ONDAS HOLDINGS INC. You should read the following discussion and analysis in conjunction with our consolidated financial statements and the notes to those financial statements included elsewhere in this Annual Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. See "Statement Regarding Forward-Looking Information." Our actual results may differ materially from those contained in or implied by
any forward-looking statements. Overview
OnSeptember 28, 2018 , we consummated a reverse acquisition transaction to acquire a privately-held company,Ondas Networks Inc. , and changed our name from "Zev Ventures Incorporated " to "Ondas Holdings Inc. " As a result,Ondas Networks Inc. ("Ondas Networks") became our wholly owned subsidiary. We refer to this transaction as the "Acquisition." In connection with the closing of the Acquisition, we discontinued the prior business ofZev Ventures as a reseller of sporting and concert tickets and our sole business became that ofOndas Networks. We design, manufacture, sell and support FullMAX, our multi-patented wireless radio systems for secure, wide area mission-critical field area networks. This radio network provides point-to-multipoint, non-line of sight connectivity for industrial wireless networks. Since its inception onFebruary 26, 2006 ,Ondas Networks has devoted its efforts principally to research and development and the commercialization of our FullMAX wireless technology platform. We helped create the IEEE 802.16s wireless broadband standard, which was published in the fourth quarter of 2017. In 2018, we initiated a business expansion plan designed to invest in our sales and marketing and customer support capabilities in order to build our customer base.
We have incurred significant net losses since inception. As of years endedDecember 31, 2019 and 2018, our accumulated deficit was approximately$52 and$33 million , respectively. We expect to continue incurring substantial losses for the next several years as we continue to develop, manufacture and market our technologies. Our operating expenses are comprised of research and development expenses, general and administrative expenses, and sales and marketing expenses. Our future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing our technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets.
Our business consists of a single segment of products and services, all of which
are sold and provided in
The Acquisition OnSeptember 28, 2018 , we entered into the Agreement and Plan of Merger and Reorganization (the "Merger Agreement") withZev Merger Sub, Inc. andOndas Networks to acquire Ondas Networks. The transactions contemplated by the Merger Agreement were consummated onSeptember 28, 2018 (the "Closing"), and pursuant to the terms of the Merger Agreement, all outstanding shares of common stock of Ondas Networks,$0.00001 par value per share, (the "Ondas Networks Shares"), were exchanged for shares of our common stock,$0.0001 par value per share (the "Company Shares"). Accordingly, Ondas Networks became our wholly-owned subsidiary and its business became the business of the Company. At the Closing, each Ondas Networks Share outstanding immediately prior to the Closing was exchanged for 3.823 Company Shares (the "Exchange Ratio"), with all fractional shares rounded down to the nearest whole share. Accordingly, we issued an aggregate of 25,463,732 Company Shares for all of the then-outstanding Ondas Networks Shares. 35 In connection with the Closing, we amended and restated our articles of incorporation, effectiveSeptember 28, 2018 to (i) change our name toOndas Holdings Inc. , and (ii) increase our authorized capital to 360,000,000 shares, consisting of 350,000,000 shares of common stock, par value$0.0001 per share, and 10,000,000 shares of "blank check" preferred stock, par value$0.0001 per share. In connection with the Acquisition, our trading symbol changed to "ONDS" effective at the opening of business onOctober 5, 2018 . Also in connection with the Closing, (i) our sole director appointed additional individuals, who previously sat on the board of Ondas Networks and its chief executive officer, to serve on our Board, and our Board subsequently appointed our executive officers; (ii) the former holders of the Ondas Networks Shares executed lock-up agreements (the "Lock-Up Agreements"), which provided for an initial twelve-month lock-up period followed by a subsequent 12-month limited sale period, commencing with the date of Closing; (iii) we entered into a Common Stock Repurchase Agreement with an entity pursuant to which the entity sold an aggregate of 32,600,000 Company Shares (the "Repurchase Shares") to us at$0.0001 per share, for an aggregate consideration of$3,260 (the Repurchase Shares were canceled and returned to our authorized but unissued shares); (iv) our Board approved, and our stockholders adopted, the 2018 Equity Incentive Plan (the "2018 Plan") pursuant to which 10 million Company Shares have been reserved for issuance to employees, including officers, directors and consultants; and (v) we entered into a Loan and Security Agreement withEnergy Capital , a stockholder of the Company, pursuant to whichEnergy Capital agreed to lend the Company an aggregate principal amount of up to$10 million , subject to specified conditions. Subsequent to the Closing, (i) the Lock-Up Agreements were amended onAugust 30, 2019 to delete the 12-month limited sale period making all shares locked up untilSeptember 28, 2020 , and (ii)Energy Capital loaned the Company the full$10 million available under the Loan and Security Agreement. OnSeptember 27, 2019 ,Energy Capital, LLC entered into a Securities Purchase Agreement with other subscribers in which it converted an aggregate of approximately$10,563,000 principal and interest outstanding under the Loan and Security Agreement into an aggregate of 4,225,242 Units (wherein a unit consisted of one share of common stock and one-half of one warrant to purchase one share of Company common stock (the "Investor Warrant")) of the Company. At the closing of the transaction, the debt owedEnergy Capital under the Loan and Security Agreement was extinguished and the Loan terminated pursuant to its terms. See NOTE 8 in the accompanying consolidated financial statements for additional details.
Key Components of Our Results of Operations and Financial Condition
Revenues
Our revenues are derived principally from the sale of our multi-patented FullMAX
wireless radio system. We also provide a warranty/maintenance program through an
annual contract. The warranty/maintenance contract requires payment in full at
the time of execution of the contract. Revenue from the warranty/maintenance
contract is initially recorded as deferred revenue and is subsequently recorded
as income spread equitably over the term of the contract. Due to the ongoing
development and commercialization process of our FullMAX solutions, our revenues
have historically been generated by equipment trial and pilot programs and
related services, in addition to a modest number of full network deployments. We
have historically had limited sales and customer service resources to support
higher sales volumes. In 2018 and 2019, we expanded our sales and marketing
effort across multiple industries which dramatically increased our sales
pipeline and the number of customers and projects we are targeting. We expect
this increased customer engagement to lead to a larger number of sales
opportunities and revenue in 2020.
36
Cost of Sales
Our cost of sales is comprised primarily of the cost of components included in our FullMAX system and other costs associated with the assembly and delivery thereto. We expect our investment in expanding our customer sales and service efforts to lead to increased volume of FullMAX equipment sales in future periods, which will lead to higher costs of sales. Cost of sales as a percentage of revenue has historically been volatile due to low levels of revenue and can be skewed higher or lower due to the mix of high margin base station units relative to remote units sold. Higher unit sales volume will provide scale manufacturing opportunities which could lead to a decline in the cost of sales as a percentage of revenue in future periods. General and Administration
General and administration expenses primarily include salary and benefit expense, legal and accounting services, professional services, rent and facilities costs, general liability insurances, and travel expenses. We expect these expenses to increase as a result of continued growth in headcount and support of our business and operations.
Sales and Marketing
Sales and marketing expenses primarily include salary and benefit expense, trade shows, marketing programs and promotional material, travel expenses, and the allocation of certain facility costs. We expect these expenses to increase as a result of continued growth in headcount and support of our business and operations. Research and Development Research and development expenses primarily include salary and benefit expense and costs for contractors engaged in research, design and development activities including intellectual property, travel expenses, and the allocation of certain facility costs. We expect our research and development costs to increase as we continue making investments in developing new products in addition to new versions of FullMAX. Other Income (Expense)
Other income (expense) primarily includes interest expense and impairment of deferred offering and financing costs.
Results of Operations
Year ended
Year ended December 31,
2019 2018 Change
(000s)
Revenue $ 320 $ 190 $ 130
Cost of sales 79 39 40
Gross profit 241 151 90
Operating expenses:
General and administrative 4,793 2,612 2,181
Sales and marketing 5,404 2,898 2,506
Research and development 5,416 3,077 2,339
Total operating expense 15,613 8,587 7,026
Operating loss (15,372 ) (8,436 ) 6,936
Other income (expense) (4,018 ) (3,661 ) 357
Net loss $ (19,390 ) $ (12,097 ) $ 7,293
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Revenue
Revenue increased to approximately$320,000 for the year endedDecember 31, 2019 from approximately$190,000 for the year endedDecember 31, 2018 . Revenues in both years were primarily generated via pilot programs and small customer deployments which increased year over year in 2019. Cost of sales Cost of sales increased to approximately$79,000 for the year endedDecember 31, 2019 from approximately$39,000 for the year endedDecember 31, 2018 . This increase in cost of sales is a direct result of the increase in revenue during 2019. Gross profit Our gross profit increased to approximately$241,000 for the year endedDecember 31, 2019 from approximately$151,000 for the year endedDecember 31, 2018 based on the changes in revenue and cost of sales as discussed above. Gross margins for the years endedDecember 31, 2019 and 2018 were 75% and 79%, respectively. Operating Expenses Our principal operating costs include the following items as a percentage of total expense. Year EndedDecember 31, 2019 2018
Human resource costs, including benefits 45 % 43 % Travel and entertainment 4 % 5 % Other general and administration costs: Professional fees and consulting expenses 28 % 33 % Other expense 11 % 9 % Depreciation and amortization 1 % 1 %
Other research and deployment costs, excluding human resources and travel and entertainment
6 % 5 %
Other sales and marketing costs, excluding human resources and travel and entertainment
5 % 4 %
As a direct result of (i) the aforementioned Acquisition and (ii) the two $10
million dollars loan and security agreements discussed herein and in NOTE 8 in
the accompanying consolidated financial statements, the Company was able to
launch its business expansion effort to open new markets for FullMAX and invest
in product development programs, through significant increases in human
resources costs and professional and consulting costs.
Operating expenses changed by approximately $7,026,000 (82%) as a result of the
following items:
(000s)Human resource costs, including benefits $
3,238
Travel and entertainment
262
Other general and administration costs: Professional fees and consulting costs
1,612
Other expense
931
Depreciation and amortization
89
Other research and deployment costs, excluding human resources and travel and entertainment
479
Other sales and marketing costs, excluding human resources and travel
and entertainment 415
$ 7,026
Operating Loss
As a result of the foregoing, our operating loss increased approximately
$6,936,000 , or 82%, to approximately $15,372,000 for the year ended December 31,
2019 , compared with approximately $8,436,000 for the year ended December 31,
2018 , primarily as a result of increases associated with administrative support
and increased spending as we ramp up our sales and marketing and research and
development efforts.
38
Other Income (Expense)
Other expense increased by approximately
Year ended December 31,
2019 2018 Change
(000s)
Interest expense $ 2,929 $ 2,664 $ 265
Impairment of deferred offering and
financing costs associated with canceled financing
efforts 920 - 920
Loss on disposal of fixed assets 183 - 183
Interest and other income (14 ) (23 ) 9
Change in fair value of derivative liability - 976 (976 )
Loss on extinguishment of debt -
44 (44 )
$ 4,018 $ 3,661 $ 357
Net Loss
Because of the net effects of the foregoing, net loss increased approximately
$7,293,000 , or 60%, to approximately $19,390,000 for the year ended December 31,
2019 , compared with approximately $12,097,000 for the year ended December 31,
2018 . Net loss per share of common stock, basic and diluted, was ($0.37 ) for the
year ended December 31, 2019 , compared with ($0.42 ) per share of common stock
for the year ended December 31, 2018 .
Summary of Sources and (Uses) of Cash
Year ended December 31,
2019 2018
(000s)
Net cash used in operating activities
(355 ) (630 )
Net cash provided by financing activities 16,042 9,821
Increase in cash 1,023 674
Cash and cash equivalents, beginning of year 1,130 456
Cash and cash equivalents, end of year $ 2,153 $ 1,130
39
The principal use of cash in operating activities for the year ended December
31, 2019 was to fund the Company's current expenses primarily related to sales
and marketing and research and development activities necessary to allow us to
service and support a higher level of business activity as we expanded into new
industry and geographic markets. The increase in cash flows used in operating
activities of approximately $6,148,000 is primarily a result of the addition of
personnel, both employees and third-party consulting services. The decrease in
cash flows used in investing activities of approximately $275,000 is primarily a
result of a decrease in the purchase of equipment partially offset by the
purchase of wireless spectrum licenses. The increase in cash provided by
financing activities is primarily a result of the Company's private placement of
its common stock totaling $6,110,000 , net of closing fees (see NOTE 9 in the
accompanying consolidated financial statements for further details).
For a summary of our outstanding Notes Payable and Other Financing Agreements
and Secured Promissory Note, see NOTES 7 and 8 in the accompanying consolidated
financial statements.
Liquidity and Capital Resources
We have incurred losses since inception and have funded our operations primarily through debt and the sale of capital stock. As ofDecember 31, 2019 , we had a stockholders' deficit of approximately$12.4 million . AtDecember 31, 2019 , we had short-term and long-term borrowings outstanding of approximately$10.1 million and$0.5 million , respectively. As ofDecember 31, 2019 , we had cash of approximately$2.2 million and a working capital deficit of approximately$12.5 million . Our future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing our technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to new customers as well. We also will be required to efficiently manufacturer and deliver equipment on those purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital through the end of 2020 and beyond. Based on our current operating plans, we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs throughMarch 2020 .
Accounting standards require management to evaluate our ability to continue as a
going concern for a period of one year subsequent to the date of the filing of
this Form 10-K ("evaluation period"). As such, we have evaluated if cash on hand
and cash generated through operating activities would be sufficient to sustain
projected operating activities through March 13, 2021 . We anticipate that our
current resources will be insufficient to meet our cash requirements throughout
the evaluation period, including funding anticipated losses and scheduled debt
maturities. We expect to seek additional funds from a combination of dilutive
and/or non-dilutive financings in the future. Because such transactions have not
been finalized, receipt of additional funding is not considered probable under
current accounting standards. If we do not generate sufficient cash flows from
operations and obtain sufficient funds when needed, we expect that we would
scale back our operating plan by deferring or limiting some, or all, of our
capital spending, reducing our spending on travel, and/or eliminating planned
headcount additions, as well as other cost reductions to be determined. Because
such contingency plans have not been finalized (the specifics would depend on
the situation at the time), such actions also are not considered probable for
purposes of current accounting standards. Because, under current accounting
standards, neither future cash generated from operating activities, nor
management's contingency plans to mitigate the risk and extend cash resources
through the evaluation period, are considered probable, substantial doubt is
deemed to exist about the Company's ability to continue as a going concern. As
we continue to incur losses, our transition to profitability is dependent upon
achieving a level of revenues adequate to support its cost structure. We may
never achieve profitability, and unless and until doing so, we intend to fund
future operations through additional dilutive or non-dilutive financings. There
can be no assurances, however, that additional funding will be available on
terms acceptable to us, if at all.
The financial information contained in these financial statements have been
prepared on a basis that assumes that we will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. This financial information and
these financial statements do not include any adjustments that may result from
the outcome of this uncertainty.
40
Off-Balance Sheet Arrangements
As of
Contractual Obligations
We are a smaller reporting company as defined by Rule 229.10(f)(1) and are not required to provide information under this item.
Critical Accounting Estimates The preparation of financial statements in accordance with accounting principles generally accepted inthe United States of America ("GAAP") requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:
? if requires assumptions to be made that were uncertain at the time the estimate
was made, and
? changes in the estimate or different estimates that could have been selected
could have a material impact on our results of operations or financial
condition.
We base our estimates and judgments on our experience, our current knowledge,
our beliefs of what could occur in the future, our observation of trends in the
industry, information provided by our customers and information available from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We have identified the following accounting policies
and estimates as those that we believe are most critical to our financial
condition and results of operations and that require management's most
subjective and complex judgments in estimating the effect of inherent
uncertainties: share-based compensation expense, income taxes, and impairment of
long-lived assets.
Share-Based Compensation Expense. We calculate share-based compensation expense
for option awards and certain warrant issuances ("Share-based Awards") based on
the estimated grant/issue date fair value using the Black-Scholes-Merton option
pricing model ("Black-Sholes Model") and recognize the expense on a
straight-line basis over the vesting period, net of estimated forfeitures. We
have not included an estimate for forfeitures due to our limited history and we
revise based on actual forfeitures each period. The Black-Scholes Model requires
the use of a number of assumptions including volatility of the stock price, the
weighted average risk-free interest rate, and the vesting period of the
Share-based Award in determining the fair value of Share-based Awards. Although
we believe our assumptions used to calculate share-based compensation expense
are reasonable, these assumptions can involve complex judgments about future
events, which are open to interpretation and inherent uncertainty. In addition,
significant changes to our assumptions could significantly impact the amount of
expense recorded in a given period.
Income Taxes. As part of the process of preparing our consolidated financial
statements, we are required to estimate income taxes in each of the
jurisdictions in which we operate. Our provision for income taxes is determined
using the asset and liability approach to account for income taxes. A current
liability is recorded for the estimated taxes payable for the current year.
Deferred tax assets and liabilities are recorded for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates in effect for the year in which the timing differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
changes in tax rates or tax laws are recognized in the provision for income
taxes in the period that includes the enactment date. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
more-likely-than-not to be realized. Changes in valuation allowances will flow
through the statement of operations unless related to deferred tax assets that
expire unutilized or are modified through translation, in which case both the
deferred tax asset and related valuation allowance are similarly adjusted.
41
The determination of our provision for income taxes requires significant
judgment, the use of estimates, and the interpretation and application of
complex tax laws. In the ordinary course of our business, there are transactions
and calculations for which the ultimate tax determination is uncertain. In spite
of our belief that we have appropriate support for all the positions taken on
our tax returns, we acknowledge that certain positions may be successfully
challenged by the taxing authorities. We determine the tax benefits more likely
than not to be recognized with respect to uncertain tax positions. Although we
believe our recorded tax assets and liabilities are reasonable, tax laws and
regulations are subject to interpretation and inherent uncertainty; therefore,
our assessments can involve both a series of complex judgments about future
events and rely on estimates and assumptions. Although we believe these
estimates and assumptions are reasonable, the final determination could be
materially different than that which is reflected in our provision for income
taxes and recorded tax assets and liabilities.
Complex Derivative Financial Instruments. From time to time we sell common stock
and we issue convertible debt, both with common stock purchase warrants, which
may include terms requiring conversion price or exercise price adjustments based
on subsequent issuance of securities at prices lower than those in the
agreements of such securities. Due to the complexity of the agreement, we use an
outside expert to assist in providing the mark to market fair valuation of the
liabilities over the reporting periods in which the original agreement was in
effect. It was determined that a Binomial Lattice option pricing model using a
Monte Carlo simulation would provide the most accuracy given all the potential
variables encompassing a future dilutive event. This model incorporated
transaction assumptions such as our stock price, contractual terms, maturity,
risk free rates, as well as estimates about future financings, volatility, and
holder behavior. Although we believe our estimates and assumptions used to
calculate the fair valuation liabilities and related expense were reasonable,
these assumptions involved complex judgments about future events, which are open
to interpretation and inherent uncertainty. In addition, significant changes to
our assumptions could significantly impact the amount of expense recorded in a
given period.
Impairment of Long-Lived Assets. Carrying values of property and equipment and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. If impairment indicators are present, we determine whether an impairment loss should be recognized by testing the applicable asset or asset group's carrying value for recoverability. This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived from the eventual disposal of the assets to be held and used. Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing this capacity back into production. If the carrying value of the assets is not recoverable, then a loss is recorded for the difference between the assets' fair value and respective carrying value. The fair value of the assets is determined using an "income approach" based upon a forecast of all the expected discounted future net cash flows associated with the subject assets. Some of the more significant estimates and assumptions include: market size and growth, market share, projected selling prices, manufacturing cost and discount rate. Our estimates are based upon historical experience, commercial relationships, market conditions and available external information about future trends.
Recently Adopted Accounting Pronouncements
InJune 2018 , the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning afterDecember 15, 2018 , and interim periods within those fiscal years. Early adoption is permitted. The Company has elected to early adopt ASU 2018-07. The adoption of this pronouncement had no impact on our accompanying consolidated financial
statements.
42
In July 2017 , the FASB issued ASU 2017-11 ("ASU 2017-11"), Earnings Per Share
("Topic 260"), Distinguishing Liabilities from Equity ("Topic 480"), and
Derivatives and Hedging ("Topic 815"). ASU 2017-11 is intended to simplify the
accounting for financial instruments with characteristics of liabilities and
equity. Among the issues addressed are: (i) determining whether an instrument
(or embedded feature) is indexed to an entity's own stock; (ii) distinguishing
liabilities from equity for mandatorily redeemable financial instruments of
certain nonpublic entities; and (iii) identifying mandatorily redeemable
non-controlling interests. ASU 2017-11 was effective for the Company on January
1, 2019 . There was no material effect on the 2019 financial statements upon
adoption.
In August 2016 , the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230)
("ASU 2016-15"). ASU 2016-15 is intended to reduce the diversity in practice
regarding how certain transactions are classified within the statement of cash
flows. ASU 2016-15 is effective for public business entities for annual periods
beginning after December 15, 2017 , including interim periods within those fiscal
years. There was no material effect on the 2019 and 2018 financial statements
upon adoption.
In February 2016 , the FASB issued ASU 2016-02, Leases. This guidance requires
lessees to record most leases on their balance sheet while recognizing expenses
on their income statements in a manner similar to current accounting. The
guidance also eliminates current real estate-specific provisions for all
entities. For lessors, the guidance modifies the classification criteria and the
accounting for sales-type and direct financing leases. The standard is effective
for public business entities for annual periods beginning after December 15,
2018 , and interim periods within those years. Early adoption is permitted for
all entities. In July 2018 , the FASB amended the new leases standard and issued
ASU 2018-11, Leases, (Topic 842): Targeted Improvements to give entities another
option for transition and to provide lessors with practical expedient. We
adopted ASU 2016-02 on January 1, 2019 utilizing the alternative transition
method allowed for under ASU 2018-11. Comparative financial information was not
adjusted and will continue to be reported under ASC 840. We also elected the
transition relief package of practical expedients and as a result we did not
assess (1) whether existing or expired contracts contain leases, (2) lease
classification for any existing or expired leases, and (3) whether lease
origination costs qualified as initial direct costs. We elected the short-term
lease practical expedient by establishing an accounting policy to exclude leases
with a term of 12 month or less. We elected not to separate lease components
from non-lease components for our specified asset classes. Additionally, the
adoption of the new standard resulted in increased disclosure requirements in
our quarterly and annual filings.
In May 2014 , the FASB issued ASU 2014-09, Revenue from Contracts with Customers
(Topic 606). The standard's core principle is that a company will recognize
revenue when it transfers promised goods or services to customers in an amount
that reflects the consideration to which the company expects to be entitled in
exchange for those goods or services. In doing so, companies will need to use
more judgment and make more estimates than under previous guidance. These may
include identifying performance obligations in the contract, estimating the
amount of variable consideration to include in the transaction price and
allocating the transaction price to each separate performance obligation. In
July 2015 , the FASB approved the proposal to defer the effective date of ASU
2014-09 standard by one year. In 2016, the FASB issued final amendments to
clarify the implementation guidance for principal versus agent considerations
(ASU 2016-08), accounting for licenses of intellectual property and identifying
performance obligations (ASU 2016-10), narrow-scope improvements and practical
expedients (ASU 2016-12) and technical corrections and improvements to Topic 606
(ASU 2016-20) in its new revenue standard. The guidance is effective for public
entities for annual reporting periods beginning after December 15, 2017 and
interim periods therein. Our services are performed over the term of our
contracts and customers are billed for those services as they are performed on a
monthly basis. Revenue is recognized each month for the services that have been
provided to our customers. Additionally, we do not have significant exposure
related to uncollectible accounts. We have performed a review of the
requirements of the new revenue standard and have performed our analysis of our
customer contracts on a portfolio basis (by each hospital group) utilizing the
five-step model of the new standard. We have compared the results of our
analysis to our current accounting practices. We adopted Topic 606 on January 1,
2018 using the full retrospective transition method for recognizing revenue. The
adoption of Topic 606 represents a change in accounting principle that will more
closely align revenue recognition with the delivery of our services to our
customers and will provide financial statement readers with enhanced
disclosures. The adoption of this standard did not have a material effect on the
timing and recognition of revenue for the services provided to our customers.
43
Recently Issued Accounting Pronouncements
InDecember 2019 , the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod tax allocation and calculating income taxes in interim periods. ASU 2019-12 is applicable to all entities subject to income taxes. ASU 2019-12 provides guidance to minimize complexity in certain areas by introducing a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and guides whether to relate a step-up tax basis to a business combination or separate transaction. ASU 2019-12 changes the current guidance of making an intraperiod allocation, determining when a tax liability is recognized after a foreign entity investor transitions to or from equity method of accounting, accounting for tax law changes and year-to-date losses in interim periods, and determining how to apply income tax guidance to franchise taxes. The amendments ASU 2019-12 are effective for all public business entities for fiscal years beginning afterDecember 15, 2020 and include interim periods. The guidance is effective for all other entities for fiscal years beginning afterDecember 15, 2021 and for interim periods beginning afterDecember 15, 2022 . Early adoption is permitted. The Company is evaluating impact on our accompanying consolidated financial statements. 44
InNovember 2019 , the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses,which amends certain aspects of the Board's new credit loss standard (ASC 326). ASU 2019-11 is applicable to companies that hold financial assets in the scope of the credit losses standard. FASB permits to include the following in estimate if expected credit losses: expected recoveries of financial assets previously written off and expected recoveries of financial assets with credit deterioration. The scope of guidance related to expected recoveries includes purchased financial assets with credit deterioration. ASU 2019-11 permits entities to record negative allowance when measuring expected credit losses for a purchased credit deteriorated financial asset and expected recoveries cannot exceed the aggregate amount previously written off or expected to be written off. When discounted cash flow method is not being used to estimate expected credit losses, expected recoveries cannot include any amounts in an acceleration of the noncredit discount. An entity may include increases in expected cash flows after acquisition. Early adoption is not permitted. The Company is evaluating impact on our accompanying consolidated financial statements. InAugust 2018 , the FASB issued ASU, 2018-13 that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to ASC 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The new guidance is effective for all entities for fiscal years beginning afterDecember 15, 2019 and for interim periods within those fiscal years. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. We are currently evaluating the effect of this guidance on our disclosures. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This annual report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, that relate to future events or to our future operations or financial performance. Any forward-looking statement involves known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statement. Forward-looking statements include statements, other than statements of historical fact, about, among other things:
? our plans to further develop our FullMAX system of wireless base stations;
? our plans to further develop remote radios;
? the adoption by our target industries of the new IEEE 802.16s standard for
private cellular networks;
? our future development priorities;
? our estimates regarding the size of our potential target markets;
? our expectations about the impact of new accounting standards;
? our future operations, financial position, revenues, costs, expenses, uses of
cash, capital requirements, our need for additional financing or the period for
which our existing cash resources will be sufficient to meet our operating
requirements; or ? our strategies, prospects, plans, expectations, forecasts or objectives.
45
Words such as, but not limited to, "believe," "expect," "anticipate,"
"estimate," "forecast," "intend," "may," "plan," "potential," "predict,"
"project," "targets," "likely," "will," "would," "could," "should," "continue,"
"scheduled" and similar expressions or phrases, or the negative of those
expressions or phrases, are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying
words. Although we believe that we have a reasonable basis for each
forward-looking statement contained in this report, we caution you that these
statements are based on our estimates or projections of the future that are
subject to known and unknown risks and uncertainties and other important factors
that may cause our actual results, level of activity, performance, experience or
achievements to differ materially from those expressed or implied by any
forward-looking statement. Actual results, level of activity, performance,
experience or achievements may differ materially from those expressed or implied
by any forward-looking statement as a result of various important factors,
including our critical accounting policies and risks and uncertainties relating,
among other things, to:
? our ability to obtain additional financing on reasonable terms, or at all;
? our ability to repay our indebtedness;
? the accuracy of our estimates regarding expenses, costs, future revenues, uses
of cash and capital requirements;
? the market acceptance of our wireless connection products and the IEEE 802.16s
standard and IEEE 802.16t standard;
? our ability to develop future generations of our current products;
? our ability to generate significant revenues and achieve profitability;
? our ability to successfully commercialize our current and future products,
including their rate and degree of market acceptance;
? our ability to attract and retain key scientific or management personnel and to
expand our management team;
? our ability to establish licensing, collaboration or similar arrangements on
favorable terms and our ability to attract collaborators with development,
regulatory and commercialization expertise;
? our ability to manage the growth of our business;
? the success of our strategic partnerships with third parties;
? expenditures not resulting in commercially successful products;
? our outreach to global markets;
? our commercialization, marketing and manufacturing capabilities and strategy;
? our ability to expand, protect and maintain our intellectual property position;
? the success of competing third-party products;
? our ability to fully remediate our identified internal control material
weaknesses;
? regulatory developments in
? our ability to comply with regulatory requirements relating to our business,
and the costs of compliance with those requirements, including those on data
privacy and security.
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