PIVOTAL SYSTEMS CORPORATION
A DELAWARE CORPORATION
ARBN 626 346 325
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 2019
Table of Contents
Corporate Directory
Chairman’s Letter
Directors’ Report
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Additional Shareholder Information
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5
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Pivotal Systems Corporation
1
Corporate Directory
Company
Pivotal Systems Corporation
48389 Fremont Blvd, Suite 100
Fremont CA, 94538 USA
Phone: +1 (510) 770 9125
Fax: +1 (510) 770 9126
Website: www.pivotalsys.com
Executive Chairman and Chief Executive Officer
Directors
John Hoffman
Dr. Joseph Monkowski Executive Director and Chief Technical Officer
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Independent Non-Executive Director
Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Australian Securities Exchange Representative
Naomi Dolmatoff
United States Registered Office
c/o Incorporating Services Ltd
3500 South Dupont Highway
Dover, Delaware 19901 USA
Australian Registered Office
c/o Company Matters Pty Limited
Level 12, 680 George Street
Sydney, NSW 2000 Australia
United States Legal Adviser
Fenwick & West LLP
801 California Street
Mountain View, California 94041 USA
Australian Legal Adviser
Maddocks
Angel Place Level 27
123 Pitt Street
Sydney, NSW 2000 Australia
Share Registry
Link Market Services
Level 12, 680 George Street
Sydney, NSW 2000 Australia
Telephone:
Facsimile:
+61 1300 554 474
+61 2 9287 0303
American Stock Transfer and Trust Company, LLC
6201, 15th Avenue
Brooklyn, NY 11219 USA
Telephone: +1 (718) 921 8386
Securities Exchange Listing
Pivotal Systems Corporation (ASX code: PVS).
Chess Depository Interests (“CDIs”) over shares of the Company’s common stock are quoted on the
Australian Securities Exchange. One CDI represents one fully paid share in the Company.
Pivotal Systems Corporation
2
Chairman’s Letter
Dear Fellow Shareholders,
On behalf of the Board of Directors, I am pleased to present our Annual Report for the year ended 31
December 2019, which was marked by significant market share gains and commercial achievements.
2019 represented both a challenging and opportunistic operating environment for Pivotal Systems. While
global semiconductor capital spending was down significantly (Est 10% globally and almost 50% in Korea)
Pivotal was able to work even more closely with the leading Original Equipment Manufacturers (“OEMS”)
on a number of strategic projects to qualify our latest technology. In 2018, over 95% of Pivotal’s
revenue was driven by either retrofits or new process equipment going to Korea. In 2019, we focused
efforts on diversifying our revenue into new regions which enabled the 2019 market share growth in
non-Korea based accounts. These efforts provided solid returns as Pivotal was named a “Preferred
Supplier” for a leading US-based OEM and was able to fully qualify the standard low flow and the remote
GFC with a leading Japan based OEM. At the same time, Pivotal was able to maintain or improve its
significant market share with its existing accounts. In the 4th Quarter, using the Smartstik architecture,
Pivotal was able to penetrate, qualify and receive multiple repeat orders from a Korean Etch OEM for
the standard GFC. Many Shareholders will remember that one of the strategic reasons we decided to list
as a public company was to raise the capital required to expand our operations into the new geographic
regions used for semiconductor production. These regions include Japan, Europe, Taiwan, China, North
America and Korea. In 2H2019, the company received purchased orders from all the major OEMs, and in
Q42019, for the first time ever, the company received purchase orders for Integrated Device
Manufacturers (“IDM’s”) end-users in Europe, Korea, Japan, China, Taiwan and the United States.
The Company ended the year with a cash position of US$5.4 million with US$2.8 million of debt, and a
backlog of confirmed orders awaiting shipment of $US3.1 million. Revenue for 2019 was US$15.3 million,
down 25% from last year, due to the industry downturn Consolidated Gross Margin was US$1.7 million,
down 72% from 2018 due to a lower proportion of higher gross margin IDM business, one-time charges
incurred in 1H2019 and increased Q4’19 manufacturing costs as we temporarily transitioned certain
manufacturing activities back to Fremont, California from Korea. Expenses increased from US$10.2
million last year to US$11.6 million in 2019. Our strong research and development spending once again
enabled the company to take advantage of new opportunities brought forward by our world class
customers. Our R&D expenditure was US$3.5 million as we invested in development projects with
strategic customers around the world. Net Operating Loss for the year was US$9.9 million. Full-time
headcount ended the year at 45.
In the area of products, Pivotal was able to further distance our superior performance from our
competitors in speed and pressure insensitivity. Pivotal introduced new software algorithms and
improved the speed of the control loop on the entire GFC and FRC family of products. In that regard,
Pivotal has accelerated our device capability to both monitor and control at the
microsecond. Previously, Pivotal software was ten times faster than our nearest competitor’s
performance, with our new capability, we are now up to one hundred times faster. Pivotal is now able
to demonstrate under ten millisecond turn on time and turn off times. This also means that the
standard GFC can monitor pressure change and temperature change in the surrounding gas stick ten
times faster and thereby operate more accurately in dynamic wafer processing conditions. This also
enables the GFC family of products to enable even more product throughput for our customers. These
technology improvements have not been demonstrated with existing thermal or pressure-based mass
flow controllers. It has become clear to the industry that the preferred partner for leading flow control
innovation is Pivotal Systems. Along these lines, the Remote GFC for High Temperature applications was
developed and brought to market through a large Japanese OEM. This product was qualified in 3Q 2019
and we received multiple repeat purchase orders in 4Q2019. The Remote GFC solves a number of
industry problems associated with high temperature applications. The new High Flow GFC, introduced
in 2018, has received rapid market acceptance by both OEMs as well as IDMs. The High Flow GFC
Pivotal Systems Corporation
3
Chairman’s Letter
provides improved performance or the large and growing deposition market. To date, our customers
have told us that our product is the fastest deposition flow controller as well the most accurate. We
continue to be optimistic in growing our market share in this critical area of the market. Finally, the
three channel Flow Ratio Controller (FRC) continues to perform well with a leading Korean IDM and
Pivotal received a repeat order for this product in 2019. At the same time, Pivotal entered into an
agreement with a US-based OEM for the development of a two channel FRC. We expect to deliver the
first unit for OEM qualification in 1H2020.
Pivotal Systems continues to build on well-established relationships with semiconductor industry leaders
as we work in unison to solve the exciting challenges our industry faces. We constantly strive to improve
our existing products while expanding our product portfolio to gain a greater foothold across a very
large and constantly evolving global market. Our strategy has been, and continues to be, to take market
share at the leading edge and strong growth will follow. On behalf of our Board of Directors, I would like
to thank our team around the world who have worked diligently for the success we achieved in 2019 and
importantly, for our ongoing success into the future. I would also particularly like to thank our
shareholders for their outstanding support of the Company.
Sincerely,
John Hoffman
Executive Chairman and Chief Executive Officer
Pivotal Systems Corporation
Pivotal Systems Corporation
4
Directors’ Report
The directors present their report for Pivotal Systems Corporation (“Pivotal” or “Company”) together with
the financial statements on the Consolidated Entity (referred to hereafter as the “Consolidated Entity”
or “Group”) consisting of the Company and its subsidiaries for the financial year ended 31 December 2019
and the auditor’s report thereon.
DIRECTORS
The following persons were directors of the Company during the whole of the financial year and up to the
date of this report, unless otherwise stated:
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
PRINCIPAL ACTIVITIES
Executive Chairman and Chief Executive Officer
Executive Director and Chief Technical Officer
Independent Non-Executive Director
Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Pivotal designs, develops, manufactures and sells high-performance gas flow controllers (GFC). Pivotal
provides high quality gas flow monitoring and control technology platform for the global semiconductor
industry. The Company’s proprietary hardware and software utilizes advanced machine learning to enable
preventative diagnostic capability resulting in an order of magnitude increase in fab productivity and
capital efficiency for existing and future technology nodes.
Pivotal is incorporated in Delaware, United States and has offices in Fremont California, USA
(headquarters) and third party contracted manufacturing and assembling facilities in Shenzhen, China and
Dongtan, South Korea.
No significant change in the nature of these activities occurred during the financial year.
REVIEW OF OPERATIONS AND FINANCIAL RESULTS
Financial results
Revenue for the financial year ended 31 December 2019 decreased 25% to $15.31 million (2018: $20.33
million). This was as a result of a decrease in shipments due to a challenging macro-environment.
The Group’s gross profit for FY19 decreased 72% to $1.73 million (2018: $6.13 million). This decrease is in
part due to the decrease in revenue – several of the costs of goods sold are fixed, and as such, the lower
revenue has had a negative impact on margins. Furthermore, the Group saw a decrease of sales to
integrated device manufacture (IDM) customers to $3.21 million, which represented 21% of sales in 2019
(2018: $7.15 million, 35% of sales). These sales are generally at a higher margin.
Margins were also adversely impacted as the Group has had to temporarily transition certain
manufacturing activities back to Fremont. This resulted in final product transformation activities and
product shipments from Pivotal's Fremont facility. The Fremont facility has sufficient capacity to meet
expected customer demand for Pivotal's GFC commensurate with continued improvement in the
semiconductor manufacturing equipment sector for the 1H2020.
The Group has already implemented cost reduction measures and will continue to closely monitor profit
margin.
Pivotal Systems Corporation
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Directors’ Report
REVIEW OF OPERATIONS AND FINANCIAL RESULTS (CONTINUED)
Financial results (continued)
Pivotal is on schedule to establish a repair and upgrade center in Korea. The facility will be operated but
not owned by Pivotal and is expected to commence operations in the first half of 2020. This facility will
provide both repair and software upgrades to both IDM and OEM customers globally.
Total operating expenses for the year increased by 14% to $11.64 million (2018: $10.18 million). This
increase is largely due to payroll, as well as planned increases in research and development as the Group
scales.
The $9.91 million operating loss represented an increase of 145% compared to the prior period (2018:
$4.05 million).
Key achievements
During the financial year, Pivotal achieved Preferred Supplier Status for both the Standard GFC and High
Flow GFC at a leading US based Original Equipment Manufacturer (OEM).
Record bookings (new orders) were achieved from China for both the Standard GFC and the High Flow GFC
at a leading Chinese Integrated Device Manufacturer (IDM).
In addition to this, the Company achieved qualification and multiple repeat orders for the High
Temperature GFC with a leading Japanese OEM.
During the financial year, the Group successfully qualified the standard GFC at a leading European
foundry. Successful qualification and multiple repeat orders were also obtained at a Japanese Logic IDM.
Pivotal successfully qualified and received multiple repeat orders for both deposition and etch at a leading
Taiwanese IDM.
The Company also shipped a second Flow Ratio Controller (“FRC”) to a leading Korean IDM.
The Company passed ISO 9001:2015 recertification.
The Company once again demonstrated a new architecture for the existing etch gas stick commonly used
by the OEMs. This architecture is called SmartStik as it leverages all of the intelligent signals of the
standard GFC, while operating at the microsecond (up to 1,000 times faster than standard GFC millisecond
speeds). This design also includes the insertion of a Teflon coating to the GFC valve, enabling a positive
shutoff capability. This new architecture potentially enables the elimination of costly components used
on traditional etch gas sticks as the SmartStik makes them redundant.
Post year end, Pivotal is also intending to release a derivative of the High Flow GFC, which is expected to
materially enhance metal-organic chemical vapour deposition techniques (“MOCVD”) used in the
production of solar, LED and flat panel markets. The combination of these product initiatives is expected
to increase Pivotal’s total addressable market to over US$1 billion. The development and testing per
specific application continued during the period, which is expected to be completed in the next six to
twelve months.
Pivotal Systems Corporation
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Directors’ Report
GOING CONCERN
This financial report has been prepared on the going concern basis, which contemplates the continuity of
normal business activity and the realisation of assets and settlement of liabilities in the normal course of
business.
During the period ended 31 December 2019, the Group incurred a loss after income tax of $9.95 million
(2018: $66.1 million) and the Group’s net cash outflows from operating activities for the period ended 31
December 2019 were $11.5 million (2018: $3.7 million).
The Directors believe that there are reasonable grounds to conclude that the Group will continue as a
going concern, after consideration of the following factors:
The securing of a $10 million debt financing facility with Bridge Bank on 27 August 2019 comprising
of a $3 million term loan line of credit and an $7 million working capital revolving credit line (refer
note 13).
The securing of $13 million Revenue Based Redeemable Preferred Stock (RBI) with Anzu on 30
January 2019. The initial funding of $10 million was received by Pivotal on 20 February 2020 for the
issue of 10,000 RBI’s of $0.00001 par value per share, at a purchase price of USD$1,000 per share.
A subsequent funding of $3 million is available at Pivotal’s option in conjunction with the
replacement of Pivotal’s Bridge Bank senior term loan line of credit.
The expansion of market opportunities as a result of the development and production of new
products.
Accordingly, the directors believe the Group will be able to continue as a going concern and that it is
appropriate to adopt the going concern basis in the preparation of the consolidated financial report.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the Group during the financial year.
DIVIDENDS
No dividends were paid or declared during the year ended 31 December 2019 and the Company does not
intend to pay any dividends for the year ended 31 December 2019 (2018: $Nil).
PRESENTATION CURRENCY
The functional and presentation currency of the Group is United States Dollars (US Dollars). The financial
report is presented in US Dollars with all references to dollars, cents or $’s in these financial statements
presented in US currency, unless otherwise stated.
ROUNDING OF AMOUNTS
Unless otherwise stated, amounts in this report have been rounded to the nearest thousand United States
Dollars.
JURISDICTION OF INCORPORATION
The Company is incorporated in the State of Delaware, United States of America and is a registered foreign
entity in Australia. As a foreign company registered in Australia, the Company is subject to different
reporting and regulatory regimes than Australian companies.
Pivotal Systems Corporation
7
Directors’ Report
DELAWARE LAW, CERTIFICATE OF INCORPORATION AND BYLAWS
As a foreign company registered in Australia, the Company is not subject to Chapters 6, 6A, 6B and 6C of
the Corporations Act dealing with the acquisition of shares (including substantial shareholdings and
takeovers). Under the provisions of Delaware General Corporation Law (“DGCL”), shares are freely
transferable subject to restrictions imposed by US federal or state securities laws, by the Company’s
certificate of incorporation or bylaws, or by an agreement signed with the holders of the shares at issue.
The Company’s amended and restated certificate of incorporation and bylaws do not impose any specific
restrictions on transfer. However, provisions of the DGCL, the Company’s Certificate of Incorporation and
the Company’s Bylaws could make it more difficult to acquire the Company by means of a tender offer
(takeover), a proxy contest or otherwise, or to remove incumbent officers and Directors of the Company.
These provisions could discourage certain types of coercive takeover practices and takeover bids that the
Board may consider inadequate and to encourage persons seeking to acquire control of the Company to
first negotiate with the Board. The Company believes that the benefits of increased protection of its
ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure
the Company outweigh the disadvantages of discouraging takeover or acquisition proposals because,
among other things, negotiation of these proposals could result in an improvement of their terms.
Also refer to section 15 of the Additional Shareholder Information section of this Annual Report for
further specific details on restrictions to registration of transfers in the Company’s Bylaws.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
RBI financing
On 30 January 2020, the Group announced the dispatch of a Notice of Special Meeting of Shareholders and
the signing of a definitive preferred stock investment agreement (RBI financing) with Anzu Industrial RBI
USA LLC, a fund organized by Anzu Partners LLC (“Anzu”), which provides Pivotal with up to US$13 million
in additional funding required to grow and expand the business. Anzu is a venture capital and private
equity firm that invests in breakthrough industrial technologies and currently manages approximately
US$350 million in capital commitments. Anzu is an investor in Pivotal and remains the Company’s second
largest shareholder with 12.1% of the issued capital1. David Michael (a Director of Pivotal) is also a
Managing Director of Anzu Partners LLC.
On 12 February 2020, the shareholders at the Special Meeting of Shareholders, approved the amendment
of Pivotal’s Certificate of Incorporation and the RBI financing. The funding of US$13.0 million is available
to be drawn down by Pivotal in two tranches: an initial funding of US$10.0 million for the issue of 10,000
Revenue Based Redeemable Preferred Stock (RBI) which was drawn down and paid to Pivotal on 20
February 2020 with an additional amount of US$3.0 million for the issue of 3,000 RBI being available at
Pivotal’s option in conjunction with the replacement of Pivotal’s Bridge Bank senior term loan line of
credit. Each RBI has an issue price of US$1,000 per share. Beyond typical contractual covenants pertaining
to liquidation of Pivotal, there are no other financial covenants, no personal guarantees from founders or
investors, no warrant or option coverage and the issue of RBI is not dilutive to current common stock/CDI
holders.
On 20 February 2020 the Company received the first tranche of the RBI financing for US$10 million in
exchange of 10,000 RBI of $0.00001 par value per share, at a purchase price of US$1,000 per share. In
accordance with the directions of the Board (as defined below), the Company will use the proceeds
from the sale of the shares to grow and expand the business. As of the date of this report, the Company
has not determined the date of the closing of the second tranche of the RBI financing.
Due to the receipt of this financing, the Company is in compliance with the financial covenants as agreed
with Bridge Bank.
1 Based on an aggregate of 113,269,313 shares on common stock (equivalent to 113,269,313 CDIs)
Pivotal Systems Corporation
8
Directors’ Report
Other subsequent matters
On 22 January 2020, 250,000 shares were issued on the exercise of options issued pursuant to the
Company’s equity incentive plan.
Other than the above, no other matter or circumstance has arisen since 31 December 2019 that has
significantly affected, or may significantly affect the Group’s operations, the results of those operations,
or the Group’s state of affairs in future financial years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
The Group’s core growth strategy involves continuing its strong customer-driven product development
focus in order to continue to increase the market share. The Group’s growth strategy also includes:
1. Expanding the product portfolio which in turn increases the total addressable market size; and
2. Establishing relationships with key technology and industry partners in order to improve our
product offering and delivery capabilities.
ENVIRONMENTAL REGULATION
The Group is not subject to any significant environmental regulation under United States of America
legislation. The Group is committed to the sustainable management of environmental, health, and safety
(EHS) concerns as a core business principle. This includes ensuring compliance with all applicable
government standards and regulations and providing a safe and healthy workplace, while reducing our
environmental footprint. We integrate health, safety, and environmental considerations into all aspects of
our business, including product design and services, to provide productive and responsible solutions by:
Striving for zero accidents through the application of an EHS Management System.
Implementing pollution prevention control strategies.
Committing to continual improvement for our customers, Company, and Group’s personnel.
The Board of Directors considers that adequate systems are in place to manage the Group’s obligations and
is not aware of any breach of environmental requirements as they relate to the Group.
CORPORATE GOVERNANCE
During FY19, the Company, as a Delaware incorporated corporation, sought to achieve substantive
compliance with the governance recommendations set out in the ‘Corporate Governance Principles and
Recommendations 3rd Edition’, published by the ASX Corporate Governance Council (the ASX Principles).
The Company’s Corporate Governance Statement can be viewed at www.pivotalsys.com/investors/.
The Corporate Governance Statement sets out the extent to which Pivotal has followed the ASX Corporate
Governance Council’s 29 Recommendations during the year ended 31 December 2019.
SHARE OPTIONS
Options to acquired shares in the Company were granted during the financial year. The number of options
outstanding as at the date of this reports, and all other movements in share options, are disclosed in Note
18 to the financial statements.
Pivotal Systems Corporation
9
Directors’ Report
SECURITIES ON ISSUE
The Company had the following securities on issue as at 31 December 2019:
Shares of common stock
Options over shares of common stock
INFORMATION ON DIRECTORS
Common Stock
113,269,313
CDI equivalent
113,269,313
14,469,242
-
John Hoffman
Executive Chairman and Chief Executive Officer
John Hoffman has over 25 years of global high technology management experience building growth
organizations in both the semiconductor and information technology markets.
Prior to joining Pivotal Systems, John was a Senior VP with Spencer Trask Ventures, a New York based
venture capital firm. While at Spencer Trask, John was primarily involved in the solar and integrated
circuit efforts of the firm. Prior to Spencer Trask, John was the Chief Executive Officer of RagingWire
Enterprise Solutions, an Inc 500 fastest growing private company. John reorganized the company and
enabled record growth in revenue and profitability during his tenure. Prior to RagingWire, John worked in
various general manager roles at Applied Materials for 18 years. He was the President of the billion dollar
“Etch Product Business Group”, VP and GM of the Process Control and Diagnostic Business Group and the
General Manager of the Customer Service Division which grew by over 300% during his tenure.
Special responsibilities:
Chairman of the Board
Other directorships:
None
Dr. Joseph Monkowski
Executive Director and Chief Technical Officer
Joseph Monkowski has extensive experience in the semiconductor industry focused on providing process
equipment and metrology solutions for next generation device manufacturing.
Prior to joining Pivotal, Monkowski was the SVP of Business Development for Advanced Energy Industries,
where he led the company’s M&A strategy to expand its product portfolio and position the company as a
market leader in the semiconductor subsystems space. Previously, he held senior executive positions at
Pacific Scientific, Photon Dynamics and Lam Research, where he served as EVP and CTO. During his career,
Monkowski led efforts to design and build a number of leading CVD and plasma etch systems, winning the
R&D 100 award and multiple Semiconductor International Best Product awards. He has authored numerous
patents and publications.
Special responsibilities:
Other directorships:
None
None
Pivotal Systems Corporation
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Directors’ Report
INFORMATION ON DIRECTORS (continued)
Ryan Benton
Independent Non-Executive Director
Ryan joined the Board in 2015 bringing over 25 years of finance, operations, and transaction experience.
Ryan is the CFO of Revasum, Inc. and previously served as CFO of BrainChip Holdings Ltd (ASX: BRN) and
CEO and Board Member at Exar Corporation (NYSE: EXAR), which was acquired by MaxLinear Corporation
(NASDAQ: MXL) in May 2017. Previous roles included senior and consulting positions at ASM International
NV (NASDAQ: ASMI), and eFunds Corporation (NASDAQ: EFDS).
Special responsibilities:
Chairman of the Audit and Risk Management Committee
Member of the Remuneration and Nomination Committee
Other directorships:
Executive director of Revasum, Inc. (ASX: RVS)
Kevin Landis
Non-Executive Director
Kevin joined the Board in 2012 and is the CEO and CIO of Firsthand Capital Management, an investment
management firm he founded in 1994. Firsthand Capital Management is the investment adviser to
Firsthand Technology Value Fund, Inc. (NASDAQ: SVVC), a publicly traded venture capital fund. Kevin has
over two decades of experience in engineering, market research, product management and investing in
the technology sector. Kevin is Firsthand’s nominee director to the board of Pivotal Systems Corporation.
Special responsibilities:
Member of the Audit and Risk Management Committee
Member of the Remuneration and Nomination Committee
Other directorships:
Non-executive director - Revasum, Inc. (ASX: RVS), Hera Systems, Inc.,
IntraOp Medical Corp., QMAT, Inc. and Silicon Genesis Corp. and
Wrightspeed, Inc.
David Michael
Non-Executive Director
David Michael is Managing Director at Anzu Partners, an investment partnership which invests in innovative
industrial technology companies. In addition to his role at Pivotal Systems, he is also Board member of
Nuburu (industrial lasers), and Terapore (nanofiltration membranes for ultrapure water and other
applications.
Mr. Michael was formerly Senior Partner and Managing Director of The Boston Consulting Group (BCG),
where his career spanned numerous leadership roles across the firm. He formerly led BCG’s Greater China
business and their Asia Technology Practice. He served a range of clients in semiconductors, components,
hardware, software, and services. He was based for 7 years in Silicon Valley and for 16 years in Greater
China. He remains a Senior Advisor to the firm.
Special responsibilities:
Member of the Audit and Risk Management Committee
Member of the Remuneration and Nomination Committee
Other directorships:
Non-executive director - Taiwan Cement Corporation (XTAI:1101),
Nuburu, Axsun, and Terapore
Pivotal Systems Corporation
11
Directors’ Report
INFORMATION ON DIRECTORS (continued)
Peter McGregor
Independent Non-Executive Director
Peter McGregor was appointed a non-executive director on 23 August 2018 and has over 30 years’
experience in senior finance and management roles, including having been Chief Executive Officer of
technology company, Think Holdings, Chief Financial Officer of the ASX50 transport company, Asciano,
and a partner in the Investment Banking firm of Goldman Sachs JBWere.
He also spent time as a Managing Director within the Institutional Banking & Markets division of
Commonwealth Bank and was Chief Operating Officer of ASX-listed Australian Infrastructure Fund. Peter
is an experienced company Director, having served as Chairman of the Port of Geelong and as a Director
of Melbourne, Gold Coast and Darwin Airports.
Special responsibilities:
Chairman of the Remuneration and Nomination Committee
Member of the Audit and Risk Management Committee
Other directorships:
Non-executive Director - Imricor Medical Systems, Inc.
SECURITIES HELD BY DIRECTORS AND KEY MANAGEMENT PERSONNEL
The directors and key management personnel of the Company are shown together with their holdings of
common shares and options, held directly or indirectly as at 31 December 2019:
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis (1)
David Michael
Peter McGregor
Common
Stock
Options
Common
Stock
Options
Direct
Indirect
1,441,870
1,445,683
195,000
-
-
-
3,269,325
3,264,089
201,000
-
-
100,000
-
-
-
231,535
-
-
3,082,553
6,834,414
231,535
-
-
-
-
-
-
-
(1) Common stock held by Silicon Valley Investor Holdings Pty Ltd, of which Kevin Landis is the majority
shareholder.
REMUNERATION REPORT
EXECUTIVE COMPENSATION
This section discusses the principles underlying our policies and decisions with respect to the
compensation of our named executive officers, and all material factors relevant to an analysis of these
policies and decisions. Our named executive officers for the year ended 31 December 2019 were:
John Hoffman
Dr Joseph Monkowski
Omesh Sharma
Executive Chairman, President and Chief Executive Officer;
Executive Director and Chief Technical Officer; and
Chief Financial Officer (resigned 5 June 2019).
Pivotal Systems Corporation
12
Directors’ Report
REMUNERATION REPORT (continued)
COMPONENTS OF EXECUTIVE COMPENSATION
The principal components of our executive compensation are base salary, cash bonuses and long-term
incentives. Our Remuneration and Nomination Committee considers that each component of executive
compensation must be evaluated and determined with reference to competitive market data, individual
and corporate performance, our recruiting and retention goals and other information we deem relevant.
Our executive officers are also eligible to participate in our 401(k) retirement plan as well as medical and
other benefit plans.
The terms of each named executive officer’s compensation are derived from the employment agreements
the Company has entered into with them.
The components of the executive compensation packages for our named executive officers for the year
ended 31 December 2019 are as follows:
John Hoffman
Executive Chairman, President and Chief Executive Officer
Mr. Hoffman received a fixed remuneration package of $325,000 and is eligible to participate in various
customary employee benefit plans of Pivotal. Pursuant to Mr. Hoffman’s Retention Agreement, dated 11
May 2018, if Mr. Hoffman is terminated by the Company without cause or if he resigns for good reason
and Mr. Hoffman signs a general release of claims in favor of the Company and complies with certain other
requirements, the Company must pay Mr. Hoffman severance in an amount equal to twelve months of his
base salary, twelve months of health insurance cover and 100% of his annual target bonus for the period
in which termination occurs. All of Mr. Hoffman’s unvested Options are subject to acceleration of vesting
upon a change of control of the Company, and certain of his Options vest only subject to achievement of
specified performance metrics and a time-based vesting schedule.
Dr. Joseph Monkowski Executive Director and Chief Technical Officer
Dr. Monkowski received a fixed remuneration package of $275,000 and is eligible to participate in various
customary employee benefit plans of Pivotal. Pursuant to Dr. Monkowski’s Retention Agreement, dated
11 May 2018, if Dr. Monkowski is terminated by the Company without cause or if he resigns for good reason
and Mr. Hoffman signs a general release of claims in favor of the Company and complies with certain other
requirements, the Company must pay Dr. Monkowski severance in an amount equal to twelve months of
his base salary, twelve months of health insurance cover and 100% of his annual target bonus for the
period in which termination occurs. All of Dr. Monkowski’s unvested Options are subject to acceleration
of vesting upon a change of control of the Company, and certain of his Options vest only subject to
achievement of specified performance metrics and a time-based vesting schedule.
Omesh Sharma
Chief Financial Officer (resigned 5 June 2019)
Mr. Sharma received a fixed remuneration package of $255,000 and was eligible to participate in various
customary employee benefit plans of Pivotal. Pursuant to Mr. Sharma’s Retention Agreement, dated 11
May 2018, and upon his resignation, Mr. Sharma executed a general release of claims in favor of the
Company and certain other requirements resulting in severance payment by the Company to Mr. Sharma
in an amount equal to twelve months of his base salary, twelve months of health insurance cover and
100% of his annual target bonus for the period in which termination occurs.
Pivotal Systems Corporation
13
Directors’ Report
REMUNERATION REPORT (continued)
NON-EXECUTIVE COMPENSATION
The Board is responsible for determining and reviewing compensation arrangements for each non-
executive director. The non-executive directors for the year ended 31 December 2019 were as follows:
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
The Company has entered into a non-executive director agreement with Mr. Benton whereby he is entitled
to receive US$70,000 per annum for his role as a non-executive director, and a further US$15,000 per
annum as chair of the Audit and Risk Committee.
The Company has also entered into a non-executive director agreement with Mr. McGregor whereby he is
entitled to receive US$70,000 per annum as a non-executive director, and a further US$15,000 per annum
as chair of the Remuneration and Nomination Committee.
Mr. Landis and Mr. Michael do not receive compensation for their services as a non-executive director.
REMUNERATION TABLE
Remuneration earned by key management personnel during the year is summarized as follows:
2019
John Hoffman
Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Omesh Sharma (1)
Salary and
fees
US$
Cash bonus
(2)
US$
401k &
other
benefits
US$
Share based
payment
US$
362,500
312,000
85,000
-
-
85,000
459,325
1,303,825
-
-
-
-
-
-
-
-
30,308
25,552
-
-
-
-
20,120
75,980
9,260
7,834
31,009
-
-
-
-
48,103
Total
US$
402,068
345,386
116,009
-
-
85,000
479,445
1,427,908
(1) Remuneration is reported for Mr Sharma up to his resignation date of 5 June 2019. He continued
to work with the company until 31 July 2019.
(2) No cash bonuses were awarded during the current year.
END OF REMUNERATION REPORT
Pivotal Systems Corporation
14
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
For the year ended 31 December 2019
Revenue
Cost of goods sold
Gross profit
Expenses
Research & development
Selling & marketing
General & administrative
Total expenses
Operating loss
Finance income
Finance expenses
Other expenses
Net loss before income tax expense
Income tax expense
Net loss for the year
Other comprehensive income
Other comprehensive income for the year, net of tax
Total comprehensive loss for the year attributable
to the members of Pivotal Systems Corporation.
Note
2019
US$’000
2018
US$’000
2
15,309
20,328
3
3
3
4
4
4
5
(13,579)
(14,198)
1,730
6,130
(3,521)
(3,180)
(4,935)
(3,139)
(3,175)
(3,867)
(11,636)
(10,181)
(9,906)
(4,051)
168
(217)
76
(152)
-
(61,976)
(9,955)
(66,103)
-
-
(9,955)
(66,103)
-
-
(9,955)
(66,103)
Loss per share attributable to the members of
Pivotal Systems Corporation
US$ per
share
US$ per
share
Basic and diluted loss per share
6
(0.09)
(1.04)
The above consolidated statement of profit or loss and other comprehensive income should be read
in conjunction with the accompanying notes.
Pivotal Systems Corporation
16
Consolidated Statement of Financial Position
As at 31 December 2019
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Right of use assets
Other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Employee benefits
Provisions
Borrowings
Lease liabilities
Total current liabilities
Non-current liabilities
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Accumulated losses
Total equity
Note
2019
US$’000
2018
US$’000
8
13
9
10
11
12
1
13
14
15
13
1
1
16
18
5,446
5,823
8,746
314
17,489
3,870
6,347
334
20,329
28,040
307
10,304
1,192
23
11,826
32,155
4,970
443
189
2,756
225
8,583
1,031
1,031
9,614
22,541
171,315
1,719
302
9,078
-
9
9,389
37,429
5,336
423
110
-
-
5,869
-
5,869
31,560
170,818
1,280
(150,493)
(140,538)
22,541
31,560
The above consolidated statement of financial position should be read in conjunction with the accompanying
notes.
Pivotal Systems Corporation
17
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Contributed
equity
US$’000
Reserves
US$’000
Accumulated
losses
US$’000
Total equity
US$’000
Balance at 1 January 2018
43,263
1,179
(74,435)
Loss after income tax expense for the year
Other comprehensive loss for the year, net
of tax
Total comprehensive loss for the year
Transactions with owners in their capacity as
owners:
Shares issued on conversion of preferred
stock and warrants, net of cost (note 16)
Issue of listed ordinary share capital (note
16)
Share issue costs
Share-based payments (note 18)
-
-
-
102,730
26,586
(1,761)
-
-
-
-
-
-
-
101
Balance at 31 December 2018
170,818
1,280
(140,538)
170,818
-
1,280
-
(140,538)
(9,955)
Balance at 1 January 2019
Loss after income tax expense for the year
Other comprehensive loss for the year, net
of tax
Total comprehensive loss for the year
Transactions with owners in their capacity as
owners:
Shares issue on exercise of options (note
16)
Share issue costs
Share-based payments (note 18)
-
-
502
(5)
-
-
-
-
439
(66,103)
-
(29,993)
(66,103)
-
(66,103)
(66,103)
-
-
-
-
-
102,730
26,586
(1,761)
101
31,560
31,560
(9,955)
-
(9,955)
(9,955)
-
-
502
(5)
439
Balance at 31 December 2019
171,315
1,719
(150,493)
22,541
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Pivotal Systems Corporation
18
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Cash flows used in operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Payment related to the exercise of put option of
warrants related to debt discount
Note
2019
US$’000
2018
US$’000
13,066
(24,562)
19,321
(22,587)
161
(162)
-
-
(152)
(315)
Net cash used in operating activities
8
(11,497)
(3,733)
Cash flows used in investing activities
Payments for property, plant and equipment
Payments for capitalized development expenses
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issue of common stock
Payment to selling shareholders, net of costs
Payment of share issue costs
Proceeds from the issue of preferred stock
Proceeds from the exercise of options
Proceeds from the exercise of warrants
Proceeds from bank loans
Repayment of bank loans
Transaction costs related to the loans and borrowings
Reduction in Lease liabilities
Net cash from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the
financial year
Net effect of foreign exchange
16
13
13
1
(112)
(3,484)
(3,596)
-
-
-
-
473
-
3,000
(250)
(26)
(154)
(288)
(3,478)
(3,766)
39,540
(12,954)
(1,761)
2,000
61
1
1,917
(4,925)
(120)
-
3,043
23,759
(12,050)
16,260
17,489
7
1,148
81
Cash and cash equivalents at the end of the year
8
5,446
17,489
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Pivotal Systems Corporation
19
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies
The principal accounting policies adopted in the preparation of the consolidated financial statements are
set out either in the respective notes or below. These policies have been consistently applied to all the
periods presented, unless otherwise stated. The financial statements are for the Group including Pivotal
Systems Corporation and its subsidiaries, referred to as “Pivotal”, “Company” or “Group”.
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board (“AASB”). The financial
statements also comply with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board. The financial statements comprise the consolidated financial
statements of the Group which is a for-profit entity for financial reporting purposes under Australian
Accounting Standards.
Historical cost convention
The consolidated financial statements, except for the cash flow information, have been prepared on an
accrual basis and are based on historical costs, modified, where applicable, by the measurement at fair
value of selected non-current assets, financial assets and financial liabilities.
Critical accounting estimates
The preparation of the consolidated financial statements requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Group's
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements, are disclosed throughout the
financial statements.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group as at the end of
the reporting period. Control is achieved when the Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over
the investee. Specifically, the Group controls an investee if and only if the Group has:
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee);
Exposure, or rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers
all relevant facts and circumstances in assessing whether it has power over an investee, including:
The contractual arrangement with the other vote holders of the investee;
Rights arising from other contractual arrangements; and
The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there
are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when
the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included
in the statement of profit and loss and other comprehensive income from the date the Group gains control
until the date the Group ceases to control the subsidiary.
Pivotal Systems Corporation
20
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
Basis of consolidation (continued)
Profit or loss and each component of other comprehensive income are attributed to the equity holders of
the parent of the Group and to the non-controlling interests, even if this results in the non-controlling
interests having a deficit balance. When necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-
Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between
members of the Group are eliminated in full on consolidation.
Rounding of amounts
Amounts in this report have been rounded off to the nearest thousand United States dollars unless
otherwise stated.
Functional currency
The financial statements are presented in US dollars, which is the functional and presentational currency
of the Group. There has been no change in the functional and presentational currency of the Group.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end
exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange
rate at the date of the transaction. Non-monetary items held at fair value are reported at the exchange
rate at the date when the fair values were determined.
Exchange differences arising on the translation of monetary items are recognized in profit or loss.
Exchange differences arising on the translation of non-monetary items are recognized directly in other
comprehensive income to the extent that the underlying gain or loss is directly recognized in other
comprehensive income; otherwise the exchange difference is recognized in profit or loss.
Going Concern
This financial report has been prepared on the going concern basis, which contemplates the continuity of
normal business activity and the realisation of assets and settlement of liabilities in the normal course of
business.
During the period ended 31 December 2019, the Group incurred a loss after income tax of $9.95 million
(2018: $66.1 million) and the Group’s net cash outflows from operating activities for the period ended 31
December 2019 were $11.5 million (2018: $3.7 million).
The Directors believe that there are reasonable grounds to conclude that the Group will continue as a
going concern, after consideration of the following factors:
The securing of a $10.0 million debt financing facility with Bridge Bank on 27 August 2019 comprising
of a $3.0 million term loan line of credit and an $7.0 million working capital revolving credit line
(refer note 13).
The securing of $13.0 million Revenue Based Redeemable Preferred Stock (RBI) with Anzu on 30
January 2020. The initial funding of $10.0 million was received on 20 February 2020 for the issue of
10,000 RBI’s of $0.00001 par value per share, at a purchase price of USD$1,000 per share. A
subsequent funding of $3.0 million is available in conjunction with the replacement of Pivotal’s
Bridge Bank senior term loan line of credit.
The expansion of market opportunities as a result of the development and production of new
products.
Pivotal Systems Corporation
21
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
Going Concern (continued)
Accordingly, the directors believe the Group will be able to continue as a going concern and that it is
appropriate to adopt the going concern basis in the preparation of the consolidated financial report.
Current and non-current classification
Assets and liabilities are presented in the statement of financial position based on current and non-current
classification.
An asset is current when it is expected to be realized or intended to be sold or consumed in normal
operating cycle; it is held primarily for the purpose of trading; it is expected to be realized within 12
months after the reporting period; or the asset is cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets
are classified as non-current.
A liability is current when it is expected to be settled in normal operating cycle; it is held primarily for
the purpose of trading; it is due to be settled within 12 months after the reporting period; or there is no
unconditional right to defer the settlement of the liability for at least 12 months after the reporting
period. All other liabilities are classified as non-current.
Deferred tax assets and liabilities are always classified as non-current.
Financial Assets
The Company’s financial assets are comprised by Accounts Receivable and Other Receivables which are
initially measured at fair value and subsequently measured at amortized cost. Financial assets are
derecognized when the rights to receive cash flows have expired which is generally when payment has
been received. When there is no reasonable expectation of recovering part of all of a financial asset, its
carrying value is written off.
The Company recognizes a loss allowance for expected credit losses of financial assets. The
measurement of the loss allowance depends on the Company’s assessment of credit risk at the end of
each reporting period based on reasonable and supportable information that is available without undue
cost of effort to obtain.
Where there has not been a significant increase in exposure to credit risk since initial recognition, the
Company evaluates if a 12-month expected credit loss allowance shall be estimated.
New, revised or amended Accounting Standards and Interpretations adopted
The Group has adopted all of the new, revised or amended Accounting Standards and Interpretations
issued by the Australian Accounting Standards Board (‘AASB’) and the International Financial Reporting
Interpretations Committee (IFRIC) that are relevant to its operations and effective for the year
commencing 1 January 2019. The nature and effect of these changes are disclosed below.
AASB 16 Leases
AASB 16 Leases supersedes AASB 117 Leases, AASB16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires lessees to account for most leases under
a single on-balance sheet model.
The Group, as lessee, is required to recognize its leases in the statement of financial position, as the
distinction between ‘operating’ and ‘finance’ leases has been removed. The lease liability is measured
as the present value of the unavoidable future lease payments to be made over the lease term.
The Group adopted AASB 16 using the modified retrospective method of adoption with the date of initial
application of 1 January 2019. Under this method, the standard is applied retrospectively with the
cumulative effect of initially applying the standard recognised at the date of initial application.
Pivotal Systems Corporation
22
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
AASB 16 Leases (continued)
The Group elected to use the transition practical expedients allowing a) the standard to be applied only
to contracts that were previously identified as leases applying AASB 117, and b) the measuring the right-
of-use asset on transition as being equal to the amount of the lease liability initially recognised on
transition minus accrued payments.
The Group also elected to use the recognition exemptions for lease contracts that, at the commencement
date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’),
and lease contracts for which the underlying asset is of low value (‘low-value assets’).
The effect of adoption of AASB 16 is as follows:
The impact on the consolidated statement of financial position as at 1 January 2019 is an increase in
right-of-use assets of $276,105, an increase in the lease liability of $289,285 and the recognition of
deferred rent of $13,180.
The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31
December 2018 as follows:
Non-cancellable lease commitments as at 31 December 2018 (undiscounted)
Reduction from discounting future, undiscounted lease payments to their net
present value at the Groups incremental borrowing rate
Lease liabilities as at 1 January 2019
(i)
Nature and effect of adoption of AASB 16
US$’000
294
(5)
289
The Group has lease contracts for its office premises. Before the adoption of AASB 16, the Group
classified each of its leases (as lessee) at the inception date as an operating lease (as it held no finance
leases). In an operating lease, the leased property was not capitalised, and the lease payments were
recognised as an expense in the consolidated statement of profit or loss and other comprehensive income
on a straight-line basis over the lease term. Prepaid or accrued rent was recognised under prepaid
expenses and accounts payable and accrued liabilities, respectively.
Upon adoption of AASB 16, the Group applied a single recognition and measurement approach for all
leases where it is the lessee, except for short-term leases and leases of low-value assets. The Group
recognised lease liabilities to make lease payments and right-of-use assets representing the right to use
the underlying assets. In accordance with the modified retrospective method of adoption, the Group
applied AASB 16 at the date of initial application by measuring the right-of-use assets based on the
amount equal to the lease liabilities. Lease liabilities were recognised based on the present value of the
remaining lease payments, discounted using the incremental borrowing rate at the date of initial
application.
(ii)
Summary of new accounting policy
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated
amortization and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost
of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and
lease payments made at or before the commencement date less any lease incentives received. Unless
the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the
recognised right-of-use assets are amortized according to the pattern in which the asset’s future
economic benefits are expected to be consumed by the Group over the shorter of its estimated useful
life and the lease term. Right-of-use assets are subject to impairment.
Pivotal Systems Corporation
23
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
AASB 16 Leases (continued)
(ii)
Summary of new accounting policy (continued)
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present
value of lease payments to be made over the lease term.
The present value of the lease liability presented in the financial statements refers to the lease of the
Group’s headquarters in Fremont, California. The lease payments include fixed payments (including in-
substance fixed payments) less any lease incentives receivable, variable lease payments that depend on
an index or a rate, and amounts expected to be paid under residual value guarantees.
The variable lease payments that do not depend on an index or a rate are recognised as expense in the
period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at
the lease commencement date if the interest rate implicit in the lease is not readily determinable. After
the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest
and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed
lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term office premises leases
i.e., those leases that have a lease term of 12 months or less from the commencement date and do not
contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases
of office equipment that are considered of low value (i.e., below $5,000). Lease payments on short-term
leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease
term.
Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods
covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered
by an option to terminate the lease, if it is reasonably certain not to be exercised. When the Group has
the option to lease the assets for additional terms, it applies judgement in evaluating whether it is
reasonably certain to exercise the option to renew, considering all relevant factors that create an
economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses
the lease term if there is a significant event or change in circumstances that is within its control and
affects its ability to exercise (or not to exercise) the option to renew.
Pivotal Systems Corporation
24
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
AASB 16 Leases (continued)
(iii)
Amounts recognised in the statement of financial position and profit and loss
Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the
movements during the period:
As at 31 December 2018
Initial adoption of AASB 16
Additions
Amortization expense
Payments that reduce the present value of the lease liability (1)
As at 31 December 2019
Right-of-use
asset
US$’000
Lease
Liability
US$’000
-
276
1,121
(205)
-
1,192
-
289
1,121
-
(154)
1,256
(1) Total cash outflows for lease payments is $232,496. This amount includes $78,101 interest expense
accrual due to discounting the lease liability at the Group’s incremental borrowing rate (See Note
4). Payments of interest are classified as cash flows for operating activities in the statement of
cash flows.
Set out below are the amounts recognised in profit and loss for the year ended 31 December 2019:
Amortization expense of right-of-use asset
Interest expense on lease liabilities
Total amount recognised in profit or loss
Disclosure of Lease liabilities:
Current
Non-current
Total Lease liabilities
31 Dec 2019
US$’000
205
78
283
225
1,031
1,256
Pivotal Systems Corporation
25
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
New, revised or amended Accounting Standards and Interpretations adopted (continued)
AASB Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112
Income Taxes when there is uncertainty over income tax treatments. The Interpretation specifically
addresses the following:
• Whether an entity considers uncertain tax treatments separately;
• The assumptions an entity makes about the examination of tax treatments by taxation authorities;
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates; and
• How an entity considers changes in facts and circumstances.
An entity has to determine whether to consider each uncertain tax treatment separately or together with
one or more other uncertain tax treatments. The approach that better predicts the resolution of the
uncertainty needs to be followed. The Group applies significant judgement in identifying uncertainties
over income tax treatments.
The Group assessed whether the Interpretation had an impact on its consolidated financial
statements. Upon adoption of the Interpretation, the Group concluded that the only uncertain
tax positions it has are related to federal and California R&D credits. There are no interest and
penalties on the uncertain tax positions as there would be nothing owed to the federal or CA
taxing authorities if the R&D credit carryforwards were reduced considering that there was no
past tax that was offset by R&D credits. The interpretation did not have an impact on the
consolidated financial statements of the Group.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31
December 2019 reporting periods and have not been early adopted by the Group. The Group’s assessment
of the impact of these new standards and interpretations is set out below.
Amendment to Conceptual Framework for Financial Reporting
The revised Conceptual Framework includes some new concepts, provides updated definitions and
recognition criteria for assets and liabilities and clarifies some important concepts. It is arranged in eight
chapters, as follows:
► Chapter 1 – The objective of financial reporting
► Chapter 2 – Qualitative characteristics of useful financial information
► Chapter 3 – Financial statements and the reporting entity
► Chapter 4 – The elements of financial statements
► Chapter 5 – Recognition and derecognition
► Chapter 6 – Measurement
► Chapter 7 – Presentation and disclosure
► Chapter 8 – Concepts of capital and capital maintenance
AASB 2019-1 has also been issued, which sets out the amendments to Australian Accounting Standards,
Interpretations and other pronouncements in order to update references to the revised Conceptual
Framework. The changes to the Conceptual Framework may affect the application of accounting standards
in situations where no standard applies to a particular transaction or event.
Pivotal Systems Corporation
26
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
New standards and interpretations not yet adopted (continued)
In addition, relief has been provided in applying AASB 3 and developing accounting policies for regulatory
account balances using AASB 108, such that entities must continue to apply the definitions of an asset and
a liability (and supporting concepts) in the Framework for the Preparation and Presentation of Financial
Statements (July 2004), and not the definitions in the revised Conceptual Framework.
The amendments apply prospectively on or after 1 January 2020, with no material effect to the Group.
Amendments to AASB 3: Definition of a Business
The Standard amends the definition of a business in AASB 3 Business Combinations. The amendments
clarify the minimum requirements for a business, remove the assessment of whether market participants
are capable of replacing missing elements, add guidance to help entities assess whether an acquired
process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair
value concentration test.
Since the amendments apply prospectively to transactions or other events that occur on or after the date
of first application, being 1 January 2020, the Group will not be affected by these amendments on the
date of transition and on foreseeable future transactions.
Amendments to AASB 101: Definition of Material
This Standard amends AASB 101 Presentation of Financial Statements and AAS 108 Accounting Policies,
Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and
to clarify certain aspects of the definition. The amendments clarify that materiality will depend on the
nature or magnitude of information. An entity will need to assess whether the information, either
individually or in combination with other information, is material in the context of the financial
statements. A misstatement of information is material if it could reasonably be expected to influence
decisions made by the primary users.
The amendments apply prospectively on or after 1 January 2020, with no material effect to the Group.
Note 2. Revenue from contracts with customers
Product revenue (recognised at a point in time)
Provision for sales returns
Net revenue from contracts with customers
The following table reflects net revenue by type of customer:
Integrated device manufacturer (IDM)
Original equipment manufacturer (OEM)
Net revenue from contracts with customers
2019
US$’000
2018
US$’000
15,564
(255)
15,309
20,371
(43)
20,328
2019
US$’000
2018
US$’000
3,214
12,095
15,309
7,150
13,178
20,328
Pivotal Systems Corporation
27
Notes to the Consolidated Financial Statements
Note 2. Revenue from contracts with customers (continued)
Accounting policy for revenue recognition
The Group earns revenue from contracts with customers, primarily through the design, development,
manufacture and sale of gas flow controllers. Our contracts are priced based on the specific negotiations
with each customer.
Pivotal accounts for a contract when it has approval and commitment from both parties, the rights of the
parties are identified, payment terms are identified, the contract has commercial substance and
collectability of consideration is probable.
Pivotal recognizes revenue from product sales when the customer obtains control of the Group’s product,
which occurs at a point in time, typically upon delivery to the customer. Taxes collected from customers
relating to product sales and remitted to governmental authorities are excluded from revenues. The Group
expenses incremental costs of obtaining a contract as and when incurred because the expected
amortization period of the asset that the Group would have recognized is one year or less.
Revenues from product sales are recorded at the net sales price (transaction price), which includes
estimates of variable consideration for which reserves are established and which result from discounts,
returns, and other allowances that are offered within contracts between the Group and its customers.
Revenue is disaggregated by type of customer and by geography as we believe it best depicts how the
nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors.
Revenues by geography are based on the shipping address of the customer. Refer to Note 7 Operating
segment for disaggregation of revenue by geography.
The timing of revenue recognition may differ from the time of billing to the customers. Generally, the
payment terms of the Group’s offerings range from 30 to 90 days of the invoice date. Receivables primarily
relate to the Groups right to consideration for performance obligations completed and billed at the
reporting date for which Pivotal has an unconditional right to consideration before it invoices the
customer. Such amounts are commonly referred to as trade receivables. Refer to Note 13 Financial assets
and liabilities. When another party is involved in the provision of goods or services to a customer, Pivotal
is generally the principal in its transactions and therefore reports gross revenue based on the billed
amounts to its customers.
Contract liabilities consist of advance consideration received from customers and billings in excess of
revenue recognized and deferred revenue, which precede the Group’s satisfaction of the associated
performance obligation(s). The Group’s contract liabilities primarily result from customer payments
received upfront for performance obligations that are satisfied at a point in time. Contract liabilities are
recognized as revenue when the goods are delivered to our customer. The Group does not have contract
liabilities as of 31 December 2019 (2018: Nil).
Due to the relationship between the Group’s performance and the customer’s payment, Pivotal typically
does not have conditional rights to consideration in exchange for goods or services transferred to a
customer. Generally, Pivotal has the right to bill the customer as goods are delivered and services are
provided, which results in the Group’s right to payment being unconditional. Therefore, our balance sheet
does not present contract assets.
Due to the nature of the product, each contract with a customer has distinct performance obligations that
are capable of being distinct on their own and within the context of the contract. Additionally, based on
the contract terms, which generally include performance obligations subject to cancellation terms, the
Group does not have material unsatisfied performance obligations as of 31 December 2019 (2018: Nil).
Pivotal Systems Corporation
28
Notes to the Consolidated Financial Statements
Note 2. Revenue from contracts with customers (continued)
Accounting policy for revenue recognition (continued)
Determination of transaction price
Transaction price includes estimates of variable consideration which may result from discounts, returns
and other allowances for which reserves are established. When applicable, these reserves are based on
the amounts earned or to be claimed on the related sales and are classified as reductions of accounts
receivable. Where appropriate, these estimates take into consideration a range of possible outcomes that
are probability-weighted for relevant factors such as Pivotal’s historical experience, current contractual
and statutory requirements, specific known market events and trends, industry data and forecasted
customer buying and payment patterns. The amount of variable consideration that is included in the
transaction price may be constrained and is included in the net sales price only to the extent that it is
probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in
a future period. Actual amounts of consideration ultimately received may differ from the Group’s
estimates. If actual results in the future vary from the Group’s estimates, Pivotal will adjust these
estimates, which would affect net product revenue and earnings in the period such variances become
known.
Note 3. Expenses
Net Loss before income tax includes the following specific expenses:
Research & development
Amortization of capitalized development costs (Note 12)
2,281
2,799
2019
US$’000
2018
US$’000
Salary and benefits
Impairment of capitalized development costs (Note 12)
Other
Selling & marketing
Salary and benefits
Commissions and bonuses
Travel and outside services
Other
General & administrative
Salary and benefits
Travel and outside services
IPO costs
Bad debt expense
Other
776
22
442
250
-
90
3,521
3,139
1,265
733
752
430
3,180
1,725
1,613
-
600
997
787
1,451
499
438
3,175
1,213
1,397
725
-
532
4,935
3,867
Pivotal Systems Corporation
29
Notes to the Consolidated Financial Statements
Note 3. Expenses (continued)
Accounting policy for expenses
Research costs
Expenditure on research activities, undertaken with the prospect of obtaining new technical knowledge
and understanding, is recognized in the statement of profit or loss and other comprehensive income as an
expense when it is incurred.
Commissions and Bonuses
Commissions and Bonuses are mainly comprised of commissions paid for the initial contract with a
customer and for contract renewals and are classified as selling and marketing expenses in the
consolidated statement of profit or loss and other comprehensive income. Renewal commissions are
considered to be commensurate with the initial contract commissions. As a result, Pivotal amortizes the
commission costs, for a new contract or a contract renewal, over the initial contract term, which is less
than a year. Additionally, Pivotal applies the practical expedient of expensing sales commissions as
incurred considering that the amortization period is one year or less.
Other expenses
Other expenses classified according to their function, as selling & marketing or general &administrative,
include expenses mainly related with facilities, materials, depreciation, and share-based payment
transactions.
Pivotal Systems Corporation
30
Notes to the Consolidated Financial Statements
Note 4. Other Income and Expenses
Finance income
Interest income
Foreign exchange gains
Finance expense
Interest expense (1)
Other expenses
2019
US$’000
2018
US$’000
161
7
168
-
76
76
(217)
(152)
Loss from financial liabilities measured at fair value through the
profit or loss (2)
-
(61,976)
(1) As of 31 December 2019, interest expense included $78,101 implicit interest paid for the lease
liability, according to the incremental borrowing rate under AASB 16, $101,431 related to
borrowings and $38,000 for penalties paid for the cancellation of Certificates of Deposits (CDs)
held in financial institutions prior to maturity. As of 31 December 2018, the Group classified its
leases (as lessee) as an operating lease, therefore the implicit interest paid was not required to
be recognized in the consolidated statement of profit and loss and other comprehensive income.
(2) The Group’s preferred shares and warrant liabilities, designated at fair value through profit or
loss, were converted to common stock on 2 July 2018. The financial effect of fair value
remeasurement prior to conversion is reflected in the statement of profit or loss and other
comprehensive income in the prior year.
Accounting policy for finance income and expense
Finance income
Interest revenue is recognised as interest accrues using the effective interest method. This is a method
of calculating the amortised cost of a financial asset and allocating the interest income over the relevant
period using the effective interest rate, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Finance Expense
Finance costs that are attributable to qualifying assets are capitalised as part of the asset. All other
finance costs are expensed in the period in which they are incurred.
Pivotal Systems Corporation
31
Notes to the Consolidated Financial Statements
Note 5. Income tax expense
Deferred tax
Current tax
Aggregate income tax expense
Effective tax rate:
Net Loss before income tax expense
2019
US$’000
-
-
-
2018
US$’000
-
-
-
0.00%
0.00%
(9,955)
(66,103)
Tax at the statutory tax rate of 21% (2018: 21%)
(2,091)
(13,882)
Tax effect amounts which are not deductible/(taxable) in
calculating taxable income:
Temporary differences
Permanent differences
Disallowable expenses
Unutilized losses carried forward
Effect on unutilized losses of future reduction in tax rate
to 21%
Income tax expense
(34)
104
-
2,021
-
-
(166)
24
12,899
1,125
-
-
Based on historical losses and the expectation of future losses, management cannot conclude that it is
more likely than not that the net deferred tax assets will be fully realizable. Accordingly, the Group has
provided a full valuation allowance against its net deferred tax assets for the financial years ended 31
December 2019 and 31 December 2018.
As of 31 December 2019, the Group had federal and state net operating loss carry forwards of
approximately $39.1 million and $5.2 million (2018: $30.2 million and $4.8 million), respectively, available
to reduce future taxable income, if any. The net operating loss carry forwards will expire beginning 2032
through 2039 for California income tax purposes. Beginning in 2018 Federal net operating losses are carried
forward indefinitely.
As of 31 December 2019, the Group had federal and state research credit carry forwards of $0.4 million
(2018: $0.4 million) and $1.2 million (2018: $1.0 million). Federal tax credits begin to expire in 2037. The
state tax credits have no expiration date.
Utilization of the net operating loss carry forwards and credits may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as
amended and similar state provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Accounting policy for Income tax
The income tax expense for the year comprises current income tax expenses and deferred tax expenses.
Current income tax expense charged to the profit or loss in the tax payable on taxable income for the
current period. Current tax liabilities are measured as the amounts expected to be paid to the relevant
tax authority using the tax rates and tax laws that have been enacted or substantively enacted by the end
of the reporting period.
Pivotal Systems Corporation
32
Notes to the Consolidated Financial Statements
Note 5. Income tax expense (continued)
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances
during the year as well as unused tax losses.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period
when the asset is realized, or the liability is settled, and their measurement also reflects the manner in
which management expects to recover or settle the carrying amount of the related asset or liability.
Deferred tax assets relating to temporary differences and unused tax losses are only recognized to the
extent that it is probably that future taxable profit will be available against which the benefits of the
deferred tax asset can be utilized.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset
current tax assets against current tax liabilities and deferred tax assets against deferred tax liabilities;
and they relate to the same taxable authority on either the same taxable entity or different taxable
entities which intend to settle simultaneously.
Critical accounting judgements, estimates and assumptions
The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgement is
required in determining the provision for income tax. There are many transactions and calculations
undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.
The Group recognizes liabilities for anticipated tax audit issues based on the Group's current understanding
of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such
differences will impact the current and deferred tax provisions in the period in which such determination
is made.
Note 6. Net loss per share
Basic net loss per share has been computed by dividing the net loss by the weighted-average number of
shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing
net loss by the weighted-average number of shares of common stock and potential dilutive securities
outstanding during the period.
Because the Group is in a net loss position, diluted net loss per share excludes the effects of common
stock equivalents consisting of stock options, preferred shares and warrants, which are all anti-dilutive.
The total number of shares subject to stock options were excluded from consideration in the calculation
of diluted net loss per share.
Net loss attributable to ordinary equity holders of Pivotal Systems
Corporation used in calculating basic and diluted loss per share:
Weighted average number of ordinary shares for basic and diluted
loss per share
Basic and diluted loss per share
2019
US$’000
2018
US$’000
(9,955)
(66,103)
Number
Number
111,132,123
63,574,081
US$
US$
(0.09)
(1.04)
Pivotal Systems Corporation
33
Notes to the Consolidated Financial Statements
Note 7. Operating segments
For operating purposes, the Group is organized into one main operating segment, focused on the
technological design, development, manufacture and sale of high-performance gas flow controllers.
All the activities of the Group are interrelated, and each activity is dependent on the others. Accordingly,
all significant operating disclosures are based upon analysis of the Group as one segment. The financial
results from this segment are equivalent to the financial statements of the Group as a whole.
Pivotal Systems Corporation derives all of the revenue of the Group and maintains the majority of the
assets in the United States.
Geographically, the Group has the following revenue information based on the location of its customers:
Asia
North America
The following customers accounted for more than 10% of revenues:
Customer A
Customer B
Customer C
2019
US$’000
9,533
5,776
2018
US$’000
15,540
4,788
15,309
20,328
48%
15%
28%
91%
47%
34%
15%
96%
Note 8. Current assets - cash and cash equivalents
Cash at bank
Cash and cash equivalents
Minimum cash requirement
2019
US$’000
2018
US$’000
5,446
5,446
17,489
17,489
Pursuant to the credit facility, the Company is required to maintain $2 million minimum cash
balance in the bank account with Bridge Bank. There are no restrictions or other limitations on
the use of cash and cash equivalents.
Accounting policy for cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other
short-term, highly liquid investments with original maturities of three months or less or that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Pivotal Systems Corporation
34
Notes to the Consolidated Financial Statements
Note 8. Current assets - cash and cash equivalents (continued)
Reconciliation of Cash Outflow from Operating Activities with Net Loss for the year
Loss for the year
Depreciation expense
Amortization expense for development costs and patents
Amortization expense for ROU Assets
Impairment of capitalized development costs
Share based payment expense reported as operating activities
Fair value remeasurement of financial liabilities
Put option reported as operating activity
Interest paid reported as financing activity
Loss on sale of equipment
Foreign exchange gain
Change in operating assets and liabilities
Increase in trade and other receivables
Increase in inventories
Increase in other current assets
(Decrease)/Increase in trade and other payables
Increase in employee benefits
Increase/(decrease) in provisions
2019
US$’000
2018
US$’000
(9,955)
(66,103)
256
2,289
205
22
439
-
-
-
3
(7)
(1,954)
(2,474)
(20)
(401)
20
80
342
2,818
-
-
70
61,976
(315)
120
-
(81)
(1,307)
(1,660)
(215)
889
82
(349)
Net Cash Outflow from operating activities
(11,497)
(3,733)
Non-cash transactions:
Non-cash Financing activities in the Consolidated Statement of Cashflows in the prior year includes
$102.14 million relating to the conversion of preferred shares and warrants into common stock as a result
of the Group’s Initial Public Offering.
Note 9. Current assets - inventories
Raw materials
Work in progress
Finished goods
Inventories - gross
Less: Provision for impairment
Inventories - net
Pivotal Systems Corporation
2019
US$’000
2018
US$’000
7,394
1,054
827
9,275
(529)
8,746
5,187
845
804
6,836
(489)
6,347
35
Notes to the Consolidated Financial Statements
Note 9. Current assets - inventories (continued)
Accounting policy for inventories
Raw materials, work in progress and finished goods are stated at the lower of cost and net realizable value
on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labor, import
duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on
normal operating capacity. Costs of purchased inventory are determined after deducting rebates and
discounts received or receivable.
The Group’s inventories are concentrated in high-technology parts and components that may be
specialized in nature or subject to rapid technological obsolescence. These factors are considered in
estimating required reserves to state inventories at the lower of cost or net realizable value.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale.
Critical accounting judgements, estimates and assumptions
The provision for impairment of inventories assessment requires a degree of estimation and judgement.
The level of the provision is assessed by taking into account the recent sales experience, the ageing of
inventories and other factors that affect inventory obsolescence.
Shipping and handling costs associated with outbound freight after control over a product has
transferred to a customer are accounted for as a fulfillment cost and are in included in cost of goods
sold.
Note 10. Current assets - other assets
Prepaid expenses
Other assets
2019
US$’000
2018
US$’000
314
-
314
325
9
334
Pivotal Systems Corporation
36
Notes to the Consolidated Financial Statements
Note 11. Non-current assets - property, plant and equipment
Leasehold improvements - at cost
Less: Accumulated depreciation
Net book value leasehold improvements
Plant and equipment - at cost
Less: Accumulated depreciation
Net book value plant and equipment
2019
US$’000
2018
US$’000
61
(21)
40
1,813
(1,546)
267
31
(13)
18
1,553
(1,269)
284
Net book value property, plant and equipment
307
302
Leasehold
improvements
US$’000
Plant &
equipment
US$’000
Total
US$’000
Balance at 1 January 2018
Additions
Costs of assets impaired
Accumulated depreciation of assets impaired
Depreciation expense
Balance at 31 December 2018
Additions
Cost of disposals
Accumulated depreciation of assets disposed of
Depreciation expense
Balance at 31 December 2019
-
20
-
(2)
18
30
-
-
(8)
40
341
323
(123)
120
(377)
284
266
(5)
2
(280)
267
341
343
(123)
120
(379)
302
296
(5)
2
(288)
307
Reconciliation of depreciation expense
Depreciation allocated to capitalized development costs
Depreciation expensed to research & development costs
Depreciation expensed to selling & marketing
Depreciation expensed to general & administrative
Depreciation expensed to cost of goods sold
Total depreciation expense
Pivotal Systems Corporation
2019
US$’000
31
2018
US$’000
37
14
127
33
83
288
4
4
15
319
379
37
Notes to the Consolidated Financial Statements
Note 11. Non-current assets - property, plant and equipment
(continued)
Accounting policy for property, plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment
losses. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent
costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Group and the
cost of the item can be measured reliably.
Plant and equipment are depreciated, and leasehold improvements are amortized, over their estimated
useful lives using the straight-line method.
The expected useful lives of the assets are as follows:
Plant & equipment
Leasehold improvements
2-5 years
over the remaining lease term
The residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of
financial position date or when there is an indication that they have changed.
A carrying amount is written down immediately to its recoverable amount if the carrying amount is greater
than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in the statement profit or loss and other comprehensive income.
Critical accounting judgements, estimates and assumptions
Estimation of useful lives of assets
The Group determines the estimated useful lives and related depreciation and amortization charges for
its property, plant and equipment and finite life intangible assets. The useful lives could change
significantly as a result of technical innovations or some other event. The depreciation and amortization
charge will increase where the useful lives are less than previously estimated lives, or technically obsolete
or non-strategic assets that have been abandoned or sold will be written off or written down.
Pivotal Systems Corporation
38
Notes to the Consolidated Financial Statements
Note 12. Non-current assets - intangible assets
Patent – at cost
Less: Accumulated amortization
Capitalized development – at cost
Less: Accumulated amortization
2019
US$’000
2018
US$’000
50
(50)
-
22,361
(12,057)
10,304
50
(42)
8
18,845
(9,775)
9,070
Net written down value intangible assets
10,304
9,078
Patent
US$’000
Capitalized
Development
US$’000
Total
US$’000
27
-
(19)
8
-
-
(8)
-
8,322
3,547
(2,799)
9,070
3,537
(22)
(2,281)
10,304
8,349
3,547
(2,818)
9,078
3,537
(22)
(2,289)
10,304
Balance at 1 January 2018
Additions
Amortization expense
Balance at 31 December 2018
Additions
Impairment of costs
Amortization expense
Balance at 31 December 2019
Accounting policy for intangible assets
Development costs
Development costs on an individual project are recognized as an intangible asset when the Group can
demonstrate:
The technical feasibility of completing the intangible asset so that the asset will be available for
use or sale.
Its intention to complete and its ability and intention to use or sell the asset.
How the asset will generate future economic benefits.
The availability of resources to complete the asset.
The ability to measure reliably the expenditure during the development.
Pivotal Systems Corporation
39
Notes to the Consolidated Financial Statements
Note 12. Non-current assets - intangible assets (continued)
The costs that are eligible for capitalization of development costs are the following:
Hardware and Software engineers’ compensation for time directly attributable to coding the
software.
An allocated amount of direct costs, such as overhead related to programmers and the facilities
they occupy.
Costs associated with testing the software for market (i.e. alpha, beta tests).
Borrowing costs.
Patents acquisition and registration costs (patents, application fees, and legal fees).
Other direct developing costs that are incurred to bring the hardware with embedded software to
market.
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less
any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when
development is complete and the asset is available for use. Development costs are amortized on a
straight-line basis over the finite life based on the period of expected future sales from the related project
which is 5 years. Amortization is recorded in profit or loss.
During the period of development, the asset is tested for impairment annually. At the end of the year,
the Group has considered indicators of impairment of the intangible assets and determined there were
none.
Patents and trademarks
Significant costs associated with patents and trademarks are deferred and amortized on a straight-line
basis over the period of their expected benefit, being their finite life of 5 years.
Critical accounting judgements, estimates and assumptions
Capitalized development costs
The Group capitalizes development costs for a project in accordance with the accounting policy. Initial
capitalization of cost is based on management’s judgement that technological and economic feasibility is
confirmed. In determining the amounts to be capitalized, management makes assumptions regarding the
expected future cash generation of the project, discount rates to be applied and the expected period of
the benefits.
Impairment of intangible assets
The Group assesses impairment of intangible assets other than goodwill at each reporting date by
evaluating conditions specific to the Group and to the particular asset that may lead to impairment. If an
impairment trigger exists, the recoverable amount of the asset is determined. This involves fair value less
costs of disposal or value-in-use calculations, which incorporate a number of key estimates and
assumptions.
Pivotal Systems Corporation
40
Notes to the Consolidated Financial Statements
Note 13. Financial assets and liabilities
Set out below is an overview of financial assets (other than cash and short term deposits) and financial
liabilities held by the Group as at 31 December 2019:
Financial assets
Trade and other receivables
Less: Credit loss allowance
Total financial assets
Current
Non-current
Total financial assets
Financial liabilities
Trade and other payables
Borrowings (1)
Current
Non-current
Total financial liabilities
(1)
Bridge Bank Loan
Balance as at 1 January 2018
Financial liability with Bridge Bank (1)
Interest accrued on facility
Interest paid on facility
Repayment of facility (1)
Balance as at 31 December 2018
Financial liability with Bridge Bank (2)
Interest accrued on facility
Interest paid on facility
Repayment of facility
Balance as at 31 December 2019
2019
US$’000
2018
US$’000
6,423
(600)
5,823
5,823
-
5,823
4,970
2,756
7,726
7,726
-
7,726
3,870
-
3,870
3,870
-
3,870
5,336
-
5,336
5,336
-
5,336
Bridge Bank
US$’000
Total
US$’000
3,008
1,917
152
(152)
(4,925)
-
3,000
55
(49)
(250)
2,756
3,008
1,917
152
(152)
(4,925)
-
3,000
55
(49)
(250)
2,756
Pivotal Systems Corporation
41
Notes to the Consolidated Financial Statements
Note 13. Financial assets and liabilities (continued)
(1)
Bridge Bank Loan
On 31 March 2017, the Company entered into a Debt Facility Agreement with Bridge Bank for a first
tranche of US$2.5 million and an additional amount of US$925,000 subject to the achievement of certain
funding milestones which were completed in September 2017. Interest accrued at a per annum rate equal
to 2% above the Prime Rate.
The Company also held a US $1.5million AR line of credit with Bridge Bank with an interest rate of the
Bank’s prime rate plus 1.25%. The facility term provided interest only payments until 31 August 2017
with repayments of principal and interest for 24 months thereafter.
On 8 January 2018, the Company amended the loan agreement with Bridge Bank, allowing the Company
to borrow an aggregate of US $4.0 million. An additional advance of US $1.9 million was made to the
Company on 9 January 2018. The amended agreement acknowledged the Company was not in compliance
with their financial covenants as of 30 November 2017 and offered a waiver on the default.
The Bridge Bank loan was secured over all personal property of the Company, whether presently existing
or hereafter created or acquired, as per the loan agreement.
The loan was repaid on 31 July 2018 and incurred an early payment fee of US$0.12 million.
Bridge Bank Loan
(2)
On 27 August 2019, the Company closed a US$10.0 million business financing agreement with Bridge Bank,
a division of Western Alliance Bank (NYSE: WAL). The facility is secured by all the assets of the Company
and is comprised of:
US$7.0 million working capital revolving credit line (“Revolving Credit Line”); and
US$3.0 million term loan line of credit (“Term Loan”).
The amount of liquidity available under the US$7.0 million Revolving Credit Line is based upon the
Company’s balances and composition of eligible customer receivables and inventory, as well as other
factors. Amounts borrowed under the Revolving Credit Line mature and become due and payable in 24
months, unless extended by the parties. The Revolving Credit Line bears interest at a rate equal to 1%
above the Prime Rate, floating on the average outstanding balance.
The US$3.0 million Term Loan provides funds for capital expenditures and other corporate purposes and
is payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest
commencing in October 2019. The term loan bears interest at a rate equal to 1.5% above the Prime
Rate, floating on the average outstanding balance and has a US$75,000 fee payable upon the earlier of
payoff or final principal payment.
The Prime Rate for both, the Revolving Credit Line and the Term Loan, has a floor of 5.25%. The
transaction costs payable upon execution of the facility were US$25,000.
On 3 September 2019, the Company drew down the Term Loan for US$3.0 million. As of 31 December
2019, $0.25 million of the Term Loan has been repaid and the Revolving Credit Line was not utilized.
The Company has not complied with the financial covenants of its borrowing facilities outstanding as of
31 December 2019 to the extent of the adjusted current ratio which was 1.10:1.00, instead of
1.25:1.00, including the liquidity covenant for which Pivotal’s unrestricted cash and cash equivalents
maintained with lender should not be less than US$2.0 million at any time.
The facility is secured by all the assets of the Company.
Pivotal Systems Corporation
42
Notes to the Consolidated Financial Statements
Note 13. Financial assets and liabilities (continued)
On 30 January 2020, Bridge Bank provided a waiver of the defaults, and a forbearance from exercising
its remedies under the financing agreement upon achievement of equity financing of at least US$10.0
million, subject to a forbearance period ended on February 28, 2020, the achieving of the bona fide
equity event, or the occurrence of any new default or certain event of default under the financing
agreement, whichever occurs first.
On 20 February 2020 the Company achieved the equity financing and received US$10.00 million. Due to
this financing, the Company is in compliance with the financial covenants agreed with Bridge Bank. Had
the Company received a waiver on or before 31 December 2019, US$1.76 million of current borrowings
would have been classified as non-current. Refer to Note 22: Events after the reporting period.
Accounting policy for trade and other receivables
Trade receivables and other receivables are initially recognized at fair value and subsequently measured
at amortized cost using the effective interest method, less any provision for expected credit loss. Trade
receivables generally have 30 to 90-day payment terms.
Collectability of trade receivables is reviewed on an ongoing basis in accordance with the expected credit
loss (“ECL”) model. The Group applies the AASB 9 simplified approach to measuring expected credit loses
which uses a lifetime expected loss allowance for all trade receivables and other receivables. Payment is
usually received between 45 and 90 days. No interest is charged on outstanding trade and other
receivables.
The ECL assessment completed by the Group as at 31 December 2019 has resulted in a credit loss of
$600,000 which has been recognized in the consolidated statement of profit or loss and other
comprehensive (2018: $Nil).
The Group also write-off a trade receivable when there is information indicating that the debtor is in
severe financial difficulty and there is no realistic prospect of recovery (e.g. when the debtor has been
placed under liquidation or has entered into bankruptcy proceedings, or when the trade receivable are
over two years past due, whichever occurs earlier).
Accounting policy for trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the
financial year and which are unpaid. Due to their short-term nature they are measured at amortized cost
and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Accounting policy for Borrowings
Loans and borrowings are initially recognized at the fair value of the consideration received, net of
transaction costs. They are subsequently measured at amortized cost using the effective interest
method.
Borrowing costs are capitalized as part of the cost of a qualifying asset when it takes a substantial period
of time to get ready for its intended use or sale. The Group capitalized borrowing costs for an internally
generated intangible asset in the development phase since 2015. The interest capitalization rate is
applied only to costs that themselves have been capitalized as development costs.
For all the borrowings, the fair values are not materially different from their carrying amounts, since
the interest payable on those borrowings are close to current market rates.
Pivotal Systems Corporation
43
Notes to the Consolidated Financial Statements
Note 13. Financial assets and liabilities (continued)
Fair value hierarchy.
The Group classified the fair value of the financial instruments according to the following fair value
hierarchy based on the amount of observable inputs used to value the instruments:
Level 1 – Values based on unadjusted quoted prices available in active markets for identical assets or
liabilities as of the reporting date.
Level 2 – Values based on inputs, including quoted prices, time value and volatility factors, which can
be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or
indirectly observable as of the reporting date.
Level 3 – Values based on prices or valuation techniques that are not based on observable market
data.
Note 14. Current provisions - employee benefits
Provision for annual leave
Movement in provision for annual leave:
Opening balance
Additions
Leave taken
Closing balance
Accounting policy for employee benefits
2019
US$’000
2018
US$’000
443
443
423
276
(256)
443
423
423
341
201
(119)
423
Provisions for wages and salaries, including non-monetary benefits and annual leave expected to be
settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid
when the balances are settled.
Note 15. Current provisions - warranty provision
Provision for warranty
Movement in provision for warranty:
Opening balance
Additions
Expired warranties
Closing balance
Pivotal Systems Corporation
2019
US$’000
2018
US$’000
189
189
110
189
(110)
189
110
110
459
110
(459)
110
44
Notes to the Consolidated Financial Statements
Note 15. Current provisions - warranty provision
Accounting policy for provisions
The provision represents the estimated warranty claims in respect of products sold which are still under
warranty at the reporting date. The provision is estimated based on historical warranty claim
information, sales levels and any recent trends that may suggest future claims could differ from historical
amounts.
Critical accounting judgements, estimates and assumptions
In determining the level of provision required for warranties the Group has made judgements in respect
of the expected performance of the products, the number of customers who will actually claim under
the warranty and how often, and the costs of fulfilling the conditions of the warranty. The provision is
based on estimates made from historical warranty data associated with similar products and services.
Note 16. Equity - Contributed equity
2019
Number
2019
US$’000
2018
Number
2018
US$’000
Shares of Common Stock
113,269,313
171,315
110,998,864
113,269,313
171,315 110,998,864
170,818
170,818
(a) Movements in Shares of Common Stock
Balance as at 1 January 2018
Shares issued on exercise of warrants
Shares issued on exercise of options (Note 18)
Shares issued on conversion of warrant prior to IPO
Shares issued on conversion of preferred stock prior to IPO
New shares issued on completion of IPO
Share issue costs related to listing on the ASX
Balance as at 31 December 2018
Shares issued on exercise of options (Note 18)
Share issue costs related to listing on the ASX
Balance as at 31 December 2019
Shares
Number
US$’000
15,056,268
1,418,734
274,424
20,833,567
54,061,032
91,644,025
19,354,839
-
110,998,864
2,270,449
-
113,269,313
43,263
532
61
28,614
73,523
145,993
26,586
(1,761)
170,818
502
(5)
171,315
Pivotal Systems Corporation
45
Notes to the Consolidated Financial Statements
Note 16. Equity - Contributed equity
Terms and conditions of contributed equity
Ordinary Shares (Common Stock)
The holders of ordinary shares participate in dividends and the proceeds on the winding up of the
Company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary
shares have a par value of $0.00001 and the Company has a limited amount of authorized capital of
370,000,000 shares, 250,000,000 of which are designated “Common Stock” and 120,000,000 of which
are designated “Common Prime Stock”.
On a show of hands the holders of Common Stock are entitled for one vote for each share of common
stock held at the meetings of stockholders (and written actions in lieu of meetings). There shall be no
cumulative voting. They are also entitled to receive, when, as and if declared by the Board, out of any
assets of the Company legally available therefor, any dividends as may be declared from time to time
by the Board.
The holders of Common Prime Stock are not entitled to any voting rights or powers, except as otherwise
required by law. They are also not entitled to share in any dividends or other distributions of cash,
property or shares of the Company as may be declared by the Board on the Common Stock.
In connection with the Company’s IPO of CDIs which were issued on 2 July 2018, with each CDI
representing an interest in one share of Common Stock, certain stockholders entered into an escrow
agreement with the Company under which the stockholder agreed, among other things, to certain
restrictions and prohibitions for a period of time (the “Lock-Up Period”), from engaging in transactions
in the shares of Common Stock (including Common Stock in the form of CDIs), shares of Common Stock
that may be acquired upon exercise of a stock option, warrant or other right, and shares of Common
Stock that arise from such Common Stock (collectively, the “Restricted Securities”). The Restricted
Securities shall automatically be converted into shares of Common Prime Stock, on a one for one basis
if the Company determines, in its sole discretion, that the stockholder breached any term of the
stockholder’s escrow agreement or breached the official listing rules of the ASX relating to the
Restricted Securities. Any shares of Common Stock converted to Common Prime Stock under these
terms should be automatically converted back into shares of Common Stock, on a one for one basis,
upon the earlier to occur of (i) the expiration of the Lock-Up Period in the escrow agreement or the (ii)
breach of the listing rules being remedied, as applicable.
Accounting policy for contributed equity
Shares of common stock are classified as equity.
Incremental costs directly attributable to the issue of new shares, warrants or options are shown in equity
as a deduction, net of tax, from the proceeds.
Note 17. Capital management
Capital managed by the Board comprises contributed equity totaling $171.32 million (2018: $170.82
million). When managing capital, management’s objective is to ensure the entity continues as a going
concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders.
Management also aims to maintain a capital structure that ensures the lowest cost of capital available
to the entity. Managed capital is disclosed on the face of the statement of financial position and
comprises contributed equity and reserves.
Pivotal Systems Corporation
46
Notes to the Consolidated Financial Statements
Note 17. Capital management (continued)
Management may adjust the capital structure to take advantage of favorable costs of capital or higher
returns on assets. As the market is constantly changing, management may issue new shares or sell assets
to raise cash, change the amount of dividends to be paid to shareholders (if at all) or return capital to
shareholders.
During the financial year ending 31 December 2019, management did not pay a dividend and does not
expect to pay a dividend in the foreseeable future.
The Company encourages employees to be shareholders through the Long Term Incentive Plan.
There were no changes in the Group’s approach to capital management during the year. Risk
management policies and procedures are established with regular monitoring and reporting.
Neither the Group nor its subsidiaries are subject to externally imposed capital requirements.
Note 18. Share-based payments
Share based payment reserve
The reserve is used to recognize the value of equity benefits provided to employees, consultants and
directors as part of their remuneration, and other parties as part of their compensation for services.
Opening reserve 1 January 2018
Expense in the period
Granted
Exercised
Forfeited
Expired
Closing reserve 31 December 2018
Expense in the period
Granted
Exercised
Forfeited
Expired
Closing reserve 31 December 2019
WAEP
$
0.26
Share options
Number
13,831,980
-
0.76
1,684,000
0.22
(274,424)
0.31
(350,222)
(119,947)
0.26
0.31 14,771,387
Share Based
Payment
Reserve
US$’000
1,179
101
-
-
-
-
1,280
-
1.07
2,705,000
0.22
(2,270,449)
0.40
(727,498)
(9,198)
4.62
0.46 14,469,242
439
-
-
-
-
1,719
Pivotal Systems Corporation
47
Notes to the Consolidated Financial Statements
Note 18. Share-based payments (continued)
Share based payment expense:
Options issued to directors, employee and consultants
2019
US$’000
2018
US$’000
439
439
101
101
The Company grants stock options to its employees, directors, and consultants for a fixed number of
shares with an exercise price equal to or greater than the fair value of the common stock at the date of
grant and expire no later than 10 years from the date of grant.
The 2003 Equity Incentive Plan expired in 2012 however 18,409 (2018: 27,607) unexercised options are
still outstanding as at 31 December 2019.
The 2012 Equity Incentive Plan (the “Plan”) adopted on 29 June 2012 last amended on June 20, 2019
authorized the Company to grant incentive stock options and non-statutory stock options to employees,
directors, and consultants for up to 22,226,575 (2018: 20,220,222) shares of common stock. Incentive
Stock Options (ISO) may be granted only to employees. Nonqualified stock options may be granted to
employees, directors and consultants. The Company issues new shares of common stock upon the exercise
of stock options.
The Share Plan grants are based on employee’s contribution and commitment to the Company over a
period of several years plus the ability of the employees to impact and influence the outcome and
direction of the organization in the future. The shares under the Share Plan which are not yet vested will
be accounted for as non-cash expense over the remainder of the vesting period.
Option Pricing Model
The fair value of the equity-settled share options granted throughout the year is estimated as at the date
of grant using a Black Scholes Option Pricing Model. The following tables list the inputs to the models
used for the valuation of options granted in the years ended 31 December 2019 and 2018.
Number of options
issued
Fair value at
measurement date
US$
Share price at grant
date US$
Exercise price US$
Expected volatility
Vesting conditions
Grant date
15-Apr-19
1-Aug-19
1-Aug-19
2-Sep-19
100,000
955,000 1,640,000
10,000
0.30
0.41
0.40
0.382
1.08
0.99
0.99
0.99
1.33
1.10
76%
66%
1.10
66%
1.02
66%
Type 6
Type 1
Type 2
Type 1
Pivotal Systems Corporation
48
Notes to the Consolidated Financial Statements
Note 18. Share-based payments (continued)
15-Feb-18
28-Feb-18
28-Feb-18
29-Mar-18
15-Apr-18
15-Apr-18
1-Oct-18
25,000
800,000
150,000
84,000
170,000
60,000 395,000
Grant date
0.158
0.141 0.141 0.216 0.158 0.216
0.79
0.37
0.37
0.37
0.37
0.37
0.37
2.05
Number of options
issued
Fair value at
measurement date
US$
Share price at grant
date US$
Exercise price US$
0.37
0.37
0.37
0.37
0.37
0.37
2.05
Expected volatility
46%
46%
46%
46%
46%
46%
45%
Vesting conditions
Type 1
Type 4
Type 5
Type 3
Type 1
Type 2
Type 1
Vesting conditions
Type 1 25% of the options vest 12 months from vesting date, with the remaining 75%
vesting on a monthly basis over the following 36 months.
Type 2 Options vest on a monthly basis over 48 months from vesting start date.
Type 3 Options vest on a monthly basis over 36 months from vesting start date.
Type 4 Options vest in four equal tranches subject to (a) the achievement individually
of Milestones and (b) each tranche vesting 25% per year on each anniversary of
the grant date, and subject to Single-Trigger change of control conditions.
Type 5 Options vest in two equal tranches subject to achievement of certain Milestones
and each tranche vesting 25% per year on each anniversary of the grant date.
Type 6 Options vest on a quarterly basis over the three-year period from vesting start
date.
The weighted average remaining contractual life for the share options outstanding at 31 December
2019 is 6.01 years (2018: 6.34 years). The weighted average fair value of options granted during the
year was $0.39 (2018: $0.31). The range of exercise prices for options outstanding at the end of the
current and prior year was $0.1 to $38.35.
The expected dividend yield for all options granted during these periods was nil. The expected volatility
reflects the assumption that the historical volatility over a period similar to the life of the options is
indicative of future trends, which may not necessarily be the actual outcome.
Pivotal Systems Corporation
49
Notes to the Consolidated Financial Statements
Note 18. Share-based payments (continued)
Accounting policy for share-based payments
The Company provides benefits to employees (including Directors) in the form of share-based payment
transactions, whereby employees render services in exchange for shares or rights over shares (equity-
settled transactions) via the 2017 Omnibus Incentive Plan (“the Plan”).
The terms of the share options are as determined by the Board. The cost of these equity-settled
transactions to employees is measured by reference to the fair value at the date at which they are
granted. The fair value is determined by using a Black & Scholes model.
In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions
linked to the price of the shares of the Company (market conditions) if applicable.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity,
over the period in which the performance and/or service conditions are fulfilled (the vesting period),
ending on the date on which the relevant employees become fully entitled to the award (the vesting
date).
At each subsequent reporting date until vesting, the cumulative charge to the statement of profit or loss
and other comprehensive income is the product of (i) the grant date fair value of the award; (ii) the
current best estimate of the number of awards that will vest, taking into account such factors as the
likelihood of employee turnover during the vesting period and the likelihood of non-market performance
conditions being met; and (iii) the expired portion of the vesting period.
The charge to the statement of profit or loss and other comprehensive income for the period is the
cumulative amount as calculated above less the amounts already charged in previous periods. There is
a corresponding credit to equity.
Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer
awards vest than were originally anticipated to do so. Any award subject to a market condition is
considered to vest irrespective of whether or not the market condition is fulfilled, provided that all other
conditions are satisfied.
If a non-vesting condition is within the control of the Company or the employee, the failure to satisfy
the condition is treated as a cancellation. If a non-vesting condition within the control of neither the
Company nor employee is not satisfied during the vesting period, any expense for the award not
previously recognized is recognized over the remaining vesting period, unless the award is forfeited.
Critical accounting judgements, estimates and assumptions
The Company measures the cost of equity-settled transactions with employees by reference to the fair
value of the equity instruments at the date at which they are granted. The fair value is determined by
using the Black Scholes option pricing model, using the assumptions noted above. The accounting
estimates and assumptions relating to equity-settled share-based payments would have no impact on the
carrying amounts of assets and liabilities in the next annual reporting period but may impact expenses
and equity.
Note 19. Contingent liabilities and contingent assets
The Group has no material contingent liabilities or contingent assets as at 31 December 2019 (2018: Nil).
Pivotal Systems Corporation
50
Notes to the Consolidated Financial Statements
Note 20. Financial Risk Management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange
risk, price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management
program focuses on the unpredictability of financial markets and seeks to minimize potential adverse
effects on the financial performance of the Group. The Group uses different methods to measure
different types of risk to which it is exposed. These methods include sensitivity analysis in the case of
interest rate and other price risks, ageing analysis for credit risk and liquidity risk.
Risk management is carried out by senior finance executives (“Finance”). Risk management includes
identification and analysis of the risk exposure of the Group and appropriate procedures, controls and
risk limits. Finance identifies, evaluates and hedges financial risks within the Group’s operating units.
Finance reports to the Board on a quarterly basis.
The Group financial instruments consist mainly of deposits with banks, accounts receivables and
payables, lease liabilities and borrowings.
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial liabilities
Trade and other payables
Lease liabilities
Borrowings
Interest rate risk
2019
US$’000
2018
US$’000
5,446
5,823
11,269
4,970
1,256
2,756
8,982
17,489
3,870
21,359
5,336
-
-
5,336
The Group’s exposure to interest rate risk occurs through its deposits and borrowings with banks which
are exposed to variable interest rates. The Group does not use derivatives to mitigate this exposure. The
Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in
interest bearing accounts. The average interest rate on cash balances is 1.4% (2018: 0.01%).
Pivotal Systems Corporation
51
Notes to the Consolidated Financial Statements
Note 20. Financial Risk Management (continued)
2019
Less than 6
months
US$’000
6 to 12
months
US$’000
Between 1
and 2 years
US$’000
Greater than
2 years
US$’000
Total
contractual
cashflow
US$’000
Trade and other payables
Lease Liabilities
Borrowings
4,970
107
500
5,577
-
117
500
617
-
558
1,000
1,558
-
474
756
1,230
4,970
1,256
2,756
8,982
2018
Less than 6
months
US$’000
6 to 12
months
US$’000
Between 1
and 2 years
US$’000
Greater than
2 years
US$’000
Total
contractual
cashflow
US$’000
Trade and other payables
5,336
5,336
-
-
-
-
-
-
5,336
5,336
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations and arises principally from the Group’s cash and cash equivalents
and receivables from customers.
Cash and cash equivalents
The Group limits its exposure to credit risk by only investing in liquid securities and only with
counterparties that have an acceptable credit rating.
Trade and other receivables
The Group operates primarily in developing, manufacturing and selling of high-performance gas flow
controllers and has trade receivables. There is risk that these receivables may not be recovered and the
Group monitors its receivables balances and collections on a monthly basis to mitigate any risk. The Group
monitors the expected credit loss model and values trade and other receivables accordingly (see Note
13).
Set out below is the information about the credit risk exposure on the Group’s trade and other receivables.
2019
Trade and other receivables
<30 days
30-60 days 61-90 days
>91 days
Total
Estimated total gross carrying
amount
2018
Estimated total gross carrying
amount
4,474
582
6
761
5,823
1,335
1,295
639
601
3,870
Pivotal Systems Corporation
52
Notes to the Consolidated Financial Statements
Note 20. Financial Risk Management (continued)
The expected credit losses on trade and other receivables was estimated using a provision matrix by
reference to past default experience of the debtor and an analysis if the debtor’s current financial
position, adjusted for factors that are specific to the debtors and the general economic conditions of the
industry in which the debtors operate. The allowance for expected credit losses assessment requires a
degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on
days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group.
These assumptions include recent sales experience and historical collection rates. As of at 31 December
2019, the expected credit loss is $600,000 (2018: Nil) which is related to a specific new client.
Currency Risk
The Group is exposed to fluctuations in foreign currencies arising from the purchase of goods and services
in currencies other than the transacting entity’s functional currency.
Operations commenced in the Republic of Korea near the end of the prior year resulting in transactions
being incurred in South Korean Won. As a result, the Group’s statement of financial position can be
affected by movements in the USD/KRW exchange rate when translating to the USD functional currency,
however this is considered negligible.
Note 21. Related party transactions
Subsidiaries
The Consolidated financial statements include the financial statements of Pivotal Systems Corporation
and the following subsidiaries:
Name
Pivotal Systems Korea, Ltd
Pivotal SaleCo, Inc.
Country of
incorporation
Republic of Korea
United States of
America
Beneficial interest
2019
100%
2018
100%
100%
100%
On 20 August 2019, the Board authorized the voluntary dissolution of Pivotal SaleCo, Inc. and the
distribution of the remaining assets of Pivotal SaleCo, Inc. to Pivotal Systems Corporation.
Key management personnel
The following persons were identified as key management personnel of Pivotal during the financial year
ended 31 December 2019:
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Omesh Sharma
Executive Chairman and Chief Executive Officer
Executive Director and Chief Technical Officer
Independent Non-Executive Director
Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Chief Financial Officer (resigned 5 June 2019)
Pivotal Systems Corporation
53
Notes to the Consolidated Financial Statements
Note 21. Related party transactions (continued)
Compensation
The aggregate compensation made to key management personnel of the Group is set out below:
2019
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Omesh Sharma
2018
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Omesh Sharma
Short term
employee
benefits
(Salary and fees)
US$
Post employee
benefits
(401k & other
benefits)
US$
Share based
payment
US$
Total
US$
362,500
312,000
85,000
-
-
85,000
459,325
1,303,825
30,308
25,552
-
-
-
-
20,120
75,980
9,260
7,834
31,009
-
-
-
-
402,068
345,386
116,009
-
-
85,000
479,445
48,103
1,427,908
Short term
employee
benefits
(Salary and fees)
US$
Post employee
benefits
(401k & other
benefits)
US$
Share based
payment
US$
Total
US$
325,000
275,000
50,000
-
-
23,975
255,000
928,975
45,613
38,171
-
-
-
-
10,379
10,379
14,119
-
-
-
45,510
6,919
380,992
323,550
64,119
-
-
23,975
307,429
129,294
41,796
1,100,065
Pivotal Systems Corporation
54
Notes to the Consolidated Financial Statements
Note 21. Related party transactions (continued)
Shares and other equity instruments held by key management personnel
The table below notes the common shares and options held directly or indirectly by the directors and
other key management personnel of the Company:
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis (1)
David Michael
Peter McGregor
Omesh Sharma(2)
Common
Stock
Options
Common
Stock
Options
Direct
Indirect
1,441,870
3,269,325
1,445,683
3,264,089
195,000
201,000
-
-
-
-
-
-
1,041,870
1,708,859
-
-
-
231,535
-
-
-
4,124,423
8,443,273
231,535
-
-
-
-
-
-
-
-
(1)
(2)
Common stock held by Silicon Valley Investor Holdings Pty Ltd, of which Kevin Landis is the
majority shareholder.
Common stock and options outstanding held as of 31 July 2019, Mr. Sharma’s last date of
employment.
Share options granted to key management personnel
Class of underlying shares
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Omesh Sharma
Peter McGregor
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
2019
Number
Granted
-
-
-
-
100,000
100,000
2018
Number
Granted
300,000
300,000
84,000
200,000
-
884,000
Other related partiesOther related parties identified by the Group comprise:
-
Firsthand Venture Investors, a substantial shareholder of the Company, represented on
the board of directors by its nominee, Kevin Landis;
- Anzu Partners LLC, a company of which David Michael is a partner and director;
- Anzu Pivotal, LLC, a substantial shareholder of the Company, and Anzu Industrial Capital
Partners LP, both of which David Michael is a partner and director; and
Silicon Valley Investor Holdings Pty Ltd, a company which is controlled by Kevin Landis.
-
Transactions with related parties
Anzu Partners, LLC, an entity of which David Michael is a director, provided US based public relation
services to the Group totaling US$17,250 during the current year (2018: US$30,250).
Pivotal Systems Corporation
55
Notes to the Consolidated Financial Statements
Note 21. Related party transactions (continued)
Transactions with related parties (continued)
Anzu Partners, LLC, purchased 3 million shares from Firsthand Venture Investors on 8 April 2019.
Other than the compensation of key management personnel, there were no other transactions
with related parties.
Receivable from and payable to related parties
As at 31 December 2019, payables of US$21,250 were owed to Ryan Benton (2018: US$25,000) and
US$21,250 to Peter Mc Gregor (2018: Nil).
There were no other trade receivables from or trade payables to related parties at the current and
previous reporting dates.
Loans to/from related parties
There were no loans to or from related parties at the current and previous reporting dates.
Note 22. Events after the reporting period
RBI Financing
On 30 January 2020, the Group announced the dispatch of the Notice of Special Meeting of Shareholders
and the signing of a definitive preferred stock investment agreement (RBI financing) with Anzu Industrial
RBI USA LLC, a fund organized by Anzu Partners LLC (“Anzu”), which provides Pivotal up to US$13.0 million
in additional funding required to grow and expand the business. Anzu is a venture capital and private
equity firm that invests in breakthrough industrial technologies and currently manages approximately
US$350 million in capital commitments. Anzu is an investor in Pivotal and remains the Company’s second
largest shareholder with 12.1% of the issued capital. David Michael (a Director of Pivotal) is also a Managing
Director of Anzu Partners LLC.
On 12 February 2020, the shareholders at the Special Meeting of Shareholders, approved the amendment
of Pivotal’s Certificate of Incorporation and the RBI financing. The funding of US$13.0 million is available
to be drawn down by Pivotal in two tranches: an initial funding of US$10.0 million for the issue of 10,000
Revenue Based Redeemable Preferred Stock (RBI) which was drawn down and paid to Pivotal on 20
February 2020 with an additional amount of US$3.0 million for the issue of 3,000 RBI being available at
Pivotal’s option in conjunction with the replacement of Pivotal’s Bridge Bank senior term loan line of
credit (as announced to ASX on 28 August 2019). Each RBI has an issue price of US$1,000 per share. Beyond
typical contractual covenants pertaining to liquidation of Pivotal, there are no other financial covenants,
no personal guarantees from founders or investors, no warrant or option coverage and the issue of RBI is
not dilutive to current common stock/CDI holders.
On 20 February 2020 the Company received the first tranche of the RBI financing for US$10 million in
exchange of 10,000 RBI of $0.00001 par value per share, at a purchase price of US$1,000 per share. In
accordance with the directions of the Board, the Company will use the proceeds from the sale of the
shares to grow and expand the business. As of the date of this report, the Company has not determined
the date of the closing of the second tranche of the RBI financing.
Due to receipt of this financing, the Company is in compliance with the financial covenants as agreed with
Bridge Bank.
Pivotal Systems Corporation
56
Notes to the Consolidated Financial Statements
Note 22. Events after the reporting period (continued)
Other subsequent events
On 22 January 2020, 250,000 shares were issued on the exercise of options issued pursuant to the
Company’s equity incentive plan.
Other than the above, no other matter or circumstance has arisen since 31 December 2019 that has
significantly affected, or may significantly affect the Group’s operations, the results of those operations,
or the Group’s state of affairs in future financial years.
Note 23. Auditor’s remuneration
During the financial year, the following fees were paid or payable for audit and other services provided
by BDO East Coast Partnership and BDO affiliates.
Audit services
Audit or review of the financial statements
Non-audit services
Due diligence services related to Initial Public Offering
Services provided by BDO affiliates:
Taxation services
2019
US$
2018
US$
129,373
123,834
-
209,216
129,373
333,050
41,433
8,906
170,806
341,956
Pivotal Systems Corporation
57
Notes to the Consolidated Financial Statements
Note 24. Parent Entity Information
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Accumulated losses
Total shareholders’ equity
Loss of the parent entity
Total comprehensive income of the parent entity
2019
US$’000
2018
US$’000
20,329
11,826
32,155
8,583
1,031
9,614
28,040
9,389
37,429
5,869
-
5,869
22,541
31,560
171,315
1,719
170,818
1,280
(150,493)
(140,538)
22,541
31,560
(9,955)
(9,955)
(66,103)
(66,103)
The parent entity has no contingent liabilities at the end of the financial year (2018: Nil).
No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries
as a 31 December 2019 (2018: Nil).
Pivotal Systems Corporation
58
Tel: +61 2 9251 4100
Fax: +61 2 9240 9821
www.bdo.com.au
Level 11, 1 Margaret St
Sydney NSW 2000
Australia
INDEPENDENT AUDITOR'S REPORT
To the members of Pivotal Systems Corporation
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Pivotal Systems Corporation (the Company) and its subsidiaries
(the Group), which comprises the consolidated statement of financial position as at 31 December 2019,
the consolidated statement of profit or loss and other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the year then ended,
and notes to the financial report, including a summary of significant accounting policies and the
directors’ declaration.
In our opinion the accompanying financial report presents fairly, in all material respects, the Group’s
financial position as at 31 December 2019 and of its financial performance and its cash flows for the
year then ended in accordance with Australian Accounting Standards.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the Financial
Report section of our report. We are independent of the Group in accordance with the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia.
We have also fulfilled our other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report of the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
BDO East Coast Partnership ABN 83 236 985 726 is a member of a national association of independent entities which are all members of
BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO East Coast Partnership and BDO Australia Ltd
are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of
independent member firms. Liability limited by a scheme approved under Professional Standards Legislation.
Revenue Recognition
Key audit matter
How the matter was addressed in our audit
As disclosed in the revenue recognition
accounting policy in Note 2, the Group’s
revenue is derived primarily from the sale
of gas flow controllers with revenue being
recognised at a point in time when the
customer obtains control of the Group’s
product which typically occurs upon
delivery to the customer.
The recognition of revenue was
considered a key audit matter as it is a
key performance indicator to the users of
the financial statements and as such is of
high interest to stakeholders.
To determine whether revenue was appropriately
accounted for and disclosed within the financial
statements, we undertook, amongst others, the
following audit procedures:
Critically evaluated the revenue recognition
policies for all material sources of revenue and
from our detailed testing performed, ensured
that revenue was being recognised
appropriately, in line with Australian Accounting
Standards and policies disclosed within the
financial statements. This included ensuring that
revenue was recognised in accordance with the
requirements of AASB 15: Revenue from
Contracts with Customers.
Substantively tested a sample of revenue
transactions throughout the financial year,
tracing sales invoices to supporting sales
documentation, shipping documentation and
cash receipts.
Performing detailed cut-off testing to ensure
that revenue transactions around the year end
had been recorded in the correct period
including obtaining customer confirmations
where required.
Going Concern
Key audit matter
How the matter was addressed in our audit
For the financial year ended 31 December
2019, the Group incurred a loss after
income tax of $9.95 million and a net cash
outflows from operating activities of $11.5
million. In note 1 ‘Going Concern’ of the
financial report, the Directors have
documented their considerations regarding
their conclusion that the Going Concern
basis of preparation of the financial report
is appropriate.
The assessment of Going Concern is largely
based on forecasts which include
To determine the appropriateness of the Going
Concern basis of preparation of the financial report,
we undertook, amongst others, the following audit
procedures:
- Obtained and evaluated management’s
assessment of the Group’s ability to continue
as a going concern.
-
Evaluated the cash flow forecasts prepared by
management and challenged the assumptions
therein to ensure consistency with
management’s stated future business and
operational objectives and applying
assumptions about future cash flows which
are uncertain in timing and amounts. Due
to this factor and the degree of auditor
effort required in assessing the Going
Concern basis of preparation of the
financial report, we considered this area to
be a key audit matter.
sensitivities to key inputs including new
products sales, staff, operating costs and
funding/repayment obligations.
- Reviewed the conditions of the business
financing agreement in place with Western
Alliance Bank and the Revenue Based
Redeemable Preferred Stock (RBI) Preferred
Stock and their adequacy in meeting the
Group’s cash flow requirements.
Other information
The directors are responsible for the other information. The other information comprises the
information in the Group’s annual report for the year ended 31 December 2019, but does not include
the financial report and the auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
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.
Responsibilities of the directors for the Financial Report
The directors of the Company are responsible for the preparation and fair presentation of the financial
report in accordance with Australian Accounting Standards and for such internal control as the
directors determine is necessary to enable the preparation of the financial report that is free from
material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group 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 to cease
operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is 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 the Australian Auditing Standards 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 this financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf
This description forms part of our auditor’s report.
BDO East Coast Partnership
Martin Coyle
Partner
Sydney, 28 February 2020
Pivotal Systems Corporation
Additional Shareholder’s Information
SHAREHOLDER INFORMATION AS AT 10 FEBRUARY 2020
Additional Shareholder Information required by the Australian Securities Exchange (ASX) Listing
Rules is set out below.
In accordance with the ASX Corporate Governance Council’s, Corporate Governance Principles
and Recommendations (3rd edition), the 2019 Corporate Governance Statement, as approved by
the Board, is available on the Company’s website at: https://www.pivotalsys.com/investors.
The Corporate Governance Statement sets out the extent to which Pivotal has followed the ASX
Corporate Governance Council’s 29 Recommendations (3rd edition) during the 2019 financial
year.
The Company’s securities have been listed for quotation in the form of CHESS Depositary
Interests, or CDIs, on the ASX and trade under the symbol “PVS” since 2 July 2018. Legal title to
the shares of common stock (Shares) underlying the CDIs is held by CHESS Depositary Nominees
Pty Ltd (CDN), a wholly owned subsidiary of the ASX. Each Share is equivalent to 1 CDI.
As at the date of this report, 41,135,936 CDIs are issued and held by 401 CDI holders which
represents 41,135,936 underlying Shares. 72,383,377 Shares are held by 55 shareholders who have
not elected to hold Company securities in the form of CDIs.
Assuming all Shares were held as CDIs, the Company would have 113,519,313 CDIs on issue.
1. Substantial shareholders
The number of CDIs (assuming all Shares are held as CDIs) held by substantial shareholders and
their associates as advised to the ASX are set out below:
Name
LHC Capital Partners Pty Ltd
Anzu Partners, LLC
Firsthand Venture Investors
Number
CDIs
% of total
CDIs
15,786,363
13,725,588
44,888,679
13.90
12.1
39.54
2. Number of security holders and securities on issue
Pivotal has issued the following securities:
(a) 72,383,377 fully paid ordinary shares held by 55 shareholders;
(b) 41,135,936 CDIs held by 401 CDI holders;
(c) 14,469,242 unlisted options exercisable at various prices held by 50 option holders.
On 30 January 2020, the Company entered into a Preferred Stock Investment Agreement with
Anzu Industrial RBI USA LLC which provides the Company with up to US$13 million in funding
on issuance of up to 13,000 unlisted Redeemable RBI Preferred Stock in the Company. The
issue of Redeemable RBI Preferred Stock is subject to shareholder approval in general meeting
being held in February 2020. If issued, the Redeemable RBI Preferred Stock will be held by
one (1) holder.
Details of the Top 20 Shareholders are set out in section 6 below.
Pivotal Systems Corporation
64
Pivotal Systems Corporation
3. Voting rights
Shares of common stock
At a meeting of the Company’s stockholders, every stockholder present, in person or by proxy
is entitled to one vote for each share of common stock held on the record date for the meeting
on all matters submitted to a vote of stockholders.
CDIs
CDI holders are entitled to one vote for every one CDI they hold. To vote, holders of CDIs
must instruct CDN, as the legal owner of the CDIs, to vote the shares of common stock
underlying their CDIs in a particular manner.
Options
Option holders do not have any voting rights on the options held by them. Shares of common
stock issued to option holders on exercise of their options will have the same voting rights as
the holder of shares of common stock.
Redeemable RBI Preferred Stock
RBI Preferred Stockholders will not be entitled to vote at any general meeting of the Company
except in the following circumstances:
On a proposal:
o
o
o
that affects rights attached to RBI Preferred Stock;
to wind up the Company; or
for the disposal of the whole of the property, business and undertaking of the
Company;
On a resolution to approve:
the terms of a share buy-back agreement;
o
o a reduction of the share capital of the Company,
other than a resolution to approve a buy-back or reduction of capital with respect to RBI
Preferred Stock;
During a period in which a dividend or part of a dividend in respect of an RBI Preferred
Stock is in arrears; or
During the winding-up of the Company.
At a general meeting of the Company at which RBI Preferred Stockholders may vote, they are
entitled:
to one vote on a show of hands; and
to one vote for each RBI Preferred Stock on a poll.
RBI Preferred Stockholders will have the same rights as holders of shares of Common
Stock/CDIs in the Company to receive notices, reports and audited accounts from the
Company and to attend general meetings.
Pivotal Systems Corporation
65
Pivotal Systems Corporation
4. Distribution schedules of security holders
Category
Fully Paid Shares of Common Stock
Total Shareholders Number of Shares
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
140
130
70
81
35
456
62,795
342,969
521,781
2,348,821
110,242,947
113,519,313
Category
Chess Depositary Interests (CDIs)
Total CDI Holders
Number of CDIs
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
125
126
67
68
15
401
%
0.15
0.8
1.22
4.12
93.71
100
%
0.15
0.80
1.22
4.12
61,757
330,322
500,845
1,696,507
38,546,505
93.71
41,135,936
100.00
Category
Unquoted Options
Total Option Holders
Number of Options
%
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Total
0
1
5
23
21
50
-
5,000
40,563
1,193,751
0.00
0.03
0.28
8.25
13,229,928
14,469,242
91.44
100.00
Note that the Unquoted Options as stated above have various exercise prices and expiry
dates.
5. Unmarketable parcel of shares
The number of CDI Holders holding less than a marketable parcel of CDIs (being A$500) is 35
based on the Company’s closing CDI price of A$1.65, on 10 February 2020.
Pivotal Systems Corporation
66
Pivotal Systems Corporation
6. Twenty largest shareholders of quoted equity securities
Chess Depositary Interests only
Details of the 20 largest CDI Holders by registered CDI holding are as follows.
1
2
3
4
5
6
7
8
9
Name
No. of CDIs
%
NATIONAL NOMINEES LIMITED
UBS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED -
A/C 2
8,539,616
8,465,279
20.76
20.58
5,948,942
14.46
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
3,463,294
CS THIRD NOMINEES PTY LIMITED
ANZU INDUSTRIAL CAPITAL PARTNERS LP
BNP PARIBAS NOMINEES PTY LTD
ENTERPRISE PARTNERS MANAGEMENT LLC
3,370,000
2,432,100
1,867,953
1,535,425
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
1,254,435
10 AICP I LIMITED
11
BNP PARIBAS NOMINEES PTY LTD
12 TOKYO ELECTRON EUROPE LIMITED
13
SILICON VALLEY INVESTOR HOLDINGS PTY LTD
14 WASHINGTON H SOUL PATTINSON AND COMPANY
LIMITED
15 TRIPLE IMAGE FILMS PTY LIMITED
16 NETWEALTH INVESTMENTS LIMITED
17 RADELL PTY LTD
18 RACT SUPER PTY LTD
19 DR PANINI RANJITA WIKRAMANAYAKE
20
BACKYARD CRICKET PTY LIMITED
567,900
325,000
268,818
231,535
141,462
134,746
72,583
72,491
63,423
60,000
55,000
8.42
8.19
5.91
4.54
3.73
3.05
1.38
0.79
0.65
0.56
0.34
0.33
0.18
0.18
0.15
0.15
0.13
Total
38,870,002
94.49
Balance of register
2,265,934
5.51
Grand total
41,135,936
100.00
Pivotal Systems Corporation
67
Pivotal Systems Corporation
Fully Paid Ordinary Shares of Common Stock and CDIs combined
Details of the 20 largest Shareholders by registered shareholding on the basis that all shares of
common stock on issue are held as CDIs are as follows.
1 FIRSTHAND VENTURE INVESTORS
44,888,679
39.54%
Name
No. of Shares
%
2 ANZU PIVOTAL LLC
3 ENTERPRISE PARTNERS MANAGEMENT LLC
4 ANZU INDUSTRIAL CAPITAL PARTNERS LP
5 OMESH SHARMA
6
7
JOSEPH MONKOWSKI
JOHN HOFFMAN
8 MARK F FITZGERALD
9 MICHAEL FITZGERALD
10 AICP I LIMITED
11 HOSEUNG CHANG HS INC 13
12
JIUYI CHENG
13 RYAN BENTON
14 SANFORD MICHAEL JOHNSON
15 ADAM MONKOWSKI AND
16 RAJBINDER BAINS
17 SURINDERPAL BAINS
18 TYLER D HEERWAGEN
19 SOPHIA L SHTILMAN
20 CARTER CRUM
Total
Balance of register
Grand total
Subject to rounding
7,178,753
6,141,700
2,875,420
2,746,568
1,445,683
1,441,870
1,393,140
946,266
671,415
388,670
250,000
195,000
175,893
170,972
170,000
170,000
161,458
150,000
134,955
6.32%
5.41%
2.53%
2.42%
1.27%
1.27%
1.23%
0.83%
0.59%
0.34%
0.22%
0.17%
0.15%
0.15%
0.15%
0.15%
0.14%
0.13%
0.12%
71,696,442
63.16%
41,822,871
36.84%
113,519,313
100.00%
7. The name of the entity’s secretary (in the case of a trust, the name of the responsible
entity and its secretary).
The Company has not formally appointed a Company Secretary but has appointed Company
Matters Pty Ltd to provide it with general company secretarial services. Ms Naomi Dolmatoff
has been appointed as the Company’s ASX Representative pursuant to ASX Listing Rule 12.6.
8. The address and telephone number of the Company’s registered office in Australia; and of
its principal administrative office.
The Company is incorporated in Delaware, United States.
The Company’s registered office in the USA is:
C/- Incorporating Services Ltd, 3500 South Dupont Highway, Dover, Delaware 19901 USA
The Company’s Principal place of business is:
Suite 100, 48389 Fremont Blvd, Fremont, CA 94538 USA.
T: +1 (510) 770 9125
Pivotal Systems Corporation
68
Pivotal Systems Corporation
The Company’s registered Australian office is:
Company Matters Pty Ltd
Level 12, 680 George Street, Sydney NSW 2000
T: +61 (02) 8280 7355
9. The address and telephone number of each office at which a register of securities, register
of depositary receipts or other facilities for registration of transfers is kept.
American Stock Transfer and Trust Company, LLC
6201, 15th Avenue
Brooklyn, NY 11219 USA
Telephone: +1 (718) 921 8386
Link Market Services
Level 12, 680 George Street
Sydney NSW 2000 Australia
T: +61 1300 554 474
10. The Company’s securities are not traded on any other exchange other than the ASX.
11. The number and class of restricted securities or securities subject to voluntary escrow that
are on issue and the date that the escrow period ends is set out as follows:
Class
Number of
Securities
Escrow Period
ASX Restricted – shares
40,905,438
ASX Restricted – unquoted
options
6,888,748
Voluntary Restricted – shares
18,119,972
Voluntary Restricted – unquoted
options
3,492,125
Voluntary Restricted - shares
1,041,870
Voluntary Restricted – unquoted
options
2,021,357
To be held in escrow for 24 months from
the date of commencement of official
quotation.
To be held in escrow for 24 months from
the date of commencement of official
quotation.
Securities to be held in escrow until the
day following the release of the Company's
Appendix 4E preliminary financial results
for the year ended 31 December 2019.
Subject to escrow for a period of 24
months commencing on the date on which
official quotation by ASX of the Company's
CDIs commences.
Subject to escrow for a period of 24
months commencing on the date on which
official quotation by ASX of the Company's
CDIs commences.
Note: Official quotation of the Company’s CDIs occurred on July 2, 2018.
12. Review of operations and activities
A detailed review of operations and activities is reported in the 2019 Annual Report.
Pivotal Systems Corporation
69
Pivotal Systems Corporation
13. On market buy-back
There is no current on market buy-back.
14. Statement regarding use of cash and assets.
During the period between 1 January 2019 and 31 December 2019, the Company has used its
cash and assets readily convertible to cash that it had at the time of ASX admission in a way
consistent with its business objectives set out in the Prospectus dated June 22, 2018.
15. Other
The Company is incorporated in the State of Delaware, United States of America and is a
registered foreign entity in Australia. As a foreign company registered in Australia, the
Company is subject to different reporting and regulatory regimes than Australian companies.
Pivotal is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act 2001 (Cth) dealing
with the acquisition of its shares (including substantial holdings and takeovers).
Anti-takeover provisions of Delaware Law, Certificate of Incorporation and Bylaws
Provisions of the Delaware General Corporation Law, the Company’s Certificate of
Incorporation and the Company’s Bylaws could make it more difficult to acquire the Company
by means of a tender offer (takeover), a proxy contest or otherwise, or to remove incumbent
officers and Directors of the Company. These provisions (summarised below) could discourage
certain types of coercive takeover practices and takeover bids that the Board may consider
inadequate and to encourage persons seeking to acquire control of the Company to first
negotiate with the Board. The Company believes that the benefits of increased protection of
its ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure the Company outweigh the disadvantages of discouraging takeover or
acquisition proposals because, among other things, negotiation of these proposals could result
in an improvement of their terms.
The Company’s bylaws do not contain any limitations on the acquisition of securities,
except that clause 9 of Article XI, Section 11.1. of the bylaws provides as follows:
“The Corporation may refuse to acknowledge or register any transfer of shares of
the Corporation’s capital stock (including shares in the form of CDIs) held or
acquired by a stockholder (including shares of the Corporation’s capital stock that
may be acquired upon exercise of a stock option, warrant or other right) or shares
of the Corporation’s capital stock which attach to or arise from such shares which
are not made:
a.
b.
c.
in accordance with the provisions of Regulation S of the Securities Act of
1933 (U.S.), as amended to date and the rules and regulations
promulgated thereunder (the “U.S. Securities Act”) (Rule 901 through
Rule 905 and preliminary notes);
pursuant to registration under the U.S. Securities Act; or
pursuant to an available exemption from registration.”
Pivotal Systems Corporation
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