UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________ to ___________

Commission File Number: 001-39761

ONDAS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Nevada		47-2615102
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

53 Brigham Street, Unit 4, Marlborough, MA 01752

(Address of principal executive offices) (Zip Code)

(888) 350-9994

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock par value $0.0001		ONDS		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the issuer’s Common Stock as of August 9, 2024, was 69,963,977.

ONDAS HOLDINGS INC.

INDEX TO FORM 10-Q

		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	1

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)	2

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited)	4

	Notes to the Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II - OTHER INFORMATION		51

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	52

ONDAS HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2024			2023
	(Unaudited)
ASSETS
Current Assets:
Cash	$	4,934,999		$	14,979,436
Restricted cash		40,375			42,564
Accounts receivable, net		2,291,244			3,429,974
Inventory, net		4,955,773			2,186,646
Other current assets		2,851,753			2,967,619
Total current assets		15,074,144			23,606,239

Property and equipment, net		5,492,025			4,175,958

Other Assets:
Goodwill, net of accumulated impairment charges		27,751,921			27,751,921
Intangible assets, net		29,257,930			31,329,182
Lease deposits and other assets		709,207			599,517
Operating lease right of use assets		4,235,709			4,701,865
Total other assets		61,954,767			64,382,485
Total assets	$	82,520,936		$	92,164,682

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,272,009		$	5,177,022
Operating lease liabilities		687,507			685,099
Accrued expenses and other current liabilities		3,203,750			3,587,877
Convertible note payable, net of unamortized debt discount and issuance cost of $1,254,478 and $1,968,411, respectively		28,878,645			25,692,505
Government grant liability		548,219			520,657
Deferred revenue		285,279			276,944
Total current liabilities		37,875,409			35,940,104

Long-Term Liabilities:
Notes payable		300,000			300,000
Convertible notes payable, net of current, net of unamortized debt discount and issuance cost of $110,946 and $391,718, respectively		370,721			2,812,156
Accrued interest		22,421			26,844
Government grant liability, net of current		1,809,127			2,229,047
Operating lease liabilities, net of current		5,637,461			5,800,710
Other liabilities		82,500			-
Total long-term liabilities		8,222,230			11,168,757
Total liabilities		46,097,639			47,108,861

Commitments and Contingencies (Note 11)

Temporary Equity
Redeemable noncontrolling interest		17,030,778			11,920,694

Stockholders’ Equity
Preferred stock - par value $0.0001; 5,000,000 shares authorized at June 30, 2024 and December 31, 2023, respectively, and none issued or outstanding at June 30, 2024 and December 31, 2023, respectively		-			-
Preferred stock, Series A - par value $0.0001; 5,000,000 shares authorized at June 30, 2024 and December 31, 2023, respectively, and none issued or outstanding at June 30, 2024 and December 31, 2023, respectively		-			-
Common Stock - par value $0.0001; 300,000,000 shares authorized; 66,550,712 and 61,940,878 issued and outstanding, respectively June 30, 2024 and December 31, 2023, respectively		6,655			6,194
Additional paid in capital		235,891,750			231,488,999
Accumulated deficit		(216,505,886	)		(198,360,066	)
Total stockholders’ equity		19,392,519			33,135,127
Total liabilities and stockholders’ equity	$	82,520,936		$	92,164,682

The accompanying footnotes are an integral part of these unaudited Condensed Consolidated Financial Statements.

ONDAS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023

Revenues, net	$	957,851		$	5,468,964		$	1,582,860		$	8,064,955
Cost of goods sold		1,148,746			2,397,188			2,168,737			3,966,283
Gross profit		(190,895	)		3,071,776			(585,877	)		4,098,672

Operating expenses:
General and administration		4,163,987			5,316,848			8,062,076			10,783,959
Sales and marketing		1,308,705			1,743,588			2,629,854			2,981,073
Research and development		2,640,003			4,508,005			6,152,978			11,482,984
Total operating expenses		8,112,695			11,568,441			16,844,908			25,248,016

Operating loss		(8,303,590	)		(8,496,665	)		(17,430,785	)		(21,149,344	)

Other income (expense), net
Other income (expense), net		257			(11,430	)		(2,067	)		(11,430	)
Change in fair value of government grant liability		623,409			115,034			549,017			81,817
Interest income		87,276			-			184,777			7,345
Interest expense		(703,551	)		(541,393	)		(1,486,162	)		(2,303,649	)
Foreign exchange gain (loss), net		26,463			(23,632	)		39,400			(38,376	)
Total other income (expense), net		33,854			(461,421	)		(715,035	)		(2,264,293	)

Loss before income taxes		(8,269,736	)		(8,958,086	)		(18,145,820	)		(23,413,637	)

Provision for income taxes		-			-			-			-

Net loss		(8,269,736	)		(8,958,086	)		(18,145,820	)		(23,413,637	)
Less preferred dividends attributable to noncontrolling interest		390,000			-			724,138			-
Less deemed dividends attributable to accretion of redemption value		718,494			-			1,357,140			-
Net loss attributable to common stockholders	$	(9,378,230	)	$	(8,958,086	)	$	(20,227,098	)	$	(23,413,637	)

Net loss per share - basic and diluted	$	(0.14	)	$	(0.18	)	$	(0.31	)	$	(0.47	)

Weighted average number of common shares outstanding, basic and diluted		66,377,505			51,112,218			64,706,314			49,414,425

The accompanying footnotes are an integral part of these unaudited Condensed Consolidated Financial Statements.

ONDAS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(Unaudited)

	Redeemable Noncontrolling Interest				Common Stock				Additional Paid in			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			Equity
Balance, January 1, 2023		-	$	-		44,108,661	$	4,411	$	211,733,690		$	(153,515,194	)	$	58,222,907
Issuance of shares in connection with acquisition of Airobotics, Ltd.		-		-		2,844,291		284		5,261,654			-			5,261,938
Issuance of shares in connection with acquisition of the assets of Iron Drone, Ltd.		-		-		46,129		5		85,795			-			85,800
Assumption of vested stock options in connection with acquisition of Airobotics, Ltd.		-		-		-		-		700,690			-			700,690
Delivery of shares for restricted stock units		-		-		4,090		-		-			-			-
Issuance of shares for payment on convertible debt		-		-		2,104,988		211		3,004,583			-			3,004,794
Stock-based compensation		-		-		-		-		1,263,356			-			1,263,356
Net loss		-		-		-		-		-			(14,455,551	)		(14,455,551	)
Balance, March 31, 2023		-	$	-		49,108,159	$	4,911	$	222,049,768		$	(167,970,745	)	$	54,083,934
Issuance of shares for payment on convertible debt		-		-		3,341,704		334		2,751,041			-			2,751,375
Issuance of shares upon exercise of options		-		-		1,539		-		701			-			701
Stock-based compensation		-		-		-		-		1,639,869			-			1,639,869
Net loss		-		-		-		-		-			(8,958,086	)		(8,958,086	)
Balance, June 30, 2023		-	$	-		52,451,402	$	5,245	$	226,441,379		$	(176,928,831	)	$	49,517,793

Balance, January 1, 2024		429,123	$	11,920,694		61,940,878	$	6,194	$	231,488,999		$	(198,360,066	)	$	33,135,127
Sale of redeemable preferred stock in Ondas Networks, net of issuance costs		108,925		3,028,806		-		-		(124,965	)		-			(124,965	)
Issuance of warrants in connection with the sale of redeemable preferred stock in Ondas Networks		-		-		-		-		1,471,194			-			1,471,194
Preferred dividends attributable to redeemable noncontrolling interest		-		334,138		-		-		(334,138	)		-			(334,138	)
Accretion of redeemable preferred stock in Ondas Networks		-		638,646		-		-		(638,646	)		-			(638,646	)
Sale of common stock, net of issuance costs		-		-		3,616,071		362		2,904,295			-			2,904,657
Issuance of warrants in Ondas Autonomous Systems, in connection with sale of common stock		-		-		-		-		954,737			-			954,737
Issuance of shares upon exercise of options		-		-		4,535		-		2,217			-			2,217
Delivery of shares for vesting of restricted stock units		-		-		3,000		-		-			-			-
Stock-based compensation		-		-		-		-		269,553			-			269,553
Net Loss		-		-		-		-		-			(9,876,084	)		(9,876,084	)
Balance, March 31, 2024		538,048	$	15,922,284		65,564,484	$	6,556	$	235,993,246		$	(208,236,150	)	$	27,763,652
Issuance of shares for payment on convertible debt		-		-		340,855		34		250,153			-			250,187
Preferred dividends attributable to redeemable noncontrolling interest		-		390,000		-		-		(390,000	)		-			(390,000	)
Accretion of redeemable preferred stock in Ondas Networks		-		718,494		-		-		(718,494	)		-			(718,494	)
Settlement of development agreement		-		-		320,026		32		342,396			-			342,428
Warrant conversion		-		-		46,893		5		1,402			-			1,407
Issuance of shares upon exercise of options		-		-		9,660		1		5,077			-			5,078
Delivery of shares for restricted stock units		-		-		268,794		27		(27	)		-			-
Stock-based compensation		-		-		-		-		407,997			-			407,997
Net Loss		-		-		-		-		-			(8,269,736	)		(8,269,736	)
Balance, June 30, 2024		538,048	$	17,030,778		66,550,712	$	6,655	$	235,891,750		$	(216,505,886	)	$	19,392,519

The accompanying footnotes are an integral part of these unaudited Condensed Consolidated Financial Statements.

ONDAS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30,
	2024			2023

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(18,145,820	)	$	(23,413,637	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation		234,305			412,625
Amortization of debt discount		994,705			1,785,414
Amortization of intangible assets		2,105,588			2,038,793
Amortization of right of use asset		466,156			529,666
Loss on disposal of equipment		1,578			-
Loss on intellectual property		-			12,223
Stock-based compensation		677,550			2,903,225
Change in fair value of government grant liability		(692,196	)		(72,381	)
Changes in operating assets and liabilities:
Accounts receivable		1,138,730			(4,696,381	)
Inventory		(2,371,081	)		760,461
Other current assets		115,866			387,339
Deposits and other assets		(109,690	)		(138,552	)
Accounts payable		(232,044	)		955,357
Deferred revenue		8,335			(1,521,408	)
Operating lease liability		(160,841	)		(513,808	)
Accrued expenses and other current liabilities		(388,363	)		(1,293,713	)
Other liabilities		82,500			-
Net cash flows used in operating activities		(16,274,722	)		(21,864,777	)

CASH FLOWS FROM INVESTING ACTIVITIES
Patent costs		(18,698	)		(49,634	)
Purchase of equipment		(2,282,237	)		(65,170	)
Proceeds from sale of equipment		1,700			-
Purchase of software intangible		(15,638	)		-
Cash paid for Iron Drone asset acquisition		-			(135,000	)
Cash acquired on the acquisition of Airobotics Ltd.		-			1,049,454
Cash paid for Field of View LLC asset acquisition		-			(104,166	)
Net cash flows provided by (used in) investing activities		(2,314,873	)		695,484

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of noncontrolling interest in Ondas Networks, net of issuance costs		4,375,035			-
Proceeds from sale of common stock, net of issuance costs		3,859,394			-
Proceeds from exercise of options		7,295			701
Proceeds from exercise of warrants		1,407			-
Proceeds from government grant		299,838			-
Payments on convertible notes payable		-			(4,354,911	)
Payments on government grant liability		-			(6,576	)
Payments on loan payable		-			(1,140,301	)
Net cash flows provided by (used in) financing activities		8,542,969			(5,501,087	)

Decrease in cash, cash equivalents, and restricted cash		(10,046,626	)		(26,670,380	)
Cash, cash equivalents, and restricted cash, beginning of period		15,022,000			29,775,096
Cash, cash equivalents, and restricted cash, end of period	$	4,975,374		$	3,104,716

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	11,923		$	155,342
Cash paid for income taxes	$	-		$	-

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Common Stock and warrants issued in relation to acquisition of Airobotics, Ltd.	$	-		$	5,962,628
Common Stock issued in relation to acquisition of the assets of Iron Drone, Ltd.	$	-		$	85,800
Common stock issued in exchange for debt repayment	$	250,187		$	5,756,169
Noncash consideration for settlement of development agreement payable	$	342,428		$	-
Warrants in relation to sale of common stock	$	954,737		$	-
Warrants in relation to sale of redeemable preferred stock in Ondas Networks	$	1,471,194		$	-
Preferred dividends attributable to redeemable noncontrolling interest	$	724,138		$	-
Accretion of redeemable preferred stock in Ondas Networks	$	1,357,140		$	-
Transfer of equipment into inventory	$	398,046		$	-

The accompanying footnotes are an integral part of these unaudited Condensed Consolidated Financial Statements.

ONDAS HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

The Company

Ondas Holdings Inc. (“Ondas Holdings”, “Ondas”, the “Company,” “we,” or “our”) was originally incorporated in Nevada on December 22, 2014, under the name of Zev Ventures Incorporated. On September 28, 2018, we acquired Ondas Networks Inc., a Delaware corporation (“Ondas Networks”), and changed our name to Ondas Holdings Inc. On August 5, 2021, we acquired American Robotics, Inc. (“American Robotics” or “AR”), a Delaware corporation. On January 23, 2023, we acquired Airobotics, Ltd. (“Airobotics”), an Israeli-based developer of autonomous drone systems. See Note 5 – Goodwill and Business Acquisition. On December 6, 2023, the Company formed Ondas Autonomous Holdings Inc., a Nevada corporation, as an intermediate holding company which now wholly-owns American Robotics and Airobotics. On August 8, 2024, the Company filed a certificate of amendment with the Secretary of State of the State of Nevada, amending Ondas Autonomous Holdings Inc.’s name to Ondas Autonomous Systems Inc. (“OAS”).

As a result, Ondas Networks, OAS, American Robotics and Airobotics became our subsidiaries. Ondas’ corporate headquarters are located in Marlborough, Massachusetts. Ondas Networks has offices and facilities in Sunnyvale, California, American Robotics’ offices and facilities are located in Sparks, Maryland and Marlborough, Massachusetts, and Airobotics’ offices and facilities are located in Petah Tikva, Israel.

Business Activity

Ondas is a leading provider of private wireless, drone, and automated data solutions through its subsidiaries Ondas Networks, OAS, Airobotics, and American Robotics. 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.

Ondas Networks

Ondas Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the Mission-Critical Internet of Things (“MC-IoT”). Our wireless networking products are applicable to a wide range of MC-IoT applications, which are most often located at the very edge of large industrial networks. These applications require secure, real-time connectivity with the ability to process large amounts of data at the edge of large industrial networks. Such applications are required in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, homeland security and government, where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure a high degree of safety and security.

We design, develop, manufacture, sell and support FullMAX, our patented, Software Defined Radio (“SDR”) platform for secure, licensed, private, wide-area broadband networks. Our customers install FullMAX systems in order to upgrade and expand their legacy wide-area network infrastructure. We have targeted the North American freight rail operators for the initial adoption of our FullMAX platform. These rail operators currently operate legacy communications systems utilizing serial-based narrowband wireless technologies for voice and data communications. These legacy wireless networks have limited data capacity and are unable to support the adoption of new, intelligent train control and management systems. 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 802.16 standard. Because standards-based communications solutions are preferred by our mission-critical customers and ecosystem partners, we continue to take a leadership position in IEEE as it relates to wireless networking for industrial markets. As such, management believes this standards-based approach supports the adoption of our technology across a burgeoning ecosystem of global partners and end markets.

Our software-based FullMAX platform is an important and timely upgrade solution for privately-owned and operated wireless wide-area networks, leveraging Internet Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. We believe industrial and critical infrastructure markets throughout the globe have reached an inflection point where legacy serial and analog based protocols and network transport systems no longer meet industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent networking platform enabling the adoption of sophisticated operating systems and equipment supporting next-generation MC-IoT applications over wide field areas. These new MC-IoT applications and related equipment require more processing power at the edge of large industrial networks and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the “Fog-computing” capability integrated in our end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing and data and application prioritization in the field enabling our customers more reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the edge.

Ondas Autonomous Systems (OAS)

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. Airobotics acquired the assets of Iron Drone on March 6, 2023.

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.

Our portfolio companies, American Robotics and Airobotics, form a unique, powerful, and synergistic combination covering all the aspects required for successful Aerospace business together with data technologies and services for digital transformation industries. Our companies are specialized in addressing all the challenges arising along these types of product lifecycles including research and development, manufacturing, certification, and ongoing support.

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.

Liquidity

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 $111,000 and short-term borrowings outstanding of approximately $29,427,000, net of debt discount and issuance cost of approximately $4,975,000 and a working capital deficit of approximately $22,801,000.

In 2023, we raised approximately $14,692,000 of net proceeds from the sale of 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 2024 through June 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, approximately $4,050,000 from issuing common stock, par value $0.0001 per share (“Common Stock”), of Ondas Holdings and warrants in OAS and approximately $300,000 in government grant loans.

We expect to fund our operations for the next twelve months from the filing date of this Quarterly Report on Form 10-Q 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.

Our future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing our technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, our ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products and services from customers currently identified in our sales pipeline as well as new customers. We also will be required to efficiently manufacture and deliver equipment on those purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital. There can be no assurance that we will generate revenue and cash as expected in our current business plan. We may seek additional funds through equity or debt offerings and/or borrowings under additional notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable terms or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial conditions, or results of operations.

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, 2023 (“2023 Form 10-K”). The Company’s accounting policies are described in the “Notes to Consolidated Financial Statements” in the 2023 Form 10-K and are updated, as necessary, in this Form 10-Q. The December 31, 2023 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 six months ended June 30, 2024, are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and our wholly owned subsidiaries, Ondas Networks, American Robotics, and Airobotics. All inter-company accounts and transactions between these entities have been eliminated in these unaudited Condensed Consolidated Financial Statements. The functional currency of the Company and all of our subsidiaries is the U.S. dollar.

Business Combinations

We utilize the purchase method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in Ondas’ results of operations beginning on the respective acquisition dates and that assets acquired, and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized at the estimated fair value on the acquisition date; these are recorded in either other accruals within current liabilities (for expected payments in less than a year) or other non-current liabilities (for expected payments in greater than a year), both on our consolidated balance sheets. Subsequent changes to the fair value of contingent consideration liabilities are recognized in other income (expense) in the Consolidated Statements of Operations. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows. The fair value of assets acquired, and liabilities assumed in certain cases, may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other business acquisition costs are expensed when incurred.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform goodwill impairment process.

Intangible assets represent patents, licenses, software and allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

We amortize our intangible assets with a finite life on a straight-line basis, over 3 years for software; 10 years for patents; 3-10 years for developed technology, 10 years for licenses, trademarks, marketing-related assets and the FAA waiver; 5 years for customer relationships; and 1 year for non-compete agreements.

Segment Information

Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in making decisions regarding resource allocation and performance assessment. The Company’s CODM is its Chief Executive Officer. The Company determined it has two reportable segments: Ondas Networks and OAS as the CODM reviews financial information for these two businesses separately. The Company has no inter-segment sales.

Use of Estimates

The process of preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements. Such management estimates include those relating to allocation of consideration for business combinations to identifiable tangible and intangible assets, revenue recognition, inventory write-downs to reflect net realizable value, assumptions used in the valuation of stock-based awards and valuation allowances against deferred tax assets. Actual results could differ from those estimates.

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. As of June 30, 2024 and December 31, 2023, we had no cash equivalents. Restricted cash includes cash that is not readily available for use in the Company’s operating activities. Restricted cash is attributable to minimum cash reserve requirements for Airobotics’ credit cards. The Company periodically monitors its positions with, and the credit quality of, the financial institutions with which it invests. Periodically, throughout the six months ended, and as of June 30, 2024, the Company has maintained balances in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. As of June 30, 2024, the Company was $4,254,049 in excess of FDIC insured limits.

Accounts Receivable

Accounts receivable are stated at a gross invoice amount less an allowance for credit losses as well as net of any discounts or other forms of variable consideration. We estimate allowance for credit losses by evaluating specific accounts where information indicates our customers may have an inability to meet financial obligations, such as customer payment history, credit worthiness and receivable amounts outstanding for an extended period beyond contractual terms. We use assumptions and judgment, based on the best available facts and circumstances, to record an allowance to reduce the receivable to the amount expected to be collected. These allowances are evaluated and adjusted as additional information is received. We had no allowance for credit losses as of June 30, 2024 and December 31, 2023.

Inventory

Inventories, which consist solely of raw materials, work in process and finished goods, are stated at the lower of cost (first-in, first-out) or net realizable value, net of reserves for obsolete inventory. We continually analyze our slow-moving and excess inventories. Based on historical and projected sales volumes and anticipated selling prices, we established reserves. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete are written down to net realizable value. As of June 30, 2024 and December 31, 2023 such reserves were $100,254.

Inventory consists of the following:

	June 30, 2024			December 31, 2023
Raw Material	$	2,265,851		$	1,499,727
Work in Process		298,536			782,770
Finished Goods		2,491,640			4,403
Less Inventory Reserves		(100,254	)		(100,254	)
Total Inventory, net	$	4,955,773		$	2,186,646

Property and Equipment

All additions, including improvements to existing facilities, are recorded at cost. Maintenance and repairs are charged to expense as incurred. Depreciation of property and equipment is principally recorded using the straight-line method over the estimated useful lives of the assets. The estimated useful lives typically are (i) 3 to 7 years for computer equipment, (ii) 5 years for vehicles and docking stations and drones, (iii) 7 – 17 years for furniture and fixtures, (iv) 5 to 7 years for development equipment, and (v) 3 years for machinery and equipment. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Upon the disposal of property, the asset and related accumulated depreciation accounts are relieved of the amounts recorded therein for such items, and any resulting gain or loss is recorded in operating expenses in the year of disposition.

Software

Costs incurred internally in researching and developing a software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products. As of June 30, 2024 and December 31, 2023, the Company had no internally developed software.

SEC Form 10-Q filed by Ondas Holdings Inc.