NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The
Company
Ondas
Holdings Inc. (the “Company”) was originally incorporated in Nevada on December 22, 2014 under the name of Zev Ventures
Incorporated. On September 28, 2018, we closed the Acquisition, described below, changed our name to Ondas Holdings Inc., and
Ondas Networks Inc., a Delaware corporation (“Ondas Networks”), became our sole focus and wholly owned subsidiary.
The corporate headquarters for Ondas Holdings Inc. and operational headquarters for Ondas Networks Inc. is located in Sunnyvale,
California. Unless otherwise stated or unless the context otherwise requires, the description of our business set forth below
is provided on a combined basis, taking into account our subsidiary, Ondas Networks. Ondas Networks was originally incorporated
in Delaware on February 16, 2006 under the name of Full Spectrum Inc. On August 10, 2018, the name was changed to Ondas Networks
Inc.
On
July 4, 2018, FS Partners (Cayman) Limited, a Cayman Islands limited liability company (“FS Partners”) was formed
by Eric A. Brock, CEO of Ondas Holdings, and Stewart W. Kantor, President and L. Philip Chu, Vice President-Asia of Ondas Networks.
On December 1, 2018, Messer Brock, Kantor and Chu transferred its ownership of FS Partners to Ondas Holdings, for a nominal amount,
at which time FS Partners became a wholly owned subsidiary of Ondas Holdings. As of December 31, 2018, FS Partners had not begun
formal operations and had not received any investment capital.
On
July 13, 2018, Full Spectrum Holding Limited, a Cayman Islands limited liability company (“Full Spectrum Holding”)
was formed by FS Partners, Ondas Networks Inc., and Mr. Chu. On December 1, 2018, Ondas Networks transferred ownership of Full
Spectrum Holding to Ondas Holdings, for a nominal amount, at which time Full Spectrum Holding became a majority owned subsidiary
of Ondas Holdings. Mr. Chu maintained a minority interest in Full Spectrum Holding. As of December 31, 2018 Full Spectrum Holding
had not begun formal operations and had not received any investment capital.
On
November 29, 2018, Ondas Network Limited, a company established in Chengdu, Sichuan Province, received a business license under
the laws of Company Law of the People’s Republic of China and the Law of the People’s Republic of China on Wholly
Foreign Invested Enterprises. Mr. Chu is legal representative of Ondas Network Limited. Ondas Network Limited is a wholly owned
subsidiary of Full Spectrum Holding. As of December 31, 2018 Ondas Network Limited had not begun formal operations and had not
received any investment capital.
Ondas
Networks’ wireless networking products are applicable to a wide range of mission critical functions that require secure
communications over large geographic areas. We provide wireless connectivity solutions enabling mission-critical Industrial Internet
applications and services. We refer to these applications as the Mission-Critical Internet of Things (MC-IoT).
We
design, manufacture, sell and support FullMAX, our multi-patented wireless radio systems for secure, wide area mission-critical
field area networks. This radio network provides point-to-multipoint, non-line of sight connectivity for industrial wireless networks.
Since its inception on February 16, 2006, Ondas Networks has devoted its efforts principally to research and development and the
commercialization of our FullMAX wireless technology platform. We began working with the IEEE in 2015 to help create the IEEE
802.16s wireless broadband standard which was published in the fourth quarter of 2017. In 2018, Ondas Networks initiated a business
expansion plan designed to invest in our sales, and marketing and customer support capabilities in order to build our customer
base.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Our
business consists of a single segment of products and services all of which are sold and provided in the United States and certain
international markets.
The Acquisition
On
September 28, 2018, we entered into the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with
Zev Merger Sub, Inc. and Ondas Networks to acquire Ondas Networks. The transactions contemplated by the Merger Agreement were
consummated on September 28, 2018 (the “Closing”), and pursuant to the terms of the Merger Agreement, all outstanding
shares of common stock of Ondas Networks, $0.00001 par value per share, (the “Ondas Networks Share(s)”), were exchanged
for shares of our common stock, $0.0001 par value per share (the “Company Shares”). Accordingly, Ondas Networks became
our wholly-owned subsidiary and its business became the business of the Company.
At
the Closing, each Ondas Networks Share outstanding immediately prior to the Closing was converted into 3.823 Company Shares (the
“Exchange Ratio”), with all fractional shares rounded down to the nearest whole share. Accordingly, we issued an aggregate
of 25,463,732 Company Shares for all of the then-outstanding Ondas Networks Shares.
In
connection with the Closing, we amended and restated our articles of incorporation, effective September 28, 2018 to (i) change
our name to Ondas Holdings Inc. and (ii) increase our authorized capital to 360,000,000 shares, consisting of 350,000,000 shares
of common stock, par value $0.0001 per share, and 10,000,000 shares of “blank check” preferred stock, par value $0.0001
per share. In connection with the Acquisition, our trading symbol changed to “ONDS” effective at the opening of business
on October 5, 2018.
Also
in connection with the Closing, (i) our sole director appointed additional individuals, who previously were members of the board
of directors of Ondas Networks and its chief executive officer, to serve on our board of directors, and our board of directors
subsequently appointed executive officers; (ii) the former holders of the Ondas Networks Shares executed lock-up agreements (the
“Lock-Up Agreements”), which provide for an initial 12-month lock-up period followed by a subsequent 12-month limited
sale period, commencing with the date of the Closing; (iii) we entered into a Common Stock Repurchase Agreement with Energy Capital,
a current stockholder of the Company (“Energy Capital”), pursuant to which the Energy Capital sold an aggregate of
32.6 million Company Shares (the “Repurchase Shares”) to us at $0.0001 per share, for an aggregate consideration of
$3,260. The Repurchase Shares were canceled and returned to our authorized but unissued shares; (iv) our board of directors approved,
and our stockholders adopted, the 2018 Incentive Stock Plan (the “2018 Plan”) pursuant to which 10 million Company
Shares has been reserved for issuance to employees, including officers, directors and consultants; and (v) we entered into a Loan
and Security Agreement with Energy Capital, pursuant to which Energy Capital agreed to lend us an aggregate principal amount of
up to $10 million, subject to specified conditions.
In
accordance with ASC 805-40,
Reverse Acquisitions
, the historical capital stock account of Ondas Networks immediately prior
to the Closing was carried forward and retroactively adjusted to reflect the par value of the outstanding stock of the Company,
including the number of shares issued in the Closing as we are the surviving legal entity. Additionally, retained earnings of
Ondas Networks have been carried forward after the Closing. All share and per share amounts in the condensed consolidated financial
statements and related notes have been retrospectively adjusted to reflect the one for 3.823 exchange of shares of common stock
in connection with the Acquisition.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Liquidity
We
have incurred losses since inception and have funded our operations primarily through debt and the sale of capital stock. As of
December 31, 2018, we had an accumulated deficit of approximately $32,382,000 and net borrowings outstanding of approximately
$14,246,000, of which approximately $3,883,000, is contractually due on March 30, 2019 and $10,063,000 is contractually due on
September 19, 2019. As of December 31, 2018, we had cash and cash equivalents of approximately $1,130,000 and a working capital
deficit of approximately $15,205,000.
Our
future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing our
technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other
proprietary rights, our ability to establish collaborative arrangements, marketing activities and competing technological and
market developments, including regulatory changes and overall economic conditions in our target markets.
Our
ability to generate revenue and achieve profitability depends on our completion of our second-generation products and commencing
the manufacture, marketing and sales of those products. These activities, including our planned research and development efforts,
will require significant uses of working capital through the end of 2019 and beyond. Based on our current operating plans, we
believe that our existing cash and cash equivalents, as well as the $3,300,000 in borrowings we drew down thus far in 2019 from
the $10 million loan and security agreement (see
NOTE
14 for further details) will only be sufficient to meet our anticipated
operating needs through March 2019. We currently do not have sufficient funds to repay the debt discussed above at maturity on
March 30, 2019 and must secure additional equity or debt capital in order to repay those obligations (the balance of funds available
under the $10 million loan and security agreement are contractually not available for this repayment). Aside from the balance
available under $10 million loan and security agreement, at the present time we have no commitments for any such funding and no
assurance can be provided that we will be able to raise the needed funds on commercially acceptable terms or at all. These factors
raise substantial doubt about our ability to continue as a going concern through March 19, 2020. The financial information contained
in these financial statements have been prepared on a basis that assumes that we will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial
information and these financial statements do not include any adjustments that may result from the outcome of this uncertainty.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries Ondas Networks and FS
Partners (FS Partners has not begun operations) and our majority owned subsidiaries, Full Spectrum Holding and Ondas Network Limited
(both have not begun operations). All significant inter-company accounts and transactions between these entities have been eliminated
in these historical consolidated financial statements.
Segment
Information
We
operate in one business segment, which is the development, marketing and sale of wireless radio systems for secure, wide area
mission-critical business-to-business networks.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 warrants, and valuation allowances against deferred tax assets. Actual
results could differ from those estimates.
Cash
and Cash Equivalents
We
consider all highly liquid instruments with an original maturity of three months or less, as well as deposits in financial institutions,
to be cash and cash equivalents. As of December 31, 2018 and 2017, we had no cash equivalents.
Trade
Accounts Receivable
Accounts
receivable are stated at a gross invoice amount less an allowance for doubtful accounts. We estimate allowance for doubtful accounts
by evaluating specific accounts where information indicates our customers may have an inability to meet financial obligations,
such as customer payment history, credit worthiness and receivable amounts outstanding for an extended period beyond contractual
terms. We use assumptions and judgment, based on the best available facts and circumstances, to record an allowance to reduce
the receivable to the amount expected to be collected. These allowances are evaluated and adjusted as additional information is
received.
We
had no allowance for doubtful accounts as of December 31, 2018. We had an allowance for doubtful accounts of $7,914 as of December
31, 2017.
Inventory
Inventories,
which consist solely of equipment components, 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 December 31, 2018 and 2017, we determined that no such reserves were necessary.
Property
and Equipment
All
additions, including improvements to existing facilities, are recorded at cost. Maintenance and repairs are charged to expense
as incurred. Depreciation of property and equipment is principally recorded using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives typically are (i) three years for equipment and software, and (ii) five
years for vehicles and furniture and fixtures. Leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term or the estimated useful life of the asset. Upon the disposal of property, the asset and related accumulated
depreciation accounts are relieved of the amounts recorded therein for such items, and any resulting gain or loss is recorded
in operating expenses in the year of disposition.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Software
Costs
incurred internally in researching and developing a software product are charged to expense until technological feasibility has
been established for the product. Once technological feasibility is established, all software costs are capitalized until the
product is available for general release to customers. Judgment is required in determining when technological feasibility of a
product is established. We have determined that technological feasibility for our software products is reached after all high-risk
development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released
to production. The amortization of these costs is included in cost of revenue over the estimated life of the products.
Impairment
of Long-Lived Assets
Long-lived
assets are evaluated whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the
useful life has changed. Such indicators include significant technological changes, adverse changes in market conditions and/or
poor operating results. The carrying value of a long-lived asset group is considered impaired when the projected undiscounted
future cash flows is less than its carrying value. The amount of impairment loss recognized is the difference between the estimated
fair value and the carrying value of the asset or asset group. Fair market value is determined primarily using the projected future
cash flows discounted at a rate commensurate with the risk involved. Based upon our evaluation, there were no impairments of long-lived
assets required during the year ended December 31, 2018.
Patents
We
amortize our intangible assets with a finite life on a straight-line basis, over 20 years for patents. We begin amortization of
these costs on the date patents are awarded.
Research
and Development
Costs
for research and development are expensed as incurred. Research and development expense consists primarily of salaries, salary
related expenses and costs of contractors and materials.
Derivative
Financial Instruments
Derivatives
are recorded on the balance sheet at fair value and changes in fair value are recorded in earnings at each reporting date in accordance
with U.S. GAAP.
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).
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
We
have elected not to carry our debt instruments at fair value. The carrying amount of our debt approximates fair value. Interest
rates that are currently available to us for issuance of short and long-term debt with similar terms and remaining maturities
are used to estimate the fair value of our short and long-term debt.
In
accordance with accounting standards, we determined that at December 31, 2017, certain instruments qualified as derivative liabilities
and should be recorded at their fair value on the date of issuance and re-measured at fair value each reporting period with the
change reported in earnings). The fair value of these instruments were computed using the Binomial Lattice Monte Carlo model,
incorporating transaction details such as the price of our common stock, contractual terms, maturity and risk-free rates, as well
as assumptions about future financings, volatility, and holder behavior.
The
assumptions used in computing the fair value as of December 31, 2017 are as follows:
Stock
price
|
|
$
|
0.0027
|
|
Conversion price
|
|
$
|
8.1500
|
|
Expected volatility
|
|
|
63
|
%
|
Term (years)
|
|
|
9.5
|
|
Risk-free interest
|
|
|
2.36
|
%
|
Expected dividend
yield
|
|
|
0
|
%
|
At December
31, 2018, we had no instruments requiring a fair value determination.
The
following table provides the financial assets and liabilities reported at fair value and measured on a recurring basis at December
31, 2018 and 2017:
Description
|
|
|
Assets/
(Liabilities)
Measured at
Fair Value
|
|
|
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
|
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
|
Significant
Other Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivative
liability as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2018
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
|
$
|
(166,093
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(166,093
|
)
|
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table provides a summary of changes in fair value associated with the Level 3 liabilities for years ended December 31,
2018 and 2017:
|
|
Fair Value Measurements
Using
Significant Unobservable Inputs
(Level 3)
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
(166,093
|
)
|
|
$
|
—
|
|
Issuances of derivative
liability
|
|
|
—
|
|
|
|
(171,118
|
)
|
Reclassification
to additional paid in capital
|
|
|
1,141,995
|
|
|
|
—
|
|
Change in fair value
of derivative liability
|
|
|
(975,902
|
)
|
|
|
5,025
|
|
Balance, end
of period
|
|
$
|
—
|
|
|
$
|
(166,093
|
)
|
The
above table of Level 3 liabilities begins with the prior period balance and adjusts the balance for changes that occurred during
the current period. The ending balance of the Level 3 financial instrument presented above represent our best estimates and may
not be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of
the instruments.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the related temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted. Valuation allowances
are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In accordance with GAAP,
we recognize the effect of uncertain income tax positions only if the positions are more likely than not of being sustained in
an audit, based on the technical merits of the position. Recognized uncertain income tax positions are measured at the largest
amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in
which those changes in judgment occur. We recognize both interest and penalties related to uncertain tax positions as part of
the income tax provision.
Shipping and Handling
We
expense all shipping and handling costs as incurred. These costs are included in cost of goods sold on the accompanying consolidated
financial statements.
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 the equity financing,
these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of
the offering. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a
charge to operating expenses in the consolidated statement of operations.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.
ASC 606,
Revenue from Contracts
with Customers
On
January 1, 2018, we adopted ASC 606
, Revenue from Contracts with Customers
(“ASC 606”), using the modified
retrospective method with respect to all non-completed contracts. Revenues and contract assets and liabilities for contracts completed
prior to January 1, 2018 are presented in accordance with ASC 605,
Revenue Recognition
. ASC 606 outlines a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers and supersedes nearly all existing revenue
recognition guidance, including industry-specific guidance. The new guidance is based on the principle that an entity should recognize
revenue to depict the transfer of products or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those products or services. The new guidance also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant
judgment and changes in judgments and assets recognized from costs incurred to fulfill a contract. The adoption of ASC 606 did
not have a material effect on our financial position, results of operations, or internal controls over financial reporting.
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, value add, and other taxes collected
on behalf of third parties are excluded from revenue. For the year ended December 31, 2018, 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 year ended December 31, 2018, there were no modifications to contract specifications.
The
Company is engaged in the development, marketing and sale of wireless radio systems for secure, wide area mission-critical business-to-business
networks. We generate revenue primarily from the sale of the FullMAX System and the delivery of related services.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Product
revenue is comprised of sales of the Company’s software defined base station and remote radios, its network management and
monitoring system, and accessories. The Company’s 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 provide 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 Company’s wireless communications products including wireless
network design, systems engineering, radio frequency planning, software configuration, product training, installation, and onsite
support. The extended warranty sold by the Company 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, at our election, of the base station and remote radios, 2) software upgrades, bug fixes and new features of the radio
software and NMS, 3) deployment and network architecture support, and 4) technical support by phone and email. Extended warranty,
network support and maintenance, and remote monitoring revenues are recognized ratably over the term of the service contract.
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.
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 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.
Our
payment terms vary and range from Net 15 to Net 30 days from the date of the invoices.
Disaggregation of Revenue
The following tables present
our disaggregated revenues by Type of Revenue and Timing of Revenue.
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Type of Revenue
|
|
|
|
|
|
|
Product revenue
|
|
$
|
125,664
|
|
|
$
|
185,261
|
|
Service revenue
|
|
|
64,365
|
|
|
|
89,142
|
|
Total revenue
|
|
$
|
190,029
|
|
|
$
|
274,403
|
|
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Timing of Revenue
|
|
|
|
|
|
|
Revenue recognized point
in time
|
|
$
|
147,863
|
|
|
$
|
235,636
|
|
Revenue recognized over time
|
|
|
42,166
|
|
|
|
38,767
|
|
Total revenue
|
|
$
|
190,029
|
|
|
$
|
274,403
|
|
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 good or services that
we have transferred to a customer is conditional on something other than the passage of time. We did not have any contract assets
recorded at December 31, 2018.
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 years ended December 31, 2018 and 2017, and the balance at the end of each
year is reported as deferred revenue in the Company’s consolidated balance sheet.
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Balance, beginning of year
|
|
$
|
30,690
|
|
|
$
|
36,299
|
|
Additions
|
|
|
32,106
|
|
|
|
39,895
|
|
Transfer
to revenue
|
|
|
(42,166
|
)
|
|
|
(45,504
|
)
|
Balance, end of year
|
|
$
|
20,631
|
|
|
$
|
30,690
|
|
Warranty Reserve
We
provide a limited one-year assurance-type warranty on our software and hardware products. The assurance-type warranty covers defects
in material and wordsmanship only. If a warranted software or hardware component is determined to be defective after being tested
by the Company, the Company will repair, replace or refund the price of the covered hardware and/or software to the customer (not
including any shipping, handling, delivery or installation charges). We estimate, based upon a review of historical warranty claim
experience, the costs that may be incurred under our warranties and record a liability in the amount of such estimate at the time
a product is sold. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates
of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability and adjust the
accrual as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing assurance-type
warranties and has determined that the estimated outstanding warranty obligation at December 31, 2018 is immaterial to the Company’s
financial statements.
Net Loss
Per Common Share
In
a reverse merger transaction, net loss per share for all periods presented is based on the equity structure of the legal acquirer,
which assumes common stock is outstanding and is reflected on a retrospective basis for all periods presented. 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
common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because including
them would have had an anti-dilutive effect:
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Potentially
dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share because
the effect of their inclusion would have been anti-dilutive.
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Warrants to purchase common stock
|
|
|
—
|
|
|
|
1,953,722
|
|
Options to purchase common stock
|
|
|
—
|
|
|
|
3,606,052
|
|
Convertible debt
|
|
|
140,678
|
|
|
|
1,490,704
|
|
Total potentially dilutive securities
|
|
|
140,678
|
|
|
|
7,050,478
|
|
Debt
Issuance Costs
Debt
issuance costs represent costs incurred for the issuance of debt. Once the associated debt instrument is issued, these costs would
be recorded as a debt discount and amortized using the effective interest method over the term of the related debt instrument.
Upon abandonment of a pending financing transaction, the related deferred financing costs are charged to interest expense.
Concentrations
of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited
with a limited number of financial institutions. The balances held at any one financial institution may be in excess of Federal
Deposit Insurance Corporation (FDIC) insurance limits.
Credit
is extended to customers based on an evaluation of their financial condition and other factors. We generally do not require collateral
or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintains an allowance
for doubtful accounts and sales credits.
Concentration of Customers
Because
we have only recently invested in our customer service and support organization, a small number of customers have
accounted for a substantial amount of our revenue. During the year ended December 31, 2018, two customers accounted for
approximately $145,000 and $32,000 of our revenue or 76% and 17%, respectively. No other customers provided more than 10% of
our revenue during 2018. During the year ended December 31, 2107, three customers accounted for approximately $156,000,
$50,000 and $41,000 of our revenue or 51%, 18% and 15%, respectively. No other customers provided more than 10% of our revenue during
2017.
Recent Accounting Pronouncements
In
August 2018, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”),
2018-13 that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities
to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to Accounting
Standards Codification (“ASC”) 820 as part of its broader disclosure framework project, which aims to improve the
effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most
important information to users of the financial statements. The new guidance is effective for all entities for fiscal years beginning
after December 15, 2019 and for interim periods within those fiscal years. An entity is permitted to early adopt either the entire
standard or only the provisions that eliminate or modify requirements. We are currently evaluating the effect of this guidance
on our disclosures.
In
June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting (“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based
payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
July 2017, the FASB issued ASU 2017-11 (“ASU 2017-11”), Earnings Per Share (“Topic 260”),
Distinguishing
Liabilities from Equity
(“Topic 480”), and
Derivatives and Hedging
(“Topic 815”). ASU 2017-11
is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues
addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing
liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying
mandatorily redeemable non-controlling interests. ASU 2017-11 is effective for the Company on January 1, 2019. We are currently
evaluating the potential impact of ASU 2017-11 on our financial statements.
In
August 2016,
FASB issued ASU
2016-15,
Statement of Cash Flows (Topic 230)
(“ASU
2016-15”). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified
within the statement of cash flows. ASU 2016-15 became effective for public business entities for annual periods beginning after
December 15, 2017, including interim periods within those fiscal years. There was no material effect on our 2018 financial statements
upon adoption.
In
February 2016, the FASB issued ASU 2016-02,
Leases
(“ASU 2016-02”). The new standard establishes a right-of-use
(“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases
with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the
pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-10,
Codification Improvements
to Topic 842 Leases
(“ASU 2018-10”) and ASU 2018-11,
Leases (Topic 842), Targeted Improvements
(“ASU
2018-11”). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02,
including but not limited to lease residual value guarantee, rate implicit in the lease, lease term and purchase option. The amendments
in ASU 2018-11 provide an optional transition method for adoption of the new standard, which will allow entities to continue to
apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year
of adoption. In December 2018, the FASB issued ASU 2018-20,
Leases
(Topic 842),
Narrow-Scope Improvements for Lessors
(“ASU 2018-20”). ASU 2016-02 is effective for annual and interim periods for fiscal years beginning after December
15, 2018, which will require us to adopt these provisions in the first quarter of 2019 on a modified retrospective basis. While
we continue evaluating our lease portfolio to assess the impact that ASU 2016-02 will have on our consolidated financial statements,
we expect the primary impact to our consolidated financial statements upon adoption will be the recognition, on a discounted basis,
of our future minimum rentals due under noncancelable leases on our consolidated balance sheet.
Restatement
In
connection with the year-end financial statement closing process, the Company determined that its previously issued
financial statements included in its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018
(“Restated Period”) should be restated due to an error in recording the conversion of debt on September 28, 2018
and the omission of recognizing a modification of debt on July 11, 2018. With the modification on July 11, 2018, the Company
should have recorded a loss on extinguishment of debt in the amount of $44,348 and reclassified the derivative liability at
its fair value in the amount of $1,141,995 to additional paid in capital (see NOTE 7 for details). On September 28, 2018, the
debt conversion was originally recorded as a gain of $3,976,992, however it should have been recorded in common stock and
additional paid in capital as a result of the July 11, 2018 debt modification. See
NOTE
13 for further details
and quantitative information on the Restated Period.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – OTHER CURRENT
ASSETS
Other
current assets consist of the following:
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Prepaid financing costs
|
|
$
|
188,300
|
|
|
$
|
—
|
|
Prepaid marketing cost
|
|
|
125,525
|
|
|
|
—
|
|
Prepaid insurance
|
|
|
102,743
|
|
|
|
—
|
|
Other prepaid expenses
|
|
|
40,654
|
|
|
|
13,755
|
|
Other receivables
|
|
|
44,294
|
|
|
|
9,823
|
|
Deposits
|
|
|
31,965
|
|
|
|
20,000
|
|
TOTAL OTHER CURRENT ASSETS
|
|
$
|
533,481
|
|
|
$
|
43,578
|
|
NOTE 4 – PROPERTY
AND EQUIPMENT
Property
and equipment consist of the following:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Leasehold improvements
|
|
$
|
256,920
|
|
|
$
|
30,367
|
|
Vehicle
|
|
|
143,560
|
|
|
|
—
|
|
Furniture and fixtures
|
|
|
132,088
|
|
|
|
41,685
|
|
Computer Equipment
|
|
|
87,087
|
|
|
|
39,382
|
|
Software
|
|
|
61,287
|
|
|
|
25,272
|
|
|
|
|
680,942
|
|
|
|
136,706
|
|
Less: accumulated depreciation
|
|
|
(178,796
|
)
|
|
|
(123,850
|
)
|
TOTAL PROPERTY AND EQUIPMENT
|
|
$
|
502,146
|
|
|
$
|
12,856
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017 was $54,946 and $13,439, respectively.
NOTE 5 – INTANGIBLE
ASSETS
Our
intangible assets include patent costs totaling $53,482 less amortization of patent costs of $194 at December 31, 2018. We had
no capitalized patent costs at December 31, 2017.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – OTHER CURRENT
LIABILITIES
Accrued
expenses and other current liabilities consist of the following:
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accrued payroll and other benefits
|
|
$
|
1,659,577
|
|
|
$
|
792,746
|
|
Accrued rent and facilities costs
|
|
|
160,544
|
|
|
|
—
|
|
Accrued interest
|
|
|
138,605
|
|
|
|
42,824
|
|
Accrued professional fees
|
|
|
126,384
|
|
|
|
—
|
|
D&O insurance financing payable
|
|
|
52,530
|
|
|
|
—
|
|
Other accrued expenses
|
|
|
30,000
|
|
|
|
1,526
|
|
Deferred revenue
|
|
|
20,631
|
|
|
|
30,690
|
|
Other current liabilities
|
|
|
—
|
|
|
|
11,236
|
|
TOTAL OTHER CURRENT LIABILITIES
|
|
$
|
2,188,271
|
|
|
$
|
879,022
|
|
NOTE 7 – NOTES PAYABLE
AND OTHER FINANCING AGREEMENTS
Loan
Agreements
In
October 2007, Ondas Networks Inc. (“Ondas Networks”), the wholly owned subsidiary of Ondas Holdings Inc. (“Ondas
Holdings” or the “Company”), entered into a 6% per annum loan agreement with an entity in the amount of $550,000
in connection with the issuance of common stock of Ondas Networks (the “October 2007 Loan”); however, the October
2007 Loan was not memorialized. The original maturity date of the October 2007 Loan was September 30, 2011. On February 11, 2016,
the entity and Ondas Networks entered into a Loan Amendment to amend the October 2007 Loan to (i) extend the maturity date to
April 1, 2017 and (ii) clear and waive any existing defaults. On November 30, 2017, the entity and Ondas Networks entered into
a Loan Modification Agreement to further amend the October 2007 Loan to (i) transfer all accrued and unpaid interest ($17,310)
as of December 31, 2017 to principal in January 2018, (ii) extend the maturity date to December 31, 2018, (iii) clear and waive
any existing defaults, and (iv) amend the interest rate to 10% per annum effective January 1, 2018. On October 1, 2018, the entity
entered into an Assignment and Assumption Agreement to assign all of its rights and obligations including all principal and interest
owing under the October 2007 Loan to an unaffiliated third-party. On December 31, 2018, the assignee and Ondas Networks entered
into a Note Extension Agreement to further amend the October 2007 Loan to extend the maturity date to March 30, 2019. At December
31, 2018 and December 31, 2017, the outstanding balance of the October 2007 Loan was $567,310 and $550,000, respectively.
On
December 31, 2013, Ondas Networks entered into a 10% per annum Promissory Note with an entity in the amount of $250,000, of which
$25,000 was repaid in February 2015 (the “December 2013 Note”). The original maturity of the December 2013 Note was
December 31, 2014. On November 1, 2014, Ondas Networks entered into a Loan Agreement with the same entity in the amount of $210,000.
(the “November 2014 Loan”). The original maturity of the November 2014 Loan was March 16, 2015. The interest through
the original maturity date of the November 2014 Loan was a fixed amount of $16,800. Subsequent to the original maturity date,
the November 2014 Loan accrued interest at a rate of 18% per annum. On September 15, 2015, Ondas Networks and the entity verbally
agreed to amend the November 2014 Loan to decrease the interest rate to 10% per annum. On April 1, 2016, the entity and Ondas
Networks entered into a Loan Amendment to amend the December 2013 Note and November 2014 Loan to (i) extend the maturity date
to April 1, 2017, and (ii) clear and waive any existing defaults. On November 30, 2017, the entity and Ondas Networks entered
into a Loan Modification Agreement to further amend the December 2013 Note and November 2014 Loan to (i) transfer all accrued
and unpaid interest on the December 2013 Note and November 2014 Loan ($60,679 and $49,170, respectively, as of December 31, 2017)
to principal, (ii) extend the maturity dates to December 31, 2018, and (iii) clear and waive any existing defaults. On December
31, 2018, the entity and Ondas Networks entered into a Note Extension Agreement to further amend the December 2013 Note and November
2014 Loan to extend the maturity date to March 30, 2019. At December 31, 2018 and December 31, 2017, the outstanding balances
of the December 2013 Note and November 2014 Loan was $285,679 and $259,170, respectively.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
April 1, 2015, Ondas Networks entered into a 10% per annum Loan Agreement with two individuals in the amount of $50,000 (the “April
2015 Note”). The original maturity of the April 2015 Note was July 1, 2015. The accrued interest on the April 2015 Note
through the original maturity date was $4,000. Subsequent to the original maturity date, the April 2015 Note accrued interest
at a rate of 10% per annum. On February 11, 2016, the individuals and Ondas Networks entered into a Loan Amendment to amend the
April 2015 Note to (i) extend the maturity date to April 1, 2017 and (ii) clear and waive any existing defaults. On November 30,
2017, the individuals and Ondas Networks entered into a Loan Modification Agreement to further amend the April 2015 Note to (i)
transfer all accrued and unpaid interest ($16,511) as of December 31, 2017 to principal, (ii) extend the maturity date to December
31, 2018 and (iii) clear and waive any existing defaults. On December 31, 2018, the entity and Ondas Networks entered into a Note
Extension Agreement to further amend the April 2015 Note and to extend the maturity date to March 30, 2019. At December 31, 2018
and December 31, 2017, the outstanding balance of the April 2015 Note was $66,511.
In
March 2017, Ondas Networks entered into a loan agreement with an individuals in the amount of $50,000 (the “March 2017 Note”).
Accrued interest on the March 2017 Note was $10,000. The March 2017 Note and accrued interest were paid in full during 2017.
Financing
Agreement
On
November 3, 2016, Ondas Networks entered into a Purchase Order Financing Agreement with an accompanying 20% per annum Promissory
Note with an individual in the amount of $250,000 (the “November 2016 Note”). The original maturity of the November
2016 Note was the earlier of the payment of the purchase order for which the loan was advanced or 180 days after issuance. On
December 20, 2016, Ondas Networks entered into a second Purchase Order Financing Agreement with an accompanying 10% per annum
Promissory Note with the same individual in the amount of $100,000 (the “December 2016 Note”). The original maturity
of the December 2016 Note was the earlier of the payment of the purchase order for which the loan was advanced or 180 days after
issuance. On November 30, 2017, the individual and Ondas Networks entered into a Loan Modification Agreement to amend the November
and December 2016 Notes to (i) transfer all accrued and unpaid interest on the November and December 2016 Notes ($47,000 and $5,591,
respectively) as of December 31, 2017 to principal, (ii) extend the maturity dates to December 31, 2018, and (iii) clear and waive
any existing defaults. On December 31, 2018, the individual and Ondas Networks entered into a Note Extension Agreement to further
amend the November and December 2016 Notes and to extend the maturity date to March 30, 2019. At December 31, 2018 and December
31, 2017, the outstanding balance of the November and December 2016 Notes was $297,000 and $105,591, respectively, in both years.
On
February 28, 2014, Ondas Networks entered into a Purchase Order Financing Agreement (the “Financing Agreement”) with
an entity. Interest on the Financing Agreement accrued at 30% per annum for the first 104 days and at 51% per annum thereafter.
Between June 2014 and January 2015, Ondas Networks received an aggregate of $660,000 of which $285,000 was repaid. At December
31, 2015, the principal outstanding totaled $375,000 and accrued interest totaled $223,393. During 2016, and for the period from
January 1, 2017 through November 17, 2017, additional interest was accrued totaling $191,250 and $168,282, respectively. On November
17, 2017, the entity and Ondas Networks entered into an Amendment to Purchase Order Financing Agreement and agreed to (i) transfer
all accrued and unpaid interest to principal, (ii) reduce the per annum interest rate to 10%, (iii) set the maturity date at December
31, 2018, and (iv) combine the Purchase Order Financing Agreements into a single loan (“November 2017 Loan”). On December
31, 2018, the entity and Ondas Networks entered into a Note Extension Agreement to further amend the November 2017 Loan and to
extend the maturity date to March 30, 2019. As of December 31, 2018 and December 31, 2017, the outstanding principal balance of
the November 2017 Loan was $957,925.
Promissory
Notes
On
December 14, 2015, Ondas Networks approved a private placement offering (“Private Placement”) seeking to sell to investors
certain 10% promissory notes in the aggregate face amount of $750,000, which amount was later increased to $1,250,000, with a
term of 18 months (“Private Placement Notes”). In connection with the Private Placement Notes, each investor (the
“Private Placement Noteholders”) received warrants to purchase shares of common stock of Ondas Networks (“Private
Placement Warrants”), equal to 25% of the principal amount of the Private Placement Notes, exercisable at the lower of (i)
$2.00 per share or (ii) 40% of the selling price of Ondas Networks’ shares in its proposed initial public offering.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
December 2015, pursuant to the terms of Security Purchase Agreements, Ondas Networks completed the sale of an aggregate of $325,000
in Private Placement Notes to Private Placement Noteholders, of which $25,000 was repaid during 2017, and issued them Private
Placement Warrants to purchase an aggregate of 81,250 shares of common stock of Ondas Networks, with a term of ten years, at exercise
price of $2.00 and a fair value of $63,398. As of January 1, 2018, the Private Placement Warrants for the 81,250 shares were surrendered
to Ondas Networks in exchange for participation in a private placement of Ondas Networks’ shares dated April 13, 2018.
Between
February and July 2016, pursuant to the terms of Security Purchase Agreements, Ondas Networks completed the sale of an aggregate
of $925,000 in Private Placement Notes to Private Placement Noteholders and issued them Private Placement Warrants to purchase
an aggregate of 231,250 shares of Ondas Networks common stock, with a term of ten years, an exercise price of $2.00 and a fair
value of $168,678. As of January 1, 2018, the Private Placement Warrants for the 231,250 shares of Ondas Networks of common stock
was surrendered to Ondas Networks in exchange for participation in a private placement of Ondas Networks’ shares dated April
13, 2018.
On
November 30, 2017, the Private Placement Noteholders and Ondas Networks entered into Loan Modification Agreements to amend the
Private Placement Notes to (i) transfer all accrued and unpaid interest ($118,682) as of December 31, 2017 to principal, (ii)
extend the maturity date to December 31, 2018 and (iii) clear and waive any existing defaults.
On
December 31, 2018, the Private Placement Noteholders and Ondas Networks entered into Note Extension Agreements to further amend
the Private Placement Notes and to extend the maturity date to March 30, 2019. At December 31, 2018 and December 31, 2017, the
total outstanding balance of the Private Placement Notes was $1,343,682.
Convertible
Promissory Notes
During
2017, Ondas Networks and certain entities and individuals (the “Noteholder(s)”) entered into convertible promissory
notes defined herein as (i) notes with mutual conversion preferences (“Group 1 Notes”) and (ii) notes with unilateral
conversion preferences (“Group 2 Notes”).
Group
1 Notes.
Between April 3, 2017 and August 1, 2017, convertible promissory notes in the aggregate amount of $1,865,000 were
sold. Terms of the Group 1 Notes include (i) a maturity date based on the payment of the ratio of a Noteholders outstanding balance
relative to the total of Group 1 and Group 2 Notes times 6% of gross revenue until 1.5 times the amount of each individual note
is paid, (ii) the conversion price which is the lesser of (a) the price per share of common stock sold in a private placement
or a public offering, discounted by 20%, or (b) the price per share of common stock based on a pre-money Ondas Networks valuation
of $50 million on a fully diluted basis (the “Conversion Price”), (iii) the optional conversion, at any time after
the closing of a private placement, wherein the Noteholder may convert the outstanding loan amount into common shares at the Conversion
Price, (iv) the mandatory conversion, any time on or after a qualified public offering, wherein Ondas Networks may convert the
outstanding loan amount into common shares at the Conversion Price, and (v) upon any conversion, Ondas Networks shall issue to
the Noteholder warrants to purchase share of common stock equal to 10% of shares converted exercisable for three years at the
Conversion Price.
Group
2 Notes.
Between September 2, 2017 and January 8, 2018, convertible promissory notes in the aggregate amount of $1,175,000
were sold. Terms of the Group 2 Notes include (i) a maturity date based on the payment of the ratio of a Noteholders outstanding
balance relative to the total of Group 1 and Group 2 Notes times 6% of gross revenue until 1.5 times the amount of each individual
note is paid, (ii) the conversion price which is the lesser of (a) the price per share of common stock sold in a private placement
or a public offering, discounted by 20%, or (b) the price per share of common stock based on a pre-money Ondas Networks valuation
of $50 million on a fully diluted basis (the “Conversion Price”), (iii) the mandatory conversion, any time on or after
a qualified public offering, wherein Ondas Networks may convert the outstanding loan amount into common shares at the Conversion
Price, and (iv) upon the earlier of a private placement, initial public offering, or fundamental change, Ondas Networks shall
issue to the Noteholder warrants to purchase share of common stock with an exercise price of $0.01 and exercisable for three years
equal to the principal amount at the Conversion Price.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
July 11, 2018, the Ondas Networks board of directors, by written consent, approved certain changes to outstanding Convertible
Promissory Notes. The action approved changes to the Group 2 Notes to match the Group 1 Notes and authorized the issuance of a
Security Holder Consent Agreement wherein each Group 2 Note holder would agree to the change. The changes modified the conversion
option for the Group 2 Notes which resulted in a loss on extinguishment of debt in the amount of $44,348 and caused the derivative
liability related to the Group 2 Notes to cease to exist and be classified as additional paid in capital at its fair value on
July 11, 2018 in the amount of $1,141,995.
On
September 28, 2018, in conjunction with the Merger Agreement discussed in NOTE 1, the Group 1 Note noteholders and all but one
Group 2 Note noteholders converted their outstanding Convertible Promissory Notes into an aggregate of 2,017,416 Company Shares.
At December 31, 2018 and December 31, 2017, the total outstanding balance of the Convertible Promissory Note(s) was $300,000 and
$2,940,000, respectively.
Notes
payable and other financing consists of:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Short Term:
|
|
|
|
|
|
|
|
|
Loan Agreements
|
|
$
|
1,178,670
|
|
|
$
|
1,161,360
|
|
Financing Agreement
|
|
|
1,360,516
|
|
|
|
1,360,516
|
|
Promissory Notes
|
|
|
1,343,682
|
|
|
|
1,343,682
|
|
|
|
$
|
3,882,868
|
|
|
$
|
3,865,558
|
|
Long Term:
|
|
|
|
|
|
|
|
|
Convertible Promissory Notes
|
|
$
|
300,000
|
|
|
$
|
2,940,000
|
|
Debt Discount
|
|
|
—
|
|
|
|
(162,659
|
)
|
|
|
$
|
300,000
|
|
|
$
|
2,777,341
|
|
NOTE
8 –SECURED PROMISSORY NOTE
On
March 9, 2018, we entered into a Loan and Security Agreement (the “Agreement”) with an entity (the “Lender”)
wherein the Lender made available to us a loan in the aggregate principal amount of up to $10,000,000 (the “Loan”).
On March 9, 2018, the Company and the Lender entered into a Secured Term Promissory Note for $5,000,000, having a maturity date
of September 9, 2019 (“Tranche A”). The Note bears 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 includes payments of $25,000 in loan commitment fees and $100,000
(1%) of the funding in loan facility charges. The loan commitment fees and $50,000 in loan facility charges associated with Tranche
A were recorded as debt discount and amortized ratably over the life of the loan. There is also an end of term charge of $250,000.
The end of term charge is being recorded as accreted costs over the term of the loan. The Note is secured by substantially all
of the assets of the Company.
On
October 9, 2018, the Company and the Lender entered into a second Secured Term Promissory Note for $5,000,000 having a maturity
date of September 9, 2019 or 10 days after a public offering (the “Second Note”) to complete the Agreement for $10,000,000.
The Second Note bears 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%. Pursuant to the terms of the Agreement, the Company is required to pay a $50,000 loan facility charge, which is also recorded
as a debt discount and amortized over the remaining term of the Second Note.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Agreement also contains covenants which include certain restrictions with respect to subsequent indebtedness, liens, loans and
investments, asset sales and share repurchases and other restricted payments, subject to certain exceptions. The Agreement also
contains financial reporting obligations. An event of default under the Agreement includes, but is not limited to, breach of covenants,
insolvency, and occurrence of any default under any agreement or obligation of the Company. In addition, the Agreement contains
a customary material adverse effect clause which states that in the event of a material adverse effect, an event of default would
occur and the lender has the option to accelerate and demand payment of all or any part of the loan. A material adverse effect
is defined in the Agreement as a material change in our business, operations, properties, assets or financial condition or a material
impairment of its ability to perform all obligations under its Agreement. We were not in default of any conditions under the Loan
and Security Agreements as of December 31, 2018. As of December 31, 2018, the principal balance was $10,000,000, net of debt discount
of $72,038 and accreted cost totaled $135,246.
NOTE
9 – STOCKHOLDERS’ EQUITY
Equity Incentive Plan
In
connection with the Closing, our board of directors approved, and our stockholders adopted, the 2018 Equity Incentive Plan (the
“2018 Plan”) pursuant to which 10 million Company Shares have been reserved for issuance to employees, including officers,
directors and consultants. No equity incentive instruments were outstanding at December 31, 2018.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – INCOME TAXES
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
are as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Tax benefit of net operating loss carry-forward
|
|
$
|
6,465,826
|
|
|
$
|
4,006,517
|
|
Depreciation and amortization
|
|
|
(5,102
|
)
|
|
|
(8,332
|
)
|
Accrued liabilities
|
|
|
261,876
|
|
|
|
220,681
|
|
Stock based compensation
|
|
|
—
|
|
|
|
507,545
|
|
Interest Expense
|
|
|
740,285
|
|
|
|
—
|
|
R&D Credit
|
|
|
393,165
|
|
|
|
—
|
|
Total deferred tax assets
|
|
|
7,856,050
|
|
|
|
4,726,411
|
|
Valuation allowance for deferred tax assets
|
|
|
(7,856,050
|
)
|
|
|
(4,726,411
|
)
|
Deferred tax assets, net of valuation allowance
|
|
$
|
—
|
|
|
$
|
—
|
|
The change
in the Company’s valuation allowance is as follows:
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Beginning of the year
|
|
$
|
4,726,411
|
|
|
$
|
3,848,878
|
|
Change in valuation account
|
|
|
3,129,639
|
|
|
|
877,533
|
|
End of the year
|
|
$
|
7,856,050
|
|
|
$
|
4,726,411
|
|
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation
of the provision for income taxes with the amounts computed by applying the Federal income tax rate to income from operations
before the provision for income taxes is as follows:
|
|
Years Ended December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
U.S. federal statutory rate
|
|
|
(21.0
|
)%
|
|
|
(35.0
|
)%
|
State taxes, net of federal benefit
|
|
|
(6.9
|
)%
|
|
|
(5.8
|
)%
|
Share-based compensation
|
|
|
—
|
%
|
|
|
17.5
|
%
|
Effect of U.S. tax law change
|
|
|
—
|
%
|
|
|
(13.2
|
)%
|
Change in valuation allowance
|
|
|
25.8
|
%
|
|
|
30.2
|
%
|
|
|
|
|
|
|
|
|
|
Nondeductible expenses
|
|
|
2.0
|
%
|
|
|
6.3
|
%
|
R&D credit
|
|
|
(3.2
|
)%
|
|
|
—
|
%
|
Stock Options
|
|
|
3.3
|
%
|
|
|
—
|
%
|
Effective income tax rate
|
|
|
—
|
%
|
|
|
—
|
%
|
In
assessing the realizability of deferred tax assets, including the net operating loss carryforwards (NOLs), the Company assesses
the available 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 net deferred tax assets as their future utilization remains uncertain at this time.
As
of December 31, 2018 and 2017, the Company had approximately $23 million and $15 million respectively of Federal and state NOLs
available to offset future taxable income with $15 million expiring from 2030 through 2037 while the Federal NOL of $8 Million
generated in 2018 has no expiration. As of December 31, 2018 and 2017, the Company had approximately $393,000 and $295,000, respectively
of Federal research and development credits available to offset future tax liability expiring from 2030 through 2038. In accordance
with Section 382 of the Internal Revenue code, the usage of the Company’s Federal Carryforwards could be limited in the
event of a change in ownership. As of December 31, 2018 the company has not completed an analysis as to whether or not an ownership
change has occurred.
The
Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes the two-step process to determine
the amount of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the
consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement with the relevant tax authority. The Company recognizes interest and penalties associated with uncertain tax positions
as a component of income tax expense.
As
of December 31, 2018, management does not believe the Company has any material uncertain tax positions that would require it to
measure and reflect the potential lack of sustainability of a position on audit in its financial statements. The Company will
continue to evaluate its uncertain tax positions in future periods to determine if measurement and recognition in its financial
statements is necessary. The Company does not believe there will be any material changes in its unrecognized tax positions over
the next year.
Our
U.S. federal and state tax returns since 2015 remain open to examination.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
December 22, 2017, the U.S. Tax Cuts and Jobs Act (“Tax Cuts and Jobs Act”) was enacted which contained substantial
changes to the Code, some of which could have an adverse effect on our business. Among other things, the Tax Cuts and Jobs Act
(i) reduces the U.S. corporate income tax rate from 35% to 21% beginning in 2018, (ii) generally will limit annual deductions
for net interest expense to no more than 30% of our “adjusted taxable income,” plus 100% of our business interest
income for the year, and (iii) will permit a taxpayer to offset only 80% (rather than 100%) of its taxable income with any U.S.
net operating losses (“NOLs”) generated for taxable years beginning after 2017. The U.S. Department of Treasury has
broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact
our results of operations in the period issued. While the U.S. Department of the Treasury has issued some proposed regulations
since the enactment of the Tax Cuts and Jobs Act, additional guidance is likely forthcoming. The measurement period allowed by
Staff Accounting Bulletin (“SAB”) No. 118 has closed during the fourth quarter of 2018. The prospects of supplemental
legislation or regulatory processes to address uncertainties that arise because of the Act, or evolving technical interpretations
of the tax law, may cause our financial statements to be impacted in the future. We will continue to analyze the effects of the
Act as subsequent guidance continues to emerge.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We
may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject
to many uncertainties, and outcomes are not predictable with assurance. There are no such loss contingencies that are included
in the financial statements as of December 31, 2018.
Operating
Leases
On
November 11, 2013, Ondas Networks entered into a three-year lease agreement for 5,858 square feet of office space at 687 North
Pastoria Avenue, Sunnyvale, California expiring on December 31, 2017 with a base rent ranging from $2,929 to $9,079 per month
plus certain various expenses incurred (the “North Pastoria Lease”). On October 16, 2017, Ondas Networks extended
the lease agreement for an additional three years with an expiration date of December 31, 2020 (“2018 Extension”).
Rent expense for the years ended December 31, 2018 and 2017 related to the North Pastoria Lease was $170,151 and $110,201, respectively.
The base rent in the 2018 Extension is $13,473 and $15,231 for 2019 and 2020, respectively. We have completed our move to our
new location described below and are attempting to sublet the property for the remainder of the lease agreement.
On
October 30, 2018, Ondas Networks entered into a Sublease with Texas Instruments Sunnyvale Incorporated, regarding the sublease
of approximately 21,982 square 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. The Sublease began on November 1, 2018 and ends on February 28, 2021 at a base monthly rent of $28,577.
A security deposit of $28,577 was paid upon execution of the Sublease. Rent expense for the November and December 31, 2018 related
to the Gibraltar Sublease was $52,050.
The future
minimum lease payments related to the Gibraltar Sublease are as follows:
Years Ending
December
31,
|
|
|
|
|
2019
|
|
|
$
|
328,631
|
|
2020
|
|
|
$
|
342,924
|
|
2021
|
|
|
$
|
57,154
|
|
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
June 15, 2018, effective June 1, 2018, Ondas Networks entered into a five-year lease agreement for approximately 15,200 square
feet of office space in Sichuan Province, China expiring on May 31, 2023 with a base rent ranging from, in U.S. dollars, approximately
$9,200 to $9,700 (the “Sichuan Lease”). Under the terms of the Sichuan Lease, the first three months are rent free
and, we paid $28,000 in advance for the second three months at the time of the execution. Ondas Networks also made a deposit payment
of $15,000. The base rent is approximately $9,200 for the period from June 1, 2018 through April 30, 2020 and approximately $9,700
for the period from May 1, 2020 through May 31, 2023. In addition to the base rent, we will pay a management fee of approximately
$1,800 per month. Rent expense for the June through December 31, 2018 related to the Sichuan Lease was $55,334.
The future
minimum lease payments (allowing for exchange rates) are approximately as follows:
Years Ending
December
31,
|
|
|
|
|
2019
|
|
|
$
|
110,849
|
|
2020
|
|
|
$
|
114,544
|
|
2021
|
|
|
$
|
116,392
|
|
2022
|
|
|
$
|
116,392
|
|
2023
|
|
|
$
|
48,497
|
|
NOTE
12 – RELATED PARTY TRANSACTIONS
From
time to time, the Ondas Networks’ Chief Executive Officer, Stewart Kantor, advanced funds to Ondas Networks to fund its
operations. As of December 31, 2018 and December 31, 2017, advances due to Mr. Kantor were $0 and $155,645, respectively. These
advances are reported on our balance sheet as advance from related party.
At
the Closing, we entered into a Loan and Security Agreement with Energy Capital, a greater than 10% stockholder the Company, pursuant
to which Energy Capital agreed to lend an aggregate principal amount of up to $10 million, subject to specified conditions. See
NOTE
14 for details of transaction under this agreement.
NOTE
13 – RESTATEMENT
In
connection with the year-end financial statement closing process, the Company determined that its previously issued financial
statements included in its Quarterly Report on Form 10-Q for the three and nine months ended September 30,
2018 (“Restated Period”) should be restated due to an error in recording the conversion of debt on September 28,
2018 and the omission of recognizing a modification of debt on July 11, 2018. With the modification on July 11, 2018, the
Company should have recorded a loss on extinguishment of debt in the amount of $44,348 and reclassified the derivative
liability at its fair value in the amount of $1,141,995 to additional paid in capital (see NOTE 7 for details). On September
28, 2018, the debt conversion was originally recorded as a gain of $3,976,992, however it should have been recorded in common
stock and additional paid in capital as a result of the July 11, 2018 debt modification.
Impact
of this Restatement
Based
on management’s review and discussions with our external auditors, the Company’s has concluded that the misclassification
included on its financial statements filed in our Quarterly Report on Form 10-Q for the three and nine months ended September
30, 2018 (“Q3 10-Q”) requires restatement, included herewith.
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed
Consolidated Balance Sheet
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September
30, 2018
|
|
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
Restatement
|
|
Total assets
|
|
$
|
1,206,063
|
|
|
$
|
1,206,063
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
11,101,777
|
|
|
$
|
11,101,777
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common stock
|
|
$
|
5,046
|
|
|
|
5,046
|
|
|
|
—
|
|
Additional paid in capital
|
|
|
14,334,570
|
|
|
|
17,616,073
|
|
|
|
(3,281,503
|
)
|
Subscriptions receivable
|
|
|
(1,958
|
)
|
|
|
(1,958
|
)
|
|
|
—
|
|
Accumulated deficit
|
|
|
(24,233,372
|
)
|
|
|
(27,514,875
|
)
|
|
|
3,281,503
|
|
Total stockholders’
deficit
|
|
|
(9,895,714
|
)
|
|
|
(9,895,714
|
)
|
|
|
—
|
|
Total liabilities and
stockholders’ deficit
|
|
$
|
1,206,063
|
|
|
$
|
1,206,063
|
|
|
$
|
—
|
|
Condensed
Consolidated Statement of Operations
(Unaudited)
|
|
|
|
Three
Months Ended
September
30, 2018
|
|
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
Restatement
|
|
Gross profit
|
|
$
|
28,749
|
|
|
$
|
28,749
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(2,072,459
|
)
|
|
$
|
(2,072,459
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,381,602
|
)
|
|
|
(1,618,834
|
)
|
|
|
(762,768
|
)
|
Change in fair value of derivative liability
|
|
|
22,931
|
|
|
|
—
|
|
|
|
22,931
|
|
Gain (loss) on conversion of debt
|
|
|
3,976,992
|
|
|
|
(44,348
|
)
|
|
|
4,021,340
|
|
Interest income
|
|
|
6,606
|
|
|
|
6,606
|
|
|
|
—
|
|
Total other income (expense)
|
|
|
1,624,927
|
|
|
|
(1,656,576
|
)
|
|
|
3,281,503
|
|
Net loss
|
|
$
|
(447,532
|
)
|
|
$
|
(3,729,035
|
)
|
|
$
|
3,281,503
|
|
Net loss per share –
basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.14
|
)
|
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed
Consolidated Statement of Operations
(Unaudited)
|
|
Nine
Months Ended
September
30, 2018
|
|
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
Restatement
|
|
Gross profit
|
|
$
|
83,180
|
|
|
$
|
83,180
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(3,953,657
|
)
|
|
$
|
(3,953,657
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,932,674
|
)
|
|
|
(2,169,906
|
)
|
|
|
(762,768
|
)
|
Change in fair value of derivative liability
|
|
|
(952,971
|
)
|
|
|
(975,902
|
)
|
|
|
22,931
|
|
Gain (loss) on conversion of debt
|
|
|
3,976,992
|
|
|
|
(44,348
|
)
|
|
|
4,021,340
|
|
Interest income
|
|
|
13,416
|
|
|
|
13,416
|
|
|
|
—
|
|
Total other income (expense)
|
|
|
104,763
|
|
|
|
(3,176,740
|
)
|
|
|
3,281,503
|
|
Net loss
|
|
$
|
(3,848,894
|
)
|
|
$
|
(7,130,397
|
)
|
|
$
|
3,281,503
|
|
Net loss per share –
basic and diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.16
|
)
|
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed
Consolidated Statement of Cash Flows
(Unaudited)
|
|
Nine
Months Ended
September
30, 2018
|
|
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
Restatement
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,848,894
|
)
|
|
$
|
(7,130,397
|
)
|
|
$
|
3,281,503
|
|
Adjustments to reconcile
net lost to net cash flows used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
15,405
|
|
|
|
15,405
|
|
|
|
—
|
|
Allowance for doubtful accounts
|
|
|
(7,914
|
)
|
|
|
(7,914
|
)
|
|
|
—
|
|
Amortization of debt discount and deferred
financing costs
|
|
|
907,891
|
|
|
|
145,123
|
|
|
|
762,768
|
|
Amortization of intangible assets
|
|
|
77
|
|
|
|
77
|
|
|
|
—
|
|
Change in fair value of derivative liability
|
|
|
952,971
|
|
|
|
975,902
|
|
|
|
(22,931
|
)
|
Loss (gain) on conversion
|
|
|
(3,976,992
|
)
|
|
|
44,348
|
|
|
|
(4,021,340
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,929
|
|
|
|
1,929
|
|
|
|
—
|
|
Inventory
|
|
|
(137,725
|
)
|
|
|
(137,725
|
)
|
|
|
—
|
|
Other current assets
|
|
|
(110,113
|
)
|
|
|
(110,113
|
)
|
|
|
—
|
|
Accounts payable
|
|
|
45,355
|
|
|
|
45,355
|
|
|
|
—
|
|
Accrued expenses and
other current liabilities
|
|
|
1,515,384
|
|
|
|
1,515,384
|
|
|
|
—
|
|
Net cash flows used in operating activities
|
|
|
(4,642,626
|
)
|
|
|
(4,642,626
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows used in investing activities
|
|
|
(185,780
|
)
|
|
|
(185,780
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities
|
|
|
4,884,593
|
|
|
|
4,884,593
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
56,187
|
|
|
|
56,187
|
|
|
|
—
|
|
Cash and cash equivalents, beginning of period
|
|
|
460,064
|
|
|
|
460,064
|
|
|
|
—
|
|
Cash and cash equivalents, end of period
|
|
$
|
516,251
|
|
|
$
|
516,251
|
|
|
$
|
—
|
|
ONDAS
HOLDINGS INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 – SUBSEQUENT EVENTS
On
January 29, February 11, February 27, and March 14, 2019, we drew down advances of $1,000,000, $650,000, $750,000 and $900,000,
respectively, available under a loan and security agreement (the “Loan and Security Agreement”) with Energy Capital
entered into on October 1, 2018 (the “Loan Agreement”) by the Company and Energy Capital (the “Loan”).
The advance proceeds will be utilized primarily for operating capital. The principal amount outstanding under the Loan bears interest
at
a per annum rate equal to the greater of (a) 11.25% or (b) 11.25% plus the Prime Rate
(as published by the Wall Street Journal (National Edition)), less 3.25%. The Loan Agreement contains customary events of default
and affirmative and negative covenants for transactions of this nature. Upon an event of default, Energy Capital has the right
to require the Company to prepay the outstanding principal amount of the Loan plus all accrued and unpaid interest. All amounts
outstanding under the Loan are secured by a lien on the Company’s assets, subject to terms of outstanding debt obligations,
and become due and payable on the earlier to occur of September 30, 2019
or the completion
by the Company of a capital raise with minimum proceeds to the Company of $20 million.