UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________ to ___________
Commission File Number: 001-39761
ONDAS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Nevada | | 47-2615102 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
411 Waverley Oaks Road, Suite 114, Waltham,
MA 02452
(Address of principal executive offices) (Zip Code)
(888) 350-9994
(Registrant’s telephone number, including
area code)
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which
registered |
Common Stock par value $0.0001 | | ONDS | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer’s Common Stock
as of August 8, 2023, was 54,457,667.
ONDAS HOLDINGS INC.
INDEX TO FORM 10-Q
Item 1. Financial Statements
ONDAS HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30, |
|
|
December 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,063,905 |
|
|
$ |
29,775,096 |
|
Restricted cash |
|
|
40,811 |
|
|
|
- |
|
Accounts receivable, net |
|
|
4,912,902 |
|
|
|
104,276 |
|
Inventory, net |
|
|
2,907,263 |
|
|
|
2,173,017 |
|
Note receivable |
|
|
- |
|
|
|
2,000,000 |
|
Other current assets |
|
|
2,165,063 |
|
|
|
1,749,613 |
|
Total current assets |
|
|
13,089,944 |
|
|
|
35,802,002 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
5,691,432 |
|
|
|
3,023,285 |
|
|
|
|
|
|
|
|
|
|
Other Assets: |
|
|
|
|
|
|
|
|
Goodwill, net |
|
|
27,671,921 |
|
|
|
25,606,983 |
|
Intangible assets, net |
|
|
33,448,239 |
|
|
|
28,863,773 |
|
Long-term equity investment |
|
|
1,500,000 |
|
|
|
1,500,000 |
|
Deposits and other assets |
|
|
419,609 |
|
|
|
218,206 |
|
Operating lease right of use assets |
|
|
2,740,434 |
|
|
|
2,930,996 |
|
Total other assets |
|
|
65,780,203 |
|
|
|
59,119,958 |
|
Total assets |
|
$ |
84,561,579 |
|
|
$ |
97,945,245 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,890,428 |
|
|
$ |
2,965,829 |
|
Operating lease liabilities |
|
|
614,227 |
|
|
|
580,593 |
|
Accrued expenses and other current liabilities |
|
|
2,874,396 |
|
|
|
3,268,993 |
|
Convertible note payable, net of unamortized debt discount and issuance cost of $1,171,661 and $2,303,664, respectively |
|
|
20,280,629 |
|
|
|
15,849,445 |
|
Government grant liability |
|
|
248,012 |
|
|
|
- |
|
Deferred revenue |
|
|
142,635 |
|
|
|
61,508 |
|
Total current liabilities |
|
|
29,050,327 |
|
|
|
22,726,368 |
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
|
300,000 |
|
|
|
300,000 |
|
Convertible notes payable, net of current, net of unamortized debt discount and issuance cost of $404,964 and $948,201, respectively |
|
|
1,595,036 |
|
|
|
14,198,690 |
|
Accrued interest |
|
|
40,544 |
|
|
|
40,965 |
|
Government grant liability, net of current |
|
|
1,763,556 |
|
|
|
- |
|
Operating lease liabilities, net of current |
|
|
2,294,323 |
|
|
|
2,456,315 |
|
Total long-term liabilities |
|
|
5,993,459 |
|
|
|
16,995,970 |
|
Total liabilities |
|
|
35,043,786 |
|
|
|
39,722,338 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Preferred stock - par value $0.0001; 5,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively, and none issued or outstanding at June 30, 2023 and December 31, 2022, respectively |
|
|
- |
|
|
|
- |
|
Preferred stock, Series A - par value $0.0001; 5,000,000 shares authorized at June 30, 2023 and December 31, 2022, respectively, and none issued or outstanding at June 30, 2023 and December 31, 2022, respectively |
|
|
- |
|
|
|
- |
|
Common Stock - par value $0.0001; 116,666,667 shares authorized; 52,451,402 and 44,108,661 issued and outstanding, respectively June 30, 2023 and December 31, 2022, respectively |
|
|
5,245 |
|
|
|
4,411 |
|
Additional paid in capital |
|
|
226,441,379 |
|
|
|
211,733,690 |
|
Accumulated deficit |
|
|
(176,928,831 |
) |
|
|
(153,515,194 |
) |
Total stockholders’ equity |
|
|
49,517,793 |
|
|
|
58,222,907 |
|
Total liabilities and stockholders’ equity |
|
$ |
84,561,579 |
|
|
$ |
97,945,245 |
|
The accompanying footnotes are an integral part
of these condensed consolidated financial statements.
ONDAS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
|
$ |
5,468,964 |
|
|
$ |
604,219 |
|
|
$ |
8,064,955 |
|
|
$ |
1,014,417 |
|
Cost of goods sold |
|
|
2,397,188 |
|
|
|
285,639 |
|
|
|
3,966,283 |
|
|
|
573,571 |
|
Gross profit |
|
|
3,071,776 |
|
|
|
318,580 |
|
|
|
4,098,672 |
|
|
|
440,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administration |
|
|
5,316,848 |
|
|
|
6,090,053 |
|
|
|
10,783,959 |
|
|
|
11,614,770 |
|
Sales and marketing |
|
|
1,743,588 |
|
|
|
731,246 |
|
|
|
2,981,073 |
|
|
|
1,412,909 |
|
Research and development |
|
|
4,508,005 |
|
|
|
4,870,369 |
|
|
|
11,482,984 |
|
|
|
8,777,588 |
|
Total operating expenses |
|
|
11,568,441 |
|
|
|
11,691,668 |
|
|
|
25,248,016 |
|
|
|
21,805,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(8,496,665 |
) |
|
|
(11,373,088 |
) |
|
|
(21,149,344 |
) |
|
|
(21,364,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
103,604 |
|
|
|
(6,871 |
) |
|
|
70,387 |
|
|
|
(11,263 |
) |
Interest income |
|
|
- |
|
|
|
- |
|
|
|
7,345 |
|
|
|
- |
|
Interest expense |
|
|
(541,393 |
) |
|
|
(11,466 |
) |
|
|
(2,303,649 |
) |
|
|
(26,140 |
) |
Foreign exchange gain (loss), net |
|
|
(23,632 |
) |
|
|
- |
|
|
|
(38,376 |
) |
|
|
- |
|
Total other income (expense) |
|
|
(461,421 |
) |
|
|
(18,337 |
) |
|
|
(2,264,293 |
) |
|
|
(37,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(8,958,086 |
) |
|
|
(11,391,425 |
) |
|
|
(23,413,637 |
) |
|
|
(21,401,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted |
|
$ |
(0.18 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.47 |
) |
|
$ |
(0.51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted |
|
|
51,112,218 |
|
|
|
42,167,548 |
|
|
|
49,414,425 |
|
|
|
41,582,327 |
|
The accompanying footnotes are an integral part
of these condensed consolidated financial statements.
ONDAS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 2023 AND 2022
(Unaudited)
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2022 |
|
|
40,990,604 |
|
|
$ |
4,099 |
|
|
$ |
192,502,122 |
|
|
$ |
(80,273,389 |
) |
|
$ |
112,232,832 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
1,328,395 |
|
|
|
- |
|
|
|
1,328,395 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,010,399 |
) |
|
|
(10,010,399 |
) |
Balance, March 31, 2022 |
|
|
40,990,604 |
|
|
$ |
4,099 |
|
|
$ |
193,830,517 |
|
|
$ |
(90,283,788 |
) |
|
$ |
103,550,828 |
|
Issuance of shares in connection with acquisition of intangible asset from Ardenna, Inc. |
|
|
780,000 |
|
|
|
78 |
|
|
|
5,943,522 |
|
|
|
- |
|
|
|
5,943,600 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
1,555,184 |
|
|
|
- |
|
|
|
1,555,184 |
|
Shares issued as per ATM agreement (Net of offering costs) |
|
|
852,679 |
|
|
|
85 |
|
|
|
6,039,020 |
|
|
|
- |
|
|
|
6,039,105 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,391,425 |
) |
|
|
(11,391,425 |
) |
Balance, June 30, 2022 |
|
|
42,623,283 |
|
|
$ |
4,262 |
|
|
$ |
207,368,243 |
|
|
$ |
(101,675,213 |
) |
|
$ |
105,697,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2023 |
|
|
44,108,661 |
|
|
$ |
4,411 |
|
|
$ |
211,733,690 |
|
|
$ |
(153,515,194 |
) |
|
$ |
58,222,907 |
|
Issuance of shares in connection with acquisition of Airobotics, Ltd. |
|
|
2,844,291 |
|
|
|
284 |
|
|
|
5,261,654 |
|
|
|
- |
|
|
|
5,261,938 |
|
Issuance of shares in connection with acquisition of the assets of Iron Drone, Ltd. |
|
|
46,129 |
|
|
|
5 |
|
|
|
85,795 |
|
|
|
- |
|
|
|
85,800 |
|
Assumption of vested stock options in connection with acquisition of Airobotics, Ltd. |
|
|
- |
|
|
|
- |
|
|
|
700,690 |
|
|
|
- |
|
|
|
700,690 |
|
Delivery of shares for restricted stock units |
|
|
4,090 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of shares for payment on convertible debt |
|
|
2,104,988 |
|
|
|
211 |
|
|
|
3,004,583 |
|
|
|
- |
|
|
|
3,004,794 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
1,263,356 |
|
|
|
- |
|
|
|
1,263,356 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14,455,551 |
) |
|
|
(14,455,551 |
) |
Balance, March 31, 2023 |
|
|
49,108,159 |
|
|
$ |
4,911 |
|
|
$ |
222,049,768 |
|
|
$ |
(167,970,745 |
) |
|
$ |
54,083,934 |
|
Issuance of shares for payment on convertible debt |
|
|
3,341,704 |
|
|
|
334 |
|
|
|
2,751,041 |
|
|
|
- |
|
|
|
2,751,375 |
|
Issuance of shares upon exercise of options |
|
|
1,539 |
|
|
|
- |
|
|
|
701 |
|
|
|
- |
|
|
|
701 |
|
Stock-based compensation |
|
|
- |
|
|
|
- |
|
|
|
1,639,869 |
|
|
|
- |
|
|
|
1,639,869 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,958,086 |
) |
|
|
(8,958,086 |
) |
Balance, June 30, 2023 |
|
|
52,451,402 |
|
|
$ |
5,245 |
|
|
$ |
226,441,379 |
|
|
$ |
(176,928,831 |
) |
|
$ |
49,517,793 |
|
The accompanying footnotes are an integral part
of these condensed consolidated financial statements.
ONDAS HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
Six Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
Net loss | |
$ | (23,413,637 | ) | |
$ | (21,401,824 | ) |
Adjustments to reconcile net loss to net cash flows used in operating activities: | |
| | | |
| | |
Depreciation | |
| 412,625 | | |
| 127,036 | |
Amortization of debt discount | |
| 1,785,414 | | |
| - | |
Amortization of intangible assets | |
| 2,038,793 | | |
| 1,822,236 | |
Amortization of right of use asset | |
| 529,666 | | |
| 400,370 | |
Loss on intellectual property | |
| 12,223 | | |
| 11,095 | |
Stock-based compensation | |
| 2,903,225 | | |
| 2,883,579 | |
Change in fair value of government grant liability | |
| (72,381 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (4,696,381 | ) | |
| 947,916 | |
Inventory | |
| 760,461 | | |
| (91,403 | ) |
Other current assets | |
| 387,339 | | |
| (49,988 | ) |
Deposits and other assets | |
| (138,552 | ) | |
| - | |
Accounts payable | |
| 955,357 | | |
| (34,465 | ) |
Deferred revenue | |
| (1,521,408 | ) | |
| (312,734 | ) |
Operating lease liability | |
| (513,808 | ) | |
| (263,884 | ) |
Accrued expenses and other current liabilities | |
| (1,293,713 | ) | |
| 660,063 | |
Net cash flows used in operating activities | |
| (21,864,777 | ) | |
| (15,302,003 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Patent costs | |
| (49,634 | ) | |
| (25,544 | ) |
Purchase of equipment | |
| (65,170 | ) | |
| (2,612,604 | ) |
Cash paid for Ardenna Inc. asset acquisition | |
| - | | |
| (900,000 | ) |
Cash paid for Iron Drone asset acquisition | |
| (135,000 | ) | |
| - | |
Cash acquired on the acquisition of Airobotics Ltd. | |
| 1,049,454 | | |
| - | |
Cash paid for Field of View LLC asset acquisition | |
| (104,166 | ) | |
| - | |
Net cash flows provided by (used in) investing activities | |
| 695,484 | | |
| (3,538,148 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from sale of shares under ATM agreement | |
| - | | |
| 6,039,105 | |
Proceeds from exercise of options | |
| 701 | | |
| - | |
Payments on convertible notes payable | |
| (4,354,911 | ) | |
| - | |
Payments on government grant liability | |
| (6,576 | ) | |
| - | |
Payments on loan payable | |
| (1,140,301 | ) | |
| - | |
Net cash flows provided by (used in) financing activities | |
| (5,501,087 | ) | |
| 6,039,105 | |
| |
| | | |
| | |
Decrease in cash, cash equivalents, and restricted cash | |
| (26,670,380 | ) | |
| (12,801,046 | ) |
Cash, cash equivalents, and restricted cash, beginning of period | |
| 29,775,096 | | |
| 40,815,123 | |
Cash, cash equivalents, and restricted cash, end of period | |
$ | 3,104,716 | | |
$ | 28,014,077 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid for interest | |
$ | 155,342 | | |
$ | 4,003 | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: | |
| | | |
| | |
Common Stock and warrants issued in relation to acquisition of Airobotics,
Ltd. | |
$ | 5,962,628 | | |
$ | - | |
Common Stock issued in relation to acquisition of the assets of Iron
Drone, Ltd. | |
$ | 85,800 | | |
$ | - | |
Common stock issued in exchange for debt repayment | |
$ | 5,756,169 | | |
$ | - | |
Noncash consideration for purchase of intangibles asset | |
$ | - | | |
$ | 5,943,600 | |
Operating leases right-of-use assets obtained in exchange of lease liabilities | |
$ | - | | |
$ | 2,928,911 | |
The accompanying footnotes are an integral part
of these condensed consolidated financial statements.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – DESCRIPTION OF
BUSINESS AND BASIS OF PRESENTATION
The Company
Ondas Holdings Inc. (“Ondas
Holdings”, “Ondas”, the “Company,” “we,” or “our”) was originally incorporated in
Nevada on December 22, 2014, under the name of Zev Ventures Incorporated. On September 28, 2018, we acquired Ondas Networks Inc., a Delaware
corporation (“Ondas Networks”), and changed our name to Ondas Holdings Inc. On August 5, 2021, we acquired American Robotics,
Inc. (“American Robotics” or “AR”), a Delaware corporation. On January 23, 2023, we acquired Airobotics, Ltd.
(“Airobotics”), an Israeli-based developer of autonomous drone systems. See Note 5 – Goodwill and Business Acquisition.
As a result of these acquisitions, Ondas Networks, American Robotics
and Airobotics became our subsidiaries. These three subsidiaries are now Ondas’ primary focus. Ondas’ corporate headquarters
are located in Waltham, Massachusetts. Ondas Networks’ offices and facilities are located in Sunnyvale, California, American Robotics’
offices and facilities are located in Waltham, Massachusetts and Marlborough, Massachusetts, and Airobotics’ offices and facilities
are located in Petah Tikva, Israel.
Business Activity
Ondas is a leading provider of private wireless, drone, and automated
data solutions through its subsidiaries Ondas Networks, American Robotics, and Airobotics.
On February 14, 2023, the Company announced the formation of Ondas
Autonomous Systems, a new business unit to manage the combined drone operations of subsidiaries American Robotics and Airobotics. Ondas
Networks and Ondas Autonomous Systems together provide users in rail, energy, mining, agriculture, public safety and critical infrastructure
and government markets with improved connectivity, data collection capabilities, and data collection and information processing capabilities.
We operate Ondas Networks and Ondas Autonomous Systems as separate business segments.
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”). Our 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 of large industrial networks. Such applications are required
in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, homeland
security 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 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. Because standards-based communications solutions
are preferred by our mission-critical customers and ecosystem partners, we have taken a leadership position in IEEE as it relates to wireless
networking for industrial markets. As such, management believes this standards-based approach supports the adoption of our technology
across a burgeoning ecosystem of global partners and end markets.
Our software-based FullMAX
platform is an important and timely upgrade solution for privately-owned and operated wireless wide-area networks, leveraging Internet
Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. We believe
industrial and 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 of large
industrial networks 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.
Ondas Autonomous Systems
Our Ondas Autonomous Systems
business unit designs, develops, and markets commercial drone solutions via the Optimus System™ and Scout System™ (the “Autonomous
Drone Platforms”).
The Autonomous Drone Platforms
are highly automated, AI-powered drone systems capable of continuous, remote operation and are marketed as “drone-in-a-box”
turnkey data solution services. They are deployed for critical industrial and government applications where data and information collection
and processing are required. These use cases include public safety, security and smart city deployments where routine, high-resolution
automated emergency response, mapping, surveying, and inspection services are highly valued, in addition to industrial markets such as
oil & gas, rail and ports which emphasize security and inspection solutions. The Autonomous Drone Platforms are typically provided
to customers under a Data-as-a-Service (DaaS) business model, while some customers will choose to purchase and own and operate an Optimus
Systems™.
American Robotics and Airobotics
have industry leading regulatory successes which include having the first drone system approved by the Federal Aviation Administration
(“FAA”) for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site.
In addition to the Autonomous
Drone Platforms, Ondas Autonomous Systems offers a counter-drone system called the Raider™. The Raider™ was developed by Iron
Drone and is deployed by government and enterprise customers to provide security and protect critical infrastructure, assets and people
from the threat of hostile drones. Airobotics acquired the assets of Iron Drone on March 6, 2023.
Autonomous Drone Platforms
We design, develop and manufacture
autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise and government customers. We currently
prioritize the marketing of our Optimus System™ which provides customers with a turnkey data and information solution and the ability
to continuously digitize, analyze, and monitor their assets and field operations in real-time or near real-time. We believe the market
opportunity for our Scout System™ remains significant. As we drive market adoption with the Optimus platform, we anticipate re-introducing
the Scout platform including newly enhanced versions to help segment the market for different use cases and price points.
The Optimus System™
has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the real world. Powered by
innovations in robotics automation, machine vision, edge computing, and AI, the Optimus System™ provides efficiencies as a drone
solution for commercial use. Once installed in the field at customer locations, a fleet of connected Optimus Systems™, which are
often deployed as networked drone infrastructure, which we refer to as Urban Drone Infrastructure, remains indefinitely in an area of
operation, automatically collecting and seamlessly delivering data and information regularly and reliably.
We market the Optimus System™
under a DaaS business model, whereby our drone platform aggregates customer data and provides the data analytics meeting customer requirements
in return for an annual subscription fee. Some customers purchase Optimus Systems™ to own and operate themselves. We also engage
distributors to assist in the sales and marketing of our Optimus System™ in geographic markets where its more cost effective to
identify and service potential customers by engaging local third parties. These distribution agreements can include joint ventures, where
Ondas Autonomous Systems will provide technical expertise to support the joint venture partner in the provision of aerial data services
to customers.
The Optimus System™
consists of (i) Optimus™, a highly automated, AI-powered drone with advanced imaging payloads (ii) the Airbase™, a ruggedized
weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud transfer, and
(iii) Insightful™, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere
in the world. These major subsystems are connected via a host of supporting technologies. Airbase™ has internal robotic systems
that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of the Optimus as the
Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap
sensors and advanced payloads without human intervention allows for the Optimus System™ to provide multiple applications and use
cases from a single location.
American Robotics and Airobotics
have industry leading regulatory successes which include having the first drone system approved by the FAA for automated operation BVLOS
without a human operator or visual observer on-site. American Robotics’ FAA approvals were enabled by integrating a suite of proprietary
technologies, including Detect-and-Avoid (“DAA”) and other proprietary intelligent safety systems into its autonomous drone
platform, which we plan to integrate into the Optimus System™. Airobotics is in the advanced stages of receiving approval for Type
Certification (“TC”) from the FAA for the Optimus UAV. TC approval will enable expanded operation for the Optimus System™
in the United States including flight operations in populated areas.
The Raider™
The Raider™ is a counter-drone
system, which was designed and developed by Iron Drone, that we are marketing to government and enterprise customers who can utilize the
system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. A typical Raider™
deployment location would include sensitive locations such as borders, stadiums or schools, or near critical assets such as power plants
and military bases, and for high profile locations such as amusement parks or where public events are held.
The Raider™ is designed
to detect, track and intercept unauthorized, or hostile unmanned aircraft and is most often sold with three small UAVs that are housed
in a docking station. The Raider UAV has live video capability and a payload containing a net that can be deployed to intercept a hostile
drone. Upon detection of an unauthorized drone, one or more Raider™ UAVs can be autonomously deployed at high speeds to track the
unauthorized aircraft. If the unauthorized aircraft is deemed hostile, the Raider™ UAV can deploy the netting to physically intercept
the aircraft. A parachute integrated with the netting allows the intercepted drone to safely fall to the ground for collection by our
customer.
Going Concern and Liquidity
The accompanying consolidated
financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization
of assets and liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not
reflect any adjustments that might result if the Company is unable to continue as a going concern.
As of June 30, 2023, the following conditions
raised substantial doubt about the Company’s ability to continue as a going concern. We have incurred losses since inception and
have funded our operations primarily through debt and the sale of capital stock. On June 30, 2023, we had stockholders’ equity of
approximately $49,518,000. On June 30, 2023, we had net long-term borrowings outstanding of approximately $3,659,000, net of debt discount
and issuance costs of approximately $405,000, and short-term borrowings outstanding of approximately $20,529,000, net of debt discount
and issuance costs of approximately $1,172,000. On June 30, 2023, we had total cash and restricted cash of approximately $3,105,000 and
working capital deficit of approximately $15,960,000. This, combined with negative cash flows from operations, raises substantial doubt
about the Company’s ability to continue as a going concern.
The ability of the Company
to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional
cash infusion. The Company has obtained funds from its shareholders since its inception through the period ended June 30, 2023.
Subsequent to June 30, 2023, and as of this filing date, the Company
has raised approximately $25,000,000 through convertible notes and sale of preferred stock in Ondas Networks, see Note 15 – Subsequent
Events. We expect to fund our operations for the next twelve months from the filing date of this Form 10-Q from the capital infusion,
which closed subsequent to June 30, 2023, gross profits generated from revenue growth, potential prepayments from customers for purchase
orders, potential proceeds from warrants issued and outstanding, and additional funds that we may seek through equity or debt offerings
and/or borrowings under additional notes payable, lines of credit or other sources. As a result of these transactions, management has
alleviated the going concern conditions described above.
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 and services from customers currently identified in our sales pipeline as well as new customers. We also
will be required to efficiently manufacture and deliver equipment on those purchase orders. These activities, including our planned research
and development efforts, will require significant uses of working capital. There can be no assurance that we will generate revenue and
cash as expected in our current business plan. We may seek additional funds through equity or debt offerings and/or borrowings under additional
notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable
terms or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to
fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or
limited, which could materially adversely affect our business, financial conditions, or results of operations.
Inflation Reduction Act of 2022 and Tax Cuts
and Jobs Act of 2017
On August 16, 2022, the Inflation
Reduction Act of 2022 (“IRA”) was signed into law. The IRA includes a 15% Corporate Alternative Minimum Tax (“Corporate
AMT”) for tax years beginning after December 31, 2022. We do not expect the Corporate AMT to have a material impact on our consolidated
financial statements. Additionally, the IRA imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations.
The excise tax is imposed on the value of the net stock repurchased or treated as repurchased. The new law will apply to stock repurchases
occurring after December 31, 2022.
Under the Tax Cuts and Jobs
Act of 2017, we are required to capitalize R&D expenses for tax purposes and amortize over five years for domestic based expenses
and fifteen years for foreign expenses. Given our tax net operating loss carryforward position we do not expect this change to have a
material impact on our financial statements.
NOTE 2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation
of the Company’s financial statements for interim periods in accordance with accounting principles generally accepted in the United
States (“U.S. GAAP”). The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the
audited consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2022 (“2022 Form 10-K”). The Company’s accounting policies are described in the “Notes
to Consolidated Financial Statements” in the 2022 Form 10-K and are updated, as necessary, in this Form 10-Q. The December 31,
2022 condensed consolidated balance sheet data presented for comparative purposes was derived from the audited financial statements but
does not include all disclosures required by U.S. GAAP. The results of operations for the three and six months ended June 30, 2023, are
not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
The condensed consolidated financial statements include the accounts
of the Company and our subsidiaries, Ondas Networks, American Robotics, and Airobotics. All inter-company accounts and transactions between
these entities have been eliminated in these unaudited condensed consolidated financial statements. The functional currency of the Company
and all of our subsidiaries is the U.S. dollar.
Business Combinations
We utilize the purchase method
of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are
included in Ondas’ results of operations beginning on the respective acquisition dates and that assets acquired, and liabilities
assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair
value of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized at the estimated fair
value on the acquisition date; these are recorded in either other accruals within current liabilities (for expected payments in less than
a year) or other non-current liabilities (for expected payments in greater than a year), both on our consolidated balance sheets. Subsequent
changes to the fair value of contingent consideration liabilities are recognized in other income (expense) in the Consolidated Statements
of Operations. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated
statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition
date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original
acquisition date fair value are reported as operating activities in the consolidated statements of cash flows. The fair value of assets
acquired, and liabilities assumed in certain cases, may be subject to revision based on the final determination of fair value during a
period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other
business acquisition costs are expensed when incurred.
Goodwill and Intangible Assets
Goodwill represents the excess
of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment
on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist.
The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than
its carrying value and whether it is necessary to perform goodwill impairment process. The impairment of Goodwill was $19,419,600 for
the year ended December 31, 2022, see Note 5 – Goodwill and Business Acquisition, for further details.
Intangible assets represent
patents, licenses, software and allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates
the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment
when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
We amortize our intangible
assets with a finite life on a straight-line basis, over 3 years for software; 10 years for patents; 3-10 years for developed technology,
10 years for licenses, trademarks, marketing-related assets and the FAA waiver; 5 years for customer relationships; and 1 year for non-compete
agreements.
Segment Information
Operating segments are defined
as components of an entity for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision
Maker (“CODM”) in making decisions regarding resource allocation and performance assessment. The Company’s CODM is its
Chief Executive Officer. The Company determined it has two reportable segments: Ondas Networks and Ondas Autonomous Systems as the CODM
reviews financial information for these two businesses separately. The Company has no inter-segment sales.
Use of Estimates
The process of preparing financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of assets and liabilities at the date of the financial statements. Such management estimates include those
relating to allocation of consideration for business combinations to identifiable tangible and intangible assets, revenue recognition,
inventory write-downs to reflect net realizable value, assumptions used in the valuation of stock-based awards and valuation allowances
against deferred tax assets. Actual results could differ from those estimates.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all
highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. On June 30, 2023 and December
31, 2022, we had no cash equivalents. Restricted cash includes cash that is not readily available for use in the Company’s operating
activities. Restricted cash is attributable to minimum cash reserve requirements for Airobotics’ credit cards. The Company periodically
monitors its positions with, and the credit quality of, the financial institutions with which it invests. Periodically, throughout the
three months ended, and as of June 30, 2023, the Company has maintained balances in excess of federally insured limits. As of June 30,
2023, the Company was $2,482,777 in excess of federally insured limits.
Accounts Receivable
Accounts receivable are stated
at a gross invoice amount less an allowance for credit losses as well as net of any discounts or other forms of variable consideration.
We estimate allowance for credit losses by evaluating specific accounts where information indicates our customers may have an inability
to meet financial obligations, such as customer payment history, credit worthiness and receivable amounts outstanding for an extended
period beyond contractual terms. We use assumptions and judgment, based on the best available facts and circumstances, to record an allowance
to reduce the receivable to the amount expected to be collected. These allowances are evaluated and adjusted as additional information
is received. We had no allowance for credit losses as of June 30, 2023 and December 31, 2022.
Inventory
Inventories, which consist
solely of raw materials, work in process and finished goods, are stated at the lower of cost (first-in, first-out) or net realizable value,
net of reserves for obsolete inventory. We continually analyze our slow-moving and excess inventories. Based on historical and projected
sales volumes and anticipated selling prices, we established reserves. Inventory that is in excess of current and projected use is reduced
by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete are written down
to net realizable value.
Inventory consists of the
following:
| |
June 30, 2023 | | |
December 31, 2022 | |
Raw Material | |
$ | 2,427,049 | | |
$ | 2,041,776 | |
Work in Process | |
| 332,315 | | |
| 89,080 | |
Finished Goods | |
| 248,153 | | |
| 142,415 | |
Less Inventory Reserves | |
| (100,254 | ) | |
| (100,254 | ) |
Total Inventory, Net | |
$ | 2,907,263 | | |
$ | 2,173,017 | |
Property and Equipment
All additions, including improvements
to existing facilities, are recorded at cost. Maintenance and repairs are charged to expense as incurred. Depreciation of property and
equipment is principally recorded using the straight-line method over the estimated useful lives of the assets. The estimated useful lives
typically are (i) 3 to 7 years for computer equipment, (ii) 5 years for vehicles and docking stations and drones, (iii) 7 years for furniture
and fixtures, (iv) 5 to 7 years for development equipment, and (v) 3 years for machinery and equipment. Leasehold improvements are amortized
on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Upon the disposal of property,
the asset and related accumulated depreciation accounts are relieved of the amounts recorded therein for such items, and any resulting
gain or loss is recorded in operating expenses in the year of disposition.
Software
Costs incurred internally
in researching and developing a software product are charged to expense until technological feasibility has been established for the product.
Once technological feasibility is established, all software costs are capitalized until the product is available for general release to
customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological
feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing.
Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of
revenue over the estimated life of the products. As of June 30, 2023, and December 31, 2022, the Company had no internally developed software.
Impairment of Long-Lived Assets
Long-lived assets are evaluated
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. Such
indicators include significant technological changes, adverse changes in market conditions and/or poor operating results. The carrying
value of a long-lived asset group is considered impaired when the projected undiscounted future cash flows are less than its carrying
value. The amount of impairment loss recognized is the difference between the estimated fair value and the carrying value of the asset
or asset group. Fair market value is determined primarily using the projected future cash flows discounted at a rate commensurate with
the risk involved. The impairment of long-lived assets was $12,223 and $11,095 for the three and six months ended June 30, 2023, and 2022,
respectively.
Research and Development
Costs for research and development
are expensed as incurred except for research and development equipment with alternative future use. Research and development expenses
consist primarily of salaries, salary related expenses and costs of contractors and materials.
Fair Value of Financial Instruments
Our financial assets and liabilities
measured at fair value on a recurring basis consist primarily of receivables, accounts payable, accrued expenses and short- and long-term
debt. The carrying amount of receivables, accounts payable and accrued expenses approximate our fair value because of the short-term maturity
of such instruments. Our financial assets measured at fair value on a nonrecurring basis include goodwill and intangibles, which are adjusted
to fair value whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life
has changed.
We have categorized our assets
and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy in accordance with U.S. GAAP.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level
1) and lowest priority to unobservable inputs (Level 3).
Assets and liabilities recorded
in the balance sheets at fair value are categorized based on a hierarchy of inputs, as follows:
|
Level 1 -- |
Unadjusted quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
Level 2 -- |
Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. |
|
|
|
|
Level 3 -- |
Unobservable inputs for the asset or liability. |
The
Company had no assets that are required to be valued at fair value as of June 30, 2023 and December 31, 2022. The Company had Level 3
liabilities that are required to be valued at fair value as of June 30, 2023. The fair value of the government grant liability is determined
as the sum of 3% royalty payments on forecasted future sales, discounted using the effective interest method. As of June 30, 2023, the
Company made the following assumptions: (i) royalty payments will be made on future sales through 2026, and (ii) the effective interest
rate is a range of 17-18%. The following table provides a reconciliation of the beginning and ending balances for the Level 3 government
grant liability measured at fair value using significant unobservable inputs:
| |
Government Grant Liability | |
Balance as of January 24, 2023 | |
$ | 1,783,403 | |
Net (Gain)/Loss on change in fair value of liability | |
| 36,077 | |
Repayment on liability | |
| (6,576 | ) |
Balance as of March 31, 2023 | |
| 1,812,904 | |
Government grant liability assumed from Iron Drone asset purchase | |
| 307,122 | |
Net (Gain)/Loss on change in fair value of liability | |
| (108,458 | ) |
Balance as of June 30, 2023 | |
$ | 2,011,568 | |
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and
other third-party fees that are directly associated with in-process equity financing as deferred offering costs until such financing is
consummated. After consummation of equity financing, these costs are recorded in stockholders’ equity as a reduction of additional
paid-in capital generated as a result of the offering. Should the planned equity financing be abandoned, the deferred offering costs are
expensed immediately as a charge to other income (expense) in the consolidated statement of operations. For the three and six months ended
June 30, 2023, the Company recorded no reduction in proceeds received and expensed offering costs of $0. For the three and six months
ended June 30, 2022, the Company recorded a reduction in proceeds received of $22,665 related to the ATM Offering (See Note 11 –
Stockholders’ Equity). For the three and six months ended June 30, 2022, the Company expensed offering costs of $0. The deferred
offering costs outstanding as of June 30, 2023 and December 31, 2022, were $330,459 and $145,293, respectively.
Government Grants
The Government liability was
assumed through the acquisition of Airobotics and asset purchase of Iron Drone. Airobotics and Iron Drone received government grants from
the Israel Innovation Authority (formerly: the Office of the Chief Scientist in Israel, “the IIA”), and the grant funds are
repayable to the extent that future economic benefits are expected from the research project that will result in royalty-bearing sales.
At each reporting date, the
Company evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid (since
the Company will not be required to pay royalties) based on the best estimate of future sales and using the original effective interest
method, which is 17-18%, and if so, the appropriate amount of the liability is derecognized through other income (expense). Amounts paid
as royalties are treated as a reduction of the liability. Royalty payments are due every six months. There is no maturity date. The liability
exists until it is paid in full through royalty payments or the Company reports to the IIA there will be no further sales, and they accept
this.
Income Taxes
Income taxes are accounted
for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
the related temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized when the rate change is enacted. Valuation allowances are recorded to reduce deferred tax assets to the amount
that will more likely than not be realized. In accordance with U.S. GAAP, we recognize the effect of uncertain income tax positions only
if the positions are more likely than not of being sustained in an audit, based on the technical merits of the position. Recognized uncertain
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which those changes in judgment occur. We recognize both interest and penalties related to uncertain tax
positions as part of the income tax provision.
Share-Based Compensation
We calculate share-based compensation
expense for option awards (“Share-based Award(s)”) based on the estimated grant/issue date fair value using the Black-Scholes-Merton
option pricing model (“Black-Scholes Model”) and recognize the expense on a straight-line basis over the vesting period. We
account for forfeitures as they occur. 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 in determining the fair value of Share-based Awards.
The expected term is based on the “simplified method”, due to the Company’s limited option exercise history. Under this
method, the term is estimated using the weighted average of the service vesting period and contractual term of the option award. As the
Company does not yet have sufficient history of its own volatility, the Company has identified several public entities of similar size,
complexities and industry and calculates historical volatility based on the volatilities of these companies. 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.
We recognize restricted stock
unit expense over the period of vesting or period that services will be provided. Compensation associated with shares of Common Stock
issued or to be issued to consultants and other non-employees is recognized over the expected service period beginning on the measurement
date, which is generally the time the Company and the service provider enter into a commitment whereby the Company agrees to grant shares
in exchange for the services to be provided.
Shipping and Handling
We expense all shipping and
handling costs as incurred. These costs are included in Cost of goods sold on the accompanying Consolidated Statements of Operations.
Advertising and Promotional Expenses
We expense advertising and
promotional costs as incurred. We recognized expense of $17,487 and $15,116 for the three months ended June 30, 2023, and 2022, respectively,
and expense of $58,431 and $31,281 for the six months ended June 30, 2023, and 2022, respectively. These costs are included in Sales and
marketing on the accompanying Consolidated Statements of Operations.
Post-Retirement Benefits:
We have one 401(k) Savings
Plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under this 401(k) Plan, matching
contributions are based upon the amount of the employees’ contributions subject to certain limitations. We recognized expense of
$86,723 and $95,799 for the three months ended June 30, 2023, and 2022, respectively, and $185,597 and $115,115 for the six months ended
June 30, 2023, and 2022, respectively.
Revenue Recognition
Ondas has two business segments
that generate revenue: Ondas Networks and Ondas Autonomous Systems. Ondas Networks generates revenue from product sales, services, and
development projects. Ondas Autonomous Systems, which includes American Robotics and Airobotics, generates revenue from product sales,
services, and data subscription services.
Ondas Networks is engaged
in the development, marketing, and sale of wireless radio systems for secure, wide area mission-critical, business-to-business networks.
Ondas Networks generates revenue primarily from the sale of our FullMAX System and the delivery of related services, along with non-recurring
engineering (“NRE”) development projects with certain customers.
American Robotics generates
revenue by selling a data subscription service to its customers based on the information collected by their autonomous systems. The customer
pays for a monthly, annual, or multi-annual subscription service to remotely access the data collected by their autonomous systems.
Airobotics generates revenue
through the sales of their Optimus system and separately priced support, maintenance and ancillary services directly related to the sale
of the Airobotics’ Optimus system. Airobotics also generates service revenue by selling a data subscription service to its customers
based on the information collected by their autonomous systems.
Revenue for development projects
is typically recognized over time using a percentage of completion input method, whereby revenues are recorded on the basis of the Company’s
estimates of satisfaction of the performance obligation based on the ratio of actual costs incurred to total estimated costs. The input
method is utilized because management considers it to be the best available measure of progress as the performance obligations are completed.
Revenue and cost estimates
are regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of revenue and cost of revenue
are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current
and prior periods base in the performance completed to date.
Subscription revenue is recognized
on straight line basis over the length of the customer subscription agreement. If a subscription payment is received prior to installation
and operation of their autonomous systems, it is held in deferred revenue and recognized after operation commences over the length of
the subscription service.
Collaboration Arrangements Within the Scope
of ASC 808, Collaborative Arrangements
The Company’s development
revenue includes contracts where the Company and the customer work cooperatively to develop software and hardware applications. The Company
analyzes these contracts to assess whether such arrangements involve joint operating activities performed by parties that are both active
participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and
are therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed
throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration
arrangements that are deemed to be within the scope of ASC 808, the Company first determines which elements of the collaboration are deemed
to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope
of ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company’s policy is generally to recognize amounts
received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research
and development expense. As of June 30, 2023, the Company has not identified any contracts with its customers that meet the criteria of
ASC 808.
Arrangements Within the Scope of ASC 606, Revenue
from Contracts with Customers
Under ASC 606, the Company
recognizes revenue when the customer obtains control of promised products or services, in an amount that reflects the consideration which
is expected to be received in exchange for those products or services. The Company recognizes revenue following the five-step model prescribed
under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue
when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable
that the entity will collect the consideration it is entitled to in exchange for the products or services it transfers to the customer.
At contract inception, once
the contract is determined to be within the scope of ASC 606, the Company assesses the products or services promised within each contract
and determines those that are performance obligations and assesses whether each promised product or service is distinct. The Company then
recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied. To the extent the transaction price includes variable consideration, we estimate the amount of variable
consideration that should be included in the transaction price utilizing the expected value method. Variable consideration is included
in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract
will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price
are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably
available. Sales and other taxes collected on behalf of third parties are excluded from revenue. For the six months ended June 30, 2023
and 2022, none of our contracts with customers included variable consideration.
Contracts that are modified
to account for changes in contract specifications and requirements are assessed to determine if the modification either creates new or
changes the existing enforceable rights and obligations. Generally, contract modifications are for products or services that are not distinct
from the existing contract due to the inability to use, consume or sell the products or services on their own to generate economic benefits
and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and
measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase
in or a reduction of revenue) on a cumulative catch-up basis. For the six months ended June 30, 2023 and 2022, there were no modifications
to contract specifications.
Product revenue is comprised
of sales of the Ondas Networks’ software defined base station and remote radios, its network management and monitoring system, and
accessories. Ondas Networks’ software and hardware is sold with a limited one-year basic warranty included in the price. The limited
one-year basic warranty is an assurance-type warranty, is not a separate performance obligation, and thus no transaction price is allocated
to it. The nature of tasks under the limited one-year basic warranty only provides for remedying defective product(s) covered by the warranty.
Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in time, and may be
upon shipment or upon delivery based on the contractual shipping terms of a contract, or upon installation when the combined performance
obligation is not distinct within the context of the contract.
Service revenue is comprised
of separately priced extended warranty sales, network support and maintenance, remote monitoring, as well as ancillary services directly
related to the sale of the Ondas Networks’ wireless communications products including wireless network design, systems engineering,
radio frequency planning, software configuration, product training, installation, and onsite support. The extended warranty Ondas Networks
sells provides a level of assurance beyond the coverage for defects that existed at the time of a sale or against certain types of covered
damage. The extended warranty includes 1) factory hardware repair or replacement of the base station and remote radios, at our election,
2) software upgrades, bug fixes and new features of the radio software and network management systems (“NMS”), 3) deployment
and network architecture support, and 4) technical support by phone and email. Ancillary service revenues are recognized at the point
in time when those services have been provided to the customer and the performance obligation has been satisfied. The Company allocates
the transaction price to the service and extended warranty based on the stand-alone selling prices of these performance obligations, which
are stated in our contracts. Revenue for the extended warranty is recognized over time.
Development revenue is comprised
primarily of non-recurring engineering service contracts to develop software and hardware applications for various customers. For Ondas
Networks, in 2022, a significant portion of this revenue is generated from one parent customer whereby Ondas Networks is to develop such
applications to interoperate within the customers infrastructure. For these contracts, Ondas Networks and the customers work cooperatively,
whereby the customers’ involvement is to provide technical specifications for the product design, as well as, to review and approve
the project progress at various markers based on predetermined milestones. The products developed are not able to be sold to any other
customer and are based in part upon existing Ondas Networks and customer technology. Development revenue is either recognized at the point
in time when those services have been provided to the customer and the performance obligation has been satisfied recognized, or as services
are provided over the life of the contract as Ondas Networks has an enforceable right to payment for services completed to date and there
is no alternative use of the product, depending on the contract.
If the customer contract contains
a single performance obligation, the entire transaction price is allocated to the single performance obligation. We enter into certain
contracts within our service revenues that have multiple performance obligations, one or more of which may be delivered subsequent to
the delivery of other performance obligations. We allocate the transaction price based on the estimated relative standalone selling prices
of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price
at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we
estimate the standalone selling price considering available information such as market conditions and internally approved pricing guidelines
related to the performance obligations. Revenue is then allocated to the performance obligations using the relative selling prices of
each of the performance obligations in the contract.
Ondas Networks’ payment
terms vary and range from Net 15 to Net 30 days from the date of the invoices for product and services related revenue. Ondas Networks’
payment terms for the majority of their development related revenue carry milestone-related payment obligations which span the contract
life. For milestone-based contracts, the customer reviews the completed milestone and once approved, makes payment pursuant to the applicable
contract.
American Robotics generates
revenue by selling a data subscription service to its customers based on the information collected by their autonomous systems. The customer
pays for a monthly, annual, or multi-annual subscription service to remotely access the data collected by their autonomous systems. American
Robotics’ payment terms vary and range from Net 30 to Net 60 days from the date of the invoices for product and services related
revenue.
Airobotics’ product
revenue is comprised of sales of the Airobotics’ Optimus system which includes a drone, docking station, different flown sensors
(payloads), communications system, batteries, and others. Airobotics’ Optimus system is sold with a limited one-year basic warranty
included in the price. The limited one-year basic warranty is an assurance-type warranty, is not a separate performance obligation, and
thus no transaction price is allocated to it. The nature of tasks under the limited one-year basic warranty only provides for remedying
defective product(s) covered by the warranty. Product revenue is generally recognized when the customer obtains control of our product,
which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract, or upon
installation when the combined performance obligation is not distinct within the context of the contract.
Airobotics’ service
revenue is comprised of separately priced support and maintenance sales, as well as ancillary services directly related to the sale of
the Airobotics’ Optimus system including product training, installation, and onsite support. Airobotics also generates service revenue
by selling a data subscription service to its customers based on the information collected by their autonomous systems. The customer pays
for a monthly, annual, or multi-annual subscription service to remotely access the data collected by their autonomous systems. Ancillary
service revenues are recognized at the point in time when those services have been provided to the customer and the performance obligation
has been satisfied. The Company allocates the transaction price to the service based on the stand-alone selling prices of these performance
obligations, which are stated in our contracts.
Airobotics’ payment
terms vary and range from Net 30 days to Net 60 days from the date of the invoices for product and services related revenue. Airobotics’
payment terms for the majority of their development related revenue carry milestone-related payment obligations which span the contract
life. For milestone-based contracts, the customer reviews the completed milestone and once approved, makes payment pursuant to the applicable
contract.
Disaggregation of Revenue
The following tables present our disaggregated
revenues by type of revenue, timing of revenue, and revenue by country:
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Type of Revenue | |
| | |
| | |
| | |
| |
Product revenue | |
$ | 4,344,056 | | |
$ | 422,413 | | |
$ | 6,699,837 | | |
$ | 571,683 | |
Service and subscription revenue | |
| 975,468 | | |
| 83,755 | | |
| 1,055,406 | | |
| 143,872 | |
Development revenue | |
| 149,440 | | |
| 98,051 | | |
| 309,712 | | |
| 298,862 | |
Total revenue | |
$ | 5,468,964 | | |
$ | 604,219 | | |
$ | 8,064,955 | | |
$ | 1,014,417 | |
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Timing of Revenue | |
| | |
| | |
| | |
| |
Revenue recognized point in time | |
$ | 5,121,703 | | |
$ | 422,413 | | |
$ | 7,522,267 | | |
$ | 571,683 | |
Revenue recognized over time | |
| 347,261 | | |
| 181,806 | | |
| 542,688 | | |
| 442,734 | |
Total revenue | |
$ | 5,468,964 | | |
$ | 604,219 | | |
$ | 8,064,955 | | |
$ | 1,014,417 | |
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Country of Revenue, based on location services were provided or product was shipped to: | |
| | |
| | |
| | |
| |
United States | |
$ | 1,519,996 | | |
$ | 604,219 | | |
$ | 2,650,198 | | |
$ | 1,014,417 | |
United Arab Emirates | |
| 3,836,873 | | |
| - | | |
| 5,235,524 | | |
| - | |
Israel | |
| 112,095 | | |
| - | | |
| 179,233 | | |
| - | |
Total revenue | |
$ | 5,468,964 | | |
$ | 604,219 | | |
$ | 8,064,955 | | |
$ | 1,014,417 | |
Contract Assets and Liabilities
We recognize a receivable
or contract asset when we perform a service or transfer a good in advance of receiving consideration. A receivable is recorded when our
right to consideration is unconditional and only the passage of time is required before payment of that consideration is due. A contract
asset is recorded when our right to consideration in exchange for goods or services that we have transferred or provided to a customer
is conditional on something other than the passage of time. We did not have any contract assets recorded at June 30, 2023 and December
31, 2022.
We recognize a contract liability
when we receive consideration, or if we have the unconditional right to receive consideration, in advance of satisfying the performance
obligation. A contract liability is our obligation to transfer goods or services to a customer for which we have received consideration,
or an amount of consideration is due from the customer. The table below details the activity in our contract liabilities during the six
months ended June 30, 2023, and the year ended December 31, 2022.
| |
Six Months Ended June 30, 2023 | | |
Year Ended December 31, 2022 | |
Balance at beginning of period | |
$ | 61,508 | | |
$ | 512,397 | |
Additions, net | |
| 2,025,739 | | |
| 527,268 | |
Transfer to revenue | |
| (1,944,612 | ) | |
| (978,157 | ) |
Balance at end of period | |
$ | 142,635 | | |
$ | 61,508 | |
Warranty Reserve
For our software and hardware
products, we provide a limited one-year assurance-type warranty and for our development service, we provide no warranties. The assurance-type
warranty covers defects in material and workmanship only. If a software or hardware component is determined to be defective after being
tested by the Company within the one-year, the Company will repair, replace or refund the price of the covered hardware and/or software
to the customer (not including any shipping, handling, delivery or installation charges). We estimate, based upon a review of historical
warranty claim experience, the costs that may be incurred under our warranties and record a liability in the amount of such estimate at
the time a product is sold. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates
of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability and adjust the accrual
as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing assurance-type warranties
and has determined that the estimated outstanding warranty obligation on June 30, 2023, or December 31, 2022 are immaterial to the Company’s
condensed consolidated financial statements.
Leases
Under Topic 842, operating lease expense is generally recognized evenly
over the term of the lease. During the six months ended June 30, 2023, the Company’s operating leases consisted of office space
in Sunnyvale, CA (the “Gibraltar Lease”), Marlborough, MA (the “American Robotics Lease”), Waltham, MA (the “Waltham
Lease”), and Petah Tikva, Israel (the “Airobotics Leases”).
On January 22, 2021, we entered
into a 24-month lease (effective April 1, 2021) with the owner and landlord (the “2021 Gibraltar Lease”), wherein the base
rate is $45,000 per month, with a security deposit in the amount of $90,000. On April 1, 2023, the Company amended their lease to extend
the lease through September 30, 2023, wherein the base rate is $65,676 per month.
On August 5, 2021, the Company
acquired American Robotics and the American Robotics Lease, wherein the base rate is $15,469 per month, with an annual increase of 3%
through January 2024, with a security deposit of $24,166. On August 19, 2021, American Robotics amended their lease to reduce their space
to approximately 10,450 square feet. The amendment reduced their annual base rent to $8,802 per month, with an annual increase of 3% through
January 2024.
On October 8, 2021, American
Robotics entered into an 86-month operating lease for space in Waltham, Massachusetts. The Waltham Lease commenced on March 1, 2022, and
is scheduled to terminate on April 30, 2029, wherein the base rate is $39,375 per month, increasing 3% annually, with a security deposit
due in the amount of $104,040. These facilities also serve as Ondas’ corporate headquarters.
On January 23, 2023, the Company acquired Airobotics and the Airobotics
leases, which includes office space in Petah Tikva, Israel leased according to three different lease agreements. Each agreement is with
respect to different sections of the entire leased area and are in effect through December 31, 2023, February 28, 2024, and November 30,
2024 wherein the base rate of the entire leased area is approximately $20,500 per month.
We determine if an arrangement
is a lease, or contains a lease, at the inception of the arrangement. If we determine the arrangement is a lease, or contains a lease,
at lease inception, we then determine whether the lease is an operating lease or finance lease. Operating and finance leases result in
recording a right-of-use (“ROU”) asset and lease liability on our consolidated balance sheets. ROU assets represent our right
to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the
lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, we use the non-cancellable lease term
plus options to extend that we are reasonably certain to take. Lease expense for operating lease payments is recognized on a straight-line
basis over the lease term. Our leases generally do not provide an implicit rate. As such, we use our incremental borrowing rate based
on the information available at commencement date in determining the present value of lease payments. This rate is generally consistent
with the interest rate we pay on borrowings under our credit facilities, as this rate approximates our collateralized borrowing capabilities
over a similar term of the lease payments. We have elected not to recognize ROU assets and lease liabilities that arise from short-term
(12 months or less) leases for any class of underlying assets. We have elected not to separate lease and non-lease components for any
class of underlying asset.
Lease Costs
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Components of total lease costs: | |
| | |
| | |
| | |
| |
Operating lease expense | |
$ | 224,425 | | |
$ | 287,864 | | |
$ | 563,707 | | |
$ | 492,011 | |
Common area maintenance expense | |
| 47,771 | | |
| 37,263 | | |
| 91,106 | | |
| 59,977 | |
Short-term lease costs (1) | |
| 253,019 | | |
| 51,257 | | |
| 299,971 | | |
| 78,097 | |
Total lease costs | |
$ | 525,215 | | |
$ | 376,384 | | |
$ | 954,784 | | |
$ | 630,085 | |
Lease Positions as of June 30, 2023 and December 31, 2022
ROU lease assets and lease
liabilities for our operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:
| |
June 30, 2023 | | |
December 31, 2022 | |
Assets: | |
| | |
| |
Operating lease assets | |
$ | 2,740,434 | | |
$ | 2,930,996 | |
Total lease assets | |
$ | 2,740,434 | | |
$ | 2,930,996 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Operating lease liabilities, current | |
$ | 614,227 | | |
$ | 580,593 | |
Operating lease liabilities, net of current | |
| 2,294,323 | | |
| 2,456,315 | |
Total lease liabilities | |
$ | 2,908,550 | | |
$ | 3,036,908 | |
Future lease payments included
in the measurement of lease liabilities on the unaudited condensed consolidated balance sheet as of June 30, 2023, for the following five
years and thereafter are as follows:
Years ending December 31, | |
| |
2023(6 months) | |
$ | 448,574 | |
2024 | |
| 596,757 | |
2025 | |
| 513,900 | |
2026 | |
| 529,320 | |
2027 | |
| 545,250 | |
Thereafter | |
| 752,490 | |
Total future minimum lease payments | |
$ | 3,386,291 | |
Less imputed interest | |
| (477,741 | ) |
Total | |
$ | 2,908,550 | |
Other Leases Information
| |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | |
Operating cash flows for operating leases | |
$ | 571,209 | | |
$ | 362,980 | |
Weighted average remaining lease term (in years) – operating lease | |
| 5.33 | | |
| 5.78 | |
Weighted average discount rate – operating lease | |
| 5.53 | % | |
| 6.40 | % |
Net Loss Per Common Share
Basic net loss per share is
computed by dividing net loss by the weighted average shares of Common Stock outstanding for each period. Diluted net loss per share is
the same as basic net loss per share since we have net losses for each period presented.
The following potentially
dilutive securities for the three months ended June 30, 2023 and 2022 have been excluded from the computation of diluted net loss per
share because the effect of their inclusion would have been anti-dilutive.
| |
Six months ended June 30, | |
| |
2023 | | |
2022 | |
Warrants to purchase Common Stock | |
| 2,366,092 | | |
| 3,305,854 | |
Options to purchase Common Stock | |
| 5,095,635 | | |
| 2,427,843 | |
Potential shares issuable under 2022 Convertible Promissory Notes | |
| 29,988,136 | | |
| - | |
Restricted stock units | |
| 749,227 | | |
| 1,960,622 | |
Total potentially dilutive securities | |
| 38,199,090 | | |
| 7,694,319 | |
Concentrations of Credit Risk
Financial instruments that
potentially subject us to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number
of financial institutions. The balances held at any one financial institution may be in excess of Federal Deposit Insurance Corporation
(FDIC) insurance limits. As of June 30, 2023, the Company was $2,482,777 in excess of federally insured limits.
Credit is extended to customers
based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support
accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for credit losses as needed based
on our evaluation each reporting period.
Concentration of Customers
Because we have only recently
invested in our customer service and support organization, a small number of customers have accounted for a substantial amount of our
revenue. Revenue from significant customers, those representing 10% or more of total revenue, was composed of two customers accounting
for 61% and 28% of the Company’s revenue for the three month period ended June 30, 2023, respectively. Revenue from significant
customers was composed of three customers accounting for 42%, 33% and 23% of the Company’s revenue for the six month period ended
June 30, 2023, respectively. One customer accounted for 86% and 85% of the Company’s revenue for the three month period and six
month period ended June 30, 2022, respectively.
Accounts receivable from significant
customers, those representing 10% or more of the total accounts receivable, were composed of three customers accounting for 65%, 20%,
and 12%, respectively, of the Company’s accounts receivable balance as of June 30, 2023. Two customers accounted for 67% and 33%,
respectively, of the Company’s accounts receivable balance as of December 31, 2022.
Recently Adopted Accounting Pronouncements
In May 2021, the Financial
Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2021-04—Earnings Per Share
(Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges
of Freestanding Equity-Classified Written Call Options, to clarify and reduce diversity in an issuer’s accounting for modifications
or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15,
2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption was permitted, including adoption in an
interim period. The adoption of this pronouncement during the year ended December 31, 2022 had no impact on our accompanying condensed
consolidated financial statements.
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, 2020, 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 has elected to adopt the standard
early using the modified retrospective method of transition with effect from January 1, 2022. At the time of adoption this did not have
a material impact on the consolidated financial statements. However, ASU 2020-06 precluded the Company from having to record a derivative
liability for convertible notes entered into during the year ended December 31, 2022.
As of January 1, 2023, the
Company adopted the following ASUs, and the adoption had no impact on our accompanying condensed consolidated financial statements:
|
1. |
ASU 2022-02, Financial Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, as an amendment to ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. |
|
2. |
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers; and |
|
3. |
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments |
On
September 29, 2022, FASB issued Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic
405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency about the use of supplier finance programs
for investors and other allocators of capital. Under the new ASU, a company that uses a supplier finance program in connection with the
purchase of goods or services will be required to disclose sufficient information about the program to allow a user of financial statements
to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. ASU No.
2022-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022, except
for the roll forward of the supplier finance program obligations, which is effective for fiscal years beginning after December 15, 2023.
Early adoption is permitted. The adoption of this pronouncement as of January 1, 2023 did not have a material impact on our accompanying
condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
On
June 30, 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, which (1) clarifies
existing guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an
equity security and (2) introduces new disclosure requirements for equity securities subject to contractual sale restrictions. The ASU
clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity
security. Instead, the contractual sale restriction is a characteristic of the reporting entity. Accordingly, an entity should not consider
the contractual sale restriction when measuring the equity security’s fair value. Additionally, the ASU clarifies that an entity
cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the amendments
in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company
has evaluated the effects of the adoption of ASU No. 2022-03, and it is not expected to have an impact on the Company’s consolidated
financial statements.
Reclassification
Certain amounts reported in the prior year financial statements have
been reclassified to conform to the current year’s presentation. There was no impact on the statements presented.
NOTE 3 – OTHER CURRENT ASSETS
Other current assets consist
of the following:
| |
June 30, 2023 | | |
December 31, 2022 | |
Prepaid insurance | |
$ | 964,964 | | |
$ | 782,538 | |
Advance to vendors | |
| 273,888 | | |
| 323,698 | |
Deferred offering costs | |
| 330,459 | | |
| 145,293 | |
VAT Input Credit | |
| 188,081 | | |
| - | |
Other prepaid expenses and current assets | |
| 407,671 | | |
| 498,084 | |
Total other current assets | |
$ | 2,165,063 | | |
$ | 1,749,613 | |
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consist
of the following:
| |
June 30, 2023 | | |
December 31, 2022 | |
Vehicles | |
$ | 149,916 | | |
$ | 149,916 | |
Computer equipment | |
| 451,950 | | |
| 348,408 | |
Furniture and fixtures | |
| 665,349 | | |
| 461,352 | |
Leasehold improvements | |
| 3,289,510 | | |
| 2,093,812 | |
Development equipment | |
| 350,691 | | |
| 342,142 | |
Docking stations and drones | |
| 978,161 | | |
| - | |
Machinery and equipment | |
| 60,321 | | |
| - | |
Construction in progress | |
| 2,382,266 | | |
| 330,541 | |
Total property and equipment | |
| 8,328,164 | | |
| 3,726,171 | |
Less: accumulated depreciation | |
| (2,636,732 | ) | |
| (702,886 | ) |
Net property and equipment | |
$ | 5,691,432 | | |
$ | 3,023,285 | |
Depreciation expense for the
three months ended June 30, 2023 and 2022 was $160,081 and $87,402, respectively. Depreciation expense for the six months ended June 30,
2023 and 2022 was $412,625 and $127,036, respectively. As of June 30, 2023, there was $2,867,537 of net property and equipment located
in Israel.
NOTE 5 – GOODWILL AND BUSINESS ACQUISITION
We account for acquisitions
in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350,
“Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair
value of net assets acquired in a business combination is recorded as goodwill.
Airobotics Transaction
On
January 23, 2023, the Company, completed the acquisition of Airobotics, pursuant to the Agreement of Merger, dated as of August 4, 2022
(the “Original Airobotics Agreement”), and that certain Amendment to Agreement of Merger, dated November 13, 2022 (the “Airobotics
Amendment,” and together with the Original Airobotics Agreement, the “Airobotics Agreement”), by and among the Company,
Talos Sub Ltd., an Israeli company and a wholly owned subsidiary of the Company (“Merger Sub”), and Airobotics.
In accordance with the terms of the Airobotics Agreement, Merger Sub merged with and into Airobotics (the “Merger”), with
Airobotics continuing as the surviving company of the Merger and as a wholly owned subsidiary of the Company.
At
the effective time of the Merger (the “Effective Time”), each ordinary share of Airobotics, par value NIS 0.01 per share (the
“Airobotics Ordinary Shares”), issued and outstanding (other than shares owned by Airobotics or its subsidiaries (dormant
or otherwise) or by the Company or Merger Sub) was converted into, and exchanged for 0.16806 (the “Exchange Ratio”) fully
paid and nonassessable shares of Common Stock of the Company Common Stock, without interest and subject to applicable tax withholdings
(“Merger Consideration”). All fractional shares of the Company Common Stock that would have otherwise been issued to
a holder of Airobotics Ordinary Shares as part of the Merger Consideration were rounded up to the nearest whole share based on the total
number of shares of the Company’s Common Stock issued to such holder of Airobotics Ordinary Shares. Holders of Airobotics Ordinary
Shares received approximately 2.8 million shares as consideration (excluding approximately 1.7 million shares underlying equity awards
to be outstanding following the Merger).
As
provided in the Airobotics Agreement, each outstanding option, warrant or other right, whether vested or unvested, to purchase Airobotics
Ordinary Shares (each, an “Airobotics Stock Option,” and collectively, the “Airobotics Stock Options”) issued
pursuant to the Airobotics Ltd. 2015 Israeli Share Option Plan and 2020 Incentive Equity Plan (the “Airobotics Plans”), was
assumed by Ondas and converted as of the Effective Time into an option, warrant or right, as applicable, to purchase shares of Company
Common Stock. Subject to the terms of the relevant Airobotics Stock Option, each Airobotics Stock Option is deemed to constitute an option,
warrant, or other right, as applicable, to purchase, on substantially the same terms and conditions as were applicable under such Airobotics
Stock Option, a number of shares of Company Common Stock equal to the number of shares of Company Common Stock (rounded up to the nearest
whole share) that the holder of such Airobotics Stock Option would have been entitled to receive pursuant to the Merger had such holder
exercised such option, warrant, or right to purchase full Airobotics Ordinary Shares immediately prior to the Effective Time at a price
per share of Company Common Stock (rounded down to the nearest whole cent) equal to (i) the former per share exercise price for Airobotics
Ordinary Shares otherwise purchasable pursuant to such Airobotics Stock Option, divided by (ii) the Exchange Ratio.
As a result of the Merger,
the Company is dual listed on The Nasdaq Stock Market and the Tel Aviv Stock Exchange (“TASE”). The first trading day
of the Company’s shares on TASE was January 26, 2023.
The following table summarizes
the consideration paid for Airobotics and the preliminary allocation of the purchase consideration to the estimated fair value of the
assets acquired and liabilities assumed at the acquisition date.
Purchase price consideration | |
| |
Common Stock – 2,844,291 Shares | |
$ | 5,261,938 | |
Vested Stock Options – 605,349 Shares | |
| 700,690 | |
Warrants – 586,440 Warrants to purchase shares | |
| - | |
Total purchase price consideration | |
$ | 5,962,628 | |
| |
| | |
Estimated fair value of assets
acquired: | |
| | |
Cash and cash equivalents and restricted cash | |
$ | 1,049,454 | |
Accounts receivable | |
| 112,245 | |
Inventory | |
| 1,494,707 | |
Other current assets | |
| 835,664 | |
Property and equipment | |
| 3,015,602 | |
Right of use asset | |
| 339,104 | |
Intangible assets | |
| 6,057,926 | |
Other long-term assets | |
| 62,851 | |
Total estimated fair value of assets acquired | |
| 12,967,553 | |
| |
| | |
Estimated fair value of liabilities assumed: | |
| | |
Accounts payable | |
| 969,242 | |
Customer Prepayments | |
| 1,602,535 | |
Government grant liability | |
| 1,783,403 | |
Other loans | |
| 1,140,301 | |
Other payables | |
| 1,156,057 | |
Lease liabilities | |
| 385,450 | |
Loan from related party | |
| 2,032,875 | |
Total estimated fair value of liabilities assumed | |
| 9,069,863 | |
| |
| | |
Net Assets Acquired | |
$ | 3,897,690 | |
| |
| | |
Goodwill | |
$ | 2,064,938 | |
The exercise price of the
warrants included in the purchase price consideration far exceeded the Company’s stock price at the date of acquisition, thus the
value of warrants was deemed de minimis.
The intangible assets acquired
include the developed technology, marketing-related assets, and customer relationships (see Note 6 – Intangible Assets). The final
purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final
allocation could differ materially from the preliminary allocation. The final allocation may include (1) changes in fair values of
property, plant and equipment, (2) changes in valuation of intangible assets such as developed technology, marketing-related assets,
and customer relationships, as well as goodwill and (3) other changes to assets and liabilities. During the three months ended June
30, 2023, an adjustment was made to reduce the estimated fair value of property and equipment and increase goodwill by $68,483.
The goodwill represents the
assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. No portion of the goodwill is
deductible for tax purposes.
Our results for the six months
ended June 30, 2023 include results from Airobotics between January 24, 2023 and June 30, 2023. The following unaudited pro forma information
presents the Company’s results of operations as if the acquisition of Airobotics had occurred on January 1, 2022. The pro forma
results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred
on January 1, 2022 or what the Company’s operating results will be in future periods.
| |
(Unaudited) | |
| |
Three months ended June 30,
2022 | | |
Six months ended June 30,
2023 | | |
Six months ended June 30,
2022 | |
Revenue, net | |
$ | 733,219 | | |
$ | 8,096,991 | | |
$ | 1,558,417 | |
Net loss | |
$ | (15,351,465 | ) | |
$ | (23,841,450 | ) | |
$ | (27,915,904 | ) |
Basic Earnings Per Share | |
$ | (0.34 | ) | |
$ | (0.48 | ) | |
$ | (0.63 | ) |
Diluted Earnings Per Share | |
$ | (0.34 | ) | |
$ | (0.48 | ) | |
$ | (0.63 | ) |
Goodwill Impairment
The Company has recognized goodwill as part of the American Robotics
acquisition in 2021 and Airobotics acquisition in 2023. The changes in the carrying amount of goodwill for the six months ended June 30,
2023 and year ended December 31, 2022, are as follows:
| |
American Robotics | |
Balance as of January 1, 2022 | |
$ | 45,026,583 | |
Impairment loss | |
| (19,419,600 | ) |
Balance as of December 31, 2022 | |
| 25,606,983 | |
Goodwill acquired | |
| 2,064,938 | |
Balance as of June 30, 2023 | |
$ | 27,671,921 | |
Goodwill is tested for impairment
in the fourth quarter after the annual forecasting process. The Company initially carried out a qualitative analysis and determined that
because of changes in market conditions as well as a slower increase in revenue than previously forecast, it was more likely than not
that goodwill was impaired. The Company engaged a third-party service provider to carry out a valuation of the American Robotics entity.
Using a discounted cash flow analysis and revised forecasts for revenue and cash flows that are lower than the previous valuation, it
was determined that the fair value of the entity was lower than the carrying value as of December 31, 2022, and an impairment of $19,419,600
was recognized in operating expenses in the Consolidated Statements of Operations for the year ending December 31, 2022, included in our
2022 Form 10-K.
NOTE 6 – INTANGIBLE ASSETS
The components of intangible
assets, all of which are finite lived, were as follows:
| |
June 30, 2023 | | |
December 31, 2022 | | |
| |
| |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net Carrying Amount | | |
Gross Carrying Amount | | |
Accumulated Amortization | | |
Net Carrying Amount | | |
Useful Life | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Patents | |
$ | 105,148 | | |
$ | (36,173 | ) | |
$ | 68,975 | | |
$ | 82,431 | | |
$ | (27,331 | ) | |
$ | 55,100 | | |
| 10 | |
Patents in process | |
| 134,454 | | |
| - | | |
| 134,454 | | |
| 119,760 | | |
| - | | |
| 119,760 | | |
| N/A | |
Licenses | |
| 241,909 | | |
| (77,761 | ) | |
| 164,148 | | |
| 241,909 | | |
| (65,665 | ) | |
| 176,244 | | |
| 10 | |
Software | |
| 211,411 | | |
| (148,418 | ) | |
| 62,993 | | |
| 161,284 | | |
| (84,682 | ) | |
| 76,602 | | |
| 3 | |
Trademarks | |
| 3,230,000 | | |
| (614,740 | ) | |
| 2,615,260 | | |
| 3,230,000 | | |
| (453,242 | ) | |
| 2,776,758 | | |
| 10 | |
FAA waiver | |
| 5,930,000 | | |
| (1,128,610 | ) | |
| 4,801,390 | | |
| 5,930,000 | | |
| (832,113 | ) | |
| 5,097,887 | | |
| 10 | |
Developed technology | |
| 27,928,536 | | |
| (4,158,590 | ) | |
| 23,769,946 | | |
| 23,270,614 | | |
| (2,752,353 | ) | |
| 20,518,261 | | |
| 3 - 10 | |
Non-compete agreements | |
| 840,000 | | |
| (840,000 | ) | |
| | | |
| 840,000 | | |
| (840,000 | ) | |
| - | | |
| 1 | |
Marketing-related assets | |
| 890,000 | | |
| (38,040 | ) | |
| 851,960 | | |
| - | | |
| - | | |
| - | | |
| 10 | |
Customer relationships | |
| 1,090,000 | | |
| (110,887 | ) | |
| 979,113 | | |
| 60,000 | | |
| (16,839 | ) | |
| 43,161 | | |
| 5 | |
| |
$ | 40,601,458 | | |
$ | (7,153,219 | ) | |
$ | 33,448,239 | | |
$ | 33,935,998 | | |
$ | (5,072,225 | ) | |
$ | 28,863,773 | | |
| | |
Amortization expense for the
three months ended June 30, 2023 and 2022 was $1,059,955 and $966,910, respectively. Amortization expense for the six months
ended June 30, 2023 and 2022 was $2,038,793 and $1,822,236, respectively.
On
March 20, 2022, the Company entered into a Purchase Agreement to acquire the assets of Ardenna, Inc., a leading provider of image processing
and machine learning software solutions for rail infrastructure monitoring and inspections. The consideration for the acquisition was
$900,000 in cash and 780,000 shares of the Company’s Common Stock (the “Ardenna Consideration Shares”). In connection
of the acquisition, the parties entered into a Registration Rights and Lock-Up Agreement, which required the Company to file a resale
registration statement covering the resale of the Ardenna Consideration Shares no later than ninety (90) days after the closing date and
restricted the holder from transferring the Ardenna Consideration Shares for 180 days from the closing date, subject to certain exceptions.
On April 5, 2022, the Company completed the acquisition. As a result of this transaction, the Company recognized developed technology
in the amount of $6,843,600. The Company filed the registration statement Form S-3 on July 1, 2022, and it was declared effective on July
15, 2022.
On August 31, 2022, the Company
entered into an asset purchase agreement with Field of View LLC, a North Dakota limited liability company. The total purchase consideration
consisted of $250,000 of cash payable in monthly instalments over twelve months, and $75,520 of shares of the Company’s Common Stock,
representing 16,000 shares (“FOV Consideration Shares”). The asset purchase agreement restricted the holder from transferring
the FOV Consideration Shares for 180 days from the closing date, subject to certain exceptions. The Company acquired computer and research
and development equipment amounting to $18,506 and intangibles for developed technology for $307,014. As of June 30, 2023, the equity
was issued in full, and cash paid amounted to $104,166 for the six months ended June 30, 2023 and $104,167 for the twelve months ended
December 31, 2022. The balance payable of $41,667 is accounted for as accrued purchase consideration included in accrued expenses and
other current liabilities payable over the next five months.
On October 19, 2022, Airobotics
entered into an Asset Purchase Agreement, as amended, to acquire all of the intellectual property, technical systems, and operations of
Iron Drone Ltd. (“Iron Drone”), an Israeli-based company specializing in the development of autonomous counter-drone systems
(the “Iron Drone Transaction”). The consideration for the Iron Drone Transaction was (i) $135,000 in cash, (ii) 46,129 shares
of the Company’s Common Stock, (iii) warrants exercisable for 26,553 shares of the Company’s commons stock with an exercise
price of $11.95, which shall be exercisable if, during the 48 month period following the closing, the average price per share of the Company’s
Common Stock exceeds $52.38 for a period of at least 90 consecutive trading days, (iv) a right to acquire 35,377 shares of the Company’s
Common Stock if during the 48 month period after the closing, the average price per share of the Company’s Common Stock exceeds
$18.25 for a period of at least 90 consecutive trading days, and (v) a right to acquire 70,753 shares of the Company’s Common Stock
if during the 48 month period after the closing, the average price per share of Company’s Common Stock exceeds $20.27 for a period
of at least 90 consecutive trading days. On March 6, 2023, the Company completed the Iron Drone Transaction. The Company acquired intangibles
for developed technology for $527,922. As of June 30, 2023, the cash was paid and equity was issued in full.
Estimated amortization expense
for the next five years for the intangible assets currently being amortized is as follows:
Year Ending December 31, | |
Estimated Amortization | |
2023 (6 months) | |
$ | 2,108,678 | |
2024 | |
$ | 4,212,088 | |
2025 | |
$ | 4,154,205 | |
2026 | |
$ | 4,071,207 | |
2027 | |
$ | 4,064,043 | |
Thereafter | |
$ | 14,838,018 | |
Total | |
$ | 33,448,239 | |
NOTE 7 – LONG-TERM EQUITY INVESTMENT
On October 5, 2021, Ondas Holdings irrevocably subscribed and agreed
to purchase 3,141,098 shares of Series A-1 Preferred Stock of Dynam.AI, Inc. (“Dynam”), a tech-enabled services provider for
critical or complex artificial intelligence and machine learning projects, par value $0.00001 for the aggregate price of $500,000 representing
subscription price of $0.15918 per share by way of a non-brokered private placement for approximately 11% ownership in Dynam. In addition
to the equity investment, Ondas Holdings’ subsidiary, American Robotics, entered into a development, services and marketing agreement
with Dynam on October 1, 2021. The agreement allows American Robotics to expand and enhance its IP library and analytics capabilities
with artificial intelligence using physics-based algorithms and allows Dynam to further the development of Vizlab™, Dynam’s
proprietary AI/ML platform, an advanced developer toolkit for data scientists.
On
July 15, 2022, Ondas Holdings irrevocably subscribed and agreed to purchase 3,357,958 shares of Series Seed Preferred Stock of Dynam for
the aggregate price of $1,000,000 representing a subscription price of $0.2978 per share by way of a non-brokered private placement for
approximately 8% ownership in Dynam. This brings Ondas Holdings investment in Dynam to 6,499,056 shares or approximately 19% ownership.
This long-term equity investment
consists of an equity investment in a private company through preferred shares, which are not considered in-substance Common Stock, that
is accounted for at cost, with adjustments for observable changes in prices or impairments, and is classified as long-term equity investment
on our consolidated balance sheets with adjustments recognized in other (expense) income, net on our consolidated statements of operations.
The Company has determined that the equity investment does not have a readily determinable fair value and elected the measurement alternative.
Therefore, the equity investment’s carrying amount will be adjusted to fair value at the time of the next observable price change
for the identical or similar investment of the same issuer or when an impairment is recognized. Each reporting period, the Company performs
a qualitative assessment to evaluate whether the investment is impaired. The assessment includes a review of recent operating results
and trends, recent sales/acquisitions of the investee securities, and other publicly available data. If the investment is impaired, the
Company writes it down to its estimated fair value. As of June 30, 2023 and December 31, 2022 the long-term equity investment had a carrying
value of $1,500,000 and $1,500,000, respectively.
Our CEO Eric Brock is a director
of Dynam. An officer and a director of the Company have invested an aggregate of $35,000 in Dynam as of June 30, 2023.
NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other
current liabilities consist of the following:
| |
June 30, 2023 | | |
December 31, 2022 | |
Accrued payroll and other benefits | |
$ | 1,707,689 | | |
$ | 390,698 | |
D&O insurance financing payable | |
| 238,331 | | |
| 516,619 | |
Accrued professional fees | |
| - | | |
| 792,367 | |
Accrued purchase consideration | |
| 41,667 | | |
| 145,833 | |
Accrued interest | |
| 177,761 | | |
| 176,629 | |
Other accrued expenses and payables | |
| 708,948 | | |
| 1,246,847 | |
Total accrued expenses and other current liabilities | |
$ | 2,874,396 | | |
$ | 3,268,993 | |
NOTE 9 – LONG-TERM NOTES PAYABLE
2017 Convertible Promissory Note
On September 14, 2017, the
Company and an individual entered into a convertible promissory note with unilateral conversion preferences by the individual (the “2017
Convertible Promissory Note”). On July 11, 2018, the Company’s Board approved certain changes to the 2017 Convertible Promissory
Note wherein the conversion feature was changed from unilateral to mutual between the individual and the Company.
The Company may at any time
on or after a qualified public offering convert any unpaid repayment at the IPO conversion price. The conversion price is the lesser of
the (i) price per share of Common Stock sold in the Qualified Public Offering, discounted by 20%, and (ii) the price per share of Common
Stock based on a pre-money Company valuation of $50 million on a Fully Diluted Basis.
On both June 30, 2023, and
December 31, 2022, the total outstanding balance of the 2017 Convertible Promissory Note was $300,000. The maturity date of the 2017 Convertible
Promissory Note is based on the payment of 0.6% of quarterly gross revenue until 1.5 times the amount of the 2017 Convertible Promissory
Note is paid. Accrued interest on June 30, 2023, and December 31, 2022 was $40,544 and $40,965, respectively. Interest expense for the
three and six months ended June 30, 2023 was $ 3,750 and $7,500, respectively. Interest expense for the three and six months
ended June 30, 2022 was $3,750 and $7,500, respectively.
2022 Convertible Exchange Notes
On
October 28, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors
pursuant to which we issued convertible notes (“2022 Convertible Promissory Notes”) in the principal amount of $34.5 million,
with a debt discount of $4.5 million and issuance costs of $2.3 million. The net amount of proceeds to us from the 2022 Convertible Promissory
Notes after deducting the placement agent’s fees and transaction expenses (issuance costs) were approximately $27,703,000. The Company
intends to use the net proceeds of the 2022 Convertible Promissory Notes for general corporate purposes, including funding capital, expenditures,
or the expansion of its business and providing working capital.
On
January 20, 2023, the Company entered into an Amendment No. 1 to Securities Purchase Agreement (“Amended SPA”) to that certain
Purchase Agreement. The Amended SPA amends the notes attached as exhibits to the Purchase Agreement.
Pursuant
to the terms of the Purchase Agreement, on January 20, 2023, the Company exchanged the 2022 Convertible Promissory Notes, on a dollar-for-dollar
basis, into 3% Senior Convertible Notes Due 2024 (the “2022 Convertible Exchange Notes”).
The
2022 Convertible Exchange Notes are identical in all material respects to the 2022 Convertible Promissory Notes, except that they (i)
are issued pursuant to the Base Indenture (as defined below) and the First Supplemental Indenture (as defined below); (ii) have a maturity
date of October 28, 2024; (iii) allow for the Acceleration of Installment Amounts (as defined in the 2022 Convertible Exchange Notes)
not to exceed eight (8) times the Installment Amount (as defined in the 2022 Convertible Exchange Notes) with respect to the Installment
Date (as defined in the 2022 Convertible Exchange Notes) related to the Current Acceleration (as defined in the 2022 Convertible Exchange
Notes); and (iv) modify the Acceleration Conversion Price (as defined in the 2022 Convertible Exchange Notes).
The 2022 Convertible Exchange Notes were issued pursuant to the first
supplemental indenture (the “First Supplemental Indenture”), dated as of January 20, 2023, between the Company and Wilmington
Savings Fund Society, FSB, as trustee (the “Trustee”). The First Supplemental Indenture supplements the indenture entered
into by and between the Company and the Trustee, dated as of January 20, 2023 (the “Base Indenture” and, together with the
First Supplemental Indenture, the “Initial Indenture”). The Initial Indenture has been qualified under the Trust Indenture
Act of 1939, and the terms of the 2022 Convertible Exchange Notes include those set forth in the Initial Indenture and those made part
of the Initial Indenture by reference to the Trust Indenture Act.
As
of June 30, 2023, the total outstanding principal on the 2022 Convertible Exchange Notes was $23,452,290, net of debt discount and issuance
costs of $1,576,625. As of December 31, 2022, the total outstanding principal on the 2022 Convertible Promissory Notes was $30,048,135,
net of debt discount and issuance costs of $3,251,865. Accrued interest on June 30, 2023, and December 31, 2022 was $177,761 and $176,629,
respectively, and is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.
For
the three months ended June 30, 2023, we recognized interest expense of $244,242, amortization expense of $179,201 related to the debt
discount, and amortization expense of $105,572 related to the issuance costs. For the six months ended June 30, 2023, we recognized interest
expense of $546,992, amortization expense of $1,182,108 related to the debt discount, and amortization expense of $603,306 related to
the issuance costs. The remaining unamortized debt discount of $959,021 and issuance costs of $564,986 as of June 30, 2023 will be amortized
via the straight-line method through the maturity date. This method is materially consistent with the interest method under ASC 835. Interest
expense and amortization expense of the debt discount and issuance costs are included in Interest expense on the Consolidated Statements
of Operations.
The
2022 Convertible Exchange Notes bear interest at the rate of 3% per annum. The 2022 Convertible Exchange Notes are payable in monthly
installments beginning on November 1, 2022 through the maturity date of October 28, 2024 (each such date, an “Installment Date”).
On each Installment Date, we will make monthly payments by converting the applicable “Installment Amount” (as defined below)
into shares of our Common Stock (an “Installment Conversion”), subject to satisfaction of certain equity conditions, including
a minimum $1.50 share price, $500,000 minimum daily volume, and maintaining continued Nasdaq listing requirements among other conditions.
If these conditions are not met, installments can be requested in cash. For the six months ended June 30, 2023, we issued 5,446,692 common
shares as a result of Installment Conversion. At each Installment Date the note holder may defer some or all of the amount due until the
subsequent Installment Date. In between Installment Dates, the note holder also has the option to accelerate certain portions of principal
due. At each Installment Date the price used to exchange outstanding notes into Common Stock is based on an 8% discount to the lowest
volume weighted average price (“VWAP”) of the respective previous five trading days. The maximum conversion price is $4.25
per share.
The
“Installment Amount” will equal:
| (i) | for all Installment Dates other than the maturity date, the lesser of (x) the Holder Pro Rata Amount of $1,437,500 and (y) the principal amount then outstanding under the Note; and |
|
(ii) |
on the maturity date, the principal amount then outstanding under the Note. |
Each
month, the note holders may accelerate a portion of the note due up to eight times the minimum Installment Amount of $1,437,500.
On July 24, 2023, pursuant to the terms of the SPA, an Investor elected
to purchase 3% Series B-2 Senior Convertible Notes in the aggregate original principal amount of $11.5 million (the “Additional
Notes,” together with the 2022 Convertible Exchange Notes, the “Notes”), which Additional Notes are convertible into shares
of Common Stock under certain conditions more fully described in the Additional Notes. The Additional Notes have an original issue discount
of approximately thirteen percent (13%) resulting in gross proceeds to the Company of $10.0 million. The Company currently intends to
use the net proceeds for general corporate purposes, which includes funding capital expenditures and working capital. The Additional Notes
have a maturity date of July 25, 2025. See Note 15 – Subsequent Events for further details. In connection with the Additional Notes,
the Company has recorded additional unamortized issuance costs of $52,618 as of June 30, 2023.
Government Grant Liability
Airobotics has received grants
from the Israel Innovation Authority (“IIA”) to finance its research and development programs in Israel, through which Airobotics
received IIA participation payments in the aggregate amount of $2.9 million through June 30, 2023. All of these are royalty-bearing grants.
In return, Airobotics is committed to pay IIA royalties at a rate of 3% of future sales of the developed products, up to 100% of the amounts
of grants received plus interest at LIBOR. Through June 30, 2023, approximately $460,000 in royalties have been paid to the IIA. The Company’s
royalty liability to the IIA as of June 30, 2023, including grants received by Airobotics and the associated LIBOR interest on all such
grants, was $2,011,568. The decrease in fair value of the government grant liability, net of LIBOR interest expense accrued, was $108,458
for the three months ending June 30, 2023 and $72,381 for the period of January 23, 2023 - June 30, 2023, which is included in Other income
(expense), net on the Consolidated Statements of Operations.
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock
On June 30, 2023 and December
31, 2022, the Company had 116,666,667 shares of Common Stock, par value $0.0001 (the “Common Stock”), authorized for issuance,
of which 52,451,402 and 44,108,661 shares of our Common Stock were issued and outstanding, respectively.
Preferred Stock
At June 30, 2023 and December
31, 2022, the Company had 10,000,000 shares of preferred stock, par value $0.0001, authorized, of which 5,000,000 shares are designated
as Series A Convertible Preferred Stock (“Series A Preferred”) and 5,000,000 shares are non-designated (“blank check”)
shares. As of June 30, 2023, and December 31, 2023, the Company had no preferred stock outstanding.
The Company evaluated its
Series A Preferred to determine if those instruments or embedded components of those instruments qualify as derivatives to be accounted
for separately. The Preferred Shares include an embedded contingent automatic conversion option which is bifurcated from the Preferred
Shares and recorded separately as a derivative liability, creating a discount to the Preferred Shares. The fair value of the embedded
derivative is recorded as a liability and marked-to-market each balance sheet date, with the change in fair value recorded as other income
(expense) in the Company’s accompanying consolidated statement of operations. The discount arising from the identification of the
embedded conversion feature will not be accreted or amortized as the Series A Preferred has been classified in equity.
Form S-3
On January 29, 2021, the Company filed a shelf Registration Statement
on Form S-3 for up to $150,000,000 with the SEC (the “Form S-3”) for shares of its Common Stock; shares of its preferred stock,
which the Company may issue in one or more series or classes; debt securities, which the company may issue in one or more series; warrants
to purchase its Common Stock, preferred stock or debt securities; and units. The Form S-3 was declared effective by the SEC on February
5, 2021.
ATM Offering
On March 22, 2022, the Company,
entered into an Equity Distribution Agreement (the “ATM Agreement”) with Oppenheimer (the “Sales Agent”). Pursuant
to the terms of the ATM Agreement, the Company may offer and sell (the “ATM Offering”) from time to time through the Sales
Agent, as the Company’s sales agent, up to $50 million of shares of Common Stock, (the “ATM Shares”). Sales of the ATM
Shares, if any, may be made in sales deemed to be “at the market offerings” as defined in Rule 415 promulgated under the Securities
Act. The Sales Agent is not required to sell any specific number or dollar amount of ATM Shares but will act as a sales agent using commercially
reasonable efforts consistent with its normal trading and sales practices and applicable state and federal laws, rules, and regulations
and the rules of the Nasdaq Stock Market, on mutually agreed terms between the Sales Agent and the Company. The Sales Agent will receive
from the Company a commission of 3.0% of the gross proceeds from the sales of ATM Shares by the Sales Agent pursuant to the terms of the
ATM Agreement. Net proceeds from the sale of the ATM Shares will be used for general corporate purposes.
On October 26, 2022, Ondas
entered into Amendment No. 1 to the Equity Distribution Agreement with the Sales Agent (“Amendment No. 1”). Amendment No.
1 provides for the reduction of the aggregate offering price from up to $50 million to up to $40 million of shares of its Common Stock.
The offering of ATM Shares
pursuant to the ATM Agreement will terminate upon the earliest of (i) the sale of all ATM Shares subject to the ATM Agreement, and (ii)
the termination of the ATM Agreement pursuant to its terms.
The ATM Shares are issued
pursuant to the Form S-3 and the prospectus supplement thereto dated March 22, 2022.
In April 2022 the Company
sold 343,045 ATM Shares through the Sales Agent at an average price of $7.49 with the net proceeds of $2.50 million. In connection with
the sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $77,421.
In May 2022 the Company sold
171,775 ATM Shares through the Sales Agent at an average price of $7.19 with the net proceeds of $1.20 million. In connection with the
sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $37,242.
In June 2022 the Company sold
337,859 ATM Shares through the Sales Agent at an average price of $7.12 with the net proceeds of $2.36 million. In connection with the
sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $110,428.
In July 2022 the Company sold
11,995 ATM Shares through the Sales Agent at an average price of $5.62 with the net proceeds of $0.65 million. In connection with the
sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $1,844.
There were no shares sold
during the six months ended June 30, 2023.
Effective July 11, 2023, the Company and the Sales Agent, mutually
agreed to terminate the ATM Agreement, see Note 15 – Subsequent Events.
Stock Issued for Convertible Debt
On January 1, 2023, January
26, 2023, January 31, 2023, March 1, 2023, April 3, 2023, May 5, 2023, May 15, 2023, May 30, 2023, and June 14, 2023, the Company issued
361,115, 361,808, 1,085,874, 296,191, 1,035,412, 937,813, 625,730, 85,697, and 657,051 shares of its Common Stock, respectively, to the
lenders in lieu of cash payments for $164,054 of outstanding interest and $5,585,946 of outstanding principal on the 2022 Convertible
Exchange Notes (See Note 9 – Long-term Notes Payable for further details).
Warrants to Purchase Common Stock
We use the Black-Scholes-Merton
option model (the “Black-Scholes Model”) to determine the fair value of warrants to purchase Common Stock of the Company.
The Black-Scholes Model is an acceptable model in accordance with U.S GAAP. 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 weighted average term of the warrant.
The risk-free interest rate
assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term
of the warrants. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the
expected life of the award. Our estimated volatility is an average of the historical volatility of peer entities whose stock prices were
publicly available over a period equal to the expected life of the awards. We used the historical volatility of peer entities due to the
lack of sufficient historical data of our stock price.
As of December 31, 2022, we
had Warrants outstanding to purchase an aggregate of 1,901,802 shares of Common Stock with a weighted-average contractual remaining life
of approximately 7.47 years, and exercise prices ranging from $0.03 to $7.89 per share, resulting in a weighted average exercise price
of $7.63 per share.
On January 23, 2023, the Company
issued warrants to purchase an aggregate of 586,440 shares of Common Stock with exercise prices ranging from $9.26 to $12.35 per share,
resulting in a weighted average exercise price of $9.95 per share, as consideration in the acquisition of Airobotics.
The assumptions used in the
Black-Scholes Model are set forth in the table below.
| |
Six months ended, | |
| |
June 30, 2023 | |
Stock price | |
$ | 1.85 | |
Risk-free interest rate | |
| 4.21-4.70 | % |
Volatility | |
| 50.64-55.34 | % |
Expected life in years | |
| 0.12-1.63 | |
Dividend yield | |
| 0.00 | % |
A summary of our Warrants
activity for the six months ended June 30, 2023 and related information follows:
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
Number of |
|
|
Average |
|
|
Remaining |
|
|
|
Shares Under |
|
|
Exercise |
|
|
Contractual |
|
|
|
Warrant |
|
|
Price |
|
|
Life |
|
Balance on January 1, 2023 |
|
|
1,901,802 |
|
|
$ |
7.63 |
|
|
|
7.47 |
|
Issued |
|
|
586,440 |
|
|
$ |
9.95 |
|
|
|
|
|
Expired |
|
|
(122,150 |
) |
|
$ |
12.35 |
|
|
|
|
|
Balance on June 30, 2023 |
|
|
2,366,092 |
|
|
$ |
7.96 |
|
|
|
5.78 |
|
As of June 30, 2023, we had
warrants outstanding to purchase an aggregate of 2,366,092 shares of Common Stock with a weighted average contractual remaining life of
approximately 5.78 years, and exercise prices ranging from $0.03 to $12.35 per share, resulting in a weighted average exercise price of
$7.96 per share.
Equity Incentive Plan
In 2018, our stockholders adopted the 2018 Equity Incentive Plan (the
“2018 Plan”) pursuant to which 3,333,334 shares of our Common Stock have been reserved for issuance to employees, including
officers, directors and consultants. The 2018 Plan shall be administered by the Board, provided however, that the Board may delegate such
administration to the compensation committee (the “Committee”). Subject to the provisions of the 2018 Plan, the Board and/or
the Committee shall have authority to grant, in its discretion, incentive stock options, or non-statutory options, stock awards or restricted
stock purchase offers (“Equity Awards”). As of June 30, 2023, the balance available to be issued under the 2018 Plan was 1,052,373.
At the 2021 Annual Meeting of Stockholders of the Company held on November
5, 2021, stockholders of the Company approved, among other matters, the Ondas Holdings Inc. 2021 Stock Incentive Plan (the “Plan”).
The Committee adopted the Plan on September 30, 2021, subject to stockholder approval. The purpose of the Plan is to enable the Company
to attract, retain, reward, and motivate eligible individuals by providing them with an opportunity to acquire or increase a proprietary
interest in the Company and to incentivize them to expend maximum efforts for the growth and success of the Company, so as to strengthen
the mutuality of the interests between the eligible individuals and the shareholders of the Company. The Plan provides for the issuance
of awards including stock options, stock appreciation rights, restricted stock, restricted stock units, and performance awards. The Plan
provides for a reserve of 6,000,000 shares of the Company’s Common Stock. As of June 30, 2023, the balance available to be issued
under the 2018 Plan was 2,252,998.
Stock Options to Purchase Common Stock
The Company awards stock options
to certain employees, directors, and consultants, which represent the right to purchase common shares on the date of exercise at a stated
exercise price. Stock options granted to employees generally vest over a two to four-year period and are contingent on ongoing employment.
Compensation expenses related to these awards is recognized straight-line over the applicable vesting period. Stock options granted to
consultants are subject to the attainment of pre-established performance conditions. The actual number of shares subject to the award
is determined at the end of the performance period and may range from zero to 100% of the target shares granted depending upon the terms
of the award. Compensation expenses related to these awards is recognized when the performance conditions are satisfied.
On January 23, 2023, in connection
with the acquisition of Airobotics, the Company granted stock options to purchase 1,064,946 shares of Common Stock, of which 773,244 options
were vested and the remaining 291,702 vest monthly through November 13, 2025. The vested options have a weighted average contractual remaining
life of approximately 6.08 years, an exercise price ranging from $0.49 to $12.35 per share, resulting in a weighted average exercise price
of $5.43 per share, and a grant date fair value ranging from $0 to $1.48 per share. The unvested options have a weighted average contractual
remaining life of approximately 7.52 years, an exercise price ranging from $0.49 to $24.70 per share, resulting in a weighted average
exercise price of $15.80 per share, and a grant date fair value ranging from $0 to $1.45 per share.
On February 9, 2023, the Committee
of the Board granted an aggregate of 317,625 stock options to purchase shares of the Company’s Common Stock to certain employees.
The stock options vest over a four-year period and are contingent on ongoing employment. They are included in compensation expenses.
On March 16, 2023, the Committee
of the Board granted an aggregate of 1,793,000 stock options to purchase shares of the Company’s Common Stock to certain employees.
The stock options vest over a four-year period and are contingent on ongoing employment. They are included in compensation expenses.
On March 16, 2023, the Committee
of the Board also granted an aggregate of 31,250 stock options to purchase shares of the Company’s Common Stock to certain non-employees.
6,250 stock options vested on the grant date, and 25,000 vest on December 31, 2023. They are included in compensation expenses.
The assumptions used in the
Black-Scholes Model are set forth in the table below.
| |
Six months ended, | |
| |
June 30, 2023 | |
Stock price | |
| $1.46-2.06 | |
Risk-free interest rate | |
| 3.61-4.82 | % |
Volatility | |
| 49.83-58.92 | % |
Expected life in years | |
| 0.12-6.25 | |
Dividend yield | |
| 0.00 | % |
A summary of our Option activity for the three and six months ended
June 30, 2023 and related information follows:
| |
| | |
| | |
Weighted | |
| |
| | |
Weighted | | |
Average | |
| |
Number of | | |
Average | | |
Remaining | |
| |
Shares Under | | |
Exercise | | |
Contractual | |
| |
Option | | |
Price | | |
Life | |
Balance on January 1, 2023 | |
| 2,412,286 | | |
$ | 5.77 | | |
| 7.58 | |
Granted | |
| 3,206,821 | | |
$ | 3.80 | | |
| | |
Forfeited | |
| (153,709 | ) | |
$ | 5.01 | | |
| | |
Balance on March 31, 2023 | |
| 5,465,398 | | |
$ | 4.64 | | |
| 8.47 | |
Exercised | |
| (1,539 | ) | |
$ | 0.49 | | |
| | |
Forfeited | |
| (368,224 | ) | |
$ | 3.59 | | |
| | |
Balance on June 30, 2023 | |
| 5,095,635 | | |
$ | 4.71 | | |
| 7.59 | |
Vested and Exercisable at June 30, 2023 | |
| 2,273,227 | | |
$ | 6.02 | | |
| 5.60 | |
As of June 30, 2023, total
unrecognized compensation expense related to non-vested stock options was $2,870,161 which is expected to be recognized over a weighted
average period of 2.99 years.
Total stock-based compensation
expense for stock options for the three and six months ended June 30, 2023 and 2022 is as follows:
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
General and administrative | |
$ | 88,271 | | |
$ | 124,984 | | |
$ | 207,470 | | |
$ | 205,464 | |
Sales and marketing | |
| 128,840 | | |
| 126,564 | | |
| 258,587 | | |
| 262,547 | |
Research and development | |
| 78,311 | | |
| 279,868 | | |
| 131,602 | | |
| 396,047 | |
Cost of goods sold | |
| 16,330 | | |
| - | | |
| 19,022 | | |
| - | |
Total stock-based expense related to options | |
$ | 311,752 | | |
$ | 531,416 | | |
$ | 616,681 | | |
$ | 864,058 | |
Restricted Stock Units
On February 9, 2023, the Committee
approved the grant of 3,000 restricted stock units to an employee. The restricted stock units vest in two successive equal annual installments
with the first vesting date commencing on the first anniversary of the award date and are contingent on continuing employment.
On February 9, 2023, the Committee
also approved the grant of 66,000 restricted stock units to two employees. The restricted stock units vest as follows: 20% on September
13, 2023, 40% on January 10, 2024, and 40% on February 21, 2024 and are contingent on continuing employment.
The Company recognizes restricted
stock unit expense over the period of vesting or period that services will be provided. Compensation associated with shares of Common
Stock issued or to be issued to consultants and other non-employees is recognized over the expected service period beginning on the measurement
date, which is generally the time the Company and the service provider enter into a commitment whereby the Company agrees to grant shares
in exchange for the services to be provided.
The following is a summary of restricted stock unit activity for the
three and six months ended June 30, 2023:
| |
RSUs | | |
Weighted Average Grant Date Fair Value | | |
Weighted Average Vesting Period (Years) | |
Unvested balance at January 1, 2023 | |
| 1,110,027 | | |
$ | 6.89 | | |
| 1.52 | |
Granted | |
| 69,000 | | |
$ | 2.06 | | |
| | |
Vested | |
| (43,040 | ) | |
$ | 2.45 | | |
| | |
Cancelled | |
| (14,800 | ) | |
$ | 7.19 | | |
| | |
Unvested balance at March 31, 2023 | |
| 1,121,187 | | |
$ | 6.76 | | |
| 1.25 | |
Vested | |
| (47,490 | ) | |
$ | 2.40 | | |
| | |
Cancelled | |
| (412,500 | ) | |
$ | 7.78 | | |
| | |
Unvested balance at June 30, 2023 | |
| 661,197 | | |
$ | 6.43 | | |
| 0.35 | |
Total stock-based compensation
expense for restricted stock units for the three and six months ended June 30, 2023 and 2022 is as follows:
| |
Three months ended June 30, | | |
Six months ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
General and administrative | |
$ | 855,468 | | |
$ | 656,142 | | |
$ | 1,473,307 | | |
$ | 1,302,994 | |
Sales and marketing | |
| 9,498 | | |
| 5,428 | | |
| 18,893 | | |
| 5,428 | |
Research and development | |
| 463,151 | | |
| 362,198 | | |
| 794,344 | | |
| 711,099 | |
Total stock-based expense related to restricted stock units | |
$ | 1,328,117 | | |
$ | 1,023,768 | | |
$ | 2,286,544 | | |
$ | 2,019,521 | |
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We may be involved in legal
proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes
are not predictable with assurance. There are no such loss contingencies that are included in the financial statements as of June 30,
2023.
NOTE 12 – SEGMENT INFORMATION
Operating segments are defined
as components of an entity for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision
Maker (“CODM”) in making decisions regarding resource allocation and performance assessment. The Company’s CODM is its
Chief Executive Officer. The Company determined it has two reportable segments: Ondas Networks and Ondas Autonomous Systems as the CODM
reviews financial information for these two businesses separately. The Company has no inter-segment sales. The following table presents
segment information for three and six months ended June 30, 2023:
| |
Three Months Ended June 30, 2023 | |
| |
Ondas Networks | | |
Ondas Autonomous Systems | | |
Total | |
Revenue, net | |
$ | 1,518,496 | | |
$ | 3,950,468 | | |
$ | 5,468,964 | |
Depreciation and amortization | |
| 40,784 | | |
| 1,179,252 | | |
| 1,220,036 | |
Interest expense | |
| 270,739 | | |
| 237,437 | | |
| 508,176 | |
Stock based compensation | |
| 280,979 | | |
| 1,358,890 | | |
| 1,639,869 | |
Net loss | |
| (3,932,756 | ) | |
| (5,025,330 | ) | |
| (8,958,086 | ) |
Goodwill | |
| - | | |
| 27,671,921 | | |
| 27,671,921 | |
Capital expenditures | |
| 8,549 | | |
| 56,621 | | |
| 65,170 | |
Total assets | |
$ | 7,915,713 | | |
$ | 76,645,866 | | |
$ | 84,561,579 | |
| |
Six Months Ended June 30, 2023 | |
| |
Ondas Networks | | |
Ondas Autonomous Systems | | |
Total | |
Revenue, net | |
$ | 2,648,698 | | |
$ | 5,416,257 | | |
$ | 8,064,955 | |
Depreciation and amortization | |
| 76,528 | | |
| 2,374,890 | | |
| 2,451,418 | |
Interest income | |
| 3,673 | | |
| 3,672 | | |
| 7,345 | |
Interest expense | |
| 1,179,703 | | |
| 1,123,946 | | |
| 2,303,649 | |
Stock based compensation | |
| 548,510 | | |
| 2,354,715 | | |
| 2,903,225 | |
Net loss | |
| (8,157,999 | ) | |
| (15,255,638 | ) | |
| (23,413,637 | ) |
Goodwill | |
| - | | |
| 27,671,921 | | |
| 27,671,921 | |
Capital expenditures | |
| 8,549 | | |
| 56,621 | | |
| 65,170 | |
Total assets | |
$ | 7,915,713 | | |
$ | 76,645,866 | | |
$ | 84,561,579 | |
NOTE 13 – INCOME TAXES
The Company had a net deferred
tax asset of $35.9 million as of December 31, 2022, including a tax benefit from approximately $79 million of net operating loss carry-forwards
of $27.5 million. A valuation allowance of $35.9 million was provided against this asset resulting in deferred assets, net of valuation
allowance of $0.
Airobotics Limited had a tax
benefit of approximately $23.1 million as of December 31, 2022, resulting from Israeli tax loss carry-forwards of $110.0 million. These
losses are available to offset future profits of Airobotics Limited. As of the acquisition date of January 23, 2023, the Company estimated
that Airobotics had a deferred tax liability of $1.4 million resulting from the acquisition accounting of amortizable intangibles assets.
This liability together with a valuation allowance of $21.7 million results in deferred assets, net of valuation allowance of $0, relating
to Airobotics.
In assessing the realizability
of deferred tax assets, including the net operating loss carry forwards, the Company assesses the positive and negative evidence to estimate
if sufficient future taxable income will be generated to utilize its existing deferred tax assets. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible.
Based on its assessment, the Company has provided a full valuation allowance against its deferred tax assets since their future utilization
remains uncertain at this time.
In accordance with Section
382 of the Internal Revenue Code, the usage of the Company’s net operating loss carry forwards could be limited in the event a change
of control has occurred. As of December 31, 2021, the Company completed an analysis and determined that there were multiple ownership
changes. Provided sufficient taxable income is generated the annual base limitation plus increased limitation calculated pursuant to IRS
Notice 2003-65 will allow the Company to utilize all existing losses within the carryover periods.
As of June 30, 2023 and December
31, 2022, management does not believe the Company has any material uncertain tax positions that would require it to measure and reflect
the potential lack of sustainability of a position on audit in its financial statements. The Company will continue to evaluate its uncertain
tax positions in future periods to determine if measurement and recognition in its financial statements is necessary. The Company does
not believe there will be any material changes in its unrecognized tax positions over the next year.
NOTE 14 –
RELATED PARTY TRANSACTIONS
The Company has a long-term equity investment in Dynam with a carrying
value of $1,500,000 as of June 30, 2023 and December 31, 2022. See Note 7 – Long-Term Equity Investment. Our CEO Eric Brock is a
director of Dynam. An officer and a director of the Company have invested an aggregate of $35,000 in Dynam as of June 30, 2023.
In addition to the equity investment, the Company paid Dynam for services of $0 and $1,454,733 during the six months
ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, amounts owed to Dynam were $140,800 and $0, respectively,
which are included in Accounts payable.
As of June 30, 2023 and December
31, 2022, the Company owed $35,000 and $359,159 to independent directors, respectively, which is included in Accrued expenses and other
current liabilities.
NOTE
15 – SUBSEQUENT EVENTS
Management has evaluated subsequent
events as of August 14, 2023, the date the condensed consolidated financial statements were
available to be issued according to the requirements of ASC topic 855.
Termination of ATM Agreement
On July 11, 2023, the Company and the Sales Agent, mutually agreed
to terminate the ATM Agreement. As a result, the Company suspended and terminated the prospectus related to the Company’s common
stock issuable pursuant to the terms of the ATM Agreement (the “ATM Prospectus”). The termination of the ATM Agreement and
ATM Prospectus is effective as of July 11, 2023. As of June 30, 2023, the Company had deferred offering costs outstanding of $151,431
related to the ATM Agreement, which will be expensed upon termination of the ATM Agreement during the period ending September 30, 2023.
Ondas Networks Lease Agreement
On August 7, 2023, Ondas Networks
entered into a 72-month lease agreement with the owner and landlord of office space in Sunnyvale, CA. The lease commences October 1, 2023,
or on the date on which Ondas Networks occupies the space, if earlier. Base rent is $77,533 per month, increasing approximately 3% annually,
with a security deposit due in the amount of $269,428. Base rent shall be abated during the first twelve months of the term of the lease.
Agreement and Waiver
On July 21, 2023, the Company entered into an agreement and waiver
with the holder of the 2022 Convertible Exchange Notes (the “Agreement and Waiver”) that included (i) extending the Maturity
Date to from October 28, 2024 to April 28, 2025; (ii) waive the last sentence of Section 8(e) of the Notes (such that last sentence of
Section 8(e) of the Notes shall have no further force and effect) (the “Acceleration Waiver”); (iii) reduce the Conversion
Price of the 2022 Convertible Exchange Notes to the lower of (A) the Conversion Price then in effect and (B) the greater of (x) the Floor
Price (as defined in the Notes) then in effect and (y) 125% of the lowest VWAP (as defined in the Notes) of the Common Stock during the
five (5) consecutive Trading Day period ending and including the Trading Day immediately prior to the effective date; provided, that,
in addition, during the period commencing on the effective date through and including September 30, 2023, the conversion price of the
Notes, solely with respect to voluntary conversions of such aggregate Conversion Amount of the Notes not in excess of such aggregate Current
Installment Amounts of such applicable period (or otherwise eligible to be converted in one or more Accelerations during such applicable
period), shall be further lowered to the Installment Conversion Price (as defined in the Existing Note) in effect for the Installment
Date (as defined in the Existing Note) of the Existing Note of July 3, 2023; (iv) to extend the Additional Closing Expiration Date to
April 28, 2026; and (v) increase the aggregate principal amount of Notes issuable in one or more Additional Closings to $46,000,000.
A full summary of the Agreement and Waiver, including a full text of
the related agreements, are available on the Current Report on Form 8-K filed with the SEC on July 28, 2023.
Additional Convertible Notes
On July 24, 2023, pursuant to the terms of the Purchase Agreement,
as amended, an Investor elected to purchase 3% Series B-2 Senior Convertible Notes in the aggregate original principal amount of $11.5
million (the “Additional Notes”), which Additional Notes are convertible into shares of Common Stock under certain conditions
more fully described in the Additional Notes. The Additional Notes have an original issue discount of approximately thirteen percent (13%)
resulting in gross proceeds to the Company of $10.0 million. The Company currently intends to use the net proceeds for general corporate
purposes, which includes funding capital expenditures and working capital. The Additional Notes have a maturity date of July 25, 2025.
The Additional Notes were issued pursuant to the second supplemental indenture, dated as of July 25, 2023, between the Company and the
Trustee (the “Second Supplemental Indenture,” and together with the Base Indenture, the “Second Indenture”). The
Second Supplemental Indenture supplements the Base Indenture. The Second Indenture has been qualified under the Trust Indenture Act of
1939, and the terms of the Additional Notes include those set forth in the Second Indenture and those made part of the Indenture by reference
to the Trust Indenture Act.
On July 25, 2023, the Additional Notes were offered and sold pursuant
to the Company’s shelf registration statement on Form S-3 (File No. 333-252571) filed with the SEC on January 29, 2021 (as such
registration statement became effective on February 5, 2021, and was expanded to cover additional securities pursuant to a Registration
Statement on Form S-3MEF (No. 333-268014), dated October 26, 2022, filed with the SEC pursuant to Rule 462(b) of the Securities Act of
1933, as amended). On July 25, 2023, the Company filed a prospectus supplement with the SEC in connection with the sale and issuance of
the Additional Notes. Oppenheimer & Co. Inc. served as the sole placement agent for the transaction pursuant to the terms of a placement
agent agreement, dated October 26, 2022.
Subsequent to June 30, 2023, the Company issued approximately 1,985,000 shares as a result of Installment Conversion.
Preferred Stock Investment in Ondas Networks
On July 9, 2023, Ondas Networks
Inc. entered into a Preferred Stock Purchase Agreement (the “Original Networks Agreement”) with the initial purchaser named
therein (the “Initial Purchaser”) for an investment in Ondas Networks and the issuance of warrants to purchase 10,200,000 shares of Ondas Holdings.
The Preferred Stock accrues
dividends at the rate per annum of eight percent (8%) of the original issue price, of $34.955 per share (the “Original Issue Price”).
Such dividends are payable in cash or additional shares of Preferred Stock, with such valuation based on the Original Issue Price. Each
share of Preferred Stock is convertible, at the option of the holder thereof, at any time and from time to time, and without the payment
of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Networks Common Stock as
is determined by dividing the Original Issue Price by the conversion price in effect at the time of conversion, which initially is set
at $34.955. In lieu of any fractional shares to which the holder would otherwise be entitled, the number of shares of Networks Common
Stock to be issued upon conversion of the Preferred Stock shall be rounded to the nearest whole share.
On July 21,
2023, Ondas Networks entered into a certain Amendment to Preferred Stock Purchase
Agreement (the “Networks Amendment,” together with the Original Networks Agreement, the “Networks
Agreement”). Pursuant to the Networks Amendment, in exchange for an initial sale of shares of preferred stock of Ondas
Networks, $0.00001 par value per share (the “Networks Preferred Stock”), the Initial Purchaser acquired the following
(the “Initial Networks Closing”), for gross proceeds to Ondas Networks of $11,508,517: (i) 329,238 shares of Networks
Preferred Stock, at a purchase price of $34.955 per share (the “Per Share Price”), convertible into shares of Common
Stock of Ondas Networks, $0.00001 par value per share (the “Networks Common Stock”) and (ii) warrants to purchase
7,825,792 shares of the Company Common Stock, at an exercise price of $0.89 per share, exercisable commencing ninety days following
the date of issuance through the fifth anniversary of the date of issuance (the “Initial
Warrants”). Also, pursuant to the Networks Amendment, the Initial Purchaser agreed to purchase, and Ondas Networks agreed to
sell and issue to the Initial Purchaser, an additional 99,885 shares of Networks Preferred Stock, at the Per Share Price (the
“Second Initial Purchaser Closing”) and warrants to purchase 2,374,208 shares of Company Common Stock, at an exercise price of $0.89
per share, exercisable commencing ninety days following the date of issuance through the fifth anniversary of the date of issuance (the
“Second Initial Purchaser Warrants”), within thirty days
of the Initial Networks Closing. Additionally, pursuant to the Amendment, Ondas Networks may sell 143,041 additional shares of
Networks Preferred Stock at the Per-Share Price, to a strategic investor or one (1) or more other purchasers reasonably acceptable
to the Initial Purchaser within forty-five days after the Initial Networks Closing.
Ondas Networks will use the
proceeds from the sale of the Networks Preferred Stock for working capital and other general corporate purposes, including fees related
to the transactions contemplated by the Networks Agreement. No portion of the proceeds will be distributed to the Company.
Also
on July 21, 2023, Ondas Networks completed the Initial Closing. In connection with the Initial Networks Closing, the Company issued
the Initial Warrants. Also, in connection with the Initial Closing, the parties entered into an indemnification agreement, investors’
rights agreement, right of first refusal agreement, and voting agreement. Forms of each of these agreements are attached to Exhibit 10.1
to Form 8-K filed on July 28, 2023.
On
August 11, 2023, Ondas Networks completed the Second Initial Purchaser Closing. In connection with the Second Initial Purchaser Closing,
the Company issued Second Initial Purchaser Warrants. Following the Second Initial Purchaser Closing, the Initial Purchaser has invested
an aggregate of $15.0 million and owns a minority interest of approximately 28% of Ondas Networks.
Pursuant to the Networks Agreement,
the Company entered into two registration rights agreements with the Initial Purchaser to register the resale of the Parent Common Stock
underlying the Initial Warrants and Second Initial Purchaser Warrants pursuant to a registration statement to be filed no later 180 days
following the Initial Closing.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
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. (“Ondas,” “we” 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, 2022, filed with the Securities and Exchange Commission (the “SEC”)
on March 14, 2023, including the audited consolidated financial statements and notes included therein as of and for the year ended December
31, 2022 (“2022 Form 10-K”). 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.
Overview
Ondas Holdings is a leading provider of private wireless, drone, and
automated data solutions through its subsidiaries Ondas Networks Inc. (“Ondas Networks”), American Robotics, Inc. (“American
Robotics” or “AR”) and Airobotics, Ltd. (“Airobotics”). Ondas Holdings acquired Airobotics, an Israeli-based
developer of autonomous drone systems on January 23, 2023. American Robotics and Airobotics are operated together, under a separate business
unit called Ondas Autonomous Systems. Ondas Networks and Ondas Autonomous Systems together provide users in rail, energy, mining, agriculture,
public safety and critical infrastructure and government markets with improved connectivity, data collection capabilities, and data collection
and information processing capabilities. We operate Ondas Networks and Ondas Autonomous Systems as separate business segments, and the
following is a discussion of each segment. See Note 1 and Note 2 of the accompanying Consolidated Financial Statements for further information
regarding our segments.
Ondas Networks Segment
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”). Our 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 of large industrial networks. Such applications are required
in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, homeland
security 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 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. Because standards-based communications solutions
are preferred by our mission-critical customers and ecosystem partners, we have taken a leadership position in IEEE as it relates to wireless
networking for industrial markets. As such, management believes this standards-based approach supports the adoption of our technology
across a burgeoning ecosystem of global partners and end markets.
Our software-based FullMAX
platform is an important and timely upgrade solution for privately-owned and operated wireless wide-area networks, leveraging Internet
Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. We believe
industrial and 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 of large
industrial networks 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.
Our Partnership with
Siemens Mobility
In April 2020, Ondas Networks
entered into a strategic partnership with Siemens Mobility (“Siemens”), a worldwide leader in seamless, sustainable, reliable
and secure transportation solutions for more than 160 years, to both market our FullMAX-based networking technology and services and to
jointly develop wireless communications products for the North American Rail Industry based on Siemens’ Advanced Train Control System
(“ATCS”) protocol and our FullMAX MC-IoT platform.
We believe Siemens has both
the sales and marketing reach and support to drive our technology to wide scale acceptance across the global rail market beginning with
the North American Class I Railroad market. In the third quarter of 2021 we completed the development of our first jointly-developed product
with Siemens – the dual-mode ATCS/MC-IoT radio systems. Siemens is now marketing and selling these proprietary systems under the
brand name Airlink to our railroad customers. The dual-mode ATCS radio systems 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 next generation signaling and train control systems, are designed to increase railroad productivity, reduce costs and improve
safety. In addition, Siemens markets and sells Ondas Networks’ standalone MC-IoT 802.16 products under the Siemens Airlink brand.
Our relationship with Siemens
has expanded significantly since entering into the partnership both with (i) the wider marketing of our wireless technology platform and
(ii) multiple additional joint-product programs. Siemens has expanded its marketing reach of Ondas Networks products with identified opportunities
in North American Passenger and Transit Rail as well as in European and Asian Rail markets. We believe our technology has broad potential
in these large, newly targeted markets.
In November 2021, Siemens secured its first commercial 900 MHz rail
order for a major Class I Railroad in the United States which was delivered in December 2021. In August 2022, we announced that we had
secured an initial volume order from Siemens for the Class I Rail 900 MHz Network consisting of both ATCS compatible products along with
Ondas’ catalog products. In September 2022, we received government authorization to sell ATCS radios in Canada. In March 2023 the
Association of American Railroads (“AAR”) formally announced that IEEE 802.16 standard would be the wireless platform for
the greenfield 900 MHz network. The AAR also confirmed they have agreed with the Federal Communications Committee to retire the legacy
900 MHs band by September 2025 and that the wireless network in the new 900 MHz band would be substantially built by April 2026.
Additional Critical Markets
We have launched additional
initiatives to take our MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure markets. In June 2022,
we announced the first successful installation of our technology into an Integrated Coastal Surveillance System (ICSS) in the Caribbean
with a global defense contractor. In the fourth quarter of 2022, we received and delivered on a new ICSS order for the defense contractor
to be deployed in India. We expect additional orders from this defense vendor for the ICSS application in 2023. We believe our FullMAX
technology’s licensed frequency flexibility, reliability, and long communications range over ocean surfaces, is broadening the scale
of our technology in this emerging market for homeland security.
Ondas Autonomous Systems Segment
Our Ondas Autonomous Systems
business unit designs, develops, and markets commercial drone solutions via the Optimus System™ and Scout System™ (the “Autonomous
Drone Platforms”).
The Autonomous Drone Platforms
are highly automated, AI-powered drone systems capable of continuous, remote operation and are marketed as “drone-in-a-box”
turnkey data solution services. They are deployed for critical industrial and government applications where data and information collection
and processing are required. These use cases include public safety, security and smart city deployments where routine, high-resolution
automated emergency response, mapping, surveying, and inspection services are highly valued, in addition to industrial markets such as
oil & gas, rail and ports which emphasize security and inspection solutions. The Autonomous Drone Platforms are typically provided
to customers under a Data-as-a-Service (DaaS) business model, while some customers will choose to purchase and own and operate an Optimus
Systems™.
American Robotics and Airobotics
have industry leading regulatory successes which include having the first drone system approved by the Federal Aviation Administration
(“FAA”) for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site.
In addition to the Autonomous Drone Platforms, we also offer a counter-drone
system called the Raider™. The Raider™ was developed by Iron Drone Ltd. (“Iron Drone”), an Israeli-based company
specializing in the development of autonomous counter-drone systems, and is deployed by government and enterprise customers to provide
security and protect critical infrastructure, assets and people from the threat of hostile drones. Ondas Holdings acquired the assets
of Iron Drone on March 6, 2023.
Autonomous Drone Platforms
We design, develop and manufacture
autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise and government customers. We currently
prioritize the marketing of our Optimus System™ which provides customers with a turnkey data and information solution and the ability
to continuously digitize, analyze, and monitor their assets and field operations in real-time or near real-time. We believe the market
opportunity for our Scout System™ remains significant. As we drive market adoption with the Optimus platform, we anticipate re-introducing
the Scout platform including newly enhanced versions to help segment the market for different use cases and price points.
The Optimus System™
has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the real world. Powered by
innovations in robotics automation, machine vision, edge computing, and AI. Once installed in the field at customer locations, a fleet
of connected Optimus Systems™, which are often deployed as networked drone infrastructure, which we refer to as Urban Drone Infrastructure,
remains indefinitely positioned in an area of operation, automatically collecting and seamlessly delivering data and information regularly
and reliably.
We market the Optimus System™ under a DaaS business model, whereby
our drone platform aggregates customer data and provides the data analytics meeting customer requirements in return for an annual subscription
fee. Some customers purchase Optimus Systems™ to own and operate themselves. We also engage distributors to assist in the sales
and marketing of our Optimus System™ in geographic markets where it is more cost effective to identify and service potential customers
by engaging local third parties. These distribution agreements can include joint ventures, where Ondas Autonomous Systems will provide
technical expertise to support the joint venture partner in the provision of aerial data services to customers.
The Optimus System™
consists of (i) Optimus™, a highly automated, AI-powered drone with advanced imaging payloads, (ii) the Airbase™, a ruggedized
weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud transfer, and
(iii) Insightful™, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere
in the world. These major subsystems are connected via a host of supporting technologies. Airbase™ has internal robotic systems
that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of Optimus as the Optimus
drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors
and advanced payloads without human intervention allows for the Optimus System to provide multiple applications and use cases from a single
location.
American Robotics and Airobotics
have industry leading regulatory successes which include having the first drone system approved by the FAA for automated operation BVLOS
without a human operator or visual observer on-site. American Robotics’ FAA approvals were enabled by integrating a suite of proprietary
technologies, including Detect-and-Avoid (“DAA”) and other proprietary intelligent safety systems into its autonomous drone
platform, which we plan to integrate into the Optimus System™. Airobotics is in the advanced stages of receiving approval for Type
Certification (“TC”) from the FAA for the Optimus UAV. TC approval will enable expanded operation for the Optimus System™
in the United States including flight operations in populated areas.
The Raider™
The Raider™ is a counter-drone
system, which was designed and developed by Iron Drone, that we are marketing to government and enterprise customers who can utilize the
system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. A typical Raider™
deployment location would include sensitive locations such as borders, stadiums or schools, or near critical assets such as power plants
and military bases, and for high profile locations such as amusement parks or where public events are held.
The Raider™ is designed
to detect, track and intercept unauthorized, or hostile unmanned aircraft and is most often sold with three small UAVs that are housed
in a docking station. The Raider UAV has live video capability and a payload containing a net that can be deployed to intercept a hostile
drone. Upon detection of an unauthorized drone, one or more Raider™ UAVs can be autonomously deployed at high speeds to track the
unauthorized aircraft. If the unauthorized aircraft is deemed hostile, the Raider™ UAV can deploy the netting to physically intercept
the aircraft. A parachute integrated with the netting allows the intercepted drone to safely fall to the ground for collection by our
customer.
COVID-19
The
Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2023, primarily
due to supply chain disruptions due to pandemic-related plant and port shutdowns, transportation delays, government actions and other
factors, which may be beyond our control. The global shortage of certain components such as semiconductor chips, strains on production
or extraction of raw materials, cost inflation, and labor and equipment shortages, could escalate in future quarters. Labor shortages
have led and may continue to lead to difficult conditions for hiring and retention of employees, and increased labor costs. 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. 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 during the year ended December 31, 2023.
Inflation Reduction Act of 2022 and Tax Cuts
and Jobs Act of 2017
On August 16, 2022, the Inflation
Reduction Act of 2022 (“IRA”) was signed into law. The IRA includes a 15% Corporate Alternative Minimum Tax (“Corporate
AMT”) for tax years beginning after December 31, 2022. We do not expect the Corporate AMT to have a material impact on our consolidated
financial statements. Additionally, the IRA imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations.
The excise tax is imposed on the value of the net stock repurchased or treated as repurchased. The new law will apply to stock repurchases
occurring after December 31, 2022.
Under the Tax Cuts and Jobs
Act of 2017, we are required to capitalize R&D expenses for tax purposes and amortize over five years for domestic based expenses
and fifteen years for foreign expenses. Given our tax net operating loss carryforward position we do not expect this change to have a
material impact on our financial statements.
Results of Operations
Three months ended June 30, 2023 compared to three months ended
June 30, 2022
| |
Three Months Ended June 30, | |
| |
| | |
| | |
Increase | |
| |
2023 | | |
2022 | | |
(Decrease) | |
Revenue, net | |
$ | 5,468,964 | | |
$ | 604,219 | | |
$ | 4,864,745 | |
Cost of goods sold | |
| 2,397,188 | | |
| 285,639 | | |
| 2,111,549 | |
Gross profit | |
| 3,071,776 | | |
| 318,580 | | |
| 2,753,196 | |
Operating expenses: | |
| | | |
| | | |
| | |
General and administrative | |
| 5,316,848 | | |
| 6,090,053 | | |
| (773,205 | ) |
Sales and marketing | |
| 1,743,588 | | |
| 731,246 | | |
| 1,012,342 | |
Research and development | |
| 4,508,005 | | |
| 4,870,369 | | |
| (362,364 | ) |
Total operating expenses | |
| 11,568,441 | | |
| 11,691,668 | | |
| (123,227 | ) |
Operating loss | |
| (8,496,665 | ) | |
| (11,373,088 | ) | |
| (2,876,423 | ) |
Other income (expense), net | |
| (461,421 | ) | |
| (18,337 | ) | |
| 443,084 | |
Net loss | |
$ | (8,958,086 | ) | |
$ | (11,391,425 | ) | |
$ | (2,433,339 | ) |
Revenues
| |
Three Months Ended June 30, | |
| |
2023 | | |
2022 | | |
Increase | |
Revenue, net | |
| | |
| | |
| |
Ondas Networks | |
$ | 1,518,496 | | |
$ | 520,464 | | |
$ | 998,032 | |
Ondas Autonomous Systems | |
| 3,950,468 | | |
| 83,755 | | |
| 3,866,713 | |
Total | |
$ | 5,468,964 | | |
$ | 604,219 | | |
$ | 4,864,745 | |
Our revenues increased by $4,864,745 to $5,468,964 for the three months
ended June 30, 2023, compared to $604,219 for the three months ended June 30, 2022. Revenues during the three months ended June 30, 2023,
included $4,344,056 for products, $975,468 for maintenance, service, support, and subscriptions, and $149,440 for development agreements
with Siemens. Revenues during the three months ended June 30, 2022, included $422,413 for products, $83,755 for maintenance, service and
support and $98,051 for development agreements with Siemens and AURA. The increase in our revenues were primarily the result of an increase
of approximately $900,000 in product sales to Siemens, and acquiring Airobotics, which had $3,948,968 of revenue during the three months
ended June 30, 2023.
Cost of goods sold
Our cost of goods sold was $2,397,188 for the three months ended June
30, 2023, compared to $285,639 for the three months ended June 30, 2022. The increase in cost of goods sold was primarily a result of
acquiring Airobotics, which resulted in an increase of approximately $1,424,000, and an increase in Ondas Networks’ product revenue,
which resulted in an increase in cost of goods sold of approximately $687,000.
Gross profit
Our gross profit increased
by $2,753,196 for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, based on the changes in revenues
and costs of goods sold as discussed above. Gross margin for the three months ended June 30, 2023 and 2022 was 56% and 53%, respectively.
The increase in gross margin was primarily a result of increased sales in product revenue, which has higher gross margins.
Operating Expenses
| |
Three Months Ended June 30, | |
| |
| | |
| | |
Increase | |
| |
2023 | | |
2022 | | |
(Decrease) | |
Operating expenses: | |
| | |
| | |
| |
General and administrative | |
$ | 5,316,848 | | |
$ | 6,090,053 | | |
$ | (773,205 | ) |
Sales and marketing | |
| 1,743,588 | | |
| 731,246 | | |
| 1,012,342 | |
Research and development | |
| 4,508,005 | | |
| 4,870,369 | | |
| (362,364 | ) |
Total | |
$ | 11,568,441 | | |
$ | 11,691,668 | | |
$ | (123,227 | ) |
Our principal operating costs
include the following items as a percentage of total expense.
| |
Three Months Ended June 30, | |
| |
2023 | | |
2022 | |
Human resource costs, including benefits | |
| 47 | % | |
| 44 | % |
Travel and entertainment | |
| 2 | % | |
| 3 | % |
Other general and administration costs: | |
| | | |
| | |
Professional fees and consulting expenses | |
| 8 | % | |
| 8 | % |
Other expense | |
| 8 | % | |
| 10 | % |
Depreciation and amortization | |
| 12 | % | |
| 9 | % |
Other research and deployment costs, excluding human resources and travel and entertainment | |
| 19 | % | |
| 25 | % |
Other sales and marketing costs, excluding human resources and travel and entertainment | |
| 5 | % | |
| 1 | % |
Operating expenses decreased
by $123,227, or 1%, as a result of the following items:
| |
Three Months Ended
June 30, 2023 | |
Human resource costs, including benefits | |
$ | 267,702 | |
Travel and entertainment | |
| (141,966 | ) |
Other general and administration costs: | |
| | |
Professional fees and consulting costs | |
| 2,969 | |
Other expense | |
| (224,451 | ) |
Depreciation and amortization | |
| 314,871 | |
Other research and development costs, excluding human resources and travel and entertainment | |
| (736,500 | ) |
Other sales and marketing costs, excluding human resources and travel and entertainment | |
| 394,148 | |
| |
$ | (123,227 | ) |
The decrease in operating expenses was primarily due to: (i) an increase
of approximately $268,000 in human resource costs, of which approximately $1,050,000 relates to the added headcount from the Airobotics
acquisition, offset by a decrease of approximately $782,000 due to a decrease in headcount at American Robotics; (ii) a decrease in travel
and entertainment of approximately $142,000 as a result of synergies achieved by integrating American Robotics and Airobotics; (iii) a
decrease of approximately $224,000 in other expense as a result of synergies achieved by integrating American Robotics and Airobotics;
(iv) an increase in depreciation and amortization of approximately $315,000 related to the acquisition of Airobotics; (v) a decrease of
approximately $736,000 in other research and development costs, excluding human resources and travel and entertainment, of which $1,156,000
relates to synergies achieved by integrating American Robotics and Airobotics, offset by an increase in research and development contractor
costs of approximately $420,000 at Ondas Networks as we continue to invest in our technology; and (vi) an increase in other sales and
marketing costs, excluding human resources and travel and entertainment, of which approximately $394,000 relates to the acquisition of
Airobotics.
Operating Loss
| |
Three Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | | |
Decrease | |
Operating loss | |
$ | (8,496,665 | ) | |
$ | (11,373,088 | ) | |
$ | 2,876,423 | |
As a result of the foregoing,
our operating loss decreased by $2,876,423 or 25%, to $8,496,665 for the three months ended June 30, 2023, compared with $11,373,088 for
the three months ended June 30, 2022. Operating loss decreased primarily as a result of increased sales and gross margin for the three
months ended June 30, 2023.
Total Other Income (Expense), net
| |
Three Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | | |
Increase | |
Other income (expense), net | |
$ | (461,421 | ) | |
$ | (18,337 | ) | |
$ | (443,084 | ) |
Other expense, net increased by $443,084, to $461,421 for the three
months ended June 30, 2023, compared with the other expense of $18,337 for the three months ended June 30, 2022. During the three months
ended June 30, 2023, we reported (i) an increase in interest expense of approximately $244,000, amortization of debt discount of approximately
$179,000, and amortization debt issuance costs of approximately $105,000 for the 2022 Convertible Exchange Notes; (ii) an increase in
loss on intellectual property of approximately $6,000; (iii) an increase in loss on foreign exchange of approximately $24,000 at Airobotics;
and (iv) an increase in other income of approximately $115,000 due to change in fair value of government grant liability.
Net Loss
| |
Three Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | | |
Decrease | |
Net Loss | |
$ | (8,958,086 | ) | |
$ | (11,391,425 | ) | |
$ | 2,433,339 | |
As a result of the net effects
of the foregoing, net loss decreased by $2,433,339, or 21%, to $8,958,086 for the three months ended June 30, 2023, compared with $11,391,425
for the three months ended June 30, 2022. Net loss per share of Common Stock, basic and diluted, was $(0.18) for the three months ended
June 30, 2023, compared with $(0.27) for the three months ended June 30, 2022.
Six months ended June 30, 2023 compared to six months ended June
30, 2022
| |
Six Months Ended June 30, | |
| |
| | |
| | |
Increase | |
| |
2023 | | |
2022 | | |
(Decrease) | |
Revenue, net | |
$ | 8,064,955 | | |
$ | 1,014,417 | | |
$ | 7,050,538 | |
Cost of goods sold | |
| 3,966,283 | | |
| 573,571 | | |
| 3,392,712 | |
Gross profit | |
| 4,098,672 | | |
| 440,846 | | |
| 3,657,826 | |
Operating expenses: | |
| | | |
| | | |
| | |
General and administrative | |
| 10,783,959 | | |
| 11,614,770 | | |
| (830,811 | ) |
Sales and marketing | |
| 2,981,073 | | |
| 1,412,909 | | |
| 1,568,164 | |
Research and development | |
| 11,482,984 | | |
| 8,777,588 | | |
| 2,705,396 | |
Total operating expenses | |
| 25,248,016 | | |
| 21,805,267 | | |
| 3,442,749 | |
Operating loss | |
| (21,149,344 | ) | |
| (21,364,421 | ) | |
| (215,077 | ) |
Other income (expense), net | |
| (2,264,293 | ) | |
| (37,403 | ) | |
| 2,226,890 | |
Net loss | |
$ | (23,413,637 | ) | |
$ | (21,401,824 | ) | |
$ | 2,011,813 | |
Revenues
| |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | | |
Increase | |
Revenue, net | |
| | |
| | |
| |
Ondas Networks | |
$ | 2,648,698 | | |
$ | 870,545 | | |
$ | 1,778,153 | |
Ondas Autonomous Systems | |
| 5,416,257 | | |
| 143,872 | | |
| 5,272,385 | |
Total | |
$ | 8,064,955 | | |
$ | 1,014,417 | | |
$ | 7,050,538 | |
Our revenues increased by $7,050,538 to $8,064,955 for the six months
ended June 30, 2023, compared to $1,014,417 for the six months ended June 30, 2022. Revenues during the six months ended June 30, 2023,
included $6,699,837 for products, $1,055,406 for maintenance, service, support, and subscriptions, and $309,712 for development agreements
with Siemens. Revenues during the six months ended June 30, 2022, included $571,683 for products, $143,872 for maintenance, service, support,
and subscriptions and $298,862 for development agreements with Siemens and AURA. The increase in our revenues were primarily the result
of increased product sales to Siemens, and acquiring Airobotics, which had $5,414,757 of revenue from January 24, 2023 through June 30,
2023.
Cost of goods sold
Our cost of goods sold was $3,966,283 for the six months ended June
30, 2023, compared to $573,571 for the six months ended June 30, 2022. The increase in cost of goods sold was primarily a result of acquiring
Airobotics, which resulted in an increase of approximately $2,446,000, and an increase in Ondas Networks’ product revenue, which
resulted in an increase in cost of goods sold of approximately $976,000.
Gross profit
Our gross profit increased
by $3,657,826 for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, based on the changes in revenues
and costs of goods sold as discussed above. Gross margin for the six months ended June 30, 2023 and 2022 was 51% and 43%, respectively.
The increase in gross margin was primarily a result of increased sales in product revenue, which has higher gross margins.
Operating Expenses
| |
Six Months Ended June 30, | |
| |
| | |
| | |
Increase | |
| |
2023 | | |
2022 | | |
(Decrease) | |
Operating expenses: | |
| | |
| | |
| |
General and administrative | |
$ | 10,783,959 | | |
$ | 11,614,770 | | |
$ | (830,811 | ) |
Sales and marketing | |
| 2,981,073 | | |
| 1,412,909 | | |
| 1,568,164 | |
Research and development | |
| 11,482,984 | | |
| 8,777,588 | | |
| 2,705,396 | |
Total | |
$ | 25,248,016 | | |
$ | 21,805,267 | | |
$ | 3,442,749 | |
Our principal operating costs
include the following items as a percentage of total expense.
| |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | |
Human resource costs, including benefits | |
| 44 | % | |
| 43 | % |
Travel and entertainment | |
| 2 | % | |
| 2 | % |
Other general and administration costs: | |
| | | |
| | |
Professional fees and consulting expenses | |
| 8 | % | |
| 9 | % |
Other expense | |
| 7 | % | |
| 10 | % |
Depreciation and amortization | |
| 10 | % | |
| 9 | % |
Other research and deployment costs, excluding human resources and travel and entertainment | |
| 26 | % | |
| 24 | % |
Other sales and marketing costs, excluding human resources and travel and entertainment | |
| 3 | % | |
| 2 | % |
Operating expenses increased
by $3,442,749, or 16%, as a result of the following items:
| |
Six Months Ended June 30, 2023 | |
Human resource costs, including benefits | |
$ | 1,504,385 | |
Travel and entertainment | |
| (105,048 | ) |
Other general and administration costs: | |
| | |
Professional fees and consulting costs | |
| 247,672 | |
Other expense | |
| (408,436 | ) |
Depreciation and amortization | |
| 597,497 | |
Other research and development costs, excluding human resources and travel and entertainment | |
| 1,117,582 | |
Other sales and marketing costs, excluding human resources and travel and entertainment | |
| 489,097 | |
| |
$ | 3,442,749 | |
The increase in operating expenses was primarily due to: (i) an increase
of approximately $1,504,000 in human resource costs, of which approximately $1,937,000 relates to the added headcount from the Airobotics
acquisition, an increase of approximately $565,000 related to an increase in headcount at Ondas Networks, offset by a decrease of approximately
$838,000 for a decrease in headcount at American Robotics and a decrease of approximately $160,000 at Ondas Holdings for a decrease in
bonus and stock based compensation; (ii) a decrease in travel and entertainment of approximately $105,000 as a result of synergies achieved
by integrating American Robotics and Airobotics; (iii) an increase of approximately $248,000 in professional fees and consulting costs
relates to an increase of approximately $434,000 at Ondas Holdings for legal and accounting expenses related to the Airobotics acquisition
and fund raising, offset by a decrease of approximately $186,000 as a result of synergies achieved by integrating American Robotics and
Airobotics; (iv) a decrease of approximately $408,000 in other expense as a result of synergies achieved by integrating American Robotics
and Airobotics; (v) an increase of approximately $597,000 in depreciation and amortization expense related to the acquisition of Airobotics;
(vi) an increase of approximately $1,118,000 in other research and development costs, excluding human resources and travel and entertainment,
of which $548,000 related to an increase in research and development contractor costs at Ondas Networks as we continue to invest in our
technology, and $1,368,000 related to costs associated with terminating a development contract at American Robotics, as a result of restructuring
actions related to the integration of American Robotics and Airobotics; offset by $798,000 of synergies achieved by integrating American
Robotics and Airobotics; and (vii) an increase in other sales and marketing costs, excluding human resources and travel and entertainment,
of which approximately $489,000 related to the acquisition of Airobotics.
Operating Loss
| |
Six Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | | |
Decrease | |
Operating loss | |
$ | (21,149,344 | ) | |
$ | (21,364,421 | ) | |
$ | 215,077 | |
As a result of the foregoing,
our operating loss decreased by $215,077, or 1%, to $21,149,344 for the six months ended June 30, 2023, compared with $21,364,421
for the six months ended June 30, 2022. Operating loss decreased primarily as a result of increased sales and gross margin, offset by
an increase in operating expenses described above, for the six months ended June 30, 2023.
Total Other Income (Expense), net
| |
Six Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | | |
Increase | |
Other income (expense), net | |
$ | (2,264,293 | ) | |
$ | (37,403 | ) | |
$ | (2,226,890 | ) |
Other expense, net increased by $2,226,890, to $2,264,293 for the six
months ended June 30, 2023, compared with the other expense of $37,403 for the six months ended June 30, 2022. During the six months ended
June 30, 2023, we reported an increase in interest expense of approximately $547,000, amortization of debt discount of approximately $1,182,000,
amortization debt issuance costs of approximately $603,000 for the 2022 Convertible Exchange Notes, offset by an increase in other income
of approximately $72,000 due to change in fair value of government grant liability.
Net Loss
| |
Six Months Ended | |
| |
June 30, | |
| |
2023 | | |
2022 | | |
Increase | |
Net Loss | |
$ | (23,413,637 | ) | |
$ | (21,401,824 | ) | |
$ | (2,011,813 | ) |
As a result of the net effects
of the foregoing, net loss increased by $2,011,813, or 9%, to $23,413,637 for the six months ended June 30, 2023, compared with $21,401,824
for the six months ended June 30, 2022. Net loss per share of Common Stock, basic and diluted, was $(0.47) for the six months ended June
30, 2023, compared with $(0.51) for the six months ended June 30, 2022.
Summary of (Uses) and Sources of Cash
| |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | |
Net cash flows used in operating activities | |
$ | (21,864,777 | ) | |
$ | (15,302,003 | ) |
Net cash flows provided by (used in) investing activities | |
| 695,484 | | |
| (3,538,148 | ) |
Net cash flows provided by (used in) financing activities | |
| (5,501,087 | ) | |
| 6,039,105 | |
Decrease in cash and cash equivalents | |
| (26,670,380 | ) | |
| (12,801,046 | ) |
Cash, cash equivalents, and restricted cash, beginning of period | |
| 29,775,096 | | |
| 40,815,123 | |
Cash, cash equivalents, and restricted cash, end of period | |
$ | 3,104,716 | | |
$ | 28,014,077 | |
The principal use of cash
in operating activities for the six months ended June 30, 2023, was to fund the Company’s current expenses primarily related to
operating activities necessary to allow us to service and support customers. The increase in cash flows used in operating activities of
$6,562,774 was primarily due to the increase in operating expenses of approximately $4,275,000, combined with an increase in depreciation
and amortization of approximately $2,288,000 related to the acquired fixed assets and intangibles of Airobotics and the amortization of
debt discount and issuance costs for the 2022 Convertible Exchange Notes.
The increase in cash flows
provided by investing activities of $4,233,632, relates to $1,049,454 cash acquired with Airobotics acquisition, combined with a decrease
of approximately $661,000 in cash paid for asset acquisitions, and a decrease of approximately $2,523,000 in payments made for purchase
of equipment and patent costs.
The cash flows used in financing
activities increased $11,540,192 primarily due to cash payments of $4,354,911 on the 2022 Convertible Exchange Notes, and payments of
$1,146,877 for Airobotics related debt. For a summary of our outstanding Long-Term Notes Payable, see Note 9 in the accompanying Notes
to Unaudited Condensed Consolidated Financial Statements. The cash flows provided by financing activities for the six months ended June
30, 2022 includes proceeds from the sale of shares under the ATM Offering, amounting to $6,039,105.
Liquidity and Capital Resources
We
have incurred losses since inception and have funded our operations primarily through debt and the sale of capital stock. On June 30,
2023, we had stockholders’ equity of approximately $49,518,000. On June 30, 2023, we had net long-term borrowings outstanding of
approximately $3,659,000, net of debt discount and issuance costs of approximately $405,000, and short-term borrowings outstanding of
approximately $20,529,000, net of debt discount and issuance costs of approximately $1,172,000. On June 30, 2023, we had total cash and
restricted cash of approximately $3,105,000 and working capital deficit of approximately $15,960,000.
Subsequent
to June 30, 2023, and as of this filing date, the Company has raised approximately $25,000,000 through convertible notes and the sale
of preferred stock in Ondas Networks, see Note 15 – Subsequent Events. We expect to fund our operations for the next twelve months
from the filing date of this Form 10-Q from the capital infusion, which closed subsequent to June 30, 2023, gross profits generated from
revenue growth, potential prepayments from customers for purchase orders, potential proceeds from warrants issued and outstanding, and
additional funds that we may seek through equity or debt offerings and/or borrowings under additional notes payable, lines of credit
or other sources.
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 manufacture and deliver equipment on those purchase orders. These activities, including our planned research and development
efforts, will require significant uses of working capital. There can be no assurances that we will generate revenue and cash flow as expected
in our current business plan. We may seek additional funds through equity or debt offerings and/or borrowings under additional notes
payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable terms
or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund
our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited,
which could materially adversely affect our business, financial condition or results of operations.
Off-Balance Sheet Arrangements
As of June 30, 2023, we had
no off-balance sheet arrangements.
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
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 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 2022 Form 10-K. There have been no significant changes in our
critical accounting policies since the filing of the 2022 Form 10-K.
Recent Accounting Pronouncements
There have been no material changes to our significant accounting policies
as summarized in Note 2 of our 2022 Form 10-K, except for the addition of Airobotics accounting policies related to revenue recognition
and government grants. We do not expect that the adoption of any recent accounting pronouncements will have a material impact on our accompanying
condensed consolidated financial statements.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q, as well as information included in oral statements
or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by words such
as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”
“predicts,” “projects,” “will be,” “will continue,” “will likely result,”
and similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. These forward-looking
statements are based on our current, reasonable expectations and assumptions, which expectations and assumptions are subject to risks
and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed in 2022 Form 10-K, which was filed
with the SEC on March 14, 2023, and the risks discussed under the caption “Risk Factors” included in this Quarterly
Report on Form 10-Q. Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
We are a smaller reporting
company as defined by Rule 229.10(f)(1) and are not required to provide information under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s
Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as
of June 30, 2023. Based on that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer
have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) were effective as of June 30, 2023.
Changes in Internal Control Over Financial
Reporting
Except for the controls added as a result of acquiring and integrating
Airobotics, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant
to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended June 30, 2023 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and
Procedures
In designing and evaluating
the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource
constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative
to their costs.
PART I - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may
become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent
uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are not currently
involved in any legal proceeding or investigation by a governmental agency that we believe will have a material adverse effect on our
business, financial condition or operating results.
Item 1A. Risk Factors.
Our business, financial condition,
operating results, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth
in our Annual Report on Form 10-K for the year ended December 31, 2022, the occurrence of any one of which could have a material adverse
effect on our actual results.
There have been no material changes to the Risk Factors previously
disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, except as set forth below.
We may not have the
ability to pay interest on the Notes or to redeem the Notes.
The Notes bear interest at
a rate of 3% per year and add amortization payments with respect to the principal amount of the Notes and accrued and unpaid interest
are due and payable monthly. If we are unable to satisfy certain equity conditions, we will be required to pay all amounts due on any
installment date in cash. If a change of control occurs, holders of the Notes may require us to repurchase, for cash, all or a portion
of their Notes. Our ability to pay amortization payments and interest on the Notes, to repurchase the Notes, to fund working capital needs,
and fund planned capital expenditures depends on our ability to generate cash flow in the future. To some extent, this is subject to general
economic, financial, competitive, legislative and regulatory factors, and other factors that are beyond our control. We cannot assure
you that we will continue to maintain sufficient cash reserves or that our business will continue to generate cash flow from operations
at a level sufficient to permit us to pay the interest on the Notes or to repurchase or redeem the Notes or that our cash needs will not
increase.
The holder of the Notes can
defer an installment payment due on any installment date to another installment date and may, on any installment date accelerate the payment
of amounts due on up to four future installment dates. Therefore, we may be required to repay the entire principal amount and accrued
and unpaid interest on the Notes in one lump sum on the maturity date of the Notes. If we are unable to satisfy certain equity conditions,
we will be required to pay all amounts due whether by deferral or acceleration in cash and we may not have sufficient funds to repay the
Notes under such circumstances.
Our failure to make the required
payments on the Notes would permit the holders of the Notes to accelerate our obligations under the Notes. Such default may also lead
to a default under our agreements governing any of our current and future indebtedness.
If we are unable to generate
sufficient cash flow from our operations in the future to service our indebtedness and meet our other needs, we may have to refinance
all or a portion of the indebtedness, obtain additional financing, reduce expenditures, or sell assets that we deem necessary to our business.
We cannot assure you that any of these measures would be possible or that additional financing could be obtained on favorable terms, if
at all. The inability to obtain additional financing on commercially reasonable terms would have a material adverse effect on our financial
condition and our ability to meet our obligations to you under the Notes.
Provisions in the Notes
may deter or prevent a business combination that may be favorable to you.
Under the terms of the Notes
we are prohibited from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations
under the Notes. These and other provisions could prevent or deter a third party from acquiring us, even where the acquisition could be
beneficial to you.
Future sales of a significant
number of our shares of Common Stock in the public markets, or the perception that such sales could occur, could depress the market price
of our shares of Common Stock or cause it to be highly volatile.
The conversion of
some or all of the Notes will dilute the ownership interests of existing shareholders, unless we satisfy any such conversions solely
with cash, and conversions of such Notes into shares of our Common Stock could depress the price of our Common Stock. We cannot predict
if and when these shares of our Common Stock will be resold in the public markets. We cannot predict the number of these shares that might
be resold nor the effect that future sales of our shares of Common Stock would have on the market price of our shares of Common Stock.
Sales of a substantial number of our shares of Common Stock in the public markets, or the perception that such sales could occur, may
result in downward pressure on the price of our Common Stock or cause it to be highly volatile and impair our ability to raise capital
through the sale of additional equity securities.
Our financing arrangements
contain, and we expect that other future loan agreements and financing arrangements will contain, customary covenants that may limit our
liquidity and corporate activities, which could limit our operational flexibility and have an adverse effect on our financial condition
and results of operations.
Our financial arrangements
contain, and we expect that other future loan agreements and financing arrangements will contain, customary covenants and event of default
clauses, which may affect operational and financial flexibility. Such restrictions could affect, and in many respects limit or prohibit,
among other things, our ability to pay dividends, incur additional indebtedness, create liens, sell assets, or engage in mergers or acquisitions.
These restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise
restrict corporate activities. There can be no assurance that such restrictions will not adversely affect our ability to finance our future
operations or capital needs.
As a result of these restrictions,
we may need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different
from ours and we may not be able to obtain their permission when needed. This may prevent us from taking actions that we believe are in
our best interests, which may adversely impact our revenues, results of operations and financial condition.
For more information regarding
our obligations under the Notes please see the sections titled “Liquidity and Capital Resources” in Management’s Discussion
and Analysis of Financial Condition and Results of Operations, “Long-Term Notes Payable” and “Subsequent Events”
in the notes of the Unaudited Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
** |
This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference. |
+ |
Management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
DATE: August 14, 2023
|
ONDAS HOLDINGS INC. |
|
|
|
|
By: |
/s/ Eric A. Brock |
|
|
Eric A. Brock |
|
|
Chairman and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
By: |
/s/ Derek Reisfield |
|
|
Derek Reisfield |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer
Principal Accounting Officer) |
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2023-07-01
2023-07-21
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2023-08-11
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2023-08-11
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I, Eric A. Brock, certify that:
1. I have reviewed this Quarterly
Report on Form 10-Q of Ondas Holdings Inc.;
2. Based on my knowledge,
this report dmoes not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report
any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
1. I have reviewed this Quarterly
Report on Form 10-Q of Ondas Holdings Inc.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report
any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s
other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
18 U.S.C. SECTION 1350,
In connection with the Quarterly
Report of Ondas Holdings Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Eric A. Brock, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The
Report fully complies with the requirement of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
A signed original of this
certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
18 U.S.C. SECTION 1350,
In connection with the Quarterly
Report of Ondas Holdings Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Derek Reisfield, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The
Report fully complies with the requirement of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
A signed original of this
certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.