TIDMCLST TIDMCLSU
RNS Number : 7348Z
ClearStar,Inc.
22 September 2015
22 September 2015
ClearStar, Inc.
("ClearStar" or the "Company")
Interim Results for Six Months Ended 30 June 2015
ClearStar (AIM: CLST), a leading technology and service provider
to the background check industry, is pleased to announce its
unaudited results for the six months ended 30 June 2015.
Financial Highlights
-- Revenues increased by 43% to $7.5 million (H1 2014: $5.2 million)
-- Gross profit increased by 49% to $4.5 million (H1 2014: $3.0 million)
-- Gross margin increased by 240 basis points to 60.5% (H1 2014: 58.1%)
-- EBITDA was negative $1.3 million (H1 2014: negative $184,000)
-- As of 30 June 2015, the Company had net cash of $4.2 million
(31 December 2014: $6.5 million; 30 June 2014: $350,000)
Operational Highlights
-- Increased sales across all divisions, with growth in business
from existing customers and the addition of new clients and
markets
-- Integration of SingleSource Services Corporation
("SingleSource") acquisition resulted in significant growth in
direct sales customers with Direct Services revenues increasing to
$1.8 million (H1 2014: $0.1 million)
-- Medical Information Services ("MIS") division was awarded its
largest single contract to date, which is expected to be worth $1.3
- $1.5 million annually with revenue realisation anticipated to
begin Q4 2015
-- Processed approximately 3.6 million screening services (H1
2014: 3.2 million) on over 1.1 million people (H1 2014: 1.0
million) that were provided to over 23,000 (H1 2014: 21,000)
end-users
Post Period-End Highlights
-- Significant milestone reached with the commencing of
implementation of a customised solution for a leading global risk
management consultancy headquartered in the UK, with revenue
realisation expected to begin Q4 2015
-- First multilingual order, in France, for new global platform
- for employment and residential screening
-- Direct sales contract, worth c. $250,000 p.a., awarded by one
of the world's largest cash handling services companies and has
been implemented
-- Headcount reduction and realignment of sales team, which is
on track to reduce operating expenses by approximately $1.2 million
on an annualised basis
Robert Vale, CEO of ClearStar, commented: "We are pleased to
have executed on all fronts of new technology development,
diversification of product offerings and expansion into
international markets. This is reflected in our substantial
increase in revenue, that our brand is emerging as a market leader
in risk mitigation and that we have attracted some of the most
accomplished sales professionals in our sector.
"We entered the second half of 2015 with a larger sales pipeline
than at the same point in the prior year, and have continued to
make progress across all of our divisions. Consequently, we expect
to report significant growth in revenues for the full year, broadly
in line with market expectations. Looking further ahead, our
strategy positions the Company to deliver strong, higher margin,
growth for years to come."
Enquiries:
ClearStar
------------------------------------------ -----------------
Robert Vale, Chief Executive Officer
David Pattillo, Chief Financial Officer +1 770 416 1900
------------------------------------------ -----------------
Cenkos Securities (Nominated Adviser
and Broker)
------------------------------------------ -----------------
Max Hartley, Corporate Finance
Julian Morse, Sales +44 20 7397 8900
------------------------------------------ -----------------
Luther Pendragon
------------------------------------------ -----------------
Harry Chathli, Claire Norbury, Oliver
Hibberd +44 20 7618 9100
------------------------------------------ -----------------
About ClearStar
ClearStar is a technology and service provider to the background
check industry, supporting background screening companies,
employers and employees with their recruitment and employment
application decisions. ClearStar provides employment intelligence
to its clients through a suite of IT applications for day-to-day
use in their business. Employment intelligence aims to improve
business insight to support better recruitment and other decisions
affecting employees generally, by increasing the quality,
reliability and visibility of information available to
management.
The Directors of ClearStar believe that the Company offers one
of the most complete independent IT application suites that provide
employment intelligence. The suite comprises of a collection of
applications which utilises data from over 3,000 sources ranging
from résumés to records with local authorities. ClearStar's primary
business involves searching the relevant source of data for speci c
employment intelligence information based on clients' bespoke
requirements for its employment applicants. ClearStar extracts the
required input and this information is then processed, allowing the
client to make a swift decision in respect of the relevant
applicant, thereby minimising bottlenecks in the hiring process.
ClearStar's 'Aurora' platform has delivered employment intelligence
to over 27,000 employers, including many global blue-chip
companies.
www.clearstar.net
Operational Review
During the six months ended 30 June 2015, the Company achieved
strong growth with revenues 43% higher at $7.49 million (H1 2014:
$5.24 million). This was due to increased business across all three
divisions, along with additional revenues of $1.3 million as a
result of the Company's acquisition of SingleSource in December
2014.
ClearStar continued to focus heavily on R&D to sustain
innovation and product development to improve user experience,
increase operational efficiencies and ensure seamless business
partner integrations. In particular, the Company achieved a
significant milestone with the completion of the development of its
new global platform to satisfy interface, compliance and
architectural demands outside the US, and commencement of
implementation.
Channel Partners and Consumer Reporting Agencies ("CRAs")
Division
In this division, ClearStar provides white labelling technology.
Data logistics services are provided to Channel Partners and CRAs
who use the Company's technology to perform background checks on
job applicants.
The division continued to be the largest contributor to overall
revenues. Sales for the first six months of 2015 increased by 8% to
$3.45 million (H1 2014: $3.19 million). This was primarily as a
result of increased business from some of the Company's largest
clients. During the period, ClearStar made ongoing improvements to
its offering to Channel Partners and CRAs, including adding new
integration points to client-centric systems, such as applicant
tracking systems; product development in areas of data
distribution; and improvements to user interface.
Medical Information Services Division
In this division, ClearStar provides services to organisations
for the purpose of drug and alcohol tests for employees.
Sales for the first six months of 2015 increased by 22% to $2.27
million (H1 2014: $1.86 million). This was derived from both
gaining market share from competitors, and from growth amongst its
existing client base which is mainly in the healthcare, education,
manufacturing and transportation industries.
Drug testing remains the largest contributor to division
revenues, accounting for approximately 85%. However, growth in the
division's other products, such as clinical testing and
occupational testing, also contributed to the increase in
revenues.
During the period, the MIS division was awarded its largest
single contract to date, which is expected to be worth $1.3-$1.5
million annually. This service is being delivered via the Company's
recently-released paperless chain of custody software (WebCCF) and
is expected to commence generating revenue in Q4 2015.
Direct Services Division
In this emerging segment, ClearStar provides background check
services directly to employers.
This was the fastest growing division in the Company with
organic revenues increasing by 190% to $438,000 (H1 2014:
$150,000), primarily from approximately 500 SMEs with up to 1,000
employees.
In December 2014, ClearStar completed the acquisition of
SingleSource, thereby transforming this business division. This
resulted in a significant increase in direct sales customers and
approximate revenue growth of $1.3 million. The Direct Services
division now serves approximately 2,300 active clients compared
with approximately 500 prior to acquisition.
During the period, ClearStar strengthened and expanded its
direct sales and services team, with the addition of several
experienced sales people and operational support personnel, to
capitalise on attractive market opportunities within the growing US
screening market. This has enabled the Company to upscale,
targeting larger customer accounts, and resulted in the increase in
the direct sales pipeline to over $10 million in annualised
revenues.
Additionally, post period end, the Company won a direct sales
contract with a division of one of the world's largest cash
handling services companies, with anticipated initial revenues of
approximately $250,000 annually. The contract has already commenced
generating revenues.
Global Division
The Global Division is the Company's newest unit, having being
established following ClearStar's IPO in July 2014 with the Company
setting up its international base in the UK. Prior to this,
ClearStar had a limited presence outside the US. Today, ClearStar
can supply background checks globally.
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:00 ET (06:00 GMT)
During the first half of 2015, ClearStar achieved a significant
milestone with the commencement of the implementation of a new
global platform to satisfy interface and architectural demands
outside the US. The Directors of the Company believe that ClearStar
is now the only background screening company with cross-border data
centres compliant with relevant regulatory requirements in the EU
as well as the US. In addition, the Company commenced the
implementation of a customised, white-labelled solution for a
world-renowned, leading global risk management consultancy
headquartered in the UK. Under the agreement, ClearStar will host
this platform as well as the Applicant Portal for a period of at
least five years. The contract is expected to commence generating
revenue in Q4 2015.
Post period end, ClearStar signed a contract with a screening
company located in France to license the Company's new global
platform for both employment and tenant screening. Significantly,
this represented the first multi-lingual implementation of the
system.
Post Period End - Operational Efficiencies
In July 2015, in recognition of the evolving nature of the
business, the Company commenced the implementation of realignment
initiatives. The Company is in the process of streamlining the
organisation, which is rendered possible by increased operational
and technological efficiencies as well as synergies through the
acquisition of SingleSource. This initiative will result in an
approximately 14% headcount reduction.
As a result of this expense cutting exercise, the Company
expects to recognise approximately $1.2 million of savings on an
annualised basis from 2016 as well as benefiting from an initial
contribution in the second half of 2015.
Financial Review
The Company recorded a strong financial performance, with total
revenues increasing by 43% for the six months ended 30 June 2015 to
$7.49 million compared with $5.24 million for the six months ended
30 June 2014. Organic revenue growth, which excludes the
contribution from SingleSource, was approximately 18% year-on-year.
All three revenue-generating business units experienced strong
organic growth, led by Direct Services with year-on-year growth of
190% followed by MIS with 22% and Channel Partners and CRAs with
8%.
Gross profit increased by 49% for the six months ended 30 June
2015 to $4.53 million, compared with $3.05 million for the six
months ended 30 December 2014. Gross profit margin improved by 240
basis points to 60.5% from 58.1% for the same period of the
previous year. The increase was primarily due to the shift in the
product mix with an increased contribution to revenues from Direct
Services, which has a higher gross margin than services to MIS and
CRAs, along with purchase economies. Management believes gross
margin will continue to improve due to on-going economies of scale
being achieved.
Total operating expenses, net of depreciation and amortisation,
were $5.8 million for the six months ended 30 June 2015 compared
with $2.9 million for the six months ended 30 June 2014. The
largest component of operating expenses was general and
administrative, which was $4.0 million for the six months ended 30
June 2015 compared with $2.5 million for the same period of the
previous year. This $1.5 million increase was attributable to an
increase of approximately $1.0 million in staff costs and an
increase of $440,000 in costs associated with the operations of
SingleSource that was acquired in December 2014.
Research and Development was $1.0 million for the six months
ended 30 June 2015 compared with $125,000 for the same period of
the previous year. This increase is attributable to increased staff
costs in both software development and in the Company's Global
Division. Sales and marketing expenses were $850,000 for the six
months ended 30 June 2015 compared with $260,000 for the same
period of the previous year, primarily attributable to an increase
in experienced sales professionals in the Direct Services
division.
As a result, EBITDA for H1 2015 was a negative $1.3 million. The
Company reported a loss before tax of approximately $1.8 million in
H1 2015 compared with a loss before tax of approximately $32,000
for the same period of the prior year.
The Consolidated Balance Sheet as of 30 June 2015 remained
strong. Total assets were $12.2 million on 30 June 2015 with the
largest assets being goodwill and other net intangible assets of
$4.9 million, net cash of $4.2 million and accounts receivable of
$1.8 million.
The Company's total liabilities as of 30 June 2015 were $1.6
million, and stockholders' equity was $10.6 million, resulting in a
debt-to-equity ratio of 0.15. Total liabilities decreased 43%
compared with $2.7 million at 30 June 2014 (31 December 2014: $1.3
million).
The Company utilised $1.7 million in cash in operating
activities and $510,000 in investment activities. These investment
activities consisted of $420,000 in capitalised software costs.
There were no financing activities during the period.
Outlook
ClearStar entered the second half of 2015 with a greater sales
pipeline than at the same point in the prior year. The Company has
continued to make progress in all of its divisions, in particular,
the Direct Services division and achieving a number of milestones
in the Global Division. As a result, the Board anticipates
reporting significant growth in revenues for full year 2015,
broadly in line with market expectations.
Looking further ahead, the Company will enter 2016 with a
considerably lower cost base. In addition, the Company expects
demand for its services across its divisions to continue to
increase. Consequently, the Board remains confident of achieving
sustained growth and of delivering value to shareholders.
CLEARSTAR, INC.
Consolidated Statements of
Operations
(USD, in thousands)
Six Months Six Months Year
Ended Ended Ended
30 June 2015 30 June 2014 31 December
(Unaudited) (Unaudited) 2014
$ $ $
Net revenue 7,491 5,242 10,921
Cost of revenue 2,960 2,194 4,590
----------------------------- ---------------------------- ----------------------------
Gross profit 4,531 3,048 6,331
----------------------------- ---------------------------- ----------------------------
Operating expenses
Selling and marketing 850 260 795
Research and development 999 125 646
Depreciation and
amortisation 534 160 473
General and administrative 3,972 2,527 6,157
----------------------------- ---------------------------- ----------------------------
Total operating expenses 6,355 3,072 8,071
Loss from operations (1,824) (24) (1,740)
----------------------------- ---------------------------- ----------------------------
Other expense
Interest expense (12) (8) (7)
----------------------------- ---------------------------- ----------------------------
Total other expense (12) (8) (7)
----------------------------- ---------------------------- ----------------------------
Net loss before taxes (1,836) (32) (1,747)
Provision for income taxes 5 - 4
Net loss (1,841) (32) (1,751)
============================= ============================ ============================
The accompanying notes are an integral part of the consolidated
financial statements.
CLEARSTAR, INC.
Consolidated Balance Sheets
(USD, in thousands)
As of As of As of
30 June 2015 30 June 2014 31 December
(Unaudited) (Unaudited) 2014
$ $ $
ASSETS
Current assets
Cash 4,201 516 6,477
Accounts receivable -- trade,
net 1,759 1,257 1,096
Research and development tax
credits 27 122 27
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:00 ET (06:00 GMT)
Prepaid expenses 465 104 212
Prepaid IPO costs - 975 -
Due from shareholders - 33 -
--------------------------- -------------------------- ---------------------------
Total current assets 6,452 3,007 7,812
--------------------------- -------------------------- ---------------------------
Property and equipment, at cost
Computer equipment 741 570 681
Furniture and fixtures 279 48 260
Leasehold improvements 72 15 63
Less accumulated depreciation (273) (335) (154)
--------------------------- -------------------------- ---------------------------
Total property and equipment,
net 819 298 850
--------------------------- -------------------------- ---------------------------
Other assets
Goodwill and other intangible
assets, net 4,906 696 4,901
Deposits 11 10 13
--------------------------- -------------------------- ---------------------------
Total other assets 4,917 707 4,914
--------------------------- -------------------------- ---------------------------
Total assets 12,188 4,012 13,576
=========================== ========================== ===========================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable 835 1,486 574
Accrued liabilities 347 689 164
Deferred revenue 91 41 102
State income taxes 4 - 4
Current portion of long--term
debt - 36 -
Current portion of obligations
under capital lease 89 43 82
Due to shareholder - 43 -
Other current liabilities - 40 -
--------------------------- -------------------------- ---------------------------
Total current liabilities 1,366 2,377 926
--------------------------- -------------------------- ---------------------------
Long--term liabilities
Accrued liabilities 52 - 55
Obligations under capital
lease, net of current portion 220 151 271
Long--term debt, net of current
portion - 130 -
--------------------------- -------------------------- ---------------------------
Total long--term liabilities 272 281 326
--------------------------- -------------------------- ---------------------------
Stockholders' equity
Common stock, $0.0001, $0.0001
and no par value,
respectively; 100,000,000,
1,000 and 100,000,000
shares authorised,
respectively; 36,302,900,
1,000 and 36,306,900 shares
issued and outstanding,
respectively 4 647 4
Additional paid--in capital 13,413 15 13,346
Retained earnings (2,867) 693 (1,026)
--------------------------- -------------------------- ---------------------------
Stockholders' equity 10,550 1,354 12,324
--------------------------- -------------------------- ---------------------------
Total liabilities and
stockholders' equity 12,188 4,012 13,576
=========================== ========================== ===========================
The accompanying notes are an integral part of the consolidated
financial statements.
CLEARSTAR, INC.
Consolidated Statements of Changes in Stockholders' Equity
(USD, in thousands, except no. of shares)
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
No. $ $ $ $
Balances at 1
January
2014 1,000.00 332 15 725 1,071
Stock issued for
cash
prior to IPO 36.27 315 - - 315
Net loss - - - (32) (32)
Balances at 30
June
2014 (unaudited) 1,036.27 647 15 693 1,354
Reclassification
of
contributed
capital (1,036.27) (647) 647 - -
Stock issued for
contributed
capital 20,725,400 2 - - 2
Stock issued for
cash
at IPO, net of
IPO costs
of $2,585 15,577,500 2 12,624 - 12,626
Non-cash stock
compensation - - 61 - 61
Net loss - - - (1,719) (1,719)
Balances at 31
December
2014 36,302,900 4 13,346 (1,026) 12,324
Non-cash stock
compensation - - 66 - 66
Net loss - - - (1,841) (1,841)
Balances at 30
June
2015 (unaudited) 36,302,900 4 13,413 (2,867) 10,550
===================== ====================== ===================== ===================== ======================
The accompanying notes are an integral part of the consolidated
financial statements.
CLEARSTAR, INC.
Consolidated Statements of Cash
Flows
(USD, in thousands)
Year
Six Months Ended Six Months Ended Ended
30 June 2015 30 June 2014 31 December
(Unaudited) (Unaudited) 2014
$ $ $
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss (1,841) (32) (1,751)
Adjustments to reconcile
net loss
to net cash provided by
operating activities:
Change in allowance for
doubtful accounts 38 - 12
Depreciation and amortisation 534 160 473
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:00 ET (06:00 GMT)
Non-cash stock compensation 66 - 61
Change in operating
assets and
liabilities:
Accounts receivable (701) (595) (445)
Research and development tax
credits - - 95
Prepaid expenses (250) (60) (152)
Net advances (payments) on
amounts
due from/to shareholders - 10 (26)
Deposits 2 (7) (10)
Accounts payable 261 1,442 557
Accrued liabilities 180 345 (125)
Deferred revenue (12) 8 70
State income taxes - - 4
Other current
liabilities - 40 -
Total adjustments 118 1,343 514
-------------------------- --------------------------- --------------------------
Net cash provided by (used for)
operating
activities (1,723) 1,311 (1,237)
-------------------------- --------------------------- --------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of goodwill and
intangibles - - (4,000)
Acquisition of property and
equipment (89) (47) (489)
Capitalised software
development costs (420) (350) (803)
-------------------------- --------------------------- --------------------------
Net cash used for investing
activities (509) (397) (5,292)
-------------------------- --------------------------- --------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal payments on
long-term debt - (18) (183)
Principal payments on
capital lease obligations (44) (6) (38)
Proceeds from issuance of
stock - 315 12,942
Prepaid IPO financing costs - (975) -
Net cash provided by (used for)
financing
activities (44) (684) 12,721
-------------------------- --------------------------- --------------------------
Net cash increase for year (2,276) 230 6,192
Cash at beginning of year 6,477 285 285
-------------------------- --------------------------- --------------------------
Cash at end of year 4,201 516 6,477
========================== =========================== ==========================
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
1. Summary of Significant Accounting Policies
a) Nature of Operations
ClearStar, Inc. ("ClearStar"), an exempt company incorporated in
the Cayman Islands on 23 April 2014, is a holding company that owns
a 100% interest in ClearStar, Inc. ("ClearStar US"), an entity
formed on 23 March 1995, and incorporated in the state of Delaware,
and ClearStar Limited ("ClearStar UK"), a dormant entity formed in
the United Kingdom on 17 January 2014. As detailed in Note 8, the
interest in ClearStar US was transferred to ClearStar on 1 July
2014. The interest in ClearStar UK was transferred to ClearStar on
22 July 2014. The Company is a technology and service provider to
the background check industry, supporting background screening
companies, employers and employees with their recruitment and
employment application decisions. The Company provides employment
intelligence to its clients through a suite of IT applications for
day-to-day use in their business. Employment intelligence aims to
improve business insight to support better recruitment and other
decisions affecting employees generally, by increasing the quality,
reliability and visibility of information available to
management.
b) Principles of Consolidation
The consolidated financial statements include the accounts of
ClearStar and its 100% owned subsidiaries, ClearStar US and
ClearStar UK (collectively the "Company"). As discussed in further
detail in Note 8, on 1 July 2014, prior to the IPO, the previous
shareholders of ClearStar US contributed all of their ownership
interests in ClearStar US to ClearStar in exchange for Ordinary
Shares in the Company. As a result of the exchange, all ClearStar
US common shares became owned by ClearStar, which in turn became
owned by the previous shareholders of ClearStar US. The acquisition
of the ClearStar US common shares was accounted for as a
combination of entities under common control and did not result in
a change in control of ClearStar US and, accordingly, was recorded
at historical cost. Other than ClearStar US, the Company has no
other operations. Therefore, the Company has reported its financial
condition and results of operations with an effective date of 1
January 2014.
ClearStar Logistics, Inc., an entity that was owned by the
shareholders of ClearStar US, was formed in 2007 as an S
Corporation and incorporated in the state of Delaware, to enter
into certain supplier and customer contracts relating to background
checks. Beginning in 2010, the revenues and costs relating to all
the contracts of ClearStar Logistics, Inc. were recorded in the
books of ClearStar US, as all the corresponding operations relating
to the contracts were conducted by ClearStar US. On 27 June 2014,
ClearStar Logistics, Inc. and ClearStar US merged, with ClearStar
US being the surviving entity. All of the outstanding shares of
capital stock of ClearStar Logistics, Inc., were cancelled, and
ClearStar US became successor to and acquired all of ClearStar
Logistics, Inc.'s right, title and interest in and to its assets
and assumed all of its liabilities and obligations. The merger was
a non-taxable event for each of ClearStar Logistics, Inc. and
ClearStar US. As such, the consolidated financial statements of the
Company include all of the trading activities, assets and
liabilities of ClearStar US and ClearStar Logistics, Inc.
All significant intercompany transactions and balances have been
eliminated in consolidation.
c) Basis of Accounting
The Historical Financial Information has been prepared on the
accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America ("US
GAAP").
d) Use of Estimates
The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Estimates are
used for, but not limited to, the allowance for doubtful accounts,
depreciable lives of property and equipment, certain accrued
liabilities, amortisation of other intangible assets and income
taxes. Actual results could differ from these estimates.
e) Concentration of Credit Risk Arising From Cash Deposits in Excess of Insured Limits
The Company maintains cash balances at certain financial
institutions. The accounts are insured by the Federal Deposit
Insurance Corporation up to $250,000 per financial institution.
From time to time, the Company's cash balances exceed such limits.
The Company has not experienced any losses in such accounts. The
Company believes it is not exposed to any significant risks on
cash.
f) Accounts Receivable
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:00 ET (06:00 GMT)
The Company extends credit to customers located globally based
on the size of the customer, its payment history, and other
factors. The Company generally does not require collateral to
support customer receivables. The Company provides an allowance for
doubtful accounts based upon a review of the outstanding accounts
receivable, historical collection information and existing economic
conditions. The Company determines if receivables are past due
based on days outstanding, and amounts are written off when
determined to be uncollectable by management. The maximum
accounting loss from the credit risk associated with accounts
receivable is the amount of the receivable recorded, which is the
face amount of the receivable, net of the allowance for doubtful
accounts.
g) Property and Equipment
Property and equipment are stated at cost. Expenditures for
maintenance and repairs are expensed currently, while renewals and
betterments that materially extend the life of an asset are
capitalised. The cost of assets sold, retired, or otherwise
disposed of, and the related allowance for depreciation are
eliminated from the accounts, and any resulting gain or loss is
recognised.
Depreciation of property and equipment is provided using the
straight-line method over the estimated useful lives of the assets,
which are as follows:
Computer equipment 3 - 4 years
Furniture and fixtures 5 - 7 years
Leasehold improvements Lesser of estimated useful life or life
of the lease
Depreciation expense for the six months ended 30 June 2015 and
2014, and the year ended 31 December 2014 was approximately
$119,000, $36,000 and $119,000, respectively.
h) Goodwill
Goodwill recorded in the consolidated financial statements
represents the excess of the purchase price of SingleSource over
the fair value of acquired net assets on the date of acquisition in
December 2014 (see Note 2). Goodwill is not amortised since it has
an indefinite life. Accordingly, the carrying value of goodwill is
reviewed for impairment by the Company annually, or more often if
events or circumstances indicate that there may be impairment.
The Company tests goodwill for impairment under a two-step
approach. The first step of the goodwill impairment test compares
the fair value of the Company with its carrying amount, including
goodwill. If the carrying amount exceeds its fair value, the second
step of the goodwill impairment test will be performed to measure
the amount of the impairment loss. This is determined by comparing
the implied fair value of the Company's goodwill with the carrying
amount of that goodwill. If the carrying amount of the goodwill
exceeds the implied fair value of that goodwill, the Company will
recognise an impairment loss as an expense.
i) Intangible Assets
Intangible assets, other than capitalised software development
costs, arose from the purchase of certain assets of SingleSource
and are reported net of amortisation. These costs are amortised
using the straight-line method over their estimated useful life.
The estimated useful life for customer relationships and trade name
are 7 and 1 year(s), respectively.
The Company has capitalised external direct costs of services
consumed in developing and obtaining internal-use computer software
and the payroll and payroll-related costs for employees who are
directly associated with and who devote time to developing the
internal-use computer software.
Management's judgment is required in determining the point at
which various projects enter the application development stage at
which costs may be capitalised, in assessing the ongoing value of
the capitalised costs, and in determining the estimated useful
lives over which the costs are amortised. Costs in relation to the
preliminary stages of projects are expensed in the period in which
they are incurred. The Company expects to continue to invest in
internally developed software and to capitalise costs in accordance
with US GAAP.
j) Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, and purchased
intangible assets subject to amortisation, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
circumstances require a long-lived asset or asset group be tested
for possible impairment, the Company first compares undiscounted
cash flows expected to be generated by that asset or asset group to
its carrying amount. If the carrying amount of the long-lived asset
or asset group is not recoverable on an undiscounted cash flow
basis, an impairment is recognised to the extent that the carrying
amount exceeds its fair value. Fair value is determined through
various valuation techniques including discounted cash flow models,
quoted market values and third party independent appraisals, as
considered necessary.
k) Revenue Recognition
The Company requires that four basic criteria be met before
revenue can be recognised for all transactions: (i) persuasive
evidence of an arrangement exists; (ii) the price is fixed or
determinable; (iii) collectability is reasonably assured; and (iv)
delivery has occurred. Fixed monthly fees are derived primarily
from customers' use of services that are provided for an agreed
number of transactions. Arrangements for these services generally
have terms of one year or less and the fixed monthly fees are
recognised as services are provided. One-time setup fees are
recognised based on the Company's configuring and activating
customers on internal and third party systems. The Company
recognises one-time setup fees revenue ratably over 12 months or
the period beyond which the initial contract term is expected to
extend and the customer continues to benefit, whichever is longer.
Annual certification fees are billed annually and are recognised
ratably over the contract period. The Company recognises revenue
from the sale of screening reports and drug testing services at the
time of delivery as the Company has no significant ongoing
obligation after delivery.
Deferred revenue consists of payments received in advance of
revenue recognition and contractual billings in excess of
recognised revenue.
Unbilled receivables consist of revenue earned but not yet
invoiced. Such amounts are billed during the following month.
l) Advertising
The Company expenses advertising costs as incurred. Advertising
expenses for the six months ended 30 June 2015 and 2014, and the
year ended 31 December 2014 were approximately $228,000, $43,000
and $216,000, respectively.
m) Income Taxes
ClearStar is incorporated as an exempted company in the Cayman
Islands which currently does not levy income taxes on individuals
or companies. ClearStar and its operating subsidiary, ClearStar US,
are both taxed as corporations for US federal income tax
purposes.
ClearStar US, with the consent of its stockholders, previously
had elected under the Internal Revenue Code and similar state
statutes to be an S Corporation. In lieu of federal corporate
income taxes, the stockholders of an S Corporation were taxed on
their proportionate share of ClearStar US's taxable income.
Therefore, no provision for income taxes was made in the
consolidated financial statements prior to 1 July 2014.
Following the merger described in Note 1b of the footnotes and
effective 1 July 2014, ClearStar US ceased to be an S Corporation
and is liable for corporate income taxes. Income taxes are provided
for the tax effects of transactions reported in the consolidated
financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognised for differences
between the basis of assets and liabilities for financial statement
and income tax purposes. Deferred tax assets and liabilities
represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets or
liabilities are recovered or settled. Deferred taxes are also
recognised for operating losses that are available to offset future
taxable income. The tax provision differs from the expense that
would result from applying federal statutory rates to income before
income taxes primarily because of the marginal tax rates used to
compute deferred taxes, the effect of state taxes, and permanent
differences between determining income for financial statement
purposes and taxable income.
The Company is subject to tax audits in numerous jurisdictions,
including the United States, individual states and localities, and
internationally. Tax audits by their nature are often complex and
can require several years to complete. In the normal course of
business, the Company is subject to challenges from the Internal
Revenue Service ("IRS") and other tax authorities regarding amounts
of taxes due. These challenges may alter the timing or amount of
taxable income or deductions, or the allocation of income among tax
jurisdictions. The Company accounts for the uncertain tax
provisions using a minimum probability threshold that a tax
position must meet before a financial statement benefit is
recognised. The minimum threshold is defined as a tax position that
is more likely than not to be sustained upon examination by the
applicable taxing authority, including resolution of any related
appeals or litigation processes, based on the technical merits of
the position. The tax benefit to be recognised is measured as the
largest amount of benefit that is greater than fifty per cent.
likely of being realised upon ultimate settlement. The Company
recognises interest and penalties related to unrecognised tax
benefits as part of income tax expense. The cumulative effect of
considering uncertain tax positions resulted in no uncertain tax
liability in the consolidated balance sheets. At 30 June 2015 and
2014 and at
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:00 ET (06:00 GMT)
31 December 2014, the Company does not have any unrecognised tax
benefits.
The Company is not subject to income tax examinations for years
ending prior to 31 December 2011.
n) Stock-Based Compensation
The Company values stock options at the time of grant using a
Black-Scholes model approach and records that fair market value as
compensation expense over the service period. Stock-based
compensation expense for the six months ended 30 June 2015 and
2014, and the year ended 31 December 2014 was approximately
$66,000, $0 and $61,000, respectively.
o) Fair Value of Financial Instruments
Due to the short-term nature of cash, accounts receivable,
prepaid expenses, accounts payable, and accrued liabilities, their
fair value approximates carrying value. The carrying value of the
long-term debt and due to and from shareholders approximate fair
value as they are based on the instruments' interest rate, terms,
maturity date and collateral, if any, in comparison to the
Company's incremental borrowing rate for similar financial
instruments.
In specific circumstances, certain assets and liabilities are
reported or disclosed at fair value. Fair value is the exit price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date in the Company's principal market for such
transactions. If there is not an established principal market, fair
value is derived from the most advantageous market.
Valuation inputs are classified in the following hierarchy:
(i) Level 1 inputs are unadjusted quoted prices in active
markets for identical assets or liabilities.
(ii) Level 2 inputs are directly or indirectly observable
valuation inputs for the asset or liability, excluding Level 1
inputs.
(iii) Level 3 inputs are unobservable inputs for the asset or
liability.
Highest priority is given to Level 1 inputs and the lowest
priority to Level 3 inputs. Acceptable valuation techniques include
the market approach, income approach, and cost approach. In some
cases, more than one valuation technique is used.
p) Reclassifications
Certain reclassifications have been made to the 2014
consolidated financial statement presentation to correspond to the
current period's format. These reclassifications have no effect on
previously reported net income.
2. Acquisition
Effective 16 December 2014 ("Closing Date"), the Company
purchased certain assets of SingleSource in a transaction accounted
for as a business acquisition for a total cash consideration of $4
million: $3.2 million at closing plus $800,000 paid in escrow to be
distributed after the one year anniversary of the Closing Date and
contingent upon achieving calendar year 2015 target revenues of at
least 90% of calendar year 2014 revenues as agreed between the
Company and the Sellers. SingleSource provides background screening
services directly to its customer base, which consists primarily of
faith-based organisations and retail franchisees; the acquisition
is in line with the Company's strategy of growing its Direct Sales.
The following table summarises the purchase consideration paid for
and the amounts of estimated fair value of the assets acquired at
the Closing Date:
Amount
$000
-------
Prepaid expenses 15
Goodwill 2,283
Customer relationships 1,673
Trade name 29
-------
4,000
=======
In conjunction with the purchase agreement, a one-year
consulting agreement with the Seller was obtained in which $100,000
will be paid in equal monthly instalments. The Seller will also
earn a commission of 12% on the first year of revenue for new
business during the term of the consulting agreement.
Effective 21 August 2015, the Company executed a separation
agreement with the Seller to terminate the consulting arrangement
in exchange for an early release of the aforementioned funds in
escrow and a lump sum payment of approximately $150,000,
representing the remaining consulting fees, estimated commissions
and expense reimbursements due to the Seller.
3. Accounts Receivable
Accounts receivable consisted of the following:
As of As of As of
30 June 30 June
2015 2014 31 December
(Unaudited) (Unaudited) 2014
$000 $000 $000
-------------- -------------- --------------
Trade accounts receivable 395 281 296
Unbilled receivables 1,414 976 812
Allowance for doubtful accounts ( 50) - ( 12)
-------------- -------------- --------------
1,759 1,257 1,096
============== ============== ==============
4. Goodwill and Other Intangible Assets
Goodwill and other intangible assets were comprised of the
following at 30 June 2015:
Gross Cost Accumulated Amortisation
------------------------------------ ------------------------------------
Beginning Additions Beginning Additions
Life (years) $000 $000 Ending $000 $000 $000 Ending $000 Net
------------- ---------- ---------- ------------ ---------- ---------- ------------ ------
Goodwill Indefinite 2,283 - 2,283 - - - 2,283
Software
Development 3 1,524 420 1,944 607 281 888 1,056
Customer
Relationships 7 1,672 - 1,672 - 119 119 1,553
Trade name 1 29 - 29 - 15 15 14
---------- ---------- ------------ ---------- ---------- ------------ ------
5,508 420 5,928 607 415 1,022 4,906
========== ========== ============ ========== ========== ============ ======
Approximate aggregate future amortisation expense is as
follows:
Year Ending 30 June
Amount
$000
-------
2016 727
2017 713
2018 347
2019 239
2020 239
2021 and beyond 358
-------
2,623
=======
5. Long-term Debt and Lines of Credit
On 30 July 2013, ClearStar US refinanced its lines of credit
with a financial institution through a term loan; the lines of
credit were previously limited to advances up to $400,000. The
amount refinanced under the term loan was $198,405 and carried a
fixed interest rate equal to 5.42 per cent. per annum with a
maturity date of 30 July 2018. The term loan was collateralised by
substantially all the assets of ClearStar US and was personally
guaranteed by two Shareholders. In July 2014, the term loan was
paid in full.
The term loan was comprised of the following:
As of As of As of
30 June 30 June
2015 2014 31 December
(Unaudited) (Unaudited) 2014
$000 $000 $000
-------------- -------------- --------------
Term loan payable in monthly instalments
of principal and interest of $3,790 - 166 -
Less: current portion - ( 36) -
-------------- -------------- --------------
Total long-term debt - 130 -
============== ============== ==============
6. Commitments and Contingencies
-- Operating Leases
The Company leases office space and equipment. The lease
agreements expire on various dates through February 2022.
Minimum lease payments under operating leases are recognised on
a straight-line basis over the term of the lease including any
periods of free rent. Rental expense for the six months ended 30
June 2015 and 2014, and the year ended 31 December 2014 was
approximately $210,000, $91,000 and $336,000, respectively.
At 31 December 2014, future minimum lease payments under
non-cancellable operating leases were as follows:
Year Ending 30 June:
Amount
$000
-------
2016 250
2017 207
2018 181
2019 180
2020 99
2021 and beyond 172
-------
1,089
=======
-- Capital Leases
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:00 ET (06:00 GMT)
During 2014, the Company leased computer equipment under two
agreements classified as capital leases that expire through
November 2018. The lease obligations bear an interest rate of up to
8.7 per cent. per annum and are payable in monthly instalments
totalling $9,334.
Assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the
fair value of the assets. The assets are depreciated over the
shorter of the estimated useful lives or the lease term if
ownership does not transfer to the Company at the end of the lease.
Depreciation of assets under capital leases is included in
depreciation expense.
Computer equipment held under capital leases consisted of the
following:
As of As of As of
30 June 30 June
2015 2014 31 December
(Unaudited) (Unaudited) 2014
$000 $000 $000
-------------- -------------- --------------
Cost of equipment and installation 390 201 390
Less: accumulated depreciation ( 91) ( 17) ( 42)
-------------- -------------- --------------
299 184 348
============== ============== ==============
At 30 June 2015, future minimum lease payments under capital
lease agreements consist of the following:
Year Ending 30 June:
Amount
$000
-------
2016 107
2017 112
2018 107
2019 19
-------
345
Less: interest ( 36)
-------
309
Less: current portion ( 89)
-------
220
=======
-- Board of Director Fees
Effective 30 May 2014, the Company contracts with two
non-executive directors ("NEDs") for 3-year terms subjective to
renewal for successive one-year periods. The Company pays
approximately $100,000 per annum to the NEDs. For the six months
ended 30 June 2015 and 2014, and the year ended 31 December 2014,
director fees were approximately $53,000, $0 and $56,000,
respectively. Options granted to the NEDs were approximately 72,000
shares, vesting over a one-year term (Note 9).
-- Long-Term Vendor Commitment
In November 2014, the Company executed a three-year vendor
contract for data centre and related services, requiring an annual
fee of approximately $198,000, payable in equal monthly instalments
in advance through January 2018.
7. Income Taxes
Effective 1 July 2014, ClearStar US ceased as an S Corporation
and became liable for corporate income taxes.
-- Tax effects of temporary differences are as follows:
As of As of
30 June 31 December
2015
(Unaudited) 2014
$000 $000
-------------- --------------
Current deferred tax assets (liabilities):
Allowance for doubtful accounts 18 4
Prepaid expenses ( 66) ( 26)
Amortisation of software development (182) (164)
Accrued liabilities 71 19
Deferred revenue 21 6
Other adjustments - ( 5)
--------------
Total current (138) (166)
-------------- --------------
Non-current deferred tax assets (liabilities):
Basis differences in property and equipment ( 31) ( 57)
Amortisation of software development (177) (159)
Amortisation of other intangible assets 27 24
Net operating losses 1,241 673
Stock-based compensation 45 21
Tax credits 26 26
Other adjustments 3 3
--------------
Total non-current 1,134 531
-------------- --------------
Less: valuation allowance (996) (365)
-------------- --------------
Net deferred tax assets (liabilities) - -
============== ==============
Deferred tax assets and liabilities are recognised for the
expected tax consequences of temporary differences between the book
and tax bases of the Company's assets and liabilities. Valuation
allowances are recorded to reduce deferred tax assets when it is
more likely than not that a tax benefit will not be realised.
Management does not expect deferred tax assets to be fully realised
in future years. Therefore, a valuation allowance has been
recorded.
-- The components of the provision for income taxes are as follows:
As of As of
30 June 31 December
2015
(Unaudited) 2014
$000 $000
-------------- --------------
Current tax expense:
Federal - -
State 5 4
-------------- --------------
5 4
-------------- --------------
Deferred tax expense (benefit):
Federal - -
State - -
-------------- --------------
- -
-------------- --------------
Total provision for income taxes 5 4
============== ==============
The effective income tax rate differs from the federal statutory
income tax rate due to state income taxes, certain non-deductible
expenses and a increase of approximately $631,000 in the valuation
allowance for the period.
At 30 June 2015, the Company had approximately $3,556,000 in net
operating loss carryforwards ("NOL") available to use against
taxable income. The NOL's expire through 2035.
8. Stockholders' Equity
On 26 June 2014, the directors amended and restated ClearStar
US's articles to increase the authorised common shares from 1,000
to 10,000 shares.
Pursuant to the contribution agreement dated 1 July 2014 by and
among the previous shareholders of ClearStar US (the
"Contributors") and ClearStar, an exempt company incorporated in
the Cayman Islands, each Contributor contributed all of their
right, title and interest in and to the capital stock of ClearStar
US to ClearStar as a capital contribution. In exchange, ClearStar
issued 20,725,400 shares of Ordinary Shares of $0.0001 par value to
the Contributors in the same proportion as the capital stock
contributed into ClearStar. Following such contribution, the
Contributors no longer owned capital stock of ClearStar US and
owned all of the outstanding Ordinary Shares of ClearStar.
ClearStar owns all of the outstanding capital stock of ClearStar
US. ClearStar maintains authorised shares of 100,000,000 $0.0001
par value Ordinary Shares.
On 11 July 2014, ClearStar issued an additional 15,577,500
shares of Ordinary Shares for $0.97 per share ("the Issuance") as a
result of an initial public offering (the "IPO") on AIM which
raised approximately $15,000,000 in gross proceeds. The Company
incurred costs in the Issuance of approximately $2,586,000. The
Company received net proceeds of approximately $12,638,000.
9. Stock-Based Compensation
(MORE TO FOLLOW) Dow Jones Newswires
September 22, 2015 02:00 ET (06:00 GMT)
Clrstar (DI/S) (LSE:CLST)
Historical Stock Chart
From Jun 2024 to Jul 2024
Clrstar (DI/S) (LSE:CLST)
Historical Stock Chart
From Jul 2023 to Jul 2024
