UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
(Mark
One)
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
or
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from________ to ___________
Commission
File Number:
HOLDINGS INC.
(Exact
name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Old South Road
(Address
of principal executive offices) (Zip Code)
(Registrant’s
telephone number)
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 | ||
| The |
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.
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).
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 | ☐ | |
| ☒ | 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 November 15, 2021 was
ONDAS
HOLDINGS INC.
INDEX
TO FORM 10-Q
ONDAS
HOLDINGS INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other Assets: | ||||||||
| Goodwill |
– |
|||||||
| Intangible assets, net | ||||||||
| Lease deposits | ||||||||
| Operating lease right of use assets | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Operating lease liabilities | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Secured promissory note, net of debt discount of $ |
– |
|||||||
| Deferred revenue | ||||||||
| Notes payable |
– |
|||||||
| Total current liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Notes payable | ||||||||
| Accrued interest | ||||||||
| Operating lease liabilities, net of current |
– |
|||||||
| Deferred tax liability | – | |||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies |
|
|
||||||
| Stockholders’ Equity | ||||||||
| Preferred stock – par value $ |
– |
– |
||||||
| Preferred stock, Series A – par value $ |
– |
– |
||||||
| Common stock – par value $0.0001; 116,666,667 shares authorized; 40,788,681 and 26,540,769 issued and outstanding, respectively | ||||||||
|
at September 30, 2021 and December 31, 2020, respectively |
||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The
accompanying footnotes are an integral part of these consolidated financial statements.
ONDAS
HOLDINGS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administration | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income |
– |
|||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Change in fair value of derivative liability |
– |
( |
) |
– |
( |
) | ||||||||||
| Total other income (expense) | ( |
) | ( |
) | ( |
) | ||||||||||
| Loss before provision for income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Provision for income taxes |
– |
– |
– |
– |
||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share – basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
ONDAS
HOLDINGS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Unaudited)
| Additional | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2019 |
– |
$ |
– |
$ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||
| Stock-based compensation | – |
– |
– |
– |
– | |||||||||||||||||||||||
| Forgiveness of accrued officers salary | – |
– |
– |
– |
– | |||||||||||||||||||||||
| Net loss | – |
– |
– | – | – | ( |
) | ( |
) | |||||||||||||||||||
| Balance, March 31, 2020 |
– |
– |
( |
) | ( |
) | ||||||||||||||||||||||
| Stock-based compensation | – |
– |
– |
– |
– | |||||||||||||||||||||||
| Net loss | – |
– |
– | – | – | ( |
) | ( |
) | |||||||||||||||||||
| Balance, June 30, 2020 |
– |
– |
( |
) | ( |
) | ||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||
| Issuance of Series A in connection with private placement, net of costs | – | – | – | |||||||||||||||||||||||||
| Derivative liability | – |
– |
– |
– |
( |
) | ( |
) | ||||||||||||||||||||
| Issuance of Series A in connection with exchange of debt | – | |||||||||||||||||||||||||||
| Issuance in connection with extension of debt | – | – | – | – | – | |||||||||||||||||||||||
| Net loss | – |
– |
– |
– |
– |
( |
) | ( |
) | |||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Balance, December 31, 2020 |
– |
$ |
– |
$ | $ | $ | ( |
) | $ | |||||||||||||||||||
| Stock-based compensation | – |
– |
– |
– |
– | |||||||||||||||||||||||
| Shares issued in exercise of warrants |
– |
– |
– | |||||||||||||||||||||||||
| Forgiveness of accrued officers salary | – |
– |
– |
– |
– | |||||||||||||||||||||||
| Net loss | – |
– |
– |
– |
– |
( |
) | ( |
) | |||||||||||||||||||
| Balance, March 31, 2021 |
– |
– |
( |
) | ||||||||||||||||||||||||
| Issuance of shares from 2021 Public Offering, net of costs |
– |
– |
– |
|||||||||||||||||||||||||
| Stock-based compensation | – |
– |
– |
– |
– |
|||||||||||||||||||||||
| Shares issued in exercise of warrants |
– |
– |
– |
|||||||||||||||||||||||||
| Net loss | – |
– |
– |
– |
– |
( |
) | ( |
) | |||||||||||||||||||
| Balance, June 30, 2021 |
– |
– |
( |
) | ||||||||||||||||||||||||
| Issuance of shares in connection with acquisition of American Robotics, Inc. |
– |
– |
– |
|||||||||||||||||||||||||
| Issuance of warrants in connection with acquisition of American Robotics, Inc. | – | – | – | – | – | |||||||||||||||||||||||
| Issuance of vested stock options in connection with acquisition of American Robotics, Inc. | – | – | – | – | – | |||||||||||||||||||||||
| Stock-based compensation | – | – | – | – | – | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | ( |
) | ( |
) | |||||||||||||||||||
| Balance, September 30, 2021 |
– |
$ |
– |
$ | $ | $ | ( |
) | $ | |||||||||||||||||||
The
accompanying footnotes are an integral part of these condensed consolidated financial statements.
ONDAS
HOLDINGS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITES | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of deferred financing costs | ||||||||
| PPP Loan forgiveness | ( |
) |
– |
|||||
| Amortization of intangible assets | ||||||||
| Change in fair value of derivative liability |
– |
|||||||
| Amortization of right of use asset | ||||||||
| Loss on Intellectual Property |
– |
|||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ( |
) | ||||
| Inventory | ( |
) | ( |
) | ||||
| Other current assets | ( |
) | ||||||
| Accounts payable | ( |
) | ||||||
| Deferred revenue | ( |
) | ||||||
| Operating lease liability | ( |
) | ( |
) | ||||
| Accrued expenses and other current liabilities | ( |
) | ||||||
| Net cash flows used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Patent costs | ( |
) | ( |
) | ||||
| Purchase of equipment | ( |
) | ( |
) | ||||
| Purchase of American Robotics, Inc., net of cash acquired | ( |
) |
– |
|||||
| Proceeds from sub-lease deposit |
– |
|||||||
| Security deposit | ( |
) | ||||||
| Net cash flows used in investing activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from paycheck protection program loan |
– |
|||||||
| Proceeds from sale of preferred stock, net of costs |
– |
|||||||
| Proceeds from exercise of warrants |
– |
|||||||
| Proceeds from 2021 Public Offering, net of costs |
– |
|||||||
| Payments on loan payable | ( |
) |
– |
|||||
| Net cash flows provided by financing activities | ||||||||
| Increase (decrease) in cash and cash equivalents | ( |
) | ||||||
| Cash and cash equivalent, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ |
– |
$ |
– |
||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: | ||||||||
| Forgiveness of accrued officers salary | $ | $ | ||||||
| Debt exchanged for preferred stock | $ |
– |
$ | |||||
| Accrued interest converted to debt | $ |
– |
$ | |||||
| Shares issue for extension of debt | $ |
– |
$ | |||||
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”), changed our name to Ondas Holdings Inc., and Ondas Networks, became the sole focus and wholly
owned subsidiary. On August 5, 2021, Ondas Holdings Inc. acquired American Robotics, Inc. (“American Robotics” or “AR”),
a Delaware Corporation. The two wholly owned subsidiaries are now Ondas’ primary focus. Ondas’ corporate headquarters are
located in Nantucket, MA. Ondas Networks has offices and facilities in Sunnyvale, California, and American Robotics’ offices and
facilities are located in Waltham, Massachusetts and Marlborough, Massachusetts.
Ondas is a leading provider
of private wireless, drone and automated data solutions through its wholly owned subsidiaries, Ondas Networks and American Robotics. Ondas
Networks originally incorporated in Delaware on February 16, 2006, under the name Full Spectrum Inc. and subsequently changed its name
to Ondas Networks Inc. on August 10, 2018. Ondas Networks is a developer of proprietary, software-based wireless broadband technology
for large established and emerging industrial markets. Ondas Networks’ standards-based (802.16s), multi-patented, software-defined radio
FullMAX platform enables Mission Critical IoT (MC-IoT) applications by overcoming the bandwidth limitations of today’s legacy private
licensed wireless networks. Ondas Networks’ customer end markets include railroads, utilities, oil and gas, transportation, aviation (including
drone operators), and government entities whose demands span a wide range of mission-critical applications. American Robotics originally
incorporated in Delaware on October 13, 2016. American Robotics designs, develops and markets industrial drone solutions for rugged, real-world
environments. AR’s Scout System is a highly automated, AI-powered drone system capable of continuous, remote operation and is marketed
as a “drone-in-a-box” turnkey data solution service under a Robot-as-a-Service (RAAS) business model. The Scout System is the
first drone system approved by the FAA for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site. Ondas
Networks and American Robotics together provide users in rail, agriculture, utilities and critical infrastructure markets with improved
connectivity and data collection capabilities. Ondas Holdings coordinates activity between the two companies to help ensure efficiencies
are realized in business administration, customer marketing activity, product development and manufacturing.
Ondas has a third wholly owned
subsidiary, FS Partners (Cayman) Limited, a Cayman Islands limited liability company (“FS Partners) and one majority owned subsidiary,
Full Spectrum Holding Limited, a Cayman Islands limited liability company (“FS Holding”), which owned
Limited, organized in Chengdu Province, China. FS Partners and Ondas Network Limited were both formed for the purpose of operating in
China. As of December 31, 2019, we revised our business strategy, and discontinued all operations in China. On June 2, 2020, Ondas Network
Limited was deregistered by the authority of the Chengdu High-Tech Zone, Market Supervision Administration. Both FS Partners and FS Holdings
had no operations during 2020 and 2021, and we are in the process of dissolving them and expect the process to be completed by the end
of 2021.
Business Activity
Ondas is a leading provider
of private wireless, drone and automated data solutions through its wholly owned subsidiaries, Ondas Networks and American Robotics. Ondas
manages these two subsidiaries as separate business segments.
Ondas Networks provides wireless
connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the
Mission Critical Internet of Things (“MC-IoT”). The Company’s wireless networking products are applicable to a wide
range of MC-IoT applications which are most often located at the very edge of large industrial networks. We design, develop, manufacture,
sell and support FullMAX, our patented, Software Defined Radio (“SDR”) platform for secure, licensed, private, wide-area broadband
networks. Our customers install FullMAX systems in order to upgrade and expand their legacy wide-area network (“WAN”) infrastructure.
Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers (“IEEE”), the leading
worldwide standards body in data networking protocols, and forms the core of the IEEE 802.16s standard.
Ondas Networks sells its products
and services globally through a direct sales force and value-added sales partners including its strategic partner, Siemens Mobility, to
critical infrastructure providers including major rail operators, commercial and industrial drone operators, electric and gas utilities,
water and wastewater utilities, oil and gas producers and pipeline operators, and for other critical infrastructure applications in areas
such as homeland security and defense, and transportation.
American Robotics designs,
develops, and markets industrial drone solutions for rugged, real-world environments. AR’s Scout System is a highly automated, AI-powered
drone system capable of continuous, remote operation and is marketed as a “drone-in-a-box” turnkey data solution service under
a Robot-as-a-Service (RAAS) business model. The Scout System is the first drone system approved by the FAA for automated operation beyond-visual-line-of-sight
(BVLOS) without a human operator on-site.
American Robotics sells its
products and services nationally through a direct sales force to large enterprises that operate in the agriculture, industrial and critical
infrastructure verticals that include major rail operators, electric and gas utilities, oil and gas producers, large agricultural input
manufacturers, large agricultural coops, and for other critical infrastructure applications in areas such as homeland security and defense,
and transportation.
Liquidity
We have incurred losses since
inception and have funded our operations primarily through debt and the sale of capital stock. As of September 30, 2021, we had a stockholders’
equity of approximately $
and cash of approximately $
In December 2020, the Company
completed a registered public offering of its common stock, generating net proceeds of approximately $
completed another registered public offering of its common stock, generating net proceeds of approximately $
funds raised in the December 2020 and June 2021 equity offerings, in addition to growth in revenue expected as the Company executes its
business plan, will fund its operations for at least the next twelve months from the issuance date of these financial statements.
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 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.
COVID-19
In December 2019, a novel
strain of coronavirus (“COVID-19”) was identified and has resulted in increased travel restrictions, business disruptions and
emergency quarantine measures across the world including the United States.
The Company’s business,
financial condition and results of operations were impacted from the COVID-19 pandemic for the nine months ended September 30, 2021 and
the year ended December 31, 2020 as follows:
| ● | sales and marketing efforts were disrupted as our business development team was unable to travel to visit customers and customers were unable to receive visitors for on-location meetings; |
| ● | field activity for testing and deploying our wireless systems was delayed due to the inability for our field service team to install and test equipment for our customers; and |
| ● | ongoing supply chain constraints for certain critical parts. |
In the first quarter of 2020,
we reduced our business activity to critical operations only, and furloughed
of the County of Santa Clara, our corporate offices and facilities were closed, except for functions related to the support of remote
workers and product support related to the essential transportation sector.
as of December 31, 2020 we had no employees remaining on furlough.
by us.
The Company expects its business,
financial condition and results of operations will be impacted from the COVID-19 pandemic during 2021, primarily due to the slowdown of
customer activity during 2020 and 2021, ongoing supply chain constraints for certain critical parts, and difficulties in attracting employees.
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 and its variants. 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 conditions, 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 could further adversely impact the Company’s
business, financial condition and results of operations during 2021.
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, 2020 (“2020 Form 10-K”). The Company’s accounting policies are described
in the “Notes to Consolidated Financial Statements” in the 2020 Form 10-K and are updated, as necessary, in this Form
10-Q. The December 31, 2020 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 nine months ended September
30, 2021 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Principles
of Consolidation
The consolidated financial
statements include the accounts of the Company and our wholly owned subsidiaries, Ondas Networks, American Robotics, Inc. and FS Partners,
and our majority owned subsidiary, FS Holding. All significant inter-company accounts and transactions between these entities have been
eliminated in these unaudited condensed consolidated financial statements.
Business Combinations
The Company utilized ASC 805,
Business Combinations (“ASC 805”) to account for the August 5, 2021 acquisition of American Robotics, Inc. (see note 6 for
more details).
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.
Intangible assets represent
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.
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 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 and Cash Equivalents
The Company considers all
highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. On September 30, 2021 and
December 31, 2020, we had no cash equivalents. 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 September 30, 2021, the Company has maintained
balances in excess of federally insured limits. As of September 30, 2021, the Company was approximately $
insured limits.
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. As of September 30, 2021, and December 31, 2020, we determined that no such reserves were necessary.
Inventory consists of the following:
| September 30, 2021 |
December 31, 2020 |
|||||||
| Raw Material | $ | $ | ||||||
| Work in Process | ||||||||
| Finished Goods | ||||||||
| TOTAL INVENTORY, NET | $ | $ | ||||||
Fair Value of Financial Instruments
Our financial instruments
consist primarily of receivables, accounts payable, accrued expenses and short- and long-term debt. The carrying amount of receivables,
accounts payable and accrued expenses approximates our fair value because of the short-term maturity of such instruments.
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 financial
instruments that are required to be valued at fair value as of September 30, 2021 and December 31, 2020.
Deferred Offering Costs
The Company capitalizes certain
legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering
costs until such financings are consummated. After consummation of equity financings, these costs are recorded in stockholders’
equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financings
be abandoned, the deferred offering costs are expensed immediately as a charge to other income (expense) in the consolidated statement
of operations.
Revenue Recognition
Ondas’ has two business
segments that generate revenue: Ondas Networks and American Robotics. Ondas Networks generates revenue from product sales, services, and
development projects. American Robotics generates revenue through data subscription services and development projects.
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 through the sale of its FullMAX System and the delivery of related services, along with development
projects with certain customers. American Robotics generates revenue by selling a data subscription service to its customers based on
the information collected by the Scout System. The Scout System consists of the Scout drone and the ScoutBaseTM and is owned,
installed, and maintained on the customer premises by American Robotics. The customer pays for a monthly, annual, or multi-annual subscription
service to access the data collected by the Scout System. The customer accesses its data remotely through ScoutViewTM, AR’s
secure web portal for displaying, analyzing, and storing customer information and captured image data. American Robotics also generates
revenue from development projects for customers who are interested in customized solutions.
On April 23, 2020, effective
April 24, 2020, Ondas Networks and Siemens Mobility, Inc. (“Siemens”) (the “Parties”) entered into a Joint Development
Agreement (the “JDA”) and a Brand Label and Master Purchase Agreement (the “BLA”). The JDA calls for the joint
development of (i) a dual-mode 900 MHz over-the-air ATCS compatible, MC-IoT capable base station radio and (ii) a dual-purpose 900 MHz,
over-the-air advanced train control system (“ATCS”) compatible, MC-IoT capable wayside radio. The BLA calls for the purchase
by Siemens of certain products developed under the JDA and for the resale of certain radio products to create a Siemens-branded portfolio
of wireless radio communication systems for the North American Rail Market. As of September 30, 2021 the ATCS joint development program
was completed.
On January 29, 2021, Ondas
Networks and Siemens signed a letter of intent to start negotiations to enter into a definitive agreement for the development of a next
generation radio board for the global rail market. As agreed in the letter of intent, Siemens issued initial purchase orders on February
3, 2021 in order to commence the program. Preliminary and other work on this project began in the first quarter of 2021 with
completed as of September 30, 2021. This new joint development product will be marketed and sold worldwide by Siemens and will be Ondas
Networks’ first onboard locomotive product.
On March 11, 2021, Ondas Networks
received a purchase order from AURA Network System (“AURA”) to develop a radio system capable of performing Base Station and
Mobile Remote functions in support of AURA’s C2 UAS system. As of September 30, 2021, the project was completed.
On July 2, 2021, Ondas Networks
received a purchase order from Siemens Mobility for the development of a new industrial radio to support rail safety. As of September
30, 2021, the development project was completed.
As of August 5th,
2021, American Robotics had signed subscription agreements of varying contract lengths with customers in multiple industries including
agriculture, oil and gas and materials management. 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 the Scout System, it is held in deferred
revenue and recognized after operation commences over the length of the subscription service. American Robotics also provides customized
data solutions for certain customers and receives development revenue for those services.
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 September 30, 2021, 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 three and nine months ended September
30, 2021 and 2020, 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 three and nine months ended September 30, 2021 and 2020, there were
no modifications to contract specifications.
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.
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 overtime.
Development revenue is comprised
primarily of non-recurring engineering service contracts to develop software and hardware applications for various customers. For Ondas
Networks, a significant portion of this revenue is generated through four contracts with two customers 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 recognized 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.
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 the Scout System. The customer pays
for a monthly, annual, or multi-annual subscription service to access the data collected by the Scout System. The customer accesses its
data remotely through ScoutViewTM, AR’s secure web portal for displaying, analyzing, and storing customer information
and captured image data. American Robotics also generates development revenue from customers who are interested in customized solutions.
Disaggregation of Revenue
The following tables present our disaggregated
revenues by Type of Revenue and Timing of Revenue:
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Type of Revenue | ||||||||||||||||
| Product revenue | $ | $ | $ | $ | ||||||||||||
| Service and subscription revenue | ||||||||||||||||
| Development revenue | ||||||||||||||||
| Other revenue | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Timing of Revenue | ||||||||||||||||
| Revenue recognized point in time | $ | $ | $ | $ | ||||||||||||
| Revenue recognized over time | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
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 September 30, 2021 and December
31, 2020.
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 nine
months ended September 30, 2021, and the year ended December 31, 2020, which is included in deferred revenue in the Company’s unaudited
condensed consolidated balance sheet.
| Nine months ended September 30, |
Year Ended December 31, |
|||||||
| 2021 | 2020 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to revenue | ( |
) | ( |
) | ||||
| Balance at end of period | $ | $ | ||||||
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). For our subscription service to the Scout System™,
we provide a general warranty that the materials and service will be available during the subscription term. 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 September 30, 2021 or December 31, 2020 are immaterial
to the Company’s financial statements.
Leases
Under Topic 842, operating
lease expense is generally recognized evenly over the term of the lease. During the nine months ended September 30, 2021, the Company’s
operating leases consisted of office space in Sunnyvale, CA (the “Gibraltar Lease”) and Marlborough, MA (the “American
Robotics Lease”). For the year ended December 31, 2020, the Company had operating leases primarily consisting of two office space
leases in Sunnyvale, California (the “North Pastoria Lease” and the “Gibraltar Lease”) (collectively, the “Sunnyvale
Leases”). On December 31, 2020, the North Pastoria Lease expired. The Gibraltar Lease expired on February 28, 2021 and was verbally
extended to March 31, 2021 under the same terms.
On August 6, 2021,
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.
The Amendment reduced their annual base rent to $8,802 per month, with an annual increase of 3% through January 2024.
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 $
On January 24, 2020,
and a third party (the “Sublessee”) entered into a Sublease agreement (the “Sublease”) on the North Pastoria Lease,
wherein the Sublessee occupied the premises through December 31, 2020. The Sublessee made rent payments of approximately $9,666 and management
fee payments of approximately $457 per month beginning February 1, 2020, and a one-time security deposit of $19,332. Sublease rental income
for the period from February 1 through December 31, 2020 was $111,349. On December 31, 2020, $10,122 of the security deposit was applied
to the December 2020 amount due and the balance was refunded on January 19, 2021.
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 September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Components of total lease costs: | ||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Short-term lease costs (1) |
– |
– |
||||||||||||||
| Sublease rental income |
– |
( |
) |
– |
( |
) | ||||||||||
| Total lease costs | $ | $ | $ | $ | ||||||||||||
| (1) | Represents short-term leases which are immaterial. |
Lease Positions as of September 30, 2021 and December 31, 2020
ROU lease assets and lease
liabilities for our operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:
| As of September 30, 2021 |
As of December 31, 2020 |
|||||||
| Assets: | ||||||||
| Operating lease assets | $ | $ | ||||||
| Total lease assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Operating lease liabilities, current | $ | $ | ||||||
| Operating lease liabilities, net of current |
– |
|||||||
| Total lease liabilities | $ | $ | ||||||
Other Information
| Nine months ended September 30, |
||||||||
| 2021 | 2020 | |||||||
| Operating cash flows for operating leases | $ | $ | ||||||
| Weighted average remaining lease term (in years) – operating lease | ||||||||
| Weighted average discount rate – operating lease | % | % | ||||||
Undiscounted Cash Flows
Future lease payments included
in the measurement of lease liabilities on the unaudited condensed consolidated balance sheet as of September 30, 2021, for the following
five years and thereafter are as follows:
| Years ending December 31, | ||||
| 2021 (3 months) | $ | |||
| 2022 | $ | |||
| 2023 | $ | |||
| 2024 | $ | |||
| Total future minimum lease payments | $ | |||
| Lease imputed interest | $ | ( |
) | |
| Total | $ | |||
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 the Company has net losses for each period presented.
The following potentially
dilutive securities for the nine months ended September 30, 2021 and 2020 have been excluded from the computation of diluted net loss
per share because the effect of their inclusion would have been anti-dilutive.
| Nine months ended September 30, |
||||||||
| 2021 | 2020 | |||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Restricted stock purchase offers | ||||||||
| Total potentially dilutive securities | ||||||||
Concentration of Customers
The table below sets forth
the Company’s customers that accounted for greater than
30, 2021 and 2020, respectively:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Customer | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| A | % | % | % | % | ||||||||||||
| B | % | % | % | % | ||||||||||||
| C | – | % | – | % | ||||||||||||
Customers A and B accounted
for
the Company’s accounts receivable balance at December 31, 2020.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB
issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for recognizing
deferred taxes for investments, performing intraperiod tax allocation and calculating income taxes in interim periods. ASU 2019-12 is
applicable to all entities subject to income taxes. ASU 2019-12 provides guidance to minimize complexity in certain areas by introducing
a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and
guides whether to relate a step-up tax basis to a business combination or separate transaction. ASU 2019-12 changes the current guidance
of making an intraperiod allocation, determining when a tax liability is recognized after a foreign entity investor transition to or from
equity method of accounting, accounting for tax law changes and year-to-date losses in interim periods, and determining how to apply income
tax guidance to franchise taxes. The amendments ASU 2019-12 are effective for all public business entities for fiscal years beginning
after December 15, 2020 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after
December 15, 2021 and for interim periods beginning after December 15, 2022. Early adoption is permitted. The adoption of this pronouncement
had no impact on our accompanying consolidated financial statements.
In June 2016, FASB issued
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces
the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”)
methodology. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for loans
and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for
changes in expected lifetime credit losses. This model replaces the multiple existing impairment models previously used under U.S. generally
accepted accounting principles, which generally require that a loss be incurred before it is recognized. The new standard also applies
to financial assets arising from revenue transactions such as contract assets and accounts receivables. For public business entities that
meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC, ASU No. 2016-13 is effective for fiscal
years beginning after Dec. 15, 2019. All other entities, ASU No. 2016-13 is effective for fiscal years beginning after Dec. 15, 2022.
The adoption of this pronouncement had no impact on our accompanying consolidated financial statements.
In November 2019, the FASB
issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends certain aspects of the Board’s
new credit loss standard (ASC 326). ASU 2019-11 is applicable to companies that hold financial assets in the scope of the credit losses
standard. FASB permits to include the following in estimate if expected credit losses: expected recoveries of financial assets previously
written off and expected recoveries of financial assets with credit deterioration. The scope of guidance related to expected recoveries
includes purchased financial assets with credit deterioration. ASU 2019-11 permits entities to record negative allowance when measuring
expected credit losses for a purchased credit deteriorated financial asset and expected recoveries cannot exceed the aggregate amount
previously written off or expected to be written off. When discounted cash flow method is not being used to estimate expected credit losses,
expected recoveries cannot include any amounts in an acceleration of the noncredit discount. An entity may include increases in expected
cash flows after acquisition. Early adoption is not permitted. The adoption of this pronouncement had no impact on our accompanying consolidated
financial statements.
Recently Issued Accounting Pronouncements
issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,
which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized
and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had
originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business
Combinations. The new guidance should be applied prospectively and is effective for all public business entities for fiscal years beginning
after December 15, 2022 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted.
the effects of the adoption of ASU No. 2021-08 on its consolidated financial statements.
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 is permitted, including adoption in an interim
period. The Company is currently evaluating the effects of the adoption of ASU No. 2021-04 on its 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 is currently evaluating the impact
of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of January 1, 2024.
Reclassification
Certain amounts reported in
the prior year financial statements have been reclassified to conform to the current year presentation.
NOTE 3 – OTHER CURRENT ASSETS
Other current assets consist
of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Other prepaid expenses | ||||||||
| Deposits on inventory purchases |
– |
|||||||
| Total other current assets | $ | $ | ||||||
NOTE 4 – NOTES RECEIVABLE
On April 22, 2021, Ondas made
a loan to American Robotics in the aggregate amount of $
and any accrued and unpaid interest were due on April 22, 2022. As of and for the three and nine months ended September 30, 2021, the
Company recorded $
with American Robotics, the unpaid interest and principal balance of $
consideration of $
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consist
of the following:
| September 30, 2021 |
December 31, 2020 |
|||||||
| Vehicle | $ | $ | ||||||
| Computer Equipment | ||||||||
| Furniture and fixtures | ||||||||
| Software | ||||||||
| Leasehold improvements | ||||||||
| Test Equipment | ||||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense for the
three months ended September 30, 2021 and 2020 was $
30, 2021 and 2020 was $
NOTE 6 – 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”). For business combinations, the excess of the purchase price
over the estimated fair value of net assets acquired in a business combination is recorded as goodwill. On May 17, 2021, the Company entered
into an Agreement and Plan of Merger (the “Agreement”) with Drone Merger Sub I Inc., a Delaware corporation and a direct wholly
owned subsidiary of the Company (“Merger Sub I”), Drone Merger Sub II Inc., a Delaware corporation and a direct wholly owned
subsidiary of the Company (“Merger Sub II”), American Robotics, and Reese Mozer, solely in his capacity as the representative
of American Robotics’ Stockholders (as defined in the Agreement).
On August 5, 2021 (the “Closing
Date”), the Company’s stockholders approved the issuance of shares of the Company’s common stock, including shares of
common stock underlying Warrants (as defined below), in connection with the acquisition of American Robotics.
On the Closing Date, American
Robotics merged with and into Merger Sub I (“Merger I”), with American Robotics continuing as the surviving entity, and American
Robotics then subsequently and immediately merged with and into Merger Sub II (“Merger II” and, together with Merger I, the
“Mergers”), with Merger Sub II continuing as the surviving entity and as a direct wholly owned subsidiary of the Company.
Simultaneously with Merger II, Merger Sub II was renamed American Robotics, Inc.
American Robotics stockholders and certain service providers received (i) cash consideration in an amount equal to $7,500,000, less certain
indebtedness, transaction expenses and other expense amounts as described in the Agreement; (ii) 6,750,000 shares of the Company’s
common stock (inclusive of 26 fractional shares paid in cash as set forth in the Agreement); (iii) warrants exercisable for 1,875,000
shares of the Company’s common stock (the “Warrants”) (inclusive of 24 fractional shares paid in cash and the equivalent
of Warrants for 309,320 shares representing the value of options exercisable for 211,038 shares issued under the Company’s incentive
stock plan and reducing the aggregate amount of Warrants as set forth in the Agreement); and (iv) the cash release from the PPP Loan Escrow
Amount (as defined in the Agreement).
stock at an exercise price of $
anniversary of the Closing Date and shall have a term of ten years. During the nine months ended September 30, 2021, the Company incurred
approximately $
operating expenses on the Condensed Consolidated Statements of Operations.
Also on the Closing Date,
the Company entered into employment agreements and issued
to key members of American Robotics’ management.
Lock-Up and Registration Rights Agreement
On May 17, 2021, the Company
entered into a lock-up and registration rights agreement, by and among the Company and the directors and officers of American Robotics
(the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement (i) the Company agreed to file a resale
registration statement for the Registrable Securities (as defined in the Registration Rights Agreement) no later than 90 days following
the closing of the Mergers, and to use commercially reasonable efforts to cause it to become effective as promptly as practicable following
such filing, (ii) the directors and officers and other American Robotics stockholders who sign a joinder to such agreement were granted
certain piggyback registration rights with respect to registration statements filed subsequent to the closing of the Mergers, and (iii)
the directors and officers of American Robotics agreed, subject to certain customary exceptions, not to sell, transfer or dispose of an
aggregate of
Mergers, the stockholders of American Robotics entered into a Joinder to Lock-Up and Registration Rights Agreement.
The following table summarizes
the consideration paid for American Robotics and the preliminary allocation of the purchase consideration to the estimated fair value
of the assets acquired and liabilities assumed at the acquisition date.
| Consideration: | ||||
| Fair value of total consideration transferred | $ | |||
| Estimated fair value of assets acquired: | ||||
| Cash | $ | |||
| Other current assets | ||||
| Property and equipment | ||||
| Intangible assets | ||||
| Right of use asset | ||||
| Other long-term assets | ||||
| Total assets acquired | ||||
| Estimated fair value of liabilities assumed: | ||||
| Accounts payable | ||||
| Deferred revenue | ||||
| Accrued payroll and rent | ||||
| Lease liabilities | ||||
| Deferred tax liability | ||||
| Total liabilities assumed | ||||
| Total net assets acquired | ||||
| Goodwill | ||||
| Total | $ | |||
The intangible assets acquired
include the trademarks, FAA waiver, developed technology, non-compete agreements, and customer relationships (See Note 7). A deferred
tax liability was recorded for the deferred tax impact of purchase accounting adjustments related to finite-lived intangible assets at
American Robotics effective tax rate of
of certain assets and liabilities from our valuation advisors. The goodwill represents the assembled workforce, acquired capabilities,
and future economic benefits resulting from the acquisition. The majority of the goodwill is expected to be deductible for tax purposes.
Our results for the nine months
ended September 30, 2021 include results from American Robotics between August 6, 2021 and September 30, 2021. The following unaudited
pro forma information presents the Company’s results of operations as if the acquisition of American Robotics had occurred at the
beginning of fiscal year 2021. 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 at the beginning of the period presented or what the Company’s operating results
will be in future periods.
| (Unaudited) | (Unaudited) | |||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Basic Earnings Per Share | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Diluted Earnings Per Share | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
NOTE 7 – INTANGIBLE ASSETS
The components of intangible
assets, all of which are finite lived, were as follows:
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||
| Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Accumulated Amortization |
Useful Life |
||||||||||||||||||||||
| Patents | $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Patents in process |
– |
– |
N/A |
|||||||||||||||||||||||||
| Licenses | ( |
) | ( |
) | ||||||||||||||||||||||||
| Trademarks | ( |
) |
– |
– |
– |
|||||||||||||||||||||||
| FAA waiver | ( |
) |
– |
– |
– |
|||||||||||||||||||||||
| Developed technology | ( |
) |
– |
– |
– |
|||||||||||||||||||||||
| Non-compete agreements | ( |
) |
– |
– |
– |
|||||||||||||||||||||||
| Customer relationships | ( |
) |
– |
– |
– |
|||||||||||||||||||||||
| $ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||||||
Preliminary estimated intangible
assets are being amortized over preliminary estimated useful lives of between one and ten years and subject to revision when the purchase
price allocation for American Robotics, Inc, acquisition is complete.
Amortization expense for
the three months ended September 30, 2021 and 2020 was $
September 30, 2021 and 2020 was $
Estimated amortization expense
for the next five years for the intangible costs currently being amortized is as follows:
| Year Ending December 31, | Estimated Amortization |
|||
| 2021 (3 months) | $ | |||
| 2022 | $ | |||
| 2023 | $ | |||
| 2024 | $ | |||
| 2025 | $ | |||
NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other
current liabilities consist of the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued payroll and other benefits | $ | $ | ||||||
| D&O insurance financing payable | ||||||||
| Accrued interest | – | |||||||
| Accrued professional fees | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
NOTE 9 – SECURED PROMISSORY NOTES
Steward Capital Holdings LP
On March 9, 2018, we entered
into a loan and security agreement (the “Agreement”) with Steward Capital Holdings LP (the “Steward Capital”)
wherein Steward Capital made available to us a loan in the aggregate principal amount of up to $
March 9, 2018, the Company and Steward Capital, pursuant to the Agreement, entered into a Secured Term Promissory Note for $
having a maturity date of September 9, 2019 (“Tranche A”). The Note bore interest at a per annum rate equal to the greater
of (a) 11.25% or (b) 11.25% plus the Prime Rate, less 3.25%. The Agreement also included payments of $
$
A were recorded as debt discount and amortized over the life of the Loan. There was also an end of term charge of $
term charge was being recorded as accreted costs over the term of the Loan. The Note was secured by substantially all of the assets of
the Company.
On October 9, 2018, the Company
and Steward Capital, pursuant to the Agreement, entered into a second Secured Term Promissory Note for $
of April 9, 2020 (the “Second Note”) to complete the Agreement for $
rate equal to the greater of (a) 11.25% or (b) 11.25% plus the Prime Rate, less 3.25%.
was required to pay a
On June 18, 2019, the Company
and Steward Capital entered into a letter of agreement to amend the Agreement (the “First Amendment”) to (i) extend and amend
the maturity date, as defined in Section 1.1 of the Agreement, to read in its entirety “means September 9, 2020” (the “Maturity
Date”); (ii) waive the repayment requirement to Steward Capital under Section 2.3 of the Agreement, in connection with the then
proposed public offering of the Company as described in the Company’s Registration Statement on Form S-1, as amended, originally
filed on April 12, 2019, and (iii) waive the restriction by Steward Capital on the prepayment of Indebtedness under Section 7.4 of the
Agreement. In connection with the waivers, extension and amendment, the Company agreed to pay to Steward Capital, upon the earlier of
(a) the completion of the public offering as set forth in Section 2.3 of the Agreement and (b) ten (10) days following the Company’s
receipt of Steward’s written demand therefor, a fee equal to three percent (
the Loan (as defined in the Agreement). The Company concluded that the modifications created by the First Amendment resulted in a troubled
debt restructuring under Accounting Standard Codification—Debt (Topic 470) as it was determined that a concession was granted by
Steward Capital. However, as the future payments to be made subsequent to the modification were greater than the carrying value at the
time of the modification, no gain or loss was required to be recognized on the troubled debt restructuring. As the difference between
the effective interest rate method and the straight-line method was deemed immaterial, the Company continued to amortize the deferred
loan costs using the straight-line method over the remaining term of the Loan.
and Steward Capital entered into a letter of agreement to amend the Agreement, as amended (the “Second Amendment”) wherein
the parties agreed to (i) extend and amend the due date for all accrued and unpaid interest starting September 2, 2019 to the Maturity
Date and (ii) extend and amend the due date for the 3% fee payable to Steward Capital in connection with the First Amendment and waiver
dated June 2019 to be payable on the Maturity Date.
amortized over the life of the Loan. The Company concluded that the modifications created by the Second Amendment resulted in a troubled
debt restructuring under Accounting Standard Codification—Debt (Topic 470) as it was determined that a concession was granted by
Steward Capital. However, as the future payments to be made subsequent to the modification were greater than the carrying value at the
time of the modification, no gain or loss was required to be recognized on the troubled debt restructuring. As the difference between
the effective interest rate method and the straight-line method was deemed immaterial, the Company continued to amortize the deferred
loan costs using the straight-line method over the remaining term of the Loan.
Company and Steward Capital entered into the Second Amendment to the Loan and Security Agreement (the “Second Amendment”)
to (i) extend the Maturity Date to September 9, 2021 (the “Extended Maturity Date”) and convert all accrued interest into
the note, resulting in a new principal balance of $11,254,236, (ii) make all accrued and unpaid interest from September 9, 2020 through
the date of maturity due on the Extended Maturity Date, (iii) on or before October 1, 2020, Company was to issue 40,000 shares of Company’s
stock to Steward valued at $9.75 per share, or total of $390,000 (issued on September 30, 2020) and (iv) make the fee of 3% of the outstanding
principal balance of the loan, or $300,000 (as defined in the First Amendment) due at the updated maturity date of September 9, 2021.
The Company concluded that the modifications created by the Second Amendment resulted in a troubled debt restructuring under Accounting
Standard Codification—Debt (Topic 470) as it was determined that a concession was granted by Steward Capital. However, as the future
payments to be made subsequent to the modification were greater than the carrying value at the time of the modification, no gain or loss
was required to be recognized on the troubled debt restructuring.
On April 14, 2021, the Company
requested Steward Capital’s waiver of Section 7 (Covenants of Borrower), in connection with the acquisition of American Robotics,
Inc (“American Robotics”). In connection with the waiver, the Company agreed to, upon consummation of the proposed acquisition,
pay Steward Capital an additional $
the Agreement to modify the defined term “collateral” to include the intellectual property of American Robotics; however,
the Company made a final payment to Steward Capital before closing of the acquisition.
On December 9, 2020, the Company
made a $
the principal balance was $
a final payment of $
early payment penalties. On September 30, 2021 and December 31, 2020, accrued interest was $
in accrued expenses and other current liabilities in the balance sheet in the accompanying unaudited condensed consolidated financial
statements. Interest expense for the three and nine months ended September 30, 2021 was $
for the three and nine months ended September 30, 2020 was $
NOTE 10 – LONG-TERM NOTES PAYABLE
Convertible Promissory Notes
On September 14, 2017, the
Company and an individual entered into a convertible promissory note with unilateral conversion preferences by the individual (the “Convertible
Promissory Note”). On July 11, 2018, the Company’s Board approved certain changes to the Convertible Promissory Note wherein
the conversion feature was changed from unilateral to mutual between the individual and the Company.
On both September 30, 2021
and December 31, 2020, the total outstanding balance of the Convertible Promissory Note (the “Note”) was $
date of the Note is based on the payment of 0.6% of quarterly gross revenue until 1.5 times the amount of the Note is paid.
as of September 30, 2021 and December 31, 2020 was $
September 30, 2021 was $
and $
On September 27, 2019, the
holder of the Note was granted a warrant to purchase
recorded as financing costs in the accompanying consolidated financial statements.
Paycheck Protection Program Loan
On May 4, 2020, the Company
applied for a loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”), as administered by the U.S. Small Business Administration (the “SBA”). The loan, in the principal amount of $
(the “PPP Loan”), was disbursed by Wells Fargo Bank, National Association (“Lender”) on May 6, 2020, pursuant
to a Paycheck Protection Program Promissory Note and Agreement (the “Note and Agreement”).
The program was later amended
by the Paycheck Protection Flexibility Act of 2020 whereby debtors were granted a minimum maturity date of the five-year anniversary of
the funding date and a deferral of ten months from the end of the covered period. The PPP Loan bears interest at a fixed rate of
per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), will commence after
the sixteen-month anniversary of the funding date. The Company did not provide any collateral or guarantees for the PPP Loan, nor did
the Company pay any facility charge to obtain the PPP Loan. The Note and Agreement provides for customary events of default, including
those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay
the principal of the PPP Loan at any time without incurring any prepayment charges.
All or a portion of the PPP
Loan may be forgiven by the SBA upon application to the Lender by the Company within 10 months after the last day of the covered period.
The Lender will have 90 days to review borrower’s forgiveness application and the SBA will have an additional 60 days to review
the Lender’s decision as to whether the borrower’s loan may be forgiven. Under the CARES Act, loan forgiveness is available
for the sum of documented payroll costs, covered rent payments, and covered utilities, and certain covered mortgage interest payments
during the twenty-four-week period beginning on the date of the first disbursement of the PPP Loan.
costs exclude compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven
amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with
salaries of $100,000 or less annually are reduced by more than 25%.
with supporting detail requesting forgiveness of the loan. On May 26, 2021, the Company received full forgiveness for both the principal
and accrued interest, which is included in other income on the Company’s accompanying condensed consolidated statements of operations.
NOTE 11 – STOCKHOLDERS’ EQUITY
Preferred Stock
On September 30, 2021, the
Company had
Convertible Preferred Stock (“Series A Preferred”) and
As of September 30, 2021 and December 31, 2020, the Company had no preferred stock outstanding.
Certificate of Designation Series A Preferred
Stock
On August 14, 2020, the Company
filed a Certificate of Designation with the State of Nevada to designate
A Preferred. Shares of Series A Preferred rank pari passu with the Company’s common stock, except that holders of Series A Preferred
shall have certain liquidation preferences as set forth in the Certificate of Designation and the holders of the Series A Preferred are
not entitled to vote on any matters presented to the stockholder of the Company. The Certificate of Designation became effective on the
Closing Date.
The Series A Preferred is
convertible at a holder’s election any time beginning nine months from the 2020 Closing into shares of the Company’s common
stock at an initial conversion price equal to the Purchase Price, subject to certain adjustments described below, so that, initially,
each share of Series A Preferred shall be convertible into one (1) share of the Company’s common stock. Also, the Series A Preferred
will be automatically converted into the Company’s common stock (a “Mandatory Conversion”), at the then applicable conversion
price, in the event of an equity offering of shares of the Company’s common stock resulting in the Company uplisting to a national
securities exchange (provided that if the per share offering price in such offering is less than the then applicable conversion price
for the Series A Preferred, the Series A Preferred will automatically convert based on the offering price in such offering).
In the event of any stock
split, stock dividend, or stock combination, the number of shares deliverable and the conversion price of the Series A Preferred will
be appropriately adjusted. In the event a Mandatory Conversion is triggered, if the offering price on the date such Mandatory Conversion
is triggered is less than a
outstanding share of Series A Preferred to ensure the effective conversion price equals a
Also, for a period of one
year from the date of the Purchase Agreements, if the Company undertakes an underwritten public equity offering, the holders of Series
A Preferred will enter into a lock-up agreement with respect to the sale of the Series A Preferred and the Company’s common stock
underlying such Series A Preferred as may be reasonably requested by the Company or the Company’s underwriter for such public equity
offering.
In connection with the closing
of the Offering on December 8, 2020, the Company’s outstanding
converted into an aggregate of
with the
a dividend on shares of Series A Convertible Preferred Stock. The shares of Common Stock issued in connection with the conversion were
issued in reliance upon the exemption set forth in Section 3(a)(9) of the Securities Act, for securities exchanged by the Company and
existing security holders where no commission or other remuneration is paid or given directly or indirectly by the Company for soliciting
such exchange, and the shares of Common Stock issued in lieu of declaring a dividend were issued in reliance upon the exemption set forth
in Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder in a transaction not involving a public offering.
Common Stock
On September 30, 2021, the
Company had
shares of our Common Stock were issued and outstanding.
On March 28, 2021, the lock-up
period terminated for an aggregate of
the Company’s acquisition of Ondas Networks, as amended.
On May 17, 2021, the Company
entered into a lock-up and registration rights agreement, by and among the Company and the directors and officers of American Robotics
(the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement (i) the Company agreed to file a resale
registration statement for the Registrable Securities (as defined in the Registration Rights Agreement) no later than 90 days following
the closing of the Mergers, and to use commercially reasonable efforts to cause it to become effective as promptly as practicable following
such filing, (ii) the directors and officers and other American Robotics stockholders who sign a joinder to such agreement were granted
certain piggyback registration rights with respect to registration statements filed subsequent to the closing of the Mergers, and (iii)
the directors and officers of American Robotics agreed, subject to certain customary exceptions, not to sell, transfer or dispose of
shares of Company common stock for a period of 180 days from the closing of the Mergers. In connection with the Mergers, the stockholders
of American Robotics entered into a Joinder to Lock-Up and Registration Rights Agreement.
2021 Public Offering
On June 8, 2021, the Company
entered into an underwriting agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc., acting as the representative
for the underwriters identified therein (the “Underwriters”), relating to the Company’s public offering (the “2021
Public Offering”) of
Agreement, the Company also granted the Underwriters a 30-day option (the “Option”) to purchase up to an additional
shares of Common Stock (the “Option Shares,” and together with the Firm Shares, the “Shares”) to cover over-allotments.
The Underwriters agreed to
purchase the Firm Shares from the Company with the option to purchase the Option Shares at a price of $
were offered, issued, and sold pursuant to the Form S-3 and accompanying prospectus filed with the SEC under the Securities Act of 1933,
as amended (the “Securities Act”).
On June 11, 2021, pursuant
to the 2021 Public Offering, the Company issued
$
by the Company.
The Underwriting Agreement
includes customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations
of the Company and the Underwriters, including for liabilities under the Securities Act, other obligations of the parties and termination
provisions. The representations, warranties and covenants contained in the Underwriting Agreement were made only for purposes of such
agreement and as of specific dates, were solely for the benefit of the parties to the agreement and were subject to limitations agreed
upon by the contracting parties.
The table below details the
net proceeds of the Public Offering
| Gross Proceeds: | ||||
| Firm shares and exercise of over-allotment option closing | $ | |||
| Offering Costs: | ||||
| Underwriting discounts and commissions | ( |
) | ||
| Other offering costs | ( |
) | ||
| Net Proceeds | $ | |||
The Company will use the net
proceeds of the 2021 Public Offering for working capital and general corporate purposes, which includes further technology development,
increased spending on marketing and advertising and capital expenditures necessary to grow the Ondas Holdings business.
Reverse Stock Split
On November 3, 2020, the Board
of Directors of the Company approved a one-for-three reverse stock split of the Company’s authorized and outstanding common stock,
effective November 13, 2020 (the “Reverse Stock Split”).
On
November 12, 2020, Company filed a Certificate of Change to the Company’s Articles of Incorporation with the Secretary of State
of the State of Nevada to effect the Reverse Stock Split. The Reverse Stock Split became effective at 5:31 p.m., Eastern Time, on November
13, 2020. No fractional shares will be issued as a result of the Reverse Stock Split. Any fractional shares that would result from the
Reverse Stock Split will be rounded up to the nearest whole share. Following the Reverse Stock Split, the Company has
of Common Stock authorized. On November 16, 2020, the Company’s Common Stock began trading on the OTCQB on a split-adjusted basis
under the current trading symbol “ONDS” and the new CUSIP number 68236H 204.
Form S-3
On January 29, 2021, the Company
filed a shelf Registration Statement on Form S-3 for up to $
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.
Warrants to Purchase Common Stock
We use the Black-Sholes-Merton
option model (the “Black-Scholes Model”) to determine the fair value of warrants to purchase Common Stock of the Company (“Warrants”).
The Black-Scholes Model is an acceptable model in accordance with the 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.
During the nine months ended
September 30, 2021, the Company issued warrants to purchase an aggregate of
$
Board issued (i) Warrants to purchase an aggregate of 279,460 shares of Common Stock with an exercise price of $7.50 per share and (ii)
Warrants to purchase an aggregate of 9,793 shares of Common Stock with an exercise price of $6.39 per share.
we had Warrants outstanding to purchase an aggregate of
life of approximately
of $
During the three months ended
March 31, 2021, certain warrant holders exercised their right to purchase an aggregate of
Stock at an exercise price of $
three months ended June 30, 2021, certain warrant holders exercised their right to purchase an aggregate of
Common Stock at an exercise price of $
exercised their rights during the three months ended September 30, 2021.
A summary of our Warrants
activity and related information follows:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Number of | Average | Remaining | ||||||||||
| Shares Under | Exercise | Contractual | ||||||||||
| Warrant | Price | Life | ||||||||||
| Balance on December 31, 2020 | $ | |||||||||||
| Issued |
– |
– |
|
|||||||||
| Exercised | ( |
) | $ |
|
||||||||
| Expired |
– |
– |
|
|||||||||
| Canceled |
– |
– |
|
|||||||||
| Balance on March 31, 2021 | $ | |||||||||||
| Issued |
– |
– |
|
|||||||||
| Exercised | ( |
) | $ |
|
||||||||
| Expired |
– |
– |
|
|||||||||
| Canceled |
– |
– |
|
|||||||||
| Balance on June 30, 2021 | $ | |||||||||||
| Issued | $ | |||||||||||
| Exercised |
– |
– |
|
|||||||||
| Expired |
– |
– |
|
|||||||||
| Canceled |
– |
– |
|
|||||||||
| Balance on September 30, 2021 | $ | |||||||||||
Equity Incentive Plan
In September 2018, our Board
approved, and our stockholders adopted, the 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which
of our Common Stock has 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 of the Board
(the “Compensation Committee”). Subject to the provisions of the 2018 Plan, the Board and/or the Compensation 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”).
Stock Options to Purchase Common Stock
On January 25, 2021, the Compensation
Committee of the Board granted an aggregate of
to certain non-employee directors for services prior to December 31, 2020, as a result we recognized $
expense for the year ended December 31, 2020. The
of $
On February 15, 2021, the
Company entered into an agreement with a service provider wherein stock options to purchase
and vest on the six-month anniversary of the date of the agreement. The
a grant date fair value of $
On April 13, 2021, the Company
entered into a consulting agreement with a vendor to perform strategic analysis and business development services to the Company. As part
of the compensation for services provided, the Company granted stock options to purchase
September 30, 2021. The five-year options have an exercise price of $
September 13, 2021, the Company granted this vendor additional stock options to purchase
December 31, 2021. The five-year options have an exercise price of $
On August 5, 2021, in connection
with the acquisition of American Robotics,
options were immediately vested and the remaining 151,495 vest monthly through August 4, 2025. The vested ten-year options have an exercise
price ranging from $1.37 to 2.09 per share and a grant date fair value ranging from $5.69 to $6.41 per share. The unvested ten-year options
have an exercise price of $2.09 and a grant date fair value of $5.94 a share.
The assumptions used in the
Black-Scholes Model are set forth in the table below.
| Three months ended September 30, |
Three months ended June 30, |
Three months ended March 31, |
Three months ended September 30, |
|||||||||||||
| 2021 | 2021 | 2021 | 2020 | |||||||||||||
| Stock Price | $ | $ | $ | $ | ||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Volatility | % | % | % | |
% | |||||||||||
| Expected life in years | ||||||||||||||||
| Dividend yield | % | % | % | % | ||||||||||||
A summary of our Option activity
and related information follows:
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Number of | Average | Remaining | ||||||||||
| Shares Under | Exercise | Contractual | ||||||||||
| Option | Price | Life | ||||||||||
| Balance on December 31, 2020 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired |
– |
– |
||||||||||
| Terminated |
– |
– |
||||||||||
| Canceled |
– |
– |
||||||||||
| Balance on March 31, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired |
– |
– |
||||||||||
| Terminated |
– |
– |
||||||||||
| Canceled |
– |
– |
||||||||||
| Balance on June 30, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Expired |
– |
– |
|
|||||||||
| Terminated |
– |
– |
|
|||||||||
| Canceled |
– |
– |
|
|||||||||
| Balance on September 30, 2021 | $ | |||||||||||
| Vested and Exercisable at September 30, 2021 | $ | |||||||||||
At September 30, 2021, total
unrecognized estimated compensation expense related to non-vested Options issued prior to that date was approximately $
is expected to be recognized over a weighted-average period of
and $
For the nine months ended September 30, 2021 and 2020, $
the accompanying unaudited condensed consolidated financial statements. At September 30, 2021, no Options have been exercised.
Restricted Stock Units
On June 3, 2020, the Company
entered into an agreement wherein restricted stock units (“RSU(s)”) for the issuance of
Common Stock, with deferred distribution, was granted and issued to Thomas V. Bushey, the Company’s President, pursuant to the 2018
Plan. Stock-based compensation expense for the year ended December 31, 2020 was $
625,0000 shares. The weighted average grant-date fair value for the RSU is $
years. As of December 31, 2020, unrecognized compensation expense related to the unvested portion of the RSU was $
expected to be recognized over a weighted average period of
President.
125,000 RSU Shares on which the Compensation Committee accelerated vesting), which RSU Shares will be issued on June 3, 2022 pursuant
to Mr. Bushey’s deferral election, and (ii) 500,000 RSU shares were canceled.
$0 and $1,050,000 for the three and nine months ended September 30, 2021, respectively.
During 2018, the Company entered
into an agreement wherein RSUs for the issuance of
deferred distribution, was promised to a consultant pursuant to the 2018 Plan (the “RSU Agreement”). On September 21, 2020,
the Company executed the RSU Agreement with the consultant. The 2018 RSUs vested upon the issuance of the RSU Agreement: however, the
underlying shares of the Company’s Common Stock will not be issued and delivered to the consultant until December 1, 2021, at the
request of the consultant. Stock-based compensation expense for the three months ended both September 30, 2021 and 2020 was $
respectively. Stock-based compensation expense for the nine months ended September 30, 2021 and 2020 was $
The grant-date fair value for the RSU is $
On January 25, 2021, the Compensation
Committee of the Board of Directors of the Company approved the 2021 Director Compensation Policy (the “Policy”). The Policy
is applicable to all directors that are not employees or compensated consultants of the Company. Pursuant to the Policy, the annual equity
award to non-employee directors will be restricted stock units representing $
$
the unrecognized compensation expense was $
In addition, on January 25,
2021,
units pursuant to the 2018 Plan, and (b) for Mr. Seidl and Ms. Sood (i) 5,000 restricted stock units pursuant to the 2018 Plan, and
(ii) 10,000 restricted stock units pursuant to the 2018 Plan. Each restricted stock unit represents a contingent right to receive one
share of common stock of the Company. The 5,000 restricted stock units granted to each of Messrs. Cohen, Reisfield, Silverman and Seidl
and Ms. Sood vest in four successive equal quarterly installments with the first vesting date commencing on the first day of the
next calendar quarter, provided that such director is a director of the Company on the applicable vesting dates. The 10,000 restricted
stock units granted to Mr. Seidl and Ms. Sood vest in eight successive equal quarterly installments with the first vesting date commencing
on the first day of the next calendar quarter, provided that such director is a director of the Company on the applicable vesting dates.
All restricted stock units granted to these directors shall vest in full immediately upon a change in control. The company recognized
stock-based compensation of $111,300 and $333,900 for the three and nine months ended September 30, 2021. As of September 30, 2021, the
unrecognized compensation expense was $238,500.
entered into employment agreements and awarded
management. Each restricted stock unit represents a contingent right to receive one share of common stock of the Company.
stock units vest in three successive equal annual installments with the first vesting date commencing on the first anniversary of the
award date. As of September 30, 2021 the unrecognized compensation expense was $
The Company recognizes RSU
expense over the period of vesting or period that services will be provided. RSUs issued for past service are recognized as expense in
the period in which they are granted. 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.
NOTE 12 – SEGMENT INFORMATION
The Company has two reportable
segments: Ondas Networks and American Robotics. The Company has no inter-segment sales. Our segment structure presented below represents
a change from the prior year for the inclusion of our American Robotics segment, which the Company acquired on August 5, 2021. The following
table presents segment information for the three and nine months ended September 30, 2021 and September 30, 2020:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, 2021 | September 30, 2021 | |||||||||||||||||||||||
| Ondas Networks |
American Robotics |
Total | Ondas Networks |
American Robotics |
Total | |||||||||||||||||||
| Revenue, net | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
| Capital expenditures |
– |
– |
||||||||||||||||||||||
| Total assets | ||||||||||||||||||||||||
NOTE 13 – INCOME TAXES
The Company had a net deferred
tax asset of $
allowance of $
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.
Given the uncertainties involved,
the Company has not released any valuation allowance to offset the deferred tax liability of $
American Robotics on August 5, 2021.
The Company is carrying out
a study to determine the realizability of its net operating loss carryforwards under Section 382 and based on the results of that study
will determine if the deferred tax liability can be partially or fully offset by releasing the valuation allowance. Any such release would
be a credit to the income statement.
American Robotics also had
net operating loss carryforwards against which a full valuation allowance had been recorded. The Company is also carrying out a study
on the realizability of these assets under Section 382. To the extent this valuation allowance can be partially or fully released, it
will reduce the deferred tax liability recorded on the acquisition of American Robotics with the offset being reduction in the estimated
goodwill on acquisition.
NOTE 14 – 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 September
30, 2021.
On July 23, 2021, Robert Wilhelm
(“Wilhelm Plaintiff”), filed a Complaint for Violations of the Federal Securities Laws against the Company and its Board of
Directors: Eric A. Brock, Stewart W. Kantor, Thomas V. Bushey, Richard M. Cohen, Derek Reisfeld, Randall P. Seidl, Richard H. Silverman,
and Jaspreet Sood (together with the Company, the “Defendants”). Wilhelm Plaintiff alleges violations of Sections 14(a) and
20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), and U.S. Securities
and Exchange Commission (“SEC”) Rule 14a-9, 17 C.F.R. § 240.14a-9, in connection with a proposed transaction whereby
Ondas will acquire American Robotics (the “Proposed Transaction”).
The Complaint seeks preliminary
and permanent relief, including injunctive relief, to enjoin Defendants, and all persons acting in concert with them, from proceeding
with, consummating, or closing the Proposed Transaction and any vote on the Proposed Transaction, unless and until additional disclosures
are made to the Company’s shareholders. Wilhelm Plaintiff also seeks rescission and rescissory damages if the Proposed Transaction
closes, attorneys’ fees, and costs, as well as a declaration that Defendants violated Sections 14(a) and 20(a) of the Exchange Act,
and Rule 14a-9 promulgated thereunder.
Defendants have not yet been
served with the Complaint. The shareholder vote on the Proposed Transaction took place on August 5, 2021, and the Proposed Transaction
was approved by the Company’s shareholders. The Proposed Transaction closed on the same date. The Company believes that the plaintiff’s
claims in the foregoing matter are without merit and intends to vigorously defend against them.
Also, on July 23, 2021, Sam
Carlisle (“Carlisle Plaintiff”), filed a Complaint for Violations of the Federal Securities Laws against the Defendants. Carlisle
Plaintiff alleges violations of Sections 14(a) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78n(a), 78t(a), and SEC Rule 14a-9,
17 C.F.R. § 240.14a-9, in connection with the Proposed Transaction.
The Complaint seeks preliminary
and permanent relief, including injunctive relief, to enjoin Defendants, and all persons acting in concert with them, from proceeding
with, consummating, or closing the Proposed Transaction and any vote on the Proposed Transaction, unless and until Defendants disclose
and disseminate additional disclosures to Company shareholders. Carlisle Plaintiff also seeks rescission and rescissory damages if the
Proposed Transaction closes, attorneys’ fees, and costs, as well as a declaration that Defendants violated Sections 14(a) and 20(a)
of the Exchange Act, and Rule 14a-9 promulgated thereunder.
Defendants have not yet been
served with the Complaint. The shareholder vote on the Proposed Transaction took place on August 5, 2021, and the Proposed Transaction
was approved by the Company’s shareholders. The Proposed Transaction closed on the same date. The Company believes that the plaintiff’s
claims in the foregoing matter are without merit and intends to vigorously defend against them.
On July 27, 2021, Binyamin
Ostrov (“Ostrov Plaintiff”), filed a Complaint for Violations of the Federal Securities Laws against the Defendants. Ostrov
Plaintiff alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78n(a), 78t(a), and SEC
Rule 14a-9, 17 C.F.R. § 240.14a-9, in connection with the Proposed Transaction.
The Complaint seeks preliminary
and permanent relief to enjoin Defendants, and all persons acting in concert with them, from proceeding with, consummating, or closing
the Proposed Transaction and any vote on the Proposed Transaction, unless and until Defendants disclose and disseminate additional disclosures
to Company shareholders. Ostrov Plaintiff also seeks rescission and rescissory damages if the Proposed Transaction closes, attorneys’
fees, and costs, as well as a declaration that Defendants violated Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated
thereunder.
Defendants have not yet been
served with the Complaint. The shareholder vote on the Proposed Transaction took place on August 5, 2021, and the Proposed Transaction
was approved by the Company’s shareholders. The Proposed Transaction closed on the same date. The Company believes that the plaintiff’s
claims in the foregoing matter are without merit and intends to vigorously defend against them.
Operating Leases
On October 30, 2018, Ondas
Networks entered into a Sublease with Texas Instruments Sunnyvale Incorporated, regarding the sublease of approximately
feet of rentable space at 165 Gibraltar Court, Sunnyvale, CA 94089 (the “Gibraltar Sublease”), constituting the entire first
floor of the premises (except the lobby and two stairwells), as defined under that certain Lease dated April 12, 2004, as amended by the
First Lease Amendment dated March 15, 2005, a Second Amendment to Lease dated November 30, 2005, and a Third Amendment to Lease dated
November 30, 2010 between Gibraltar Sunnyvale Holdings LLC and Texas Instruments Sunnyvale Incorporated.
1, 2018 and ended on February 28, 2021 at a base monthly rent of $28,577.
Sublease and refunded during the three months ended September 30, 2021. Rent expense for nine months ended September 30, 2021 and 2020
was $
lease for our offices and facilities for Ondas Networks at 165 Gibraltar Court, Sunnyvale, CA expired on February 28, 2021 and was verbally
extended to March 31, 2021 under the same terms. On January 22, 2021, we entered into a 24-month lease (effective April 1, 2021) with
Google LLC, the owner and landlord, wherein the base rate is $45,000 per month and including a security deposit in the amount of $90,000
On August 6, 2021,
acquired American Robotics and their Lease (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. The Amendment reduced their annual base rent to $8,802 per month, with an annual increase of 3% through January 2024.
NOTE 15 – RELATED PARTY TRANSACTIONS
Eric A. Brock, the Company’s Chief
Executive Officer
On
August 14, 2020, pursuant to the terms of the Series A Preferred Stock Offering, Mr. Brock purchased 52,500 shares of Series A Preferred
totaling $315,000 (the “Series A Shares”). On December 8, 2020, the Series A Shares
mandatorily converted into an aggregate of 66,676 shares of Common Stock, which includes an aggregate of 13,084 shares of Common
Stock in connection with a 25% premium. and an aggregate of 842 shares of Common Stock in lieu of declaring a dividend on shares of Series
A Convertible Preferred Stock. See Note 11 for details.
Stewart W. Kantor, the Company’s President
and Chief Financial Officer
| ● | During year ended December 31, 2020, we accrued $ |
Thomas V. Bushey, the Company’s Former
President
| ● | On January 19, 2021, Mr. Bushey resigned as the Company’s President. Mr. Bushey will continue to serve on the Company’s Board, and as a consultant to the Company. Pursuant to the terms of a Separation Agreement and General Release (the “Separation Agreement”) dated January 19, 2021 (the “Effective Date”), between Mr. Bushey and the Company, Mr. Bushey agreed to waive his entitlement to accrued salary in the amount of $ |
| ● | As part of the Separation Agreement, Mr. Bushey and the Company entered into a Consulting Agreement dated January 19, 2021 (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Bushey will provide services to the Company at the direction of the Company’s Chief Executive Officer. The Consulting Agreement terminated on July 19, 2021. |
NOTE 16 – SUBSEQUENT EVENTS
Investment in Dynam.AI, Inc.
On October 5, 2021, Ondas Holdings irrevocably
subscribed and agreed to purchase
services provider for critical or complex artificial intelligence and machine learning projects, par value $
price of $
ownership in Dynam. In addition to the equity investment, Ondas Holdings’ wholly owned subsidiary, American Robotics, Inc., entered
into a development, services and marketing agreement with Dynam.AI on October 1st, 2021. The agreement allows American Robotics to expand
and enhance their 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.
Operating Lease
On October 8, 2021, American
Robotics entered into an 86-month operating lease for space in Waltham, Massachusetts.
and 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.
until their primary space is available, which is targeted for March 1, 2022.
2021 Stock Incentive Plan
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 Compensation Committee of the Board of Directors of the Company 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
common stock.
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. (“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, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March
8, 2021, including the audited consolidated financial statements and notes included therein as of and for the year ended December 31,
2020. 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 wholly owned subsidiaries Ondas Networks
Inc. (“Ondas Networks”) and American Robotics, Inc. (“American Robotics” or “AR”). Ondas Networks
and American Robotics together provide users in rail, agriculture, utilities and critical infrastructure markets with improved connectivity
and data collection capabilities. Ondas operates these two subsidiaries as separate business segments, and the following is a discussion
of each segment.
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 and government,
where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure a high degree of safety and
security. We design, develop, manufacture, sell and support FullMAX, our patented, Software Defined Radio (“SDR”) platform
for secure, licensed, private, wide-area broadband networks. Our customers install FullMAX systems in order to upgrade and expand their
legacy wide-area network (“WAN”) infrastructure. Our MC-IoT intellectual property has been adopted by the Institute of Electrical
and Electronics Engineers (“IEEE”), the leading worldwide standards body in data networking protocols, and forms the core
of the IEEE 802.16s standard. Because standards-based communications solutions are preferred by our mission-critical customers and ecosystem
partners, Ondas has 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 the Company’s technology across a burgeoning ecosystem of partners
and end markets.
Our FullMAX SDR platform is
an important and timely upgrade solution for privately-owned and operated wireless WANs, leveraging Internet Protocol-based communications
to provide more reliability and data capacity for our mission-critical infrastructure customers. Critical infrastructure markets throughout
the globe have reached an inflection point where legacy serial and analog based protocols and network transport systems no longer meet
industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent networking platform enabling the adoption
of sophisticated operating systems and equipment supporting next-generation MC-IoT applications over wide field areas. These new MC-IoT
applications and related equipment require more processing power at the edge 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.
We sell our products and services
globally through a direct sales force and value-added sales partners to critical infrastructure providers including major rail operators,
commercial and industrial drone operators, electric and gas utilities, water and wastewater utilities, oil and gas producers and pipeline
operators, and for other critical infrastructure applications in areas such as homeland security and defense, and transportation. We continue
to develop our value-added reseller relationships which today include a major strategic partnership with Siemens Mobility (“Siemens”)
for the development of new types of wireless connectivity for the global rail markets. In addition, Ondas and JVCKenwood, a global supplier
of Land Mobile Radio (LMR) systems, have jointly responded to a request from the rail industry for the design and delivery of a next generation
data and voice platform. We believe our Siemens Mobility partnership and our joint effort with JVCKenwood are indicative of the
potential for additional Tier 1 partnerships in our other vertical markets including securing reseller relationships with major suppliers
to the worldwide government and homeland security markets. These partnerships are being driven by the flexibility of our FullMAX software
to support legacy industrial protocols (e.g., Push to Talk Voice, Dial-up Serial Data Communications, and Advanced Train Control System
– ATCS) while simultaneously operating our state-of-the-art MC-IoT protocols. This dual and multi-mode software capability provides
major industrial customers with a seamless migration path to advanced internet-protocol-based networks. Over time, these legacy functions,
like Push to Talk Voice and ATCS, are transformed into just several of many new data applications we can support.
The
Global Rail Markets and our Siemens Mobility Partnership
The
North American Rail Network is vast in scale, consisting of 140,000 miles of track, 25,000 locomotives, and 1.6 million railcars. Within
this large footprint, we believe there are 200,000 highway crossings, with at least 65,000 of the crossings equipped with electronic systems
today, a number which is expected to increase in the coming years. A significant portion of the communications infrastructure has been
in operation for more than 20 years and now requires a technological upgrade to support new applications and increased capacity requirements.
Our MC-IoT platform offers an excellent migration path for these applications. We believe the Class I Rails value the ability of Ondas’
frequency-agnostic SDR architecture to enable a substantial capacity increase utilizing the railroad’s existing wireless infrastructure
and dedicated FCC licensed radio frequencies, as well as the flexibility to adapt to and take advantage of future changes in spectrum
availability. The Class 1 Rails operate four separate nationwide networks, all of which are addressable by our FullMAX platform. Ondas
is targeting the 900 MHz network for the initial adoption of its wireless platform by the Class 1 Rails, who were awarded greenfield spectrum
in the 900 MHz band by the FCC in 2020,
In
April 2020, we entered a strategic partnership with Siemens, to jointly develop wireless communications products for the North American
Rail Industry based on Siemens’ Advanced Train Control System (“ATCS”) protocol and our MC-IoT platform. Siemens formally
launched the ATCS / MC-IoT radio products in September 2021 at the Railway Systems Suppliers (RSSI) conference in Indianapolis. The dual-mode
ATCS/MC-IoT radio system is designed to support Siemens’ extensive installed base of ATCS radios as well as offer Siemens’
customers the ability to support a host of new advanced rail applications utilizing our MC-IoT wireless system. These new applications,
including Advanced Grade Crossing Activation and Monitoring, Wayside Inspection, Railcar Monitoring, and support for next generation signaling
and train control systems, are designed to increase railroad productivity, reduce costs, and improve safety. In addition to the ATCS products,
Siemens has begun marketing and selling Siemens-branded MC-IoT wireless systems under Siemens’ brand name ‘Airlink’.
In January of 2021, Ondas Networks and Siemens signed a Letter of Intent (“LOI”) for the development of a next generation
radio product for the global rail markets with an expected completion date of the first quarter of 2022. And in July 2021, Ondas Networks
received a purchase order from Siemens Mobility for the development of a new industrial radio to support rail safety. As of September
30, 2021, the first phase of the development project was completed.
We
believe the Siemens partnership validates our wireless connectivity solutions and will accelerate the adoption of our wireless technology
in the global rail markets. We believe Siemens has both the sales and marketing reach and support to drive our technology to wide scale
adoption.
UAS, Drones and AURA Network
Systems
In December 2019, Ondas Networks
received a purchase order for FullMAX base stations and remote radios from AURA Networks Systems (“AURA”), a privately held
company deploying a nationwide network for the command and control of commercial drones. AURA’s key differentiator is its exclusive
ownership of dedicated, licensed Air-to-Ground frequencies. We believe that operators of large, fast-moving, and high-flying drones, including
those used for inspection and security applications as well as those for the Urban Air Mobility market (also known as “flying cars”),
will require a secure command and control network like that planned by AURA. This command and control (C2) network will be designed to
meet FAA requirements in order to fly long distances beyond visual line of site (BVLOS) of a drone operator.
In July 2020, we completed
delivery of AURA’s first purchase order for the ground infrastructure. AURA has now installed its initial nationwide infrastructure
based on our FullMAX technology in order to satisfy their FCC license requirements. In January 2021, AURA achieved another major milestone
with approval from the FCC to use their frequencies for UAS/Drone operation. Based on this approval and other advances in the network,
AURA placed a new purchase order in the first quarter of 2021 for continued system development related to the optimization of FullMAX
base station and remote radio equipment for customer testing and demonstration networks. We have completed this project as of September
2021. We expect additional purchase orders in 2021 for development work related to further system commercialization, testing and customer
demonstrations.
Additional Critical Markets
In the coming quarters we
expect to launch additional initiatives to take our MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure
markets. As evidence of this, in February 2021, we announced a new partnership with Rogue Industries to target opportunities in US Government
and DoD markets. Rogue is an agile, focused marketing organization with significant expertise in bringing new technologies to these critical
markets along with significant governmental procurement expertise. This expertise would otherwise require significant expense and time
for Ondas to develop internally. Our agreement with Rogue is another example of Ondas leveraging what we refer to our “Ecosystem
Flywheel” with our capital-light business model.
American Robotics Segment
American Robotics is a commercial
developer of highly automated drone systems, providing ultra-high resolution aerial data to enterprise customers. Through innovations
in robot autonomy, machine vision, edge computing and AI, American Robotics has created the next generation of drone technology: a highly
automated robotic data platform capable of continuous, unattended operation. As a result, American Robotics provides enterprise customers
with the ability to continuously digitize, monitor and analyze their assets in near real-time.
The American Robotics Scout
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 Scout System provides unprecedented efficiencies as
a drone solution for commercial use. The Scout System consists of (1) Scout, a highly automated drone with advanced imaging payloads (2)
the ScoutBaseTM, a ruggedized base station for housing, charging, data processing, and cloud transfer, and (3) ScoutViewTM,
American Robotics’ analytics and user interface software package, as well as a host of supporting technologies that connect these
major subsystems. Once installed in the field at customer locations, a fleet of connected, weatherproof Scouts remain indefinitely in
an area of operation, automatically collecting data each day, self-charging, and seamlessly delivering data analysis regularly and reliably.
The advanced and high automation
incorporated into the Scout drone technology enables the implementation of a Robot-as-a-Service (RaaS) business model wherein American
Robotics’ customers are not required to make expensive capital investments in robotics or drone hardware, and instead can obtain
the data collected by the Scout drone systems via a subscription service. This enables American Robotics to realize high profitability
margins on the drone hardware that the company retains ownership of and operates on behalf of these customers. Customers are also guaranteed
access to the latest hardware and software features as American Robotics develops and releases these features.
American Robotics sells its
products and services nationally through a direct sales force to large enterprises that operate in the agriculture, industrial and critical
infrastructure verticals that include major rail operators, electric and gas utilities, oil and gas producers, large agricultural input
manufacturers, large agricultural coops, and for other critical infrastructure applications in areas such as homeland security and defense,
and transportation.
As of September 30, 2021,
American Robotics had signed subscription agreements of varying contract lengths with customers in multiple industries including agriculture,
oil and gas and materials management
COVID-19
In December 2019, a novel
strain of coronavirus (“COVID-19”) was identified and has resulted in increased travel restrictions, business disruptions and
emergency quarantine measures across the world including the United States.
The Company’s business,
financial condition and results of operations were impacted from the COVID-19 pandemic for the nine months ended September 30, 2021 as
follows:
| ● | sales and marketing efforts were disrupted as our business development team was unable to travel to visit customers and customers were unable to receive visitors for on-location meetings; |
| ● | field activity for testing and deploying our wireless systems was delayed due to the inability for our field service team to install and test equipment for our customers; and |
| ● | ongoing supply chain constraints for certain critical parts. |
In the first quarter of 2020,
we reduced our business activity to critical operations only, and furloughed 80% of our workforce. Per orders issued by the Health Officer
of the County of Santa Clara, our corporate offices and facilities were closed, except for functions related to the support of remote
workers and product support related to the essential transportation sector. On May 13, 2020, we reopened our corporate offices and headquarters
and as of December 31, 2020 we had no employees remaining on furlough. Of the 18 employees previously furloughed, 14 are currently employed
by us.
The
Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2021, primarily
due to the slowdown of customer activity during 2020 and 2021, supply chain constraints for certain critical parts, and difficulties in
attracting employees. Further, the COVID-19 pandemic is ongoing and remains an unknown risk for the foreseeable future. The extent to
which COVID-19 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 COVID-19 and its variants. 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 could further adversely impact the Company’s
business, financial condition and results of operations during 2021.
Although
COVID-19 has had an immediate near-term impact on our business operations, we also believe the one outcome of the pandemic will be to
reinforce the need for more reliable private commercial and industrial communications. This can be seen specifically in the need for new
Unmanned Aerial Systems (“UAS”) solutions including the safe command and control of drones as remote delivery method. In a
recent filling at the FCC, the Drone Responders Public Safety Alliance stated, (the) “current COVID-19 pandemic only emphasizes
this need, as remote methods of commercial delivery will only become more essential to serve the public good. In light of the current
COVID-19 crisis, UAS have the potential to deliver payloads of medical equipment and supplies.”
American Robotics Acquisition
Merger Agreement
On May 17, 2021, the Company
entered into an Agreement and Plan of Merger (the “Agreement”) with Drone Merger Sub I Inc., a Delaware corporation and a
direct wholly owned subsidiary of the Company (“Merger Sub I”), Drone Merger Sub II Inc., a Delaware corporation and a direct
wholly owned subsidiary of the Company (“Merger Sub II”), American Robotics, and Reese Mozer, solely in his capacity as the
representative of American Robotics’ Stockholders (as defined in the Agreement). American Robotics is a company focused on designing,
developing, and marketing industrial drone solutions for rugged, real-world environments. AR’s Scout System™ is a highly automated,
AI-powered drone system capable of continuous, remote operation and is marketed as a “drone-in-a-box” turnkey data solution
service under a Robot-as-a-Service (RAAS) business model. The Scout System™ is the first drone system approved by the FAA for automated
operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site.
On August 5, 2021 (the “Closing
Date”), the Company’s stockholders approved the issuance of shares of the Company’s common stock, including shares of
common stock underlying Warrants (as defined below), in connection with the acquisition of American Robotics.
On the Closing Date, American
Robotics merged with and into Merger Sub I (“Merger I”), with American Robotics continuing as the surviving entity, and American
Robotics then subsequently and immediately merged with and into Merger Sub II (“Merger II” and, together with Merger I, the
“Mergers”), with Merger Sub II continuing as the surviving entity and as a direct wholly owned subsidiary of the Company.
Simultaneously with Merger II, Merger Sub II was renamed American Robotics, Inc.
Pursuant to the Agreement,
American Robotics stockholders and certain service providers received (i) cash consideration in an amount equal to $7,500,000, less certain
indebtedness, transaction expenses and other expense amounts as described in the Agreement; (ii) 6,750,000 shares of the Company’s
common stock (inclusive of 26 fractional shares paid in cash as set forth in the Agreement); (iii) warrants exercisable for 1,875,000
shares of the Company’s common stock (the “Warrants”) (inclusive of 24 fractional shares paid in cash and the equivalent
of Warrants for 309,320 shares representing the value of options exercisable for 211,038 shares issued under the Company’s incentive
stock plan and reducing the aggregate amount of Warrants as set forth in the Agreement); and (iv) the cash release from the PPP Loan Escrow
Amount (as defined in the Agreement). Each of the Warrants entitle the holder to purchase a number of shares of the Company’s common
stock at an exercise price of $7.89. Each of the Warrants shall be exercisable in three equal annual installments commencing on the one-year
anniversary of the Closing Date and shall have a term of ten years.
Also on the Closing Date,
the Company entered into employment agreements and issued 1,375,000 restricted stock units under the Company’s incentive stock plan
to key members of American Robotics’ management.
Lock-Up and Registration Rights Agreement
On May 17, 2021, the Company
entered into a lock-up and registration rights agreement, by and among the Company and the directors and officers of American Robotics
(the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement (i) the Company agreed to file a resale
registration statement for the Registrable Securities (as defined in the Registration Rights Agreement) no later than 90 days following
the closing of the Mergers, and to use commercially reasonable efforts to cause it to become effective as promptly as practicable following
such filing, (ii) the directors and officers and other American Robotics stockholders who sign a joinder to such agreement were granted
certain piggyback registration rights with respect to registration statements filed subsequent to the closing of the Mergers, and (iii)
the directors and officers of American Robotics agreed, subject to certain customary exceptions, not to sell, transfer or dispose of 2,583,826
shares of Company common stock for a period of 180 days from the closing of the Mergers. In connection with the Mergers, the stockholders
of American Robotics entered into a Joinder to Lock-Up and Registration Rights Agreement.
Promissory Note
On April 22, 2021, the Ondas
made a loan to American Robotics in the aggregate amount of $2.0 million. The note carries interest at a rate of 2% per annum. The principal
and any accrued and unpaid interest shall be due on April 22, 2022. As of and for the three and nine months ended September 30, 2021,
the Company recorded $11,507 of interest income related to the note. On August 5, 2021, in conjunction with the closing of the merger
agreement with American Robotics, the unpaid interest and principal balance of $2,011,507 was forgiven and included in the total purchase
price consideration of $69,274,390. See Note 4 for further details.
Results of Operations
Three months ended September 30, 2021 compared
to three months ended September 30, 2020
Revenues
| Three Months Ended September 30, |
||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Revenue, net | ||||||||||||
| Ondas Networks | $ | 260,636 | $ | 614,026 | $ | (353,390 | ) | |||||
| American Robotics | 22,693 | – | 22,693 | |||||||||
| Total | $ | 283,329 | $ | 614,026 | $ | (330,697 | ) | |||||
Our revenues were $283,329
for the three months ended September 30, 2021 compared to $614,026 for the three months ended September 30, 2020. Revenues during the
three months ended September 30, 2021 included $45,358 for product, $20,693 for maintenance, service, support, and subscriptions, $215,987
for development agreements with Siemens Mobility and AURA Networks, and $1,291 for other revenues. Revenues during the same period in
2020 included $245,075 for products, $16,410 for maintenance/service contracts, $351,248 for development agreements, and $1,293 for other
revenues.
Cost of goods sold
| Three Months Ended September 30, |
||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Cost of goods sold | ||||||||||||
| Ondas Networks | $ | 264,116 | $ | 365,863 | $ | (101,747 | ) | |||||
| American Robotics | 5,600 | – | 5,600 | |||||||||
| Total | $ | 269,716 | $ | 365,863 | $ | (96,147 | ) | |||||
Our cost of goods sold was
$269,716 for the three months ended September 30, 2021 compared to $365,863 for the three months ended September 30, 2020. The decrease
in cost of goods sold was primarily related to decrease in revenue partially offset by higher development projects costs.
Gross profit
| Three Months Ended September 30, |
||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Gross Profit (Loss) | ||||||||||||
| Ondas Networks | $ | (3,480 | ) | $ | 248,163 | $ | (251,643 | ) | ||||
| American Robotics | 17,093 | – | 17,093 | |||||||||
| Total | $ | 13,613 | $ | 248,163 | $ | (234,550 | ) | |||||
Our gross profit decreased
by $234,550 for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 based on the changes in
revenues and costs of sales as discussed above. Gross margin for the periods in 2021 and 2020 was 5% and 40%, respectively. This decrease
in gross margin is due to a higher mix of development projects with lower margins as compared to higher margin product sales in the prior
year period.
Operating Expenses
| Three Months Ended September 30, |
||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Operating expenses: | ||||||||||||
| General and administrative | $ | 2,721,785 | $ | 1,823,336 | $ | 898,449 | ||||||
| Sales and marketing | 424,992 | 253,560 | 171,432 | |||||||||
| Research and development | 1,780,187 | 904,378 | 875,809 | |||||||||
| Total | $ | 4,926,964 | $ | 2,981,274 | $ | 1,945,690 | ||||||
Our principal operating costs
include the following items as a percentage of total expense.
| Three Months Ended September 30, |
||||||||
| 2021 | 2020 | |||||||
| Human resource costs, including benefits | 30 | % | 55 | % | ||||
| Travel and entertainment | 2 | % | – | % | ||||
| Other general and administration costs: | ||||||||
| Professional fees and consulting expenses | 28 | % | 25 | % | ||||
| Other expense | 13 | % | 12 | % | ||||
| Depreciation and amortization | 14 | % | 2 | % | ||||
| Other research and deployment costs, excluding human resources and travel and entertainment | 13 | % | 6 | % | ||||
Operating expenses increased
by $1,945,690, or 65% as a result of the following items:
| (000s) | ||||
| Human resource costs, including benefits | $ | (157 | ) | |
| Travel and entertainment | 76 | |||
| Other general and administration costs: | ||||
| Professional fees and consulting costs | 664 | |||
| Other expense | 250 | |||
| Depreciation and amortization | 629 | |||
| Other research and deployment costs, excluding human resources and travel and entertainment | 463 | |||
| Other sales and marketing costs, excluding human resources and travel and entertainment | 20 | |||
| $ | 1,945 | |||
The increase in operating
expenses was primarily due to an increase of approximately $664,000 in professional fees related to the American Robotics acquisition,
increase of approximately $629,000 in depreciation and amortization expense due to amortization of American Robotics intangible assets,
and an increase of approximately $463,000 in R&D development expenses for the three months ended September 30, 2021.
Operating Loss
| Three Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Operating loss | $ | (4,913,351 | ) | $ | (2,733,111 | ) | $ | 2,180,240 | ||||
As a result of the foregoing,
our operating loss increased by $2,180,240, or 80%, to $4,913,351 for the three months ended September 30, 2021, compared with $2,733,111
for the three months ended September 30, 2020. Operating loss increased primarily as a result of an increase in operating expenses of
approximately $1,945,000 primarily associated with the American Robotics acquisition as described above and decrease in gross profit of
approximately $235,000 for the three months ended September 30, 2021.
Other Income (Expense), net
| Three Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Other income (expense), net | $ | (921 | ) | $ | (592,769 | ) | $ | (591,848 | ) | |||
Other expense, decreased by
$591,848, or 99%, to $921 for the three months ended September 30, 2021, compared to other expense of $592,769 for the three months ended
September 30, 2020. During the three months ended September 30, 2021, compared to the same period in 2020, we reported a decrease in interest
expense of $458,887 due to payoff of the Steward Capital note payable in the second quarter of 2021 as well as $136,323 decrease in change
in fair value of derivative liability only affecting 2020 balance.
Net Loss
| Three Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Net Loss | $ | (4,914,272 | ) | $ | (3,325,880 | ) | $ | 1,588,392 | ||||
As a result of the net effects
of the foregoing, net loss increased by $1,588,392, or 48%, to $4,914,272 for the three months ended September 30, 2021, compared with
$3,325,880 for the three months ended September 30, 2020. Net loss per share of common stock, basic and diluted, was $(0.13) for the three
months ended September 30, 2021, compared with approximately $(0.17) for the three months ended September 30, 2020.
Nine months ended September 30, 2021 compared to nine months ended
September 30, 2020
Revenues
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Revenue, net | ||||||||||||
| Ondas Networks | $ | 2,312,832 | $ | 1,969,598 | $ | 343,234 | ||||||
| American Robotics | 22,693 | – | 22,693 | |||||||||
| Total | $ | 2,335,525 | $ | 1,969,598 | $ | 365,927 | ||||||
Our revenues were $2,335,525
for the nine months ended September 30, 2021 compared to $1,969,598 for the nine months ended September 30, 2020. Revenues during the
nine months ended September 30, 2021 included $134,358 for product, $43,010 for maintenance, service, support and subscriptions, $2,155,363
for development agreements with Siemens Mobility and AURA Networks, and $2,794 for other revenues. Revenues during the same period in
2020 included $1,043,585 for products, $53,500 for maintenance/service contracts, $866,119 for development agreements, and $6,394 for
other revenues.
Cost of goods sold
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Cost of goods sold | ||||||||||||
| Ondas Networks | $ | 1,400,141 | $ | 1,087,540 | $ | 312,601 | ||||||
| American Robotics | 5,600 | – | 5,600 | |||||||||
| Total | $ | 1,405,741 | $ | 1,087,540 | $ | 318,201 | ||||||
Our cost of goods sold was
$1,405,741 for the nine months ended September 30, 2021 compared to $1,087,540 for the nine months ended September 30, 2020. The increase
in cost of goods sold was primarily a result of costs related to the development agreements.
Gross profit
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Gross Profit (Loss) | ||||||||||||
| Ondas Networks | $ | 912,691 | $ | 882,058 | $ | 30,633 | ||||||
| American Robotics | 17,093 | – | 17,093 | |||||||||
| Total | $ | 929,784 | $ | 882,058 | $ | 47,726 | ||||||
Our gross profit increased
by $47,726 for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 based on the changes in revenues
and costs of sales as discussed above. Gross margin for the periods in 2021 and 2020 was 40% and 45%, respectively.
Operating Expenses
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Operating expenses: | ||||||||||||
| General and administrative | $ | 7,625,909 | $ | 5,222,180 | $ | 2,403,729 | ||||||
| Sales and marketing | 808,513 | 934,948 | (126,435 | ) | ||||||||
| Research and development | 3,428,406 | 2,555,223 | 873,183 | |||||||||
| Total | $ | 11,862,828 | $ | 8,712,351 | $ | 3,150,477 | ||||||
Our principal operating costs
include the following items as a percentage of total expense.
| Nine Months Ended September 30, |
||||||||
| 2021 | 2020 | |||||||
| Human resource costs, including benefits | 34 | % | 49 | % | ||||
| Travel and entertainment | 1 | % | 1 | % | ||||
| Other general and administration costs: | ||||||||
| Professional fees and consulting expenses | 37 | % | 33 | % | ||||
| Other expense | 14 | % | 11 | % | ||||
| Depreciation and amortization | 6 | % | 1 | % | ||||
| Other research and deployment costs, excluding human resources and travel and entertainment | 8 | % | 4 | % | ||||
| Other sales and marketing costs, excluding human resources and travel and entertainment | – | % | 1 | % | ||||
Operating expenses increased
by $3,150,477, or 36% as a result of the following items:
| (000s) | ||||
| Human resource costs, including benefits | $ | (277 | ) | |
| Travel and entertainment | 35 | |||
| Other general and administration costs: | ||||
| Professional fees and consulting costs | 1,486 | |||
| Other expense | 743 | |||
| Depreciation and amortization | 644 | |||
| Other research and deployment costs, excluding human resources and travel and entertainment | 551 | |||
| Other sales and marketing costs, excluding human resources and travel and entertainment | (29 | ) | ||
| $ | 3,150 |
The increase in operating
expenses was primarily due to an increase of approximately $1,486,000 in professional fees related to the American Robotics acquisition,
increase of approximately $644,000 in depreciation and amortization expense due to amortization of American Robotics intangible assets,
and an increase of approximately $743,000 in development expenses for the nine months ended September 30, 2021.
Operating Loss
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Operating loss | $ | (10,933,044 | ) | $ | (7,830,293 | ) | $ | 3,102,751 | ||||
As a result of the foregoing,
our operating loss increased by $3,102,751, or 40%, to $10,933,044 for the nine months ended September 30, 2021, compared with $7,830,293
for the nine months ended September 30, 2020. Operating loss increased primarily as a result of an increase of approximately $1,486,000
in professional fees due to the American Robotics acquisition, increase of approximately $644,000 in depreciation and amortization expense
due to amortization of American Robotics intangible assets, and an increase of approximately $743,000 in development expenses for the
nine months ended September 30, 2021.
Other Income (Expense), net
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Other income (expense), net | $ | (58,887 | ) | $ | (1,523,413 | ) | $ | (1,464,526 | ) | |||
Other income (expense), net
increased by $1,582,300, or 104%, to other income, net of $58,887 for the nine months ended September 30, 2021, compared with other expense,
net of $1,523,413 for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, compared to the same
period in 2020, we reported a decrease in interest expense of $832,103 due to payoff of the Steward Capital note payable in the second
quarter of 2021 and $136,323 decrease in the change in fair value of derivative liability, only present in 2020, combined with other income
of $666,091 from PPP Loan forgiveness.
Net Loss
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2021 | 2020 | Increase (Decrease) |
||||||||||
| Net Loss | $ | (10,874,157 | ) | $ | (9,353,706 | ) | $ | 1,520,451 | ||||
As a result of the net effects
of the foregoing, net loss increased by $1,520,451, or 16%, to $10,874,157 for the nine months ended September 30, 2021, compared with
$9,353,706 for the nine months ended September 30, 2020. Net loss per share of common stock, basic and diluted, was $(0.34) for the nine
months ended September 30, 2021, compared with approximately $(0.47) for the nine months ended September 30, 2020.
Summary of (Uses) and Sources of Cash
| Nine Months Ended September 30, |
||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (11,623,656 | ) | $ | (4,875,137 | ) | ||
| Net cash used in investing activities | (8,684,736 | ) | (13,606 | ) | ||||
| Net cash provided by financing activities | 41,744,186 | 4,884,060 | ||||||
| Increase (Decrease) in cash | 21,435,794 | (4,683 | ) | |||||
| Cash and cash equivalents, beginning of period | 26,060,733 | 2,153,028 | ||||||
| Cash and cash equivalents, end of period | $ | 47,496,527 | $ | 2,148,345 | ||||
The principal use of cash
in operating activities for the nine months ended September 30, 2021 was to fund the Company’s current expenses primarily related
to both sales and marketing and research and development activities necessary to allow us to service and support customers. The increase
in cash flows used in operating activities of approximately $6,750,000 was primarily due to reduction in payables and accruals. Cash flows
used in investing activities increased by approximately $8,670,000 primarily due to the acquisition of American Robotics, purchase of
lab equipment, and a security deposit on our lease renewal in Sunnyvale, CA. The increase in cash provided by financing activities of
approximately $36,860,000 was due to the 2021 Public Offering which raised approximately $47,524,000 partially offset by repayment of
the Steward Capital Loan and proceeds from sale of preferred stock in 2020.
For a summary of our outstanding
Secured Promissory Notes and Long-Term Notes Payable and, see Notes 9 and 10 in the accompanying Notes to Unaudited Condensed Consolidated
Financial Statements.
Liquidity and Capital Resources
We have incurred losses since
inception and have funded our operations primarily through debt and the sale of capital stock. As of September 30, 2021, we had a stockholders’
equity of approximately $114,931,000, net short-term and long-term borrowings outstanding of approximately $0 and $300,000, respectively,
and cash of approximately $47,496,500.
In December 2020, the Company
completed a registered public offering of its common stock, generating net proceeds of approximately $31,254,000. In addition, we realized
net proceeds of approximately $1,345,000 from the exercise of warrants in the first six months of 2021. In June 2021, the Company completed
another registered public offering of its common stock, generating net proceeds of approximately $47,524,000.
We believe the funds raised
in the December 2020 and June 2021 equity offerings, in addition to growth in revenue and profitability expected as the Company executes
its business plan, will fund its operations for at least the next twelve months from the issuance date of this report.
As described above, on May
17, 2021, we entered into a definitive agreement to acquire American Robotics. The purchase price was funded with a combination of $7.5
million of cash and equity securities. We closed the acquisition of American Robotics on August 5, 2021. See the section titled “American
Robotics Transaction” above for further details.
Our future capital requirements
will depend upon many factors, including progress with developing, manufacturing and marketing our technologies, the time and costs involved
in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other proprietary rights, our ability to establish collaborative
arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic
conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure
purchase orders for our products from customers currently identified in our sales pipeline as well as new customers. We also will be required
to efficiently manufacturer and deliver equipment on those purchase orders. These activities, including our planned research and development
efforts, will require significant uses of working capital. 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 September 30, 2021,
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 Annual Report on Form 10-K for the fiscal year ended December
31, 2020 filed with the SEC on March 8, 2021. There have been no significant changes in our critical accounting policies since the filing
of the Form 10-K.
Recent Accounting Pronouncements
There have been no material
changes to our significant accounting policies as summarized in Note 2 of our Annual Report on Form 10-K for the year ended December 31,
2020. 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 quarterly report includes
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, that relate
to future events or to our future operations or financial performance. Any forward-looking statement involves known and unknown
risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially
from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statement. Forward-looking
statements include statements, other than statements of historical fact, about, among other things:
| ● | our plans to further develop our FullMAX system of wireless base stations; |
| ● | our plans to further develop remote radios; |
| ● | the adoption by our target industries of the new IEEE 802.16s standard for private cellular networks; |
| ● | our future development priorities; |
| ● | our estimates regarding the size of our potential target markets; |
| ● | our expectations about the impact of new accounting standards; |
| ● | our future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements, our need for additional financing or the period for which our existing cash resources will be sufficient to meet our operating requirements; or |
| ● | our strategies, prospects, plans, expectations, forecasts, or objectives. |
Words such as, but not limited
to, “believe,” “expect,” “anticipate,” “estimate,” “forecast,” “intend,”
“may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,”
“will,” “would,” “could,” “should,” “continue,” “scheduled” and
similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable
basis for each forward-looking statement contained in this report, we caution you that these statements are based on our estimates or
projections of the future that are subject to known and unknown risks and uncertainties and other important factors that may cause our
actual results, level of activity, performance, experience or achievements to differ materially from those expressed or implied by any
forward-looking statement. Actual results, level of activity, performance, experience, or achievements may differ materially
from those expressed or implied by any forward-looking statement as a result of various important factors, including our critical accounting
policies and risks and uncertainties relating, among other things, to:
| ● | our ability to obtain additional financing on reasonable terms, or at all; |
| ● | the accuracy of our estimates regarding expenses, costs, future revenues, uses of cash and capital requirements; |
| ● | the market acceptance of our wireless connection products and the IEEE 802.16s standard and IEEE 802.16t standard; |
| ● | our ability to develop future generations of our current products; |
| ● | our ability to generate significant revenues and achieve profitability; |
| ● | our ability to successfully commercialize our current and future products, including their rate and degree of market acceptance; |
| ● | our ability to attract and retain key scientific or management personnel and to expand our management team; |
| ● | our ability to establish licensing, collaboration or similar arrangements on favorable terms and our ability to attract collaborators with development, regulatory and commercialization expertise; |
| ● | our ability to manage the growth of our business; |
| ● | the success of our strategic partnerships with third parties; |
| ● | our ability to achieve the anticipated benefits of the American Robotics acquisition; |
| ● | expenditures not resulting in commercially successful products; |
| ● | our outreach to global markets; |
| ● | our commercialization, marketing and manufacturing capabilities and strategy; |
| ● | our ability to expand, protect and maintain our intellectual property position; |
| ● | the success of competing third-party products; |
| ● | our ability to fully remediate our identified internal control material weaknesses; |
| ● | regulatory developments in the United States and other countries; and |
| ● | our ability to comply with regulatory requirements relating to our business, and the costs of compliance with those requirements, including those on data privacy and security. |
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 September 30, 2021. Based on that evaluation, the Company’s Chief Executive
Officer and the Company’s Chief Financial Officer have concluded that as of the three-month period ended September 30, 2021, due
to the existence of the material weakness in the Company’s internal control over financial reporting described below, the Company’s
disclosure controls and procedures were not effective.
Evaluation of Disclosure Controls and Procedures
Our senior management is responsible
for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined
in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal
executive and principal financial officers, or persons performing similar functions, and effected by our Board, senior management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting and may
from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Under the supervision and
with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of
the effectiveness of our internal control over financial reporting based on the framework in “Internal Control — Integrated
Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the control deficiencies
identified during this evaluation and set forth below, our senior management has concluded that we did not maintain effective internal
control over financial reporting as of September 30, 2021 due to the existence of a material weakness in internal control over financial
reporting as described below.
As set forth below, management
will take steps to remediate the control deficiencies identified below. Notwithstanding the control deficiencies described below, we have
performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included
in this Form 10-Q fairly present, in all material respects, our financial condition and results of operations as of and for the quarter
ended September 30, 2021.
Material Weakness
A material weakness is a deficiency,
or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management has determined
that the Company did not maintain effective internal control over financial reporting as of the three-month period ended September 30,
2021 due to the existence of the following material weakness identified by management:
Lack of Segregation of Duties and Accounting
Resources
Due to our limited accounting
staff, the Company’s Chief Executive Officer and Chief Financial Officer were responsible for initiating transactions, had custody
of assets, recorded transactions and prepared financial reports. Therefore, it was determined that the Company had inadequate segregation
of duties in place related to its financial reporting and other management oversight procedures due to the lack of accounting resources.
Accordingly, management has
determined that these control deficiencies constitute a material weakness. During 2019, management began implementing the Remediation
Plan described herein and intends to continue working on it through the year ended December 31, 2021.
Management’s Remediation Plan
Management
believes that progress has been made during the nine months ended September 30, 2021, and through the date of this report, to remediate
the underlying causes of the material weakness in internal control over financial reporting. Management intends to remediate the material
weakness in the following manner:
| ● | Identify and employ full time additional senior level accounting personnel to join the corporate accounting function in order to enhance overall monitoring and accounting oversight within the Company; |
| ● | continue to engage third-party subject matter experts to aid in identifying and applying US GAAP rules related to complex financial instruments as well as to enhance the financial reporting function; |
| ● | design and implement additional internal controls and policies to ensure that we routinely review and document our application of established significant accounting policies; and |
| ● | implement additional systems and technologies to enhance the timeliness and reliability of financial data within the organization. |
Changes in internal control over financial reporting
On August 5, 2021, we completed
the acquisition of American Robotics, Inc. Prior to this acquisition, American Robotics was a privately held company not subject to the
Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, or other corporate governance requirements to which public companies
may be subject. In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment
of internal control over financial reporting during the year of acquisition. As part of our ongoing integration activities, we are in
the process of incorporating internal controls over significant processes specific to American Robotics that we believe are appropriate
and necessary to account for the acquisition and to consolidate and report our financial results. We expect to complete our integration
activities related to internal control over financial reporting for American Robotics during the fourth quarter of 2021 and first quarter
of 2022. Accordingly, we expect to include American Robotics within our assessment of internal control over financial reporting as of
March 31, 2022.
Other than integration activities
associated with the Company’s acquisition of American Robotics and the Remediation Plan set forth above, 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 nine months ended September 30, 2021 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 II – 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.
The description of legal proceedings
in “Note 14 – Commitments and Contingencies” in the accompanying Notes to Unaudited Condensed Consolidated Financial
Statements is incorporated herein by reference.
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 10-K for the year ended December 31, 2020, 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, 2020, except as set
forth below.
Risks Related to the American Robotics Acquisition
Our business relationships, those of American
Robotics or the combined company may be subject to disruption due to uncertainty associated with the acquisition of American Robotics
(the “Transaction”).
Parties with which we or American
Robotics do business may experience uncertainty associated with the Transaction, including with respect to current or future business
relationships with us, American Robotics, or the combined company. Our and American Robotics’ business relationships may be subject
to disruption, as customers, distributors, suppliers, vendors, and others may seek to receive confirmation that their existing business
relationships with us or American Robotics, as the case may be, will not be adversely impacted as a result of the Transaction or attempt
to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us, American
Robotics, or the combined company as a result of the Transaction. Any of these other disruptions could have a material adverse effect
on our or American Robotics’ business, financial condition, or results of operations or on the business, financial condition, or
results of operations of the combined company and could also have an adverse effect on our ability to realize the anticipated benefits
of the Transaction.
If we are unable to implement and maintain
effective internal control over financial reporting following completion of the Transaction, we may fail to prevent or detect material
misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial
reports and the market price of our securities may decline.
We and American Robotics historically maintained separate internal control over financial reporting with different financial reporting
processes and different process control software. We are in the process of integrating our internal control over financial reporting with
that of American Robotics. We may encounter difficulties and unanticipated issues in combining our respective accounting systems due to
the complexity of the financial reporting processes. We may also identify errors or misstatements that could require audit adjustments.
If we are unable to implement and maintain effective internal control over financial reporting following completion of the Transaction,
we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the
accuracy and completeness of our financial reports and the market price of our securities may decline.
American Robotics may have liabilities that
are not known, probable or estimable at this time.
After the Transaction, American
Robotics is subject to certain past, current, and future liabilities. There could be unasserted claims or assessments against or affecting
American Robotics, including the failure to comply with applicable laws and regulations. In addition, there may be liabilities of American
Robotics that are neither probable nor estimable at this time that may become probable or estimable in the future, including indemnification
requests received from customers of American Robotics relating to claims of infringement or misappropriation of third party intellectual
property or other proprietary rights, tax liabilities arising in connection with ongoing or future tax audits and liabilities in connection
with other past, current and future legal claims and litigation. Any such liabilities, individually or in the aggregate, could have a
material adverse effect on our financial results. We may learn additional information about American Robotics that adversely affects us,
such as unknown, unasserted, or contingent liabilities and issues relating to compliance with applicable laws or infringement or misappropriation
of third-party intellectual property or other proprietary rights.
Ondas stockholders will experience dilution
as a consequence of the issuance of the common stock in connection with the Transaction.
Ondas stockholders will experience
dilution upon the issuance of additional shares of common stock pursuant to the Merger Agreement. Such dilution will, among other
things, limit the ability of the current Ondas stockholders to influence management of Ondas, including through the election of directors
following the Transaction.
Ondas may experience difficulties integrating
American Robotics’ business.
Achieving the anticipated
benefits of the Transaction will depend in significant part upon whether Ondas and American Robotics integrate their businesses in an
efficient and effective manner. Ondas has been able to conduct only limited planning regarding the integration of the companies following
the Transaction and has not yet determined the exact nature of how the businesses and operations of the companies will be combined after
the Transaction. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration
plan may not be realized. The companies may not be able to accomplish the integration process smoothly, successfully or on a timely basis.
The necessity of coordinating geographically separated organizations, systems of controls, and facilities and addressing possible differences
in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. The companies operate
numerous systems and controls, including those involving management information, purchasing, accounting and finance, sales, billing, employee
benefits, payroll, and regulatory compliance. The integration of operations following the Transaction will require the dedication of significant
management and external resources, which may temporarily distract management’s attention from the day-to-day business of the combined
company and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the combined
company. Any inability of management to successfully and timely integrate the operations of the two companies could have a material adverse
effect on the business and results of operations of the combined company.
The combined company may not fully realize
the anticipated benefits of the Transaction within the timing anticipated or at all.
Ondas and American Robotics
entered into the Merger Agreement because each company believes that the Transaction will be beneficial to each of Ondas and American
Robotics primarily as a result of the anticipated benefits resulting from the combined company’s operations. The companies may not
be able to achieve the anticipated long-term strategic benefits of the Transaction. An inability to realize the full extent of, or any
of, the anticipated benefits of the Transaction, as well as any delays that may be encountered in the integration process, which may delay
the timing of such benefits, could have an adverse effect on the business and results of operations of the combined company, and may affect
the value of Ondas common stock after the completion of the Transaction.
Charges to earnings resulting from the application
of the acquisition method of accounting may adversely affect the market value of Ondas common stock following the Transaction.
In accordance with GAAP, Ondas
will be considered the acquiror of American Robotics for accounting purposes. Ondas will account for the Transaction using the acquisition
method of accounting. There may be charges related to the acquisition that are required to be recorded to Ondas’ earnings that could
adversely affect the market value of Ondas common stock following the completion of the Transaction. Under the acquisition method of accounting,
Ondas will allocate the total purchase price to the assets acquired, including identifiable intangible assets, and liabilities assumed
from American Robotics based on their fair values as of the date of the completion of the Transaction, and record any excess of the purchase
price over those fair values as goodwill. For certain tangible and intangible assets, revaluating them to their fair values as of the
completion date of the Transaction may result in Ondas incurring additional depreciation and amortization expense that may exceed the
combined amounts recorded by Ondas and American Robotics prior to the Transaction. This increased expense will be recorded by Ondas over
the useful lives of the underlying assets. In addition, to the extent the value of goodwill or intangible assets were to become impaired
after the Transaction, Ondas may be required to incur charges relating to the impairment of those assets.
The combined company’s goodwill or
other intangible assets may become impaired, which could result in material non-cash charges to its results of operations.
The combined company will have
goodwill and other intangible assets resulting from the Transaction. At least annually, or whenever events or changes in circumstances
indicate a potential impairment in the carrying value as defined by GAAP, the combined company will evaluate this goodwill and other intangible
assets for impairment based on the fair value of each reporting unit. Estimated fair values could change if there are changes in the combined
company’s capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows, or market capitalization.
Impairments of goodwill or other intangible assets could require material non-cash charges to the combined company’s results of
operations.
The Transaction will involve substantial
costs.
We have incurred, and expect
to continue to incur, a number of non-recurring costs associated with the Transaction. The substantial majority of the non-recurring expenses
will consist of transaction and regulatory costs related to the Transaction. We will also incur transaction fees and costs related to
formulating and implementing integration plans, including system consolidation costs and employment-related costs. We continue to assess
the magnitude of these costs, and additional unanticipated costs may be incurred from the Transaction and integration. Although we anticipate
that the elimination of duplicative costs and the realization of other efficiencies and synergies related to the integration should allow
us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
The combined company may be unable to manage
its growth effectively.
The combined company’s
growth strategy will place significant demands on its financial, operational and management resources. In order to continue its growth,
the combined company may need to add administrative and other personnel and will need to make additional investments in operations and
systems. There can be no assurance that the combined company will be able to find and train qualified personnel, or do so on a timely
basis, or expand its operations and systems to the extent, and in the time, required.
The combined company may be unable to execute
its acquisition growth strategy.
The combined company’s
ability to execute its growth strategy depends in part on its ability to identify and acquire desirable acquisition candidates as well
as its ability to successfully integrate American Robotics’ operations into its business. The consolidation of Ondas’ operations
with the operations of American Robotics will present significant challenges to management, particularly during the initial phases of
combining the operations of Ondas and American Robotics.
Additional factors may negatively
impact the combined company’s growth strategy. The combined company’s strategy may require spending significant amounts of
capital. If the combined company is unable to obtain additional needed financing on acceptable terms, it may need to reduce the scope
of its acquisition growth strategy, which could have a material adverse effect on its growth prospects. If any of the aforementioned factors
force management to alter the combined company’s growth strategy, the combined company’s growth prospects could be adversely
affected.
Our largest stockholders may have the ability
to exert substantial influence over actions to be taken or approved by our stockholders.
After the closing of the Transaction,
the executive officers and directors and their affiliates of the combined company beneficially own approximately 8.6% of the voting power
in the combined company. Also, after the closing of the Transaction, Energy Capital, LLC beneficially owns approximately 14.2% of the
voting power in the combined company. As a result, these individuals may have the ability to exert substantial influence over actions
to be taken or approved by our stockholders, including the election of directors and any transactions involving a change of control.
In the future, our largest
stockholders may acquire or dispose of shares of our common stock and thereby increase or decrease their ownership stake in us. Significant
fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of
our common stock.
The loss of key personnel could have a material
adverse effect on the combined company’s financial condition, results of operations, and growth prospects.
The success of the combined
company will depend on the continued contributions of key employees and officers. The loss of the services of key employees and officers,
whether such loss is through resignation or other causes, or the inability to attract additional qualified personnel, could have a material
adverse effect on the combined company’s financial condition, results of operations, and growth prospects.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None, other than those previously disclosed in
a Current Report on Form 8-K.
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. |
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: November 15, 2021
| ONDAS HOLDINGS INC. | ||
| By: | /s/ Eric A. Brock |
|
| Eric A. Brock | ||
| Chairman and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Stewart W. Kantor |
|
| Stewart W. Kantor | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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