NOTE 11 – STOCKHOLDERS’ EQUITY

Common Stock

As of December 31, 2022 and 2021, the Company had 116,666,667 shares of common stock, par value $0.0001 (the “Common Stock”), authorized for issuance, of which 44,108,661 and 40,990,604 shares of our Common Stock were issued and outstanding, respectively.

Preferred Stock

As of December 31, 2022 and 2021, the Company had 10,000,000 shares of preferred stock, par value $0.0001, authorized, of which 5,000,000 shares are designated as Series A Convertible Preferred Stock (“Series A Preferred”) and 5,000,000 shares are non-designated (“blank check”) shares. As of December 31, 2022 and 2021, the Company had no preferred stock outstanding.

The Company evaluated its Series A Preferred to determine if those instruments or embedded components of those instruments qualify as derivatives to be accounted for separately. The Preferred Shares include an embedded contingent automatic conversion option which is bifurcated from the Preferred Shares and recorded separately as a derivative liability, creating a discount to the Preferred Shares. The fair value of the embedded derivative is recorded as a liability and marked-to-market each balance sheet date, with the change in fair value recorded as other income (expense) in the Company’s accompanying consolidated statement of operations. The discount arising from the identification of the embedded conversion feature will not be accreted or amortized as the Series A Preferred has been classified in equity.

Form S-3

On January 29, 2021, the Company filed a shelf Registration Statement on Form S-3 for up to $150,000,000 with the SEC (the “Form S-3”) for shares of its Common Stock; shares of its preferred stock, which the Company may issue in one or more series or classes; debt securities, which the company may issue in one or more series; warrants to purchase its Common Stock, preferred stock or debt securities; and units. The Form S-3 was declared effective by the SEC on February 5, 2021. In connection with the 2022 Convertible Promissory Notes, on October 26, 2022, the Company filed a Registration Statement on Form S-3MEF to register an additional $11,696,000 aggregate maximum amount of the Company’s securities. This registration statement became effective upon filing.

2021 Public Offering

On June 8, 2021, the Company entered into an underwriting agreement (the “2021 Underwriting Agreement”) with Oppenheimer & Co. Inc., acting as the representative for the underwriters identified therein (the “Underwriters”), relating to the Company’s public offering (the “2021 Public Offering”) of 6,400,000 shares (the “2021 Firm Shares”) of the Company’s Common Stock. Pursuant to the 2021 Underwriting Agreement, the Company also granted the Underwriters a 30-day option to purchase up to an additional 960,000 shares of Common Stock (the “2021 Option Shares,” and together with the 2021 Firm Shares, the “2021 Shares”) to cover over-allotments.

The Underwriters agreed to purchase the 2021 Firm Shares from the Company with the option to purchase the 2021 Option Shares at a price of $6.51 per share. The 2021 Shares were offered, issued, and sold pursuant to the Form S-3 and accompanying prospectus filed with the SEC under the Securities Act.

On June 11, 2021, pursuant to the 2021 Public Offering, the Company issued 7,360,000 shares of Common Stock (2021 Firm Shares and 2021 Option Shares) at a public price of $7.00 for net proceeds to the Company of $47,523,569 after deducting the underwriting discount and offering fees and expenses payable by the Company.

The Underwriting Agreement included customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. The representations, warranties and covenants contained in the 2021 Underwriting Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the agreement and were subject to limitations agreed upon by the contracting parties.

The table below details the net proceeds of the 2021 Public Offering.

The Company will use the net proceeds of the 2021 Public Offering for working capital and general corporate purposes, which includes further technology development, increased spending on marketing and advertising and capital expenditures necessary to grow the Ondas Holdings business.

ATM Offering

On March 22, 2022, the Company, entered into an Equity Distribution Agreement (the “ATM Agreement”) with Oppenheimer. (the “Sales Agent”). Pursuant to the terms of the ATM Agreement, the Company could offer and sell (the “ATM Offering”) from time to time through the Sales Agent, as the Company’s sales agent, up to $50 million of shares Common Stock, (the “ATM Shares”). Sales of the ATM Shares, if any, may be made in sales deemed to be “at the market offerings” as defined in Rule 415 promulgated under the Securities Act. The Sales Agent is not required to sell any specific number or dollar amount of ATM Shares but will act as a sales agent using commercially reasonable efforts consistent with its normal trading and sales practices and applicable state and federal laws, rules, and regulations and the rules of the Nasdaq Stock Market, on mutually agreed terms between the Sales Agent and the Company. The Sales Agent will receive from the Company a commission of 3.0% of the gross proceeds from the sales of ATM Shares by the Sales Agent pursuant to the terms of the Agreement. Net proceeds from the sale of the ATM Shares will be used for general corporate purposes.

On October 26, 2022, Ondas entered into Amendment No. 1 to the Equity Distribution Agreement, dated March 22, 2022 (“Amendment No. 1”), the Sales Agent. Amendment No. 1 provides for the reduction of the aggregate offering price from up to $50 million to up to $40 million of shares of Common Stock.

The offering of ATM Shares pursuant to the ATM Agreement will terminate upon the earliest of (i) the sale of all ATM Shares subject to the ATM Agreement, and (ii) the termination of the ATM Agreement pursuant to its terms.

The ATM Shares are issued pursuant to the Form S-3 and the prospectus supplement thereto dated March 22, 2022. 

During 2022, the Company sold (1) 852,679 ATM Shares through the Sales Agent at an average price of $7.29 with the net proceeds of $6.03 million; (2) 11,995 ATM Shares through the Sales Agent at an average price of $5.62 with the net proceeds of $65 thousand. In connection with the sale of these ATM Shares, the compensation paid by the Company to the Sales Agent was $227,116.

Stock Issued for Convertible Debt

On December 1, 2022 and November 1, 2022, the Company issued 212,450 and 202,711 shares of its common stock, respectively, to the lenders in lieu of cash payments for the outstanding interest and principal on the 2022 Convertible Promissory Notes (See NOTE 10 for further details).

Warrants to Purchase Common Stock

We use the Black-Scholes-Merton option model (the “Black-Scholes Model”) to determine the fair value of warrants to purchase Common Stock of the Company (“Warrants”). The Black-Scholes Model is an acceptable model in accordance with the GAAP. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the Warrant.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrants. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the award. Our estimated volatility is an average of the historical volatility of peer entities whose stock prices were publicly available over a period equal to the expected life of the awards. We used the historical volatility of peer entities due to the lack of sufficient historical data of our stock price.

As of December 31, 2022, we had Warrants outstanding to purchase an aggregate of 1,901,802 shares of Common Stock with a weighted-average contractual remaining life of approximately 7.47 years, and exercise prices ranging from $0.03 to $7.89 per share, resulting in a weighted average exercise price of $7.63 per share.

Warrants Granted During 2021

As of December 31, 2021, we had Warrants outstanding to purchase an aggregate of 3,305,854 shares of Common Stock with a weighted-average contractual remaining life of approximately 5.24 years, and exercise prices ranging from $0.03 to $9.75 per share, resulting in a weighted average exercise price of $8.53 per share.

On August 8, 2021 the Company issued warrants to purchase an aggregate of 1,565,656 shares of Common Stock with an exercise price of $7.89 per share as consideration in the acquisition of American Robotics. These warrants vest in three equal installments on the next three anniversaries of their issuance.

The assumptions used in the Black-Scholes Model are set forth in the table below.

No warrant holders exercised their rights during the year ended December 31, 2022. During the year ended December 31, 2021, certain warrant holders exercised their right to purchase an aggregate of 139,605 shares of the Company’s Common Stock at an exercise price of $9.75 totaling $13,689,507, all of which was received by the Company as of December 31, 2021.

A summary of our Warrants activity and related information follows:

Equity Incentive Plan

In 2018, our stockholders adopted the 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which 3,333,334 shares of our Common Stock has been reserved for issuance to employees, including officers, directors and consultants. The 2018 Plan shall be administered by the Board, provided however, that the Board may delegate such administration to the compensation committee (the “Committee”). Subject to the provisions of the 2018 Plan, the Board and/or the Committee shall have authority to grant, in its discretion, incentive stock options, or non-statutory options, stock awards or restricted stock purchase offers (“Equity Awards”).

At the 2021 Annual Meeting of Stockholders of the Company held on November 5, 2021, stockholders of the Company approved, among other matters, the Ondas Holdings Inc. 2021 Stock Incentive Plan (the “Plan”). The Compensation Committee of the Board of Directors of the Company adopted the Plan on September 30, 2021, subject to stockholder approval. The purpose of the Plan is to enable the Company to attract, retain, reward, and motivate eligible individuals by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum efforts for the growth and success of the Company, so as to strengthen the mutuality of the interests between the eligible individuals and the shareholders of the Company. The Plan provides for the issuance of awards including stock options, stock appreciation rights, restricted stock, restricted stock units, and performance awards. The Plan provides for a reserve of 6,000,000 shares of the Company’s common stock.

Stock Options to Purchase Common Stock

The Company awards stock options to certain employees, directors, and consultants, which represent the right to purchase common shares on the date of exercise at a stated exercise price. Stock options granted to employees generally vest over a two to four-year period and are contingent on ongoing employment. Compensation expenses related to these awards is recognized straight-line over the applicable vesting period. Stock options granted to consultants are subject to the attainment of pre-established performance conditions. The actual number of shares subject to the award is determined at the end of the performance period and may range from zero to 100% of the target shares granted depending upon the terms of the award. Compensation expenses related to these awards is recognized when the performance conditions are satisfied.

On August 5, 2021, the Company issued 211,038 Stock Options to employees of American Robotics in connection with the merger. Of these Stock Options 50,543 were issued as fully vested with no further service obligations and were included in the purchase consideration. The remaining 151,495 vest over a four-year period and are contingent on ongoing employment. They are included in compensation expense.

As of December 31, 2022, we had Stock Options outstanding to purchase an aggregate of 2,412,286 shares of Common Stock with a weighted-average contractual remaining life of approximately 7.58 years, and exercise prices ranging from $3.51 to $6.79 per share, resulting in a weighted average exercise price of $5.77 per share.

As of December 31, 2021, we had Stock Options outstanding to purchase an aggregate of 687,448 shares of Common Stock with a weighted-average contractual remaining life of approximately 8.20 years, and exercise prices ranging from $1.37 to $12.92 per share, resulting in a weighted average exercise price of $6.79 per share.

The assumptions used in the Black-Scholes Model are set forth in the table below.

A summary of our Option activity and related information follows:

As of December 31, 2022, total unrecognized compensation expense related to non-vested Options was $2,631,636 which is expected to be recognized over a weighted-average period of 2.21 years.

Total stock-based compensation expense for stock options for the years ended December 31, 2022 and 2021 is as follows:

Restricted Stock Units  

The Company awards Restricted Stock Units (“RSUs”) to certain employees, directors, which represent a right to receive common stock for each RSU that vests. RSUs granted to employees generally vest in two to four successive equal annual installments with the first vesting date commencing on the first anniversary of the award date and are contingent on continuing employment. RSUs granted to directors generally vest in four to eight successive equal quarterly installments with the first vesting date commencing on the first day of the next calendar quarter, provided that such director is a director of the Company on the applicable vesting dates. Compensation expenses related to these awards is recognized straight-line over the applicable vesting period. As of December 31, 2022 and 2021 the unrecognized compensation expense for RSUs was $6,125,626 and $9,734,567, respectively.

A summary of our RSUs activity and related information follows:

As of December 31, 2022, there were 1,590 RSUs that vested, but were not yet issued as common stock. Total stock-based compensation expense for RSUs for the years ended December 31, 2022 and 2021 is as follows: