NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – DESCRIPTION
OF BUSINESS AND BASIS OF PRESENTATION
The Company
Ondas Holdings Inc. (“Ondas
Holdings,” “Ondas,” the “Company,” “we,” or “our”) was originally incorporated in
Nevada on December 22, 2014, under the name of Zev Ventures Incorporated. On September 28, 2018, we acquired Ondas Networks Inc., a Delaware
corporation (“Ondas Networks”), and changed our name to Ondas Holdings Inc. On August 5, 2021, we acquired American Robotics,
Inc., a Delaware corporation (“American Robotics” or “AR”). As a result of these acquisitions, Ondas Networks
and American Robotics became our wholly owned subsidiaries. These two wholly owned subsidiaries are now Ondas’ primary focus. Ondas’
corporate headquarters are located in Waltham, Massachusetts. Ondas Networks has offices and facilities in Sunnyvale, California, and
American Robotics’ offices and facilities are located in Waltham, Massachusetts and Marlborough, Massachusetts.
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”). 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. Both FS Partners and FS Holdings had no operations for the three months ended March 31, 2022
and 2021, and we are in the process of dissolving them and expect the process to be completed by the end of 2022.
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.
We operate our two subsidiaries as separate business segments.
Ondas Networks
Ondas Networks provides wireless
connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the
Mission Critical Internet of Things (“MC-IoT”). Our wireless networking products are applicable to a wide range of MC-IoT
applications which are most often located at the very edge of large industrial networks. These applications require secure, real-time
connectivity with the ability to process large amounts of data at the edge of large industrial networks. Such applications are required
in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, homeland
security and government, where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure
a high degree of safety and security.
We design, develop, manufacture,
sell and support FullMAX, our patented, Software Defined Radio (“SDR”) platform for secure, licensed, private, wide-area
broadband networks. Our customers install FullMAX systems in order to upgrade and expand their legacy wide-area network (“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.
American Robotics
American Robotics designs, develops and manufactures
autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise customers. We provide our customers
turnkey data solutions designed to meet their unique requirements in the field. We do this via our internally developed Scout System™,
an industrial drone platform which provides commercial and government customers with the ability to continuously digitize, analyze, and
monitor their assets and field operations in near real-time.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The 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 efficiencies as a drone solution for commercial
use. Once installed in the field at customer locations, a fleet of connected Scout Systems remain indefinitely in an area of operation,
automatically collecting data each day, self-charging, and seamlessly delivering data analysis regularly and reliably. AR markets the
Scout System™ under a Robot-as-a-Service (“RaaS”) business model, whereby our drone platform aggregates customer data
and provides the data analytics meeting customer requirements in return for an annual subscription fee.
The Scout System™ consists of (i) Scout™,
a highly automated, AI-powered drone with advanced imaging payloads (ii) the ScoutBaseTM, a ruggedized weatherproof base station
for housing, charging, data processing, and cloud transfer, and (iii) ScoutViewTM, a secure web portal and API which enables
remote interaction with the system, data, and resulting analytics anywhere in the world. These major subsystems are connected via a host
of supporting technologies. Using a suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and other proprietary
intelligent safety systems, we achieved the first and only Federal Aviation Administration (“FAA”) approval for automated
operations without a human on-site in the United States on January 15, 2021.
Liquidity
We have incurred losses since
inception and have funded our operations primarily through debt and the sale of capital stock. On March 31, 2022, we had stockholders’
equity of approximately $103,551,000, net short and long-term borrowings outstanding of approximately $0 and $300,000, respectively,
cash of approximately $32,061,000 and working capital of approximately $30,375,000.
Our future capital requirements
will depend upon many factors, including progress with developing, manufacturing and marketing our technologies, the time and costs involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, our ability to establish collaborative
arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic
conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure
purchase orders for our products from customers currently identified in our sales pipeline as well as new customers. We also will be
required to efficiently 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 condition or results of operations.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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 three months ended March 31, 2022 and
the year ended December 31, 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 |
|
● |
manufacturing and sales were disrupted due to ongoing supply chain constraints for certain critical parts. |
The Company expects its business,
financial condition and results of operations will be impacted from the COVID-19 pandemic during 2022, primarily due to the slowdown of
customer activity during 2021 and 2020, ongoing supply chain constraints for certain critical parts, and difficulties in attracting employees.
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 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 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 2022.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management,
the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the Company’s financial statements for interim periods in accordance with accounting principles
generally accepted in the United States (“U.S. GAAP”). The information included in this quarterly report on Form 10-Q should
be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). The Company’s accounting policies
are described in the “Notes to Consolidated Financial Statements” in the 2021 Form 10-K and are updated, as necessary,
in this Form 10-Q. The December 31, 2021 condensed consolidated balance sheet data presented for comparative purposes was derived from
the audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three
months ended March 31, 2022 are not necessarily indicative of the operating results for the full year or for any other subsequent interim
period.
The consolidated financial statements include
the accounts of the Company and our wholly owned subsidiaries, Ondas Networks, American Robotics, 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 (see note 5 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
patents, licenses, and allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates
the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment
when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
We amortize our intangible
assets with a finite life on a straight-line basis, over 20 years for patents; 10 years for developed technology, 10 years for licenses,
trademarks, and the FAA waiver; 5 years for customer relationships; and 1 year for non-compete agreements.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Segment Information
Operating segments are defined
as components of an entity for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision
Maker (“CODM”) in making decisions regarding resource allocation and performance assessment. The Company’s CODM is its
Chief Executive Officer. The Company determined it has two reportable segments: Ondas Networks and American Robotics as the
CODM reviews financial information for these two businesses separately. The Company has no inter-segment sales.
Use of Estimates
The process of preparing
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements. Such management estimates
include those relating to 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 March 31, 2022 and December
31, 2021, 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 March 31, 2022, the Company has maintained balances
in excess of federally insured limits. As of March 31, 2022, the Company was approximately $31,423,000 in excess of federally insured
limits.
Accounts Receivable
Accounts receivable are stated
at a gross invoice amount less an allowance for credit losses. We estimate allowance for credit losses by evaluating specific accounts
where information indicates our customers may have an inability to meet financial obligations, such as customer payment history, credit
worthiness and receivable amounts outstanding for an extended period beyond contractual terms. We use assumptions and judgment, based
on the best available facts and circumstances, to record an allowance to reduce the receivable to the amount expected to be collected.
These allowances are evaluated and adjusted as additional information is received. We had no allowance for credit losses as of March 31,
2022 and December 31, 2021.
Inventory
Inventories, which consist
solely of raw materials, work in process and finished goods, are stated at the lower of cost (first-in, first-out) or net realizable
value, net of reserves for obsolete inventory. We continually analyze our slow-moving and excess inventories. Based on historical and
projected sales volumes and anticipated selling prices, we established reserves. Inventory that is in excess of current and projected
use is reduced by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete
are written down to net realizable value.
Inventory consists of the
following:
| |
March 31, 2022 | | |
December 31, 2021 | |
Raw Material | |
$ | 1,268,498 | | |
$ | 1,153,254 | |
Work in Process | |
| 25,590 | | |
| 65,192 | |
Finished Goods | |
| 111,769 | | |
| 60,153 | |
Less Inventory Reserves | |
| (100,254 | ) | |
| (100,254 | ) |
Total Inventory, Net | |
$ | 1,305,603 | | |
$ | 1,178,345 | |
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 to seven years for computer equipment and software, (ii) five years for vehicles and base stations, (iii) five
to seven years for furniture and fixtures and test equipment, and (iv) two years for drones. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Upon the disposal of property, the asset
and related accumulated depreciation accounts are relieved of the amounts recorded therein for such items, and any resulting gain or loss
is recorded in operating expenses in the year of disposition.
Software
Costs incurred internally in researching and developing a software
product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is
established, all software costs are capitalized until the product is available for general release to customers. Judgment is required
in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software
products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly
before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life
of the products. As of March 31, 2022 and December 31, 2021, the Company had no internally developed software.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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. The impairments of long-lived assets was $0 and $34,178 for the three months ended March 31, 2022 and 2021, respectively.
Research and Development
Costs for research and development are expensed
as incurred. Research and development expenses consist primarily of salaries, salary related expenses and costs of contractors and materials.
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 March 31, 2022 and December 31, 2021.
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 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.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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.
Share-Based Compensation
We calculate share-based compensation expense for option awards and
certain warrant issuances (“Share-based Award(s)”) based on the estimated grant/issue date fair value using the Black-Scholes-Merton
option pricing model (“Black-Scholes Model”) and recognize the expense on a straight-line basis over the vesting period. We
account for forfeitures as they occur. The Black-Scholes Model requires the use of a number of assumptions including volatility of the
stock price, the weighted average risk-free interest rate, and the expected term of the Share-based Award in determining the fair value
of Share-based Awards. In determining the expected term, the Company uses the simplified method due the lack of sufficient exercise history.
Although we believe our assumptions used to calculate share-based compensation expense are reasonable, these assumptions can involve complex
judgments about future events, which are open to interpretation and inherent uncertainty. In addition, significant changes to our assumptions
could significantly impact the amount of expense recorded in a given period.
We recognize restricted stock
unit expense over the period of vesting or period that services will be provided. Compensation associated with shares of Common Stock
issued or to be issued to consultants and other non-employees is recognized over the expected service period beginning on the measurement
date, which is generally the time the Company and the service provider enter into a commitment whereby the Company agrees to grant shares
in exchange for the services to be provided.
Shipping and Handling
We expense all shipping and
handling costs as incurred. These costs are included in cost of goods sold on the accompanying consolidated financial statements.
Revenue Recognition
Development projects
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 from the sale of our FullMAX System and the delivery of related services, along with non-recurring
engineering (“NRE”) development projects with certain customers.
American Robotics generates
revenue by selling a data subscription service to its customers based on the information collected by 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.
Revenue for development projects
is typically recognized over time using a percentage of completion input method, whereby revenues are recorded on the basis of the Company’s
estimates of satisfaction of the performance obligation based on the ratio of actual costs incurred to total estimated costs. The input
method is utilized because management considers it to be the best available measure of progress as the performance obligations are completed.
Revenue and cost estimates
are regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of revenue and cost of revenue
are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current
and prior periods base in the performance completed to date.
As of August 5, 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.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
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 March 31, 2022, 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 months ended
March 31, 2022 and 2021, 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 months ended March 31, 2022 and 2021, there were
no modifications to contract specifications.
Product revenue is comprised
of sales of the Ondas Networks’ software defined base station and remote radios, its network management and monitoring system,
and accessories. Ondas Networks’ software and hardware is sold with a limited one-year basic warranty included in the price. The
limited one-year basic warranty is an assurance-type warranty, is not a separate performance obligation, and thus no transaction price
is allocated to it. The nature of tasks under the limited one-year basic warranty only provides for remedying defective product(s) covered
by the warranty. Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in
time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract, or upon installation when the
combined performance obligation is not distinct within the context of the contract.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Service revenue is comprised of separately priced extended warranty
sales, network support and maintenance, remote monitoring, as well as ancillary services directly related to the sale of the Ondas Networks’
wireless communications products including wireless network design, systems engineering, radio frequency planning, software configuration,
product training, installation, and onsite support. The extended warranty Ondas Networks sells provides a level of assurance beyond the
coverage for defects that existed at the time of a sale or against certain types of covered damage. The extended warranty includes 1)
factory hardware repair or replacement of the base station and remote radios, at our election, 2) software upgrades, bug fixes and new
features of the radio software and network management systems (“NMS”), 3) deployment and network architecture support, and
4) technical support by phone and email. Ancillary service revenues are recognized at the point in time when those services have been
provided to the customer and the performance obligation has been satisfied. The Company allocates the transaction price to the service
and extended warranty based on the stand-alone selling prices of these performance obligations, which are stated in our contracts. Revenue
for the extended warranty is recognized over time.
Development revenue is comprised primarily of non-recurring engineering
service contracts to develop software and hardware applications for various customers. For Ondas Networks, 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 March 31, | |
| |
2022 | | |
2021 | |
Type of Revenue | |
| | |
| |
Product revenue | |
$ | 149,270 | | |
$ | 17,600 | |
Service revenue | |
| 60,117 | | |
| 8,210 | |
Development revenue | |
| 200,811 | | |
| 1,138,140 | |
Other revenue | |
| - | | |
| 814 | |
Total revenue | |
$ | 410,198 | | |
$ | 1,164,764 | |
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Timing of Revenue | |
| | |
| |
Revenue recognized point in time | |
$ | 149,270 | | |
$ | 18,414 | |
Revenue recognized over time | |
| 260,928 | | |
| 1,146,350 | |
Total revenue | |
$ | 410,198 | | |
$ | 1,164,764 | |
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 March 31, 2022 and December
31, 2021.
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 three
months ended March 31, 2022, and the year ended December 31, 2021, which is included in accrued expenses and other current liabilities
in the Company’s unaudited condensed consolidated balance sheet.
| |
Three Months Ended March 31, 2022 | | |
Year Ended December 31, 2021 | |
Balance at beginning of period | |
$ | 512,397 | | |
$ | 165,035 | |
Additions, net | |
| 90,000 | | |
| 2,238,137 | |
Transfer to revenue | |
| (260,928 | ) | |
| (1,890,775 | ) |
Balance at end of period | |
$ | 341,469 | | |
$ | 512,397 | |
Warranty Reserve
For our software and hardware
products, we provide a limited one-year assurance-type warranty and for our development service, we provide no warranties. The assurance-type
warranty covers defects in material and workmanship only. If a software or hardware component is determined to be defective after being
tested by the Company within the one-year, the Company will repair, replace or refund the price of the covered hardware and/or software
to the customer (not including any shipping, handling, delivery or installation charges). We estimate, based upon a review of historical
warranty claim experience, the costs that may be incurred under our warranties and record a liability in the amount of such estimate
at the time a product is sold. Factors that affect our warranty liability include the number of units sold, historical and anticipated
rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability and adjust the accrual
as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing assurance-type warranties
and has determined that the estimated outstanding warranty obligation on March 31, 2022 or December 31, 2021 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 three months ended March 31, 2022, the Company’s
operating leases consisted of office space in Sunnyvale, CA (the “Gibraltar Lease”), Marlborough, MA (the “American
Robotics Lease”), and Waltham, MA (the “Waltham Lease”).
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
On January 22, 2021, we entered
into a 24-month lease (effective April 1, 2021) with the owner and landlord (the “2021 Gibraltar Lease”), wherein the base
rate is $45,000 per month, with a security deposit in the amount of $90,000.
On August 5, 2021, the Company
acquired American Robotics and the American Robotics Lease, wherein the base rate is $15,469 per month, with an annual increase of 3%
through January 2024, with a security deposit of $24,166. On August 19, 2021, American Robotics amended their lease to reduce their space
to approximately 10,450 square feet. The amendment reduced their annual base rent to $8,802 per month, with an annual increase of 3% through
January 2024.
On October 8, 2021, American
Robotics entered into an 86-month operating lease for space in Waltham, Massachusetts. The Waltham Lease has commenced on March 1, 2022,
and is scheduled to terminate on April 30, 2029, wherein the base rate is $39,375 per month, increasing 3% annually, with a security deposit
due in the amount of $104,040. These facilities also serve as Ondas’ corporate headquarters.
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 Positions as of March 31, 2022 and December 31, 2021
ROU lease assets and lease
liabilities for our operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:
| |
March 31, 2022 | | |
December 31,
2021 | |
Assets: | |
| | |
| |
Operating lease assets | |
$ | 3,635,416 | | |
$ | 836,025 | |
Total lease assets | |
$ | 3,635,416 | | |
$ | 836,025 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Operating lease liabilities, current | |
$ | 861,978 | | |
$ | 550,525 | |
Operating lease liabilities, net of current | |
| 2,732,980 | | |
| 241,677 | |
Total lease liabilities | |
$ | 3,594,958 | | |
$ | 792,202 | |
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Other Information
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Operating cash flows for operating leases | |
$ | 160,500 | | |
$ | 85,730 | |
Weighted average remaining lease term (in years) – operating lease | |
| 6.03 | | |
| - | |
Weighted average discount rate – operating lease | |
| 6.4 | % | |
| 14 | % |
Net Loss Per Common Share
Basic net loss per share is
computed by dividing net loss by the weighted average shares of common stock outstanding for each period. Diluted net loss per share is
the same as basic net loss per share since we have net losses for each period presented.
The following potentially
dilutive securities for the three months ended March 31, 2022 and 2021 have been excluded from the computation of diluted net loss per
share because the effect of their inclusion would have been anti-dilutive.
| |
Three months ended March 31, | |
| |
2022 | | |
2021 | |
Warrants to purchase common stock | |
| 3,258,961 | | |
| 593,006 | |
Options to purchase common stock | |
| 1,514,941 | | |
| 1,701,639 | |
Restricted stock purchase offers | |
| 1,391,150 | | |
| 640,805 | |
Total potentially dilutive securities | |
| 6,165,052 | | |
| 2,935,450 | |
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.
The table below sets forth
the Company’s customers that accounted for greater than 10% of its revenues for the three-month periods ended March 31, 2022 and
2021, respectively:
|
|
Three Months Ended |
|
|
|
March 31, |
|
Customer |
|
2022 |
|
|
2021 |
|
A |
|
|
84 |
% |
|
|
81 |
% |
B |
|
|
below 10 |
% |
|
|
18 |
% |
Customer A accounted for 52%
of the Company’s accounts receivable balance at March 31, 2022.
Recently Adopted Accounting Pronouncements
In May 2021, the Financial
Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2021-04—Earnings Per Share
(Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges
of Freestanding Equity-Classified Written Call Options, to clarify and reduce diversity in an issuer’s accounting for modifications
or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15,
2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption was permitted, including adoption in an
interim period. The adoption of this pronouncement had no impact on our accompanying consolidated financial statements.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Recently Issued Accounting Pronouncements
In October 2021, the FASB
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 Company is currently evaluating the effects of the
adoption of ASU No. 2021-08 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:
|
|
March 31,
2022 |
|
|
December 31,
2021 |
|
Prepaid insurance |
|
$ |
806,811 |
|
|
$ |
1,026,212 |
|
Other prepaid expenses |
|
|
1,070,946 |
|
|
|
423,398 |
|
Total other current assets |
|
$ |
1,877,757 |
|
|
$ |
1,449,610 |
|
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consist
of the following:
| |
March 31, 2022 | | |
December 31, 2021 | |
Vehicles | |
$ | 149,916 | | |
$ | 149,916 | |
Computer equipment | |
| 216,124 | | |
| 183,869 | |
Furniture and fixtures | |
| 141,053 | | |
| 141,053 | |
Software | |
| 115,282 | | |
| 88,284 | |
Leasehold improvements | |
| 37,401 | | |
| 37,401 | |
Development equipment | |
| 56,274 | | |
| 56,275 | |
Base stations | |
| 176,775 | | |
| 117,850 | |
Drones | |
| 73,292 | | |
| 54,969 | |
Construction in progress | |
| 2,043,755 | | |
| 627,044 | |
| |
| 3,009,872 | | |
| 1,456,661 | |
Less: accumulated depreciation | |
| (464,295 | ) | |
| (424,662 | ) |
Total property and equipment | |
$ | 2,545,577 | | |
$ | 1,031,999 | |
Depreciation expense for the
three months ended March 31, 2022 and 2021 was $39,634 and $25,142, respectively.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 5 – GOODWILL AND BUSINESS ACQUISITION
We account for acquisitions
in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350,
“Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair
value of net assets acquired in a business combination is recorded as goodwill. On May 17, 2021, the Company entered into an Agreement
and Plan of Merger (the “AR 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 AR 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.
Pursuant to the AR 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 AR 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 AR 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 AR Agreement); and (iv) the cash release from the PPP Loan
Escrow Amount (as defined in the AR 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 instalments commencing on
the one-year anniversary of the Closing Date and shall have a term of ten years. 59,544 of the stock options were issued fully vested
to employees who did not exercise their American Robotics options prior to the Closing Date and had no ongoing service requirements and
therefore they were included in the purchase consideration. The remaining 151,494 stock options issued vest over four years and are contingent
on ongoing employment by the employee and are recorded as compensation expense over the service period.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Also on the Closing Date,
the Company entered into employment agreements and issued 1,375,000 restricted stock units (“RSUs”) under the Company’s
incentive stock plan to key members of American Robotics’ management. These RSUs vest in equal installments on the next three anniversaries
of the Closing Date and vesting is contingent on the individuals remaining employed by the Company. These RSUs are not included in purchase
consideration and are expensed ratably over the service period. They were valued at the closing market price on the Closing Date. The
compensation expense recognized in the three-month period ended March 31, 2022 in respect of these restricted stock units was $872,734,
and as of March 31, 2022 the unrecognized compensation expense was $8,372,381.
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 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.
The following table summarizes
the consideration paid for American Robotics and the final 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 | |
$ | 69,311,577 | |
Fair value of assets acquired: | |
| | |
Cash | |
$ | 920,011 | |
Other current assets | |
| 148,043 | |
Property and equipment | |
| 61,430 | |
Intangible assets | |
| 26,180,000 | |
Right of use asset | |
| 463,252 | |
Other long-term assets | |
| 87,217 | |
Total assets acquired | |
| 27,859,953 | |
Fair value of liabilities assumed: | |
| | |
Accounts payable | |
| 129,541 | |
Deferred revenue | |
| 32,992 | |
Accrued payroll and rent | |
| 42,617 | |
Lease liabilities | |
| 447,827 | |
Deferred tax liability | |
| 2,921,982 | |
Total liabilities assumed | |
| 3,574,959 | |
Total net assets acquired | |
| 24,284,994 | |
Goodwill | |
| 45,026,583 | |
Total | |
$ | 69,311,577 | |
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Our results for the three
months ended March 31, 2022 include results from American Robotics. The following unaudited pro forma information presents the Company’s
results of operations as if the acquisition of American Robotics had occurred on January 1, 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 on January 1, 2021
or what the Company’s operating results will be in future periods.
| |
(Unaudited) | |
| |
Three months ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Revenue, net | |
$ | 410,198 | | |
$ | 1,214,764 | |
Net loss | |
$ | (10,010,399 | ) | |
$ | (5,458,620 | ) |
Basic Earnings Per Share | |
$ | (0.24 | ) | |
$ | (0.15 | ) |
Diluted Earnings Per Share | |
$ | (0.24 | ) | |
$ | (0.15 | ) |
The intangible assets acquired
include the trademarks, FAA waiver, developed technology, non-compete agreements, and customer relationships (see Note 6). The deferred
tax liability represents the tax effected timing differences relating to the acquired intangible assets to the extent they are not offset
by acquired deferred tax assets.
The goodwill represents the
assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. No portion of the goodwill is
deductible for tax purposes.
NOTE 6 – INTANGIBLE ASSETS
The components of intangible
assets, all of which are finite lived, were as follows:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
|
|
|
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Net
Carrying
Amount |
|
|
Gross
Carrying
Amount |
|
|
Accumulated
Amortization |
|
|
Net Carrying Amount |
|
|
Useful
Life |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
$ |
77,772 |
|
|
$ |
(17,356 |
) |
|
$ |
60,416 |
|
|
$ |
75,266 |
|
|
$ |
(13,077 |
) |
|
$ |
62,189 |
|
|
|
10 |
|
Patents in process |
|
|
96,345 |
|
|
|
- |
|
|
|
96,344 |
|
|
|
89,767 |
|
|
|
- |
|
|
|
89,767 |
|
|
|
N/A |
|
Licenses |
|
|
241,909 |
|
|
|
(47,520 |
) |
|
|
194,389 |
|
|
|
241,909 |
|
|
|
(41,471 |
) |
|
|
200,438 |
|
|
|
10 |
|
Trademarks |
|
|
3,230,000 |
|
|
|
(210,992 |
) |
|
|
3,019,008 |
|
|
|
3,230,000 |
|
|
|
(130,242 |
) |
|
|
3,099,758 |
|
|
|
10 |
|
FAA waiver |
|
|
5,930,000 |
|
|
|
(387,363 |
) |
|
|
5,542,637 |
|
|
|
5,930,000 |
|
|
|
(239,113 |
) |
|
|
5,690,887 |
|
|
|
10 |
|
Developed technology |
|
|
16,120,000 |
|
|
|
(1,053,000 |
) |
|
|
15,067,000 |
|
|
|
16,120,000 |
|
|
|
(650,000 |
) |
|
|
15,470,000 |
|
|
|
10 |
|
Non-compete agreements |
|
|
840,000 |
|
|
|
(548,710 |
) |
|
|
291,290 |
|
|
|
840,000 |
|
|
|
(338,710 |
) |
|
|
501,290 |
|
|
|
1 |
|
Customer relationships |
|
|
60,000 |
|
|
|
(7,839 |
) |
|
|
52,161 |
|
|
|
60,000 |
|
|
|
(4,839 |
) |
|
|
55,161 |
|
|
|
5 |
|
|
|
$ |
26,596,026 |
|
|
$ |
(2,272,780 |
) |
|
$ |
24,323,246 |
|
|
$ |
26,586,942 |
|
|
$ |
(1,417,452 |
) |
|
$ |
25,169,489 |
|
|
|
|
|
Amortization expense for the
three months ended March 31, 2022 and 2021 was $855,326 and $12,750, respectively.
We recognized no losses on
intellectual property for the three months ended March 31, 2022 and 2021, respectively.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Estimated amortization expense for the next five years for the intangible
assets currently being amortized is as follows:
Year Ending December 31, | |
Estimated Amortization | |
2022 (9 months) | |
$ | 1,372,244 | |
2023 | |
$ | 2,571,280 | |
2024 | |
$ | 2,571,003 | |
2025 | |
$ | 2,571,003 | |
2026 | |
$ | 2,566,164 | |
Thereafter | |
$ | 12,575,208 | |
Total | |
$ | 24,226,902 | |
NOTE 7 – LONG-TERM EQUITY INVESTMENT
On October 5, 2021, Ondas
Holdings irrevocably subscribed and agreed to purchase 3,141,098 shares of Series A-1 Preferred Stock of Dynam.AI, Inc. (“Dynam”),
a tech-enabled services provider for critical or complex artificial intelligence and machine learning projects, par value $0.00001 for
the aggregate price of $500,000 representing subscription price of $0.15918 per share by way of a non-brokered private placement for approximately
11% ownership in Dynam. In addition to the equity investment, Ondas Holdings’ wholly owned subsidiary, American Robotics, Inc.,
entered into a development, services and marketing agreement with Dynam.AI on October 1, 2021. The agreement allows American Robotics
to expand and enhance its IP library and analytics capabilities with artificial intelligence using physics-based algorithms and allows
Dynam to further the development of Vizlab™, Dynam’s proprietary AI/ML platform, an advanced developer toolkit for data scientists.
This long-term equity investment
consists of an equity investment in a private company through preferred shares, which are not considered in-substance common stock, that
is accounted for at cost, with adjustments for observable changes in prices or impairments, and is classified as long-term equity investment
on our consolidated balance sheets with adjustments recognized in other (expense) income, net on our consolidated statements of operations.
The Company has determined that the equity investment does not have a readily determinable fair value and elected the measurement alternative.
Therefore, the equity investment’s carrying amount will be adjusted to fair value at the time of the next observable price change
for the identical or similar investment of the same issuer or when an impairment is recognized. Each reporting period, the Company performs
a qualitative assessment to evaluate whether the investment is impaired. The assessment includes a review of recent operating results
and trends, recent sales/acquisitions of the investee securities, and other publicly available data. If the investment is impaired, the
Company writes it down to its estimated fair value. As of March 31, 2022 and December 31, 2021 the long-term equity investment had a carrying
value of $500,000.
Our CEO Eric Brock is a director
of Dynam.
NOTE 8 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other
current liabilities consist of the following:
| |
March 31, 2022 | | |
December 31, 2021 | |
Accrued payroll and other benefits | |
$ | 736,327 | | |
$ | 269,725 | |
D&O insurance financing payable | |
| 527,453 | | |
| 719,313 | |
Accrued professional fees | |
| 374,867 | | |
| 117,008 | |
Other accrued expenses | |
| 103,820 | | |
| 43,861 | |
Total accrued expenses and other current liabilities | |
$ | 1,742,467 | | |
$ | 1,149,907 | |
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 $10,000,000 (the “Loan”). On March 9, 2018, the Company and Steward Capital,
pursuant to the Agreement, entered into a Secured Term Promissory Note for $5,000,000, 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 $25,000 in loan commitment fees and $100,000, one percent (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
over the life of the Loan. There was also an end of term charge of $250,000. The end 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.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
On October 9, 2018, the Company
and Steward Capital, pursuant to the Agreement, entered into a second Secured Term Promissory Note for $5,000,000 having a maturity date
of April 9, 2020 (the “Second Note”) to complete the Agreement for $10,000,000. The Second 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%. Pursuant to the terms of the Agreement, the Company
was required to pay a $50,000 loan facility charge.
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 (3%) of the current outstanding principal balance of
the Loan (as defined in the Agreement), neither of which have occurred at the time of this filing. 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.
On October 28, 2019, the Company
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. In connection with the extensions and amendments, the Company issued Steward Capital
120,000 shares of the Company’s common stock valued at $300,000 on December 15, 2019. The value was recorded as debt discount and
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.
The Agreement also contained
covenants which included 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 contained financial reporting obligations.
An event of default under the Agreement included, but was not limited to, breach of covenants, insolvency, and occurrence of any default
under any agreement or obligation of the Company. In addition, the Agreement contained a customary material adverse effect clause which
stated that in the event of a material adverse effect, an event of default would occur, and the lender had the option to accelerate and
demand payment of all or any part of the loan. A material adverse effect was 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.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
On September 4, 2020, the
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 agree to 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 were 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 $280,000, and upon the consummation of the proposed acquisition, Steward and the Company would amend
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 June 25, 2021, the Company
made a final payment of $7,044,750 to Steward Capital, applying $6,574,278 to principal, $404,729 in interest and other fees, and $65,743
in early payment penalties. The agreement was terminated on July 1, 2021.
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.
The Company may at any time
on or after a qualified public offering convert any unpaid repayment at the IPO conversion price. The conversion price is the lesser of
the (i) price per share of Common Stock sold in the Qualified Public Offering, discounted by 20%, and (ii) the price per share of Common
Stock based on a pre-money Company valuation of $50 million on a Fully Diluted Basis.
On both March 31, 2022 and
December 31, 2021, the total outstanding balance of the Convertible Promissory Note was $300,000. The maturity date of the Convertible
Promissory Note is based on the payment of 0.6% of quarterly gross revenue until 1.5 times the amount of the Convertible Promissory Note
is paid. Accrued interest on March 31, 2022 and December 31, 2021 was $39,899 and $40,152, respectively. Interest expense for the three
months ended March 31, 2022 and 2021 was $3,750.
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 $666,091
(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 bore interest at a fixed rate of 1.00%
per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), were to 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 provided for customary events of default, including
those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company could prepay
the principal of the PPP Loan at any time without incurring any prepayment charges.
All or a portion of the PPP Loan could 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 would have 90 days to review
borrower’s forgiveness application and the SBA had an additional 60 days to review the Lender’s decision as to whether the
borrower’s loan could be forgiven. Under the CARES Act, loan forgiveness was 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. For purposes of the CARES Act, payroll costs excluded compensation of an individual
employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount could be for non-payroll costs. Forgiveness
was reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually were reduced
by more than 25%. On May 4, 2021, the Company submitted an application to the lender 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 was included in other
income on the Company’s accompanying consolidated statements of operations.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 11 – STOCKHOLDERS’ EQUITY
Common Stock
On March 31, 2022 the Company
had 116,666,667 shares of common stock, par value $0.0001 (the “Common Stock”), authorized for issuance, of which 40,990,604
shares of our Common Stock were issued and outstanding.
Preferred Stock
At March 31, 2022 and December
31, 2021, the Company had 10,000,000 shares of preferred stock, par value $0.0001, authorized, of which 5,000,000 shares are designated
as Series A Convertible Preferred Stock (“Series A Preferred”) and 5,000,000 shares are non-designated (“blank check”)
shares. As of March 31, 2022 and December 31, 2021, the Company had no preferred stock outstanding.
The Company evaluated its
Series A Preferred to determine if those instruments or embedded components of those instruments qualify as derivatives to be accounted
for separately. The Preferred Shares include an embedded contingent automatic conversion option which is bifurcated from the Preferred
Shares and recorded separately as a derivative liability, creating a discount to the Preferred Shares. The fair value of the embedded
derivative is recorded as a liability and marked-to-market each balance sheet date, with the change in fair value recorded as other income
(expense) in the Company’s accompanying consolidated statement of operations. The discount arising from the identification of the
embedded conversion feature will not be accreted or amortized as the Series A Preferred has been classified in equity.
Form S-3
On January 29, 2021, the Company
filed a shelf Registration Statement on Form S-3 for up to $150,000,000 with the SEC (the “Form S-3”) for shares of its Common
Stock; shares of its preferred stock, which the Company may issue in one or more series or classes; debt securities, which the company
may issue in one or more series; warrants to purchase its Common Stock, preferred stock or debt securities; and units. The Form S-3 was
declared effective by the SEC on February 5, 2021.
2021 Public Offering
On June 8, 2021, the Company
entered into an underwriting agreement (the “2021 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 6,400,000 shares (the “2021 Firm Shares”) of the Company’s Common Stock.
Pursuant to the 2021 Underwriting Agreement, the Company also granted the Underwriters a 30-day option to purchase up to an additional
960,000 shares of Common Stock (the “2021 Option Shares,” and together with the 2021 Firm Shares, the “2021 Shares”)
to cover over-allotments.
The Underwriters agreed to
purchase the 2021 Firm Shares from the Company with the option to purchase the 2021 Option Shares at a price of $6.51 per share. The 2021
Shares were offered, issued, and sold pursuant to the Form S-3 and accompanying prospectus filed with the SEC under the Securities Act.
On June 11, 2021, pursuant
to the 2021 Public Offering, the Company issued 7,360,000 shares of Common Stock (2021 Firm Shares and 2021 Option Shares) at a public
price of $7.00 for net proceeds to the Company of $47,523,569 after deducting the underwriting discount and offering fees and expenses
payable by the Company.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Underwriting Agreement
included 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 2021 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 2021 Public Offering.
Gross Proceeds: | |
| |
Initial Closing | |
$ | 44,800,000 | |
Over-allotment Closing | |
| 6,720,000 | |
| |
| 51,520,000 | |
Offering Costs: | |
| | |
Underwriting discounts and commissions | |
| (3,806,400 | ) |
Other offering costs | |
| (190,031 | ) |
Net Proceeds | |
$ | 47,523,569 | |
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.
ATM Offering
On March 22, 2022, the Company,
entered into an Equity Distribution Agreement (the “ATM Agreement”) with Oppenheimer & Co. Inc. (the “Sales Agent”).
Pursuant to the terms of the ATM Agreement, the Company may offer and sell (the “ATM Offering”) from time to time through
the Sales Agent, as the Company’s sales agent, up to $50 million of shares of the Company’s common stock, par value $0.0001
per share (the “ATM Shares”). Sales of the ATM Shares, if any, may be made in sales deemed to be “at the market offerings”
as defined in Rule 415 promulgated under the Securities Act. The Sales Agent is not required to sell any specific number or dollar amount
of ATM Shares, but will act as a sales agent using commercially reasonable efforts consistent with its normal trading and sales practices
and applicable state and federal laws, rules, and regulations and the rules of the Nasdaq Stock Market, on mutually agreed terms between
the Sales Agent and the Company. The Sales Agent will receive from the Company a commission of 3.0% of the gross proceeds from the sales
of ATM Shares by the Sales Agent pursuant to the terms of the Agreement. Net proceeds from the sale of the ATM Shares will be used for
general corporate purposes.
The offering of ATM Shares
pursuant to the ATM Agreement will terminate upon the earliest of (i) the sale of all ATM Shares subject to the ATM Agreement, and (ii)
the termination of the ATM Agreement pursuant to its terms.
The ATM Shares are issued
pursuant to the Company’s shelf registration statement (the “Registration Statement”) on Form S-3 (File No. 333-252571)
filed on January 29, 2021, which became effective on February 5, 2021, and the prospectus supplement thereto dated March 22, 2022.
In April 2022 the Company
sold 343,045 ATM Shares through the Sales Agent at an average price of $7.72 with the net proceeds of $2.5 million. In connection with
the sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $77,421.
Warrants to Purchase Common Stock
We use the Black-Scholes-Merton
option model (the “Black-Scholes Model”) to determine the fair value of warrants to purchase Common Stock of the Company.
The Black-Scholes Model is an acceptable model in accordance with U.S GAAP. The Black-Scholes Model requires the use of a number of assumptions
including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the warrant.
The risk-free interest rate
assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term
of the warrants. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the
expected life of the award. Our estimated volatility is an average of the historical volatility of peer entities whose stock prices were
publicly available over a period equal to the expected life of the awards. We used the historical volatility of peer entities due to the
lack of sufficient historical data of our stock price.
As of March 31, 2022, we had
warrants outstanding to purchase an aggregate of 3,305,854 shares of Common Stock with a weighted-average contractual remaining life of
approximately 5 years, and a weighted average exercise price of $8.53 per share. No new warrants were issued, exercised, or expired in
the three months ended March 31, 2022.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Equity Incentive Plan
In 2018, our stockholders
adopted the 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which 3,333,334 shares of our Common Stock 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 (the “Committee”). Subject to the provisions
of the 2018 Plan, the Board and/or the Committee shall have authority to grant, in its discretion, incentive stock options, or non-statutory
options, stock awards or restricted stock purchase offers (“Equity Awards”).
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 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 6,000,000 shares of the Company’s
common stock.
Stock Options to Purchase Common Stock
On March 18, 2022, the Compensation
Committee of the Board granted an aggregate of 135,000 stock options to purchase shares of the Company’s Common Stock to certain
employees. The stock options vest over a four-year period and are contingent on ongoing employment. They are included in compensation
expense.
On March 18, 2022, the Compensation
Committee of the Board granted an aggregate of 65,000 stock options to purchase shares of the Company’s Common Stock to certain
non-employees. The stock options vest on December 31, 2022. They are included in compensation expense.
On March 18, 2022, the Compensation
Committee of the Board granted an aggregate of 210,000 performance-based stock options to purchase shares of the Company’s Common
Stock to two non-employees that are subject to the attainment of pre-established performance conditions in the year ending December 31,
2022. The actual number of shares subject to the award is determined at the end of the performance period and may range from zero to 100% of
the target shares granted depending upon the terms of the award. Compensation expense related to these awards is recognized when the performance
conditions are satisfied.
On February 7, 2022, the Compensation
Committee of the Board granted an aggregate of 1,248,000 stock options to purchase shares of the Company’s Common Stock to certain
employees. The stock options vest over a two-year period and are contingent on ongoing employment. They are included in compensation expense.
The assumptions used in the
Black-Scholes Model are set forth in the table below.
| |
Three months
ended, | |
| |
March
31,
2022 | |
Stock price | |
$ | 4.99-6.55 | |
Risk-free interest rate | |
| 1.82-2.16 | % |
Volatility | |
| 46.42-56.81 | % |
Expected life in years | |
| 2.9-6.3 | |
Dividend yield | |
| 0.00 | % |
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, 2021 | |
| 687,448 | | |
$ | 6.79 | | |
| 8.2 | |
Granted | |
| 1,658,000 | | |
$ | 5.12 | | |
| 5.3 | |
Expired | |
| (3,015 | ) | |
| - | | |
| | |
Terminated | |
| - | | |
| - | | |
| | |
Canceled | |
| - | | |
| - | | |
| | |
Balance on March 31, 2022 | |
| 2,342,433 | | |
$ | 5.62 | | |
| 6.1 | |
Vested and Exercisable at March 31, 2022 | |
| 558,046 | | |
$ | 7.88 | | |
| 7.7 | |
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
At March 31, 2022, total
unrecognized estimated compensation expense related to non-vested options issued prior to that date was approximately $4,672,000, which
is expected to be recognized over a weighted-average period of 5.29 years. For the three months ended March 31, 2022 and 2021, $332,642
and $97,162, respectively, was recorded in stock-based compensation in the accompanying unaudited condensed consolidated financial statements.
Restricted Stock Units
On March 22, 2022, the Compensation
Committee approved the grant of 14,800 restricted stock units to an employee. The restricted stock units vest in four successive equal
annual installments with the first vesting date commencing on the first anniversary of the award date and are contingent on continuing
employment. The compensation expense recognized in the three months ended March 31, 2022 in respect of these restricted stock units was
$656, and as of March 31, 2022 the unrecognized compensation expense was $105,756.
On November 5, 2021, the
Compensation Committee approved the grants of 6,362 restricted stock units for each of Ondas’ directors (Messrs. Cohen, Reisfield,
Silverman, Seidl, Bushey and Sood). Each restricted stock unit represents a contingent right to receive one share of common stock of
the Company. These restricted stock units 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 compensation expense recognized in the three months ended March 31, 2022 in respect of these restricted stock units was $90,563,
and as of March 31, 2022 the unrecognized compensation expense was $271,689.
On August 5, 2021, the Company
entered into employment agreements and awarded 1,375,000 restricted stock units pursuant to the 2018 Plan to key members of American
Robotics’ management. Each restricted stock unit represents a contingent right to receive one share of common stock of the Company.
The restricted stock units vest in three successive equal annual installments with the first vesting date commencing on the first anniversary
of the award date and are contingent on continuing employment. The compensation expense recognized in the three months ended March 31,
2022 in respect of these restricted stock units was $872,734, and as of March 31, 2022 the unrecognized compensation expense was $8,372,381.
On January 25, 2021, the
Compensation Committee approved the following grants: (a) for Messrs. Cohen, Reisfield and Silverman (i) 5,000 restricted stock 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 $31,800 for the three months ended March 31, 2022. As of March 31, 2022, the unrecognized compensation expense
was $95,400.
The Company recognizes restricted
stock unit expense over the period of vesting or period that services will be provided. Compensation associated with shares of Common
Stock issued or to be issued to consultants and other non-employees is recognized over the expected service period beginning on the measurement
date, which is generally the time the Company and the service provider enter into a commitment whereby the Company agrees to grant shares
in exchange for the services to be provided.
The following is a summary
of restricted stock unit activity for the three months ended March 31, 2022:
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Shares | | |
Grant Date Fair Value | |
Unvested balance on December 31, 2021 | |
| 1,385,000 | | |
$ | 7.82 | |
Granted | |
| 14,800 | | |
$ | 7.19 | |
Vested | |
| (2,500 | ) | |
| 12.72 | |
Unvested balance on March 31, 2022 | |
| 1,397,300 | | |
$ | 7.80 | |
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 12 – 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 March 31,
2022.
NOTE 13 – SEGMENT INFORMATION
Operating segments are defined
as components of an entity for which discrete financial information is available and is regularly reviewed by the CODM in making decisions
regarding resource allocation and performance assessment. The Company’s CODM is its Chief Executive Officer. The Company determined
it has two reportable segments: Ondas Networks and American Robotics as the CODM reviews financial information for these two businesses
separately 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 three months ended March 31, 2022:
| |
Three Months Ended | |
| |
March 31, 2022 | |
| |
Ondas Networks | | |
American Robotics | | |
Total | |
Revenue, net | |
$ | 350,081 | | |
$ | 60,117 | | |
$ | 410,198 | |
Depreciation and amortization | |
| 32,001 | | |
| 862,959 | | |
| 894,960 | |
Interest expense | |
| 14,674 | | |
| - | | |
| 14,674 | |
Stock based compensation | |
| 302,003 | | |
| 1,026,392 | | |
| 1,328,395 | |
Net loss | |
| (3,291,847 | ) | |
| (6,718,552 | ) | |
| (10,010,399 | ) |
Goodwill | |
| | | |
| 45,026,583 | | |
| 45,026,583 | |
Total assets | |
| 34,974,289 | | |
| 76,993,230 | | |
| 111,967,519 | |
NOTE 14 – INCOME TAXES
The Company had a net deferred
tax asset of $14,528,920 as of December 31, 2021, including a tax benefit from net operating loss carry-forwards of $17,577,952.
A valuation allowance of $14,528,920 was provided against this asset resulting in deferred assets, net of valuation allowance of
$0.
In assessing the realizability
of deferred tax assets, including the net operating loss carry forwards, the Company assesses the positive and negative evidence to estimate
if sufficient future taxable income will be generated to utilize its existing deferred tax assets. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible.
Based on its assessment, the Company has provided a full valuation allowance against its deferred tax assets since their future utilization
remains uncertain at this time.
In accordance with Section
382 of the Internal Revenue Code, the usage of the Company’s net operating loss carry forwards could be limited in the event a
change of control has occurred. As of December 31, 2021, the Company completed an analysis and determined that there were multiple ownership
changes. Provided sufficient taxable income is generated the annual base limitation plus increased limitation calculated pursuant to
IRS Notice 2003-65 will allow the Company to utilize all existing losses within the carryover periods.
As of March 31, 2022 and
December 31, 2021, 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.
ONDAS HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE
15 – RELATED PARTY TRANSACTIONS
Between
June 2 and December 31, 2020, we accrued $115,385 for salary owed to Thomas V. Bushey, then President of the Company. On January
19, 2021, Mr. Bushey waived the accrued payroll amounts in the amount of $115,385. 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 $125,256 and accrued vacation
in the amount of $9,846 as of the Effective Date. At the time of Mr. Bushey’s resignation as President in January 2021,
Mr. Bushey had the right to receive 500,000 RSU Shares (375,000 vested as of December 31, 2020 and 125,000 of
which the Compensation Committee accelerated vesting), which will be issued on June 3, 2022 pursuant to Mr. Bushey’s deferral
election. The remaining 500,000 RSU Shares were canceled. 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 provided services to the Company at the direction of the Company’s Chief Executive Officer. The Consulting
Agreement terminated on July 19, 2021. Mr. Bushey was paid $7,500 per month for these services.
NOTE 16 – SUBSEQUENT EVENTS
Management has evaluated
subsequent events as of May 15, 2022, the date the consolidated financial statements were available to be issued according to the requirements
of ASC topic 855.
Ardenna Acquisition
On March 20, 2022, the Company entered into a Purchase Agreement to
acquire the assets of Ardenna, Inc., a leading provider of image processing and machine learning software solutions for rail infrastructure
monitoring and inspections. The consideration for the acquisition is $900,000 in cash and 780,000 shares of the Company’s common
stock (the “Ardenna Consideration Shares”). In connection with the acquisition, the parties have entered into a Registration
Rights and Lock-Up Agreement, which requires the Company to file a resale registration statement covering the resale of the Ardenna Consideration
Shares no later than ninety (90) days after the closing date and restricts the holder from transferring the Ardenna Consideration Shares
for 180 days from the closing date, subject to certain exceptions.
On
April 6, 2022, the Company completed the previously announced acquisition of the assets of Ardenna Inc., a leading provider of image
processing and machine learning software solutions for rail infrastructure monitoring and inspections.