Ondas(ONDS) - 2019 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited Q1 2019 financial statements report $32,294 revenue, a $5,823,725 net loss, and a $20,656,796 stockholders' deficit, raising going concern doubts Condensed Consolidated Balance Sheets As of March 31, 2019, total assets were $2,823,917, total liabilities $23,480,713, and stockholders' deficit ($20,656,796), an increase from ($14,884,755) at year-end 2018 Condensed Consolidated Balance Sheets Summary | | March 31, 2019 (Unaudited) ($) | December 31, 2018 ($) | | :--- | :--- | :--- | | Total Assets | $2,823,917 | $2,661,521 | | Total current assets | $1,223,316 | $2,041,729 | | Total Liabilities | $23,480,713 | $17,546,276 | | Total current liabilities | $18,374,854 | $17,246,276 | | Total Stockholders' Deficit | ($20,656,796) | ($14,884,755) | Condensed Consolidated Statements of Operations For Q1 2019, revenues were $32,294, with a net loss of ($5,823,725) or ($0.12) per share, significantly widening from ($1,571,469) in Q1 2018 due to increased operating expenses Condensed Consolidated Statements of Operations Summary | | Three Months Ended March 31, 2019 ($) | Three Months Ended March 31, 2018 ($) | | :--- | :--- | :--- | | Revenues, net | $32,294 | $29,382 | | Gross profit | $26,992 | $28,414 | | Total operating expense | $5,145,120 | $591,781 | | Operating loss | ($5,118,128) | ($563,367) | | Net loss | ($5,823,725) | ($1,571,469) | | Net loss per share - basic and diluted | ($0.12) | ($0.09) | Condensed Consolidated Statements of Cash Flows In Q1 2019, net cash used in operating activities was ($4,694,328), with $4,086,516 from financing, resulting in a ($692,565) decrease in cash and equivalents, ending at $437,298 Condensed Consolidated Statements of Cash Flows Summary | | Three Months Ended March 31, 2019 ($) | Three Months Ended March 31, 2018 ($) | | :--- | :--- | :--- | | Net cash flows used in operating activities | ($4,694,328) | ($878,166) | | Net cash flows used in investing activities | ($84,753) | ($10,003) | | Net cash flows provided by financing activities | $4,086,516 | $5,058,025 | | (Decrease) increase in cash and cash equivalents | ($692,565) | $4,169,856 | | Cash and cash equivalents, end of period | $437,298 | $4,625,874 | Notes to the Unaudited Condensed Consolidated Financial Statements These notes detail the company's MC-IoT business, disclose significant liquidity issues raising going concern doubts, and cover revenue recognition, debt obligations, and the 2018 Equity Incentive Plan - The company provides wireless connectivity solutions for Mission-Critical Internet of Things (MC-IoT) through its multi-patented FullMAX Software Defined Radio (SDR) system[23][24] - The company has incurred losses since inception and had an accumulated deficit of approximately $38.2 million as of March 31, 2019. These conditions, along with upcoming debt maturities, raise substantial doubt about the company's ability to continue as a going concern[32][35] Revenue Breakdown | | Three Months Ended March 31, 2019 ($) | Three Months Ended March 31, 2018 ($) | | :--- | :--- | :--- | | Product revenue | $12,963 | $ - | | Service revenue | $19,331 | $29,382 | | Total revenue | $32,294 | $29,382 | - During Q1 2019, the company drew down a total of $4.1 million in advances under a loan and security agreement with Energy Capital, LLC[108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 2019 net loss increase to business expansion post-acquisition, with critical liquidity issues and maturing debt raising substantial doubt about going concern Results of Operations Q1 2019 revenue slightly increased to $32,294, but operating expenses surged by $4,553,339, widening the operating loss to ($5,118,128) and net loss to ($5,823,725) Comparative Results of Operations | | Three months ended March 31, 2019 ($) | Three months ended March 31, 2018 ($) | Increase (Decrease) ($) | | :--- | :--- | :--- | :--- | | Revenue | $32,294 | $29,382 | $2,912 | | Gross profit | $26,992 | $28,414 | ($1,422) | | Total operating expense | $5,145,120 | $591,781 | $4,553,339 | | Operating loss | ($5,118,128) | ($563,367) | $4,554,761 | | Net loss | ($5,823,725) | ($1,571,469) | $4,252,256 | - The increase in operating expenses was a direct result of the company's business expansion effort, which included significant increases in human resources costs (up $2.1 million) and professional/consulting costs (up $1.0 million)[135][136] Liquidity and Capital Resources As of March 31, 2019, the company had $400,000 cash and a $17.2 million working capital deficit, with $14.1 million in debt maturing by September 2019, raising substantial doubt about its going concern ability - As of March 31, 2019, the company had an accumulated deficit of $38.2 million, cash of approximately $400,000, and a working capital deficit of $17.2 million[143] - The company has upcoming debt maturities of approximately $4.0 million on June 30, 2019, and $10.1 million on September 9, 2019, with insufficient funds for repayment[143] - Management concludes that these factors raise substantial doubt about the company's ability to continue as a going concern through May 10, 2020[145] Item 3. Quantitative and Qualitative Disclosures about Market Risks As a "smaller reporting company," Ondas Holdings Inc. is not required to provide disclosures about market risks - The Company is a "smaller reporting company" and is not required to provide information required by this item[158] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of March 31, 2019, due to material weaknesses in internal control, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2019[160] - The ineffectiveness is due to material weaknesses identified in the 2018 Annual Report, including limited accounting staff and insufficient segregation of duties[160] - The company's remediation plan includes appointing additional qualified personnel and adopting sufficient written policies for accounting and financial reporting[162][165] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently involved in any legal proceeding that it believes will have a material adverse effect on its business[167] Item 1A. Risk Factors For information on material risks, the company refers to the "Risk Factors" section in its Annual Report on Form 10-K filed on March 19, 2019 - For information on material risks, the company refers to the "Risk Factors" section in its Annual Report on Form 10-K filed on March 19, 2019[168] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including secured promissory notes, loan agreement amendments, and officer certifications - The exhibits filed with this report include several secured promissory notes issued to Energy Capital, LLC, an amendment to a loan agreement, and officer certifications[174]