Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
You should read the following discussion and
analysis in conjunction with our Consolidated Financial Statements and the notes to those financial statements included elsewhere in this
Annual Report on Form 10-K for the year ended December 31, 2025 (the “Form 10-K”). This discussion contains forward-looking
statements based upon current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking
Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”) is designed to provide material information relevant to an assessment of
the Company’s financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows
from operations and from outside sources. This MD&A is designed to focus specifically on material events and uncertainties known to
management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results
or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations,
as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations.
43
Overview
Ondas, Inc. (together with its subsidiaries, the
“Company,” “Ondas,” “we,” “us,” or “our”) is a defense, security, and critical
infrastructure technology company organized around three business units: Ondas Autonomous Systems Inc. (“OAS”), Ondas Networks
Inc. (“Ondas Networks”), and Ondas Capital Inc. (“Ondas Capital”). Through these business units, we develop and
commercialize autonomous systems, private wireless networking technologies, and strategic investment and partnership initiatives that
support the scaling and adoption of mission-critical solutions for governments and industrial customers.
We manage these business units as distinct
operating platforms aligned to complementary end markets and customer requirements. Our approach is designed to combine advanced autonomy,
secure communications, and integrated operating capabilities to help customers improve situational awareness, operational resilience,
and safety and security outcomes in complex, regulated, and often contested environments.
We operate in two reportable segments, Ondas Networks
and OAS. We organize our operating segments based primarily on the nature of the products, solutions and services offered. Operational
results for Ondas Capital are not material for the year ended December 31, 2025 and have been included in the corporate results with Ondas
Inc. For additional information regarding our reportable segments, refer to Note 15 in the accompanying Consolidated Financial Statements.
Results of Operations
Comparison of Results for the Year Ended December
31, 2025 and 2024
Revenue, net by reportable
segment for the years ended December 31, 2025 and 2024 are as follows:
Year Ended December 31,
(dollars in thousands) 2025 2024 $ Change % Change
OAS
Ondas Networks
44
Revenue, net increased $43.5
million to $50.7 million for the year ended December 31, 2025 from $7.2 million for the year ended December 31, 2024. Revenues in our
OAS segment increased by $44.5 million, primarily due to $26.9 million in revenue generated by companies acquired during the year. OAS
revenue also increased by $17.6 million attributable to Airobotics, of which approximately $16.4 million relates to product sales and
approximately $1.2 million relates to service revenue from sales of our Optimus SystemTM and Iron Drone RaiderTM. These increases
were offset by a decrease of $952 thousand in Ondas Networks revenue, primarily related to decreased development revenue.
Cost of goods sold increased
to $30.6 million for the year ended December 31, 2025, from $6.9 million for the year ended December 31, 2024. The $23.7 million increase
was primarily due to activity from acquisitions and an increase in revenues discussed above, in addition to increased labor and material
costs.
Gross margin percentage increased
to 40% for the year ended December 31, 2025, compared to 5% for the year ended December 31, 2024. The 35% increase in gross margin percentage
is primarily due to the more favorable mix of revenue, with significant increases in revenue generated by product sales offsetting fixed
service delivery costs at OAS.
General and administrative
expenses (“G&A”) increased $27.3 million, or 159%, to $44.5 million for the year ended December 31, 2025, from $17.2 million
for the year ended December 31, 2024. This increase is primarily due to (i) an increase of $11.7 million in stock-based compensation for
awards granted during the year; (ii) an increase of $6.5 million in human resource costs, including benefits from increased headcount
as we build out our management team; (iii) an increase of $4.9 million in professional fees and consulting costs primarily related to
legal, accounting and due diligence fees associated with the acquisitions completed during the year; and (iv) an increase of $4.7 million
related to general and administrative expense attributable to companies acquired during the year. These increases were partially offset
by a decrease of approximately $435 thousand primarily in rent and facilities charges.
Sales and marketing expenses (“S&M”) increased
$7.9 million, or 147%, to $13.2 million for the year ended December 31, 2025, from $5.3 million for the year ended December 31, 2024.
This increase is primarily due to (i) an increase of $4.1 million in human resource costs, including benefits from increased headcount
and an increase in taxable fringe benefit expense; (ii) an increase of $1.3 million in other S&M costs primarily related to increased
marketing and advertising costs, use of third-party contractors and consultants, and increased attendance at trade shows and other marketing
events; and (iii) an in increase of $2 million related to S&M attributable to companies acquired during the year. The remaining increase
of $567 thousand is related to increased stock-based compensation for awards granted during the year and increased travel and entertainment
costs.
Research and development expenses (“R&D”)
increased $8.4 million, or 67%, to $20.9 million for the year ended December 31, 2025, from $12.5 million for the year ended December
31, 2024, of which $3 million related to companies acquired during the year ended December 31, 2025. Other increases in R&D include,
(i) an increase of $2.8 million in human resource costs, including benefits from increased headcount, and (ii) an increase of $1.8 million
in other R&D costs primarily related to increased cloud-based software expenses, use of third-party consultants and allocation of
general expenses to research and development, and a one-time settlement of all amounts due to a vendor under previous development and
manufacturing agreements, which reduced other R&D costs for the year ended December 31, 2024. The remaining increase of $862 thousand
is related to increased stock-based compensation for awards granted during the year and increased travel and entertainment costs.
Total other expense, net increased
$71.1 million, or 2,093%, to $74.5 million for the year ended December 31, 2025, from $3.4 million for the year ended December 31, 2024.
Total other expense, net increased primarily as a result of the net loss of $82.2 million related to the change in fair value of our warrant
liability, an increase of approximately $2.9 million in interest expense, amortization of debt discount and debt issuance costs, and an
increase in other expense of approximately $299 thousand from the change in fair value of government grant liability. This was offset by the increase of approximately $14.3 million in interest and dividend income and unrealized gain on our equity
security investments from the cash raised from our equity offerings consummated in 2025.
45
The Company recorded income
tax expense of $488 thousand for the year ended December 31, 2025, and an income tax provision of $0 for the year ended December 31, 2024.
The 2025 income tax expense is attributable to earnings in foreign jurisdictions.
Net loss increased $95.4 million,
or 251%, to $133.4 million for the year ended December 31, 2025, from $38 million for the year ended December 31, 2024. For the year ended
December 31, 2025, $1.4 million of net loss was attributable to noncontrolling interests (“NCI”), related to the subsidiaries
in which we acquired less than 100% ownership during 2025. These subsidiaries incurred operating losses due to early-stage operating performance.
Net loss per share of common stock basic and diluted was $(0.62) and $(0.61) for the years ended December 31, 2025 and 2024, respectively.
Non-GAAP Measures
As required by the rules of
the Securities and Exchange Commission (“SEC”), we provide a reconciliation of our non-GAAP financial measures to the most
directly comparable GAAP measures. These reconciliations are set forth in the tables below.
We believe that adjusted earnings
before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”) is a useful supplemental measure for evaluating
our operating performance and period to period trends because it eliminates the impact of items that primarily reflect our capital structure,
tax position, non-cash accounting charges, acquisition-related transaction costs, and other items that management does not consider indicative
of ongoing operating performance. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income (loss)
and other measures prepared in accordance with GAAP. Adjusted EBITDA removes the effects of interest and financing-related items, depreciation
and amortization, income taxes, stock-based compensation, acquisition-related expenses, and other non-operating gains and losses. Management
believes that excluding these items enhances comparability across periods and facilitates analysis of underlying operating trends. Other
companies may calculate similarly titled non-GAAP measures differently, and therefore our Adjusted EBITDA may not be comparable to measures
used by other companies.
Cash Operating Expense is
a non-GAAP financial measure that represents total operating expenses excluding depreciation, amortization of intangible assets, and stock-based
compensation. The most directly comparable GAAP measure to Cash Operating Expense is total operating expenses. Management believes Cash
Operating Expense provides useful supplemental information by isolating recurring, cash-based operating costs and facilitating meaningful
period-to-period comparisons. Management uses this measure for internal cost management, budgeting, and liquidity planning, and to evaluate
operating trends exclusive of non-cash accounting charges. Cash Operating Expense should be considered in addition to, and not as a substitute
for, total operating expenses prepared in accordance with GAAP.
Management uses Adjusted EBITDA
and Cash Operating Expense, together with GAAP results, in making operating and planning decisions and in evaluating the Company’s
ongoing performance.
Three Months Ended December 31, Twelve Months Ended December 31,
Reconciliation of Adjusted EBITDA
Acquisition-related expenses (1) 3,603 - 4,310 -
Provision for income taxes 181 - 488 -
46
Three Months Ended December 31, Twelve Months Ended December 31,
Reconciliation of Cash Operating Expenses
Acquisition-related expenses (2) (3,603 ) - (4,310 ) -
Summary of (Uses) and Sources of Cash
Year Ended December 31,
Net cash used in operating activities $ (38,746 ) $ (33,469 )
Net cash used in investing activities (260,132 ) (1,733 )
Net cash provided by financing activities 862,653 50,179
Increase in cash, cash equivalents, and restricted cash 563,775 14,977
Effect of exchange rate on cash 585 -
Cash, cash equivalents, and restricted cash, beginning of period 29,999 15,022
Cash, cash equivalents, and restricted cash, end of period $ 594,359 $ 29,999
The principal use of cash
in operating activities for the year ended December 31, 2025, was to fund the Company’s current expenses primarily related to operating
activities necessary to allow us to service and support customers for the year ended December 31, 2025.
The increase in cash flows
used in operating activities of $5.3 million primarily relates to an increase in net loss of $95.4 million, of which approximately $96.6
million related to non-cash charges and credits, which primarily includes investment gains, change in fair value of warrant liability,
amortization of debt discount and issuance costs, and stock-based compensation, offset by changes in operating assets and liabilities
resulting in a cash outflow of approximately $6.5 million for the year ended December 31, 2025.
The increase in cash flows
used in investing activities of $258.4 million primarily relates to cash paid, net of cash acquired, for acquisitions of $206.8 million,
purchases of long-term equity investments of $35.6 million, and purchases of short-term investments of $15.4 million.
The increase in cash provided by financing activities of $812.5 million
primarily relates to the net proceeds of approximately $829.5 million received from equity offerings consummated in 2025, during the year
ended December 31, 2025, compared to the net proceeds received from the sale of Common Stock in the Company of approximately $7.3 million
during the year ended December 31, 2024, combined with proceeds of approximately $1.2 million from the exercise of warrants in OAS, the
increase in proceeds from the exercise of stock options and warrants of approximately $30.8 million during the year ended December 31,
2025. These increases were partially offset by the decrease in net proceeds of $37.3 million from the issuance of notes payable and convertible
notes payable and a decrease in net proceeds of $4.4 million from the sale of preferred stock in Ondas Networks during the year ended
December 31, 2024.
47
Liquidity and Capital Resources
We have incurred losses since
inception and have funded our operations primarily through debt and the sale of capital stock. As of December 31, 2025, we had an accumulated
deficit of $368.4 million. On December 31, 2025, we had net long-term borrowings outstanding of approximately $3.8 million and short-term
borrowings outstanding of approximately $9.4 million, including accrued interest of $721 thousand. On December 31, 2025, we had cash,
cash equivalents, and restricted cash of approximately $594.4 million and working capital of $544 million. We had $38.7 million of net
cash flows used in operations for the year ended December 31, 2025.
In 2025, we raised $829.5
million of net proceeds from the sale of common stock and warrants, $30.8 million from the exercise of stock options and warrants, $1.2
million from the exercise of warrants in OAS, and $923 thousand from issuance of convertible notes in Ondas Networks (collectively referred
to as the “2025 Offerings”).
In January 2026, we raised
approximately $1 billion in gross proceeds from the sale of common stock and warrants in the Company.
We expect to fund our operations
for the next twelve months from the filing date of this Annual Report on Form 10-K from the cash on hand as of December 31, 2025, proceeds
from the 2026 financing activity discussed above, gross profits generated from revenue growth, potential prepayments from customers for
purchase orders, potential proceeds from warrants issued and outstanding, and additional funds that we may seek through equity or debt
offerings and/or borrowings under additional notes payable, lines of credit or other sources.
Our future capital requirements
will depend upon many factors, including progress with developing, manufacturing and marketing our technologies, the time and costs involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, our ability to establish collaborative
arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic
conditions in our target markets. Our ability to generate revenue and achieve profitability requires us to successfully market and secure
purchase orders for our products and services from customers currently identified in our sales pipeline as well as new customers. We also
will be required to efficiently manufacture and deliver equipment on those purchase orders. These activities, including our planned research
and development efforts, will require significant uses of working capital. There can be no assurance that we will generate revenue and
cash as expected in our current business plan. We may seek additional funds through equity or debt offerings and/or borrowings under additional
notes payable, lines of credit or other sources. We do not know whether additional financing will be available on commercially acceptable
terms or at all when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to
fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or
limited, which could materially adversely affect our business, financial conditions, or results of operations.
Off-Balance Sheet Arrangements
As of December 31, 2025, we
had no off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires
management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management
considers an accounting estimate to be critical if (1) the estimate requires assumptions to be made that were uncertain at the time the
estimate was made, and (2) changes in the estimate or different estimates that could have been selected could have a material impact on
our results of operations or financial condition. We base our estimates and judgments on our experience, our current knowledge, our
beliefs of what could occur in the future, our observation of trends in the industry, information provided by our customers and information
available from other sources. Actual results may differ from these estimates under different assumptions or conditions.
48
The accounting estimates discussed
below represent those estimates that management believes are critical to an understanding of our financial condition and results of operations.
Acquired intangible assets.
During 2025, we completed multiple acquisitions that were accounted for as business combinations under ASC 805. Business combination
accounting requires significant judgment in estimating the fair value of assets acquired, liabilities assumed, noncontrolling interests,
redeemable noncontrolling interests, and goodwill as of the acquisition date. Acquired intangible assets, such as developed technology,
customer relationships, trade names, and non-compete agreements, which are valued using income-based valuation techniques, including discounted
cash flow, relief-from-royalty, and multi-period excess earnings methods, or cost-based techniques. These techniques require assumptions
regarding future revenues, customer attrition, royalty rates, useful lives, and discount rates. Because the fair value measurements recorded
in connection with these acquisitions resulted in significant balances of goodwill and identifiable intangible assets, and affect our
future amortization expense and potential impairment assessments, relatively small changes in key assumptions could materially impact
our consolidated financial position and results of operations.
Deferred tax assets and liabilities
may arise from differences between the assigned fair values of acquired assets and their tax bases. Estimation related to these assets
and liabilities requires judgment regarding applicable tax laws, tax rates, and the realizability of deferred tax assets. Noncontrolling
interests are measured at fair value at the acquisition date using valuation techniques consistent with those applied to the acquired
business. Redeemable noncontrolling interests are classified outside of permanent equity and subsequently adjusted to redemption value,
requiring ongoing judgment related to accretion amounts and income or loss attribution. Changes in underlying assumptions could result
in material changes to the recorded purchase price allocation, goodwill, or future amortization expense.
Impairment of long-lived
assets, including goodwill. Goodwill is not amortized but is tested for impairment at least annually and whenever events or changes
in circumstances indicate that impairment may exist. As of December 31, 2025, goodwill represented a significant portion of
our total assets. Our goodwill impairment analysis requires judgment in identifying reporting units and assessing qualitative and quantitative
impairment indicators.
The carrying values of property
and equipment and other finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate
that their carrying values may not be recoverable. If impairment indicators are present, we determine whether an impairment loss should
be recognized by testing the applicable asset or asset group’s carrying value for recoverability. This assessment requires the exercise
of judgment in assessing the future use of and projected value to be derived from the eventual disposal of the assets to be held and used.
Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing
this capacity back into production. If the carrying value of the assets is not recoverable, then a loss is recorded for the difference
between the assets’ fair value and respective carrying value. The fair value of the assets is determined using an “income
approach” based upon a forecast of all the expected discounted future net cash flows associated with the subject assets. Some of
the more significant estimates and assumptions include: market size and growth, market share, projected selling prices, manufacturing
cost and discount rate. Our estimates are based upon historical experience, commercial relationships, market conditions and available
external information about future trends.
Valuation of Government
Grant Liability. We receive research and development grants from the Israel Innovation Authority (“IIA”). These grants
are royalty-bearing and are recognized as a liability rather than income. The government grant liability is initially and subsequently
measured at fair value using a discounted cash flow model. Significant assumptions include the financial statement classification, projected
future revenues from products developed with grant funding, royalty rates, timing of payments, and discount rates. The liability is remeasured
each reporting period, with changes in fair value recognized in earnings. Because the valuation depends on commercialization success and
future sales volumes, changes in assumptions may materially affect our results of operations.
49
Valuation of Warrant Liabilities.
Certain warrants issued in connection with equity and debt financings are classified as liabilities and measured at fair value at each
reporting date. Fair value is determined using either option-pricing models, including Monte Carlo simulations and Black-Scholes-Merton.
These models require assumptions regarding common stock volatility, risk-free interest rates, expected term, and stock price. Due to the
sensitivity of these assumptions, changes in market conditions or estimates can result in significant volatility in earnings.
Fair Value of Investments.
We hold investments, including investments without readily determinable fair values. Investments with observable market prices are measured
using quoted prices, while other investments are valued using models that incorporate unobservable inputs. These valuation techniques
require judgment regarding expected cash flows, volatility, discount rates, and the likelihood of liquidity events. Changes in assumptions
or market conditions could result in material changes to the carrying value of our investments and related unrealized gains or losses.
Revenue Recognition. We
enter into complex customer arrangements that may include development services, system integration, deployment, and ongoing support. Revenue
recognition requires judgment in identifying distinct performance obligations, determining whether revenue is recognized over time or
at a point in time, and measuring progress toward completion. For development and long-term service arrangements, revenue is generally
recognized over time using cost-to-cost or milestone-based methods. These methods require estimates of total expected costs, project timelines,
and the achievement of contractual milestones. Revisions to these estimates may result in changes to the amount or timing of revenue recognized.
Stock-Based Compensation
Expense. We calculate stock-based compensation expense for option awards (“Stock-based Award(s)”) based on the estimated
grant/issue date fair value using the Black-Scholes-Merton option pricing model (“Black-Scholes Model”) and recognize the
expense on a straight-line basis over the vesting period. We account for forfeitures as they occur. 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 vesting
period in determining the fair value of Stock-based Awards. The expected term is based on the “simplified method.” Under this
method, the term is estimated using the weighted average of the service vesting period and contractual term of the option award. As the
Company does not yet have sufficient history of its own volatility, the Company has identified several public entities of similar complexities
and industry and calculates historical volatility based on the volatilities of these companies. Although we believe our assumptions used
to calculate share-based compensation expense are reasonable, these assumptions can involve complex judgments about future events, which
are open to interpretation and inherent uncertainty. In addition, significant changes to our assumptions could significantly impact the
amount of expense recorded in a given period.
We recognize restricted stock
unit expense over the period of vesting or period that services will be provided. Compensation associated with shares of Common Stock
issued or to be issued to consultants and other non-employees is recognized over the expected service period beginning on the measurement
date, which is generally the time the Company and the service provider enter into a commitment whereby the Company agrees to grant shares
in exchange for the services to be provided.
Income Taxes. As part
of the process of preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions
in which we operate. Our provision for income taxes is determined using the asset and liability approach to account for income taxes.
A current liability is recorded for the estimated taxes payable for the current year. Deferred tax assets and liabilities are recorded
for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates in effect
for the year in which the timing differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of changes in tax rates or tax laws are recognized in the provision for income taxes in the period that includes the enactment date. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount more-likely-than-not to be realized. Changes in
valuation allowances will flow through the statement of operations unless related to deferred tax assets that expire unutilized or are
modified through translation, in which case both the deferred tax asset and related valuation allowance are similarly adjusted. Where
a valuation allowance was established through purchase accounting for acquired deferred tax assets, any future change will be credited
or charged to income tax expense.
50
On July 4, 2025, an act to
provide for reconciliation to title II of H. Con. Res. 14 (known commonly as the One Big Beautiful Bill Act (“OBBBA”)) was
enacted into law. The OBBBA includes eliminating the requirement to capitalize U.S. R&D, permanent extension of certain provisions
of the Tax Cuts & Jobs Act of 2017 and other corporate tax impacts. The Company has considered the impact on the Consolidated Financial
Statements and concluded it is immaterial. Refer to Note 16 in the accompanying Consolidated Financial Statements for discussion related
to Tax Reform.
The determination of our provision
for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. In the
ordinary course of our business, there are transactions and calculations for which the ultimate tax determination is uncertain. In spite
of our belief that we have appropriate support for all the positions taken on our tax returns, we acknowledge that certain positions may
be successfully challenged by the taxing authorities. We determine the tax benefits more likely than not to be recognized with respect
to uncertain tax positions. Although we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject
to interpretation and inherent uncertainty; therefore, our assessments can involve both a series of complex judgments about future events
and rely on estimates and assumptions. Although we believe these estimates and assumptions are reasonable, the final determination could
be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities.
Complex Derivative Financial
Instruments. From time to time, we issue convertible debt, convertible preferred stock, common stock purchase warrants, and other
freestanding financial instruments which may be accounted for as liabilities and recorded at fair value each reporting period. Due to
the complexity of certain agreements, we may use an outside expert to assist in measuring the fair value of these liabilities. The valuation
techniques may require judgment regarding estimates about future financings, volatility, and holder behavior. These assumptions may involve
complex judgments about future events, which are open to interpretation with inherent uncertainty. In addition, significant changes to
our assumptions could significantly impact these fair value estimates and the resulting changes in fair value recognized within earnings
in a given period.
Recent Accounting Pronouncements and SEC Rules
Refer to Note 2 to our Consolidated
Financial Statements included elsewhere in this Form 10-K for recently adopted accounting pronouncements and SEC rules and recently issued
accounting pronouncements not yet adopted as of the date of this report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting
company as defined by Rule 229.10(f)(1) and are not required to provide information under this item.
Although we are not required
to provide the quantitative and qualitative disclosures about market risk required by this Item, we are exposed to certain market risks
in the ordinary course of our business.
Interest Rate Risk. As of December 31, 2025, we held significant cash,
cash equivalents, and short-term investments. These balances are primarily invested in cash accounts, money market instruments, and short-term,
investment-grade securities. As a result, changes in interest rates may affect the amount of interest income we earn. Due to the short-term
nature and conservative investment profile of these instruments, we do not believe that a hypothetical change in interest rates would
have a material adverse effect on our consolidated- financial condition or results of operations.
Foreign Currency Risk. We
conduct a portion of our operations outside the United States and are exposed to fluctuations in foreign currency exchange rates, primarily
related to the Israeli New Shekel, Euro, and other local currencies. Changes in foreign currency exchange rates may affect our operating
results and the U.S. dollar value of assets and liabilities denominated in foreign currencies. We do not currently use derivative instruments
to hedge foreign currency exposure.
51
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
Report of Independent Registered Public Accounting Firm [PCAOB No. 89] F-2
Consolidated Balance Sheets as of December 31, 2025 and 2024 F-4
Notes to the Consolidated Financial Statements F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Ondas Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance
sheets of Ondas Inc. (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations, comprehensive
loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related
notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are
matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the
audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions
on the critical audit matters or on the accounts or disclosures to which they relate.
As described in Note 6 to the consolidated financial
statements, during 2025 the Company completed the acquisitions of Sentrycs Ltd. and Robo-Team Ltd. and recorded preliminary purchase price
allocations for those transactions. Management’s estimates included the fair value of consideration transferred, acquired assets
and assumed liabilities, identifiable intangible assets, and goodwill. The most significant identifiable intangible assets recognized
in these acquisitions included developed technology, customer relationships, trade names, and non-compete arrangements, as applicable.
F-2
We identified the accounting for these business combinations
as a critical audit matter because of the significant judgment required to evaluate management’s estimates of the fair values of
certain acquired assets and liabilities. In particular, significant auditor judgment was required to evaluate the valuation methodologies
and significant assumptions used by management and its specialists, including forecasted financial results, royalty rates, customer attrition,
useful lives, discount rates, and other assumptions.
How the Critical Audit Matter Was Addressed
in the Audit
The principal procedures we performed to address
this critical audit matter included, among others:
● testing the acquisition-date balances used in the purchase price allocations;
/s/ Rosenberg Rich Baker Berman, P.A.
We have served as the Company’s auditor
since 2018.
Somerset, New Jersey
March 30, 2026
F-3
ONDAS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except par value)
December 31,
ASSETS
Current Assets:
Short-term investments 21,750 -
Goodwill, net of accumulated impairment charges 251,809 27,752
Long-term equity investments 35,587 -
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accrued expenses and other current liabilities 33,970 5,841
Accrued purchase consideration 75,000 -
Notes payable 704 -
Government grant liability 2,295 389
Government grant liability, net of current portion 1,362 2,168
Deferred tax liability 14,531 -
Commitments and Contingencies (Note 17)
Temporary Equity
Stockholders’ Equity
Accumulated other comprehensive income 329 -
Noncontrolling interest 4,011 -
The accompanying footnotes are an integral part
of these Consolidated Financial Statements.
F-4
ONDAS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
Operating expenses:
Other income (expense), net
Other income (expense), net 11 (20 )
Change in fair value of warrant liability, net (82,225 ) -
Change in fair value of government grant liability (204 ) 95
Interest and dividend income 9,112 235
Unrealized gain on investments 5,400 -
Foreign exchange gain (loss), net (27 ) (88 )
Total other income (expense), net (74,508 ) (3,398 )
Loss before provision for income taxes (132,892 ) (38,007 )
Provision for income taxes 488 -
Less preferred dividends attributable to noncontrolling interest 1,560 1,504
Less deemed dividends attributable to accretion of redemption value 3,592 2,908
Less net loss attributable to noncontrolling interest (1,361 ) -
Net loss attributable to Ondas Inc. stockholders $ (137,171 ) $ (42,419 )
Net loss per share – basic and diluted $ (0.62 ) $ (0.61 )
The accompanying footnotes are an integral part
of these Consolidated Financial Statements.
F-5
ONDAS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(dollars in thousands)
Years Ended December 31,
Other comprehensive income:
Foreign currency translation 393 -
-
Comprehensive loss attributable to:
Noncontrolling interests (1,297 ) -
The accompanying footnotes are an integral part
of these Consolidated Financial Statements.
F-6
ONDAS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
(dollars in thousands)
Ondas Inc. Stockholders’ Equity (Deficit)
Shares Amount Shares Amount Capital Income (Loss) Deficit Interest Equity
Settlement of development agreement - - 320,026 - 342 - - - 342
Stock-based compensation - - - - 1,265 - - - 1,265
Noncontrolling interest related to acquisitions - 5,642 - - - - - 3,891 3,891
Foreign currency translation adjustments, net of tax - 41 - - - 329 - 23 352
The accompanying footnotes are an integral part
of these Consolidated Financial Statements.
F-7
ONDAS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES
Investment gains (5,400 ) -
Amortization of debt discount and issuance cost 4,867 2,527
Amortization of intangible assets 5,808 4,220
Amortization of right of use asset 1,232 842
Noncash interest expense 331 -
Provision for obsolete inventory 923 121
Credit losses - 993
Loss on disposal of equipment - 2
Loss on intellectual property 16 28
Gain on termination of operating lease - (12 )
Change in fair value of warrant liability, net 82,225 -
Change in fair value of government grant liability 48 (215 )
Changes in operating assets and liabilities:
Cash paid for right of use asset - (272 )
Accrued expenses and other current liabilities 22,099 1,152
Operating lease liability (1,472 ) (180 )
Deferred tax liability (16 ) -
Net cash flows used in operating activities (38,746 ) (33,469 )
CASH FLOWS FROM INVESTING ACTIVITIES
Patent costs (67 ) (37 )
Proceeds from sale of equipment - 1
Purchase of software intangible (38 ) (61 )
Purchase of long-term equity investments (35,587 ) -
Purchases of short-term investments (15,428 ) -
Cash paid for asset acquisition, net of cash acquired (169 ) -
Cash paid for business acquisition, net of cash acquired (206,809 ) -
Net cash flows used in investing activities (260,132 ) (1,733 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options and warrants 30,837 58
Proceeds from exercise of warrants in Ondas Autonomous Systems 1,158 -
Proceeds from convertible notes payable, net of issuance costs 923 31,560
Proceeds from notes payable 235 -
Proceeds from notes payable, net of issuance costs, related party - 1,422
Proceeds from government grant 365 300
Payments on notes payable (29 )
Payments of issuance costs related to debt conversion (11 ) -
Payments on government grant liability (342 ) (277 )
Net cash flows provided by financing activities 862,653 50,179
Increase in cash, cash equivalents, and restricted cash 563,775 14,977
Effect of exchange rate on cash 585 -
Cash, cash equivalents, and restricted cash beginning of period 29,999 15,022
Cash, cash equivalents, and restricted cash end of period $ 594,359 $ 29,999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 41 $ 22
Cash paid for income taxes $ 10 $ -
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock in relation to business acquisitions $ 34,821 $ -
Common stock issued in exchange for debt repayment $ 53,658 $ 14,227
Warrants in relation to sale of common stock $ - $ 2,199
Non-cash consideration for settlement of development agreement payable $ - $ 342
Transfer of equipment into inventory $ - $ 2,290
The accompanying footnotes are an integral part
of these Consolidated Financial Statements.
F-8
ONDAS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
Ondas, Inc. (together with
its subsidiaries, the “Company,” “Ondas,” “we,” “us,” or “our”) is a defense,
security, and critical infrastructure technology company organized around three business units: Ondas Autonomous Systems Inc. (“OAS”), Ondas
Networks Inc. (“Ondas Networks”), and Ondas Capital Inc. (“Ondas Capital”). Through these business units,
we develop and commercialize autonomous systems, private wireless networking technologies, and strategic investment and partnership initiatives
that support the scaling and adoption of mission-critical solutions for governments and industrial customers.
OAS focuses on autonomous and
unmanned aerial and ground systems and integrated mission solutions for defense, homeland security, public safety, and other critical
infrastructure and industrial end markets. Through its product company subsidiaries, OAS develops, commercializes and delivers
integrated capabilities across Counter-Unmanned Aerial System (“CUAS”), aerial Intelligence, Surveillance,
and Reconnaissance (“ISR”), and Unmanned Ground Vehicle (“UGV”) applications. Ondas Networks provides
mission-critical private wireless connectivity solutions for Industrial Internet of Things (IOT) applications, enabling secure,
reliable, wide-area communications and edge data transport in demanding critical infrastructure environments. Ondas Capital supports
our growth strategy through strategic investments, partnerships, and capital formation initiatives intended to accelerate technology development,
expand market access, and enhance long-term value creation across the Ondas platform.
We manage these business units
as distinct operating platforms aligned to complementary end markets and customer requirements. Our approach is designed to combine advanced
autonomy, secure communications, and integrated operating capabilities to help customers improve situational awareness, operational resilience,
and safety and security outcomes in complex, regulated, and often contested environments.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated
financial statements include the consolidated accounts of the Company and its wholly-owned, controlled subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation. The accompanying Consolidated Financial Statements present the Company’s
historical financial position, results of operations, changes in stockholders’ equity and cash flows in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). Events occurring subsequent to December 31, 2025 have
been evaluated for potential recognition or disclosure in the consolidated financial statements.
Business Combinations
The Company accounts for business
combinations in accordance with ASC 805, Business Combinations. Assets acquired, liabilities assumed, and noncontrolling interests are
measured at fair value at the acquisition date. Any excess of the consideration transferred over the estimated fair value of net assets
acquired is recorded as goodwill.
Goodwill and Intangible Assets
Goodwill and other intangible
assets result from the Company’s acquisition of existing businesses. In accordance with accounting standards related to business
combinations, goodwill is not amortized; however, certain finite-lived identifiable intangible assets, primarily customer relationships
and acquired technology, are amortized over their estimated useful lives. Intangible assets with indefinite lives are not amortized. The
Company reviews identified intangible assets and goodwill for impairment whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. The Company also tests intangible assets with indefinite lives and goodwill for impairment
at least annually. Refer to Notes 6 and 7 for additional information about the Company’s goodwill and other intangible assets.
F-9
Revenue Recognition
The Company derives revenues
primarily from the Ondas Networks and OAS products and services. Revenue is recognized when control of the promised products or services
is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in
exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct
product or service to a customer and is the unit of account under Accounting Standards Codification (“ASC”) 606, Revenue
from Contracts with Customers. Significant judgments related to revenue recognition include the determination of performance
obligations, the timing of transfer of control, and the selection of appropriate methods to measure progress toward satisfaction of performance
obligations.
Product Revenues
Product revenues are generated
from the sale of hardware and related products. For product sales, control generally transfers to the customer at a point in time. In
determining when control transfers, the Company considers, among other indicators, whether it has a present right to payment, legal title
has transferred, the customer has obtained the significant risks and rewards of ownership, and customer acceptance has occurred, where
acceptance is not considered a formality. The Company’s principal shipping terms are Free On Board (“FOB”) Shipping
Point, or equivalent. Generally, revenue is recognized upon shipment of the product when control transfers based on the contractual shipping
terms and customer acceptance provisions. For sales arrangements with shipping terms other than FOB Shipping Point, revenue recognition
is evaluated based on the specific contractual shipping terms and customer obligations. Shipping and handling activities are not assessed
as separate performance obligations as they are considered fulfillment activities.
If a performance obligation
related to a product sale remains unsatisfied after shipment—typically installation or customer acceptance—revenue related
to that performance obligation is deferred until the obligation has been satisfied. The Company estimates expected product returns at
the time of sale and records them as a reduction of revenue. Customer allowances and rebates, consisting primarily of volume discounts
and other short-term incentive programs, are accounted for as variable consideration and recorded as a reduction of revenue at the time
of sale. Estimates of product returns, customer allowances, and rebates are based on historical experience, current trends, and known