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RNS Number : 9584P
Ethernity Networks Ltd
12 October 2023
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse (amendment) (EU Exit) Regulations 2019/310
("MAR"). With the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to
be in the public domain.
12 October 2023
ETHERNITY NETWORKS LTD
("Ethernity" or the "Company" or the "Group")
Application for Temporary Suspension of Proceedings in
Israel
Suspension of trading on AIM
Ethernity Networks Ltd (AIM: ENET.L; OTCMKTS: ENETF), a leading
supplier of networking processing semiconductor technology ported
on field programmable gate arrays ("FPGAs") for virtualised
networking appliances, announces that it has applied to court in
Tel Aviv for a Temporary Suspension of Proceedings ("TSP") order
(the "TSP Order") and the convening of a meeting of creditors in
accordance with amendment number 4 to the Israeli Insolvency and
Economic Rehabilitation Law. The Company also announces the
temporary suspension of the Company's ordinary shares from trading
on AIM.
Background Information and current trading
As previously announced, the Company has faced significant
challenges in recent months and has implemented a new business
strategy, alongside a significant cost cutting exercise, in order
to address these conditions. These challenges have included a
significant and unexpected increase in cost and lead-times of the
components on which the Company's technology is embedded, following
the global components shortage as a result of the global pandemic.
This resulted in an increased financial strain on the Company.
Several of the Company's substantial customers have experienced
financial difficulties themselves due to the global pandemic and
subsequent challenges in the capital markets. This has resulted in
the Company having difficulties in collecting customers'
outstanding debts.
On 1 September 2023, the Company announced that it had received
notice of cancellation of one such contract (first announced on 30
July 2021). This contract was with an Israeli company, Siklu LTD
("Siklu"). Siklu entered into financial distress following the
cancellation of its IPO on the Tel Aviv Stock Market and as a
result terminated the contract with Ethernity. The contract
cancellation took place after the Company had issued large orders
for components to fulfil the contract and after the Company
assigned more resource to fix the design failures of Siklu. This
has resulted in the Company holding an excess stock of components
which have not been used.
On 18 October 2021 and 20 September 2022, the Company announced
signed contracts for $3 million and a follow-on contract for $4.6
million respectively with its Chinese customer, that operates in
China and India. The Company claims that the Chinese customer has
breached the two signed contacts as the customer has not collected
the orders which were fulfilled by the Company for XGS-PON and
GPON. In addition, the Company is not in receipt of the contracted
advance payment due in accordance with the terms of the $4.6
million contract. This has resulted in a debtor balance with this
customer of c. $1.1 million, which remains unpaid. The Company
continues to support the Chinese customer to seek a resolution.
In addition, the Company believes that two of its long-term
customers have been violating the usage of a license from the
Company for several years and will be taking steps to claim against
this infringement.
Lastly, the Company had anticipated receiving a significant cash
payment from a customer during the course of the last two weeks,
however this has not yet materialized. The customer was due to
visit the Company this week, but this has been postponed due the
current emergency situation in Israel.
These events have materially adversely impacted the Company's
trading and prospects and resulted in the Company's current
cash-flow difficulties, and therefore the Board has taken the
decision to submit the TSP Order today. The Company's current cash
balance is c. $107,000.
Application for TSP order
The Company has applied to the court in Tel Aviv for a TSP Order
that will provide it with 90 days to resolve outstanding issues
with creditors and implement a new business plan. To date, there
are no formal proceedings against the Company, and this is a
preventive measure to give the Company time to resolve issues with
creditors and seek remedies under Israel's Insolvency and Economic
Rehabilitation law.
During the 90 day TSP period, the Company has drawn up a
temporary operating plan, based on ongoing cash collection from
customers and putting in place interim financing up to a total of
1,000,000 NIS to be used as 'insolvency proceedings expenses',
which would allow the Company to continue operating as a going
concern during the period to provide time to formulate and seek
approval of a debt arrangement that would bring about optimal
utilization of the Company's assets (tangible and intangible) in
favour of an intelligent repayment of its debts to its creditors.
Further details on the interim financing will be provided once
finalised. The Company will also seek the court's assistance in the
recovery of debts and to come to an arrangement with customers that
the Company believes have infringed Intellectual Property licenses
with the Company.
During this process, the Company will continue to support its
paying customers and seek to sign licensing deals with new
customers for its Packet Processing technology, PON technology and
system solutions.
Further details on the interim financing will be announced once
it has been finalised.
Pursuant to the application, the Company has asked the court the
following:
-- to issue a temporary suspension of proceedings for 90 days,
according to which no legal proceedings will be taken and/or
continued, including execution procedures and other collection
procedures, against the Company;
-- to appoint a settlement manager for the Company, whose powers
will be to convey arrangements with the creditors;
-- to authorize the Company to publish notices in the press
regarding the submission of this request, and in addition to order
that in accordance with the insolvency regulations and the
temporary order regarding the issuance of an order delaying the
proceedings will be published by the commissioner;
-- to authorize the Company to publish advertisements in the
press in accordance with the regulations, regarding the submission
of debt claims by the creditors, and this within 21 days from the
date of the decision on this request;
-- to authorize the Company to hold creditor meetings, to be
conducted by the settlement manager, for the purpose of approving
the debt settlement proposal by the Company (as formulated), as
well as to publish appropriate ads in the press and make inventions
in accordance with the regulations; and
-- to give any other instruction, as the honorable court deems appropriate to order it.
Should the TSP be approved by the court, the Board of Ethernity
is optimistic that there is a reasonable chance that the proposed
settlement will be approved by the creditors (especially
considering the implications of the alternative scenarios, which
could include a liquidation of the Company) within the period.
The timing for approval of the TSP Order by the court is
uncertain in part due to the ongoing emergency situation in Israel.
A further announcement will be made once a decision has been made
by the court on the application. There can be no guarantee that the
court will approve the application. In the event that the
application is not approved, the Company would need to seek
alternate measures to secure the future of the business.
Recovery Business Plan
The Company's proposed debt settlement with creditors is based
on the ability of the Company to continue its trading activities as
a going concern (under the framework of the TSP), in a way that
would allow it to recover and generate profits through: (i)
continued sales to existing, paying customers; (ii) sales of new
user licenses and products it has developed; and (iii) further
reducing the cost of sales in accordance with the new business
model in which it is has been operating for the past few
months.
Furthermore, the Company will seek to resolve disputes it has
with two of its long-term customers in relation to alleged
infringements of the user license by the customer. Should the
Company reach a satisfactory outcome with these customers, it would
be expected to generate enough cash to allow the Company to
continue its growth plan per the new business model.
Further details on the recovery business plan will be announced
once it has been finalised.
The Board of Ethernity shall remain in place during the process
and continue to have operational control of the Company, to oversee
and implement the temporary operating Plan and develop a recovery
business plan.
A copy of the TSP Order, in Hebrew, will be published on the
Court's website and an English translation of the TSP Order will be
made available on the Company's website,
https://ethernitynet.com/investors/ .
Suspension of trading on AIM
In light of the uncertainty over whether the TSP Order will be
approved, the Board of Ethernity has requested an immediate
suspension to the trading on AIM of its shares pending
clarification of its financial position and trading in the
Company's shares will be suspended at 12:00 p.m. today.
The Company's shares will remain suspended pending confirmation
whether the application has been approved by the court. Further
updates will be provided by the Company once a decision has been
made.
David Levi, CEO, said "It is highly regrettable that we have had
to take this course of action to protect the Company. However, if
granted, this will allow the Company time to resolve issues with
creditors and complete the restructuring of the business and
implementation of our revised business model that focus on
short-term cash generation. If we are unsuccessful, this will
preserve the most value for shareholders and allow us to seek a
buyer or other solution for the business. During this period, the
Board and I remain fully committed to the business and finding a
solution for Ethernity to continue as a going concern and thrive as
a technology business."
For further information, please contact:
Ethernity Networks Ltd Tel: +972 8 915 0392
David Levi, Chief Executive Officer
Allenby Capital Limited (Nominated Adviser Tel: +44 (0)20 3328
and Joint Broker) 5656
James Reeve / Piers Shimwell (Corporate
Finance)
Amrit Nahal / Stefano Aquilino (Sales
and Corporate Broking)
Peterhouse Capital Limited (Joint Broker) Tel: +44 (0)20 7562
0930
Lucy Williams / Duncan Vasey / Eran Zucker
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