Hub Cyber Security Ltd. — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone Q4 filing; quarterly results are not clearly provided in the filing text. Financial statements are prepared under IFRS in U.S. dollars. Filed August 15, 2023, after a delay.
Business context
HUB provides cybersecurity professional services and develops confidential-computing hardware and software. FY2022 revenue was predominantly from Professional Services; the newer Products and Technology segment contributed only $1.739 million. Revenue growth largely reflected a full year of consolidation of ALD and Comsec, acquired in 2021, so FY2022 and FY2021 are not directly comparable. HUB completed its SPAC business combination in February 2023 and began Nasdaq trading in March 2023.
Financial performance and position
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $79.743 million | $32.520 million |
| Gross profit / margin | $6.446 million / 8.1% | $5.096 million / 15.7% |
| Operating loss | $79.507 million | $12.841 million |
| Net loss | $80.000 million | $13.623 million |
| Adjusted EBITDA loss (non-IFRS) | $21.128 million | $4.580 million |
| Cash used in operating activities | $23.432 million | $5.280 million |
| Cash used in investing activities | $6.549 million | $15.982 million |
| Cash provided by financing activities | $20.660 million | $32.703 million |
Revenue increased 145%, but cost of revenue increased 167%, compressing gross margin. Selling and marketing expense rose to $22.800 million from $2.774 million; general and administrative expense rose to $57.579 million from $9.367 million. FY2022 expenses included $15.829 million of transaction costs and $23.356 million of goodwill and intangible-asset impairments. The Legacy asset acquisition was fully impaired after expected customer orders and relationships failed to materialize; impairment included $8.738 million related to Legacy and $14.618 million of goodwill.
At December 31, 2022, cash and cash equivalents were $3.994 million, total assets $74.793 million, and current liabilities $57.836 million. Working capital was negative $24.638 million. Short-term loans were $13.432 million; the filing separately states that approximately $20 million of debt and convertible obligations were in default at the report date. Trade receivables were $24.057 million, including $1.068 million more than 120 days past due before the allowance for doubtful accounts.
FY2022 revenue was concentrated in Israel ($76.127 million, about 95%). One customer contributed 13% of revenue; a second contributed 8%. Professional Services produced $78.004 million of revenue, versus $1.739 million for Products and Technology.
Material changes and unusual items
- Net loss widened substantially, while revenue growth was mainly acquisition-driven; Professional Services revenue increased $46.419 million year over year.
- Cash fell from $13.974 million at year-end 2021 to $3.994 million at year-end 2022. Operating cash outflow increased to $23.432 million.
- The auditor’s report includes a going-concern paragraph. It cites accumulated losses of $99.042 million, negative working capital, cash insufficient to fund planned operations for a year, and loan covenant and payment defaults. The financial statements contain no adjustments for the potential outcome of this uncertainty.
- Management reported ineffective disclosure controls and material weaknesses in internal control over financial reporting at December 31, 2022 and 2021. The filing says no restatement was considered necessary or appropriate.
- The 2021 comparative balance sheet was retrospectively adjusted for acquisition purchase-price allocation changes. The filing also says the 2021 and 2022 results are not comparable because of acquisition timing.
Outlook, financing, risks and contingencies
Management said it expected to reduce operating costs temporarily in 2023 through workforce and facilities measures, while anticipating increased investment and expenses over time, particularly in research and development and sales and marketing. No firm revenue, profit or cash-flow guidance is provided. HUB stated that additional financing would be needed to continue operations; financing and new-business opportunities were described as uncertain.
- Going concern and debt: The company reported defaults under debt facilities and other financing arrangements, and said lenders could demand repayment or seek remedies against assets. It was negotiating extensions, waivers or conversions. The filing describes multiple post-year-end financing arrangements, some of which were themselves in default at the report date.
- PIPE shortfall: Investors had committed to a $50 million PIPE, but only approximately $4 million had been received by the filing date; receipt of the remainder was uncertain.
- Nasdaq: HUB received notices concerning late SEC filing and a share price below the $1 minimum bid requirement. It filed the 20-F and submitted a compliance plan, but delisting remained a risk if requirements were not met.
- Internal investigation: A board special committee reported evidence that a former CEO and former Chief of Staff allegedly misappropriated approximately NIS 2 million ($582,000), and that a controller allegedly used approximately NIS 400,000 ($110,000) of company funds for personal expenses. The committee also identified contractor-payment and documentation issues. These are committee findings, not court determinations; the company was pursuing recovery and reported possible regulatory scrutiny.
- Litigation: Matters disclosed include a PIPE-related class-action motion in Israel seeking approximately $25 million, U.S. securities class actions, an Oppenheimer claim alleging more than $12 million owed, a contract-tender matter, and former-employee claims of approximately $350,000. Outcomes and potential financial effects were generally not assessable in the filing.
- Customers and vendors: Two vendors represented about 80% of 2022 inventory purchases. A large Israeli government contract was due to expire in December 2023 and was subject to a competitive renewal process.
- Product execution: HUB Silicon development was paused, with timing for any restart unclear; management prioritized HUB Vault and the PCIe Card. The filing says the PCIe Card was in two installations and HUB Vault had one commercial customer.
- Other risks: The company cited customer-conversion risk for backlog and pipeline, cybersecurity and product risks, regulatory and privacy compliance, competition, foreign-exchange exposure, and political and security conditions in Israel.
Key facts investors should verify
- Current cash, operating cash burn, overdue obligations and the status of every lender default, waiver and repayment negotiation.
- Whether committed PIPE proceeds beyond the approximately $4 million received were ever funded, and the actual net proceeds and dilution from subsequent financings.
- Progress toward Nasdaq bid-price and reporting compliance, including any subsequent notices or listing outcome.
- Whether internal-control remediation is operating effectively, whether further investigation or regulatory action occurred, and whether any funds were recovered.
- Subsequent case developments and any recorded or potential liabilities from the disclosed litigation, particularly the Oppenheimer and PIPE-related matters.
- Revenue quality and concentration: acquisition-independent growth, renewal of major contracts, customer collections, vendor continuity, and conversion of the stated backlog and pipeline into revenue.
- Commercial adoption of HUB’s products and the status, timing and funding implications of restarting HUB Silicon development.