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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Ondas Holdings Inc.    ONDS

ONDAS HOLDINGS INC.

(ONDS)
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ONDAS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/06/2020 | 04:24pm EST

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 Ondas Holdings Inc. ("we", "our" or the "Company"). This discussion should be read together with our condensed consolidated financial statements and the notes included therein, which are included in this Quarterly Report on Form 10-Q (the "Report"). This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the "SEC") on March 13, 2020, including the audited consolidated financial statements and notes included therein as of and for the year ended December 31, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. For a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements, please refer to the below section of this Report titled "Cautionary Note Regarding Forward-Looking Statements." The reported results will not necessarily reflect future results of operations or financial condition. Unless otherwise defined herein, all initially capitalized terms herein shall be as defined in our Annual Report on Form 10-K.



Overview


On September 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 of Zev Ventures as a reseller of sporting and concert tickets and our sole business became that of Ondas Networks.

Ondas Networks provides 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"). The Company's wireless networking products are applicable to a wide range of MC-IoT applications which are most often located at the very edge of large industrial networks. These applications require secure, real time connectivity with the ability to process large amounts of data at the edge. Such applications are required in all of the major critical infrastructure markets including rail, electric grids, drones, oil and gas, and public safety and government, where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure a high degree of safety and security. We design, develop, manufacture, sell and support FullMAX, our patented, Software Defined Radio ("SDR") platform for secure, licensed, private, wide-area broadband networks. Our customers install FullMAX systems in order to upgrade and expand their legacy wide-area network ("WAN") infrastructure. Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers ("IEEE"), the leading worldwide standards body in data networking protocols, and forms the core of the IEEE 802.16s standard. Ondas has taken a leadership position in IEEE as it relates to wireless networking for industrial markets given that standards-based communications solutions are preferred by our mission-critical customers and ecosystem partners. As such, management believes this standards-based approach supports the adoption of the Company's technology across a burgeoning ecosystem of partners and end markets.

Our FullMAX SDR platform is an important and timely upgrade solution for privately-owned and operated wireless WANs, leveraging Internet Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. Critical infrastructure markets throughout the globe have reached an inflection point where legacy serial and analog based protocols and network transport systems no longer meet industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent networking platform enabling the adoption of sophisticated operating systems and equipment supporting next-generation MC-IoT applications over wide field areas. These new MC-IoT applications and related equipment require more processing power at the edge and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the "Fog-computing" capability integrated in our end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing and data and application prioritization in the field enabling our customers more reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the Edge.

We sell our products and services globally through a direct sales force and value-added sales partners to critical infrastructure providers including major rail operators, commercial and industrial drone operators, 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. We continue to develop our value-added reseller relationships which today include a major strategic partnership with Siemens Mobility for the development of new types of wireless connectivity for the North American Rail. We believe our Siemens' partnership is indicative of the potential for additional Tier 1 partnerships in our other vertical markets including securing reseller relationships with major suppliers to the worldwide government and homeland security markets. These partnerships are being driven by the flexibility of our FullMAX software to support legacy industrial protocols (e.g. Push to Talk Voice, Dial-up Serial Data Communications, and Advanced Train Control System - ATCS) while simultaneously operating our state of the art MC-IoT protocols. This dual and multi-mode software capability provides major industrial customers with a seamless migration path to advanced internet-protocol-based networks. Over time, these legacy functions, like Push to Talk Voice and ATCS, are transformed into just several of many new data applications we can support.

Our business consists of a single segment of products and services, all of which are sold and provided in the United States and certain international markets.



                                       25





COVID-19


In December 2019, a novel strain of coronavirus ("COVID-19") was identified in Wuhan, China, and has subsequently spread to other regions of the world, and has resulted in increased travel restrictions, business disruptions and emergency quarantine measures across the world including the United States.

The Company's business, financial condition and results of operations were impacted from the COVID-19 pandemic during the three and nine months ended September 30, 2020 as follows:



          ?   sales and marketing efforts were disrupted as our business
              development team was unable to travel to visit customers and
              customers were unable to receive visitors for on-location meetings;


          ?   field activity for testing and deploying our wireless systems was
              delayed due to the inability for our field service team to install
              and test equipment for our customers;


          ?   supply chain disruptions led to component shortages and
              inefficiencies in and delays in producing and delivering equipment
              for certain purchase orders; and


  ? delays in fulfilling purchase orders reduced our cash flow from operations.



In the first quarter of 2020, we reduced our business activity to critical operations only, and furloughed 80% of our workforce. Per orders issued by the Health Officer of the County of Santa Clara, our corporate headquarters were closed, except for functions related to the support of remote workers and product support related to the essential transportation sector. On May 13, 2020, we reopened our corporate headquarters and as of September 30, 2020 we have no employees remaining on furlough. Of the 18 employees previously furloughed, 14 are currently employed by us.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted. The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. The Company applied for, and received, funds under the Paycheck Protection Program after the period end in the approximate amount of $666,000. The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support operations of the Company. This certification further requires the Company to consider its current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan related to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.

The Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic for the remainder of 2020 primarily due to the deferral of customer activity from the first half of the year. Further, the COVID-19 pandemic is ongoing and remains an unknown risk for the foreseeable future. The extent to which the coronavirus may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus. As a result, 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 financial and other material covenants under 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 were to experience any new impact to its operations, or incur additional unanticipated costs and expenses as a result of the COVID-19 pandemic, such operational delays and unanticipated costs and expenses there could be a further adverse impact on the Company's business, financial condition and results of operations in 2020 and 2021.

Although COVID-19 has had an immediate near-term impact on our business operations, we also believe the one outcome of the pandemic will be to reinforce the need for more reliable private commercial and industrial communications. This can be seen specifically in the need for new Unmanned Aerial Systems solutions including the safe command and control of drones as remote delivery method. In a recent filling at the FCC, the Drone Responders Public Safety Alliance stated, (the) "current COVID-19 pandemic only emphasizes this need, as remote methods of commercial delivery will only become more essential to serve the public good. In light of the current COVID-19 crisis, UAS have the potential to deliver payloads of medical equipment and supplies."



                                       26





Our Strategy


Our goal is to be a global leader in providing secure wireless connectivity solutions enabling high-bandwidth, mission-critical Industrial Internet applications and services. We intend to leverage our patented FullMAX technology and the IEEE 802.16s standard to achieve this goal. We have adopted a "Deep and Wide" marketing strategy designed to drive adoption of our mission-critical connectivity solutions into global critical infrastructure end markets. Our strategy is to deeply penetrate the Class 1 Freight Rail, government and aviation markets while continuing the expansion of our distribution and support capabilities alongside ecosystem partners such as Siemens into adjacent vertical end markets such as oil and gas, electric, gas and water utilities and military sectors.

The key elements of our growth strategy include the following:



            ?   Deliver on sales pipeline opportunities. Our marketing efforts
                have generated the potential for significant sales in our targeted
                end markets. Our sales activity in the North American Class 1
                Railroad sector has resulted in several pilot programs for
                multiple railroad operators. Once we successfully complete field
                testing, we expect to work with our customers to design and
                develop a network deployment strategy which we expect to lead to
                purchase orders for equipment and services. We have similar field
                testing and initial system deployments planned in the UAS markets,
                security, electric and gas utilities, and oil and gas markets.




            ?   Secure additional marketing partnerships and OEM relationships. We
                service blue chip customers in critical infrastructure sectors
                with standards-based, mission-critical connectivity solutions.
                Those customers value the experience and resources provided by
                additional ecosystem partners that help support the growth of the
                MC-IoT end markets. As we have done with Siemens Mobility, we
                intend to pursue marketing and OEM partnership agreements with
                other Tier 1 global industrial and communications equipment
                suppliers that have extensive reach and domain expertise in our
                targeted end markets. These relationships will offer customers
                greater choice, expanded levels of after-market support and
                services, and the potential for greater product integration with
                intelligent equipment, and systems that are increasingly being
                deployed by our critical infrastructure customers.




            ?   Develop new products and features to continuously improve our
                customer value. We introduced our Mercury remote radio in the
                first quarter of 2020 in order to address the expanding MC-IoT
                market for high volume, lower cost endpoint radios. Our Mercury
                radios are integrated into our existing FullMAX private network
                solutions, are compliant with IEEE 802.16s and can be utilized in
                both Tier 1 and Tier 2 network configurations. We will continue to
                enhance our SDR capabilities to aggregate non-contiguous channels
                with a focus on traditional licensed LMR frequency bands to
                provide IP data networking solutions in historically analog
                push-to-talk (PTT) bands. We will also work with ecosystem
                partners to develop dual-mode products to assist in the migration
                from legacy networks to our next-generation FullMAX platform.




            ?   Expand our MC-IoT capabilities via partnerships, joint ventures,
                or acquisitions. In addition to internal investment and
                development, we will actively pursue external opportunities to
                enhance our product offerings and solutions for our critical
                infrastructure customers via joint ventures, partnerships, and
                acquisitions. This activity will be focused on companies with
                complementary technologies or product offerings or synergistic
                distribution strategies.




                                       27




In executing our go-to-market strategy, we intend to monetize our software-based intellectual property and grow revenue and cash flow with embedded FullMAX software sales, Software-as-a-Service ("SaaS") arrangements, IP royalties based on Ondas software and through additional services provided to customers and ecosystem partners. Customers deploy our connectivity and Fog-computing platform in private networks that are designed for lifetimes of 10 - 15 years or even longer. Our FullMAX platform is software-defined and offers customers flexibility to expand capacity and evolve network utilization. Similarly, our ecosystem partners often integrate our FullMAX software and wireless capability into their own equipment and systems which their customers purchase and deploy are also designed for long lifetimes. As such, we believe our software solutions provide ongoing revenue opportunities and sales models both related to both connectivity value and edge computing capability. Customers and ecosystem partners will require ongoing FullMAX system and security enhancements and for us to design additional features which create opportunities for additional, recurring revenue and profit streams. Our monetization strategies include:

Systems sales: Our FullMAX deployments are typically large, mission-critical wide-area networks deployed and privately operated by our industrial and government customers. These end-to-end system deployments involve sales consisting of both base stations and edge radio end points with embedded FullMAX software and network management software and tools.

Software and hardware maintenance agreements: Our customers contract for extended software and hardware maintenance which provide them with critical ongoing support for their installed network. These SaaS contracts provide revenue to Ondas in the year following an initial installation. Software maintenance licenses entitle the customer to ongoing software and security upgrades as well as enabling the provision of additional system features. Similarly, hardware maintenance programs provide customers extended equipment warranty terms for an installed network. These SaaS maintenance arrangements allow our customers to continue to maintain a modern, flexible and upgradeable network over a long period of time. These agreements may extend for multiple years given the long average life of the installed and growing network.

Licensing / Royalties: In certain system deployments, our ecosystem partners will choose to embed FullMAX software into their own hardware and software platforms providing Ondas with an ongoing per device multi-year revenue stream. Licensing is an effective way for an ecosystem partner to jumpstart customer activity. Alternatively, a partner may choose to develop software based on our intellectual property generating royalty revenue.

Other Services: We provide ancillary services directly related to the sale of our wireless communications products which include wireless network design, systems engineering, radio frequency planning, software configuration, product training, installation, and onsite support. Furthermore, we also provide engineering and product development services to ecosystem partners who are interested in integrating their intelligent equipment with our FullMAX SDR platform and need our expertise to do so.



The Siemens Partnership

In April 2020, we entered into a strategic partnership with Siemens Mobility, a separately managed company of Siemens AG (Siemens), to jointly develop wireless communications products for the North American Rail Industry based on Siemens' Advanced Train Control System (ATCS) protocol and our MC-IoT platform, for availability in the second half of 2020. These dual-mode ATCS/MC-IoT radio systems will support Siemens' extensive installed base of ATCS radios as well as offer Siemens' customers the ability to support a host of new advanced rail applications utilizing our MC-IoT wireless system. These new applications, including Advanced Grade Crossing Activation and Monitoring, Wayside Inspection, Railcar Monitoring and support for next generation signaling and train control systems, are designed to increase railroad productivity, reduce costs and improve safety. The new ATCS-compatible products will be introduced in two phases, including a field-selectable ATCS or MC-IoT remote radio available in the fourth quarter of 2020. Furthermore, Siemens has begun to market and sell Siemens-branded MC-IoT wireless systems based on our technology platforms.

The North American Rail Network is vast in scale, consisting of 140,000 miles of track, 25,000 locomotives, 1.6 million railcars and 200,000 highway crossings. A significant portion of the communications infrastructure has been in operation for more than 20 years and now requires a technological upgrade to support new applications and increased capacity requirements. Our MC-IoT platform offers an excellent migration path for these applications. The Class I Railroads value the ability of the Ondas' frequency-agnostic SDR architecture to enable a substantial capacity increase utilizing the railroad's existing wireless infrastructure and dedicated Federal Communications Commission ("FCC") licensed radio frequencies, as well as the flexibility to adapt to and take advantage of future changes in spectrum availability.

We believe the Siemens partnership will accelerate the adoption of our wireless technology in the North American Class I Railroad market. We believe Siemens has both the sales and marketing reach and support to drive our technology to wide scale acceptance. Siemens also brings Ondas access to the North American transit market where our technology has broad potential. In addition to our strategic partnership with Siemens Mobility, we expect to establish additional formal sales and marketing partnerships and OEM relationships with other leading Tier 1 vendors of industrial equipment in 2020.



                                       28





Our Products and Services


Ondas was founded in 2006 to develop a new type of radio platform specifically to meet the evolving data needs of large industrial and government customers and markets. These markets are differentiated from consumer markets in that the customers assets are dispersed over very wide and remote geographies with specific challenges to installation, maintenance, and upgrades. These challenges led us to design a new type of software-based radio platform capable of supporting a long useful life to the network hardware. Instead of using low cost, off the shelf, dedicated communications chipsets ("ASICs"), we selected powerful programmable embedded general-purpose processors, DSPs, and FPGAs, all of which are software upgradable. Our software defined radio ("SDR") architecture, with more than 12 years in development and supported by a team of 45 software engineers, allows us to customize almost any aspect of the air interface protocol, the key components of which are patented and have been incorporated into new IEEE wireless standards. The ability to constantly improve customer networks and hosted software applications with flexible, over-the-air software upgrade creates customer stickiness with high switching costs.

FullMAX Software: Our FullMAX SDR platform is designed to enable highly secure and reliable industrial-grade connectivity for truly mission-critical applications. An end-to-end FullMAX network consists of connected wireless base stations, fixed and mobile edge radios and supporting technology all enabled by critical software developed and owned by Ondas. 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.

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 higher bandwidth, next-generation networks for IoT applications such as those powered by FullMAX. These new technologies often require Fog-computing capabilities to maximize their utility to customers. The Fog-computing capability integrated in our end-to-end FullMAX SDR platform is valued by our customers and ecosystem partners as they seek to leverage the value of MC-IoT applications for improved safety, efficiency, and profitability. Our IEEE 802.16s compliant equipment is designed to optimize performance of unused or underutilized low frequency licensed radio spectrum and narrower channels. We do this through various patented software algorithms including via "spectrum harvesting" techniques which aggregate narrowband channels to create increased broadband network capacity. Our channel aggregation algorithms include the ability to aggregate hard to utilize, non-contiguous narrowband channels and are a hallmark feature of a FullMAX broadband system. Consequently, 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, low frequency radio spectrum and provide much greater coverage and capacity.

The critical software algorithms powering our end-to-end FullMAX wireless SDR platform and related Fog-computing architecture have been developed by and are owned by Ondas. FullMAX is an intelligent networking system which integrates core network management systems with edge computing resources including computing hardware and MC-IoT software applications. In the MC-IoT Fog enabled by FullMAX, base stations are enabled with a highly configurable Quality of Service algorithms which coordinate the data traffic within the Fog for both the edge radio and the resident MC-IoT applications. The intelligent base stations control and manage all network resources including the Ondas edge remotes; dynamically allocating bandwidth, prioritizing data packets and managing edge applications. The intelligent software-managed base stations determine whether to process data at the edge, distribute data traffic across the Fog to other edge remote radios or to transport information to the corporate Cloud. Ondas' Edge remotes have embedded compute capability and are able to host MC-IoT applications including those from third party vendors via virtualized software systems managed in docker / container architectures and can also manage data from intelligent equipment or sensor networks that interface with the edge remotes in the field. The Ondas software-managed edge remotes offer security via authentication, multi-layer encryption and virtual software firewalls which are requirements for mission-critical data networks.

Our FullMAX Software Defined Radio platform:



        ?   offers a dedicated private network for industrial applications which
            safeguards critical assets and information and protects against
            cyberattacks;
        ?   has frequency agility with the capability to operate in any frequency
            between 70 MHz and 6 GHz;
        ?   may be deployed in a wide variety of narrow and broadband channel
            sizes and can aggregate non-contiguous channels; and
        ?   implements standard and enhanced versions of the IEEE 802.16 protocol,
            the new 802.16s amendment, and the planned 802.16t enhancements



FullMAX System: FullMAX base stations and edge radios are deployed by our customers to create wide-area wireless communication networks. A FullMAX network provides end-to-end IP connectivity, allowing critical infrastructure providers to extend their secure corporate networks into the far reaches of their service territories. A FullMAX network also provides more data capacity allowing our customers to transition legacy applications such critical Push-to-Talk Voice operating in legacy LMR networks to Voice over IP data networks which provide network capacity for other data requirements alongside voice. We refer to these networks as Land Mobile Data Radio (LMDR) systems.

FullMAX radios can operate at high transmit power (up to 100 watts) at both the Base Station and Remote sites providing fixed and mobile data connectivity up to 30 miles from the tower site (see Figure 1 below). This results in up to 2,800 square miles of coverage from a single FullMAX tower compared with the 28 square miles typically supported by other 4G technologies and three-square miles by 5G technologies (see Figure 2 below). This dramatically reduces the infrastructure cost of building and operating a private cellular network. For example, to cover a territory of over 10,000 square miles may require only four FullMAX towers compared with more than 350 typical 4G towers, depending on the topography of the region.

We also provide a variety of services associated with the sale of our FullMAX products including network design, RF planning, product training and spectrum consulting. We provide customers with technical support, extended hardware warranties, and software.



                                       29





Results of Operations



Three months ended September 30, 2020 compared to three months ended September
30, 2019



                                             Three Months Ended
                                               September 30,
                                   2020             2019            Change
Revenue                        $    614,026$     88,132$    525,894
Cost of goods sold                  365,863           15,185          350,678
Gross profit                        248,163           72,947          175,216
Operating expenses:

General and administrative 1,823,336 1,036,013 787,323

 Sales and marketing                253,560        1,174,293         (920,733 )
 Research and development           904,378        1,250,736         (346,358 )
Total operating expense           2,981,274        3,461,042         (479,768 )
Operating loss                   (2,733,111 )     (3,388,095 )       (654,984 )
Other income (expense)             (592,769 )     (1,815,564 )     (1,222,795 )
Net loss                         (3,325,880 )     (5,203,659 )     (1,877,779 )
Foreign currency translation              -          (21,655 )         21,655
Comprehensive loss             $ (3,325,880 )$ (5,225,314 )$ (1,899,434 )




Revenues


Our revenues were $614,026 for the three months ended September 30, 2020 compared to $88,132 for the three months ended September 30, 2019. Revenues during the three months ended September 30, 2020 included $245,075 for products, $16,410 for maintenance/service contracts, $351,248 for development services and $1,293 for other revenues. Revenues during the same period in 2019 included $61,182 for products and $26,950 for maintenance/service contracts.



Cost of goods sold


Our cost of sales was $365,863 for the three months ended September 30, 2020 compared to $15,185 for the three months ended September 30, 2019. The increase in cost of sales was a result of costs related to products totaling approximately $72,000, development services totaling approximately $273,000 and maintenance/service contracts and other revenues totaling approximately $6,000.



Gross profit


Our gross profit increased by $175,216 for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 based on the changes in revenues and costs of sales as discussed above. Gross margin for the periods in 2020 and 2019 was 40% and 83%, respectively.



Operating Expenses



Our principal operating costs include the following items as a percentage of
total expense.



                                                                     Three Months Ended
                                                                        September 30,
                                                                  2020                2019
Human resource costs, including benefits                                36 %                32 %
Stock-based compensation                                                19 %                14 %
Travel and entertainment                                                 - %                 3 %
Other general and administration costs:
Professional fees and consulting expenses                               25 %                31 %
Other expense                                                           12 %                10 %
Depreciation and amortization                                            2 %                 1 %

Other research and deployment costs, excluding human resources and travel and entertainment

                                   6 %                 6 %
Other sales and marketing costs, excluding human resources
and travel and entertainment                                             - %                 3 %




                                       30





Operating expenses decreased by approximately $480,000, or 14% as a result of
the following items:



                                                                           (000s)
Human resource costs, including benefits                                 $    (535 )
Stock-based compensation                                                       595
Travel and entertainment                                                       (93 )

Other general and administration costs:

   Professional fees and consulting costs                                     (342 )
   Other expense                                                                16
   Depreciation and amortization                                                24

Other research and deployment costs, excluding human resources and travel and entertainment

                                                       (40 )
Other sales and marketing costs, excluding human resources and travel
and entertainment                                                             (105 )
                                                                         $    (480 )

During the three months ended September 30, 2020, with our continued reduction in business development and the lingering impact of the COVID-19 disruptions, we have reduced costs compared to the same period in 2019 as detailed in the table above. These efforts to reduce spending resulted in a reduction in the major components of our operating costs for the three months ended September 30, 2020 compared to the same period in 2019. The increase in stock-based compensation during the three months ended September 30, 2020 is primarily a result of the vesting of previously issued restricted stock units to Mr. Bushey.



Operating Loss


As a result of the foregoing, our operating loss decreased by $654,984, or 19%, to $2,733,111 for the three months ended September 30, 2020, compared with $3,388,095 for the three months ended September 30, 2019, primarily as a result of reduced operating expenses and the increase in gross profit as discussed above.

Other Income (Expense), net

Other income (expense), net decreased by $1,222,795, or 67%, to $(592,769) for the three months ended September 30, 2020, compared with $(1,815,564) for the three months ended September 30, 2019. During the three months ended September 30, 2020, compared to the same period in 2019, we reported a decrease in interest expense of approximately $454,000, primarily a result of certain debt instruments converted into common stock of the Company during the three months ended September 30, 2019, and a decrease in the write-off of financing costs of approximately $910,000, while interest and other income, net increased by approximately $6,000. The Company also recorded a loss on the change of fair value of a derivative liability of approximately $136,000 during the three months ended September 30, 2020.



Net Loss


As a result of the net effects of the foregoing, net loss decreased by $1,877,779, or 36%, to $3,325,880 for the three months ended September 30, 2020, compared with $5,203,659 for the three months ended September 30, 2019. Net loss per share of common stock, basic and diluted, was $(0.06) for the three months ended September 30, 2020, compared with approximately $(0.10) for the three months ended September 30, 2019.



                                       31





Nine months ended September 30, 2020 compared to nine months ended September 30,
2019



                                              Nine Months Ended
                                                September 30,
                                   2020             2019             Change
Revenue                        $  1,969,598$     313,583$  1,656,015
Cost of goods sold                1,087,540            71,133        1,016,407
Gross profit                        882,058           242,450          639,608
Operating expenses:
 General and administrative       5,222,180         3,874,186        1,347,994
 Sales and marketing                934,948         4,728,505       (3,793,557 )
 Research and development         2,555,223         4,411,266       (1,856,043 )
Total operating expense           8,712,351        13,013,957       (4,301,606 )
Operating loss                   (7,830,293 )     (12,771,507 )     (4,941,214 )
Other income (expense)           (1,523,413 )      (3,356,505 )     (1,833,092 )
Net loss                         (9,353,706 )     (16,128,012 )     (6,774,306 )
Foreign currency translation              -            (7,755 )          7,755
Comprehensive loss             $ (9,353,706 )$ (16,135,767 )$ (6,782,061 )




Revenues


Our revenues were $1,969,598 for the nine months ended September 30, 2020 compared to $313,583 for the nine months ended September 30, 2019. Revenues during the nine months ended September 30, 2020 included $1,043,585 for products, $53,500 for maintenance/service contracts, $866,119 for development services and $6,394 for other revenues. Revenues during the same period in 2019 included $212,905 for products and $100,678 for maintenance/service contracts.



Cost of goods sold


Our cost of sales was $1,087,540 for the nine months ended September 30, 2020 compared to $71,133 for the nine months ended September 30, 2019. The increase in cost of sales was primarily a result of costs related to products totaling approximately $259,000, development services totaling approximately $735,000 and maintenance/service contracts and other revenues totaling approximately $22,000.



Gross profit


Our gross profit increased by $639,608 for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 based on the changes in revenues and costs of sales as discussed above. Gross margin for the periods in 2020 and 2019 was 45% and 77%, respectively.



Operating Expenses



Our principal operating costs include the following items as a percentage of
total expense.



                                                                     Nine Months Ended
                                                                       September 30,
                                                                  2020                2019
Human resource costs, including benefits                                21 %               42 %
Stock-based compensation                                                28 %                4 %
Travel and entertainment                                                 1 %                5 %

Other general and administration costs:

   Professional fees and consulting expenses                            33 %               28 %
   Other expense                                                        11 %               10 %
   Depreciation and amortization                                         1 %                1 %

Other research and deployment costs, excluding human resources and travel and entertainment

                                   5 %                5 %
Other sales and marketing costs, excluding human resources
and travel and entertainment                                             - %                5 %




                                       32





Operating expenses decreased by approximately $4,302,000, or 33% as a result of
the following items:



                                                                           (000s)
Human resource costs, including benefits                                 $  (3,727 )
Stock-based compensation                                                     1,964
Travel and entertainment                                                      (525 )

Other general and administration costs:

   Professional fees and consulting costs                                     (705 )
   Other expense                                                              (393 )
   Depreciation and amortization                                                11

Other research and deployment costs, excluding human resources and travel and entertainment

                                                      (301 )
Other sales and marketing costs, excluding human resources and travel
and entertainment                                                             (626 )
                                                                         $  (4,302 )

During the nine months ended September 30, 2020, with our continued reduction in business development and the lingering impact of the COVID-19 disruptions, we have reduced costs compared to the same period in 2019 as detailed in the table above. These efforts to reduce spending resulted in a reduction in the major components of our operating costs for the nine months ended September 30, 2020 compared to the same period in 2019. The increase in stock-based compensation during the nine months ended September 30, 2020 is primarily a result of the vesting of previously issued restricted stock units to Mr. Bushey.



Operating Loss


As a result of the foregoing, our operating loss decreased by $4,941,214, or 39%, to $7,830,293 for the nine months ended September 30, 2020, compared with $12,771,507 for the nine months ended September 30, 2019, primarily as a result of reduced operating expenses and the increase in gross profit as discussed above.

Other Income (Expense), net

Other income (expense), net decreased by $1,833,092, or 55%, to $(1,523,413) for the nine months ended September 30, 2020, compared with $(3,356,505) for the nine months ended September 30, 2019. During the nine months ended September 30, 2020, compared to the same period in 2019, we reported a decrease in interest expense of approximately $975,000, primarily a result of certain debt instruments converted into common stock of the Company during the nine months ended September 30, 2019, a decrease in the write-off of financing costs of approximately $997,000, while interest and other income, net increased by approximately $3,000. The Company also recorded a loss on the change of fair value of a derivative liability of approximately $136,000 during the three months ended September 30, 2020.



Net Loss


As a result of the net effects of the foregoing, net loss decreased by $6,774,306, or 42%, to $9,353,706 for the nine months ended September 30, 2020, compared with $16,128,012 for the nine months ended September 30, 2019. Net loss per share of common stock, basic and diluted, was $(0.16) for the nine months ended September 30, 2020, compared with approximately $(0.32) for the nine months ended September 30, 2019.

Summary of (Uses) and Sources of Cash



                                                                          Nine Months Ended
                                                                            September 30,
                                                                        2020             2019
Net cash used in operating activities                               $ (4,875,137 )$ (11,333,484 )
Net cash used in investing activities                                    (13,606 )        (341,863 )
Net cash provided by financing activities                              4,884,060        15,200,982

Increase (decrease) in cash, cash equivalents and restricted cash (4,683 ) 3,525,635 Effect of foreign currency transaction on cash

                                 -            (5,180 )
Cash and cash equivalents, beginning of period                         2,153,028         1,129,863
Cash, cash equivalents and restricted cash, end of period           $  2,148,345$   4,650,318

The principal use of cash in operating activities for the nine months ended September 30, 2020 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 customers. The decrease in cash flows used in operating activities of approximately $6,400,000 is primarily a result of a reduced headcount, reduced travel and entertainment expense and lower product development spending. Cash flows used in investing activities decreased by approximately $400,000 primarily due to a reduction in capital spending. The decrease in cash provided by financing activities of approximately $10,300,000 is a result of a reduction in funding activities partially offset by funds provided by the Payroll Protection Program of $666,091 and the sale of Preferred Stock, net of costs of $4,217,969, as described below.

In August 2020, the Company entered into securities purchase agreements with certain purchasers, which provided for the sale of an aggregate of $4.435 million of the Company's Series A Preferred at a cash purchase price of $2.00 per share (the "Purchase Price") (the "2020 Offering"). Pursuant to the purchase agreements, the Company issued an aggregate of 2,217,500 shares of Series A Preferred to the investors. In connection with the 2020 Offering, Eric Brock, the Company's Chief Executive Officer purchased 157,500 shares of Series A Preferred. The aggregate gross proceeds to the Company from the 2020 Closing was $4.435 million. After payment of offering expenses, the net proceeds to the Company from the 2020 Closing was approximately $4.22 million.



                                       33




For a summary of our outstanding short-term and long-term loans, see NOTES 7 and 8 in the accompanying unaudited condensed 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. At September 30, 2020, we had a stockholders' deficit of approximately $13,700,000. At September 30, 2020, we had net short and long-term borrowings outstanding of approximately $11,800,000 and $600,000, respectively. As of September 30, 2020, we had available cash of approximately $2,100,000 and a working capital deficit of approximately $14,100,000.

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 as well as new customers. 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 March 31, 2021.

As of September 30, 2020, excluding operating lease liabilities, the outstanding amount, including principal, accrued interest, accredited costs, net of debt discount, of indebtedness was $12,527,453, summarized in the table below. See NOTES 7 and 8 in the accompanying unaudited condensed consolidated financial statements for further details.



                                Outstanding Amount as of September 30,
                                                 2020
Paycheck Protection Program    $                                666,091
Steward Capital Holdings, LP                                 11,525,891
Convertible Promissory Note                                     335,471
                               $                             12,527,453



Accounting standards require management to evaluate the Company's ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-Q ("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 November 6, 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 nondilutive 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, 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 are also 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 our 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.

Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet arrangements.



Contractual Obligations


As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide this information.



                                       34





Critical Accounting Estimates


Management's discussion and analysis of financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, as well as related disclosures. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time and under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. Information concerning our critical accounting policies with respect to these items is available in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 13, 2020 (the "2019 Form 10-K"). There have been no significant changes in our critical accounting polies since the filing of the Form 10-K.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies an issuer's accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company's fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of January 1, 2022.

Aside from ASU 2020-06, there have been no material changes to our significant accounting policies as summarized in NOTE 2 of our 2019 Form 10-K. We do not expect that the adoption of any recent accounting pronouncements will have a material impact on our accompanying unaudited condensed consolidated financial statements.



              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


This 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;

? any outbreak or worsening of an outbreak of contagious diseases, or other

adverse public health developments, could have a material and adverse effect

on our business operations, financial condition and results of operations;

? 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;




                                       35




? 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;


          ?   the impact from the COVID-19 pandemic on our business, financial
              condition and results of operating:

? regulatory developments in the United States and other countries; and

? 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.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2020 2,61 M - -
Net income 2020 -11,8 M - -
Net cash 2020 17,9 M - -
P/E ratio 2020 -52,5x
Yield 2020 -
Capitalization 348 M 348 M -
EV / Sales 2020 126x
EV / Sales 2021 14,5x
Nbr of Employees 22
Free-Float -
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Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 1
Average target price 10,00 $
Last Close Price 13,13 $
Spread / Highest target -23,8%
Spread / Average Target -23,8%
Spread / Lowest Target -23,8%
EPS Revisions
Managers and Directors
NameTitle
Eric Ashley Brock Chairman & Chief Executive Officer
Thomas Vincent Bushey President & Director
Stewart Kantor CFO, Secretary, Treasurer & Director
Derek R. Reisfield Independent Director
Richard M. Cohen Independent Director