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Ondas Holdings Inc. reported for 2022 q2

Published: 2022-09-22 20:09:16 ET (After Market Close)
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EX-99.5 7 ea166152ex99-5_ondas.htm THE AUDITED FINANCIAL STATEMENTS OF AIROBOTICS FOR THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31, 2020

Exhibit 99.5

AIROBOTICS LTD.
Consolidated Statements of Financial Position

     

As of December 31,

   

Note

 

2021

 

2020

       

U.S. dollars in thousands

Current assets

       

 

   

 

Cash and cash equivalents

 

5

 

6,686

 

 

780

 

Restricted cash

 

14B

 

62

 

 

49

 

Accounts receivables

 

6

 

250

 

 

128

 

Inventory

 

7

 

1,210

 

 

 

Other accounts receivables

 

8

 

393

 

 

280

 

       

8,601

 

 

1,237

 

         

 

   

 

Non-current assets

       

 

   

 

Long-term deposits

     

34

 

 

 

Right-of-use-assets

 

9

 

674

 

 

892

 

Property and equipment, net

 

10

 

3,142

 

 

6,111

 

Intangible assets, net

 

2J

 

26

 

 

52

 

       

3,876

 

 

7,055

 

         

 

   

 

Total assets

     

12,477

 

 

8,292

 

         

 

   

 

Current liabilities

       

 

   

 

Current maturities of long-term bank loans

 

13

 

 

 

999

 

Accounts payables

     

312

 

 

220

 

Lease liability

 

9

 

328

 

 

271

 

Government grants liability

 

14

 

134

 

 

143

 

Other payables

 

11

 

1,517

 

 

1,409

 

       

2,291

 

 

3,042

 

         

 

   

 

Noncurrent liabilities

       

 

   

 

Government grants liability

 

14

 

1,348

 

 

1,032

 

Long-term lease liabilities

 

9

 

452

 

 

697

 

Convertible loans

 

14

 

 

 

8,567

 

       

1,800

 

 

10,296

 

Total liabilities

     

4,091

 

 

13,338

 

         

 

   

 

Equity

       

 

   

 

Ordinary share capital

     

51

 

 

153

 

Share premium and reserves

     

149,094

 

 

116,323

 

Foreign currency translation reserve

     

(2

)

 

466

 

Accumulated deficit

     

(140,757

)

 

(121,988

)

Total equity (deficiency)

     

8,386

 

 

(5,046

)

         

 

   

 

Total liabilities and equity

     

12,477

 

 

8,292

 

The attached Notes constitute an integral part of the consolidated financial statements.

September 22, 2022

 

Ron Stern

 

Meir Kliner

 

Yishay Curelaru

Financial statements approval date

 

Chairman

 

CEO and Director

 

CFO & COO

1

AIROBOTICS LTD.
Consolidated Statements of Comprehensive Income

     

Year Ended December 31,

   

Note

 

2021

 

2020

       

U.S. dollars in thousands

Revenues

 

15

 

3,287

 

1,609

 

Cost of revenues

 

16

 

3,661

 

3,477

 

             

 

Gross loss

     

374

 

1,868

 

             

 

Research and development expenses

 

19

 

7,702

 

6,387

 

             

 

Sales and marketing expenses

 

17

 

3,219

 

847

 

             

 

General and administrative expenses

 

18

 

6,033

 

2,671

 

             

 

Other expenses (income), net

 

20

 

146

 

(81

)

             

 

Operating loss

     

17,474

 

11,692

 

             

 

Financing expenses

 

21

 

1,383

 

2,693

 

Financing income

 

21

 

88

 

77

 

             

 

Loss for the period

     

18,769

 

14,308

 

             

 

Other comprehensive loss

           

 

             

 

Other comprehensive loss that may be reclassified to profit or loss in subsequent periods (net of tax):

           

 

             

 

Exchange differences on translation of foreign operation

     

2

 

91

 

Loss from disposal of foreign operation

     

466

 

 

Total other comprehensive loss, net of tax

     

468

 

91

 

             

 

Total comprehensive loss

     

19,237

 

14,399

 

The attached Notes constitute an integral part of the consolidated financial statements.

2

AIROBOTICS LTD.
Consolidated Statements of Changes in Equity (Equity Deficit)

 

Ordinary
Share
capital

 

Share
premium and
reserves

 

Foreign
currency
translation
reserve

 

Accumulated
deficit

 

Total

   

U.S. dollars in thousands

Balance as of January 1, 2020

 

153

 

 

113,147

 

 

557

 

 

(107,680

)

 

6,177

 

     

 

   

 

   

 

   

 

   

 

Loss for the period

 

 

 

 

 

 

 

(14,308

)

 

(14,308

)

Other comprehensive loss

 

 

 

 

 

(91

)

 

 

 

(91

)

Equity component in a convertible loan

 

 

 

2,489

 

 

 

 

 

 

2,489

 

Share-based payments

 

 

 

687

 

 

 

 

 

 

687

 

     

 

   

 

   

 

   

 

   

 

Balance as of December 31, 2020

 

153

 

 

116,323

 

 

466

 

 

(121,988

)

 

(5,046

)

     

 

   

 

   

 

   

 

   

 

Loss for the period

 

 

 

 

 

 

 

(18,769

)

 

(18,769

)

Other comprehensive loss

 

 

 

 

 

(468

)

 

 

 

(468

)

Exercise of options

 

2

 

 

39

 

 

 

 

 

 

41

 

Equity component in a convertible loan(**)

 

 

 

217

 

 

 

 

 

 

217

 

Share-based payments(*)

 

 

 

7,185

 

 

 

 

 

 

7,185

 

Conversion of convertible loan(**)

 

775

 

 

14,123

 

 

 

 

 

 

14,898

 

Shareholders contribution to equity(**)

 

 

 

3,436

 

 

 

 

 

 

3,436

 

Reduction of share par value(*)

 

(896

)

 

896

 

 

 

 

 

 

 

Conversion of SAFE liability(**)

 

8

 

 

4,464

 

 

 

 

 

 

4,472

 

Issuance of share capital, net of issuance costs(*)

 

9

 

 

5,847

 

 

 

 

 

 

5,856

 

Issue costs related to conversion of convertible loan(**)

 

 

 

(3,436

)

 

 

 

 

 

(3,436

)

     

 

   

 

   

 

   

 

   

 

Balance as of December 31, 2021

 

51

 

 

149,094

 

 

(2

)

 

(140,757

)

 

8,386

 

____________

(*)      See note 12.

(**)    See note 13.

The attached Notes constitute an integral part of the consolidated financial statements.

3

AIROBOTICS LTD.
Consolidated Statements of Cash Flows

 

Year Ended December 31,

   

2021

 

2020

   

U.S. dollars in thousands

Operating activities

   

 

   

 

     

 

   

 

Loss

 

(18,769

)

 

(14,308

)

     

 

   

 

Adjustments to reconcile loss to net cash flows from operating activities

   

 

   

 

Depreciation and impairment of property and equipment and right-of-use assets

 

1,861

 

 

1,055

 

Amortization and impairment of intangible assets

 

32

 

 

71

 

(Gain) or loss on disposal or sale of Property and equipment

 

(292

)

 

(89

)

Share-based payments

 

7,185

 

 

687

 

Financing expenses, net

 

1,361

 

 

2,732

 

Revaluation of a government grants

 

(203

)

 

(247

)

Loan forgiveness guaranteed by the US government

 

(166

)

 

 

Income from disposal of foreign operation

 

(466

)

 

 

Loss from early termination of leases

 

 

 

96

 

Remeasurement of options

 

38

 

 

 

   

9,350

 

 

4,305

 

Changes in items of assets and liabilities:

   

 

   

 

Decrease (increase) in accounts receivable

 

(122

)

 

438

 

Decrease (increase) in other accounts receivable

 

(108

)

 

794

 

Increase (decrease) in accounts payable

 

92

 

 

(79

)

Increase in other payables

 

114

 

 

28

 

   

(24

)

 

1,181

 

Net cash used in operating activities

 

(9,443

)

 

(8,822

)

     

 

   

 

Investing activities

   

 

   

 

Change in restricted cash, net

 

(14

)

 

94

 

Investments in deposits

 

(4

)

 

 

Proceeds from sale of Property and equipment

 

997

 

 

2

 

Purchase of Property and equipment

 

(518

)

 

(1,063

)

     

 

   

 

Net cash provided by (used in) Investing activities

 

461

 

 

(967

)

     

 

   

 

Financing activities

   

 

   

 

Repayment of loans received

 

(833

)

 

(816

)

Proceeds from exercise of options, net

 

4

 

 

 

Payment of interest for loans and leases

 

(66

)

 

(170

)

Payment of lease liability

 

(319

)

 

(485

)

Receipt of a guaranteed loan from the US government

 

 

 

166

 

Proceeds from issuance of share capital, net

 

5,856

 

 

 

Proceeds from government grants

 

416

 

 

517

 

Payment of government grant royalties

 

(69

)

 

(70

)

Proceeds from convertible loan(*)

 

5,446

 

 

8,004

 

Proceeds from SAFE

 

4,455

 

 

 

     

 

   

 

Cash provided by financing activities

 

14,890

 

 

7,146

 

Exchange rate differences of cash balances and cash equivalents

 

(2

)

 

(114

)

4

AIROBOTICS LTD.
Consolidated Statements of Cash Flows — (Continued)

 

Year Ended December 31,

   

2021

 

2020

   

U.S. dollars in thousands

Net Increase (decrease) in cash and cash equivalents during the year

 

5,906

 

(2,757

)

         

 

Cash and cash equivalents at the beginning of the year

 

780

 

3,537

 

Cash and cash equivalents at the end of the year

 

6,686

 

780

 

         

 

(a) Significant non-cash transactions:

       

 

         

 

Right-of-use asset recognized with corresponding lease liability

 

64

 

740

 

Non-cash share issuance

 

6

 

 

Change of use of Property and equipment to inventory

 

1,210

 

 

Conversion of convertible loan, SAFE liability & Warrants

 

19,402

 

 

____________

(*)      See note 13

The attached Notes constitute an integral part of the consolidated financial statements.

5

AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 1 — General:

a.      Airobotics Ltd. (“Company”) was incorporated in Israel on August 5, 2014 and began operations on that date.

b.      The Company collects, analyses, and provides access to information automatically using a UAV (“unmanned aerial vehicle”–multi-motor drone). The Company has developed systems that include data collection and data processing for valuable insights for customers, in an automated process, which does not require human contact and without human intervention, and provides its customers with end-to-end service, which enables the extraction of value from data collected from the airspace using an automated UAV, automatically, quickly, safely, and efficiently.

As of December 31, 2021, considering the expansion of the Company’s operations in the United Arab Emirates, the Company intend to sell the UAV equipment itself (a system that includes the docking station, 2 Drones and Mast), in addition to its service package as described above.

c.      On September 22, 2021 the Company completed its initial public offering (IPO) on the Tel Aviv Stock Exchange (“TASE”). For further information, see Note 12.

d.      As of December 31, 2021, the Company has Wholly Owned Subsidiaries in the United States, Singapore, and Dubai.

The Company’s subsidiary, Airobotics Inc., was incorporated in the United States in 2016 and began operations in 2018. The subsidiary, Airobotics PTI, was incorporated in Singapore during the second quarter of 2019. As of reporting date, the subsidiaries have no sales and marketing activities.

The subsidiary Airobotics PTE was incorporated in Singapore during the second quarter of 2019. As of the reporting date, the subsidiary has no sales and marketing activities.

The subsidiary Airobotics Gulf DMCC was incorporated in Dubai on March 8, 2022. The subsidiary will concentrate sales and marketing activities in the United Arab Emirates and the Persian Gulf countries.

The subsidiary, Airobotics PTY., was incorporated in Australia in 2016 and began operations in June 2017. At the end of 2019, the subsidiary in Australia closed its operations and completed its voluntary liquidation process in June 2021. The Company recorded a gain as a result of the disposal of its operations in Australia.

The subsidiary, Airobotics K.K., was incorporated in Japan during the second quarter of 2019 and, in the first quarter of 2020 closed its operations and was dissolved.

e.      The Company has significant losses since its establishment. During the years the Company has financed its operations mainly through equity, convertible loans from shareholders; bank loans, and grants from the Israel Innovation Authority. The Company has negative cash flow from operating activities of $9,443 thousand and a comprehensive loss of $18,769 thousand for the year ended December 31, 2021, and an accumulated deficit of $140,757 thousand as of December 31, 2021. The Company has not yet signed a new contract with a material customer for 2022, a contract that the Company expected to be a significant part of its future growth. In addition, as of the reporting date, there are no signed orders from customers. The shareholder’s obligation to the Company, as noted in note 1 e (4) below depends on the agreement between the parties and as stated has not been fully realized through the date of approval of the financial statements.

The Company will be required to obtain additional financing in the short term in order to support its operation. The Company’s ability to successfully carry out its business plan is primarily dependent upon the continued financial support from its shareholders and its ability to raise sufficient additional capital. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed to support its operations.

6

AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 1 — General: (cont.)

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

The management’s plans include, among other things, the following:

1.      On August 4, 2022, the Company entered into a binding merger agreement with Ondas, which is a public company traded on Nasdaq, for further information See also Note 24 (e) .

2.      Efficiency and improving profitability — during 2020 and 2021, the Company’s workforce was reduced. As a result the salary expenses was reduced along with other operating expenses. in order to improve profitability and significantly reduce the operating loss. The Company will consider further reductions in the future, as necessary, if the Company’s plan in connection with the acquisition of the Company by the third party does not succeed, in a manner that does not harm the Company’s current activities and the Company’s ability to provide service to its customers.

3.      Raising additional capital and debt — the Company will act to raise funds from additional sources in the form of capital and/or debt from existing and new shareholders and/or act to receive financing from external sources as needed.

4.      On February 10, 2022, the Company received from a related party a letter of obligation to support the Company as needed, without limit of amount, for a period of at least 24 months from the date of the letter, through capital investment under terms to be agreed between the Company and the related party and pursuant to a board of directors’ resolution to be made. The Company and its legal counsel believe that the letter of obligation is considered a legal agreement that is binding on the related party to invest funds if the Company needs those funds as needed. Also, according to the Company, the related party has the sources of funding to meet the obligation. In addition, in May 2022, the Company received a loan from the related party, as stated in Note 24 (d).

5.      The Company will work to expand its activities in new markets.

6.      In September 20, 2022, the Company entered into a loan agreement according to which Ondas shall provide the Company with credit of up to $1.5 million (see note 24 (g)).

f.       COVID-19 pandemic:

In December 2019, a novel coronavirus (“COVID-19”) was reported in China. During March 2020, it was declared a pandemic by the World Health Organization (“WHO”).

The global COVID-19 pandemic crisis has affected the Company, inter alia, due to traffic restrictions imposed in Israel and world-wide, which cause delays in the scheduling of various projects and limits the ability of Company employees to provide customer site support, canceling business trips and marketing events. At the same time, the COVID-19 pandemic has accelerated the implementation of advanced remote listening measures to assist the work of security and public health institutions around the world. For example, as part of the Singapore government’s efforts to protect public health during the COVID-19 pandemic, Singapore’s Science and Technology Agency (HTX) used Airobotics systems to increase Singapore Police efforts in monitoring gatherings using real-time aerial information transmitted by the

Company’s unmanned aerial vehicle technology. The use of Airobotics’ systems included over 1,200 operational flights over a period of 3 months in a populated area, in the urban area of Singapore.

As of reporting date, the Company believes that its business activity will not be significantly affected. by the COVID-19 pandemic.

7

AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies:

The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated.

a.      Basis of presentation of the financial statements:

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

The Company’s financial statements have been prepared on a cost basis, except for financial assets and liabilities (including derivatives) which are presented at fair value through profit or loss.

The Company has elected to present the profit or loss items using the function of expense method.

b.      Functional currency, presentation currency and foreign currency:

1.      Functional currency and presentation currency:

The presentation currency of the financial statements is the USD.

The Group determines the functional currency of each Group entity.

Assets, including fair value adjustments upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each reporting date. Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences are recognized in other comprehensive loss.

Upon the full or partial disposal of a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which had been recognized in other comprehensive loss is carried to profit or loss. Upon the partial disposal of a foreign operation which results in the retention of control in the subsidiary, the relative portion of the amount recognized in other comprehensive income is reattributed to non-controlling interests.

2.      Transactions, assets and liabilities in foreign currency:

Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at the exchange rate at that date. Exchange rate differences, other than those capitalized to qualifying assets or accounted for as hedging transactions in equity, are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currency and measured at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

c.      Cash Equivalents:

Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of investment.

d.      Short-term deposits:

Short-term bank deposits are deposits with an original maturity of more than three months from the date of investment and which do not meet the definition of cash equivalents. The deposits are presented according to their terms of deposit.

8

AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

e.      Consolidated financial statements:

The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.

Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.

f.       Operating Cycle:

The Company’s normal operating period is one year.

g.      Revenue recognition:

Revenue from contracts with customers is recognized when the control over the goods or services is transferred to the customer. The transaction price is the amount of the consideration that is expected to be received based on the contract terms, excluding amounts collected on behalf of third parties (such as taxes).

Revenue from the sale of goods:

Revenue from sale of goods is recognized in profit or loss at the point in time when the control of the goods is transferred to the customer, generally upon delivery of the goods to the customer.

Revenue from rendering of services:

Revenue from rendering of services is recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Company’s performance. The Company charges its customers based on payment terms agreed upon in specific agreements.

h.      Taxes on income:

Current or deferred taxes are recognized in profit or loss, except to the extent that they relate to items which are recognized in other comprehensive income or equity.

Current Taxes:

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years.

i.       Property and equipment:

Property and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses and any related investment grants and excluding day-to-day servicing expenses. Cost includes spare parts and auxiliary equipment that are used in connection with equipment.

9

AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:

 

%

Docking stations and Drones

 

20 – 33

Computers and peripheral equipment

 

33

Office furniture and equipment

 

6 – 33

Motor vehicles

 

20

Leasehold improvements

 

(*)

____________

(*)      Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including the extension option held by the Group and intended to be exercised) and the useful life of the improvement.

The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.

j.       Intangible Assets:

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalized development costs, are recognized in profit or loss when incurred.

Intangible assets with a finite useful life are amortized on a straight-line basis over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year end.

The intangible assets of the Company consist of software.

Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:

 

%

Software

 

33

Research and development expenditures:

Research expenditures are recognized in profit or loss when incurred.

Costs incurred in an internal development project are recognized as an intangible asset when the following conditions are met:

-        The Company can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale;

-        The Company’s intention to complete the intangible asset and use or sell it

-        The ability to use or sell the intangible asset;

-        How the intangible asset will generate future economic benefits;

-        The availability of adequate technical, financial and other resources to complete the intangible asset; and-

-        The ability to measure reliably the expenditures attributable to the intangible asset during its development.

10

AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

When an internally developed intangible asset cannot be recognized, the development costs are recognized as an expense in profit or loss as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.

The Company focuses on improving existing technology and related software, and is in various stages of project examination and development. As of reporting date, there is no certainty as to the existence of technical, financial and other resources to complete these processes, and accordingly, the Company did not recognize the asset in its financial statements. In light of the above, development expenses up to reporting date did not meet such conditions, and were therefore charged to the statement of comprehensive income when incurred.

k.      Impairment of Non-Financial Assets:

The Company evaluates the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss.

An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss.

l.       Financial Instruments:

1.      Financial Assets:

Financial assets are measured upon initial recognition at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, except for financial assets measured at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss.

The Company classifies and measures debt instruments in the financial statements based on the following criteria:

-        The Company’s business model for managing financial assets; and

-        The contractual cash flow terms of the financial asset.

a)      Debt instruments are measured at amortized cost when:

The Company’s business model is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

After initial recognition, the instruments in this category are measured according to their terms at amortized cost using the effective interest rate method, less any provision for impairment.

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AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

2.      Impairment of Financial Assets:

The Company evaluates at the end of each reporting period the loss allowance for financial debt instruments which are not measured at fair value through profit or loss. The Company distinguishes between two types of loss allowances:

a)      Debt instruments whose credit risk has not increased significantly since initial recognition, or whose credit risk is low — the loss allowance recognized in respect of this debt instrument is measured at an amount equal to the expected credit losses within 12 months from the reporting date (12-month ECLs); or;

b)      Debt instruments whose credit risk has increased significantly since initial recognition, and whose credit risk is not low — the loss allowance recognized is measured at an amount equal to the expected credit losses over the instrument’s remaining term (lifetime ECLs).

An impairment loss on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from the carrying amount of the financial asset.

The Company has short-term financial assets such as accounts receivables in respect of which the Company applies the simplified approach in IFRS 9 and measures the loss allowance in an amount equal to the lifetime expected credit losses.

3.      Derecognition of Financial Assets:

A financial asset is derecognized only when:

-        The contractual rights to the cash flows from the financial asset has expired; or

-        The Company has transferred substantially all the risks and rewards deriving from the contractual rights to receive cash flows from the financial asset or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset; or

-        The Company has retained its contractual rights to receive cash flows from the financial asset but has assumed a contractual obligation to pay the cash flows in full without material delay to a third party.

4.      Financial Liabilities:

a)      Financial Liabilities Measured at Amortized Cost:

Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability. After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method, except for: Financial liabilities measured at fair value through profit or loss such as derivatives;

b)      Financial Liabilities Measured at Fair Value Through Profit or Loss:

At initial recognition, the Company measures these financial liabilities at fair value. Transaction costs are recognized in profit or loss.

After initial recognition, changes in fair value are recognized in profit or loss.

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AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

5.      Derecognition of Financial Liabilities:

A financial liability is derecognized only when it is extinguished, that is when the obligation specified in the contract is discharged or canceled or expires. A financial liability is extinguished when the debtor discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability.

When there is a modification in the terms of an existing financial liability, the Company evaluates whether the modification is substantial, taking into account qualitative and quantitative information.

If the terms of an existing financial liability are substantially modified or a liability is exchanged for another liability from the same lender with substantially different terms, the modification or exchange is accounted for as an extinguishment of the original liability and the recognition of a new liability. The difference between the carrying amounts of the above liabilities is recognized in profit or loss.

If the modification in the terms of an existing liability is not substantial or if a liability is exchanged for another liability from the same lender whose terms are not substantially different, the Company recalculates the carrying amount of the liability by discounting the revised cash flows at the original effective interest rate and any resulting difference is recognized in profit or loss.

6.      Complex Financial Instruments:

Convertible loans, which contain both an equity component and a liability component are separated into two components. This separation is performed by first determining the liability component based on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined to be the residual amount. Directly attributable transaction costs are apportioned between the equity component and the liability component based on the allocation of proceeds to the equity and liability components.

7.      Extinguishing financial liabilities with equity instruments:

Equity instruments issued to replace a debt are measured at the fair value of the equity instruments issued if their fair value can be reliably measured. If their fair value cannot be reliably measured, the equity instruments are measured based on the fair value of the financial liability extinguished on the date of extinguishment. The difference between the carrying amount of the financial liability extinguished and the fair value of the equity instruments issued is recognized in profit or loss.

m.     Inventory:

Inventories are measured at the lower of cost and net realizable value. The cost of inventories comprises costs of purchase and costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale. The Company periodically evaluates the condition and age of inventories and makes provisions for slow moving inventories accordingly.

Cost of inventories is determined as follows:

Raw materials — at cost of purchase using the “first-in, first-out” method.

Work in progress and finished goods — on the basis of average costs including materials, labor and other direct and indirect manufacturing costs based on normal capacity.

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AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

Change of Use — From Property and equipment to Inventory:

Considering the expansion of the Company’s operations in the United Arab Emirates, the Company intend to sell some of the UAV equipment to customers as part of its business model (a system that includes the docking station, 2 Drones and Mast), in addition to its service package as described above. Therefore, as of December 31, 2021, the company has decided to transfer the UAV equipment, that were classified as property, plant, and equipment, to Inventory.

n.      Fair value measurement:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value measurement is based on the assumption that the transaction will take place in the asset’s or the liability’s principal market, or in the absence of a principal market, in the most advantageous market.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

Fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement:

 

Level 1

 

 

quoted prices (unadjusted) in active markets for identical assets or liabilities.

             
   

Level 2

 

 

inputs other than quoted prices included within Level 1 that are observable directly or indirectly.

             
   

Level 3

 

 

inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data).

o.      Provisions:

A provision in accordance with IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense is recognized in the statement of profit or loss net of any reimbursement.

Following are the types of provisions included in the financial statements:

Legal Claims:

A provision for claims is recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required by the Group to settle the obligation and a reliable estimate can be made of the amount of the obligation.

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AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

p.      Employee benefit liabilities:

The Group has several employee benefits plans:

1.      Short Term Employee Benefits:

Short-term employee benefits are benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. These benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

2.      Post-Employment Benefits:

The plans are normally financed by contributions to insurance companies and classified as defined contribution plans.

The Group has defined contribution plans pursuant to section 14 to the Severance Pay Law under which the Group pays fixed contributions and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods.

Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense when contributed concurrently with performance of the employee’s services.

All employees of the Company in Israel are subject to Section 14 of Severance Compensation Law, 1963.

q.      Share-Based Payment Transactions:

The Company’s employees or other service providers are entitled to remuneration in the form of equity-settled share-based payment transactions.

Equity-settled transactions:

The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an acceptable option pricing model.

As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments granted.

The cost of equity-settled transactions is recognized in profit or loss together with a corresponding increase in equity during the period which the performance and/or service conditions are to be satisfied and ending on the date on which the relevant employees become entitled to the award (“the vesting period”). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied.

15

AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

If the Company modifies the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification date.

If a grant of an equity instrument is canceled, it is accounted for as if it had vested on the cancelation date and any expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the canceled grant and is identified as a replacement grant on the grant date, the canceled and new grants are accounted for as a modification of the original grant, as described above.

r.       Government Grants:

Government grants are recognized when there is reasonable assurance that the grants will be received, and the Company will comply with the attached conditions.

Government grants received from the Israel Innovation Authority (formerly: the Office of the Chief Scientist in Israel, “the IIA”) are recognized upon receipt as a liability if future economic benefits are expected from the research project that will result in royalty-bearing sales.

A liability for grants received is first measured at fair value using a discount rate that reflects a market rate of interest. The difference between the amount of the grant received and the fair value of the liability is accounted for as a government grant and recognized as a reduction of research and development expenses.

After initial recognition, the liability is measured at amortized cost using the effective interest method. Royalty payments are treated as a reduction of the liability. If no economic benefits are expected from the research activity, the grant receipts are recognized as a reduction of the related research and development expenses. In that event, the royalty obligation is treated as a contingent liability in accordance with IAS 37.

At each reporting date, the Company evaluates whether there is reasonable assurance that the liability recognized, in whole or in part, will not be repaid (since the Company will not be required to pay royalties) based on the best estimate of future sales and using the original effective interest method, and if so, the appropriate amount of the liability is derecognized against a corresponding reduction in research and development expenses.

Amounts paid as royalties are recognized as settlement of the liability.

s.       Leases:

The Company accounts for a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration.

1.      The Group as lessee:

For leases in which the Company is the lessee, the Company recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, the Company has elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the lease liability, the Company has elected to apply the practical expedient in IFRS 16 and does not separate the lease components from the non-lease components (such as management and maintenance services, etc.) included in a single contract.

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AIROBOTICS LTD.
Notes to Consolidated Financial Statements

Note 2 — Significant Accounting Policies: (cont.)

Leases which entitle employees to a company car as part of their employment terms are accounted for as employee benefits in accordance with the provisions of IAS 19 and not as subleases.