20-F/A: HUB Cyber Security Files Amended 20-F After SEC Review, Cites Going Concern Uncertainty

HUB Cyber Security Ltd. files an amendment to its 20-F annual report to address SEC comments and correct errors, while also acknowledging substantial doubt about its ability to continue as a going concern.

Summary

• HUB Cyber Security Ltd. has filed Amendment No. 1 to its Annual Report on Form 20-F for the fiscal year ended December 31, 2023, to address comments from the SEC and correct typographical errors.
• The amendment speaks as of the original filing date of the original Form 20-F, August 16, 2024, and does not reflect any events occurring after that date.
• The company acknowledges an ongoing internal investigation related to misappropriation of funds by a former senior officer, which could lead to regulatory scrutiny and enforcement actions.
• There is substantial doubt about the company's ability to continue as a going concern due to a history of net losses, negative cash flow, and defaults on debt obligations.
• The company has identified material weaknesses in its internal control over financial reporting, which could impair its ability to produce timely and accurate financial statements.
• HUB is not currently in compliance with Nasdaq continued listing standards and faces potential delisting.
• The company is in default under certain debt obligations totaling approximately $82 million and is negotiating with debt holders for potential solutions.
• HUB needs to raise additional funds in the near future to execute its business plan, but there is no assurance that such funds will be available.
• The company's quarterly operating results may fluctuate significantly due to seasonality and other factors, some of which are beyond its control.
• HUB faces intense competition in the cybersecurity market, which is rapidly evolving.
• The company's business operations are concentrated in core geographic areas such as the Middle East and Europe, making it vulnerable to economic downturns in those regions.
• The ongoing war between Israel and Hamas could materially and adversely affect the company's business.
• The company's Articles provide that, unless HUB consents otherwise, the competent courts of Tel Aviv, Israel shall be the sole and exclusive forum for substantially all disputes between HUB and its shareholders under the Companies Law and the Israeli Securities Law.

Sentiment

Score: 3

Explanation: The document presents a concerning financial situation with significant risks and uncertainties, including a going concern warning, material weaknesses in internal controls, and debt defaults. While there are some positive aspects, the overall outlook is negative.

Positives

• The company is taking actions to remediate material weaknesses in internal control over financial reporting.
• HUB has a collaboration with BlackSwan Technology (BST) with the goal of becoming a significant player in the secured data fabric industry.
• The company acquired QPoint to enhance its capabilities in professional services and secure data fabric.
• HUB is implementing a plan to reduce costs and rebalance investments to improve operational efficiencies.
• The company's confidential computing solution has received positive initial market feedback.
• HUB is implementing continuous multi-layered cybersecurity protection for its operations and resources.

Negatives

• The company has a history of net losses and anticipates that it may incur net losses for the foreseeable future.
• The company is generating negative cash flow, requiring constant and immediate cash injections to continue to operate.
• The circumstances that led to the failure to file the Annual Report on time, and the efforts to assess and remediate those matters have caused and may continue to cause substantial delays in SEC filings.
• The company is currently in default under certain of its debt and convertible obligations totaling approximately $82 million in debt.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company is not currently in compliance with the continued listing standards of Nasdaq and its failure to meet the continued listing requirements of Nasdaq could result in a delisting of its securities.
• The company's management team has limited experience managing a U.S. listed public company.
• The company's business may be affected by sanctions, export controls and similar measures targeting Russia and other countries and territories as well as other responses to Russia’s military conflict in Ukraine.

Risks

• The internal investigation could lead to regulatory scrutiny and enforcement actions.
• The company's ability to continue as a going concern is contingent upon obtaining additional funding and curing outstanding defaults.
• Failure to remediate material weaknesses in internal control could result in inaccuracies in financial statements and regulatory investigations.
• Delisting from Nasdaq would negatively affect the price of the securities and impair shareholders' ability to sell or purchase the securities.
• Inability to negotiate a solution for the payment of outstanding debt could lead to foreclosure on assets.
• Failure to attract new customers, retain existing customers, and sell additional services could adversely impact revenue and results of operations.
• Termination of relationships with key vendors could materially adversely affect the business.
• Actions to reduce costs may not result in anticipated savings or operational efficiencies.
• Limited operating history in the fields of secured data fabric and confidential computing makes it difficult to evaluate the business and future prospects.
• The network security market is rapidly evolving, and the company's solutions may fail to adapt to market changes and demands.
• Real or perceived shortcomings, defects, or vulnerabilities in the company's solutions could harm its reputation and business.
• The company may not be able to adequately protect or enforce its intellectual property rights.
• The dynamic regulatory environment around privacy and data protection may limit the company's offering or require modification of its products and services.
• Conditions in Israel, including the current war between Israel and Hamas, could materially and adversely affect the company's business.
• It may be difficult to enforce a U.S. judgment against the company, its officers and directors and the Israeli experts named in this Annual Report in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors and these experts.

Future Outlook

The company requires additional capital in the future in order to fund its growth strategy or to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances.

Industry Context

The cybersecurity market is rapidly evolving, with increasing demand for effective solutions to protect against cyber threats. The company operates in a competitive market with established players and emerging technologies.

Comparison to Industry Standards

• The network security industry consists of Cisco Systems, Inc., Juniper Networks, Inc., Fortinet Inc., Check Point Software Technologies Ltd. and Palo Alto Networks, Inc., as well as companies that have network security capabilities as part of broader IT solutions offerings, such as Microsoft Corporation, McAfee, Inc., International Business Machines Corporation, Hewlett-Packard Enterprise Company and FireEye, Inc.
• The data fabric market includes Atlan, IBM, Oracle, Talend, SAP, Informatica, Cloudera, TIBCO, Amazon Web Services and data.world.

Management Changes

Legal Proceedings

• The company is subject to a number of securities class actions and other litigations and could be subject to additional litigation in the United States, Israel or elsewhere that could negatively impact its business, including resulting in substantial costs and liabilities.

Related Party Transactions

• The company has entered into agreements with certain third parties with whom Noah Hershcoviz, its Chief Executive Officer and director, is an affiliate.
• The company has entered into a Loan and Security Agreement with Blackswan Technologies, Inc., a company in which Mr. Hershcoviz serves as a director.
• The company entered into a loan agreement with A-Labs Finance and Advisory Ltd. (A-Labs), a company in which Mr. Hershcoviz serves as Managing Partner, Head of Investing Banking.

Stakeholder Impact

• Shareholders face the risk of significant dilution and a decline in the market price of ordinary shares and warrants.
• Employees may be affected by workforce reductions and changes in management.
• Customers may experience disruptions in service due to the company's financial difficulties.
• Suppliers and creditors face the risk of non-payment due to the company's liquidity concerns.

Next Steps

• The company will continue to pursue recovery of misappropriated funds.
• The company will continue to take actions to remediate material weaknesses in internal control over financial reporting.
• The company expects to be able to obtain additional sources of debt and equity financing, together with additional revenues from new business opportunities and has engaged with potential investors with regards to such financing alternatives.
• The company will continue to monitor the situation and has been attempting to alleviate the liquidity and capital resources concerns through workforce reductions, interim financing facilities and other capital raising efforts.

Key Dates

Keywords

cyber security, internal control, going concern, financial reporting, material weakness, Nasdaq, debt, capital raise, confidential computing, data fabric, Israel, regulation, litigation, risk factors, financials