ONDAS HOLDINGS INC. General
The following discussion and analysis provide information which our management
believes to be relevant to an assessment and understanding of the results of
operations and financial condition of
Overview
COVID-19
In
The Company has not identified any material adverse effect on its reported results for the first quarter resulting from the coronavirus COVID-19 pandemic, however, the Company expects its business, financial condition and results of operations will be more significantly impacted in the second quarter of 2020 and for the remainder of 2020. At the time of the issuance of this Report on Form 10-Q, the Company is unable to reasonably estimate the full extent of the impact from the COVID-19 pandemic on its future business, financial condition and results of operations. The Company may also be unable to comply with the terms of its debt agreements and may not be able to negotiate waivers or amendments to such debt agreements in order to maintain ongoing compliance. In addition, if the Company experiences any additional unexpected delays in the resumption of its full operations, or incurs additional unanticipated costs and expenses as a result of the COVID-19 pandemic, such operational delays and unanticipated costs and expenses will have a further adverse impact on the Company's business, financial condition and results of operations in 2020.
We relied on the
On
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Products and Services
Ondas Networks' wireless networking products are applicable to a wide range of mission critical operations that require secure communications over large geographic areas. We provide wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the Mission-Critical Internet of Things (MC-IoT).
We design, develop, manufacture, sell and support FullMAX, our multi-patented, state-of-the-art, point-to-multipoint, Software Defined Radio (SDR) platform for secure, licensed, private, wide-area broadband networks. Our customers purchase FullMAX system solutions to deploy wide-area intelligent networks (WANs) for smart grids, smart pipes, smart fields and other mission critical networks that need internet protocol connectivity. We sell our products and services globally through a direct sales force and value-added sales partners to critical infrastructure providers including electric and gas utilities, water and wastewater utilities, oil and gas producers and pipeline operators, and for other critical infrastructure applications in areas such as homeland security and defense, and transportation. In addition, our FullMAX platform will begin to be deployed in the second quarter of 2020 to provide command and control connectivity solutions for drones and unmanned aerial systems (UAS).
We are dedicated to promoting standards-based wireless connectivity solutions
for our customers. Our FullMAX platform is compliant with the mission critical
wireless Industrial Internet IEEE 802.16s. The specifications in the IEEE
802.16s standard are primarily based on our FullMAX technology, and many of our
customers and industrial partners actively supported our technology during the
IEEE standards-making process. In
We believe that the published standard has been instrumental in broadening the
appeal of our FullMAX platform globally across all critical infrastructure
markets. Since the publishing of IEEE 802.16s in
Our FullMAX system of wireless base stations, fixed and mobile remote radios and supporting technology is designed to enable highly secure and reliable industrial-grade connectivity for truly mission-critical applications. The target customers for our products operate in critical infrastructure sectors of the global economy. Private wireless networks are typically the preferred choice of these large industrial customers with business operations spanning large field areas. Private networks provide enhanced protection against cyber terrorism, as well as natural and man-made disasters, and the ability for the operator to maintain and control their desired quality of service. Our IEEE 802.16s compliant equipment is designed to optimize performance of unused or underutilized low frequency licensed radio spectrum and narrower channels. A FullMAX wireless network is significantly less expensive to build compared to traditional LTE and 5G networks given its ability to optimize the performance of lower cost radio spectrums (non-traditional LTE and 5G bands) and provide much greater coverage. In many of our industrial end markets, the adoption of low-cost edge computing and increased penetration of "smart machinery" and sensors is driving demand for next-generation networks for IoT applications such as those powered by FullMAX.
Our FullMAX platform has been selected by a customer to be the connectivity
backbone for the deployment of a nationwide wireless network for operators of
unmanned aircraft systems ("UAS"). This network will be designed to enable the
command and control of industrial and commercial drones. The unique air
interface protocol and narrow channel capability of FullMAX offers significant
value in the command and control function required to safely and economically
operate many drones on a single network. Upon commercialization, we expect our
FullMAX platform to be scalable to simultaneously manage hundreds of drones per
tower site flying beyond visual line of site (BVLOS) missions throughout the
In addition to selling our FullMAX solutions for dedicated private wide area
networks, we offer mission-critical wireless services to industrial customers
and municipalities in the form of a Managed Private Network in select regions.
In
Our business consists of a single segment of products and services all of which
are sold and provided in
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Results of Operations
Three months ended
Three Months Ended
March 31,
Increase
2020 2019 (Decrease)
Revenue $ 200,198 $ 32,294 $ 167,904
Cost of goods sold 181,092 5,302 175,790
Gross profit 19,106 26,992 (7,886 )
Operating expenses:General and administrative 908,587 1,614,730 (706,143 )
Sales and marketing 549,018 1,868,971 (1,319,953 )
Research and development 892,929 1,661,419 (768,490 ) Total operating expense 2,350,534 5,145,120 (2,794,586 ) Operating loss
(2,331,428 ) (5,118,128 ) (2,786,700 )
Other income (expense) (475,857 ) (705,597 ) (229,740 )
Net loss (2,807,285 ) (5,823,725 ) (3,016,440 )
Other comprehensive loss - 4,661 4,661
Comprehensive loss $ (2,807,285 ) $ (5,819,064 ) $ (3,011,779 )
Revenues
Our revenues were
Cost of goods sold
Our cost of sales was
Gross profit
Our gross profit decreased by
Operating Expenses
Our principal operating costs include the following items as a percentage of
total expense.
Three Months Ended
March 31,
2020 2019
Human resource costs, including benefits 52.6 % 44.5 %
Travel and entertainment 5.9 % 4.5 %
Other general and administration costs:
Professional fees and consulting expenses 11.6 % 24.6 %
Other expense 15.7 % 14.3 %
Depreciation and amortization 0.3 % 0.6 %
Other research and deployment costs, excluding human resources and travel and entertainment
3.3 % 4.9 %
Other sales and marketing costs, excluding human resources
and travel and entertainment 10.6 % 6.6 %
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Operating expenses decreased by approximately $2,795,000 , or 55% as a result of
the following items:
(000s)
Human resource costs, including benefits $ (1,465 )
Travel and entertainment (166 )
Other general and administration costs:
Professional fees and consulting costs (327 )
Other expense (441 )
Depreciation and amortization (8 )
Other research and deployment costs, excluding human resources and travel and entertainment
(93 )
Other sales and marketing costs, excluding human resources and travel
and entertainment (295 )
$ (2,795 ) In an effort to more efficiently manage our costs, we lowered headcount,
including through furloughs as discussed above, reduced salaries of our
management team, as discussed above, and reduced product development spending
which resulted in an across the board reduction in the major components of our
operating costs for the three months ended
Operating Loss
As a result of the foregoing, our operating loss decreased by
Other Income (Expense), net
Other income (expense), net decreased by
Net Loss
As a result of the net effects of the foregoing, net loss decreased by
Summary of (Uses) and Sources of Cash
Three Months Ended
March 31,
2020 2019
Net cash used in operating activities $ (1,973,754 ) $ (4,694,328 )
Net cash used in investing activities (2,393 ) (84,753 )
Net cash provided by financing activities - 4,086,516
Decrease in cash (1,976,147 ) (692,565 )
Cash and cash equivalents, beginning of period 2,153,028 1,129,863
Cash and cash equivalents, end of period
The principal use of cash in operating activities for the three months ended
For a summary of our outstanding Secured Promissory Notes and Long-Term Notes Payable and, see NOTES 7 and 8 in the accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
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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 of
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 through
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
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.
Off-Balance Sheet Arrangements
As of
Contractual Obligations
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide this information.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in
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Recent Accounting Pronouncements
There have been no material changes to our significant accounting policies as
summarized in NOTE 2 of our Annual Report on Form 10-K for the year ended
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.
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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