# Ondas Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Ondas Inc.](/companies/onds.md) (CIK 1646188)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 14:08 ET
- Period: 2023-09-30
- Accession: 0001213900-23-086734
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1646188/000121390023086734/f10q0923_ondashold.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1646188/000121390023086734/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.7m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $10.7m | us-gaap:Revenues |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $554.9k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $4.7m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $2.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $14.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$5.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$27.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $894.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $3.2m | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$7.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$30.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.14 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.62 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.62 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 53,892,848 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 50,923,225 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$28.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $95.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $21.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $30.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $100.6m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $35.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $44.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $45.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,689 characters.

### General

The following discussion and analysis provide information which our management believes to be relevant to an assessment and understanding of the results of operations and financial condition of Ondas Holdings Inc. (“Ondas,” “we” or the “Company”). This discussion should be read together with our condensed consolidated financial statements and the notes included therein, which are included in this Quarterly Report on Form 10-Q (the “Report”). This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023, including the audited consolidated financial statements and notes included therein as of and for the year ended December 31, 2022 (“2022 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. For a description of factors that may cause our actual results to differ materially from those anticipated in these forward-looking statements, please refer to the below section of this Report titled “Cautionary Note Regarding Forward-Looking Statements.” The reported results will not necessarily reflect future results of operations or financial condition.

### Overview

Ondas Holdings is a leading provider of private wireless, drone, and automated data solutions through its subsidiaries Ondas Networks Inc. (“Ondas Networks”), American Robotics, Inc. (“American Robotics” or “AR”) and Airobotics, Ltd. (“Airobotics”). Ondas Holdings acquired Airobotics, an Israeli-based developer of autonomous drone systems on January 23, 2023. American Robotics and Airobotics are operated together, under a separate business unit called Ondas Autonomous Systems. Ondas Networks and Ondas Autonomous Systems together provide users in rail, energy, mining, agriculture, 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 Ondas Autonomous Systems as separate business segments, and the following is a discussion of each segment. See Note 1 and Note 2 of the accompanying Consolidated Financial Statements for further information regarding our segments.

### Ondas Networks Segment

Ondas Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the Mission-Critical Internet of Things (“MC-IoT”). Our wireless networking products are applicable to a wide range of MC-IoT applications, which are most often located at the very edge of large industrial networks. These applications require secure, real-time connectivity with the ability to process large amounts of data at the edge of large industrial networks. Such applications are required in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, 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. Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers (“IEEE”), the leading worldwide standards body in data networking protocols, and forms the core of the IEEE 802.16s standard. Because standards-based communications solutions are preferred by our mission-critical customers and ecosystem partners, we have taken a leadership position in IEEE as it relates to wireless networking for industrial markets. As such, management believes this standards-based approach supports the adoption of 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.

#### Our Partnership with Siemens Mobility

In April 2020, Ondas Networks entered into a strategic partnership with Siemens Mobility (“Siemens”), a worldwide leader in seamless, sustainable, reliable and secure transportation solutions for more than 160 years, to both market our FullMAX-based networking technology and services and to jointly develop wireless communications products for the North American Rail Industry based on Siemens’ Advanced Train Control System (“ATCS”) protocol and our FullMAX MC-IoT platform.

We believe Siemens has both the sales and marketing reach and support to drive our technology to wide scale acceptance across the global rail market beginning with the North American Class I Railroad market. In the third quarter of 2021 we completed the development of our first jointly-developed product with Siemens – the dual-mode ATCS/MC-IoT radio systems. Siemens is now marketing and selling these proprietary systems under the brand name *Airlink* to our railroad customers. The dual-mode ATCS radio systems support Siemens’ extensive installed base of ATCS radios as well as offer Siemens’ customers the ability to support a host of new advanced rail applications utilizing our MC-IoT wireless system. These new applications, including Advanced Grade Crossing Activation and Monitoring, Wayside Inspection, Railcar Monitoring and next generation signaling and train control systems, are designed to increase railroad productivity, reduce costs and improve safety. In addition, Siemens markets and sells Ondas Networks’ standalone MC-IoT 802.16 products under the Siemens *Airlink brand.*

Our relationship with Siemens has expanded significantly since entering into the partnership both with (i) the wider marketing of our wireless technology platform and (ii) multiple additional joint-product programs. Siemens has expanded its marketing reach of Ondas Networks products with identified opportunities in North American Passenger and Transit Rail as well as in European and Asian Rail markets. We believe our technology has broad potential in these large, newly targeted markets.

In November 2021, Siemens secured its first commercial 900 MHz rail order for a major Class I Railroad in the United States which was delivered in December 2021. In August 2022, we announced that we had secured an initial volume order from Siemens for the Class I Rail 900 MHz Network consisting of both ATCS compatible products along with Ondas’ catalog products. In September 2022, we received government authorization to sell ATCS radios in Canada. In March 2023 the Association of American Railroads (“AAR”) formally announced that IEEE 802.16 standard would be the wireless platform for the greenfield 900 MHz network. The AAR also confirmed they have agreed with the Federal Communications Committee to retire the legacy 900 MHs band by September 2025 and that the wireless network in the new 900 MHz band would be substantially built by April 2026.

#### Additional Critical Markets

We have launched additional initiatives to take our MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure markets. In June 2022, we announced the first successful installation of our technology into an Integrated Coastal Surveillance System (ICSS) in the Caribbean with a global defense contractor. In the fourth quarter of 2022, we received and delivered on a new ICSS order for the defense contractor to be deployed in India. We expect additional orders from this defense vendor for the ICSS application in 2023. We believe our FullMAX technology’s licensed frequency flexibility, reliability, and long communications range over ocean surfaces, is broadening the scale of our technology in this emerging market for homeland security.

### Ondas Autonomous Systems Segment

Our Ondas Autonomous Systems business unit designs, develops, and markets commercial drone solutions via the Optimus System™ and Scout System™ (the “Autonomous Drone Platforms”).

The Autonomous Drone Platforms are highly automated, AI-powered drone systems capable of continuous, remote operation and are marketed as “drone-in-a-box” turnkey data solution services. They are deployed for critical industrial and government applications where data and information collection and processing are required. These use cases include public safety, security and smart city deployments where routine, high-resolution automated emergency response, mapping, surveying, and inspection services are highly valued, in addition to industrial markets such as oil & gas, rail and ports which emphasize security and inspection solutions. The Autonomous Drone Platforms are typically provided to customers under a Data-as-a-Service (DaaS) business model, while some customers will choose to purchase and own and operate an Optimus Systems™.

American Robotics and Airobotics have industry leading regulatory successes which include having the first drone system approved by the Federal Aviation Administration (“FAA”) for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site.

In addition to the Autonomous Drone Platforms, we also offer a counter-drone system called the Raider™. The Raider™ was developed by Iron Drone Ltd. (“Iron Drone”), an Israeli-based company specializing in the development of autonomous counter-drone systems, and is deployed by government and enterprise customers to provide security and protect critical infrastructure, assets and people from the threat of hostile drones. Ondas Holdings acquired the assets of Iron Drone on March 6, 2023.

#### Autonomous Drone Platforms

We design, develop and manufacture autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise and government customers. We currently prioritize the marketing of our Optimus System™ which provides customers with a turnkey data and information solution and the ability to continuously digitize, analyze, and monitor their assets and field operations in real-time or near real-time. We believe the market opportunity for our Scout System™ remains significant. As we drive market adoption with the Optimus platform, we anticipate re-introducing the Scout platform including newly enhanced versions to help segment the market for different use cases and price points.

The Optimus 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. Once installed in the field at customer locations, a fleet of connected Optimus Systems™, which are often deployed as networked drone infrastructure, which we refer to as Urban Drone Infrastructure, remains indefinitely positioned in an area of operation, automatically collecting and seamlessly delivering data and information regularly and reliably.

We market the Optimus System™ under a DaaS business model, whereby our drone platform aggregates customer data and provides the data analytics meeting customer requirements in return for an annual subscription fee. Some customers purchase Optimus Systems™ to own and operate themselves. We also engage distributors to assist in the sales and marketing of our Optimus System™ in geographic markets where it is more cost effective to identify and service potential customers by engaging local third parties. These distribution agreements can include joint ventures, where Ondas Autonomous Systems will provide technical expertise to support the joint venture partner in the provision of aerial data services to customers.

The Optimus System™ consists of (i) Optimus™, a highly automated, AI-powered drone with advanced imaging payloads, (ii) the Airbase™, a ruggedized weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud transfer, and (iii) Insightful™, 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. Airbase™ has internal robotic systems that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of Optimus as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus System to provide multiple applications and use cases from a single location.

American Robotics and Airobotics have industry leading regulatory successes which include having the first drone system approved by the FAA for automated operation BVLOS without a human operator or visual observer on-site. American Robotics’ FAA approvals were enabled by integrating a suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and other proprietary intelligent safety systems into its autonomous drone platform, which we plan to integrate into the Optimus System™. Airobotics is in the advanced stages of receiving approval for Type Certification (“TC”) from the FAA for the Optimus UAV. TC approval will enable expanded operation for the Optimus System™ in the United States including flight operations in populated areas.

*The Raider™*

The Raider™ is a counter-drone system, which was designed and developed by Iron Drone, that we are marketing to government and enterprise customers who can utilize the system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. A typical Raider™ deployment location would include sensitive locations such as borders, stadiums or schools, or near critical assets such as power plants and military bases, and for high profile locations such as amusement parks or where public events are held.

The Raider™ is designed to detect, track and intercept unauthorized, or hostile unmanned aircraft and is most often sold with three small UAVs that are housed in a docking station. The Raider UAV has live video capability and a payload containing a net that can be deployed to intercept a hostile drone. Upon detection of an unauthorized drone, one or more Raider™ UAVs can be autonomously deployed at high speeds to track the unauthorized aircraft. If the unauthorized aircraft is deemed hostile, the Raider™ UAV can deploy the netting to physically intercept the aircraft. A parachute integrated with the netting allows the intercepted drone to safely fall to the ground for collection by our customer.

#### War in Israel

On October 7, 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Following the attacks, the Security Cabinet of the State of Israel declared a state of war in Israel. Since Airobotics is located in Israel, the war has impacted the availability of our workforce in Israel, as approximately 17% of our workforce in Israel, have been called to active duty. To date, we have not had material disruptions to our ability to produce, manage and deliver products and services to customers as our U.S. teams have supported our ongoing operations in Israel and the Middle East; however, a prolonged war or an escalation of the current conditions in Israel could materially adversely affect our business, financial condition, and results of operations. Due to the recency of these events, and their ongoing and evolving nature, the extent of the adverse effect on our business operations is still unknown.

#### Inflation Reduction Act of 2022 and Tax Cuts and Jobs Act of 2017

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA includes a 15% Corporate Alternative Minimum Tax (“Corporate AMT”) for tax years beginning after December 31, 2022. We do not expect the Corporate AMT to have a material impact on our consolidated financial statements. Additionally, the IRA imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations. The excise tax is imposed on the value of the net stock repurchased or treated as repurchased. The new law will apply to stock repurchases occurring after December 31, 2022.

Under the Tax Cuts and Jobs Act of 2017, we are required to capitalize R&D expenses for tax purposes and amortize over five years for domestic based expenses and fifteen years for foreign expenses. Given our tax net operating loss carryforward position we do not expect this change to have a material impact on our financial statements.

### Results of Operations

#### Three months ended September 30, 2023 compared to three months ended September 30, 2022

|  | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Revenue, net | $2,665,190 | $632,489 | $2,032,701 |
| Cost of goods sold | 2,110,312 | 233,001 | 1,877,311 |
| Gross profit | 554,878 | 399,488 | 155,390 |
| Operating expenses: |  |  |  |
| General and administrative | 2,563,319 | 7,362,274 | (4,798,955) |
| Sales and marketing | 1,224,144 | 792,613 | 431,531 |
| Research and development | 2,701,436 | 5,793,345 | (3,091,909) |
| Total operating expenses | 6,488,899 | 13,948,232 | (7,459,333) |
| Operating loss | (5,934,021) | (13,548,744) | (7,614,723) |
| Other income (expense), net | (1,358,440) | (29,597) | 1,328,843 |
| Net loss | $(7,292,461) | $(13,578,341) | $(6,285,880) |

#### Revenues

| Revenue, net | Three Months Ended September 30, 2023 | 2022 | Increase |
| --- | ---: | ---: | ---: |
| Ondas Networks | $2,430,954 | $583,114 | $1,847,840 |
| Ondas Autonomous Systems | 234,236 | 49,375 | 184,861 |
| Total | $2,665,190 | $632,489 | $2,032,701 |

Our revenues increased by $2,032,701 to $2,665,190 for the three months ended September 30, 2023, compared to $632,489 for the three months ended September 30, 2022. Revenues during the three months ended September 30, 2023, included $2,180,472 for products, $234,236 for maintenance, service, support, and subscriptions, and $250,482 for development agreements with Siemens. Revenues during the three months ended September 30, 2022, included $235,172 for products, $190,705 for maintenance, service and support and $206,612 for development agreements with Siemens. The increase in our revenues were primarily the result of an increase of approximately $1,800,000 in product sales to Siemens and acquiring Airobotics, which had $234,236 of revenue during the three months ended September 30, 2023.

#### Cost of goods sold

Our cost of goods sold increased by $1,877,311 to $2,110,312 for the three months ended September 30, 2023, compared to $233,001 for the three months ended September 30, 2022. The increase in cost of goods sold was primarily a result of an increase in Ondas Networks’ product revenue, which resulted in an increase in cost of goods sold of approximately $1,309,000, and acquiring Airobotics, which resulted in an increase of approximately $592,000, offset by a decrease of approximately $24,000 in American Robotics.

#### Gross profit

Our gross profit increased by $155,390 for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, based on the changes in revenues and costs of goods sold as discussed above. Gross margin for the three months ended September 30, 2023 and 2022 was 21% and 63%, respectively. The decrease in gross margin was primarily a result of fixed manufacturing costs combined with lower revenue at Airobotics, and the increase in product sales at Ondas Networks, which was primarily made up of lower margin products for the three months ended September 30, 2023.

#### Operating Expenses

| Operating expenses: | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| General and administrative | $2,563,319 | $7,362,274 | $(4,798,955) |
| Sales and marketing | 1,224,144 | 792,613 | 431,531 |
| Research and development | 2,701,436 | 5,793,345 | (3,091,909) |
| Total | $6,488,899 | $13,948,232 | $(7,459,333) |

Our principal operating costs include the following items as a percentage of total expense.

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Human resource costs, including benefits | 11% | 38% |
| Travel and entertainment | 2% | 3% |
| Other general and administration costs: |  |  |
| Professional fees and consulting expenses | 20% | 17% |
| Other expense | 11% | 9% |
| Depreciation and amortization | 21% | 7% |
| Other research and deployment costs, excluding human resources and travel and entertainment | 31% | 25% |
| Other sales and marketing costs, excluding human resources and travel and entertainment | 4% | 1% |

Operating expenses decreased by $7,459,333, or 53%, as a result of the following items:

|  | Three Months Ended September 30, 2023 |
| --- | ---: |
| Human resource costs, including benefits | $(4,564,031) |
| Travel and entertainment | (233,307) |
| Other general and administration costs: |  |
| Professional fees and consulting costs | (1,114,049) |
| Other expense | (476,559) |
| Depreciation and amortization | 309,145 |
| Other research and development costs, excluding human resources and travel and entertainment | (1,460,682) |
| Other sales and marketing costs, excluding human resources and travel and entertainment | 80,150 |
|  | $(7,459,333) |

The decrease in operating expenses was primarily due to: (i) a decrease of approximately $4,564,000 in human resource costs, of which approximately $3,778,000 relates to a decrease in stock-based compensation due to employee separations during the period and approximately $786,000 relates to a net decrease in headcount in the Ondas Autonomous Systems segment; (ii) a decrease in travel and entertainment of approximately $233,000 as a result of synergies achieved by integrating American Robotics and Airobotics; (iii) a decrease of approximately $1,114,000 in professional fees and consulting costs, of which approximately $800,000 relates to professional fees in connection with the acquisition of Airobotics and approximately $314,000 relates to synergies achieved by integrating American Robotics and Airobotics; (iv) a decrease of approximately $477,000 in other expense as a result of synergies achieved by integrating American Robotics and Airobotics; (v) an increase in depreciation and amortization of approximately $309,000 related to the acquisition of Airobotics and the assets of Iron Drone; (vi) a decrease of approximately $1,461,000 in other research and development costs, excluding human resources and travel and entertainment, which relates to synergies achieved by integrating American Robotics and Airobotics; and (vii) an increase of approximately $80,000 in other sales and marketing costs, excluding human resources and travel and entertainment, of which relates to the acquisition of Airobotics.

#### Operating Loss

|  | Three Months Ended September 30, 2023 | 2022 | Decrease |
| --- | ---: | ---: | ---: |
| Operating loss | $(5,934,021) | $(13,548,744) | $(7,614,723) |

As a result of the foregoing, our operating loss decreased by $7,614,723, or 56%, to $5,934,021 for the three months ended September 30, 2023, compared with $13,548,744 for the three months ended September 30, 2022. Operating loss decreased primarily as a result of the decreased operating expenses as discussed above.

#### Other Income (Expense), net

|  | Three Months Ended September 30, 2023 | 2022 | Increase |
| --- | ---: | ---: | ---: |
| Other income (expense), net | $(1,358,440) | $(29,597) | $(1,328,843) |

Other expense, net increased by $1,328,843, to $1,358,440 for the three months ended September 30, 2023, compared with the other expense, net of $29,597 for the three months ended September 30, 2022. During the three months ended September 30, 2023, we reported (i) an increase in interest expense of approximately $233,000, amortization of debt discount of approximately $427,000, and amortization of debt issuance costs of approximately $226,000 for the 2022 Convertible Exchange Notes and Additional Notes; (ii) an increase in impairment of deferred offering costs of approximately $116,000 related to the termination of the ATM Agreement; (iii) an increase in loss on foreign exchange of approximately $45,000 at Airobotics; and (iv) an increase in other expense of approximately $295,000 due to change in fair value of government grant liability.

#### Net Loss

|  | Three Months Ended September 30, 2023 | 2022 | Decrease |
| --- | ---: | ---: | ---: |
| Net Loss | $(7,292,461) | $(13,578,341) | $(6,285,880) |

As a result of the net effects of the foregoing, net loss decreased by $6,285,880, or 46%, to $7,292,461 for the three months ended September 30, 2023, compared with $13,578,341 for the three months ended September 30, 2022. Net loss per share of Common Stock, basic and diluted, was $(0.15) for the three months ended September 30, 2023, compared with $(0.32) for the three months ended September 30, 2022.

#### Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

|  | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Revenue, net | $10,730,145 | $1,646,905 | $9,083,240 |
| Cost of goods sold | 6,076,595 | 806,571 | 5,270,024 |
| Gross profit | 4,653,550 | 840,334 | 3,813,216 |
| Operating expenses: |  |  |  |
| General and administrative | 13,347,278 | 18,727,626 | (5,380,348) |
| Sales and marketing | 4,205,217 | 2,210,021 | 1,995,196 |
| Research and development | 14,184,420 | 14,815,852 | (631,432) |
| Total operating expenses | 31,736,915 | 35,753,499 | (4,016,584) |
| Operating loss | (27,083,365) | (34,913,165) | (7,829,800) |
| Other income (expense), net | (3,622,733) | (67,000) | 3,555,733 |
| Net loss | $(30,706,098) | $(34,980,165) | $(4,274,067) |

46

#### Revenues

| Revenue, net | Nine Months Ended September 30, 2023 | 2022 | Increase |
| --- | ---: | ---: | ---: |
| Ondas Networks | $5,079,652 | $1,453,658 | $3,625,994 |
| Ondas Autonomous Systems | 5,650,493 | 193,247 | 5,457,246 |
| Total | $10,730,145 | $1,646,905 | $9,083,240 |

Our revenues increased by $9,083,240 to $10,730,145 for the nine months ended September 30, 2023, compared to $1,646,905 for the nine months ended September 30, 2022. Revenues during the nine months ended September 30, 2023, included $8,880,309 for products, $1,289,642 for maintenance, service, support, and subscriptions, and $560,194 for development agreements with Siemens. Revenues during the nine months ended September 30, 2022, included $673,184 for products, $318,247 for maintenance, service, support, and subscriptions and $655,474 for development agreements with Siemens. The increase in our revenues were primarily the result of increased product sales to Siemens, and acquiring Airobotics, which had $5,648,993 of revenue from January 24, 2023 through September 30, 2023.

#### Cost of goods sold

Our cost of goods sold increased by $5,270,024 to $6,076,595 for the nine months ended September 30, 2023, compared to $806,571 for the nine months ended September 30, 2022. The increase in cost of goods sold was primarily a result of acquiring Airobotics, which resulted in an increase of approximately $3,050,000, and an increase in Ondas Networks’ product revenue, which resulted in an increase in cost of goods sold of approximately $2,220,000.

#### Gross profit

Our gross profit increased by $3,813,216 for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, based on the changes in revenues and costs of goods sold as discussed above. Gross margin for the nine months ended September 30, 2023 and 2022 was 43% and 51%, respectively. The decrease in gross margin was primarily a result of the sale of lower margin products at Ondas Networks.

#### Operating Expenses

| Operating expenses: | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| General and administrative | $13,347,278 | $18,727,626 | $(5,380,348) |
| Sales and marketing | 4,205,217 | 2,210,021 | 1,995,196 |
| Research and development | 14,184,420 | 14,815,852 | (631,432) |
| Total | $31,736,915 | $35,753,499 | $(4,016,584) |

47

Our principal operating costs include the following items as a percentage of total expense.

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Human resource costs, including benefits | 37% | 41% |
| Travel and entertainment | 2% | 3% |
| Other general and administration costs: |  |  |
| Professional fees and consulting expenses | 11% | 12% |
| Other expense | 8% | 10% |
| Depreciation and amortization | 12% | 8% |
| Other research and deployment costs, excluding human resources and travel and entertainment | 27% | 25% |
| Other sales and marketing costs, excluding human resources and travel and entertainment | 3% | 1% |

Operating expenses decreased by $4,016,584, or 11%, as a result of the following items:

|  | Nine Months Ended September 30, 2023 |
| --- | ---: |
| Human resource costs, including benefits | $(3,063,914) |
| Travel and entertainment | (337,653) |
| Other general and administration costs: |  |
| Professional fees and consulting costs | (609,642) |
| Other expense | (886,291) |
| Depreciation and amortization | 900,042 |
| Other research and development costs, excluding human resources and travel and entertainment | (590,630) |
| Other sales and marketing costs, excluding human resources and travel and entertainment | 571,504 |
|  | $(4,016,584) |

The increase in operating expenses was primarily due to: (i) a decrease of approximately $3,064,000 in human resource costs, of which approximately $2,953,000 relates to the added headcount from the Airobotics acquisition, an increase of approximately $750,000 related to an increase in headcount at Ondas Networks, offset by a decrease of approximately $6,693,000 for a decrease in headcount and stock-based compensation at American Robotics and a decrease of approximately $74,000 at Ondas Holdings for a decrease in bonus compensation; (ii) a decrease in travel and entertainment of approximately $338,000 as a result of synergies achieved by integrating American Robotics and Airobotics; (iii) a decrease of approximately $610,000 in professional fees and consulting costs, of which approximately $367,000 relates to professional fees in connection with the acquisition of Airobotics and approximately $243,000 is a result of synergies achieved by integrating American Robotics and Airobotics; (iv) a decrease of approximately $886,000 in other expense, of which approximately $845,000 is a result of synergies achieved by integrating American Robotics and Airobotics, and approximately $167,000 relates to a reduction in Directors and Officers insurance at Ondas Holdings, offset by an increase of approximately $126,000 in rent expense at Ondas Networks; (v) an increase of approximately $900,000 in depreciation and amortization expense related to the acquisition of Airobotics and the assets of Iron Drone; (vi) an decrease of approximately $591,000 in other research and development costs, excluding human resources and travel and entertainment, of which $1,485,000 relates to synergies achieved by integrating American Robotics and Airobotics, offset by an increase of approximately $894,000 in research and development contractor costs at Ondas Networks as we continue to invest in our technology; and (vii) an increase of approximately $572,000 in other sales and marketing costs, excluding human resources and travel and entertainment, of which approximately $695,000 relates to the acquisition of Airobotics, net of synergies achieved by integrating American Robotics and Airobotics, offset by a decrease of approximately $123,000 at Ondas Networks.

#### Operating Loss

|  | Nine Months Ended September 30, 2023 | 2022 | Decrease |
| --- | ---: | ---: | ---: |
| Operating loss | $(27,083,365) | $(34,913,165) | $(7,829,800) |

As a result of the foregoing, our operating loss decreased by $7,829,800, or 22%, to $27,083,365 for the nine months ended September 30, 2023, compared with $34,913,165 for the nine months ended September 30, 2022. Operating loss decreased primarily as a result of increased gross profit and a decrease in operating expenses described above, for the nine months ended September 30, 2023.

#### Other Income (Expense), net

|  | Nine Months Ended September 30, 2023 | 2022 | Increase |
| --- | ---: | ---: | ---: |
| Other income (expense), net | $(3,622,733) | $(67,000) | $3,555,733 |

Other expense, net increased by $3,555,733, to $3,622,733 for the nine months ended September 30, 2023, compared with the other expense, net of $67,000 for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, we reported (i) an increase in interest expense of approximately $780,000, amortization of debt discount of approximately $1,609,000, and amortization debt issuance costs of approximately $829,000 for the 2022 Convertible Exchange Notes and Additional Notes; (ii) an increase in impairment of deferred offering costs of approximately $116,000 related to the termination of the ATM Agreement; (iii) an increase in loss on foreign exchange of approximately $84,000 at Airobotics; and (iv) an increase in other expense of approximately $213,000 due to change in fair value of government grant liability.

#### Net Loss

|  | Nine Months Ended September 30, 2023 | 2022 | Increase |
| --- | ---: | ---: | ---: |
| Net Loss | $(30,706,098) | $(34,980,165) | $(4,274,067) |

As a result of the net effects of the foregoing, net loss decreased by $4,274,067, or 12%, to $30,706,098 for the nine months ended September 30, 2023, compared with $34,980,165 for the nine months ended September 30, 2022. Net loss per share of Common Stock, basic and diluted, was $(0.62) for the nine months ended September 30, 2023, compared with $(0.83) for the nine months ended September 30, 2022.

### Summary of (Uses) and Sources of Cash

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash flows used in operating activities | $(28,108,744) | $(26,198,673) |
| Net cash flows provided by (used in) investing activities | 644,936 | (5,497,069) |
| Net cash flows provided by financing activities | 18,700,603 | 6,164,176 |
| Decrease in cash and cash equivalents | (8,763,205) | (25,531,566) |
| Cash, cash equivalents, and restricted cash, beginning of period | 29,775,096 | 40,815,123 |
| Cash, cash equivalents, and restricted cash, end of period | $21,011,891 | $15,283,557 |

The principal use of cash in operating activities for the nine months ended September 30, 2023, was to fund the Company’s current expenses primarily related to operating activities necessary to allow us to service and support customers. The increase in cash flows used in operating activities of $1,910,071 was primarily due to changes in operating assets and liabilities resulting in a cash outflow of approximately $5,890,000, offset by a decrease in net loss of approximately $4,274,000, of which approximately $294,000 related to non-cash and credits, including depreciation, amortization of debt discount, amortization of intangibles assets and right of use asset, and stock-based compensation. For a summary of our outstanding operating leases, see Note 2 – Summary of Significant Accounting Policies in the accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

The increase in cash flows provided by investing activities of $6,142,005, relates to $1,049,454 cash acquired with Airobotics acquisition, combined with a decrease of approximately $661,000 in cash paid for asset acquisitions, a decrease of approximately $1,000,000 in cash paid for an investment in Dynam AI and a decrease of approximately $3,431,000 in cash paid for purchase of equipment and patent costs.

The cash flows provided by financing activities increased $12,536,427 primarily due to proceeds of approximately $9,310,000 from issuance of Additional Notes, proceeds of approximately $14,692,000 from sale of noncontrolling interest in Ondas Networks, offset by cash payments of approximately $4,355,000 on the 2022 Convertible Exchange Notes, and cash payments of $1,147,000 for Airobotics related debt. For a summary of our outstanding Long-Term Notes Payable, see Note 9 in the accompanying Notes to Unaudited Condensed Consolidated Financial Statements. The cash flows provided by financing activities for the nine months ended September 30, 2022 includes proceeds from the sale of shares under the ATM Offering, amounting to approximately $6,099,000.

### Liquidity and Capital Resources

We have incurred losses since inception and have funded our operations primarily through debt and the sale of capital stock. On September 30, 2023, we had an accumulated deficit of approximately $184,221,000. On September 30, 2023, we had net long-term borrowings outstanding of approximately $6,576,000, net of debt discount and issuance costs of approximately $529,000, and short-term borrowings outstanding of approximately $26,537,000, net of debt discount and issuance costs of approximately $2,533,000. On September 30, 2023, we had total cash and restricted cash of approximately $21,012,000 and a working capital deficit of approximately $5,283,000.

In July and August 2023, the Company raised $15,000,000 in gross proceeds from the sale of redeemable preferred stock in Ondas Networks and warrants to purchase shares of Common Stock (as defined below) in Ondas Holdings and approximately $9,310,000 in net proceeds from the sale of convertible debt. These amounts are included in the total cash and restricted cash of approximately $21,012,000 as of September 30, 2023.

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

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 assurances that we will generate revenue and cash flow as expected in our current business plan. We may seek additional funds through equity or debt offerings and/or borrowings under additional notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable terms or at all, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial condition or results of operations.

### Off-Balance Sheet Arrangements

As of September 30, 2023, we had no off-balance sheet arrangements.

### Critical Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, as well as related disclosures. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time and under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. Information concerning our critical accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2022 Form 10-K. There have been no significant changes in our critical accounting policies since the filing of the 2022 Form 10-K.

### Recent Accounting Pronouncements

There have been no material changes to our significant accounting policies as summarized in Note 2 of our 2022 Form 10-K, except for the addition of Airobotics accounting policies related to revenue recognition and government grants. We do not expect that the adoption of any recent accounting pronouncements will have a material impact on our accompanying condensed consolidated financial statements.

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. These forward-looking statements are based on our current, reasonable expectations and assumptions, which expectations and assumptions are subject to risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in 2022 Form 10-K, which was filed with the SEC on March 14, 2023, and the risks discussed under the caption “Risk Factors” included in this Quarterly Report on Form 10-Q. Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law.

## Market risk

As filed, 127 characters.

We are a smaller reporting company as defined by Rule 229.10(f)(1) and are not required to provide information under this item.

## Controls and procedures

As filed, 1,821 characters.

### Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of September 30, 2023. Based on that evaluation, the Company’s Chief Executive Officer and the Company’s Interim Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of September 30, 2023.

### Changes in Internal Control Over Financial Reporting

Except for the controls added as a result of acquiring and integrating Airobotics, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 4,543 characters.

Our business, financial condition, operating results, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, the occurrence of any one of which could have a material adverse effect on our actual results.

There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, except as set forth below.

***The price of our common stock does not meet the requirements for continued listing on The Nasdaq Stock Market LLC (“Nasdaq”). If we fail to regain compliance with the minimum listing requirements, our common stock will be subject to delisting. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if our common stock is delisted.***

On October 3, 2023, we received a letter (the “Nasdaq Staff Deficiency Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, for the last thirty (30) consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until April 1, 2024, to regain compliance. The Nasdaq Staff Deficiency Letter states that the Nasdaq staff will provide written notification that we have achieved compliance with Rule 5550(a)(2) if at any time before April 1, 2024 (the “Compliance Period”), the bid price of our common stock closes at $1.00 per share or more for a minimum of ten (10) consecutive business days. The Nasdaq Staff Deficiency Letter has no immediate effect on the listing or trading of our common stock. However, if we do not regain compliance with Rule 5550(a)(2) within the Compliance Period, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period, for example, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq staff that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq would notify us that our securities would be subject to delisting. In the event of such a notification, we may appeal the Nasdaq staff’s determination to delist our securities. There can be no assurance that we will be eligible for the additional 180 calendar day compliance period, if applicable, or that the Nasdaq staff would grant our request for continued listing subsequent to any delisting notification. Delisting of our common stock from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock.

***We may experience disruptions to our business operations as a result of war and hostilities in Israel.***

On October 7, 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Following the attacks, the Security Cabinet of the State of Israel declared a state of war in Israel. Since Airobotics is located in Israel, the war has impacted the availability of our workforce in Israel, as approximately 17% of our workforce in Israel, have been called to active duty. To date, we have not had material disruptions to our ability to produce, manage and deliver products and services to customers as our U.S. teams have supported our ongoing operations in Israel and the Middle East; however, a prolonged war or an escalation of the current conditions in Israel could materially adversely affect our business, financial condition, and results of operations. Due to the recency of these events, and their ongoing and evolving nature, the extent of the adverse effect on our business operations is still unknown.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-086734. Last ingested by Listed: Oct 30, 2026, 12:37 ET. No prices; not investment advice.