REG - Ethernity Networks - Application for TSP and suspension from trading

Ethernity NetworksAnnouncement

12/10/2023 12:00

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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/
(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 and Joint Broker)   Tel: +44 (0)20 3328 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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