Ondas(ONDS) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION The company's unaudited financials show significant revenue growth offset by larger operating losses, raising going concern doubts Financial Statements Unaudited statements reveal significant revenue growth overshadowed by a substantial net loss and a growing stockholders' deficit Condensed Consolidated Balance Sheets The balance sheet shows a stockholders' deficit of $25.7 million, driven by total liabilities of $29.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $590.9 | $1,129.9 | | Total current assets | $2,090.4 | $2,041.7 | | Total assets | $3,420.1 | $2,661.5 | | Total current liabilities | $9,444.5 | $17,246.3 | | Total liabilities | $29,143.3 | $17,546.3 | | Total stockholders' deficit | $(25,723.2) | $(14,884.8) | Condensed Consolidated Statements of Operations Revenue increased significantly, but faster growth in operating expenses led to a much larger net loss for the period Statement of Operations Summary (in thousands) | Metric | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $193.2 | $16.4 | $225.5 | $45.8 | | Gross profit | $142.5 | $5.3 | $169.5 | $33.7 | | Total operating expense | $4,407.8 | $1,323.1 | $9,552.9 | $1,914.9 | | Operating loss | $(4,265.3) | $(1,317.8) | $(9,383.4) | $(1,881.2) | | Net loss | $(5,100.6) | $(1,829.9) | $(10,924.4) | $(3,401.4) | | Net loss per share | $(0.10) | $(0.10) | $(0.22) | $(0.16) | Condensed Consolidated Statements of Cash Flows Negative operating cash flow of $8.5 million was funded by $8.3 million in financing activities from promissory notes Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net cash flows used in operating activities | $(8,511.1) | $(2,327.0) | | Net cash flows used in investing activities | $(321.2) | $(82.5) | | Net cash flows provided by financing activities | $8,282.7 | $4,870.7 | | (Decrease) increase in cash and cash equivalents | $(549.7) | $2,461.3 | Notes to the Unaudited Condensed Consolidated Financial Statements Notes highlight a going concern warning, substantial debt, high customer concentration, and subsequent financing events - The company's financial condition raises substantial doubt about its ability to continue as a going concern through August 14, 2020, due to recurring losses, a working capital deficit of $7.4 million, and insufficient funds to repay debt maturing on October 31, 2019[32][34] - The company's revenue is highly concentrated, with five customers (A, B, C, D, E) accounting for the vast majority of revenue in the reported periods, and Customer D accounted for 100% of accounts receivable at June 30, 2019[75] - Subsequent to the quarter end, the company drew down an additional $1.65 million in loans, extended the maturity dates of various other loans, and entered into severance agreements with senior management[115][116][117] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes surging operating expenses to business expansion efforts, while highlighting critical liquidity issues Results of Operations Revenue growth was significantly outpaced by a massive increase in operating expenses, leading to a much larger net loss Comparison of Three Months Ended June 30, 2019 and 2018 | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenue | $193,157 | $16,444 | +$176,713 | | Gross Profit | $142,511 | $5,303 | +$137,208 | | Total Operating Expense | $4,407,795 | $1,323,134 | +$3,084,661 | | Net Loss | $(5,100,628) | $(1,829,893) | +$3,270,735 | Comparison of Six Months Ended June 30, 2019 and 2018 | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenue | $225,451 | $45,826 | +$179,625 | | Gross Profit | $169,503 | $33,717 | +$135,786 | | Total Operating Expense | $9,552,915 | $1,914,915 | +$7,638,000 | | Net Loss | $(10,924,353) | $(3,401,362) | +$7,522,991 | - The increase in operating expenses was a direct result of the 2018 Acquisition and new loan agreements, which enabled the company to launch a business expansion effort, significantly increasing human resources costs and professional/consulting fees[132][142] Liquidity and Capital Resources The company's precarious liquidity includes a $7.4 million working capital deficit and insufficient cash to meet obligations - The company has incurred losses since inception and is funded primarily through debt and equity sales[149] - As of June 30, 2019, the company had a working capital deficit of approximately $7.4 million and cash of $0.6 million[149] - Management has concluded there is substantial doubt about the company's ability to continue as a going concern through August 14, 2020, as it must secure additional capital to repay debt obligations and fund operations[151] Quantitative and Qualitative Disclosures about Market Risks The company is exempt from providing market risk disclosures as a smaller reporting company - The company is not required to provide information for this item as it qualifies as a "smaller reporting company"[164] Controls and Procedures Management concluded that disclosure controls were ineffective due to deficiencies in internal financial reporting controls - Management concluded that disclosure controls and procedures were not effective as of June 30, 2019[166] - The ineffectiveness is due to deficiencies in internal control, primarily a lack of sufficient segregation of conflicting duties because of limited accounting staff[166] - A remediation plan is in place to appoint additional qualified personnel and adopt written accounting policies, to be implemented as resources allow[169][171] PART II - OTHER INFORMATION This section covers other required disclosures, including legal proceedings, risk factors, and filed exhibits Legal Proceedings The company reports no current material legal proceedings that would adversely affect its business - The company is not currently involved in any material legal proceedings[172] Risk Factors The company refers to its Annual Report on Form 10-K for a detailed discussion of material risks - For information on risk factors, the company refers to its Annual Report on Form 10-K filed with the SEC on March 19, 2019[173] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period beyond prior disclosures - None, other than those previously disclosed on Form 8-K[174] Exhibits This section lists all exhibits filed with the report, including loan amendments and officer certifications - The report includes numerous exhibits, primarily related to amendments to loan and security agreements and various secured promissory notes, along with officer certifications[180]