Business Context and Reporting Period
Hub Cyber Security Ltd. furnished this Form 6-K on July 14, 2023, covering developments during July 2023. The filing addresses interim financing, liquidity concerns, the delayed 2022 Form 20-F, and litigation. It does not provide operating results for the period.
Financial Metrics and Liquidity
- Loan: On July 10, 2023, Shayna LP agreed to lend the Company NIS 1.85 million, approximately $500,000. Shayna may, at its discretion, provide an additional NIS 1.15 million, approximately $312,000, on the same terms.
- Interest and conversion: The loan is non-interest-bearing unless specified payments are late, in which case it bears 8% annual interest. Shayna may convert the loan at a price reflecting a 40% discount to the lower of specified recent trading-price measures.
- Fees: The Company agreed to pay a NIS 92,500 commission, approximately $20,000, to an affiliate of Shayna. Beginning August 10, 2023, it also agreed to pay Shayna $95,900 per month plus VAT for 12 months, totaling $1,150,800. This includes consulting fees under prior loan agreements.
- Liquidity: Management states that the Company faces significant uncertainty regarding the adequacy of its liquidity and capital resources and its ability to repay obligations as they become due.
- Going concern: The Company anticipates that the financial statements in its delayed 2022 Form 20-F will include a note expressing substantial doubt about its ability to continue as a going concern.
- Revenue, profit, cash flow, margins and debt: The filing does not provide clear values for revenue, profitability, margins, operating cash flow, cash balances, total debt or other historical financial metrics.
Material Changes Versus the Prior Comparable Period
- The Company entered into additional financing with Shayna and amended its February 2023 and June 2023 loan agreements to apply the same discounted conversion-price formula to the prior loans.
- The financing includes potential equity dilution, registration rights, restrictions on certain corporate transactions, and pledges of shares and warrants held by Vizerion Ltd. A-Labs and Uzi Moskovich.
- The 2022 audit and Form 20-F remain incomplete because of the previously announced Special Committee investigation and continued review by the Audit Committee and independent auditors. The filing date remains uncertain.
- A class action complaint was filed on July 6, 2023, in the U.S. District Court for the Southern District of New York.
Outlook, Risks and Unusual Items
- Management is pursuing workforce reductions, interim financing, and other capital-raising efforts to address liquidity concerns.
- The Company expects that additional debt and equity financing and new business opportunities may become available after filing the Form 20-F, but states that these opportunities are uncertain and depend on events outside its control.
- If the Company does not register shares issuable upon conversion within 90 days of signing the Loan Agreement, Shayna may have the right to foreclose on pledged shares under the stated terms.
- Shayna receives conversion rights, registration rights and restrictions on the Company’s ability to undertake certain transactions without its approval. Conversion may be delayed if shareholder approval is required under Israeli law.
- The class action alleges violations of Section 12(a)(2) of the Securities Act relating to alleged misrepresentations in the prospectus for the business combination with Mount Rainier Acquisition Corp., including the proposed $50 million PIPE financing and minimum-cash closing condition. The Company is evaluating the claim and cannot assess its likely outcome.
- Key risks include continued limited liquidity, inability to repay obligations, delays in the audit and Form 20-F, potential dilution, litigation exposure, limited trading liquidity, geopolitical and regulatory risks, and the Company’s ability to execute its business plan.
Important Facts for Investors to Verify
- Whether the NIS 1.85 million loan was funded and whether Shayna exercised its option for the additional NIS 1.15 million.
- The outstanding balances under the February and June 2023 prior loans and the number of shares and warrants potentially issuable upon conversion.
- The status and effectiveness of the required Form F-1 registration statement and any related registration rights agreement.
- The final filing date and audited results in the 2022 Form 20-F, including the anticipated going-concern qualification.
- The Company’s available cash, obligations coming due, additional financing obtained, and ability to meet near-term liquidity needs.
- The status, potential damages and insurance coverage, if any, relating to the class action lawsuit.
- The full loan agreement and pledge documents when filed, because the Form 6-K provides only a summary of their terms.