Ondas(ONDS) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the period ended September 30, 2019, reveal significant asset growth driven by financing, a widening net loss due to increased operating expenses, and substantial doubt about the company's ability to continue as a going concern Condensed Consolidated Balance Sheets As of September 30, 2019, total assets significantly increased to $7.2 million, primarily from cash, while total liabilities remained high at $17.6 million, and the stockholders' deficit improved to $10.3 million due to debt conversion and equity financing Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,650,318 | $1,129,863 | | Total current assets | $6,012,550 | $2,041,729 | | Total assets | $7,215,820 | $2,661,521 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $16,581,482 | $17,246,276 | | Total liabilities | $17,558,262 | $17,546,276 | | Total stockholders' deficit | $(10,342,442) | $(14,884,755) | Condensed Consolidated Statements of Operations For the nine months ended September 30, 2019, revenues increased, but a substantial surge in operating expenses to $13.0 million led to a widened net loss of $16.1 million Statement of Operations Highlights (Unaudited) | Metric | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Revenues, net | $313,583 | $83,180 | | Gross profit | $242,450 | $68,195 | | Total operating expense | $13,013,957 | $4,021,852 | | Operating loss | $(12,771,507) | $(3,953,657) | | Net loss | $(16,128,012) | $(7,130,397) | | Net loss per share | $(0.32) | $(0.34) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, net cash used in operating activities significantly increased to $11.3 million, primarily offset by $15.2 million in financing activities, resulting in a net cash increase of $3.5 million Cash Flow Summary (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,333,484) | $(4,642,626) | | Net cash used in investing activities | $(341,863) | $(185,780) | | Net cash provided by financing activities | $15,200,982 | $4,884,593 | | Net increase in cash | $3,525,635 | $56,187 | | Cash and cash equivalents, end of period | $4,650,318 | $516,251 | Notes to the Unaudited Condensed Consolidated Financial Statements The notes detail the company's MC-IoT business, disclose substantial doubt about its going concern ability due to liquidity issues, and highlight significant financing activities including a $6.1 million securities sale and $14.5 million debt-to-equity conversion - The company provides wireless connectivity solutions (FullMAX) for Mission-Critical Internet of Things (MC-IoT) applications to industries like utilities, oil and gas, and transportation[24][25] - Management has concluded that there is substantial doubt about the Company's ability to continue as a going concern, as current resources are not sufficient to meet cash requirements for the next year, and the company plans to seek additional financing[35] Disaggregation of Revenue (Nine Months Ended Sep 30, 2019) | Type of Revenue | Amount | | :--- | :--- | | Product revenue | $212,905 | | Service revenue | $100,459 | | Other revenue | $219 | | Total revenue | $313,583 | - In September 2019, the company entered into a securities purchase agreement, raising gross proceeds of $6.065 million through the sale of Units at $2.50 per Unit, with each Unit consisting of one share of common stock and one-half of one warrant[111][112] - In connection with the September 2019 financing, debt obligations totaling approximately $14.5 million were converted into equity Units, including $3.9 million in notes payable and a $10.56 million loan from Energy Capital, LLC[117][118] - Subsequent to the quarter end, in October 2019, the company amended its loan agreement with Steward Capital and completed a second closing of its securities purchase agreement, raising an additional $515,000 in gross proceeds[132][134] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant increase in operating expenses and net loss driven by strategic expansion, highlighting critical liquidity concerns and substantial doubt about the company's ability to continue as a going concern without additional financing - The company designs, develops, and sells its FullMAX system, a point-to-multipoint Software Defined Radio (SDR) system for secure, private, wide-area broadband networks for Mission-Critical Internet of Things (MC-IoT) applications[139][140] - The company played a leadership role in developing the IEEE 802.16s standard, which is based on its FullMAX technology, and believes this will drive widespread adoption in critical infrastructure industries[141] Comparison of Results (Nine Months Ended Sep 30) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Revenues | $313,583 | $83,180 | +277% | | Total operating expense | $13,013,957 | $4,021,852 | +224% | | Operating loss | $(12,771,507) | $(3,953,657) | +223% | | Net loss | $(16,128,012) | $(7,130,397) | +126% | - The increase in operating expenses was driven by a business expansion effort launched in mid-2018, funded by $20 million from loan agreements, with human resource costs increasing by $4.75 million and professional/consulting costs by $1.85 million for the nine months ended Sep 30, 2019, compared to the prior year[161][162] - The company's existing cash is only expected to be sufficient to meet operating needs through December 2019, leading management to have substantial doubt about the company's ability to continue as a going concern and expect to seek additional financing[170][171] Quantitative and Qualitative Disclosures about Market Risks As a "smaller reporting company," the company is not required to provide quantitative and qualitative disclosures about market risks - As a "smaller reporting company," the Company is not required to provide information regarding quantitative and qualitative disclosures about market risk[184] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of September 30, 2019, due to material weaknesses from limited accounting staff and insufficient segregation of duties, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2019[186][188] - The ineffectiveness is due to material weaknesses stemming from limited accounting staff and inadequate segregation of duties, where the CEO and CFO were responsible for multiple conflicting functions[188] - The company's remediation plan includes appointing additional qualified personnel and adopting sufficient written policies and procedures for accounting and financial reporting as resources allow[190][193] PART II - OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings or governmental investigations 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[195] 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 - The company refers to its Annual Report on Form 10-K filed on March 19, 2019, for information on material risks[196] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported, other than those previously disclosed in Current Reports on Form 8-K - No unregistered sales of equity securities were reported, other than those previously disclosed on Form 8-K[197] Defaults upon Senior Securities There were no defaults upon senior securities reported during the period - None[198] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[199] Other Information No other information is reported for this item - None[200] Exhibits This section lists all exhibits filed with the Form 10-Q, including warrants, loan amendments, securities purchase agreements, and officer certifications