Ondas Inc S-1/A, filed Nov 19, 2020

Ondas Inc. (ONDS)

S-1/A 2020-11-19

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Nevada		3663		47-2615102
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

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

Title of Each Class of Securities to be Registered		Proposed Maximum Aggregate Offering Price⁽¹⁾				Amount of Registration Fee⁽³⁾
Common Stock, $0.0001 par value per share⁽²⁾		$	25,000,000			$	2,727.50	⁽⁴⁾

(1)	Includes the public offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any. Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)	Pursuant to Rule 416 of the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
(3)	Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate initial public offering price.
(4)	Previously paid.

	Per share	Total
Public offering price	$	$
Underwriting discounts and commissions⁽¹⁾	$	$
Proceeds to Ondas Holdings Inc., before expenses	$	$

PROSPECTUS SUMMARY	1
THE OFFERING	11
SUMMARY FINANCIAL DATA	12
RISK FACTORS	13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	31
USE OF PROCEEDS	32
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	33
DIVIDEND POLICY	33
CAPITALIZATION	34
DILUTION	35
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37
BUSINESS	50
MANAGEMENT	68
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	74
CONTROLS AND PROCEDURES	76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	78
DESCRIPTION OF CAPITAL STOCK	79
SHARES ELIGIBLE FOR FUTURE SALE	81
UNDERWRITING	82
LEGAL MATTERS	87
EXPERTS	87
WHERE YOU CAN FIND MORE INFORMATION	87
INDEX TO FINANCIAL STATEMENTS	F-1
PART II INFORMATION NOT REQUIRED IN PROSPECTUS	II-1

	●	offers a dedicated private network for industrial applications which safeguards critical assets and information and protects against cyberattacks;
	●	has frequency agility with the capability to operate in any frequency between 70 MHz and 6 GHz;
	●	may be deployed in a wide variety of narrow and broadband channel sizes and can aggregate non-contiguous channels; and
	●	implements standard and enhanced versions of the IEEE 802.16 protocol, the new 802.16s amendment, and the planned 802.16t enhancements.

	●	Deliver on sales pipeline opportunities;
	●	Secure additional marketing partnerships and OEM relationships;
	●	Develop new products and features to continuously improve our customer value; and
	●	Expand our MC-IoT capabilities via partnerships, joint ventures, or acquisitions.

	●	We have incurred significant operating losses since inception and cannot assure you that we will ever achieve or sustain profitability.
	●	The IEEE 802.16s wireless broadband standard is newly published and adoption of this standard by customers in our target critical infrastructure sectors is uncertain.
	●	Our growth depends in part on the success of our strategic partnerships with third parties such as Siemens Mobility as well as on our ability to establish a broad range of additional ecosystem relationships with leading global industrial vendors.
	●	Any outbreak or worsening of an outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations, financial condition and results of operations.
	●	We do not control certain aspects of the manufacture of our product, including the supply of key components used to build our products and we also depend on a limited number of manufacturers.
	●	We may not be able to generate sufficient cash to service our indebtedness, which currently consists of the secured loans with Steward Capital Holdings, LP (“Steward Capital”).
	●	If we do not obtain additional capital to fund our growth, operations, and obligations, our growth may be limited.
	●	The Reverse Stock Split may not result in a proportional increase in the per share price of our common stock.
	●	We have limited trading activity and a result, the price of our common stock might fluctuate significantly and you could lose all or part of your investment.
	●	There is a limited market for our securities, which may make it more difficult to dispose of our securities and we may fail to sustain trading on Nasdaq, which could make it more difficult for investors to sell their shares.
	●	We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

Common stock offered by us:		Shares (or approximately shares if the underwriters exercise their option to purchase additional shares in full) (based on an assumed offering price of $ per share).

Common stock to be outstanding after this offering:		Shares (or approximately shares if the underwriters exercise their option to purchase additional shares in full).

Option to purchase additional shares:		The underwriters have an option within 30 days of the date of this prospectus to purchase up to additional shares of our common stock for the purpose of covering over-allotments.

Use of proceeds:		We estimate that the net proceeds from this offering will be approximately $ million (or approximately $ million if the underwriters exercise their option to purchase an additional shares in full), assuming a public offering price of $ per share, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. We intend to use the net proceeds of this offering: (1) to continue research and development of future configurations of our FullMAX platform; (2) to build product inventory to support expected increased levels of customer sales activity; (3) subject to us receiving gross proceeds of not less than $20 million in the offering, repay approximately $5 million of principal and accrued interests under the Steward Capital Loan and Security Agreement (as defined below), that matures on September 9, 2021; and (4) for other general corporate purposes. See “Use of Proceeds” for additional information.

Risk factors:		Investing in our common stock involves substantial risk. You should read the “Risk Factors” section beginning on page 13 and other information included in this prospectus for a discussion of factors to consider carefully before deciding to invest in our securities.

Reverse Stock Split:		On November 3, 2020, the Board of Directors of the Company approved a 1-for-3 reverse stock split of the Company’s authorized and outstanding common stock, effective November 13, 2020 at 5:31 p.m. Eastern Time. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share. Immediately after the Reverse Stock Split, the Company had 116,666,667 shares of authorized common stock and 19,796,154 shares of issued and outstanding common stock. The Company’s common stock commenced trading on a post-split basis on the morning of November 16, 2020.

Proposed Nasdaq Trading Symbol:		Our common stock is quoted on the OTCQB of OTC Markets Group, Inc. (the “OTCQB”), under the symbol “ONDS,” and, to date, has traded on a limited basis. As of November 17, 2020, the last reported sale price of our common stock on OTCQB Market was $14.00. We have applied to list our common stock on The Nasdaq Stock Market (the “Nasdaq”) under the symbol “ONDS.”

	●	including 783,479 shares of common stock underlying 2,350,390 shares of the Company’s Series A Convertible Preferred Stock outstanding, which preferred stock will mandatorily convert into common stock in connection with this offering (the “Series A Preferred”);
	●	excluding outstanding warrants to purchase 1,879,785 shares of common stock; and
	●	excluding 3,333,334 shares of common stock reserved for issuance pursuant to future awards under our 2018 Incentive Stock Plan (the “2018 Plan”), pursuant to which 1,625,834 shares of common stock underlie currently outstanding options and restricted stock units.

	Nine months ended September 30,						Year ended December 31,
	2020			2019			2019			2018
Revenues, net	$	1,969,598		$	313,583		$	320,383		$	190,029
Cost of sales		1,087,540			71,133			79,126			39,365
Gross profit		882,058			242,450			241,257			150,664
Operating expenses:
General and administrative		5,222,180			3,874,186			4,792,867			2,611,992
Sales and marketing		934,948			4,728,505			5,403,901			2,897,703
Research and development		2,555,223			4,411,266			5,416,425			3,076,502
Total operating expense		8,712,351			13,013,957			15,613,193			8,586,197
Operating loss		(7,830,293	)		(12,771,507	)		(15,371,936	)		(8,435,533	)
Other income (expense)		(1,523,413	)		(3,356,505	)		(4,018,196	)		(3,661,331	)
Net loss	$	(9,353,706	)	$	(16,128,012	)	$	(19,390,132	)	$	(12,096,864	)

	●	on an actual basis; and
	●	on an as adjusted basis to (i) give effect to our sale of shares of common stock in this offering at the assumed offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and (ii) the repayment of approximately $5 million of principal and accrued interests under the loan and security agreement with Steward Capital (the “Steward Capital Loan and Security Agreement”), subject to us receiving gross proceeds of not less than $20 million in this offering.

	September 30, 2020
	Actual			As Adjusted⁽¹⁾
	(Unaudited)
Balance Sheet data:
Cash, cash equivalents and restricted cash	$	2,148,345		$
Total assets		4,815,408
Total liabilities		18,560,542
Accumulated deficit		(61,125,373	)
Total stockholders’ equity (deficit)		(13,745,134	)

	As of September 30, 2020
	Actual			As Adjusted
Cash, cash equivalents, restricted cash	$	2,148,345		$
Secured promissory notes	$	11,453,047
Note payable, current portion		370,051
Notes payable, non-current		596,040
Stockholders’ equity:
Preferred stock - par value $0.0001; 5,000,000 shares authorized at September 30, 2020 and none issued or outstanding at September 30, 2020		-
Preferred stock, Series A – par value $0.0001, 5,000,000 shares authorized, 2,350,390 issued and outstanding at September 30, 2020 and none shares issued and outstanding, as adjusted		235
Common stock, $0.0001 par value; 116,666,667 shares authorized, 19,796,154 shares issued and outstanding, actual; 116,666,667 shares authorized, shares issued and outstanding, as adjusted		1,980
Additional paid-in capital		47,378,024
Accumulated deficit		(61,125,373	)
Total stockholders’ equity (deficit)	$	(13,745,134	)	$
Total capitalization	$	(1,325,996	)	$

Assumed offering price per share				$
Historical net tangible book value per share as of September 30, 2020	$	(0.73	)
Increase in net tangible book value per share attributable to new investors
Net tangible book value per share after the offering
Dilution per share to new investors				$

	Shares Purchased			Total Consideration				Weighted Average
	Number	Percent		Amount		Percent		Price per Share
Existing stockholders			%	$	(1)		%	$
New investors
Total			%	$			%

	Three Months Ended September 30,
	2020			2019			Change
Revenue	$	614,026		$	88,132		$	525,894
Cost of goods sold		365,863			15,185			350,678
Gross profit		248,163			72,947			175,216
Operating expenses:
General and administrative		1,823,336			1,036,013			787,323
Sales and marketing		253,560			1,174,293			(920,733	)
Research and development		904,378			1,250,736			(346,358	)
Total operating expense		2,981,274			3,461,042			(479,768	)
Operating loss		(2,733,111	)		(3,388,095	)		(654,984	)
Other income (expense)		(592,769	)		(1,815,564	)		(1,222,795	)
Net loss		(3,325,880	)		(5,203,659	)		(1,877,779	)
Foreign currency translation		-			(21,655	)		21,655
Comprehensive loss	$	(3,325,880	)	$	(5,225,314	)	$	(1,899,434	)

	(000s)
Human resource costs, including benefits	$	(535	)
Stock-based compensation		595
Travel and entertainment		(93	)
Other general and administration costs:
Professional fees and consulting costs		(342	)
Other expense		16
Depreciation and amortization		24
Other research and deployment costs, excluding human resources and travel and entertainment		(40	)
Other sales and marketing costs, excluding human resources and travel and entertainment		(105	)
	$	(480	)

	(000s)
Human resource costs, including benefits	$	(3,727	)
Stock-based compensation		1,964
Travel and entertainment		(525	)
Other general and administration costs:
Professional fees and consulting costs		(705	)
Other expense		(393	)
Depreciation and amortization		11
Other research and deployment costs, excluding human resources and travel and entertainment		(301	)
Other sales and marketing costs, excluding human resources and travel and entertainment		(626	)
	$	(4,302	)

	Year ended December 31,
	2019			2018			Change
Revenue	$	320,383		$	190,029		$	130,354
Cost of sales		79,126			39,365			39,761
Gross profit		241,257			150,664			90,593
Operating expenses:
General and administrative		4,792,867			2,611,992			2,180,875
Sales and marketing		5,403,901			2,897,703			2,506,198
Research and development		5,416,425			3,076,502			2,339,923
Total operating expense		15,613,193			8,586,197			7,026,996
Operating loss		(15,371,936	)		(8,435,533	)		6,936,403
Other income (expense)		(4,018,196	)		(3,661,331	)		356,865
Net loss	$	(19,390,132	)	$	(12,096,864	)	$	7,293,268

	(000s)
Human resource costs, including benefits	$	3,239
Travel and entertainment		262
Other general and administration costs:
Professional fees and consulting costs		1,612
Other expense		931
Depreciation and amortization		89
Other research and deployment costs, excluding human resources and travel and entertainment		479
Other sales and marketing costs, excluding human resources and travel and entertainment		415
	$	7,027

	Nine Months Ended September 30
	2020			2019
Net cash used in operating activities	$	(4,875,137	)	$	(11,333,484	)
Net cash used in investing activities		(13,606	)		(341,863	)
Net cash provided by financing activities		4,884,060			15,200,982
Increase (decrease) in cash		(4,683	)		3,525,635
Effect of foreign currency transaction on cash		-			(5,180	)
Cash and cash equivalents, beginning of period		2,153,028			1,129,863
Cash, cash equivalents and restricted cash, end of period	$	2,148,345		$	4,650,318

	Outstanding Amount as of September 30, 2020

Paycheck Protection Program	$	666,091
Steward Capital Holdings, LP	$	11,525,891
Convertible Promissory Note	$	335,471
	$	12,527,453

Name	Age	Position
Eric A. Brock	50	Chairman and Chief Executive Officer
Stewart Kantor	58	Director, Chief Financial Officer, Treasurer and Secretary
Thomas Bushey	40	Director, President
Richard M. Cohen	69	Director
Derek Reisfield	57	Director
Randall P. Seidl	57	Director
Richard H. Silverman	80	Director
Guy Simpson	62	Chief Operating Officer of Ondas Networks
Menashe Shahar	69	Chief Technology Officer of Ondas Networks

Name and Principal Position	Year		Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non- Equity Incentive Plan Compen- sation ($)		Nonquali- fied Deferred Compen- sation Earnings ($)		All Other Compen- sation ($)		Total ($)
Eric A. Brock ⁽¹⁾ (CEO)		2019	$	200,000	$	-	$	-	$	-	$	-	$	-	$	27,819	$	227,819
		2018	$	50,769	$	-	$	-	$	-	$	-	$	-	$	5,846	$	56,615
Stewart Kantor ⁽²⁾ (President, CFO, Treasurer and Secretary)		2019	$	200,000	$	50,000	$	-	$	-	$	-	$	-	$	12,500	$	262,500
		2018	$	162,500	$	50,000	$	-	$	-	$	-	$	-	$	1,250	$	213,750

Plan Category	Number of securities to be issued upon exercise or vesting of outstanding equity awards (a)		Weighted- average exercise price of outstanding options (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c)
Equity compensation plans approved by security holders		—		—		3,333,334
Equity compensation plans not approved by security holders		—		—		—
Total		—		—		3,333,334

Name and Address of Officer and Directors	Amount and Nature of Beneficial Ownership⁽¹⁾		Percent of Class			Amount and Nature of Beneficial Ownership after the Offering	Percent of Class after the Offering
Eric A. Brock (Chairman of the Board and Chief Executive Officer)⁽²⁾		1,943,697		9.76	%			%
Thomas Bushey (Director and President)⁽³⁾		-		-	%			%
Stewart Kantor (Director, Chief Financial Officer, Treas. and Sec.)		908,445		4.59	%			%
Richard M. Cohen (Director)		24,314		*
Richard H. Silverman (Director)		24,314		*
Derek Reisfield (Director)		24,314		*
Randall P. Seidl		-		-
Guy Simpson (Chief Operating Officer of Ondas Networks)		472,991		2.39	%			%
Menashe Shahar (Chief Technology Officer of Ondas Networks)		887,091		4.48	%			%
All Executive Officers & Directors as a Group (7 persons)		2,925,084		14.69	%			%

Name and Address of Stockholders
Energy Capital, LLC⁽⁴⁾		5,796,455		28.27	%			%

Number of Shares and % of Total Outstanding		Date Available for Sale into Public Market
shares, or %		On the date of this prospectus.

shares, or %		March 28, 2021, subject to the 5% limitation over a 90 day period (described below under Lock-up Agreements)

shares, or %		90 days after the date of this prospectus, due to lock-up agreements between the holders of these shares and the underwriters, and further subject to the 5% limitation over a 90 day period (described above under Lock-up Agreements). However, the representatives of the underwriters, acting together, can waive the provisions of the 90 day lock-up agreements and allow these stockholders to sell their shares at any time.

		Number of
Underwriter		Shares of Common Stock
Oppenheimer & Co. Inc.
National Securities Corporation
Northland Securities, Inc.
Spartan Capital Securities, LLC
Total

	Page
Nine months ended September 30, 2020

Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	F-2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	F-3
Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	F-4/F-5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)	F-6
Notes to the Unaudited Condensed Consolidated Financial Statements	F-7

Years ended December 31, 2019 and December 31, 2018

Report of Independent Registered Public Accounting Firm	F-26
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-27
Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018	F-28
Consolidated Statements of Changes In Equity	F-29
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018	F-30
Notes to Consolidated Financial Statements	F-31

	September 30,			December 31,
	2020			2019
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,129,013		$	2,153,028
Restricted cash		19,332			-
Accounts receivable, net		543,785			20,212
Inventory		975,000			427,516
Other current assets		203,625			700,599
Total current assets		3,870,755			3,301,355

Property and equipment, net		186,765			252,246

Other Assets:
Licenses, net		230,677			200,000
Intangible assets, net		152,338			126,344
Lease deposits		48,577			52,152
Deferred offering costs		201,038			-
Operating lease right of use assets		125,258			331,419
Total other assets		757,888			709,915

Total assets	$	4,815,408		$	4,263,516

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	3,024,023		$	2,322,198
Operating lease liabilities		183,995			489,407
Accrued expenses and other current liabilities		2,419,468			2,762,799
Secured promissory note, net of debt discount $351,189 and $252,933, respectively		11,453,047			10,106,895
Deferred revenue		309,218			378,850
Derivative liability		169,229			-
Note payable		370,051			-
Total current liabilities		17,929,031			16,060,149

Long-Term Liabilities:
Notes payable		596,040			539,921
Accrued interest		35,471			41,239
Operating lease liabilities, net of current		-			52,449
Total long-term liabilities		631,511			633,609

Total liabilities		18,560,542			16,693,758

Commitments and Contingencies

Stockholders’ Deficit:
Preferred stock - par value $0.0001; 5,000,000 and 10,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively, and none issued or outstanding at September 30, 2020 and December 31, 2019		-			-
Preferred stock, Series A – par value $0.0001, 5,000,000 shares authorized, 2,350,390 issued and outstanding at September 30, 2020, and none authorized, issued or outstanding at December 31, 2019		235			-
Common stock - par value $0.0001; 350,000,000 shares authorized; 19,796,154 and 19,756,154 issued and outstanding at September 30, 2020 and December 31, 2019, respectively		1,980			1,976
Additional paid in capital		47,378,024			39,339,449
Accumulated deficit		(61,125,373	)		(51,771,667	)
Total stockholders’ deficit		(13,745,134	)		(12,430,242	)

Total liabilities and stockholders’ deficit	$	4,815,408		$	4,263,516

															Other
									Additional						Accumulated
	Preferred Stock				Common Stock				Paid in			Accumulated			Comprehensive
	Shares		Amount		Shares		Amount		Capital			Deficit			Income (Loss)		Total

Balance, December 31, 2019		-	$	-		19,756,154	$	1,976	$	39,339,449		$	(51,771,667	)	$	-		(12,430,242	)
Stock-based compensation		-		-		-		-		25,599			-			-		25,599
Forgiveness of accrued officers’ salary		-		-		-		-		150,002			-			-		150,002
Net loss		-		-		-		-		-			(2,807,285	)		-		(2,807,285	)

Balance, March 31, 2020		-		-		19,756,154		1,976		39,515,050			(54,578,952	)		-		(15,061,926	)

Stock-based compensation		-		-		-		-		1,881,080			-			-		1,881,080
Net loss		-		-		-		-		-			(3,220,541	)		-		(3,220,541	)

Balance, June 30, 2020		-		-		19,756,154		1,976		41,396,130			(57,799,493	)		-		(16,401,387	)

Stock-based compensation		-		-		-		-		1,141,291			-			-		1,141,291
Issuance of Series A in connection with private placement, net of costs		2,217,500		222		-		-		4,217,747			-			-		4,217,969
Derivative liability		-		-		-		-		(32,906	)		-			-		(32,906	)
Issuance of Series A in connection with exchange of debt		132,890		13		-		-		265,766			-			-		265,779
Issuance in connection with extension of debt		-		-		40,000		4		389,996			-			-		390,000
Net loss		-		-		-		-		-			(3,325,880	)		-		(3,325,880	)

Balance, September 30, 2020		2,350,390	$	235		19,796,154	$	1,980	$	47,378,024		$	(61,125,373	)	$	-	$	(13,745,134	)

	September 30, 2020		December 31, 2019
Raw Material	$	784,297	$	372,101
Work in Process		116,709		-
Finished Goods		73,994		55,415
TOTAL INVENTORY	$	975,000	$	427,516

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Nine Months Ended September 30, 2020			Year ended December 31, 2019

Balance, beginning of period	$	-		$	-
Issuances of derivative liability		(32,906	)		-
Change in fair value of derivative liability		(136,323	)		-
Balance, end of period	$	(169,229	)	$	-