Ondas Holdings Inc

Previous wording

Ondas Holdings Inc. (“Ondas Holdings,” “Ondas,” the “Company,” “we” or “our”) is a leading provider of private wireless, drone, and automated data solutions through its subsidiaries Ondas Networks Inc. (“Ondas Networks”) and Ondas Autonomous Holdings Inc. (“OAH”), which wholly-owns Airobotics, Ltd. (“Airobotics”), and American Robotics, Inc. (“American Robotics” or “AR”). Ondas Networks provides wireless connectivity solutions. OAH provides drone and automated data solutions through its subsidiaries Airobotics and American Robotics. Ondas Networks and OAH together provide users in rail, energy, mining, public safety and critical infrastructure and government markets with improved connectivity, data collection capabilities, and data collection and information processing capabilities. We operate Ondas Networks and OAH as separate business segments, and the following is a discussion of each segment. See Note 1, Note 2, and Note 12 of the accompanying unaudited condensed consolidated financial statements for further information regarding our segments.

Current wording

Ondas Networks provides wireless connectivity solutions. OAS provides drone and automated data solutions through its subsidiaries Airobotics and American Robotics. Ondas Networks and OAS together provide users in rail, energy, mining, public safety and critical infrastructure and government markets with improved connectivity, data collection capabilities, and data collection and information processing capabilities. We operate Ondas Networks and OAS as separate business segments, and the following is a discussion of each segment. See Note 1, Note 2, and Note 12 of the accompanying unaudited Condensed Consolidated Financial Statements for further information regarding our segments.

Previous wording

Our OAH business unit develops and integrates drone-based solutions focusing on high-performance critical applications for government and Tier-1 commercial enterprises. Ondas is marketing comprehensive drone-based solutions to address the needs of governmental and commercial customers based on its commercially available platforms: the Optimus System™, a fully autonomous drone platform capable of continuous and multipurpose aerial data capturing and analytics, and the Iron Drone Raider™, a fully autonomous interceptor drone designed to neutralize small hostile drones.

Current wording

Our OAS business unit develops and integrates drone-based solutions focusing on high-performance critical applications for government and Tier-1 commercial enterprises. Ondas is marketing comprehensive drone-based solutions to address the needs of governmental and commercial customers based on its commercially available platforms: the Optimus System™, a fully autonomous drone platform capable of continuous and multipurpose aerial data capturing and analytics, and the Iron Drone Raider™, a fully autonomous interceptor drone designed to neutralize small hostile drones.

Previous wording

Our unique, fully autonomous platforms enable cutting-edge aerial capabilities and are designed to serve and protect critical infrastructure and operations. Our business focuses on end-user entities in Public Safety, Defense, Homeland Security, Smart City, Port Authorities, State Departments, and other governmental entities together with commercial customers of industrial sensitive facilities such as Oil & Gas, Seaports, Mining, and Heavy Construction. For these industries, OAH provides specialized real-time aerial data capturing and aerial protection solutions in the most complex environments such as urban areas, sensitive and critical facilities and field area operations, and high-priority projects. In addition, we offer a wide suite of supplementary, enabling services for successful implementation such as AI data analytics, data automation, IT implementation, safety planning, certification, training, and maintenance, handling all the complex aspects of such high-performance drone operations.

Current wording

Our unique, fully autonomous platforms enable cutting-edge aerial capabilities and are designed to serve and protect critical infrastructure and operations. Our business focuses on end-user entities in Public Safety, Defense, Homeland Security, Smart City, Port Authorities, State Departments, and other governmental entities together with commercial customers of industrial sensitive facilities such as Oil & Gas, Seaports, Mining, and Heavy Construction. For these industries, OAS provides specialized real-time aerial data capturing and aerial protection solutions in the most complex environments such as urban areas, sensitive and critical facilities and field area operations, and high-priority projects. In addition, we offer a wide suite of supplementary, enabling services for successful implementation such as AI data analytics, data automation, IT implementation, safety planning, certification, training, and maintenance, handling all the complex aspects of such high-performance drone operations.

Previous wording

OAH and its portfolio companies have already gained a track record of industry-leading regulatory successes including the securing of the first-of-its-kind Type Certification (TC) from the FAA for the Optimus 1-EX UAV on September 25, 2023, becoming the first autonomous security data capture UAV to achieve this distinction. TC, recognized as the highest echelon of Airworthiness Certification, streamline operational approvals for broad flight operations over people and infrastructure. The certification verifies the compliance of the system’s design with the required FAA airworthiness and noise standards, ensuring safe operation within the US National Airspace System (NAS) thereby significantly broadening the range of operational scenarios and scaling up of operations for automated UAS. Achieving FAA Type Certification will enable drone operations beyond-visual-line-of-sight (BVLOS) without a human operator on-site. With a strong footprint in the US market and worldwide, we believe that OAH is well-positioned with proven technology, a unique offering, and strong capabilities to strategically transform critical operations with our cutting-edge drone tech and capabilities.

Current wording

OAS and its portfolio companies have already gained a track record of industry-leading regulatory successes including the securing of the first-of-its-kind Type Certification (TC) from the FAA for the Optimus 1-EX UAV on September 25, 2023, becoming the first autonomous security data capture UAV to achieve this distinction. TC, recognized as the highest echelon of Airworthiness Certification, streamline operational approvals for broad flight operations over people and infrastructure. The certification verifies the compliance of the system’s design with the required FAA airworthiness and noise standards, ensuring safe operation within the US National Airspace System (NAS) thereby significantly broadening the range of operational scenarios and scaling up of operations for automated UAS. Achieving FAA Type Certification will enable drone operations beyond-visual-line-of-sight (BVLOS) without a human operator on-site. With a strong footprint in the US market and worldwide, we believe that OAS is well-positioned with proven technology, a unique offering, and strong capabilities to strategically transform critical operations with our cutting-edge drone tech and capabilities.

Previous wording

Our revenues decreased by $1,970,982 to $625,009 for the three months ended March 31, 2024, compared to $2,595,991 for the three months ended March 31, 2023. Revenues during the three months ended March 31, 2024, included $2,274 for products, $309,587 for maintenance, service, support, and subscriptions, and $313,148 for development agreements, mainly with Siemens. Revenues during the three months ended March 31, 2023, included $2,355,781 for products, $79,938 for maintenance, service, support, and subscriptions, and $160,272 for development agreements with Siemens. The decrease in our revenues were primarily the result of approximately $1,399,000 in decreased product sales at OAH, who had a multi-drone order in the three months ended March 31, 2023, but no comparable sales in the three months ended March 31, 2024, and a decrease of approximately $955,000 in product sales to Siemens at Ondas Networks, as further orders have been delayed. These decreases were offset by an increase of approximately $153,000 in development revenue to Siemens related to a new development agreement at Ondas Networks and an increase of approximately $230,000 in service revenue at OAH.

Current wording

Our revenues decreased by $4,511,113 to $957,851 for the three months ended June 30, 2024, compared to $5,468,964 for the three months ended June 30, 2023. Revenues during the three months ended June 30, 2024, included $22,484 for products, $298,553 for maintenance, service, support, and subscriptions, and $636,814 for development agreements, mainly with Siemens. Revenues during the three months ended June 30, 2023, included $4,344,056 for products, $975,468 for maintenance, service, support, and subscriptions, and $149,440 for development agreements, mainly with Siemens. The decrease in our revenues were primarily the result of approximately $2,975,000 in decreased product sales and approximately $675,000 in decreased maintenance, service, support, and subscription revenue at OAS, who had a multi-drone order in the three months ended June 30, 2023, but no comparable sales in the three months ended June 30, 2024, and a decrease of approximately $1,346,000 in product sales to Siemens at Ondas Networks, as further orders have been delayed. These decreases were offset by an increase of approximately $485,000 in development revenue to Siemens during the three months ended June 30, 2024, related to a new development agreement at Ondas Networks.

Previous wording

Our cost of goods sold was $1,019,991 for the three months ended March 31, 2024, compared to $1,569,095 for the three months ended March 31, 2023. The decrease in cost of goods sold was primarily a result of decreased revenue for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, offset by fixed manufacturing costs at OAH, resulting in negative gross profit for the three months ended March 31, 2024, as further discussed below.

Current wording

Our cost of goods sold was $1,148,746 for the three months ended June 30, 2024, compared to $2,397,188 for the three months ended June 30, 2023. The decrease in cost of goods sold was primarily a result of decreased revenue for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, offset by fixed manufacturing costs at OAS, resulting in negative gross profit for the three months ended June 30, 2024, as further discussed below.

Previous wording

Our gross profit decreased by $1,421,878 for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Gross margin for the three months ended March 31, 2024 and 2023 was (63%) and 40%, respectively. The decrease in gross margin of 103% is primarily related to the decrease in revenue combined with fixed manufacturing costs at OAH.

Current wording

Our gross profit decreased by $3,262,671 for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Gross margin for the three months ended June 30, 2024 and 2023 was (20%) and 56%, respectively. The decrease in gross margin of 76% is primarily related to the decrease in revenue combined with fixed manufacturing costs at OAS.

Previous wording

Operating expenses decreased by $4,947,362, or 36%, as a result of the following items:

Current wording

Operating expenses decreased by $3,455,746, or 30%, as a result of the following items:

Previous wording

As a result of the foregoing, our operating loss decreased by $3,525,484, or 28%, to $9,127,195 for the three months ended March 31, 2024, compared with $12,652,679 for the three months ended March 31, 2023. Operating loss decreased primarily as a result of decreased sales and gross margin combined with the decrease in operating expenses described above for the three months ended March 31, 2024.

Current wording

As a result of the foregoing, our operating loss decreased by $193,075 or 2%, to $8,303,590 for the three months ended June 30, 2024, compared with $8,496,665 for the three months ended June 30, 2023. Operating loss decreased primarily as a result of the decrease in operating expenses described above, offset by decreased revenue and gross margin for the three months ended June 30, 2024.

Previous wording

As a result of the net effects of the foregoing, net loss decreased by $4,579,467, or 32%, to $9,876,084 for the three months ended March 31, 2024, compared with $14,455,551 for the three months ended March 31, 2023. Net loss per share of Common Stock, basic and diluted, was $(0.17) for the three months ended March 31, 2024, compared with $(0.30) for the three months ended March 31, 2023.

Current wording

As a result of the net effects of the foregoing, net loss decreased by $688,350, or 8%, to $8,269,736 for the three months ended June 30, 2024, compared with $8,958,086 for the three months ended June 30, 2023. Net loss per share of common stock, par value $0.0001 per share (“Common Stock”), basic and diluted, was $(0.14) for the three months ended June 30, 2024, compared with $(0.18) for the three months ended June 30, 2023.

Previous wording

The decrease in operating expenses was primarily due to: (i) a decrease of approximately $1,918,000 in human resource costs, of which approximately $1,000,000 relates to stock-based compensation primarily due to reduced headcount at American Robotics and the resulting forfeiture of stock options and RSUs, and approximately $918,000 relates to the decreased head count and synergies achieved by integrating American Robotics and Airobotics; (ii) a decrease of approximately $846,000 in professional fees and consulting expenses, of which approximately $450,000 relates to the recovery of legal fees from settlement of a lawsuit, which were offset against current period legal fees, and approximately $396,000 relates to a reduction in legal and accounting fees which were higher in the three months ended March 31, 2023 due to the acquisition of Airobotics and integrating Airobotics with American Robotics; and (iii) a decrease of approximately $2,295,000 in other research and development costs, excluding human resources and travel and entertainment, of which approximately $1,368,000 relates to one-time costs incurred during the three months ended March 31, 2023 associated with terminating a development contract at American Robotics, and approximately $927,000 relates to synergies achieved by integrating American Robotics and Airobotics; (iv) offset by an increase of approximately $112,000 in all other operating expenses, of which approximately $242,000 relates to increased rent expense, offset by a decrease of approximately $130,000 in other operating expenses related to synergies achieved by integrating American Robotics and Airobotics.

Current wording

The decrease in operating expenses was primarily due to: (i) a decrease of approximately $3,767,000 in human resource costs, of which approximately $2,226,000 relates to stock-based compensation primarily due to reduced headcount at Ondas Networks and American Robotics and the resulting forfeiture of stock options and RSUs, approximately $596,000 relates to the decreased head count at Ondas Networks, and approximately $945,000 relates to the decreased head count at OAS and synergies achieved by integrating American Robotics and Airobotics; (ii) a decrease of approximately $1,003,000 in professional fees and consulting costs, of which approximately $765,000 relates to legal and accounting fee costs incurred during the six months ended June 30, 2023 for the sale ofSeries A-1 Preferred Stockin Ondas Networks and approximately $238,000 relates to synergies achieved by integrating American Robotics and Airobotics; (iii) a decrease of approximately $3,362,000 in other research and development costs, excluding human resources and travel and entertainment, of which approximately $592,000 relates to settlement of all amounts due to a vendor under previous development and manufacturing agreements during the six months ended June 30, 2024 at American Robotics, approximately $1,368,000 relates to one-time costs incurred during the six months ended June 30, 2023 associated with terminating a development contract at American Robotics, approximately $782,000 relates to synergies achieved by integrating American Robotics and Airobotics, and approximately $620,000 relates to additional development expenses allocated to cost of goods sold at Ondas Networks; (iv) a decrease of approximately $486,000 in other sales and marketing costs, excluding human resources and travel and entertainment related to a decrease in use of third party contractors and consultants; (v) offset by a net increase of approximately $325,000 in all other operating expenses primarily related to increased rent expense.

Previous wording

Other expense, net decreased by $1,053,983, to $748,889 for the three months ended March 31, 2024, compared with the other expense of $1,802,872 for the three months ended March 31, 2023. Other expense, net decreased primarily as a result of the decrease in interest expense, amortization of debt discount, and amortization of debt issuance costs for the 3% Senior Convertible Notes Due 2024 (the “2022 Convertible Exchange Notes”) and the 3% Series B-2 Senior Convertible Notes (the “2023 Additional Notes”).

Current wording

Other expense, net decreased by $1,549,258, to $715,035 for the six months ended June 30, 2024, compared with the other expense, net of $2,264,293 for the six months ended June 30, 2023. Other expense, net decreased primarily as a result of an increase in other income of approximately $467,000 from the change in fair value of government grant liability; an increase in interest income of approximately $178,000 due to interest earned on cash deposits; a decrease in interest expense, including amortization of debt discount and debt issuance costs, of approximately $818,000 for the 3% Senior Convertible Notes Due 2025 (the “2022 Convertible Exchange Notes”) and the 3% Series B-2 Senior Convertible Notes (the “2023 Additional Notes”); and an increase in foreign exchange gain, net of approximately $78,000.

Previous wording

The principal use of cash in operating activities for the three months ended March 31, 2024, was to fund the Company’s current expenses primarily related to operating activities necessary to allow us to service and support customers. The decrease in cash flows used in operating activities of approximately $5,376,000 was primarily due to a decrease in net loss of approximately $4,579,000, of which approximately $2,075,000 related to non-cash and credits, including depreciation, amortization of debt discount and issuance costs, amortization of intangibles assets and right of use asset, and stock-based compensation, combined with changes in operating assets and liabilities resulting in a cash inflow of approximately $2,872,000.

Current wording

The principal use of cash in operating activities for the six months ended June 30, 2024, was to fund the Company’s current expenses primarily related to operating activities necessary to allow us to service and support customers. The decrease in cash flows used in operating activities of $5,590,055 was primarily due to the decrease in net loss of approximately $5,268,000, of which approximately $3,822,000 related to non-cash and credits, including depreciation, amortization of debt discount and issuance costs, amortization of intangibles assets and right of use asset, stock-based compensation, and change in fair value of government grant liability, combined with changes in operating assets and liabilities resulting in a cash inflow of approximately $4,144,000.

Previous wording

The increase in cash flows used in investing activities of approximately $2,076,000, relates to an increase of approximately $1,027,000 in payments made for purchase of equipment, software intangibles and patent costs, combined with decrease of approximately $1,049,000 for cash acquired with the Airobotics acquisition in the three months ended March 31, 2023.

Current wording

The decrease in cash flows provided by investing activities of $3,010,357, relates to an increase of approximately $2,200,000 in payments made for purchase of equipment, software intangibles and patent costs, combined with decrease of approximately $1,049,000 for cash acquired with the Airobotics acquisition in the six months end June 30, 2023, offset by the decrease of approximately $239,000 for cash paid for asset acquisitions in the six months end June 30, 2023.

Previous wording

The cash flows provided by financing activities increased by approximately $11,886,000 primarily due to proceeds received from the sale of common stock in the Company and options exercised of approximately of $3,862,000, and the sale of preferred stock in Ondas Networks of approximately $4,375,000, combined with the decrease in cash payments of approximately $3,649,000 on the 2022 Convertible Exchange Notes and Airobotics related debt. For a summary of our outstanding Long-Term Notes Payable, see Note 8 in the accompanying Notes to unaudited condensed consolidated financial statements.

Current wording

The cash flows provided by financing activities increased by approximately $14,044,000 primarily due to proceeds received from the sale of common stock in the Company and options exercised of approximately of $3,867,000 and the sale of preferred stock in Ondas Networks of approximately $4,375,000; the increase of approximately $300,000 in cash proceeds received from government grants; combined with the decrease in cash payments of approximately $5,502,000 on the 2022 Convertible Exchange Notes, government grant liability, and Airobotics related debt. For a summary of our outstanding Long-Term Notes Payable, see Note 8 in the accompanying Notes to unaudited Condensed Consolidated Financial Statements.

Previous wording

We have incurred losses since inception and have funded our operations primarily through debt and the sale of capital stock. As of March 31, 2024, we had an accumulated deficit of approximately $208,236,000. As of March 31, 2024, we had net long-term borrowings outstanding of approximately $4,173,000 net of debt discount and issuance costs of approximately $251,000 and short-term borrowings outstanding of approximately $28,018,000, net of debt discount and issuance costs of approximately $1,570,000. As of March 31, 2024, we had cash and restricted cash of approximately $14,591,000 and a working capital deficit of approximately $14,438,000.

Current wording

We have incurred losses since inception and have funded our operations primarily through debt and the sale of capital stock. As of June 30, 2024, we had an accumulated deficit of approximately $216,506,000. As of June 30, 2024, we had net long-term borrowings outstanding of approximately $2,502,000 net of debt discount and issuance costs of approximately $110,000 and short-term borrowings outstanding of approximately $29,427,000, net of debt discount and issuance costs of approximately $4,975,000. As of June 30, 2024, we had cash and restricted cash of approximately $4,975,000 and a working capital deficit of approximately $22,801,000.

Previous wording

In 2023, we raised approximately $14,692,000 of net proceeds from the sale redeemable preferences shares in Ondas Networks and warrants in Ondas Holdings to third parties, and approximately $9,310,000 from a second convertible debt agreement. In February 2024, we raised gross proceeds of approximately $4,500,000 from issuing additional redeemable preference shares in Ondas Networks and warrants in Ondas Holdings to third parties, and approximately $4,050,000 from issuing common stock of Ondas Holdings and warrants in OAH.

Current wording

In 2023, we raised approximately $14,692,000 of net proceeds from the sale redeemable preferences shares in Ondas Networks and warrants in Ondas Holdings to third parties, and approximately $9,310,000 from a second convertible debt agreement. In February 2024, we raised gross proceeds of approximately $4,500,000 from issuing additional redeemable preference shares in Ondas Networks and warrants in Ondas Holdings to third parties, and approximately $4,050,000 from issuing common stock of Ondas Holdings and warrants in OAS.

Previous wording

We expect to fund our operations for the next twelve months from the filing date of this Report from the cash on hand as of March 31, 2024, proceeds from the 2024 financing activities discussed above, gross profits generated from revenue growth, potential prepayments from customers for purchase orders, potential proceeds from warrants issued and outstanding, and additional funds that we may seek through equity or debt offerings and/or borrowings under additional notes payable, lines of credit or other sources. There is substantial doubt that the funding plans will be successful and therefore the conditions discussed above have not been alleviated. As a result, there is substantial doubt about the Company’s ability to continue as a going concern for one year from May 15, 2024, the date the Condensed Consolidated Financial Statements were available to be issued.

Current wording

We expect to fund our operations for the next twelve months from the filing date of this Report from the cash on hand as of June 30, 2024, proceeds from the 2024 financing activities discussed above, gross profits generated from revenue growth, potential prepayments from customers for purchase orders, potential proceeds from warrants issued and outstanding, and additional funds that we may seek through equity or debt offerings and/or borrowings under additional notes payable, lines of credit or other sources. There is substantial doubt that the funding plans will be successful and therefore the conditions discussed above have not been alleviated. As a result, there is substantial doubt about the Company’s ability to continue as a going concern for one year from August 14, 2024, the date the unaudited Condensed Consolidated Financial Statements were available to be issued.

Previous wording

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, as well as related disclosures. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time and under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. Information concerning our critical accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2023 Form 10-K. There have been no significant changes in our critical accounting policies since the filing of the 2023 Form 10-K.

Current wording

Management’s discussion and analysis of financial condition and results of operations is based upon our unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, as well as related disclosures. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time and under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. Information concerning our critical accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2023 Form 10-K. There have been no significant changes in our critical accounting policies since the filing of the 2023 Form 10-K.