Ondas(ONDS) - 2020 Q4 - Annual Report

Part I Business Ondas Networks provides wireless connectivity solutions for Mission-Critical IoT applications using its patented FullMAX SDR platform, targeting critical infrastructure markets through strategic partnerships - Ondas provides wireless connectivity solutions for Mission-Critical Internet of Things (MC-IoT) applications using its patented FullMAX Software Defined Radio (SDR) platform[27] - The company's technology forms the core of the IEEE 802.16s standard, a key differentiator for customers in critical infrastructure markets[27][70] - A strategic partnership with Siemens Mobility was established in April 2020 to jointly develop and market wireless communication products for the North American Rail Industry[50][72] - The company's FullMAX platform has been selected by Aura Network Systems for a nationwide wireless network for Unmanned Aircraft Systems (UAS) command and control[73] - In 2020, the company experienced significant customer concentration, with two customers accounting for 47% and 46% of revenue, respectively[112] - The COVID-19 pandemic impacted 2020 operations, causing workforce furloughs, supply chain disruptions, and delays in field activities and purchase order fulfillment[38][44] Risk Factors The company faces significant risks including a history of operating losses, uncertain market adoption, dependence on partnerships, and material weaknesses in internal controls - The company has a history of significant operating losses, with an accumulated deficit of approximately $65 million as of December 31, 2020, and does not expect to be profitable in the foreseeable future[123][124] - A material weakness in internal control over financial reporting was identified, related to a lack of segregation of duties and accounting resources[187][188] - Growth is highly dependent on the success of strategic partnerships with third parties like Siemens Mobility and Aura Network Systems, and the ability to form new ecosystem relationships[127] - The company is dependent on a small number of customers, with two customers accounting for approximately 47% and 46% of revenue in 2020, and their loss would materially harm the business[138] - The adoption of the IEEE 802.16s wireless standard by target customers is uncertain, and the company is currently the only manufacturer of compliant equipment[126] - The company's common stock is subject to penny stock rules as its price has been less than $5.00, which could reduce trading activity and make it difficult for stockholders to sell shares[210] Unresolved Staff Comments The company reports that it has no unresolved staff comments - None[214] Properties Ondas Networks leases approximately 21,982 square feet of office and facility space in Sunnyvale, CA, under a new 24-month lease effective April 2021 - The company's main offices and facilities for Ondas Networks are located at 165 Gibraltar Court in Sunnyvale, CA, comprising approximately 21,982 square feet[216] - A new 24-month lease for the Sunnyvale property was executed on January 22, 2021, effective April 1, 2021, with a base rent of $45,000 per month[216] Legal Proceedings The company is not currently involved in any legal proceedings or governmental investigations that would materially affect its business or financial condition - The company is not currently a party to any material legal proceedings[219] Mine Safety Disclosures This item is not applicable to the company - Not applicable[220] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock uplisted to Nasdaq in December 2020, has 181 stockholders, and does not intend to pay cash dividends in the foreseeable future - The company's common stock was uplisted from the OTCQB to the Nasdaq Capital Market under the symbol "ONDS" on December 4, 2020[223] - As of March 1, 2021, there were 181 stockholders of record[224] - The company has never paid cash dividends and does not intend to in the foreseeable future[225] Selected Financial Data As a smaller reporting company, Ondas Holdings Inc. is not required to provide the information requested under this item - The company is a smaller reporting company and is not required to provide this information[228] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, revenue significantly increased to $2.16 million, net loss improved to $13.48 million, and a public offering raised $31.25 million, strengthening the financial position Results of Operations Comparison (2020 vs. 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Revenue | $2,164 | $320 | $1,844 | | Gross Profit | $928 | $241 | $687 | | Operating Loss | $(11,524) | $(15,372) | $3,848 | | Net Loss | $(13,478) | $(19,390) | $5,912 | - Revenue for 2020 was primarily composed of $1.15 million in products, $0.94 million in development services, and $0.06 million in maintenance/service contracts[250] - Gross margin decreased from 75% in 2019 to 43% in 2020, primarily due to increased costs associated with the addition of development services[252] - The company received a Paycheck Protection Program (PPP) loan of $666,091 in 2020 under the CARES Act, with potential for forgiveness under discussion with the lender[240] - A registered public offering of common stock in December 2020 generated net proceeds of approximately $31.25 million, expected to fund operations for at least the next twelve months[261][321] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ondas Holdings Inc. is not required to provide the information requested under this item - The company is a smaller reporting company and is not required to provide this information[280] Financial Statements and Supplementary Data Consolidated financial statements for 2020 and 2019 show significant increases in cash and stockholders' equity due to financing activities, alongside an improved net loss Consolidated Balance Sheet Highlights (As of Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,060,733 | $2,153,028 | | Total Assets | $28,511,769 | $4,263,516 | | Total Liabilities | $13,428,174 | $16,693,758 | | Total Stockholders' Equity (Deficit) | $15,083,595 | $(12,430,242) | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Revenues, net | $2,163,719 | $320,383 | | Gross Profit | $927,668 | $241,257 | | Operating Loss | $(11,523,886) | $(15,371,936) | | Net Loss | $(13,477,880) | $(19,390,132) | | Net Loss Per Share | $(0.66) | $(1.10) | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,534,256) | $(14,664,385) | | Net cash used in investing activities | $(16,140) | $(354,822) | | Net cash provided by financing activities | $31,458,101 | $16,042,372 | Changes In and Disagreements with Accountants on Accounting and Financial Disclosures The company reports that there have been no changes in or disagreements with its accountants on accounting and financial disclosures - None[535] Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2020, due to a material weakness in internal control over financial reporting, with a remediation plan underway - Management identified a material weakness in internal control over financial reporting as of December 31, 2020[539][541] - The material weakness is due to a lack of segregation of duties and accounting resources, with the CEO and CFO responsible for multiple conflicting functions[543] - A remediation plan is in progress, including hiring additional senior accounting staff, using third-party experts, and implementing new systems and controls[545][549] Other Information The company reports no other information for this item - None[548] Part III Directors, Executive Officers, and Corporate Governance This section details the company's directors and executive officers, including key executives Eric A. Brock and Stewart G. Kantor, board committee structures, and the adopted Code of Business Conduct and Ethics - The executive officers are Eric A. Brock (Chairman and CEO) and Stewart G. Kantor (Director, President, CFO, Treasurer and Secretary)[552] - The Board has three primary committees: Audit, Compensation, and Nominating and Corporate Governance, each consisting of three independent directors[565][566][567] - The Board has determined that Richard M. Cohen is an "audit committee financial expert" as defined by SEC rules[565] - A Code of Business Conduct and Ethics has been adopted and is available on the company's website[572] Executive Compensation Executive compensation for 2020 included reduced salaries for CEO and CFO due to COVID-19, a significant stock award for the former President, and a new compensation policy for non-employee directors approved in January 2021 2020 Summary Compensation | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Eric A. Brock (CEO) | 2020 | 131,494 | - | 178,778 | | Stewart G. Kantor (President, CFO) | 2020 | 131,494 | - | 138,670 | | Thomas V. Bushey (former President) | 2020 | 115,385 | 3,150,000 | 3,265,385 | - In response to COVID-19, CEO Eric Brock and CFO Stewart Kantor accepted a 90% pay reduction from March 21 to May 19, 2020, and a 35% reduction from May 20 to December 15, 2020[581][582] - Thomas V. Bushey, former President, was granted 1,000,000 RSUs, with 500,000 vested or accelerated upon his resignation and 500,000 canceled[577][580][588] - In January 2021, a new compensation policy for non-employee directors was approved, including quarterly cash retainers and an annual equity award of restricted stock units valued at $60,000[590] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 8, 2021, executive officers and directors beneficially owned 11.33% of common stock, with Energy Capital, LLC as the largest owner, and 3,333,334 shares available under the 2018 Equity Incentive Plan Beneficial Ownership as of March 8, 2021 | Name of Beneficial Owner | Percent of Class | | :--- | :--- | | Energy Capital, LLC | 21.20% | | All Officers & Directors as a Group (8 persons) | 11.33% | | Eric A. Brock (Chairman & CEO) | 7.33% | Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 568,006 | $7.39 | 3,333,334 | Certain Relationships and Related Transactions, and Director Independence The company discloses related party transactions, including stock purchases by the CEO and debt conversion for a major stockholder, with a majority of the Board determined to be independent under Nasdaq rules - CEO Eric A. Brock participated in the company's securities offerings in August 2020 and September 2019[610][611] - In September 2019, Energy Capital, LLC, a major shareholder, converted $10.56 million in debt and interest into 1,408,414 Units of the company[612] - As of year-end 2020, the company had accrued unpaid salaries for CEO Eric A. Brock ($131,494) and CFO Stewart G. Kantor ($2,956 for 2020, with a total balance of $274,831)[613][614] - The Board has determined that five directors are independent under Nasdaq rules[617] Principal Accountant Fees and Services The company's independent accounting firm, RRBB, billed $191,473 in aggregate fees for 2020, with all services pre-approved by the Audit Committee Accountant Fees (2020 vs. 2019) | Fee Type | 2020 | 2019 | | :--- | :--- | :--- | | Audit Fees | $124,915 | $90,000 | | Audit-Related Fees | $6,558 | - | | Tax Fees | $10,000 | $10,000 | | All Other Fees | $50,000 | $47,240 | | Total | $191,473 | $147,200 | - All services provided by the accounting firm RRBB during 2020 and 2019 were pre-approved by the Audit Committee[620] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed as part of the Form 10-K report, including corporate documents, material contracts, and certifications Form 10-K Summary The company reports no summary for this item - None[626]