ProPhotonix : Interim Results for the Half Year Ended June 30, 2021September 8, 2021

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

September 8, 2021

ProPhotonix Limited

("ProPhotonix" or the "Company")

INTERIM RESULTS FOR THE HALF YEAR ENDED JUNE 30, 2021

ProPhotonix Limited (London Stock Exchange - AIM: PPIX, OTC: STKR), a leading technology designer and manufacturer of LED illumination systems and laser diode modules, with operations in Ireland and the United Kingdom, today announces its unaudited results for the six months ended June 30, 2021.

Half Year 2021 Financial Results

Revenue for the half year ended June 30, 2021 was $7.9 million, an increase of 14%, on a reported basis, compared with $6.9 million in the same period of 2020. On a constant currency basis, revenue increased 5% over the same period of 2020. The increase is primarily due to increases in LED product sales.

Reported gross profit for the half year ended June 30, 2021was $3.3 million, an increase of 2.2% compared to $3.3 million in the first half of 2020. Gross profit margin for the half year ended June 30, 2021 declined to 42.2% from 47.1% compared to the same period in 2020, mainly due to product mix, increased material costs, and the benefit in 2020 of various COVID-19 related government aid.

Operating expenses for the six months ended June 30, 2021 totaled $2.7 million versus $3.0 million for the comparable period in 2020. Selling, general and administrative expenses for the six months ended June 30, 2021 decreased by $0.2 million to $2.2 million compared to the same period in 2020 due primarily to lower headcount costs and COVID-19 travel restrictions. Research and development expenses for each of the six month periods ended June 30, 2021 and 2020 were $0.5 million.

The improved gross profit and lower operating expenses resulted in an operating profit of $0.6 million for the six months ended June 30, 2021, doubling the operating profit of $0.3 million recognized in the first half of 2020.

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation and impairment charges) for the six months ending June 30, 2021 was $0.7 million, as compared to $0.4 million for the same period in 2020.

Net income was $0.5 million for the six months ended June 30, 2021, as compared to $0.3 million in net income in the first half of 2020.

Cash and cash equivalents at June 30, 2021 were $3.0 million as compared to $2.6 million at December 31, 2020 and $1.9 million at June 30, 2020. Detailed financial results and notes follow.

Key metrics

• Order bookings of $9.5 million (H1-2020: $6.8 million)
• Book-to-Billratio of 1.21 (H1-2020: 0.99)
• Backlog (order book) of $7.1 million (H1-2020: $6.4million)
• Percentage revenue by market sectors: 79% industrial, 20% medical and 1% security & defense (H1-2020: 84% industrial, 15% medical and 1% security & defense)
• Percentage revenue by geography: 43% Europe, 46% North America and 11% Rest of World (H1-2020: 41% Europe, 54% North America and 5% Rest of World)

Tim Losik, President & CEO, commented:

Financial

"Overall, I am pleased with our results for the first half of 2021. The Company experienced improvement in virtually every financial metric, including revenue, gross profit, operating income, net income and adjusted EBITDA as compared to the first half of 2020. Further, we increased our cash balance to $3.0 million, while further paying down debt.

The $1.0 million or 14% increase in reported revenue in the first half of 2021 compared to the first half of 2020 resulted from increases of $0.8 million, or 26%, in LED product revenue and $0.2 million, or 5%, in Laser and Diode product revenue. While we expect to experience mounting pressure towards increased operating expenses as the broader economic recovery continues, I'm pleased that we were able to decrease our operating expenses by $0.2 million, or 8%, during the first half of 2021 as compared to the first half of 2020. We will continue to prudently invest in the resources that are necessary to deliver the highest quality products and services to our customers throughout the world and are therefore likely to see some increase in our operating expenses in the second half of 2021 as compared to the first half."

Covid-19

The outbreak of the COVID-19 pandemic and the measures adopted by local governments to mitigate its spread impacted the Company much more in 2020 than in 2021. The Company has not as yet suffered operations shutdowns in 2021 versus the pandemic caused shut down of its facilities for brief periods in 2020. However, risks in the supply chain have heightened as many components are in short supply with extended delivery lead-time. Although there have been no substantial delays or negative consequences to the business from supply chain issues, this remains a significant risk for the foreseeable future.

Trading update

With a strong order book, the Directors believe at this time that the second half trading will be in line with the first half trading subject to further disruptions by COVID-19 and/or supply chain and logistics challenges. The Directors caution that the risks in the supply chain are substantial and there will very likely be disruptions impacting the business.

For further information:
ProPhotonix Limited
Tim Losik	President and CEO
	Tel: [phone]
	Email:[e-mail]
WH Ireland Limited
Katy Mitchell	Nominated Adviser and Broker
Matthew Chan	Tel: [phone]

PROPHOTONIX LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

$ In thousands except share and per share data

(unaudited)

		Six Months Ended
			June 30,
		2021				2020
Revenue	$	7,867			$	6,902
Cost of revenue		(4,548)				(3,654)
Gross profit		3,319				3,248
Selling, general and administrative expenses		(2,202)				(2,430)
Research and development expenses		(548)				(544)
Operating income		569				274
Other income (expense), net		(46)				31
Interest expense		(29)				(33)
Warrant and debt acquisition expense		(4)				(6)
Income before income tax		490				266
Income tax		-				-
Net income		490				266
Other comprehensive loss:
Foreign currency translation		(108)				(26)
Total comprehensive income	$	382			$	240
Net income per share:
Basic net income per share	$	0.004			$	0.003
Diluted net income per share	$	0.005			$	0.003
Shares used in per share calculation - basic	93,300,402			93,150,402
Shares used in per share calculation - diluted	101,442,902			93,150,402

PROPHOTONIX LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

$ In thousands except share data

(unaudited)
As of June 30			2021				2020
Assets
Current assets:
Cash and cash equivalents	$	3,001			$	1,937
Accounts receivable, less allowances of $11 in 2021 and $10 in 2020			2,451				1,680
Inventories, less allowances of $838 in 2021 and $782 in 2020			2,565				2,738
Prepaid expenses and other current assets			413				603
Total current assets			8,430				6,958
Net property, plant and equipment			415				528
Operating lease right-of-use asset			30				236
Deferred tax assets			-		-
Goodwill			420				397
Intangible assets, net			518				397
Other long-term assets			116				116
Total assets	$	9,929			$	8,632
Liabilities and Stockholders' Equity
Current liabilities:
Revolving credit facility	$	54			$	-
Current portion of long-term debt			279				158
Accounts payable			1,759				1,605
Accrued payroll, benefits and incentive compensation			313				301
Deferred revenue			591				690
Accrued warranty expenses			202				156
Operating lease liabilities, current			30				111
Other accrued expenses			626				617
Current portion of finance lease obligations			25				55
Total current liabilities			3,879				3,693
Deferred revenue, noncurrent			229				145
Operating lease liabilities, noncurrent			-		124
Long term debt obligations, net of current portion			212				364
Long term finance lease obligations, net of current portion			16				26
Total liabilities			4,336				4,352
Stockholders' Equity:
Common stock, par value $0.001; shares authorized 250,000,000 at June 30, 2021
and June 30, 2020; 93,300,402 shares issued and outstanding at June 30, 2021			93				93
and 93,150,402 shares issued and outstanding at June 30, 2020
Additional paid-in capital			112,894				112,885
Deferred compensation			-		-
Accumulated deficit			(108,168)				(109,484)
Accumulated other comprehensive income			774				786
Total stockholders' equity			5,593				4,280
Total liabilities and stockholders' equity	$	9,929			$	8,632

PROPHOTONIX LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

$ In thousands

(unaudited)

Six Months Ended

June 30,

		2021			2020
Operations
Net income	$	490	$	266
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		-			49
Depreciation and amortization		108			113
Foreign exchange (gain)/loss		132			(31)
Amortization of debt discount and financing costs		4			6
Provision for inventories		(27)			55
Provision for bad debts		2			(7)
Other change in assets and liabilities:
Accounts receivable		(252)			989
Inventories		78			(277)
Deferred Revenue		(119)			54
Prepaid expenses and other current assets		41			48
Intangible assets, net		(71)			-
Intercompany accounts payable		(5)			-
Operating lease right-of-use asset		-			75
Accounts payable		313			(252)
Accrued expenses		(114)			419
Other assets and liabilities		11			26
Net cash provided by operating activities		591			1,533
Financing
Exercise of options and warrants		-			-
Net borrowing (repayment) of revolving credit facility		(32)			(874)
Capital lease		(23)			(16)
Net borrowing (principal repayment) of long-term debt		(108)			(85)
Net cash used by financing activities		(163)			(975)
Investing
Purchase of plant and equipment		-			(59)
Net cash used in investing activities		-			(59)
Effect of exchange rate on cash		(68)			(39)
Net change in cash and equivalents		360			460
Cash and equivalents, beginning of period		2,641			1,477
Cash and equivalents, end of period	$	3,001	$	1,937
Supplemental disclosure of cash flow information:
Cash paid for interest	$	35	$	33