Financial Performance - The company reported net losses of $86.6 million, $80.0 million, and $13.4 million for the years ended December 31, 2023, 2022, and 2021, respectively [59]. - The company anticipates continued net losses for the foreseeable future and may never achieve profitability [59]. - The company is currently negotiating with debt holders due to defaults on existing debt facilities and limited cash balances [60]. - The company has reported negative cash flow and is in need of immediate cash injections to continue operations [60]. - The company is currently in default under certain debt obligations totaling approximately $82 million, which could impair liquidity and financial condition [78]. - The company may need to raise additional funds to execute its business plan, but may not be able to secure financing on favorable terms [81]. - The company is seeking additional funding through equity and/or debt financing arrangements to support operations [60]. Internal Controls and Compliance - The company has identified material weaknesses in internal control over financial reporting as of December 31, 2023, which have not been remedied [62]. - The company identified material weaknesses in its internal control over financial reporting for the years ended December 31, 2023, 2022, and 2021 [225]. - Significant resources have been expended to improve internal controls, with ongoing costs anticipated for accounting-related activities and management oversight [226]. - The company is engaged in a process to document and evaluate internal controls, which is costly and challenging, requiring significant management attention [230]. - Any failure to maintain effective internal controls could adversely affect the company's financial condition and results of operations, leading to a decline in share price [232]. Legal and Regulatory Issues - The internal investigation revealed that approximately NIS 2 million (approximately $582,000) was misappropriated by the former CEO for personal use [49]. - The company incurred substantial costs related to the internal investigation, which diverted management resources and caused delays in filing Annual Reports [56]. - The company faces potential regulatory scrutiny and investigations from authorities in Israel and the United States due to the findings of the internal investigation [51]. - The company is pursuing recovery of misappropriated funds and has initiated legal actions against former executives regarding severance payments [54]. - The company is subject to various litigations that could result in substantial costs and negatively impact its business operations [217]. - The company may need to indemnify its directors and officers, which could lead to additional financial liabilities [216]. Market and Operational Challenges - The company faces significant competition for skilled personnel, impacting its ability to attract and retain key employees necessary for growth [130]. - The company is facing substantial delays in SEC filings due to the failure to file the Annual Report on time, which may adversely impact investor confidence [69]. - The loss of a significant contract with a governmental agency in Israel in December 2023 could materially impact revenue and results of operations [86]. - The company is negotiating settlements with vendors that have ceased supplying products, which could further affect operations [87]. - The company relies on a limited number of suppliers for components, which poses risks related to supply chain disruptions [126]. - The company is focusing on a limited number of commercial opportunities due to cash constraints, potentially missing out on more lucrative prospects [129]. Technology and Product Development - The company began operations in 1984 and merged with ALD in June 2021, now focusing on confidential computing and secured data fabric solutions [91]. - The company currently derives most of its revenues from its Professional Services division but aims to shift towards technology and product-oriented solutions in the future [91]. - The network security market is rapidly evolving, and the company faces significant challenges in adapting its solutions to meet changing market demands and sophisticated cyber threats [92]. - The company is in the process of developing a "single chip" solution, which is complex and may face delays in release [103]. - The market acceptance of the company's secured data fabric and confidential computing solutions is still evolving, making it difficult to predict customer adoption and demand [108]. - The company cannot guarantee that its backlog of customer orders will convert into actual revenue, as this depends on successful delivery and customer contract terms [109][110]. Financial and Economic Risks - Fluctuations in currency exchange rates have significantly impacted the company's financial results, with the exchange rate of NIS to USD changing from 3.11 on December 31, 2021, to 3.6270 on December 31, 2023 [140]. - A significant portion of the company's revenue comes from the financial services industry, which may reduce IT spending in negative economic conditions [136]. - The company may experience fluctuations in quarterly operating results due to various external factors, which could affect stock price [120]. - The intense competition in the cybersecurity market may lead to reduced demand for the company's solutions and impact its ability to maintain profitability [102]. Environmental and Regulatory Compliance - The company faces increasing scrutiny from investors regarding its environmental, social, and governance (ESG) practices, which may lead to additional costs and risks [206]. - New sustainability regulations, such as expanded climate-related disclosures mandated by the SEC, could impose significant compliance costs on the company [208]. - The evolving global data protection landscape may create uncertainties and increase compliance costs, potentially impacting the company's financial condition [209]. - The California Consumer Privacy Act (CCPA) and the California Privacy Rights Act (CPRA) impose additional data protection obligations, increasing compliance costs and potential liabilities for the company [210]. - The General Data Protection Regulation (GDPR) in Europe imposes fines of up to €20 million or 4% of annual global revenues for noncompliance, which could adversely affect the company's financial results [211]. Shareholder and Market Dynamics - The per share price of the company's ordinary shares has declined below the minimum bid price threshold required for continued listing on Nasdaq, risking delisting [72]. - The market price of the company's ordinary shares has already declined significantly since trading began on Nasdaq, with potential for further volatility [236]. - The company's securities may experience significant price fluctuations due to market conditions, and an active trading market may not develop or be sustained [224]. - The existence of outstanding debt may encourage short selling, potentially depressing the price of the company's ordinary shares [80].
HUB CYSEC(HUBCZ) - 2023 Q4 - Annual Report