2020 Annual Report
ASX:PVS
PIVOTAL SYSTEMS CORPORATION
A DELAWARE CORPORATION
ARBN 626 346 325
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 2020
Corporate Directory
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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Pivotal Systems Corporation
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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
Danny Davies
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
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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 2020, which was a record year of revenues for the Company despite the global turmoil
brought by the COVID-19 pandemic.
The 2020 calendar year marked a substantial turnaround in growth for the global semiconductor
industry, with semiconductor equipment sales forecast to have grown 16% versus the prior year to
US$68.9 billion. The driver of the 2020 growth profile is rising demand for semiconductors for
datacenter infrastructures and server storage due to the structural changes of the traditional workplace
and connectivity under COVID-19. Pivotal’s revenues outpaced overall industry growth in sales by a
factor of approximately 2.8 times, highlighting the effectiveness of our strategies to grow market share
within accounts, generate new customers and diversify into new regions.
During the year some of our customer highlights included:
o Successfully qualified the gas flow controller (GFC) for Etch and Deposition applications at the
leading Chinese Foundry.
o Achieved qualification and multiple repeat orders for the standard GFC for Etch at the leading
Korean Etch OEM.
o Achieved Multiple repeat orders for the standard GFC at multiple leading Chinese Integrated
Device Manufacturers (IDMs) and the leading Original Equipment Manufacturers (OEMs).
o Qualified the Remote GFC with a second OEM in Korea.
o Signed a strategic development agreement with the leading Japanese OEM for an advanced flow
control solution targeted at the Atomic Layer Deposition (ALD) market.
o Received timely progress payments from the same Japanese OEM reflecting timely development
program execution
o Qualified the standard GFC with a new USA Based Foundry.
o Continuing Qualification of a 2 channel Flow Ratio Controller (FRC) at a leading US based OEM
for deposition.
In 2020, Pivotal strengthened its global presence with the Company successfully transitioning to a new
contract manufacturer (CM) in Korea. Despite COVID 19 travel restrictions, the company activated this
newly established Transformation Center in early Q3 2020 and commenced product shipment of all
released Pivotal products. Our Fremont, California facility continued as an auxiliary capability to our
Korean CM and has now fully transitioned to become our Pilot Manufacturing Center. Also, despite
COVID-19, Pivotal was able to maintain all manufacturing activity in China, Korea, and the United States
during the reported period.
We continued to diversify our customer base within all major regions to include Japan, Europe, Taiwan,
China, North America and Korea. The number of repeat/qualified customers increased by 12% versus
2019. The total number of new customers evaluating Pivotal’s GFCs stood at 6 at years end. The
Company generated sales to all major OEMs in 202O and has strategic development programs ongoing
with two.
The Company ended the year with a cash position of US$7.5 million with US$2.7 million of debt, and a
backlog of confirmed orders awaiting shipment of $US3.5 million. We were pleased to strengthen our
balance sheet during the year ahead of expected increased demand for our products, with the Company
successfully closing two capital raisings with combined proceeds of US$14 million.
Consolidated revenue increased 44% to US$22.1 million, reflecting an increase in sales due to greater
demand for Pivotal’s products from end customers and a significant year of growth for the global
Pivotal Systems Corporation
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Chairman’s Letter
semiconductor industry despite COVID-19. Consolidated gross profit for FY20 increased 41% to US$2.5
million. Gross profit margins in 2020 of 11.1% were slightly lower than 2019. Throughout the year, the
Company optimized production operations, drove overall cost reductions, and improved scalability,
which reduced our manufacturing overhead by approximately 50% as we exited the year. These
improvements, coupled with the substantial elimination of United States Customs and Border Protection
duties resulted in a material improvement in Q4 2020, where the Company recorded gross margins of
29.6%. The Company anticipates these improvements are sustainable in 2021 and we will continue to
work with our suppliers to gain even more savings.
Highlighting Pivotal’s strong fiscal discipline, the Company’s total operating expenses decreased by 3.7%
to US$11.2 million in 2020, despite achieving record revenue growth. Our strong research and
development capability and ability to innovate ahead of the curve enabled the company to take
advantage of new opportunities brought forward by our world class customers. Highlighting the potential
of our R&D function, during the third quarter Pivotal signed an agreement with the leading Japanese
OEM to develop the next generation flow controller for its fleet of planned Atomic Layer Deposition
(ALD) tools. This agreement provides the Company with a non-recurring engineering fee of US$1.0
million over the term of the agreement. Total R&D expenditure for the year was US$3.2 million. While
revenue grew by 44% in 2020, inventory decreased 4% to US$8.4 million, down from US$8.7 million year
ending 2019. Inventory turns improved to 2.2 Q4 2020 versus 2.0 Q4 2019, demonstrating efficient use of
assets.
Pivotal’s Operating Loss for the year was US$8.8 million, an improvement of 11.6% versus the prior
period. The Company’s full-time headcount ended the year at 45, which was stable versus the prior
year.
Leading industry group SEMI forecasts global sales of semiconductor manufacturing equipment by
original equipment manufacturers is projected to register a new industry record of US$68.9 billion in
2020 growing to US$71.9 billion in 2021 and US$76.1 billion in 2022. In 2021 and 2022, Korea is forecast
to lead the world in semiconductor equipment investment with equipment spending in Taiwan also
expected to remain robust with most other geographical regions also expected to grow. Accordingly,
Pivotal is uniquely placed with industry leading technology and products to capitalize on the overall
growth in the market in subsequent periods.
We continue to execute our group corporate strategy to take market share at the leading edge and
strong growth will follow. We made excellent progress in achieving this goal during 2020 and expect our
market share to continue to grow in 2021 as customers design and qualify Pivotal’s GFCs into new
semiconductor capital equipment. The Company is well-positioned to capitalize on the expected strong
growth in demand for our products and services in 2021 and the sustained industry ramp, with our
current manufacturing capacity now sitting at 40,000 units annually.
While COVID-19 still brings uncertainty, the Company continues to progress toward its growth goals.
Pivotal maintains that its client-led new product development efforts are the key catalyst for future
market share gains.
On behalf of our Board of Directors, I would like to thank the Pivotal team around the world who have
worked diligently to achieve the strong growth and success we delivered in 2020 against the backdrop of
COVID-19. I would also like to thank our shareholders for their continued support of the Company.
Sincerely,
John Hoffman
Executive Chairman and Chief Executive Officer
Pivotal Systems Corporation
Pivotal Systems Corporation
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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 2020
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 control products. This
includes the Gas Flow Controller (“GFC”) family of products and Flow Ratio Controllers (“FRC”) for both
etch and deposition applications. The Company’s proprietary hardware and software utilizes advanced
flow intelligence and proprietary algorithms to enable preventative diagnostic capability resulting in the
potential for 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 (“CM”) and assembling facilities in Shenzhen,
China and Dongtan, South Korea.
In Q3 2019 Pivotal ended its CM arrangement with Compart Systems in Korea and brought all product
manufacturing transformation (“Transformation”) activities temporarily back to its Fremont, California
headquarters. In Q2 2020, Pivotal qualified a new CM, H.S. Inc. in Korea for Transformation and in late
July 2020 restarted all Transformation activities back in Korea.
REVIEW OF OPERATIONS AND FINANCIAL RESULTS
Financial results
Revenue for the financial year ended 31 December 2020 (“FY20”) increased 44% to $22.07 million (2019:
$15.31 million). This was as a result of the increase in sales due to greater demand even in the challenging
macro-environment.
The Group’s gross profit for FY20 increased 41% to $2.44 million (2019: $1.73 million). This increase is
mainly due to the increase in revenue and the effective cost reduction measures implemented by the
Group. In line with prior periods, the Group has also experienced a decrease of sales to integrated device
manufacture (IDM) customers to $1.23 million, which represented 6% of sales in 2020 (2019: $3.21 million,
21% of sales). These sales are generally at a higher margin.
Margins were also adversely impacted as Pivotal temporarily transitioned Transformation services, the
final step in the manufacturing process for GFCs to its facilities in Fremont, California, while it identified
and qualified a new contract manufacturer (CM) in Korea. In July 2020, Pivotal successfully engaged a
new CM in Korea and it has successfully passed audit with Pivotal’s major customers. A significant benefit
of this return of Transformation activities to Korea should continue to be evidenced in future periods by
Pivotal Systems Corporation
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Directors’ Report
significant improvement in gross margins on product sales resulting from the substantial elimination of
United States Customs and Border Protection duties (as discussed below) which had been incurred on the
temporary importation into the United States from China of semi-finished product for completion of the
manufacturing process. In addition, Pivotal has implemented product cost reduction measures, and will
continue to closely monitor profit margin.
During Q3 2020 Pivotal applied for refunds from United States Customs and Border Protection on the
aforementioned duties on all imported semi-finished product which were exported following Pivotal’s
completion of the products to customers outside the US. In Q4 2020 Pivotal received refunds for $0.92
million. These refunds are net of a 20% fee paid to third-party firm, who assists with the Group’s filings,
which accounts for most of the difference between what was paid and recovered.
Pivotal has sufficient capacity to meet expected customer demand for Pivotal's GFC commensurate with
continued improvement in the semiconductor manufacturing equipment sector since 2020 and beyond.
Total operating expenses for the period were $11.2 million (2019: $11.6 million), in line with management
expectations, and were of a level to maintain the integrity and quality of operations. The operating loss
of $8.8 million is lower than prior period (2019: $9.9 million). The Company is working on reducing
operating expenses without significantly affecting its ability to innovate and compete in the market.
In addition to the aforementioned engagement of a new CM in Korea for transformation manufacturing
processes, Pivotal also engaged a CM in a new repair and upgrade center in Korea. The CM has fully
commenced operations for repair of products sold to Korea customers. Pivotal will perform at its Fremont
California facility, repairs of products sold to “rest of world” customers. These facilities provide warranty,
repair and software upgrades to both IDM and OEM customers.
The Company achieved qualification and multiple repeat orders for the standard GFC for Etch at the
leading Korean Etch OEM. Moreover, the Company received multiple repeat orders for the standard GFC
at multiple Chinese IDM’s for leading Etch Applications, and at the leading Chinese Etch OEM for Etch
Applications.
Furthermore, Pivotal shipped a next generation process tool flow control solution to a leading Japanese
OEM as covered in the Customer Development Agreement signed in 2018.
Pivotal is also continuing the qualification of new 2 channel Flow Ratio Controllers (“FRC”) to a leading
US Based OEM for deposition.
Pivotal completed work on its first high flow GFC (50SLM) for potential use in both plasma enhanced
chemical vapor deposition (“PECVD”) and metal organic chemical vapor deposition (“MOCVD”)
The Company successfully closed its RBI Preferred Stock Financing on 20 February 2020, receiving the
initial funding of $10 million. In addition, on 23 December 2020, the Company issued CHESS Depositary
Interests (“CDIs”) for $4 million to Viburnum Funds, an Australian institutional investor.
The $8.8 million operating loss represented a decrease of 11.6% compared to the prior period (2019: $9.91
million).
On 2 July 2020, in accordance with ASX Listing Rule 3.10A, the shares of common stock in the Company
(“Common Stock”) and certain of the Company’s unquoted options that were subject to ASX and/or
voluntary escrow restrictions for a period of 24 months from the date of commencement of official
quotation of the Company’s CDIs on the ASX, were released from such escrow.
During the year, 846,670 Common Stock were issued on the exercise of options issued pursuant to the
Company’s equity incentive plan.
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 2020, the Group incurred a loss after income tax of $9.1 million
Pivotal Systems Corporation
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Directors’ Report
(2019: $9.95 million) and the Group’s net cash outflows from operating activities for the period ended 31
December 2020 were $8.1 million (2019: $11.5 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 and a $7.0 million working capital revolving credit line which has not
been drawn on at 31 December 2020 (refer note 16).
The securing of $13 million Revenue Based Redeemable Preferred Stock (RBI) with Anzu on 30
January 2020. 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 issuance of 6,124,786 CHESS Depositary Interests at an issue price of A$0.86 per CDI to Viburnum
Funds under the institutional placement announced on 21 December 2020. The total amount
received was US$4.0 million. Viburnum Funds is an Australian high conviction, active ownership
investment manager and recent investor in the Company. As a result of the share placement,
Viburnum holds 7.03% of the Common Stock / CDIs on issue.
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
Events surrounding the ongoing COVID-19 outbreak have resulted in a reduction in economic activity across
the world. The severity and duration of these economic repercussions are still largely unknown and
ultimately will depend on many factors, including the speed and effectiveness of the containment efforts
throughout the globe. We have observed demand increases in some areas of our business that support the
stay-at-home economy, such as products used in data center infrastructure, notebook computers, 5G,
Industry 4.0 and IOT. At the same time SEMI has improved its 2020 industry forecast to 6% growth in 2020
and over 10% growth in 2021. The extent to which COVID-19 will impact demand for our products depends
on future developments, which are highly uncertain and very difficult to predict, including new
information that may emerge concerning the severity of the coronavirus and actions to contain and treat
its impacts. While our sites are currently operational, our facilities could be required to temporarily curtail
production levels or temporarily cease operations based on future additional government mandates.
From the start of the COVID-19 outbreak, we proactively implemented preventative protocols intended
to safeguard our team members, contractors, suppliers, customers, distributors, and communities, and
ensure business continuity in the event government restrictions or severe outbreaks impact our operations
at certain sites. We remain committed to the health and safety of our team members, contractors,
suppliers, customers, distributors, and communities, and government policies and recommendations
designed to slow the spread of COVID-19.
While certain COVID-19 vaccines have recently been approved and have become available for use in the
United States and certain other countries, we are unable to predict when those vaccines will become
widely available, how widely utilized the vaccines will be, whether they will be effective in preventing
the spread of COVID-19, and when or if normal economic activity and business operations will resume.
There were no other significant changes in the state of affairs of the Group during the financial year.
Pivotal Systems Corporation
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Directors’ Report
DIVIDENDS
No dividends were paid or declared during the year ended 31 December 2020 and the Company does not
intend to pay any dividends for the year ended 31 December 2020 (2019: $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.
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
On 19 January, 2021, the loan funds received by the Group, under the United States Government Small
Business Administration Payroll Protection Program (PPP), as part of the CARES Act in response to the
COVID-19 pandemic, was fully forgiven. Under the PPP, the Group received approximately US$0.9 million
in loan principal proceeds. All principal and interest payable under the terms of the loan were forgiven.
On 18 February 2021, 70,262 shares were issued on the exercise of options issued pursuant to the
Company’s equity incentive plan.
Pivotal Systems Corporation
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Directors’ Report
Other than the above, no other matter or circumstance has arisen since 31 December 2020 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 FY20, 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 4th 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 Recommendations during the year ended 31 December 2020.
SHARE OPTIONS
Options to acquire shares of Common Stock in the Company were granted during the financial year. The
number of options outstanding as at the date of this report, and all other movements in share options,
are disclosed in Note 21 to the financial statements.
SECURITIES ON ISSUE
The Company had the following securities on issue as at 31 December 2020:
Shares of common stock1
Shares of preferred stock (i.e. RBI Preferred Stock)
Options over shares of common stock
Common Stock Preferred Stock
-
120,240,769
-
16,734,199
10,000
-
1 Shares of Common Stock are equivalent to 120,240,769 CHESS Depositary Interests.
Pivotal Systems Corporation
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Directors’ Report
INFORMATION ON DIRECTORS
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, Joseph 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
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 Tempo Automation and previously served as CFO of Revasum, Inc. (ASX: RVS), BrainChip
Holdings Ltd (ASX: BRN) and as 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
Pivotal Systems Corporation
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Directors’ Report
INFORMATION ON DIRECTORS (continued)
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
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.
Pivotal Systems Corporation
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Directors’ Report
SECURITIES HELD BY DIRECTORS AND KEY MANAGEMENT PERSONNEL
The directors and key management personnel of the Company are shown together with their holdings of
shares of common stock and options, held directly or indirectly as at 31 December 2020:
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis (1)
David Michael
Peter McGregor
Dennis Mahoney
Common
Stock
Options
Common
Stock
Options
Direct
Indirect
1,481,870
1,445,683
195,000
-
-
-
-
4,386,669
4,383,646
201,000
-
-
100,000
1,000,000
-
-
-
231,535
-
-
-
3,122,553
10,071,315
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 2020 were:
John Hoffman
Dr Joseph Monkowski
Timothy D. Welch
Dennis Mahoney
Executive Chairman, President and Chief Executive Officer; and
Executive Director and Chief Technical Officer
Chief Financial Officer (retired on 5 June 2020)
Chief Financial Officer (appointed on 5 June 2020)
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 2020 are as follows:
Pivotal Systems Corporation
12
Directors’ Report
REMUNERATION REPORT (continued)
John Hoffman
Executive Chairman, President and Chief Executive Officer
Mr. Hoffman received a fixed remuneration package of $375,000 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 $325,000 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.
Timothy D. Welch
Chief Financial Officer (retired on 5 June 2020)
Mr. Welch received a fixed remuneration package of $250,000 and was eligible to participate in various
customary employee benefit plans of Pivotal. The options issued to Mr. Welch vested only subject to a
time-based vesting schedule.
Dennis Mahoney Chief Financial Officer (appointed on 5 June 2020)
Mr. Mahoney received a fixed remuneration package of $250,000 and is eligible to participate in various
customary employee benefit plans of Pivotal. All of Mr. Mahoney’s unvested Options are subject to
acceleration of vesting upon a change of control of the Company. In addition, all of his Options vest
subject to a time-based vesting schedule.
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 2020 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.
Pivotal Systems Corporation
13
Directors’ Report
REMUNERATION REPORT (continued)
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$15,000 per annum
as chair of the Remuneration and Nomination Committee.
Mr. Landis and Mr. Michael do not receive compensation for their services as a non-executive director.
REMUNERATION TABLE
Remuneration earned by key management personnel during 2020 and 2019 is summarized as follows:
2020
John Hoffman
Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Timothy Welch
Dennis Mahoney
2019
John Hoffman
Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Omesh Sharma (2)
Salary and
Fees
US$
Cash bonus
(1)
US$
401k &
other
benefits
US$
Share based
payment
US$
375,000
325,000
85,000
-
-
85,000
63,295
216,333
1,149,628
-
-
-
-
-
-
-
-
-
27,037
26,817
-
-
-
-
11,696
1,333
66,883
222,965
222,965
1,353
-
-
25,024
19,995
184,723
677,025
Salary and
fees
US$
Cash bonus
(1)
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$
625,002
574,782
86,353
-
-
110,024
94,986
402,389
1,893,536
Total
US$
402,068
345,386
116,009
-
-
85,000
479,445
1,427,908
(1) No cash bonuses were awarded during the 2020 and 2019.
(2) 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.
END OF REMUNERATION REPORT
Pivotal Systems Corporation
14
Directors’ Report
MEETINGS ATTENDED BY BOARD
The number of meetings of directors (including meetings of committees of directors) held during the
year and the number of meetings attended by each director was as follows:
Board of
Directors
Audit & Risk
Management
Committee
Remuneration &
Nomination Committee
Eligible Attendance
Eligible Attendance
Eligible Attendance
18
18
18
18
18
18
18
18
18
17
18
18
-
-
-
-
5
5
5
5
5
5
5
5
-
-
3
3
3
3
-
-
3
3
3
3
John Hoffman
Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
INDEMNITY AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has entered into customary indemnification agreements under which it has indemnified
directors and officers of the Company for losses incurred, or claims made and associated expenses
incurred, in their capacity as a director or officer, for which they may be held personally liable, subject
to certain limitations and exceptions.
INDEMNITY AND INSURANCE OF AUDITOR
The Company has not, during or since the end of the financial year, indemnified or agreed to indemnify
the auditor of the Company or any related entity against a liability incurred by the auditor.
During the financial year, the Company has not paid a premium in respect of a contract to insure the
auditor of the Company or any related entity.
NON-AUDIT SERVICES
Details of amounts paid or payable to the auditor for non-audit services provided during the year are
outlined in Note 28 to the financial statements.
PROCEEDINGS ON BEHALF OF THE COMPANY
No proceedings have been brought or intervened in on behalf of the Company.
On behalf of the directors
John Hoffman
Director and Chief Executive Officer
25 February 2021 (Fremont PST), 26 February 2021 (Sydney AEST)
Pivotal Systems Corporation
15
Consolidated Statement of Profit or Loss and Other Comprehensive
Income
For the year ended 31 December 2020
Revenue
Cost of goods sold
Gross profit
Expenses
Research & development
Selling & marketing
General & administrative
Total expenses
Operating loss
Finance income
Finance expenses
Other income
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
2020
US$’000
2019
US$’000
2
22,065
15,309
3
3
3
4
4
4
4
5
(19,625)
(13,579)
2,440
1,730
(3,228)
(3,548)
(4,424)
(3,521)
(3,180)
(4,935)
(11,200)
(11,636)
(8,760)
(9,906)
-
(273)
158
(233)
168
(217)
-
-
(9,108)
(9,955)
-
-
(9,108)
(9,955)
-
-
(9,108)
(9,955)
Loss per share attributable to the members of
Pivotal Systems Corporation
US$ per
share
US$ per
share
Basic and diluted loss per share
6
(0.08)
(0.09)
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 2020
Note
2020
US$’000
2019
US$’000
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
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Accumulated losses
Total equity
8
9
10
11
12
13
14
15
18
19
16
17
17
16
21
23
7,539
7,734
8,402
314
5,446
5,823
8,746
314
23,989
20,329
1,166
11,999
954
27
14,146
38,135
5,261
547
140
1,604
261
7,813
770
1,089
1,859
9,672
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
28,463
22,541
185,200
2,864
171,315
1,719
(159,601)
(150,493)
28,463
22,541
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 2020
Contributed
equity
US$’000
Reserves
US$’000
Accumulated
losses
US$’000
Total equity
US$’000
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
21)
Share issue costs
Share-based payments (note 23)
170,818
-
1,280
-
(140,538)
(9,955)
31,560
(9,955)
-
-
-
502
(5)
-
-
-
-
-
439
(9,955)
(9,955)
-
-
-
502
(5)
439
Balance at 31 December 2019
171,315
1,719
(150,493)
22,541
171,315
-
1,719
-
(150,493)
(9,108)
22,541
(9,108)
-
Balance at 1 January 2020
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 (note 21)
Shares issue on exercise of options (note
21)
RBI Preferred Stock issued (note 21)
Share issue costs
-
-
4,000
142
10,000
(257)
-
-
-
-
-
(9,108)
(9,108)
-
-
-
-
4,000
142
10,000
(257)
1,145
Share-based payments (note 23)
-
1,145
Balance at 31 December 2020
185,200
2,864
(159,601)
28,463
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 2020
Cash flows used in operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Other cash flows from operating activities
Note
2020
US$’000
2019
US$’000
20,900
(28,920)
13,066
(24,562)
-
(242)
159
161
(162)
-
Net cash used in operating activities
8
(8,103)
(11,497)
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 of share issue costs
Proceeds from the issue of preferred stock
Proceeds from the exercise of options
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
21
21
21
16
16
17
(841)
(2,647)
(3,488)
4,000
(140)
10,000
142
907
(1,000)
-
(225)
13,684
(112)
(3,484)
(3,596)
-
-
-
473
3,000
(250)
(26)
(154)
3,043
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the
financial year
Net effect of foreign exchange
Cash and cash equivalents at the end of the year
8
2,093
(12,050)
5,446
-
7,539
17,489
7
5,446
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 2020, the Group incurred a loss after income tax of $9.1 million
(2019: $9.95 million) and the Group’s net cash outflows from operating activities for the period ended 31
December 2020 were $8.1 million (2019: $11.5 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 and a $7.0 million working capital revolving credit line which has not
been drawn on at 31 December 2020 (refer note 16).
The securing of $13 million Revenue Based Redeemable Preferred Stock (RBI) with Anzu on 30
January 2020. 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.
Pivotal Systems Corporation
21
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
Going Concern (continued)
The issuance of 6,124,786 CHESS Depositary Interests at an issue price of A$0.86 per CDI to Viburnum
Funds under the institutional placement announced on 21 December 2020. The total amount
received was US$4.0 million. Viburnum Funds is an Australian high conviction, active ownership
investment manager and recent investor in the Company. As a result of the share placement,
Viburnum holds 7.03% of the issued Common Stock / CDIs of the Company.
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.
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 2020.
Pivotal Systems Corporation
22
Notes to the Consolidated Financial Statements
Note 1. Significant accounting policies (continued)
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31
December 2020 reporting periods and have not been early adopted by the Group. These standards are not
expected to have a material impact on the Group in the current or future reporting periods and on
foreseeable future transactions.
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
Accounting policy for revenue recognition
2020
US$’000
2019
US$’000
22,365
(300)
22,065
15,564
(255)
15,309
2020
US$’000
2019
US$’000
1,228
20,837
22,065
3,214
12,095
15,309
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.
Pivotal Systems Corporation
23
Notes to the Consolidated Financial Statements
Note 2. Revenue from contracts with customers (continued)
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 2020 (2019: 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 2020 (2019: Nil).
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.
Pivotal Systems Corporation
24
Notes to the Consolidated Financial Statements
Note 3. Expenses
Net Loss before income tax includes the following specific expenses:
Research & development
Amortization of capitalized development costs (Note 13)
1,661
2,281
2020
US$’000
2019
US$’000
Salary and benefits
Impairment of capitalized development costs (Note 13)
Other
Selling & marketing
Salary and benefits
Commissions and bonuses
Travel and outside services
Other
General & administrative
Salary and benefits
Travel and outside services
Bad debt expense
Other
Accounting policy for expenses
Research costs
841
48
678
776
22
442
3,228
3,521
1,286
1,133
674
455
3,548
1,643
1,503
-
1,278
4,424
1,265
733
752
430
3,180
1,725
1,613
600
997
4,935
Expenditure on research activities, undertaken with the prospect of obtaining new technical knowledge
and understanding, is recognized in the statement of profit or loss and other comprehensive income as an
expense when it is incurred.
Commissions and Bonuses
Commissions and Bonuses are mainly comprised of commissions paid for the initial contract with a
customer and for contract renewals and are classified as selling and marketing expenses in the
consolidated statement of profit or loss and other comprehensive income. Renewal commissions are
considered to be commensurate with the initial contract commissions. As a result, Pivotal amortizes the
commission costs, for a new contract or a contract renewal, over the initial contract term, which is less
than a year. Additionally, Pivotal applies the practical expedient of expensing sales commissions as
incurred considering that the amortization period is one year or less.
Other expenses
Other expenses classified according to their function, as selling & marketing or general &administrative,
include expenses mainly related with facilities, materials, depreciation, and share-based payment
transactions.
Pivotal Systems Corporation
25
Notes to the Consolidated Financial Statements
Note 4. Other Income and Expenses
Other income
Gain on insurance proceeds (1)
Other expenses
Other expenses (2)
Finance income
Interest income
Foreign exchange gains
Finance expense
Foreign exchange loss
Interest expense (3)
2020
US$’000
2019
US$’000
158
158
233
233
-
-
-
2
271
273
-
-
-
-
161
7
168
-
217
217
(1)
Insurance proceeds received due to a claim related with the theft of certain equipment. The net
carrying value of the stolen assets was zero at the time of the event.
(2) Expenses incurred for services provided by the duty drawback brokerage specialist, based on
refunds received.
(3) As of 31 December 2020, interest expense included $84,282 (2019: $78,101) implicit interest paid
for the lease liability, according to the incremental borrowing rate under AASB 16, $187,221 (2019:
$101,431) related to borrowings and Nil (2019: $38,000) for penalties paid for the cancellation of
Certificates of Deposits (CDs) held in financial institutions prior to maturity.
Accounting policy for finance income and expense
Finance income
Interest revenue is recognised as interest accrues using the effective interest method. This is a method
of calculating the amortised cost of a financial asset and allocating the interest income over the relevant
period using the effective interest rate, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Finance Expense
Finance costs that are attributable to qualifying assets are capitalised as part of the asset. All other
finance costs are expensed in the period in which they are incurred.
Pivotal Systems Corporation
26
Notes to the Consolidated Financial Statements
Note 5. Income tax expense
Deferred tax
Current tax
Aggregate income tax expense
Effective tax rate:
Net Loss before income tax expense
2020
US$’000
-
-
-
2019
US$’000
-
-
-
0.00%
(9,108)
0.00%
(9,955)
Tax at the statutory tax rate of 21% (2019: 21%)
(1,913)
(2,091)
Tax effect amounts which are not deductible/(taxable) in
calculating taxable income:
Temporary differences
Permanent differences
Unutilized losses carried forward
Effect on unutilized losses of future reduction in tax rate
to 21%
Income tax expense
(303)
155
2,060
-
-
(34)
104
2,021
-
-
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 2020 and 31 December 2019.
As of 31 December 2020, the Group had federal and state net operating loss carry forwards of
approximately $49.0 million and $6.5 million (2019: $39.1 million and $5.2 million), respectively, available
to reduce future taxable income, if any. The net operating loss carry forwards will expire beginning 2032
through 2040 for California income tax purposes. Beginning in 2018 Federal net operating losses are carried
forward indefinitely.
As of 31 December 2020, the Group had federal and state research credit carry forwards of $0.6 million
(2019: $0.4 million) and $1.4 million (2019: $1.2 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 is the expected 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
27
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 probable 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
2020
US$’000
2019
US$’000
(9,108)
(9,955)
Number
Number
113,901,635
111,132,123
US$
US$
(0.08)
(0.09)
Pivotal Systems Corporation
28
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
2020
US$’000
3,954
18,111
22,065
2019
US$’000
9,533
5,776
15,309
58%
25%
13%
96%
48%
15%
28%
91%
Note 8. Current assets - cash and cash equivalents
Cash at bank
Cash and cash equivalents
2020
US$’000
2019
US$’000
7,539
7,539
5,446
5,446
Minimum cash requirement
Pursuant to the covenants of the Bridge Bank credit facility, the Company is committed to maintain a
$2.0M minimum cash balance. There are no restrictions or other limitations on the use of cash and cash
equivalents.
As of December 31, 2020, $0.6M of the total cash balance is being held in a separate account established
for the purpose of redeeming Preferred RBI shares at a future date. The funds from this account will not
be used for normal business activities (See Note 21).
Accounting policy for cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other
short-term, highly liquid investments with original maturities of three months or less or that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Pivotal Systems Corporation
29
Notes to the Consolidated Financial Statements
Note 8. Current assets - cash and cash equivalents (continued)
Reconciliation of Cash Outflow from Operating Activities with Net Loss for the year
Loss for the year
Depreciation expense, not capitalized
Amortization expense for development costs and patents
Amortization expense for ROU Assets
Impairment of capitalized development costs
Share based payment expense
Interest accrual
Loss on sale of equipment
Foreign exchange loss/(gain)
Change in operating assets and liabilities
Increase in trade and other receivables
Increase in inventories
Increase in other current assets
(Decrease)/Increase in trade and other payables
Increase in employee benefits
Increase/(decrease) in provisions
2020
US$’000
2019
US$’000
(9,108)
383
1,661
238
48
1,145
30
1
1
(1,910)
345
(5)
(986)
103
(49)
(9,955)
256
2,289
205
22
439
-
3
(7)
(1,954)
(2,474)
(20)
(401)
20
80
Net Cash Outflow from operating activities
(8,103)
(11,497)
Pivotal Systems Corporation
30
Notes to the Consolidated Financial Statements
Note 9. Trade receivables
Trade receivables
Other receivables
Total receivables
Less: Provision for impairment
Receivables - net
2020
US$’000
2019
US$’000
7,529
785
8,314
(580)
7,734
5,813
610
6,423
(600)
5,823
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 2020 has resulted in a credit loss of
$0.58M which has been recognized in the consolidated statement of profit or loss and other comprehensive
(2019: $0.6M).
The Group also write-off a trade receivable when there is information indicating that the debtor is in
severe financial difficulty and there is no realistic prospect of recovery (e.g. when the debtor has been
placed under liquidation or has entered into bankruptcy proceedings, or when the trade receivable are
over two years past due, whichever occurs earlier).
Note 10. Current assets - inventories
Raw materials
Work in progress
Finished goods
Inventories – gross
Less: Provision for impairment
Inventories – net
2020
US$’000
2019
US$’000
3,520
1,127
4,372
9,019
(617)
8,402
7,394
1,054
827
9,275
(529)
8,746
Pivotal Systems Corporation
31
Notes to the Consolidated Financial Statements
Note 10. Current assets - inventories (continued)
Accounting policy for inventories
Raw materials, work in progress and finished goods are stated at the lower of cost and net realizable value
on a 'first in first out' basis. Cost comprises of direct materials and delivery costs, direct labor, import
duties and other taxes, an appropriate proportion of variable and fixed overhead expenditure based on
normal operating capacity. Costs of purchased inventory are determined after deducting rebates and
discounts received or receivable.
The Group’s inventories are concentrated in high-technology parts and components that may be
specialized in nature or subject to rapid technological obsolescence. These factors are considered in
estimating required reserves to state inventories at the lower of cost or net realizable value.
Net realizable value is the estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale.
Critical accounting judgements, estimates and assumptions
The provision for impairment of inventories assessment requires a degree of estimation and judgement.
The level of the provision is assessed by taking into account the recent sales experience, the ageing of
inventories and other factors that affect inventory obsolescence.
Shipping and handling costs associated with outbound freight after control over a product has
transferred to a customer are accounted for as a fulfillment cost and are in included in cost of goods
sold.
Note 11. Current assets - other assets
Prepaid expenses
2020
US$’000
2019
US$’000
314
314
314
314
Prepaid expenses are current assets that are created by paying for an expense that will not be incurred
until a future period. These expenses include but are not limited to the prepayment of rent, insurance,
and other services.
Pivotal Systems Corporation
32
Notes to the Consolidated Financial Statements
Note 12. Non-current assets - property, plant and equipment
Leasehold improvements - at cost
Less: Accumulated depreciation
Net book value leasehold improvements
Plant and equipment - at cost
Less: Accumulated depreciation
Net book value plant and equipment
2020
US$’000
2019
US$’000
201
(81)
120
2,853
(1,807)
1,046
61
(21)
40
1,813
(1,546)
267
Net book value property, plant and equipment
1,166
307
Leasehold
improvements
US$’000
Plant &
equipment
US$’000
Total
US$’000
Balance at 1 January 2019
Additions
Cost of disposals
Accumulated depreciation of assets disposed of
Depreciation expense
Balance at 31 December 2019
Additions
Transfer of written down value from Intangible
Asset
Costs of assets impaired
Accumulated depreciation of assets impaired
Depreciation expense
Balance at 31 December 2020
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
18
30
-
-
(8)
40
139
-
-
-
(59)
120
284
266
(5)
2
(280)
267
753
430
(149)
148
(403)
1,046
302
296
(5)
2
(288)
307
892
430
(149)
148
(462)
1,166
2020
US$’000
79
2019
US$’000
31
26
86
35
236
462
14
127
33
83
288
Pivotal Systems Corporation
33
Notes to the Consolidated Financial Statements
Note 12. 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
34
Notes to the Consolidated Financial Statements
Note 13. Non-current assets - intangible assets
Patent – at cost
Less: Accumulated amortization
Capitalized development – at cost
Less: Accumulated amortization
2020
US$’000
2019
US$’000
50
(50)
-
50
(50)
-
25,709
(13,710)
11,999
22,361
(12,057)
10,304
Net written down value intangible assets
11,999
10,304
Patent
US$’000
Capitalized
Development
US$’000
Total
US$’000
8
-
-
(8)
-
-
-
-
-
-
9,070
3,537
(22)
(2,281)
10,304
3,834
(430)
(48)
(1,661)
11,999
9,078
3,537
(22)
(2,289)
10,304
3,834
(430)
(48)
(1,661)
11,999
Balance at 1 January 2019
Additions
Impairment of costs
Amortization expense
Balance at 31 December 2019
Additions
Transfer of written down value to Property, plant
and equipment
Impairment of costs
Amortization expense
Balance at 31 December 2020
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
35
Notes to the Consolidated Financial Statements
Note 13. 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
36
Notes to the Consolidated Financial Statements
Note 14. Right-of-use assets
Right-of-use assets
Less: Accumulated amortization
Right-of-use assets, net
31 Dec 2020
US$’000
31 Dec 2019
US$’000
1,397
(443)
954
1,397
(205)
1,192
Amounts recognised in the statement of financial position and profit and loss
(1) Total cash outflows for lease payments is $224,560. This amount includes $84,282 interest expense
accrual due to discounting the lease liability at the Group’s incremental borrowing rate (See Note
4). Payments of interest are classified as cash flows for operating activities in the statement of
cash flows.
Set out below are the amounts recognised in profit and loss for the year ended 31 December 2020:
Amortization expense of right-of-use asset
Interest expense on lease liabilities
Accounting policy for right-of-use assets
31 Dec 2020 31 Dec 2019
US$’000
US$’000
238
84
205
78
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated
amortization and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost
of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and
lease payments made at or before the commencement date less any lease incentives received. Unless
the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the
recognised right-of-use assets are amortized according to the pattern in which the asset’s future
economic benefits are expected to be consumed by the Group over the shorter of its estimated useful
life and the lease term. Right-of-use assets are subject to impairment.
Note 15. Trade and other payables
Trade and other payables
Deferred revenues
31 Dec 2020
US$’000
31 Dec 2019
US$’000
5,036
225
5,261
4,914
56
4,970
Accounting policy for trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the
financial year and which are unpaid. Due to their short-term nature they are measured at amortized cost
and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.
Pivotal Systems Corporation
37
Notes to the Consolidated Financial Statements
Note 16. Borrowings
Current borrowings
Non-current borrowings
Bridge Bank Loan
SBA Loan
Total Borrowings
(1)
Bridge Bank Loan
Balance as at 1 January 2019 (1)
Interest accrued on facility
Interest paid on facility
Repayment of facility (1)
Balance as at 31 December 2019
Financial liability with Western Alliance (2)
Interest accrued on facility
Interest paid on facility
Repayment of facility
Balance as at 31 December 2020
(1)
Bridge Bank Loan
31 Dec 2020
US$’000
31 Dec 2019
US$’000
1,604
1,089
2,693
1,786
907
2,693
2.756
-
2,756
2,756
-
2,756
SBA loan
US$’000
Bridge Bank
US$’000
Total
US$’000
-
-
-
-
-
907
-
-
-
907
3,000
55
(49)
(250)
2,756
-
187
(157)
(1,000)
1,786
3,000
55
(49)
(250)
2,756
907
187
(157)
(1,000)
2,693
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 (“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. As of December 31, 2020, there are
currently no amounts drawn under the Revolving Credit Line.
Pivotal Systems Corporation
38
Notes to the Consolidated Financial Statements
Note 16. Borrowings (continued)
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. Pivotal has been
making periodic payment to the term loan and the balance as of December 31, 2020 is $1.8 million.
(2) SBA Loan
In response to the potential adverse impact on the Company of the COVID-19 pandemic, on 21 April
2020, the Company signed loan documents with Western Alliance Bank and received funding of US$0.9
million from the United States Government Small Business Administration (“SBA”), Payroll Protection
Program (“PPP”) which is part of a program created by the Coronavirus Aid, Relief, and Economic
Security Act, “CARES Act”, which provides financial relief from the COVID-19 emergency.
This loan bears interest at a fixed rate equal to 1.0% per annum and is payable every month beginning
December 2020. This loan, guaranteed by the SBA, matures in 2 years. SBA may forgive this loan if all
employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage
interest, or utilities.
In January 2021, the Company received notification of the forgiveness of the SBA Loan (See Note 27).
The Company is in compliance with the financial covenants of its borrowing facilities outstanding as of
31 December 2020.
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
39
Notes to the Consolidated Financial Statements
Note 17. Lease liabilities
Lease liabilities - Current
Lease liabilities – Non-current
Lease liabilities
Balance as at 1 January 2019
Additions
Payments that reduce the present value of the lease liability
Balance as at 31 December 2019
Payments that reduce the present value of the lease liability
Balance as at 31 December 2020
31 Dec 2020
US$’000
31 Dec 2019
US$’000
261
770
1,031
225
1,031
1,256
289
1,121
(154)
1,256
(225)
1,031
Accounting policy for 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, and variable lease payments that depend
on an index or a rate. 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 $5,000). Lease payments on short-term
leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease
term.
Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods
covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered
by an option to terminate the lease, if it is reasonably certain not to be exercised. When the Group has
the option to lease the assets for additional terms, it applies judgement in evaluating whether it is
reasonably certain to exercise the option to renew, considering all relevant factors that create an
economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses
the lease term if there is a significant event or change in circumstances that is within its control and
affects its ability to exercise (or not to exercise) the option to renew.
Pivotal Systems Corporation
40
Notes to the Consolidated Financial Statements
Note 18. Current provisions - employee benefits
Provision for annual leave
Movement in provision for annual leave:
Opening balance
Additions
Leave taken
Closing balance
2020
US$’000
2019
US$’000
547
547
443
269
(165)
547
443
443
423
276
(256)
443
Accounting policy for employee benefits
Provisions for wages and salaries, including non-monetary benefits and annual leave expected to be
settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid
when the balances are settled.
Note 19. Current provisions - warranty provision
Provision for warranty
Movement in provision for warranty:
Opening balance
Additions
Expired warranties
Closing balance
Accounting policy for provisions
2020
US$’000
2019
US$’000
140
140
189
352
(401)
140
189
189
110
189
(110)
189
The provision represents the estimated warranty claims in respect of products sold which are still under
warranty at the reporting date. The provision is estimated based on historical warranty claim
information, sales levels and any recent trends that may suggest future claims could differ from historical
amounts.
Critical accounting judgements, estimates and assumptions
In determining the level of provision required for warranties the Group has made judgements in respect
of the expected performance of the products, the number of customers who will actually claim under
the warranty and how often, and the costs of fulfilling the conditions of the warranty. The provision is
based on estimates made from historical warranty data associated with similar products and services.
Pivotal Systems Corporation
41
Notes to the Consolidated Financial Statements
Note 20. Financial assets and liabilities
Set out below is an overview of financial assets (other than cash and short term deposits) and financial
liabilities held by the Group as at 31 December 2020:
Financial assets
Trade and other receivables
Total financial assets
Current
Non-current
Total financial assets
Financial liabilities
Trade and other payables
Borrowings
Current
Non-current
Total financial liabilities
Fair value hierarchy.
2020
US$’000
2019
US$’000
7,734
7,734
7,734
-
7,734
5,261
2,693
7,954
6,865
1,089
7,954
5,823
5,823
5,823
-
5,823
4,970
2,756
7,726
7,726
-
7,726
The Group classified the fair value of the financial instruments according to the following fair value
hierarchy based on the amount of observable inputs used to value the instruments:
Level 1 – Values based on unadjusted quoted prices available in active markets for identical assets or
liabilities as of the reporting date.
Level 2 – Values based on inputs, including quoted prices, time value and volatility factors, which can
be substantially observed or corroborated in the marketplace. Prices in Level 2 are either directly or
indirectly observable as of the reporting date.
Level 3 – Values based on prices or valuation techniques that are not based on observable market
data.
Pivotal Systems Corporation
42
Notes to the Consolidated Financial Statements
Note 21. Equity - Contributed equity
2020
Number
2020
US$’000
2019
Number
2019
US$’000
Shares of Common Stock (a)
120,240,769
175,400
113,269,313
171,315
Shares of Preferred Stock (b)
10,000
9,800
-
-
120,250,769
185,200 113,269,313
171,315
(a) Movements in Shares of Common Stock
Balance as at 1 January 2020
Common Shares issued on exercise of options (Note 23)
Common Shares issued to institutional investor (Note 1)
Share issue costs
Balance as at 31 December 2020
(b) Movements in Shares of Preferred Stock
Balance as at 1 January 2020
Preferred Shares issued to RBI Financing
Share issue costs due to RBI Financing
Balance as at 31 December 2020
Shares
Number
US$’000
113,269,313
846,670
6,124,786
-
120,240,769
171,315
142
4,000
(57)
175,400
Shares
Number
US$’000
-
10,000
-
10,000
-
10,000
(200)
9,800
Terms and conditions of contributed equity
Shares of Common Stock in the Company (Common Stock)
The holders of Common Stock 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 Common
Stock 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 therefore, 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.
Pivotal Systems Corporation
43
Notes to the Consolidated Financial Statements
Note 21. Equity - Contributed equity (continued)
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.
On 2 July 2020 the Lock-Up Period ended and all the Restricted Securities were released from escrow.
No Restricted Securities were converted into shares of Common Prime Stock.
Preferred Shares (RBI Financing)
The authorized capital of the Company includes 13,000 shares of Preferred Stock, $1,000 par value per
share, 13,000 of which have been designated RBI Preferred Stock.
On 20 February 2020, the Company received US$10.0 million funding from the issue of 10,000 RBI Preferred
Stock to Anzu Industrial RBI USA LLC. The issue costs related with this financing were US$0.2 million. The
Company has the ability to raise a further US$3.0 million under the RBI Preferred Stock Agreement
(“Agreement”), on repayment of the Bridge Bank facility and on the Company meeting certain trailing
revenue requirements. Anzu is entitled to a non-cumulative priority preference dividend of 2%, payable
at the Company’s discretion.
As per the Agreement, the “First Redemption” of RBI Preferred Stock will be redeemable based on the
aggregate amounts attributed to the prior 10 months (4% of net revenues/month). Please refer to the
discussion on the RBI facility in the “Going Concern Section”. After the first redemption, following
redemptions of RBI Preferred Shares will occur on a quarterly basis and will be based on an amount equal
to 4% of Pivotal’s previous financial quarter revenues. The “First Redemption” is anticipated to be in Q2
2021 for revenue periods May 2020 through February 2021. The number of RBI Preferred Shares to be
redeemed during the quarter is based on the established share price, as defined in the Agreement. If the
Company fails to make an anticipated redemption, Anzu may send notice to state that the anticipated
redemption has not been made. The Company would have a 30-day period to make the anticipated
redemption. If the anticipated redemption is not made at the end of the period, the RBI Preferred Share
price would increase to the greater of the current share price plus $1,000, or $3,000.
The Company shall deposit an amount equal to 4% of the financial quarter revenues into a bank account
to be used for no other purpose than to redeem shares of RBI Preferred Shares pursuant to the Agreement.
While the total value payable is ‘fixed’ based on quarterly revenue, the number of RBI Preferred Shares
to be redeemed decreases if an anticipated redemption is not made.
The Company has no contractual obligation to make the RBI Preferred Shares redemptions. In the event
of a failure to make an anticipated redemption, the Company may indefinitely delay or defer cash
settlement at the increased settlement price.
Pivotal Systems Corporation
44
Notes to the Consolidated Financial Statements
Note 21. Equity - Contributed equity (continued)
There is no fixed term to the redemption period on the RBI Preferred Shares. The Company will redeem
the RBI Preferred Shares in case of insolvency, liquidation or similar bankruptcy; an event of default; a
change of control or if the Company disposes all or substantially all its assets, property or business.
The RBI Preferred Shares do not carry any voting rights other than one vote per share (or per shareholder
in a show of hands) during a period in which a dividend or part of a dividend in respect to RBI Preferred
Shares is in arrears (declared but not paid), or during the winding up of the Company.
RBI Preferred Shares also carry voting rights of one vote per share, on a proposal:
• that affects rights attached to RBI Preferred Shares;
• to wind up the Company; or
• for the disposal of the property, business and undertaking of the Company.
The RBI Preferred Shares carry voting rights of one vote per share, on a resolution to approve:
• The terms of a share buy-back arrangement, other than the buy-back of RBI Preferred Shares; or
• A reduction in share capital of the Company, other than a reduction with respect to RBI Preferred Shares.
Accounting policy for contributed equity
Shares of common stock and preferred shares are classified as equity.
Incremental costs directly attributable to the issue of new common shares or preferred shares are shown
in equity as a deduction, net of tax, from the proceeds.
Note 22. Capital management
Capital managed by the Board comprises contributed equity totaling $185.2 million (2019: $171.3
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.
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 2020, 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.
Pivotal Systems Corporation
45
Notes to the Consolidated Financial Statements
Note 23. 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 2019
Expense in the period
Granted
Exercised
Forfeited
Expired
Closing reserve 31 December 2019
Expense in the period
Granted
Exercised
Forfeited
Expired
Closing reserve 31 December 2020
Share based payment expense:
Options issued to directors, employee and consultants
WAEP
$
0.31
Share options
Number
14,771,387
1.07
(0.22)
(0.40)
(4.62)
-
2,705,000
(2,270,449)
(727,498)
(9,198)
0.46 14,469,242
Share Based
Payment
Reserve
US$’000
1,280
439
-
-
-
-
1,719
0.96
(0.22)
(0.90)
(12.93)
-
4,435,000
(846,670)
(1,309,372)
(14,001)
0.57 16,734,199
1,145
-
-
-
-
2,864
2020
US$’000
2019
US$’000
1,145
1,145
439
439
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 4,408 (2019: 18,409) unexercised options are
still outstanding as at 31 December 2020.
The 2012 Equity Incentive Plan (the “Plan”) adopted on 29 June 2012 last amended on 20 June 2019
authorized the Company to grant incentive stock options and non-statutory stock options to employees,
directors, and consultants for up to 16,729,791 (2019: 22,226,575) 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.
Pivotal Systems Corporation
46
Notes to the Consolidated Financial Statements
Note 23. Share-based payments (continued)
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 2020 and 2019.
2-Mar-20
1-May-20
22-May-20 2-Jul-20
17-Sep-20
26-Oct-20
19-Nov-20
195,000
400,000 2,400,000 305,000
10,000
35,000
60,000
Grant date
0.40
0.48
0.35
0.35
0.44
0.32
0.40
1.02
0.71
0.85
0.76
0.84
0.57
0.75
1.02
51%
0.89
73%
0.96
68%
0.88
67%
0.74
71%
0.50
72%
0.78
75%
Number of options
issued
Fair value at
measurement date
US$
Share price at
grant date US$
Exercise price US$
Expected volatility
Vesting conditions
Type 2
Type 1
Type 8
Type 1
Type 9
Type 1
Type 1
Grant date
15-Apr-19
1-Aug-19
1-Aug-19
2-Sep-19
2-Mar-20
2-Mar-20
Number of options issued
100,000
955,000 1,640,000
10,000
1,000,000
30,000
Fair value at
measurement date US$
Share price at grant date
US$
Exercise price US$
Expected volatility
0.30
0.41
0.40
0.382
0.40
1.08
0.99
0.99
0.99
1.02
1.33
76%
1.10
66%
1.10
1.02
66%
66%
1.02
51%
0.40
1.02
1.02
51%
Vesting conditions
Type 6
Type 1
Type 2
Type 1
Type 1
Type 7
Pivotal Systems Corporation
47
Notes to the Consolidated Financial Statements
Note 23. Share-based payments (continued)
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.
Type 7 Options vest on a monthly basis over 24 months from vesting start date.
Type 8 Options vest on a yearly basis over 3 years from vesting start date.
Type 9 Options vest in seven tranches subject to the achievement of cumulative
milestones.
The weighted average remaining contractual life for the share options outstanding at 31 December
2020 is 5.92 years (2019: 6.01 years). The weighted average fair value of options granted during the
year was $0.96 (2019: $0.39). The range of exercise prices for options outstanding at the end of the
current and prior year was $0.1 to $17.7.
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.
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).
Pivotal Systems Corporation
48
Notes to the Consolidated Financial Statements
Note 23. Share-based payments (continued)
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. 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 24. Contingent liabilities and contingent assets
The Group has no material contingent liabilities or contingent assets as at 31 December 2020 (2019: Nil).
Note 25. 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.
Pivotal Systems Corporation
49
Notes to the Consolidated Financial Statements
Note 25. Financial Risk Management (continued)
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
2020
US$’000
2019
US$’000
7,539
7,734
5,446
5,823
15,273
11,269
5,261
1,301
2,693
9,255
4,970
1,256
2,756
8,982
The Group’s exposure to interest rate risk occurs through its deposits and borrowings with banks which
are exposed to variable interest rates. The Group does not use derivatives to mitigate this exposure. The
Group adopts a policy of ensuring that as far as possible it maintains excess cash and cash equivalents in
interest bearing accounts. The average interest rate on cash balances is 0.1% (2019: 1.4%).
2020
Less than 6
months
US$’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
5,261
127
903
6,291
-
136
802
938
-
294
988
1,282
-
474
-
474
5,261
1,031
2,693
8,985
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
Pivotal Systems Corporation
50
Notes to the Consolidated Financial Statements
Note 25. Financial Risk Management (continued)
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.
2020
Trade and other receivables
<30 days
30-60 days 61-90 days
>91 days
Total
Estimated total carrying
amount
2019
Estimated total carrying
amount
4,574
1,462
19
1,679
7,734
4,474
582
6
761
5,823
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
2020, the expected credit loss is $0.58M (2019: $0.6M) which is related to a specific new client.
Currency Risk
The Group is exposed to fluctuations in foreign currencies arising from the purchase of goods and services
in currencies other than the transacting entity’s functional currency. Operations in the Republic of Korea
result in transactions being incurred in South Korean Won. As a result, the Group’s statement of financial
position can be affected by movements in the USD/KRW exchange rate when translating to the USD
functional currency, however this is considered negligible.
Pivotal Systems Corporation
51
Notes to the Consolidated Financial Statements
Note 26. Related party transactions
Subsidiaries
The Consolidated financial statements include the financial statements of Pivotal Systems Corporation
and its wholly owned subsidiary Pivotal Systems Korea, Ltd. Incorporated in the Republic of Korea.
Key management personnel
The following persons were identified as key management personnel of Pivotal during the financial year
ended 31 December 2020:
John Hoffman
Dr. Joseph Monkowski
Dennis Mahoney
Timothy D. Welch
Ryan Benton
Kevin Landis
Peter McGregor
David Michael
2020
John Hoffman
Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Timothy Welch
Dennis Mahoney
2019
John Hoffman
Dr. Joseph Monkowski
Ryan Benton
Kevin Landis
David Michael
Peter McGregor
Omesh Sharma
Executive Chairman and Chief Executive Officer
Executive Director and Chief Technical Officer
Chief Financial Officer (appointed 5 June 2020)
Chief Financial Officer (resigned 5 June 2020)
Independent Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
Short term
employee
benefits
(Salary and fees)
US$
Post employee
benefits
(401k & other
benefits)
US$
Share based
payment
US$
375,000
325,000
85,000
-
-
85,000
63,295
216,333
1,149,628
27,037
26,817
-
-
-
-
11,696
1,333
66,883
Short term
employee
benefits
(Salary and fees)
US$
Post employee
benefits
(401k & other
benefits)
US$
362,500
312,000
85,000
-
-
85,000
459,325
1,303,825
30,308
25,552
-
-
-
-
20,120
75,980
Total
US$
625,002
574,782
86,353
0
0
110,024
94,986
402,389
222,965
222,965
1,353
-
-
25,024
19,995
184,723
677,025
1,893,536
Share based
payment
US$
9,260
7,834
31,009
-
-
-
-
Total
US$
402,068
345,386
116,009
-
-
85,000
479,445
48,103
1,427,908
Pivotal Systems Corporation
52
Notes to the Consolidated Financial Statements
Note 26. 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
Dennis Mahoney
Common
Stock
Options
Common
Stock
Options
Direct
Indirect
1,481,870
4,386,669
1,445,683
4,383,646
195,000
201,000
-
-
-
-
-
-
100,000
1,000,000
-
-
-
231,535
-
-
-
3,122,553
10,071,315
231,535
-
-
-
-
-
-
-
-
(1)
Common stock held by Silicon Valley Investor Holdings Pty Ltd, of which Kevin Landis is the
majority shareholder.
Share options granted to key management personnel
Class of underlying shares
John Hoffman
Dr. Joseph Monkowski
Peter McGregor
Dennis Mahoney
Other related parties
Ordinary
Ordinary
Ordinary
Ordinary
2020
Number
Granted
1,200,000
1,200,000
2019
Number
Granted
-
-
-
100,000
1,000,000
-
3,400,000
100,000
Other 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.
-
Pivotal Systems Corporation
53
Notes to the Consolidated Financial Statements
Note 26. Related party transactions (continued)
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 and due diligence services related to the issuance of preferred shares (RBI
financing) totaling US$104,309 during the current year (2019: US$17,250).
On 20 February 2020, the Group received US$10.0 million funding from the issue of 10,000 RBI
Preferred Stock to Anzu Industrial RBI USA LLC. This entity is owned by Anzu Partners LLC (See
Note 21).
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 2020, payables of US$21,250 were owed to Ryan Benton (2019: US$21,250), US$21,250
to Peter Mc Gregor (2019: US$21,250), and $1,250 to Anzu Partners LLC.
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 27. Events after the reporting period
On 19 January 2021, the loan funds received by the Group, under the United States Government Small
Business Administration Payroll Protection Program (PPP), as part of the CARES Act in response to the
COVID-19 pandemic, was fully forgiven. Under the PPP, the Group received approximately US$0.9 million
in loan principal proceeds. All principal and interest payable under the terms of the loan were forgiven.
(See Note 16).
On 18 February 2021, 70,262 shares were issued on the exercise of options issued pursuant to the
Company’s equity incentive plan.
Other than the above, no other matter or circumstance has arisen since 31 December 2020 that has
significantly affected, or may significantly affect the Group’s operations, the results of those operations,
or the Group’s state of affairs in future financial years.
Pivotal Systems Corporation
54
Notes to the Consolidated Financial Statements
Note 28. Auditor’s remuneration
During the financial year, the following fees were paid or payable for audit and other services provided
by BDO Audit Pty Ltd and BDO affiliates.
Audit services
Audit and review of the financial statements
Services provided by BDO affiliates:
Taxation services
Note 29. Parent Entity Information
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Contributed equity
Reserves
Accumulated losses
Total shareholders’ equity
Loss of the parent entity
Total comprehensive income of the parent entity
2020
US$
2019
US$
153,123
129,373
153,123
129,373
8,020
41,433
161,143
170,806
2020
US$’000
2019
US$’000
23,989
14,146
38,135
7,813
1,859
9,672
20,329
11,826
32,155
8,583
1,031
9,614
28,463
22,541
185,200
2,864
171,315
1,719
(159,601)
(150,493)
28,463
22,541
(9,108)
(9,108)
(9,955)
(9,955)
The parent entity has no contingent liabilities at the end of the financial year (2019: Nil).
No guarantees have been entered into by the parent entity in relation to the debts of its subsidiaries
as a 31 December 2020 (2019: Nil).
Pivotal Systems Corporation
55
Directors’ Declaration
In accordance with a resolution of the directors of Pivotal Systems Corporation, the directors
of the Company declare that:
1.
The financial statements and notes thereto, comply with Australian Accounting Standards;
2.
3.
The financial statements and notes thereto, give a true and fair view of the Group’s
financial position as at 31 December 2020 and of the performance for the year ended on
that date; and
In the directors’ opinion there are reasonable grounds to believe that Pivotal Systems
Corporation will be able to pay its debts as and when they become due and payable.
On behalf of the directors
John Hoffman
Executive Chairman and Chief Executive Officer
25 February 2021 (Fremont PST), 26 February 2021 (Sydney AEST)
Pivotal Systems Corporation
56
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 2020,
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 of the Group, is in accordance with Australian
Accounting Standards, including:
(i)
Giving a true and fair view of the Group’s financial position as at 31 December 2020 and of its
financial performance for the year ended on that date; and
(ii)
Complying 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 (including Independence Standards) (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 Audit Pty Ltd ABN 33 134 022 870 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 Audit Pty Ltd 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 Note 2, the
We evaluated revenue recognition in accordance with AASB 15: Revenue from
Group recognised revenue of
Contracts with Customers.
$22.1 million for the year
ended 31 December 2020
(2019: $15.3 million).
The recognition of revenue
was considered as a key audit
matter as it is a key
performance measure; and
there is significant judgement
in recognising revenue in
accordance with AASB 15:
Revenue from Contracts with
Customers, specifically, in
determining when
performance obligations are
met.
Our procedures, included, amongst others:
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;
Substantively tested a sample of revenue transactions throughout the
financial year, tracing sales invoices to supporting sales
documentation, shipping documentation and cash receipts;
Assessing the recoverability of trade receivables to ensure revenue
recognised was recoverable; and
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.
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 2020, 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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf
This description forms part of our auditor’s report.
BDO Audit Pty Ltd
Gareth Few
Director
Sydney, 26 February 2021
Pivotal Systems Corporation
Additional Shareholder’s Information
SHAREHOLDER INFORMATION AS AT 26 JANUARY 2021
Additional Shareholder Information required by the Australian Securities Exchange (ASX) Listing
Rules is set out below. Unless otherwise stated, information below is current as at 26 January
2021.
In accordance with the ASX Corporate Governance Council’s, Corporate Governance Principles
and Recommendations (4rd edition), the 2020 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 35 specific Recommendations of general application and 3
additional Recommendations applicable in certain cases, to the extent applicable to Pivotal (4rd
edition) during the 2020 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. 1 CDI represents the beneficial interest in 1
Share.
As at the date of this report, 115,195,943 CDIs are issued and held by 455 CDI holders which
represents 115,195,943 underlying Shares. 5,044,826 Shares are held by 44 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 120,240,769 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
Number
CDIs
% of total
CDIs
Anzu Partners, LLC
Firsthand Venture Investors
Perennial Value Mgt
Enterprise Partners Mgt
Viburnum Funds
16,725,588
42,239,506
8,483,950
7,677,125
15,731,250
13.91
35.13
7.06
6.38
13.08
2. Number of security holders and securities on issue
Pivotal has issued the following securities:
(a) 5,144,826 fully paid shares of Common Stock held by 44 shareholders;
(b) 115,195,943 CDIs held by 455 CDI holders;
(c) 10,000 unquoted Redeemable RBI Preferred Stock held by ANZU INDUSTRIAL RBI USA LLC;
(d) 16,729,791 unquoted options exercisable at various prices held by 50 option holders.
Details of the Top 20 Shareholders are set out in section 6 below.
Pivotal Systems Corporation
60
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 on the record date for the
meeting on all matters submitted to a vote of stockholders. 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:
o
the terms of a share buy-back agreement;
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
61
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
157
153
72
88
29
499
1,043
12,647
20,936
538,050
119,668,093
120,240,769
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
141
149
69
78
18
455
72,263
410,308
526,978
2,442,509
111,743,885
115,195,943
%
0.00
0.01
0.02
0.45
99.52
100
%
0.06
0.36
0.46
2.12
97.00
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
43,063
1,280,209
15,401,519
16,729,791
0%
0%
0%
8%
92%
100%
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$500) is nil
based on the Company’s closing CDI price of A$ 0.98.
6. Twenty largest holders of quoted equity securities
Chess Depositary Interests only
Details of the 20 largest CDI Holders by registered CDI holding are as follows.
Name
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Enterprise Partners Management LLC
J P Morgan Nominees Australia Pty Limited
BNP Paribas Nominees Pty Ltd
UBS Nominees Pty Ltd
1
2
3
4
5
6
7
No. of CDIs
54,191,787
16,764,536
10,547,597
7,677,125
4,502,182
4,244,584
4,067,013
%
47.04
14.55
9.16
6.66
3.91
3.68
3.53
Pivotal Systems Corporation
62
Pivotal Systems Corporation
Tokyo Electron Europe Limited
Name
Viburnum Funds Pty Ltd
CS Third Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
8
9
10
11 Mr Omesh Sharma
12
13 Ms Kerstin Ann Schneider
14
15
16
17 Merrill Lynch (Australia) Nominees Pty Limited
18
19
19
20 Richard Germain And Nina Germain
Silicon Valley Investor Holdings Pty Ltd
Surinderpal Bains
Tyler D Heerwagen
Triple Image Films Pty Limited
Fred W Hacker
Jerauld Cutini
Total
Balance of register
Grand total
No. of CDIs
4,056,575
3,674,000
375,000
274,089
268,818
250,000
231,535
170,000
161,458
157,029
134,746
100,000
100,000
98,000
112,046,074
3,149,869
115,195,943
%
3.52
3.19
0.33
0.24
0.23
0.22
0.20
0.15
0.14
0.14
0.12
0.09
0.09
0.09
97.27
2.73
100.00
Fully Paid 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.
Name
No. of Shares
%
Chess Depository Nominees Pty Limited
115,195,943
95.80
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Joseph Monkowski
John Hoffman
Hoseung Chang
Jiuyi Cheng
Ryan Benton
Adam Monkowski & Melanie A Gossheider
Rajbinder Bains
Sophia L Shtilman
Carter Crum
Susan D Ton
Travis Owens
James T Franklin
Joseph Bronson
Ray Malone
Kyle D Rom
17 William Rothrock
18 Mukund Venkatesh
19
20
Gabriel Segovia
Anne R Reynolds
Total
Balance of register
Grand total
Subject to rounding
1,445,683
1,441,870
388,670
250,000
195,000
170,972
170,000
150,000
134,955
125,000
100,000
97,065
83,146
75,000
49,791
37,083
36,590
25,000
20,000
1.20
1.20
0.32
0.21
0.16
0.14
0.14
0.12
0.11
0.10
0.08
0.08
0.07
0.06
0.04
0.03
0.03
0.02
0.02
120,191,768
49,001
99.96
0.04
120,240,769
100.00
Pivotal Systems Corporation
63
Pivotal Systems Corporation
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. Mr. Danny Davies
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’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
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.
United States registry
American Stock Transfer and Trust Company, LLC
6201, 15th Avenue
Brooklyn, NY 11219 USA
Telephone: +1 (718) 921 8386
Australian registry
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. There are no restricted securities or securities subject to voluntary escrow on issue.
12. Review of operations and activities
A detailed review of operations and activities is reported in the 2020 Annual Report.
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 2020 and 31 December 2020, 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.
Pivotal Systems Corporation
64
Pivotal Systems Corporation
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.”
16. Restriction on purchases of CDIs by U.S. persons
Pivotal Systems is incorporated in the State of Delaware and none of its securities have been
registered under the U.S. Securities Act of 1933 or the laws of any state or other jurisdiction in
the United States. Trading of Pivotal Systems’ CHESS Depositary Interests (“CDIs”) on the
Australian Securities Exchange is not subject to the registration requirements of the U.S.
Securities Act in reliance on Regulation S under the U.S. Securities Act and a related ‘no action’
letter issued by the U.S. Securities and Exchange Commission to the ASX in 2000. As a result, the
CDIs are “restricted securities” (as defined in Rule 144 under the U.S. Securities Act) and may
not be sold or otherwise transferred except in transactions exempt from, or not subject to, the
registration requirements of the U.S. Securities Act. For instance, U.S. persons who are qualified
institutional buyers (“QIBs”, as defined in Rule 144A under the U.S. Securities Act) may purchase
CDIs in reliance on the exemption from registration provided by Rule 144A. To enforce the transfer
restrictions, the CDIs bear a FOR Financial Product designation on the ASX. This designation
restricts CDIs from being sold on ASX to U.S. persons except those who are QIBs. In addition,
hedging transactions with regard to the CDIs may only be conducted in compliance with the U.S.
Securities Act.
Pivotal Systems Corporation
65