more than one valuation technique is used.
r) Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update No. 2014-09 ("ASU 2014-09")
"Revenue from Contracts with Customers." ASU 2014-09 supersedes the
revenue recognition requirements in "Revenue Recognition (Topic
605)" and requires entities to recognise revenue when it transfers
promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled to in
exchange for those goods or services. As currently issued and
amended, ASU 2014-09 is effective for annual reporting periods
beginning after 15 December 2017, including interim periods within
that reporting period, though early adoption is permitted for
annual reporting periods beginning after 15 December 2016. We are
currently in the process of evaluating the impact of the adoption
of ASU 2014-09 on our consolidated financial statements,
implementing accounting system changes related to the adoption and
considering additional disclosure requirements.
In February 2016, the FASB issued Accounting Standards Update
No. 2016-02, "Leases", which requires that lease arrangements
longer than 12 months' result in an entity recognising an asset and
liability. The pronouncement is effective for periods beginning
after 15 December 2018, with early adoption permitted. The Company
is currently evaluating the impact this guidance is expected to
have on its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update No.
2016-09, "Improvements to Employee Share Based Payment Accounting"
which simplifies several aspects of the accounting for share-based
payment transactions, including income tax consequences,
classification of awards, forfeitures and classification on the
statement of cash flows. The provisions of this ASU are effective
for fiscal years beginning after 15 December 2016, and interim
periods within those fiscal years. The Company adopted the new
standard in the first quarter of 2017, and the adoption of this
standard did not have a material effect on our consolidated
financial statements. The Company has elected to account for
forfeitures as they occur, rather than estimate expected
forfeitures.
In August 2016, the FASB issued Accounting Standards Update
2016-15 ("ASU 2016-15") "Statement of Cash Flows (Topic 230):
Clarification of Certain Cash Receipts and Cash Payments" which
would eliminate the diversity in practice related to the
classification of certain receipts and payments in the statement of
cash flows, by adding or clarifying guidance on eight specific cash
flow issues. ASU 2016-15 is effective for annual and interim
reporting periods beginning after 15 December 2017 for public
entities with early adoption permitted. The amendments in this
update should be applied retrospectively to all periods presented,
unless deemed impracticable, in which case, prospective application
is permitted. The Company does not expect the implementation of
this standard to have a material effect on its consolidated
financial statements.
In January 2017, the FASB issued Accounting Standards Update No.
2017-04 ("ASU 2017-04") "Intangibles - Goodwill and Other (Topic
350): Simplifying the Accounting for Goodwill Impairment." ASU
2017-04 removes the requirement to perform a hypothetical purchase
price allocation to measure goodwill impairment. A goodwill
impairment will now be the amount by which a reporting unit's
carrying value exceeds its fair value, not to exceed the carrying
amount of goodwill. ASU 2017-04 is effective for annual periods and
interim periods within those annual periods beginning after 15
December 2019, and early adoption is permitted. The Company is in
the process of evaluating the impact of this standard on its
consolidated financial statements.
s) Reclassifications
Certain reclassifications have been made to the 2017
consolidated financial statement presentation to correspond to the
current period's format. These reclassifications have no effect on
previously reported net income.
2. Accounts Receivable
Accounts receivable consisted of the following:
As of As of As of
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) $000
$000 $000
------------- ------------- -------------
Trade accounts receivable 2,416 2,313 1,683
Allowance for doubtful accounts (7) (40) (29)
------------- ------------- -------------
2,409 2,273 1,654
============= ============= =============
3. Goodwill and Other Intangible Assets
Goodwill and other intangible assets were comprised of the
following at 30 June 2018 (unaudited):
Gross Cost Accumulated Amortisation
----------- ----------------------------------------------- ----------------------------------------------- ------
Life Beginning Additions Disposal Beginning Additions Disposal Net
(years) $000 $000 $000 Ending $000 $000 $000 $000 Ending $000 $000
----------- ---------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------
Goodwill Indefinite 2,283 - - 2,283 - - - - 2,283
Software
Development 3 2,883 311 - 3,194 1,675 452 - 2,127 1,067
Customer
Relationships 7 1,673 - - 1,673 717 119 - 836 837
6,839 311 - 7,150 2,392 571 - 2,963 4,187
========== ========== ========= ============ ========== ========== ========= ============ ======
Goodwill and other intangible assets were comprised of the
following at 30 June 2017 (unaudited):
Gross Cost Accumulated Amortisation
----------- ----------------------------------------------- ----------------------------------------------- ------
Life Beginning Additions Disposal Beginning Additions Disposal Net
(years) $000 $000 $000 Ending $000 $000 $000 $000 Ending $000 $000
----------- ---------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------
Goodwill Indefinite 2,283 - - 2,283 - - - - 2,283
Software
Development 3 2,963 383 (329) 3,017 1,465 499 (329) 1,635 1,382
Customer
Relationships 7 1,673 - - 1,673 478 119 - 597 1,076
6,919 383 (329) 6,973 1,943 618 (329) 2,232 4,741
========== ========== ========= ============ ========== ========== ========= ============ ======
Goodwill and other intangible assets were comprised of the
following at 31 December 2017:
Gross Cost Accumulated Amortisation
----------- ----------------------------------------------- ----------------------------------------------- ------
Life Beginning Additions Disposal Beginning Additions Disposal Net
(years) $000 $000 $000 Ending $000 $000 $000 $000 Ending $000 $000
----------- ---------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------
Goodwill Indefinite 2,283 - - 2,283 - - - - 2,283
Software
Development 3 2,963 712 (792) 2,883 1,465 1,002 (792) 1,675 1,208
Customer
Relationships 7 1,673 - - 1,673 478 239 - 717 956
6,919 712 (792) 6,839 1,943 1,241 (792) 2,392 4,447
========== ========== ========= ============ ========== ========== ========= ============ ======
Approximate aggregate future amortisation expense is as
follows:
Year Ending 30 June:
Amount
$000
-------
2019 875
2020 580
2021 334
2022 115
1,904
=======
4. Commitments and Contingencies
-- Operating Leases
The Company leases office space and equipment. The lease
agreements expire on various dates through February 2022.
Minimum lease payments under operating leases are recognised on
a straight-line basis over the term of the lease including any
periods of free rent for payment terms subject to escalation.
Aggregate rent, common area maintenance charges and property tax
expense for the six months ended 30 June 2018 and 2017, and the
year ended 31 December 2017 was approximately $90,000, $101,000,
and $214,000, respectively.
At 30 June 2018, future minimum lease payments under
non-cancellable operating leases were as follows:
Year Ending 30 June:
Amount
$000
-------
2019 134
2020 104
2021 104
2022 70
412
=======
-- Capital Leases
The Company leased computer equipment under two agreements
classified as capital leases that expire through November 2018. The
lease obligations bear an interest rate of up to 8.7 per cent. per
annum and are payable in monthly instalments totalling $9,334.
Assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the
fair value of the assets. The assets are depreciated over the
shorter of the estimated useful lives or the lease term if
ownership does not transfer to the Company at the end of the lease.
Depreciation of assets under capital leases is included in
depreciation expense.
Computer equipment held under capital leases consisted of the
following:
As of As of As of
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Unaudited) $000
$000 $000
------------- ------------- --------------
Cost of equipment and installation 390 390 390
Less: accumulated depreciation (375) (287) (337)
------------- ------------- --------------
15 103 53
============= ============= ==============
At 30 June 2018, future minimum lease payments under capital
lease agreements consist of the following:
Year Ending 30 June:
Amount
$000
-------
2019 19
Less: interest ( 1)
-------
18
Less: current portion ( 18)
-------
-
=======
-- Board of Directors Fees
Effective 30 May 2014, the Company contracts with two
non-executive directors ("NEDs") for 3-year terms subjective to
renewal for successive one-year periods. The Company pays
approximately $100,000 per annum to the NEDs. For the six months
ended 30 June 2018 and 2017, and the year ended 31 December 2017,
director fees were approximately $50,000, $50,000 and $100,000,
respectively. Options granted to the NEDs were approximately 72,000
shares, vested over a one-year term (see Note 8).
-- Long-Term Vendor Commitment
In November 2014, the Company executed a three-year vendor
contract for data centre and related services, requiring an annual
fee of approximately $172,000, payable in equal monthly instalments
in advance through January 2018. The contract was terminated early
in November 2017.
5. Income Taxes
Tax effects of temporary differences are as follows:
As of As of
30 June 30 June
2018 2017 As of
31 December
(Unaudited) (Unaudited) 2017
$000 $000 $000
------------- ------------- --------------
Non-current deferred tax assets (liabilities):
Allowance for doubtful accounts 2 10 7
Prepaid expenses ( 48) ( 14) ( 10)
Amortisation of software development (251) (536) (283)
Amortisation of other intangible assets 126 122 108
Amortisation of goodwill (118) ( 142) (100)
Accrued liabilities 10 18 11
Deferred revenue - - -
Basis differences in property and equipment ( 1) ( 42) ( 11)
Net operating losses 1,188 2,305 1,827
Stock-based compensation 94 113 89
Tax credits 190 154 203
Other adjustments 9 ( 2) 8
------------- ------------- --------------
Total non-current 1,201 1,986 1,849
------------- ------------- --------------
Less: valuation allowance (1,326) (2,128) (1,949)
------------- ------------- --------------
Net deferred tax assets (liabilities) (125) (142) (100)
============= ============= ==============
Deferred tax assets and liabilities are recognised for the
expected tax consequences of temporary differences between the book
and tax bases of the Company's assets and liabilities. Valuation
allowances are recorded to reduce deferred tax assets when it is
more likely than not that a tax benefit will not be realised.
Management does not expect deferred tax assets to be fully realised
in future years. Therefore, a valuation allowance has been
recorded.
-- The components of the provision for income taxes are as follows:
Six Months Six Months Year Ended
31 December
Ended Ended 2017
30 June 30 June
2018 2017
(Unaudited) (Unaudited)
$000 $000
------------- ------------- --------------
Current tax expense:
Federal - - -
State (3) 8 8
------------- ------------- --------------
(3) 8 8
------------- ------------- --------------
Deferred tax expense:
Federal 24 43 1
State - - -
------------- ------------- --------------
24 43 1
------------- ------------- --------------
Total provision for income taxes 21 51 9
============= ============= ==============
The effective income tax rate differs from the federal statutory
income tax rate due to state income taxes, certain non-deductible
expenses and a decrease of approximately $623,000 in the valuation
allowance for the period.
On 22 December 2017, the Tax Cuts and Jobs Act ("TCJA") was
signed into law. Among other provisions, the TCJA reduces the U.S.
federal corporate tax rate from 35% to 21% effective in 2018. As of
30 June 2018, the Company has not completed the required accounting
for all of the tax effects of enactment of the TCJA. Accordingly,
we have elected to apply the guidance in SEC Staff Accounting
Bulletin No. 118, which permits recognising provisional amounts
when the accounting for the TCJA under FASB ASC 740 is not complete
at the time financial statements for the year ended 31 December
2017 are issued. For certain items, the Company has been able to
make reasonable estimates of the effects on deferred tax assets and
liabilities, however, the full valuation allowance on the deferred
taxes as of 31 December 2017 cause the rate change to have no net
rate impact on the financial statements. Deferred tax assets and
liabilities have been remeasured and adjusted based on the new 21%
rate, which is the rate at which they are expected to reverse in
subsequent years. We have not completed our analysis in respect of
other provisions of the TCJA. Upon completion of that analysis and
the required accounting for all effects of the TCJA, additional
amounts will be recognised, and it is possible that the provisional
amounts that were recorded in 2017 may be revised, increased or
decreased.
At 30 June 2018, the Company had approximately $8,032,000 in net
operating loss carryforwards ("NOL") available to use against
taxable income. The NOLs expire through 2037.
At 30 June 2018, the Company had approximately $175,000 in
federal research and development ("R&D") credits available to
use against taxable income. The R&D credits will begin to
expire starting in 2034.
6. Revolving Line Facility
In October 2017, the Company obtained a revolving line facility
agreement with a Lender ("Revolving Line") to borrow up to
$5,000,000, accruing interest of Prime plus up to 1.75% per annum,
payable monthly. The Revolving Line is also subject to an unused
revolving line facility fee of 0.375% per annum, payable monthly,
on the average unused portion. The Revolving Line is secured by all
assets of the Company and matures on 19 October 2019. A stock
warrant to purchase 90,755 shares of Ordinary Shares was granted to
the Lender as consideration. At 30 June 2018, the outstanding
balance on the revolving line was $0.
7. Stockholders' Equity
The Board has authorised 100,000,000 shares of Ordinary Shares,
$0.0001 par value. As of 30 June 2018 and 2017, and 31 December
2017, there were 36,302,900 shares issued and outstanding.
8. Stock-Based Compensation
In June 2014, the Board adopted the 2014 Share Option and
Incentive Plan (the "Plan") that authorised the Board to grant
options and restricted stock to employees and directors to acquire
up to 3,000,000 shares of the Company's Ordinary Shares. The option
price generally may not be less than the underlying stock's fair
market value on the date of the grant. The options generally vest
rateably up to a three-year period beginning the date of grant and
expire as determined by the Board, but not more than 10 years from
the date of grant. The amounts granted each calendar year is
limited depending on certain terms of the Plan. As of 30 June 2018,
approximately 2,523,000 shares remain available for grant under the
Plan. The Plan terminates in June 2024.
The following table summarises activity of the Company's stock
options during the six months ended 30 June 2018 and 2017, and the
year ended 31 December 2017:
Weighted-Average
Exercise
Shares Price
------------ -----------------
Outstanding at 1 January 2017 1,866,165 $0.86
Granted - -
Forfeited or cancelled (18,000) $0.97
------------
Outstanding at 30 June 2017 (unaudited) 1,848,165 $0.86
Granted - -
Forfeited or cancelled (72,000) $0.93
------------
Outstanding at 31 December 2017 1,776,165 $0.86
Granted 100,000 $0.60
Forfeited or cancelled (1,399,000) $0.89
------------
Outstanding at 30 June 2018 (unaudited) 477,165 $0.58
------------
Exercisable at 30 June 2018 (unaudited) 342,165 $0.60
------------
Exercisable at 31 December 2017 1,391,165 $0.92
------------
Exercisable at 30 June 2017 (unaudited) 490,165 $0.77
------------
As of 30 June 2018, there was approximately $9,000 of total
unrecognised compensation costs related to unvested stock options,
which is expected to be recognised over a weighted-average period
of 0.50 years. To the extent the actual forfeiture rate is
different from what we have estimated, stock-based compensation
expense related to these awards will be different from our
expectations.
The following assumptions were used for the Black-Scholes option
pricing model:
2 Jan 2018 4 Jan 2016
----------- -----------
Weighted-average fair value
on day of grant $0.23 $0.14
Risk-free interest rate 2.69% 1.00%
Expected dividend yield 0.00% 0.00%
Expected volatility 37.97% 32.90%
Weighted-average expected
life of option 5.00 years 4.00 years
9. Stock Warrant
In conjunction with the executed Revolving Line in October 2017
(see Note 6), the Company issued a stock warrant as consideration
to the Lender to purchase 90,755 shares of Ordinary Shares at $0.59
per share. The warrant expires in October 2027 and is fully vested;
if the fair market value of an Ordinary Share is greater than the
exercise price on the Expiration Date, the stock warrant will
automatically be deemed exercised.
The following assumptions were used for the Black-Scholes
warrant pricing model:
19 Oct 2017
------------
Weighted-average fair value on day
of grant $0.22
Risk-free interest rate 2.69%
Expected dividend yield 0.00%
Expected volatility 37.97%
Weighted-average expected life of warrant 5.00 years
10. Earnings Per Share
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share is computed by
dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the
period. Dilutive common stock equivalents represent shares issuable
upon assumed exercise of stock options.
Six Months Six Months Year Ended
31 December
Ended Ended 2017
30 June 30 June
2018 2017
(Unaudited) (Unaudited)
$000 $000
------------- ------------- --------------
Basic income per share ($0.02) ($0.03) ($0.05)
Diluted income per share ($0.02) ($0.03) ($0.05)
Weighted-average common shares outstanding:
Basic and diluted 36,302,900 36,302,900 36,302,900
11. Employee Retirement Plan
The Company sponsors an employee retirement plan known as the
ClearStar, Inc. 401(k) Profit Sharing Plan Trust (the "401k Plan").
Under the 401k Plan, employees may contribute up to the maximum
contributions as set periodically by the Internal Revenue Service.
Additionally, the Company may make a discretionary contribution to
the 401k Plan. Employer profit sharing contributions vest over six
years. Participant contributions and employer safe harbour matching
contributions are 100 per cent. vested.
For the six months ended 30 June 2018 and 2017, and the year
ended 31 December 2017, matching contributions were approximately
$78,000, $77,000 and $150,000, respectively.
12. Concentrations
-- Significant Vendor
A significant vendor is defined as one from which the Company
receives at least 10 per cent. of its total purchases. For the six
months ended 30 June 2018 and 2017, and the year ended 31 December
2017, the Company had purchases from two suppliers totalling
approximately $2,284,000, $1,814,000 and $3,929,000 which comprised
approximately 54, 51 and 53 per cent. of the Company's purchases,
respectively. Accounts payable and accrued liabilities included
approximately $1,261,000, $756,000 and $715,000 to these vendors at
30 June 2018 and 2017, and 31 December 2017, respectively.
-- Significant Customer
A significant customer is defined as one from whom at least 10
per cent. of reported revenue is derived. For the six months ended
30 June 2018 and 2017, and the year ended 31 December 2017, the
Company had sales to one customer totalling approximately
$1,067,000, $962,000 and $2,020,000, respectively, which comprised
approximately 11 per cent. of the Company's revenue. At 30 June
2018 and 2017, and 31 December 2017, the accounts receivable
balance included approximately $233,000, $216,000 and $151,000,
respectively, from this customer.
13. Related Party Transactions
The Company contracted with a certain shareholder of the Company
to provide consulting services. During the six months ended 30 June
2018 and 2017, and the year ended 31 December 2017, the Company
incurred approximately $19,000, $18,000 and $36,000, respectively,
in consulting fees to this related party.
Beginning in July 2017, a company owned by a shareholder
provided investor research services of approximately $7,000 and
$20,000 for the six months ended 30 June 2018 and the year ended 31
December 2017, respectively.
14. Subsequent Events
The Company evaluated subsequent events through 17 September
2018, when these consolidated financial statements were available
to be issued.
In July 2018, the Company granted 1,837,600 options to purchase
Ordinary Shares to certain employees. An additional 11,000 employee
options were forfeited through August 2018.
Management is not aware of any other significant events that
occurred subsequent to the consolidated balance sheet date but
prior to the filing of this report that would have a material
impact on the consolidated financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EADNKFLSPEFF
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