Ondas Inc. current report, 28 September 2018

Abrir documento

SEC Filing Summary: Ondas Inc. (formerly Zev Ventures Incorporated)

Business Context and Reporting Period

Date of Report: September 28, 2018
Registrant: Zev Ventures Incorporated (renamed Ondas Holdings Inc.)
Reporting Period: Current Report on Form 8-K regarding the completion of a reverse merger/acquisition.
Transaction Overview: Zev Ventures, formerly a ticket resale business, acquired Ondas Networks Inc. (f/k/a Full Spectrum Inc.) on September 28, 2018. Zev Ventures discontinued its prior operations to focus solely on Ondas' business: providing secure, mission-critical wireless connectivity solutions (FullMAX system) for the Industrial Internet of Things (MC-IoT). The company targets utilities, oil and gas, transportation, and defense sectors.

Key Financial Metrics and Capital Structure

Capitalization:

  • Shares Issued in Acquisition: 25,463,732 shares of Zev Ventures common stock issued to former Ondas shareholders (Exchange Ratio: 3.823:1).
  • Post-Transaction Outstanding Shares: 50,463,732 shares.
  • Ownership Split: Former Ondas shareholders own ~50.46%; former Zev Ventures shareholders own ~49.54%.
  • Stock Repurchase: Repurchased 32,600,000 shares from Energy Capital, LLC for $3,260 ($0.0001/share) to cancel and return to authorized but unissued status.
  • Authorized Capital: Increased to 360,000,000 shares (350M common, 10M preferred).
Debt and Liquidity:
  • Steward Capital Facility: $10.0 million total facility; $5.0 million drawn down as of filing. Remaining $5.0 million available through Dec 31, 2018. Matures Sept 19, 2019, or upon a $20.0 million capital raise. Secured by substantially all assets.
  • Energy Capital Facility: New $10.0 million facility entered into on Sept 28, 2018. Secured by a lien on all assets.
  • Unsecured Debt: Approximately $4.0 million in unsecured loans due December 31, 2018.
  • Going Concern: The company's auditors have included an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern without additional financing.
Revenue and Profitability:
  • Historical Performance: The company has incurred significant operating losses since inception and has never been profitable.
  • Revenue Recognition: Revenue is not predictable; a significant portion is deferred due to complex deployment schedules and customer acceptance requirements.

Material Changes Versus Prior Period

  • Business Model Shift: Complete transition from a ticket resale business to a mission-critical wireless infrastructure provider.
  • Corporate Identity: Name changed to Ondas Holdings Inc.; trading symbol changed from "ZVVT" to "ONDS" (effective Oct 5, 2018).
  • Management Changes: New board of directors and executive officers appointed, including Eric Brock (CEO/Chairman) and Stewart Kantor (President/CFO).
  • Debt Structure: Significant increase in secured debt facilities ($20M total potential capacity) and immediate liquidity pressure due to $4M unsecured debt maturing Dec 31, 2018.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Strategy:

  • Product Roadmap: Plans to release "Tungsten" low-cost endpoint radios and "Neptune" ruggedized outdoor platform in Q1 2019.
  • Market Expansion: Focusing on "Deep and Wide" strategy: penetrating traditional utility markets and expanding into oil & gas, transportation, and China.
  • Standardization: Leveraging the IEEE 802.16s standard, for which Ondas is currently the only supplier of compliant systems.
Material Risks:
  • Liquidity Crisis: Insufficient cash to fund operations through 2018 and repay debt due Dec 31, 2018 without additional financing. Failure to raise capital could lead to default and liquidation.
  • Profitability: No assurance of ever achieving profitability; expenses expected to increase significantly.
  • Market Adoption: Uncertainty regarding the adoption of the new IEEE 802.16s standard by target industries.
  • Internal Controls: Material weaknesses identified in internal controls over financial reporting; reliance on third-party consultants.
  • Stock Liquidity: No active market for common stock; significant portion of shares are restricted or subject to lock-up agreements (12-month lock-up for former Ondas shareholders).
Unusual Items:
  • Deferred Compensation: As of Dec 31, 2017, approximately $717,000 in executive salaries was accrued and deferred to conserve cash.

Investor Verification Checklist

  • Capital Raise Status: Verify if the company has secured the additional financing required to repay the $4.0 million unsecured debt due December 31, 2018, and to fund operations beyond early 2019.
  • Debt Covenants: Review the specific restrictive covenants in the Steward Capital and Energy Capital loan agreements that limit additional indebtedness, dividends, and asset transfers.
  • Revenue Pipeline: Assess the status of customer contracts and the timeline for revenue recognition, given the company's history of deferring revenue.
  • Internal Controls: Monitor progress on remediation of material weaknesses in internal financial controls and the implementation of Sarbanes-Oxley compliance.
  • Market Adoption: Track the commercial uptake of the IEEE 802.16s standard and the deployment of the new Tungsten and Neptune products scheduled for 2019.