Hub Cyber Security Ltd. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; filed August 16, 2024. This is an annual report, not a standalone 2023 Q4 report. Financial statements are prepared under IFRS in U.S. dollars. The company provides cybersecurity and technology professional services and develops confidential-computing and secured-data-fabric products.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $42.657 million | $50.002 million |
| Gross profit / margin | $0.750 million / 1.8% | $4.088 million / 8.2% |
| Operating loss | $77.725 million | $80.430 million |
| Net loss | $86.636 million | $80.000 million |
| Adjusted EBITDA (non-IFRS) | $(12.165) million | $(22.051) million |
| Cash used in operating activities | $16.202 million | $23.432 million |
- Revenue was primarily from Professional Services: $41.589 million, versus $1.068 million from Products and Technology. Israel generated $40.364 million, about 95% of revenue. Two customers accounted for 28.9% combined.
- Research and development expense was $5.886 million; selling and marketing was $10.694 million; general and administrative expense was $49.172 million. Other expenses of $12.723 million included $12.312 million of SPAC listing expense and a $1.570 million ELOC-related expense, partly offset by a $1.159 million government grant.
- Financial expenses rose to $7.194 million from $1.384 million, mainly reflecting interest and fair-value changes in convertible instruments and warrants.
- At year-end, cash and cash equivalents were $3.522 million. Current assets were $20.109 million and current liabilities $74.432 million; management reported negative working capital of $54.323 million. Total shareholders’ equity was a deficit of $50.733 million.
- Year-end balance-sheet amounts included $11.878 million of short-term loans and $14.449 million of convertible loans. Separately, the filing warns that approximately $82 million of debt and convertible obligations were in default or subject to default-related remedies; these disclosures use different scopes and dates.
Changes versus FY2022
- Revenue fell 14.7%, mainly in Professional Services; Products and Technology revenue declined 38.6% to $1.068 million. Gross profit fell 81.7%, compressing gross margin from 8.2% to 1.8%.
- Net loss widened 8.3%. Adjusted EBITDA loss narrowed to $12.165 million from $22.051 million, although it remained negative.
- Comsec revenue declined to $6.8 million from $36.9 million. Its Distribution subsidiary ceased sales during 2023 and was classified as a discontinued operation; FY2023 discontinued-operation loss was $2.030 million.
- Impairment charges remained significant: $15.258 million in 2023, following $23.356 million in 2022. The filing reports 2023 impairments across goodwill and intangible-asset cash-generating units.
- Operating cash outflow improved by $7.230 million, while financing cash inflow fell to $12.927 million from $20.660 million. Year-end cash decreased by $0.472 million.
Outlook, risks and unusual matters
- Going concern: The auditor’s report includes an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern. Management says additional debt or equity financing, cost reductions, creditor negotiations and new business are necessary, but uncertain. The company reported difficulty meeting obligations, and said it had been unable since May 2024 to make required employee pension and severance-fund deposits or withholding-tax payments.
- Defaults and financing: The company was negotiating with lenders over defaults and extensions or conversions. It disclosed nonpayment of an installment due August 10, 2024 on $10 million of March–June 2024 notes. Other disputes include claimed defaults under financing arrangements with Lind, Dominion and A-Labs. Failure to resolve defaults could lead to enforcement, asset foreclosure or insolvency proceedings. The filing’s maturity schedule lists $14.735 million of specified loans, leases and grant liabilities, but does not represent all the defaulted and disputed obligations described elsewhere.
- Control and investigation: An internal investigation found evidence, according to the Special Committee, of approximately NIS 2 million ($582,000) in alleged personal-use payments by a former senior officer and approximately NIS 400,000 ($110,000) in alleged personal credit-card use by a controller. These findings have not been substantiated by a court. The company is pursuing recovery and severance-related claims. Management reported material weaknesses in financial reporting controls for 2022 and 2023 and concluded disclosure controls were ineffective; no restatement was considered necessary.
- Listing and reporting: The report was late. Nasdaq granted an extension to August 19, 2024 for the filing, and separately notified the company that its share price did not meet the $1 minimum bid requirement, with a stated deadline of January 13, 2025 to regain compliance. The company also expected a further notice concerning Nasdaq financial listing standards.
- Legal and operating risks: Matters include securities and PIPE-related class actions, an Oppenheimer claim exceeding $12 million, a Dominion insolvency petition, Comsec creditor proceedings, employee claims and disputes with former executives. Two vendors represented about 80% of 2023 inventory purchases and terminated their supply relationships. A large Israeli government contract expired in December 2023.
- Strategy and outlook: Management aims to grow confidential computing and secured data fabric, cross-sell through services customers, and expand internationally. It expects continued investment in R&D and sales and marketing, which may weigh on near-term profitability. No quantified revenue or earnings guidance is provided. The BST collaboration and any potential acquisition remain uncertain. In April 2024, HUB acquired the remaining 53.5% of QPoint for NIS 25 million, with an additional NIS 5 million installment due by February 2025.
- Dilution and unusual items: Outstanding ordinary shares increased from 11,938,363 at December 31, 2023 to 30,459,736 at August 13, 2024. Financing included convertible notes and warrants with potential share issuance; the initial $50 million PIPE commitment produced only about $4 million. The company also made $2.066 million of advances to BST by the filing date, including $1.023 million by year-end 2023.
Key facts for investors to verify
- Current cash, near-term cash needs, status of the $82 million default-related obligations, and any creditor standstill, restructuring or insolvency outcome.
- Whether subsequent financing was completed, including payment or conversion of the March–June 2024 notes, and the resulting fully diluted share count and warrant overhang.
- Nasdaq compliance status and the timing of future SEC filings; progress in remediating material weaknesses and restoring effective disclosure controls.
- Reconciliation of liquidity disclosures: the audited cash-flow statement reports $16.202 million used in operations, while the going-concern note cites $16.885 million. Also verify the cover-page year-end share count against the financial-statement share count.
- Underlying performance and revenue contribution of QPoint, Comsec and the Products and Technology segment; customer concentration, contract renewals, and whether product pilots convert into recurring revenue.
- Status and potential financial effect of litigation, alleged fund misappropriation recovery, Comsec creditor settlements, vendor disputes and related-party arrangements.