UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20192022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ________________

Commission File Number: 000-56004

ONDAS HOLDINGS INC.

(Exact name of Registrantregistrant as specified in its charter)

Nevada47-2615102
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)

411 Waverley Oaks Road, Suite 114, Waltham, MA 02452

165 Gibraltar Court, Sunnyvale, CA 94089

(Address of principal executive offices) (Zip Code)

(Address of principal executive offices) (Zip Code)

(888) 350-9994
(Registrant’s telephone number, including area code)

Registrant’s telephone number (888) 350-9994

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock par value $0.0001ONDSThe Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Exchange Act:Common Stock, $0.0001 par value None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filer☐ Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 28, 201930, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $186,585,000.$187,729,280. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

AsThe number of shares outstanding of the issuer’s common stock as of March 13, 2020, the registrant had 59,268,085 outstanding shares of common stock, $0.0001 par value.10, 2023 was 49,062,030.

 

 

 

 

 

ONDAS HOLDINGS INC.

INDEX TO ANNUAL REPORT ON FORMCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. Forward-looking statements may appear throughout this report, including without limitation, the following sections: Item 1 “Business,” Item 1A “Risk Factors,” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations. “Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

FOR THE YEAR ENDED DECEMBER 31, 2019

We caution you that assumptions, beliefs, expectations, intentions, and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. A summary of some of the factors that could cause actual results to differ from those expressed or implied by our forward-looking statements, including forward-looking statements contained in this Annual Report on Form 10-K, is provided below under “Risk Factor Summary.” These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Annual Report on Form 10-K and our other filings with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments, or other strategic transactions we may make. You should not place undue reliance on our forward-looking statements.

Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise, except as required by law.

i

 

TableRisk Factor Summary

Our business is subject to a number of Contentsrisks and uncertainties, including those highlighted in the section titled “Item 1A. Risk Factors” in this Annual Report on Form 10-K. Some of these principal risks include the following:

Risks Related to Our Business and Industry

We have incurred significant operating losses since inception and cannot assure you that we will ever achieve or sustain profitability.
The Company operates in evolving markets, which makes it difficult to evaluate the Company’s business and future prospects.
Failure to manage our planned growth could place a significant strain on our resources.

 

If we fail to retain our existing customers or do not acquire new customers in a cost-effective manner, our revenue may decrease and our business, financial condition or results of operations may be harmed.
Our contractors may fail to satisfy their obligations to us or other parties, or we may be unable to maintain these relationships, either of which may have a material adverse effect on our business, financial condition and results of operations.
Material delays or defaults in customer payments could leave us unable to cover expenditures related to such customer’s projects, including the payment of our subcontractors.
Warranty claims resulting from our services could have a material adverse effect on our business, financial condition or results of operations.
Our marketing efforts depend significantly on our ability to receive positive references from our existing customers.
Our technology, products and services have only been developed in the last several years and we have had only limited opportunities to deploy and assess their performance in the field at full scale.

 PART I
ITEM 1.BUSINESS1
ITEM 1A.RISK FACTORS14
ITEM 1B.UNRESOLVED STAFF COMMENTS33
ITEM 2.PROPERTIES33
ITEM 3.LEGAL PROCEEDINGS33
ITEM 4.MINE SAFETY DISCLOSURES33We expect to incur substantial research and development costs and devote significant resources to identifying and commercializing new products and services, which could significantly reduce our profitability and may never result in revenue to us.
   
 PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES34
ITEM 6.SELECTED FINANCIAL DATA34
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS35
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK46
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA46
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE47
ITEM 9A.CONTROLS AND PROCEDURES47
ITEM 9B.OTHER INFORMATION48If our products do not interoperate with our customers’ other systems, the purchase or deployment of our products and services may be delayed or cancelled.
   
 PART IIICyberattacks through security vulnerabilities could lead to disruption of business, reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

 
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE49
ITEM 11.EXECUTIVE COMPENSATION53
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS55
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE56
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES58If the Company is required to write down goodwill and other intangible assets, the Company’s financial condition and results could be negatively affected.
   
 PART IVWe may not be able to secure adequate insurance policies, or secure insurance policies at reasonable prices.
   
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES59Litigation may adversely affect our business, financial condition, and results of operations.
ITEM 16.FORM 10-K SUMMARY60
Our products have inherent safety risks, as they often operate in hazardous industrial environments and are relied on by our customers to operate in a safe manner. If the reliability of our products fails to meet expected levels during commercial operation, this could result property damage, injury, death, financial harm to the business, and/or brand harm to the business.

 

iRisks Related to Regulatory Requirements

We and our customers operate in a highly regulated business environment and changes in regulation could impose costs on us or make our products less economical.
Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small UAS in response to public privacy and other concerns, may prevent us from expanding the sales of our drone solutions to industrial and government customers in the United States.
Substantially all our current products depend on the availability and are subject to the use of licensed radio frequencies regulated by the FCC in the United States.
As a manufacturer of commercial UAS, we are subject to various government regulations, restrictions and requirements, and may be subject to additional regulations in the future, violation of which could subject us to sanctions or otherwise harm, restrict or add costs to our business.

Risks Related to our Intellectual Property

Our ability to protect our intellectual property and proprietary technology is uncertain.
Our business may suffer if it is alleged or found that our products infringe the intellectual property rights of others.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

Risks Related to our Financial Results

We will need to generate significant sales to achieve profitable operations.
Our future profitability may be dependent upon achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products. Failing to achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.
We previously identified a material weakness in our internal control over financial reporting associated with the inadequate review of stock-based compensation issued in connection with the acquisition of American Robotics, which has since been remediated, and we may identify material weaknesses in the future.

Following the completion of the acquisition of Airobotics, our exposure to fluctuations in foreign currency exchange rates has increased.

Risks Related to the Airobotics Transaction 

Our business relationships, those of Airobotics or the combined company may be subject to disruption due to uncertainty associated with the acquisition of Airobotics (the “Airobotics Transaction”).
Ondas may experience difficulties integrating Airobotics’ business.

The combined company may not fully realize the anticipated benefits of the Airobotics Transaction within the timing anticipated or at all. 

The Airobotics Robotics Transaction involved substantial costs.

Risks Related to our Common Stock

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.
We may issue more shares to raise additional capital, which may result in substantial dilution.

ii

 

 

PART I

Item 1.Business.

Item 1. Business.

Corporate Overview of Ondas Holdings Inc.

Ondas Holdings Inc. (the “Company”) was originally incorporatedThis business description should be read in Nevada on December 22, 2014 under the name of Zev Ventures Incorporated. On September 28, 2018, we consummated a reverse acquisition transaction to acquire a privately-held company, Ondas Networks Inc.,conjunction with our audited consolidated financial statements and changed our name from “Zev Ventures Incorporated” to “Ondas Holdings Inc.” As a result, Ondas Networks Inc. (“Ondas Networks”) became our wholly owned subsidiary. We refer toaccompanying notes thereto appearing elsewhere in this transaction as the “Acquisition.” In connection with the closing of the Acquisition, we discontinued the prior business of Zev Ventures as a reseller of sporting and concert tickets and our sole business became that of Ondas Networks.

This Annual Report on Form 10-K (“Formfor the year ended December 31, 2022 (the “Form 10-K”) reports our business and financial results on a consolidated basis and therefore, the, which are incorporated herein by this reference.

The use of the words “we,” “our,” the “Company” and “Ondas Holdings” meansin this Form 10-K refer to Ondas Holdings Inc. and its subsidiaries. Where necessary for clarification purposes,

Corporate Overview

Ondas Holdings Ondas Networks or Zev Ventures may be used independently.

Corporate OverviewInc. is a leading provider of private wireless, drone, and automated data solutions through its wholly owned subsidiaries Ondas Networks Inc. (“Ondas Networks”), American Robotics, Inc. (“American Robotics” or “AR”) and Airobotics, Ltd. (“Airobotics”).

Ondas Holdings acquired American Robotics, a leading developer of highly automated commercial drone systems on August 5, 2021.

Ondas Holdings acquired Airobotics, an Israeli-based developer of autonomous drone systems on January 23, 2023.

American Robotics and Airobotics are operated together, under a separate business unit called Ondas Autonomous Systems. Ondas Networks was originally incorporatedand Ondas Autonomous Systems together provide users in Delaware on February 16, 2006 under the name of Full Spectrum Inc. On August 10, 2018, the name was changed torail, energy, mining, agriculture, public safety and critical infrastructure and government markets with improved connectivity, data collection capabilities, and data collection and information processing capabilities. We operate Ondas Networks Inc.

and Ondas Networks’ wireless networking products are applicable to a wide rangeAutonomous Systems as separate business segments. See Note 1 and Note 2 of mission critical operations that require secure communications over large geographic areas. We providethe accompanying Consolidated Financial Statements for further information regarding our segments.

Ondas Networks

Ondas Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the Mission-Critical Internet of Things (MC-IoT)(“MC-IoT”). Our wireless networking products are applicable to a wide range of MC-IoT applications, which are most often located at the very edge of large industrial networks. These applications require secure, real-time connectivity with the ability to process large amounts of data at the edge of large industrial networks. Such applications are required in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, homeland security and government, where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure a high degree of safety and security.

 


We design, develop, manufacture, sell and support FullMAX, our multi-patented, state-of-the-art, point-to-multipoint,patented, Software Defined Radio (SDR)(“SDR”) platform for secure, licensed, private, wide-area broadband networks. Our customers install FullMAX systems in order to upgrade and expand their legacy wide-area network infrastructure. Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers (“IEEE”), the leading worldwide standards body in data networking protocols, and forms the core of the IEEE 802.16s standard. Because standards-based communications solutions are preferred by our mission-critical customers and ecosystem partners, we have taken a leadership position in IEEE as it relates to wireless networking for industrial markets. As such, management believes this standards-based approach supports the adoption of our technology across a burgeoning ecosystem of global partners and end markets.

Our software-based FullMAX platform is an important and timely upgrade solution for privately-owned and operated wireless wide-area networks, leveraging Internet Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. We believe industrial and critical infrastructure markets throughout the globe have reached an inflection point where legacy serial and analog based protocols and network transport systems no longer meet industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent networking platform enabling the adoption of sophisticated operating systems and equipment supporting next-generation MC-IoT applications over wide field areas. These new MC-IoT applications and related equipment require more processing power at the edge of large industrial networks and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the “Fog-computing” capability integrated in our end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing and data and application prioritization in the field enabling our customers more reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the edge.

Ondas Autonomous Systems

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

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

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

In addition to deploy wide-area intelligent networks (WANs)the Autonomous Drone Platforms, we also offer a counter-drone system called the Raider™. The Raider was developed by Iron Drone and is deployed by government and enterprise customers to provide security and protect critical infrastructure, assets and people from the threat of hostile drones. Ondas Holdings acquired Iron Drone on March 6, 2023.

Autonomous Drone Platforms

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

The Optimus System™ has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the real world. Powered by innovations in robotics automation, machine vision, edge computing, and AI. Once installed in the field at customer locations, a fleet of connected Optimus Systems™, which are often deployed as networked drone infrastructure, which we refer to as Urban Drone Infrastructure, remains indefinitely positioned in an area of operation, automatically collecting and seamlessly delivering data and information regularly and reliably.


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

The Optimus System™ consists of (i) Optimus™, a highly automated, AI-powered drone with advanced imaging payloads, (ii) the Airbase™, a ruggedized weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud transfer, and (iii) Insightful™, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere in the world. These major subsystems are connected via a host of supporting technologies. Airbase™ has internal robotic systems that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of Optimus as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus System™ to provide multiple applications and use cases from a single location.

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

The Raider

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

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

Partnership with Siemens

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


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

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

In November 2021, Siemens secured its first commercial 900 MHz rail order for a major Class I Railroad in the United States which was delivered in December 2021. In August 2022, we announced that we had secured an initial volume order from Siemens for the Class I Rail 900 MHz Network consisting of both ATCS compatible products along with Ondas’ catalog products. In September 2022, we received government authorization to sell ATCS radios in Canada.

Our Strategy

Our goal is to be a global leader in providing turnkey data solutions for industrial, public safety and government markets by offering i) secure wireless connectivity solutions enabling high-bandwidth, mission-critical Industrial Internet applications and services through Ondas Networks and ii) automated commercial drone services through Ondas Autonomous Systems.

The acquisition of Airobotics was a transformative event for Ondas. Our strategy will emphasize realizing the financial and strategic benefits of combining American Robotics and Airobotics under the Ondas Autonomous Systems business unit. We believe this combination will allow us to accelerate revenue generation and allow us to operate more cost efficiently. The revenue benefits come via expanded global sales and marketing which is significantly enhanced by introducing the Optimus System™ to the US market via our American Robotics customer and field operations staff. Cost efficiencies can be realized via these global sales efforts, elimination of redundant R&D efforts, and through the integration of our product development and engineering teams focused on a single product roadmap. 

The key elements of our growth strategy include the following: 

Deliver multiple North American Class I Railroad network opportunities through our FullMAX platform. Our marketing and business development efforts combined with our exclusive strategic partnership with Siemens has generated the potential for significant sales in our targeted end markets. We expect large-scale commercial adoption of our network technology by the North American Class 1 Railroad operators in the newly awarded 900 MHz frequency band. We received an initial volume purchase for commercial deployment in August 2022 from Siemens. Ondas and Siemens together are working with our railroad customers on commercial deployment strategies which we expect will significantly increase purchase orders for equipment and services in the North American Class I Rail markets with expansion plans into passenger and transit markets. In addition, together with Siemens, we are marketing our FullMAX platform as an upgrade for both the 450 MHz HOT network and the legacy 160 MHz voice-centric networks owned and operated by the North American Class 1 Railroad operators.

Expand fleet deployments of our Optimus System™ as Urban Drone Infrastructure. We have developed a strong customer pipeline with planned commercial deployments of our Optimus System™ for public safety and smart city applications. We plan to focus on delivering our current backlog to existing customers, expanding the revenue collected per unit with additional users, and securing additional orders for denser, Urban Drone Infrastructure deployment with these customers. In addition, we plan to secure additional customers and distribution partners for our Optimus System™ globally including in the United States.


Continue to enhance the value of our Optimus System™ for customers.

oWe plan to continue development of the Optimus System™ to improve functionality and value for customers. Optimus enhancements include the planned integration of technologies and intellectual property inherent in the Scout System. We believe continuous enhancements to our Optimus System™ which will include increased diversity of payloads and more robust analytics capability will serve to increase the value of our drone-driven data solutions to customers and lead to larger and faster deployments with customers.

oWe plan to execute programs to lower unit manufacturing costs for the Optimus drone and Airbase. These programs will incorporate a variety of strategies, including design for manufacturing, replacement component sources, supply chain optimization, and economies of scale. Lower unit costs will result in improved profitability and allow for expansion into other end markets and system applications.

Expand our MC-IoT capabilities via partnerships, joint ventures, or acquisitions. In addition to internal investment and development, we will continue to actively pursue external opportunities to enhance our product offerings and solutions for our critical infrastructure customers via joint ventures, partnerships, and acquisitions. We intend to focus on companies with complementary technologies or product offerings or synergistic distribution strategies.

Our Business Model

Ondas Networks

We sell our FullMAX MC-IoT wireless products and services globally through a direct sales force and value-added sales partners to industrial and critical infrastructure providers including major rail operators, commercial and industrial drone operators, electric and gas utilities, water and wastewater utilities, oil and gas producers and pipeline operators, and for other critical infrastructure applications in areas such as public safety, homeland security and defense, and transportation. We continue to develop our value-added reseller relationships which today include a strategic partnership with Siemens for the development of new types of wireless connectivity for the North American Rail market as well as selected global markets in both Europe and Asia. We believe our Siemens’ partnership is indicative of the potential for additional Tier 1 partnerships in our other vertical markets including securing reseller relationships with major suppliers to the worldwide government and homeland security markets. To that end, in 2022, we expanded our relationship with Israel Aerospace Industries’ (IAI) Elta division to deliver wireless solutions for the Integrated Coastal Surveillance markets in the Caribbean and India.

In addition,executing our go-to-market strategy, we intend to monetize our software-based intellectual property and grow revenue and cash flow with embedded FullMAX software sales, Software-as-a-Service (“SaaS”) arrangements, IP royalties based on Ondas Networks software and through additional services provided to customers and ecosystem partners. Customers deploy our connectivity and Fog-computing platform in private networks that are designed for lifetimes of 10 – 15 years or even longer. Our FullMAX platform is software-defined and offers customers flexibility to expand capacity and evolve network utilization. Similarly, our ecosystem partners often integrate our FullMAX platformsoftware and wireless capability into their own long-lived equipment and systems which their customers purchase and deploy. As such, we believe our software solutions provide ongoing revenue opportunities related to both connectivity value and edge computing capability. Customers and ecosystem partners will beginrequire ongoing FullMAX system and security enhancements and for us to bedesign additional features which create opportunities for additional, recurring revenue and profit streams. Our monetization strategies include:

Systems sales: Our FullMAX deployments are typically large, mission-critical wide-area networks deployed and privately operated by our industrial and government customers. These end-to-end system deployments involve sales consisting of both base stations and edge radio end points with embedded FullMAX software and network management software and tools.


Software and hardware maintenance agreements: Our customers contract with us for extended software and hardware maintenance which provide them with critical ongoing support for their installed network. These SaaS contracts provide revenue to us in the second quarteryear following an initial installation. Software maintenance licenses entitle the customer to ongoing software and security upgrades as well as enabling the provision of 2020additional system features. Similarly, hardware maintenance programs provide customers extended equipment warranty terms for an installed network. These SaaS maintenance arrangements allow our customers to continue to maintain a modern, flexible and upgradeable network over a long period of time. These agreements may extend for multiple years given the long average life of the installed and growing network.

Licensing / Royalties: In certain system deployments, our ecosystem partners will choose to embed FullMAX software into their own hardware and software platforms providing us with an ongoing per device multi-year revenue stream. Licensing is an effective way for an ecosystem partner to jumpstart customer activity. Alternatively, a partner may choose to develop software based on our intellectual property generating royalty revenue.

Other Services: We provide commandancillary services directly related to the sale of our wireless communications products which include wireless network design, systems engineering, radio frequency planning, software configuration, product training, installation, and control connectivity solutionsonsite support. Furthermore, we also provide engineering and product development services to ecosystem partners who are interested in integrating their intelligent equipment with our FullMAX SDR platform and need our expertise to do so.

Ondas Autonomous Systems

Ondas Autonomous Systems markets its Optimus System™ drone platform via a direct sales force to enterprise and government customers. We focus on identifying and qualifying large, sophisticated customers with active drone programs who have the ability and intent to expand those programs and eventually deploy fleets of automated drones across their portfolio of assets. After initial customer qualification, contracting and the receipt of a purchase order, we ship and install the Optimus System™ on the customer premises. Our field service personnel remain on location for dronesa short period of time to ensure the programmed automated drone operations are meeting customer requirements.

Our Optimus System™ and unmanned aerial systems (UAS)the services provided via the autonomous drone platform can typically be acquired by customers under several arrangements ranging from Data-as-a-Service (“DaaS”) agreements to a full, outright sale of an Optimus System™.

Under a DaaS agreement where we bundle hardware, software, operations, and maintenance into one annual subscription fee. We install an Optimus System on premises and one or multiple customers can procure services. For example, on a construction site, Airobotics can provide aerial data services via and Optimus System™ for security and safety applications, in addition to monitoring and inspection use cases. In many instances, multiple customers will subscribe for each unique service. The DaaS model is the most typical agreement we have with customers.

TARGET INDUSTRIES AND APPLICATIONS

Our Optimus System™ and services can also be provided to end customers via partnerships or joint ventures with third party drone services providers. Under these arrangements, Airobotics sells an Optimus System™ to the drone services provider for an upfront payment. Airobotics and the drone services provider then enter into an agreement to share in the revenues that the system generates via the provision of aerial data services to end customers.

 

Customers can also purchase an Optimus System™ whereby they would own and operate the system. Purchases of Optimus typically come with ongoing services for maintenance. System purchases can be preferred by certain public safety and homeland security customers.

 



 

Airobotics is in the advanced stages of receiving approval for Type Certification (“TC”) from the FAA for the Optimus UAV. TC approval will enable expanded operation for the Optimus System™ in the United States including flight operations in populated areas. The significance of TC approval was highlighted by the FAA decision in April 21, 2021, to amend Part 107 rules which defined new conditions for Drone flights above people and enables night flight. The new regulations define four categories of Drones and clarify that small UAS (“sUAS”) such as the Optimus drone which are below a certain weight will be permitted to conduct flights above populated areas without receiving a specific certificate of Part 107 waiver for systems that have TC designations.

We also market The Raider™, the counter-drone system designed and developed by Iron Drone, a unit within Ondas Autonomous Systems. The Raider™ is targeted towards government and enterprise customers who can utilize the system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. The Raider™ was formally launched and available to customers in March 2022. We offer this product directly to customers and we intend to broaden the sales & marketing of the Raider™ with distribution through value-added resellers and partners in the future.

Our Products and Services

Ondas Networks

Ondas Networks has developed a next-generation radio platform specifically to meet the evolving data needs of large industrial and government customers and markets.  These markets are differentiated from consumer markets in that the customers assets are dispersed over very wide and remote geographies with specific challenges to installation, maintenance, and upgrades.  These challenges led us to design a new type of software-based radio platform capable of supporting a long useful life to the network hardware.  Instead of using low cost, off the shelf, dedicated communications chipsets (“ASICs”), we selected powerful programmable embedded general-purpose processors, DSPs, and FPGAs, all of which are software upgradable. Our software defined radio (“SDR”) architecture, with more than 12 years in development and supported by a team of over 50 software engineers, allows us to customize almost any aspect of the air interface protocol, the key components of which are patented and have been incorporated into new IEEE wireless standards. The ability to constantly improve customer networks and hosted software applications with flexible, over-the-air software upgrade helps create customer loyalty and creates high switching costs.

Our FullMAX SDR platform is designed to enable highly secure and reliable industrial-grade connectivity for truly mission-critical applications. An end-to-end FullMAX network consists of connected wireless base stations, fixed and mobile edge radios and supporting technology all enabled by critical software developed and owned by Ondas Networks. The Fog-computing capability integrated in our end-to-end FullMAX SDR platform is valued by our customers and ecosystem partners as they seek to leverage the value of MC-IoT applications for improved safety, efficiency, and profitability. Our IEEE 802.16s compliant equipment is designed to optimize the performance of unused or underutilized low frequency licensed radio spectrum and narrower channels. We do this through various patented software algorithms including via “spectrum harvesting” techniques which aggregate narrowband channels to create increased broadband network capacity. Our channel aggregation algorithms include the ability to aggregate hard to utilize, non-contiguous narrowband channels and are a hallmark feature of a FullMAX broadband system.

The critical software algorithms powering our end-to-end FullMAX wireless SDR platform and related Fog-computing architecture have been developed by and are owned by Ondas Networks. FullMAX is an intelligent networking system which integrates core network management systems with edge computing resources including computing hardware and MC-IoT software applications. In the MC-IoT Fog enabled by FullMAX, base stations are enabled with a highly configurable Quality of Service algorithms which coordinate the data traffic within the Fog for both the edge radio and the resident MC-IoT applications. The intelligent base stations control and manage all network resources including our edge remotes; dynamically allocating bandwidth, prioritizing data packets and managing edge applications. The intelligent software-managed base stations determine whether to process data at the edge, distribute data traffic across the Fog to other edge remote radios or to transport information to the corporate Cloud. Our Edge remotes have embedded compute capability and are able to host MC-IoT applications including those from third party vendors via virtualized software systems managed in docker / container architectures and can also manage data from intelligent equipment or sensor networks that interface with the edge remotes in the field. Our software-managed edge remotes offer security via authentication, multi-layer encryption and virtual software firewalls which are requirements for mission-critical data networks.

We are dedicated to promoting standards-based wireless connectivity solutions for our customers. Our FullMAX platform is compliant with the mission critical wireless Industrial Internet IEEE 802.16s. The specifications in the IEEE 802.16s standard are primarily based on our FullMAX technology, and many of our customers and industrial partners actively supported our technology during the IEEE standards-making process. In January 2020, a new working group was launched by the IEEE to establish IEEE 802.16t, a further evolution of this wireless standard. The IEEE 802.16t working group includes industry-leading trade organizations such as the Association of American Railroads (“AAR”), MxV Rail (“MxV Rail”), the Utilities Technology Council (UTC) and the Electric Power Research Institute (EPRI), as well as representation from world-leading transportation and oil and gas companies. We expect our technology to remain a prominent feature of this evolving standard.

 


Ondas Autonomous Systems

We believe thatprovide our customers with turnkey data and information solutions designed to meet their unique requirements in the published standardfield. We do this via our internally developed Optimus System™, a highly automated commercial drone platform which provides customers with the ability to continuously digitize, analyze, and monitor their assets and field operations in real-time or near real-time.

The Optimus System™ has been instrumentaldesigned from the ground up as an end-to-end product capable of continuous unattended operations in broadening the appealreal world. The Optimus System™ consists of (i) Optimus™, a highly automated, AI-powered drone with advanced imaging payloads (ii) the AirbaseTM, a ruggedized weatherproof base station for housing, data processing, and cloud transfer, and (iii) InsightfulTM, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere in the world. These major subsystems are connected via a host of supporting technologies. Using advanced robotic techniques, the AirbaseTM has functionality that enables the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of Optimus™ as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus System™ to provide multiple applications and use cases from a single location.

When deployed in smart city applications, the Optimus System™ is designed to operate as a network of smart drones linked to an urban control center and will function as a municipal infrastructure providing a variety of automated data solutions. The primary function of the deployed Urban Drone Infrastructure is to shorten response times of security and rescue forces to emergency situations, supporting law enforcement and homeland security activities, and streamlining diverse services provided by the municipality for the public’s benefit. The Company is also examining drone parcel delivery and other smart city applications to be provided by the infrastructure.

In these deployments, customers establish permanent infrastructure which rely on fleets of automated drones that do not require on the ground human intervention to operate. The drones are able to operate as a task force that can simultaneously collect and provide critical information for a variety of customer requirements. The Airobotics drone infrastructure is specifically designed for urban environments and strategic facilities that require immediate security, monitoring and emergency response. Each system within the infrastructure framework includes a smart Airbase enabling automated battery changes enabling 24/7 operations, along with the automated loading and installation of sensors appropriate for each specified mission. Each system covers a perimeter up to 80 square kilometers surrounding an Airbase. Drone flights can be tasked to carry specific sensors, enabling every drone in the system to execute diverse tasks. The drones can be activated for complex longer-term operations. Flights are overseen by remote operators in a command-and-control center.

In certain geographic markets we will partner with a distributor to support the marketing and provision of aerial data services provided by an Optimus System™. These distributors typically have unique local knowledge and can more cost effectively target customers for Urban Drone Infrastructure deployment. In some instances, we will form joint ventures with distributors to provide aerial data services to government and enterprise customers. These joint ventures typically include agreements to purchase Optimus Systems™ and are arranged so that Ondas Autonomous Systems and our partner can share in the revenue and profitability in the provision of aerial data services.

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

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


The Market for Our Products and Services

We have targeted the North American freight rail operators for the initial adoption of our FullMAX platform. These rail operators currently operate legacy communications systems utilizing serial-based narrowband wireless technologies for voice and data communications. These legacy wireless networks have limited data capacity and are unable to support the adoption of new, intelligent train control and management systems. In addition to data capacity challenges, rail operators need to reliably cover the vast and often remotely located rail track and related infrastructure which extends nationwide. The rail operators require a next-generation, robust broadband system with significantly increased data throughput capacity and flexibility to adopt new applications. We believe a transition to integrated Fog-computing wireless communications systems will enable the rail operators to drive more intelligence to the edge of their operating environments enabling real time automation and better operator control of many critical operating systems related to train control, crossing safety, train and track integrity and drone operations. This upgrade cycle is being driven by a recent key event which occurred in August 2020 in which the Class 1 rail systems in the U.S. were awarded new nationwide “greenfield” wideband radio spectrum by the Federal Communications Committee (“FCC”). As part of the award, the rail operators are required by 2025, to vacate a series of legacy narrowband channels. The completion of this multiyear negotiation between the FCC and other licensed users is projected to generate a major network upgrade cycle for the rail industry which will support enhanced safety and improved efficiency and profitability of train operations.

The North American Rail Network is vast in scale, consisting of 140,000 miles of track, 25,000 locomotives, and 1.6 million railcars. Within this large footprint, we believe there are 200,000 highway crossings, with at least 65,000 of the crossings equipped with electronic systems today, a number which is expected to increase in the coming years. The Class I railroads currently operate four separate private wireless networks in support of train operations. Those networks are deployed using spectrum in the 160 MHz, 220 MHz, 450 MHz and 900 MHz bands. We believe a significant portion of the communications infrastructure has been in operation for more than 20 years and now requires a technological upgrade to support new applications and increased capacity requirements. Our FullMAX MC-IoT platform globally across alloffers an excellent migration path for these applications. The Class I Railroads value the ability of our frequency agnostic SDR architecture to enable a substantial data capacity increase utilizing the railroad’s existing wireless infrastructure and dedicated FCC licensed radio frequencies, as well as the flexibility to adapt to and take advantage of future changes in spectrum availability, as well as future business and operational requirements. Based upon management estimates, we believe the addressable market for the four private North American Railroad networks is approximately $1.3 billion. We believe the 900 MHz network will be the first network upgrade to adopt our FullMAX technology and we estimate that the market size for the 900 MHz network is approximately $450 million.

Additional Critical Markets 

We have launched additional initiatives to take our MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure markets. SinceIn June 2022, we announced the publishingfirst successful installation of IEEE 802.16sour technology into an Integrated Coastal Surveillance System (ICSS) in November 2017, there has beenthe Caribbean with a significant increase in interest from customers in end markets including oilglobal defense contractor. In the fourth quarter of 2022, we received and gas, water and wastewater, transportation and homeland security, as well asdelivered on a new ICSS order for the command and control of industrial drones.defense contractor to be deployed in India. We believe we are currently the only supplier able to offer IEEE 802.16s compliant systems and are actively working with customers and industry partners to help develop and support a multi-vendor MC-IoT industry ecosystem forexpect additional orders from this standard.

Our FullMAX system of wireless base stations, fixed and mobile remote radios and supporting technology is designed to enable highly secure and reliable industrial-grade connectivity for truly mission-critical applications. The target customers for our products operate in critical infrastructure sectors of the global economy. Private wireless networks are typically the preferred choice of these large industrial customers with business operations spanning large field areas. Private networks provide enhanced protection against cyber terrorism, as well as natural and man-made disasters, and the abilitydefense vendor for the operator to maintain and control their desired quality of service. Our IEEE 802.16s compliant equipment is designed to optimize performance of unused or underutilized low frequency licensed radio spectrum and narrower channels. A FullMAX wireless network is significantly less expensive to build compared to traditional LTE and 5G networks given its ability to optimize the performance of lower cost radio spectrums (non-traditional LTE and 5G bands) and provide much greater coverage. In many of our industrial end markets, the adoption of low-cost edge computing and increased penetration of “smart machinery” and sensors is driving demand for next-generation networks for IoT applications such as those powered by FullMAX.

Our FullMAX platform has been selected by a customer to be the connectivity backbone for the deployment of a nationwide wireless network for operators of UAS. This network will be designed to enable the command and control of industrial and commercial drones. The unique air interface protocol and narrow channel capability of FullMAX offers significant valueICSS application in the command and control function required to safely and economically operate many drones on a single network. Upon commercialization, we expect our FullMAX platform to be scalable to simultaneously manage hundreds of drones per tower site flying beyond visual line of site (BVLOS) missions throughout the U.S. airspace. We expect our FullMAX platform to be shipped and deployed by the UAS customer in the second quarter of 2020, providing coverage over the entire U.S. airspace from the high-powered, terrestrial base stations.

In addition to selling our FullMAX solutions for dedicated private wide area networks, we offer mission-critical wireless services to industrial customers and municipalities in the form of a Managed Private Network in select regions. In June 2019, we acquired 2 MHz of licensed spectrum in the 700 MHz band for the State of Alaska, the Gulf of Mexico and multiple counties bordering the Gulf. We are now offering mission-critical wireless connectivity and secured initial customers in these regions, which consist of 900,000 square miles of surface area. In addition, we have demonstration networks in the New York metropolitan area and in Northern California in association with a nationwide spectrum owner in the 200 MHz band. Collectively, these 200 MHz demonstration networks cover tens of thousands of square miles in some of the nation’s most strategic economic areas.


Target Customers

The target customers for our products operate in critical infrastructure sectors of the global economy. Private wireless networks are typically the preferred choice of these large industrial customers with business operations spanning large field areas. Private networks provide enhanced protection against cyber terrorism, as well as natural and man-made disasters, and the ability for the operator to maintain and control their desired quality of service. The existing public carrier networks based on LTE and 5G technology are designed for mobile consumer usage and are not architected for MC-IoT applications. Wi-Fi-based IoT offerings have similar shortcomings related to security, availability, and reliability, which are likewise unacceptable for mission-critical functions.

Our FullMAX technology offers a next-generation upgrade path for existing private networks currently managed by our industrial customers. These networks will typically be deployed on the existing tower and backhaul infrastructure owned by our customers thereby reducing incremental infrastructure costs. We offer much faster data throughput and more efficient radio frequency utilization relative to existing private networks that are based largely on legacy, proprietary technologies. We believe the IEEE 802.16s standard, and its next iteration as 802.16t, are important catalysts for the MC-IoT upgrade cycle as our critical infrastructure customers increasingly prefer standards-based technology. Standards-based solutions offer a deeper ecosystem of suppliers resulting in more price and service competition and lower costs. The standard is relevant for all critical infrastructure providers with operations covering large field areas making the market potential sizeable enough to attract a deep ecosystem of hardware and software solutions providers along with ancillary service organizations to support our customers.

2023. We believe our FullMAX powered WANs servetechnology’s licensed frequency flexibility, reliability, and long communications range over ocean surfaces, is broadening the scale of our technology in this emerging market for homeland security.

Ondas Autonomous Systems

The total addressable market (“TAM”) for commercial drone applications is also large – measuring over $100 billion in size, according to management estimates and independent third-party research. For the vast majority of commercial drone applications, full automation is required to make economic sense. The time and cost requirements of human pilots are too high endfor the demanding and monotonous routines that must be performed to extract value. Ondas Autonomous Systems’ drone platforms target the majority of “drone-in-a-box”-applicable commercial, public safety and defense markets.

Based upon management estimates, we believe the value chain as comparedmarket size for the Smart City applications for the Optimus System™ to mass-market, low-powered, narrowband solutions such as LoRa, Sigfox and NB-IoT technologies which are being offered by public carriers. Our customers require wide-area coverage with broadband speeds and low latency performance for operating environments managedbe over large field areas, which we can provide cost effectively.$15 billion.

Smart City Market ($15.1 billion TAM): the Smart City market consists of a range of sub-markets, including police, fire, medical, logistics, construction, utilities, infrastructure, ports, airports, and environmental surveys. For these markets, the Optimus System™ is used for routine, high-resolution automated emergency response, mapping, surveying, and inspection. These automated operations reduce the response time to emergency situations, increase safety and security, and reduce the cost of city services.


 


Customer Activity

We launchedAccording to a business expansion planreport by GrandView Research published in 20182020, Counter-UAS markets are estimated to leverage our world-class, standards-based FullMAX platform and penetrate the large, fast-growing critical infrastructure end markets we target. We grew our dedicated sales resources to broaden our marketing efforts beyond the electric utility sector, which had historically been our primary end market. Since the second halfhave a market size of 2018, we have significantly increased customer engagementover $10 billion in the transportation, oil and gas, security and UAS end markets. We expect that our qualified customer pipeline will increase throughout 2020. size.

Counter-UAS Market ($10.8 billion TAM): the Counter-UAS market consists of a range of sub-markets, including homeland security, defense, stadiums and public events, energy sites, airports, and cities. For these markets, autonomous drone technology is used for automated immediate response to potential drone threats and disabling of hostile drones if required.

A potential customer is includedreport from PWC in our qualified pipeline after the potential customer expresses interest in our products and we have confirmed2016 stated that the potentialmarket size for the commercial drone sector was in excess of $125 billion. PWC segmented the commercial market into three primary categories, Industrial, Agricultural, and Defense. We estimate the collective TAM for the Optimus System™ and anticipated derivative products within these three target markets to be $114 billion. For each market, the core automation technology is similar, but the product is optimized for that set of use cases. Primary differences include payload as well as the user interface (“UI”) and user experience (“UX”) and analytics packages within Insightful™.

Industrial Market ($68.1 billion TAM): the Industrial market consists of a range of sub-markets, including those within the Energy, Infrastructure, and Security sectors. For these markets, the Optimus System™ is used for routine, high-resolution automated monitoring of assets, such as well pads, pipelines, solar panels, rail track, stockpile yards, and electrical substations. This automated monitoring helps reduce customer operations and maintenance costs, increase uptime of assets, increase safety and security, and improve regulatory compliance.

Agricultural Market ($25.6 billion TAM): the Agricultural market consists of a range of sub-markets, including those within the Row Crop, Specialty Crop, and Research & Development sectors. For these markets, the Optimus System™ is used for routine, high-resolution automated monitoring of crops, such as corn, soybeans, vineyards, and orchards. This automated monitoring helps reduce labor costs, reduce input costs such as water, pesticides, and fertilizer, and increase yields.

Defense Market (20.2 billion TAM): the Defense market consists of a range of sub-markets, each relating to increased Information, Surveillance, and Reconnaissance (“ISR”) capabilities for Border, Site, and Vehicle assets. For these markets, the Optimus System™ is used for automated immediate response ISR, providing high-resolution, real-time situational awareness for multiple applications including warfighters on the battlefield.

Customer Activity

Ondas Networks

The majority of Ondas Networks customer activity has an application for which our FullMAX platform would be well-suited.

We received and fulfilled purchase orders in 2019 for multiple pilot programsbeen with Burlington Northern Santa Fe Railway and CSX Corporation, two North Americanthe Class I1 freight railroad operators.operators and Siemens in North America. There are seven Class I freight railroad operatorsrailroads in North America, all of which run multiple, frequency-specific networks for different applications. Our FullMAX platform has the flexibility to operate in all of these frequency bands and will allow these customers the opportunity to better utilize their radio spectrum and add more high-value, data-intensive applications to their operations. Ondas Networks has completed multiple, ongoing testing and pilot programs with BNSF Railway and CSX Corporation, two North American Class I freight railroad operators in connection with the system validation performed on behalf of the Association of American Railroads’ (AAR) Wireless Communications Committee (WCC). Our initial field workfocus with these rail customers has been for applications related to train control applications and related safety systems in the 900 MHz frequency band.band where the FCC has recently awarded our railroad customers new radio spectrum.

In August 2022, we received our first commercial volume order for the 900 MHz network from Siemens. We also delivered a Rail Lab (the “dot16 Rail Lab”) to MxV Rail, a subsidiary of the AAR, in September 2022. The dot16 Rail Lab is hosting multiple Class 1 freight rail operators where they will perform on going network design and configuration related to optimizing the performance of our IEEE 802.16 complaint systems in connection with wide-scale field deployment. We expect the commercial rollout of the 900 MHz to accelerate with the Class 1 freight rail operators throughout 2023 with multiple rail customers providing purchase orders and deploying our software-defined network. We expect a 900 MHz network upgrade cycle across multipleall Class I railroadsrailroad systems over the next few years in order to comply with FCC license requirements and meet business needs related to safety and profitability.


As of December 31, 2022, Ondas Networks was active with six of the Class 1 Rails in North America and with one of the largest railroads in the world, Indian Railways, for a multi-year delivery program of locomotive radios for on-board telemetry applications. Also in 2022, we received our first order for 160 MHz radios, a bridge to the next major rail network in North America, which we believe will be upgraded to our FullMAXFullMAX™ platform.

Ondas Autonomous Systems

Our Optimus System™ addresses a wide number of applications and use cases across enterprise, industrial, and government end markets. The platform has significant potential to replace the legacy network equipment in this band.been extensively tested both internally and externally with customers for reliability, safety, and performance. We are also currently lab testing with railreceived purchase orders from two customers in the 160 MHz land mobile radio (LMR) network,UAE in December 2022, which is whererepresented our initial orders for commercial deployment as Urban Drone Infrastructure fleets. The initial purchase order was received for a UAE government entity with plans to primarily use the Class I railroads run their critical voicesystem for public safety and homeland security applications. Our activity with the freight railroads has led to similar network opportunities amongst Class II railroad operators. We expect additional purchase orders from Class I and Class II railroads in 2020.

We entered the UAS market in late 2019 when we receivedalso announced a purchase order for base stationsfrom Abu Dhabi-based SkyGo Transport of Goods L.L.C. (“SkyGo”). Airobotics and remote radios fromSkyGo have also signed a Term Sheet agreeing to enter into a joint venture (the “SkyGo JV”) to provide aerial drone services to municipal and government customers focused on Smart City use cases.

Customer interest in our aerial data services has grown significantly since receiving these initial fleet orders and that is reflected in a growing customer planningpipeline. The initial two customers have indicated plans to deploy a nationwide network forapproximately 50 systems in the commandUAE by 2025 and controlwe believe demand could grow further. In addition, moving customers from proof-of-concept deployments to Urban Drone Infrastructure fleet deployments has validated the performance and value of commercial drones. Ourour Optimus System™, which has helped both accelerate our marketing activity with existing customers and generated new customer intendsinterest to offer managed services for drone fleet management across this network. After this initial deployment, we will work closely withhelp expand the customer and ecosystem partners to fully commercialize an end-to-end system designed to develop an FAA-compliant UAS navigation system.pipeline. We expect additional purchase ordersinterest in 2020 for work relatedour Optimus System ™ to additional system engineeringgrow significantly as awareness builds which will expand our customer pipeline.

We expect to expand customer activity in the United States as American Robotics introduces Optimus to its existing customers and for equipment from end userexpands marketing to new customers.

We initiated field trials with large electric utility and In the United States, we are qualifying our oil and gas customers for marketing programs, and we plan to expand marketing to other industrial and government markets. 

We launched our Raider™ counter-drone system in 2019.March 2023 and began seeking customer orders at the same time. We have seen significant interest in the Raider™ For potential customers and partners and on March 10, 2023 we announced that the Dubai Police has signed an MOU which expressed their intent to purchase a certain number of units of the Raider™. We expect to expand pilot programs throughout 2020 so as to secure a significant reference customer in these important end markets. We continued to support customers in the security sector in 2019 through deployment of a network supporting a maritime border security installation on a Caribbean island for a leading Israeli defense electronics vendor. This security system installation, integrated with a FullMAX network, can be replicated by our customers for other projects globally. We expectreceive additional purchase orders from this, and other defense electronics vendors, in 2020.


In addition to selling our FullMAX solutions for dedicated private wide area networks, we intend to offer mission-critical wireless services to industrial customers and municipalities in the form of a Managed Private Network in select regions. In June 2019, we acquired 2 MHz of licensed spectrum in the 700 MHz band for the State of Alaska, the Gulf of Mexico and multiple counties bordering the Gulf. We are now offering mission-critical wireless connectivity and secured initial customers in these regions, which consist of 900,000 square miles of surface area. In Alaska, we established mission-critical wireless service covering Anchorage and Fairbanks North Star, Alaska’s two most populated boroughs with more than half the State’s approximate 740,000 population. We deployed system trials with Alaska Railroad Corporation in the Wasilla/Cottonwood region for mission-critical wayside connectivity, and in the Kenai Peninsula, Homer Electric Association successfully trialed our FullMAX system for SCADA connectivity to portions of the electric grid. In the Gulf of Mexico region, we established service and coverage in coastal counties including Cameron Parish in Louisiana, and Victoria, Calhoun and Jefferson Counties in Texas. Customers in Victoria and Calhoun Counties include Internet service provider TISD, Inc. In Jefferson County, we are planning trials with a Class I rail customer for wayside connectivity and other mission-critical applications. In Cameron Parish, we entered into a service agreement with Louisiana Radio Communications to provide wireless service to Lake Charles marine pilot boats in the Gulf of Mexico, which require real time tide and weather information to navigate vessels to port. We are currently negotiating to obtain additional tower assets along and in the Gulf of Mexico to establish mission-critical IoT services for fixed rig and mobile vessel connectivity.

We also operate demonstration networks in the New York metropolitan area and in Northern California in association with a nationwide spectrum owner in the 200 MHz band. We have deployed, with this spectrum owner, a FullMAX-powered network along the east coast covering the I-95 corridor reaching from eastern Pennsylvania and southern New Jersey and the New York metropolitan network northward up to the Boston metropolitan area. Collectively, these networks cover tens of thousands of square miles in some of the nation’s most strategic economic areas. We are working with this spectrum owner and a partner to develop marketing and network expansion opportunities to provide mission-critical wireless service to customers in the 200 MHz band. When fully deployed and operational, this managed service will be priced on a monthly usage basis for customers.

We believe China offers us attractive long-term business potential. In December 2018, we established a China-based subsidiary located in Chengdu, to market our products in China by targeting critical infrastructure industries. We explored the establishment of supply chain management and manufacturing operations for both local customers and for export. We expected to secure lower component costs via the further development of our supply chain in Asia for high volume production and planned to develop internal capabilities for product assembly and testing. However, in the fourth quarter of 2019, we revised our business strategy and withdrew our direct marketing and manufacturing efforts in China after determining that our customers, in particular those customers operating in the U.S., including electric utility and rail sectors, strongly preferred that our products be manufactured outside of China. Consequently, we are in the process of dissolving our China-affiliated subsidiaries. We believe that we can still efficiently reach our target customers in China during 2020 through the use of value-added resellers and other business partners with established marketing and field support operations in China.

The Market for our Products

Our FullMAX system of base stations, fixed and mobile remote radios and supporting technology is designed to enable highly secure and reliable Industrial-grade connectivity for truly mission-critical applications. We offer a range of products with different options for narrowband and broadband applications. Our SDR platforms offer unmatched flexibility with respect to the radio frequencies in which they operate (ranging from 70 MHz to 6 GHz) and channel size configurations (ranging from 12.5 KHz to 10 MHz).

The global end markets for our MC-IoT solutions are established, large, and we believe, poised to grow rapidly given the key role connectivity will play in next generation IoT-type applications. Firms like Cisco Systems, Inc. and Gartner, Inc. forecast that there will be billions of connected IoT devices installed by year end 2020; many of them will be deployed for industrial applications. Dell’Oro Group, Inc. estimates that Wide Area IoT spending, including low power WAN deployments with which we compete, will reach $33.0 billion for carriers and infrastructure vendors by 2022, growing approximately 2.5xs from 2017. Ondas Networks is leveraging its industry expertise and FullMAX technology to develop an enhanced range of products to capitalize on this expanding opportunity with the goal of becoming the leading supplier of private cellular network products. In many of our industrial end markets, we believe the adoption of low-cost edge computing and increased penetration of “smart machinery” is driving demand for next-generation networks for IoT applications such as those powered by FullMAX.


According to research firm MarketsandMarkets, worldwide spending on communications by the electric utility sector should grow over 15% per year and is expected to reach $15.4 billion annually by 2021. This growth is being driven by distributed and renewable power generation projects and regulatory requirements for secure and reliable power generation and distribution as the industry deals with aging infrastructure. Market forecasts for oil and gas producers, water and wastewater utilities, homeland security, transportation and other critical infrastructure segments are similarly large. For example, MarketsandMarkets forecasts that spending on oilfield communications will reach $4.5 billion by 2022, which would represent an annual growth of 7.9% from today. In addition, the US Railroad sector is expected to spend over $10.0 billion in aggregate by 2020 to fully implement Positive Train Control (PTC) functions as required by federal regulations according to the American Association of Railroads.

Our innovative, standards-based FullMAX system offers UAS operators and users a high-performing, cost-effective solution for reliable command and control of drones. The end market opportunity for UAS network solutions is large and rapidly growing. According to analysts at Barclays Capital, the global drone market, including consumer, commercial and military drones, is forecast to exceed $100 billion by 2024, with commercial drone sales rising 10-fold from $4 billion to nearly $40 billion in 2019. The U.S. Federal Aviation Administration (FAA) raised its forecast in 2019 and now expects over 450,000 commercial drones flying in the U.S. by 2022, a four-fold increase from 2017. The command and control capability offered by our FullMAX platform will be a key enabler driving the growth of the UAS market. Industrial UAS applications offer significant value to our core critical infrastructure markets and the economy at large, which supports the growth outlook for this market. In addition to broad use by government agencies and agriculture markets, utilities, railroads, and oil and gas industries are actively evaluating, or are in the process of incorporating, the extensive use of drones into their business operations. These critical infrastructure sectors can realize substantial savings and improved reliability in operations from deploying drones to monitor and inspect their remote infrastructure and assets.

Our Products and Services

Our FullMAX Base Station and Remote radios are deployed by our customers to create wide-area wireless communication networks. A FullMAX network provides end-to-end IP connectivity, allowing critical infrastructure providers to extend their secure corporate networks into the far reaches of their service territories.

Our FullMAX SDR platform:

offers a dedicated private network for industrial applications which safeguards critical assets and information and protects against cyberattacks;

has frequency agility with the capability to operate in any frequency between 70 MHz and 6 GHz;

may be deployed in a wide variety of narrow and broadband channel sizes and can aggregate non-contiguous channels; and

FullMAX radios use a SDR platform to implement standard versions of the IEEE 802.16 protocol, the new 802.16s amendment, and the planned 802.16t enhancements, and supports extensions to provide further flexibility and performance beyond the standard implementations.

FullMAX radios can operate at high transmit power (up to 100 watts) at both the Base Station and Remote sites providing fixed and mobile data connectivity up to 30 miles from the tower site. This results in up to 2,800 square miles of coverage from a single FullMAX tower compared with the 28 square miles typically supported by other 4G technologies and three square miles by 5G technologies. This dramatically reduces the infrastructure cost of building and operating a private cellular network. For example, to cover a territory of over 10,000 square miles may require only four FullMAX towers compared with more than 350 typical 4G towers, depending on the topography of the region.


We also provide a variety of services associated with the sale of our FullMAX products including network design, RF planning, product training and spectrum consulting. We provide customers with technical support, extended hardware warranties, and software.

FullMAX Network Architecture

Our Growth Strategy

Our goal is to be a global leader in providing wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We intend to leverage our FullMAX technology and the IEEE 802.16s standard to achieve this goal. We plan to go “Deep and Wide” in the marketing of our connectivity solutions into global critical infrastructure end markets. Our strategy is to deeply penetrate our traditional end markets, including electric utilities while continuing the expansion of our distribution and support capabilities into new vertical end markets such as we have recently doneexpand marketing channels in the oil and gas, transportation, security, and UAS sectors.

The key elements of our growth strategy include the following:

Deliver on sales pipeline opportunities.Our marketing efforts have generated the potential for significant sales in our targeted end markets. Our sales activity in the North American Class 1 Railroad sector has resulted in several pilot programs for multiple railroad operators. Once we successfully complete field testing, we expect to work with our customers to design and develop a network deployment strategy which we expect to lead to purchase orders for equipment and services. We have similar field testing and initial system deployments planned in the UAS markets, security, electric and gas utilities, and oil and gas markets.

Secure marketing partnerships and OEM relationships.We service blue chip customers in critical infrastructure sectors with standards-based, mission-critical connectivity solutions. Those customers value the experience and resources provided by additional ecosystem partners that help support the growth of the MC-IoT end markets. We intend toPursue marketing and OEM partnership agreements with other Tier 1 global industrial and communications equipment suppliers that have extensive reach and domain expertise in our targeted end markets. These relationships will offer customers greater choice, expanded levels of after-market support and services, and the potential for greater product integration with intelligent equipment, and systems that are increasingly being deployed by our critical infrastructure customers.

2023.


Develop new products to continuously improve our customer value. We introduced our Mercury remote radio in the first quarter of 2020 in order to address the expanding MC-IoT market for high volume, lower cost endpoint radios. Our Mercury radios are integrated into our existing FullMAX private network solutions, are compliant with IEEE 802.16s and can be utilized in both Tier 1 and Tier 2 network configurations. We will continue to enhance our SDR capabilities to aggregate non-contiguous channels with a focus on traditional licensed LMR frequency bands to provide IP data networking solutions in historically analog push-to-talk (PTT) bands. We will also work with our ecosystem partners to develop dual-mode products to assist in the migration from legacy networks to our next-generation FullMAX platform.

Expand our MC-IoT capabilities via partnerships, joint ventures or acquisitions.In addition to internal investment and development, we will actively pursue external opportunities to enhance our product offerings and solutions for our critical infrastructure customers via joint ventures, partnerships and acquisitions. This activity will be focused on companies with complementary technologies or product offerings or synergistic distribution strategies.

Sales and Marketing

We generate sales leads and new customers through direct sales efforts, third party resellers, customer referrals, consultant referrals, trade show attendance, general marketing efforts and public relations.

After basic qualification of the prospect, the typical sales process starts with the customer supplying us with key information regarding their network assets including the location of their existing radio tower sites and the remote locations where they require data connectivity. We use this information to generate radio frequency coverage maps based on our FullMAX technology. This information is formatted into a proposal which is then reviewed with the customer to determine the suitability of our solution. The next step typically involves a customer paid onsite lab evaluation of our products during which the customer tests for basic functionality, security and application compatibility. This is typically followed by a live, real world outdoor test in which the customer purchases additional equipment to communicate with a representative number of utility infrastructure control points.

Following the successful evaluation of the FullMAX product in a pilot network, the customer may choose, or be required, to complete a Request for Proposal (RFP) or Request for Quotation (RFQ) process to address the requirements of their entire network. We have participated in many such processes and have developed an extensive library of material and processes for responding effectively and efficiently in a timely manner.

If we are selected, we typically enter into contract negotiations with the customer based on our standard terms and condition of sale, software licensing agreement and warranty policy. The customer then generates a purchase order and we commence fulfillment of the order. Many purchase orders allow for or require phased delivery of products over several months or years.

Many of our customers are conservative in their decision-making process. Sales cycles for new customers can vary from one to three years depending on the complexity of the customer’s network, whether the customer is subject to state regulations, and annual budget cycles. We believe that the sales cycle will shorten as we build our market presence with successful FullMAX deployments which will serve as reference customers and as the IEEE 802.16s multi-vendor ecosystem develops.

Manufacturing, Availability and Dependence upon Suppliers

We designOndas Networks and Ondas Autonomous Systems utilize outsourced manufacturing partners in the building of product to fulfill customer orders. Utilizing contract manufacturers allows us to focus on designing, developing and selling our products. Furthermore, outsourced manufacturing allows us to leverage the economies of scale and expertise of specialized outsourced manufacturers, reduce manufacturing and supply chain risk and distribution costs.

Ondas Networks designs the printed circuit boards and enclosures for our radios and maintainmaintains the bill of materials for all of the products we manufacturer. A Bill of Materials (BOM)(“BOM”) is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts and the quantities of each needed to manufacture anthe end product. The physical manufacturing of FullMAX circuit boards is outsourced to best-in-class industrial contract manufacturers. The contract manufacturer is responsible for sourcing the majority of components in the BOM, assembling the components onto the printed circuit boards and then delivering the final boards to us. Once at our facility, the boards are tested, then placed into enclosures and programmed with the appropriate software. The radios are then configured according to the requirement of the network and run through system level tests before being packaged and shipped to the customer.


We have elected to outsource manufacturing in order to allow us to focus on designing, developing and selling our products. Furthermore, outsourced manufacturing allows us to leverage the economies of scale and expertise of specialized outsourced manufacturers, reduce manufacturing and supply chain risk and distribution costs. We maintain Ondas Networks maintains multiple contract manufacturers, both domestically and internationally, to ensure competitive pricing and to reduce the risk from a single manufacturer.

 

Customer Support


 

Ondas Autonomous Systems designs the Optimus System™ and specifies all components of the BOM including the raw materials, sub-assemblies, intermediate assemblies, sub-components, parts and the quantities of each needed to manufacture the end product. These assemblies incorporate a combination of custom-developed components and COTS components. The building of an Optimus System™ is outsourced to best-in-class contract manufacturers for fabrication and assembly. We supply our customers with installation manuals, user guidesutilize different contract manufacturers for the Optimus™ drone and system documentation as well as onsite training customized to their specific needs. We are also capable of supporting installation and commissioning services either internally or, for extensive projects, through subcontracted third-party specialists.

We provide remote supportAirbase™. Once complete, the contract manufacturers deliver the finished products to our customers including radio configuration assistance, hardwarefacility where software is loaded, and software troubleshooting, software updatessystem-level quality assurance is performed before being packaged and software enhancements. The original purchase price of all FullMAX radios includes a one-year hardware warranty and software maintenance plan. After one year, in ordershipped to continue their hardware warranty and software maintenance, the customer enters into an Annual Support Agreement with us, the cost of which is based on the total value of our products deployed — typically ranging from 10-15% of the current selling price.

Product Development

We retain a dedicated team of software and hardware engineers that are responsiblelocation for developing and maintaining various aspects of our FullMAX technology. The core technology is based on state-of-the-art digital signal processing (DSP) chipsets, field programmable gate arrays (FPGAs), and general-purpose processors. In wireless nomenclature, this concept is referred to as software defined radio (SDR) technology.

We believe FullMAX is one of the most flexible SDRs for private WANs on the market today. It can be viewed in contrast to most other commercial wireless technologies (e.g. LTE, Wi-Fi, etc.) which are based on dedicated communications chipsets with very limited flexibility. We have purposely designed the technologyinstallation. Ondas Autonomous Systems works with a wide rangeselect group of flexibility given the currentcontract manufacturers and evolving requirementshas access to a large number of industrial field area data networks. Specifically, there is the need to accommodate legacy protocols that predate Internet Protocol (IP) and Ethernet while also supporting some of the most advanced protocols in the world including multiprotocol label switching (MPLS). Our flexible hardware and software radio architecture ensures we can support the entire range of protocols as our customers evolve their networks and applications.

Our SDR technology also provides our customers with unmatched flexibility with respect to radio spectrum frequency bands and channel sizes. Our FullMAX radios work in frequency bands ranging from 70 MHz to 6 GHz and in channel sizes from 12.5 kHz to 10 MHz. This flexibility allows our customers to repurpose their existing underutilized spectrum assets or access new licensed radio spectrum at a lower cost.

FullMAX radios have three major software components: (i) general embedded Linux-based software, (ii) DSP software, and (iii) FPGA software. FullMAX Base Stations and Remote radios have distinct software packages which combine these three components. Also, different computer software tools are used to develop the source code for each of the components. Hardware design and development is completed using standard computerized hardware design tools.

other comparable contract manufacturers. 


Our product design process begins with detailed requirements supplied from current and prospective customers. These inputs then flow into our development roadmap, which is divided into six, 12 and 36-month plans. A majority of our ongoing development is software related which includes the following development process: (i) requirements specification, (ii) high level design, (iii) detailed design, (iv) coding, (v) unit test, (vi) integration tests, (vii) lab verification tests, and (viii) outdoor deployment verification.

FullMAX is currently available on: (1) our Venus hardware platform with transmit power up to four watts; (2) our Jupiter hardware platform with enhanced processing power combined with two (2) four-watt power amplifiers; and (3) our Mars hardware platform with our highest transmit power radio up to 100 watts. The Jupiter and Mars platforms are targeted toward customer Base Station applications. The Venus platform is deployed in the field in both remote radio and Base Station applications.

Our new ruggedized outdoor platform, Neptune, is at an advanced stage of development and will be produced based on customer demand. Neptune has the same functionality as the Venus platform but is designed to be IP65 compliant for outdoor operation and to sustain extreme shock and vibration according to the U.S. military standard MIL STD-810.

Our FullMAX technology is currently a single-tier (Tier 1) point-to-multi-point broadband wireless system. Our FullMAX topology evolution includes the development of our Mercury product, a low-cost end point designed for licensed MC-IoT communication in either a first tier or second tier networks installation. The Venus platform is used as the concentrator of the second tier. In a two-tier topology, the Tier 2 system will be aggregated via a Tier 1 Remote Station. The Tier 2 network elements are now available for customer deployments.

Research & Development

Our ability to develop state-of-the-art and cost-effective solutions relative to our competitors can only be achieved through our continued research and development efforts. Our

Ondas Networks research and development activities are headed by Menashe Shahar, our Chief Technology Officer, based in our Sunnyvale, California headquarters. Mr. Shahar is a co-founder of the CompanyOndas Networks and has over 30 years of telecommunications system development experience, including the design and implementation of broadband wireless data systems for top tier system integrators and service providers including WorldCom, Nortel and ADC. Mr. Shahar has been awarded multiple patents in the data communications industry and has been an active participant in major wireless standardization activities including IEEE 802.16. In addition to internal research and development efforts, we also engage third party consultants to assist us in our research and development activities.

Ondas Autonomous Systems research and development activities are headed by Meir Kliner, President of Ondas Autonomous Systems and CEO and Founder of Airobotics who is based in Petah Tikva, Israel. Mr. Kliner has led the development of the Optimus System™ since 2014 and has expertise that represents a synthesis of years of managerial experience combined with command of drone product design. Mr. Kliner’s background includes key roles in developing diverse aerial systems, ranging from recreational to military applications and has founded several businesses, including Light and Strong, a premier manufacturer of composites for aerial platforms in the drone industry. Mr. Kliner is supported by a development team based in both Petah Tikva, Israel and Waltham, Massachusetts.

Ondas Holdings development activities are guided by Vijay Somandepalli, VP of Technical Strategy at Ondas Holdings and the Chief Technology Officer of American Robotics, based in our Waltham, Massachusetts headquarters. Dr. Somandepalli is a co-founder of American Robotics and has extensive experience in the fields of robotics, drones, energy storage, and aerospace engineering. Prior to founding American Robotics, Dr. Somandepalli was a Managing Engineer and senior consultant for over a decade at Exponent, a large national engineering and scientific consulting firm, where he advised in many industries, including oil & gas, solar, hydroelectric, coal, infrastructure, automotive, aviation, and telecom. Dr. Somandepalli holds a Ph.D. and Master’s in Mechanical Engineering from Stanford University, a B.Tech in Aerospace Engineering from the Indian Institute of Technology, Madras, and is a Licensed Professional Engineer (PE).

Our research and development team works closely with our customer support team and incorporates feedback from our customers into our product development plans to improve our products and address emerging market requirements.

Our research and development expenses were $5,416,425approximately $24,044,000 and $3,076,502approximately $5,801,000 for the years ended December 31, 20192022 and 2018,2021, respectively.

Intellectual Property

We rely primarily on patent, trademark and trade secret laws to protect our proprietary technologies and intellectual property. As of this filing, wethe Ondas Networks segment held a total of sixseven issued patents in the U.S., seventwo international issued patents, four pending patent applications in the U.S., and oneeleven international pending patent application. OurThe Ondas Networks segment’s patents expire between 20302028 and 2037,2040, subject to any patent extensions that may be available for such patents. Our intellectual property centers around creating and maintaining robust, private, highly secure, broadband industrial wireless networks using our FullMAX radio technology for our mission critical customers’ networks. We view ourthe Ondas Networks segment’s patents as a key strategic advantage as the markets for industrial wireless connectivity grows and as these industries move to standardized solutions and will enable us to earn licensing fees and/or royalties for the use of our patents.

 


The Ondas Autonomous Systems segment relies primarily on patent, trademark and trade secret laws to protect our proprietary technologies and intellectual property. As of this filing, the Ondas Autonomous Systems segment held a total of six issued patents in the U.S., ten international issued patents, six pending patent applications in the U.S., and eleven international pending patent application. The Ondas Autonomous Systems segment’s patents expire between 2036 and 2042, subject to any patent extensions that may be available for such patents. The Ondas Autonomous Systems segment’s intellectual property incorporates internally developed software and hardware design incorporating machine and computer vision and was developed with artificial intelligence and machine learning techniques. This intellectual property is critical to the development of end-to-end systems which reliably enable the automated operation of drones in real-world environments.

We have a policy of requiring our officers, employees, contractors and other service providers and parties with which we do business to enter into confidentiality, non-disclosure (“NDAs”) and assignment of invention agreements before disclosure of any of our confidential or proprietary information.


Seasonality

We do not believe that the industry in which we competeOndas Networks and Ondas Autonomous Systems competes is subject to seasonal sales fluctuation; however, we do recognize that a typical sales cycle for new customers may take from one to three years depending on the complexity of their network and whether the customer is subject to state regulations and/or annual budget cycles.fluctuation.

Dependence on a Single Customer

Because we have only recently invested in our customer service and support organization, a small number of customers have accounted for a substantial amount of our revenue. During the year ended December 31, 2019, three customers2022, one customer accounted for approximately $144,000, $115,000 and $56,000$1,893,000 of our revenue, or approximately 45%, 36% and 18%, respectively.89%. During the year ended December 31, 2018,2021, two customers accounted for approximately $145,000$1,204,000 and $32,000$1,599,000 of our revenue, or approximately 76%41% and 17%55%, respectively. No other customers provided more than 10% of our revenue during 2019 and 2018.

Competition

Ondas Networks

We compete with alternatives to wireless technology, public cellular data networks and private wireless networking products from other manufactures. We believe that each of these competing solutions has core weaknesses when compared to FullMAX, as described below.

Public cellular data networks:

Public networks are more vulnerable to cyber security attacks from anywhere in the world including denial of service attacks; private networks can operate independent of the public internet.
Public networks are more susceptible to prolonged outages during man-made and natural disasters (e.g. 9/11, Hurricane Sandy, etc.), exactly when utilities and mission critical entities require the greatest reliability.
Public networks are typically designed for population coverage rather than the geographic areas required by critical infrastructure providers, which often include remote locations.
Public networks are by definition oversubscribed, shared networks without the necessary prioritization service to support mission critical applications.
Public networks typically use shared infrastructure including tower sites and long-haul fiber connections resulting in vulnerabilities at many points.
Public networks are designed to support high capacity downloading and streaming applications with limited upload bandwidth available. Industrial networks typically require the reverse traffic flow, often uploading data from a large number of remote locations.

 

Non-wireless technologies:


 

Other private wireless products:

Leased Phone Lines – Analog lines are being retired by the phone companiesUnlicensed Point to Multipoint Wireless (e.g., Wi-Fi) — This equipment is very inexpensive to purchase but is subject to interference, has many security vulnerabilities, uses a contention-based protocol and are not being replaced by new digital lines, especially where the grid assets are located.transmits only over short range. Deploying Wi-Fi over wide areas is cost prohibitive.

Power Line Carrier – The transmit speeds supported by this technology
Private Licensed Narrowband Wireless Radios — These networks can provide good coverage and range but are typically too lowslow and lack sufficient bandwidth to meetsupport new applications and the increased number of data rates of new applications. Furthermore, the service may not be available if there is an interruption in the grid (e.g. downed power lines); often the situation when communication is mission critical.connections required.

Alternate technologies:

Private Fiber – Fiber is a point-to-point technology which has many points of failure (e.g. accidental or malicious fiber cuts) and security vulnerabilities (e.g. tapping). Underground fiber is cost prohibitive in most cases and above ground is susceptible to the same failures as downed power lines.

Alternate technologies:

Satellite Technologies — These technologies provide good coverage, but throughput is limited, and latency is too high to support mission-critical applications for our customers. These technologies can be very costly as compared to our products and systems.

Low-Power Wide Area Networks (LP-WANs) — LP-WAN solutions such as LoRa Sigfox and NB-IoT are architected with lower power, the purpose of which is to make these typically sensor-based networks lower-cost solutions. The low powered equipment means these systems have lower throughput and higher latency and are not reliable for mission-critical applications that require both monitoring and control functions.


Public cellularOndas Autonomous Systems

We compete with other drone OEMs providing a variety of solutions for inspection, security, asset tracking and other applications. We compete on many dimensions with system performance being differentiated by the level of autonomous operation, ease of use, reliability, safety, and government regulations. Further, leading automated data networks:solution providers must provide diverse payload capabilities for data collection, along with robust, advanced analytics programs that are specific for each industry served.

Public networks are vulnerable to cyber security attacks from anywhere in the world including denial of service attacks; private networks can operate independent of the public internet. Based on current and planned FAA rules, UAVs will be off-net without public Internet access.

Public networks are susceptible to prolonged outages during man-made and natural disasters (e.g. 9/11, Hurricane Sandy, etc.), exactly when utilities and mission critical entities require the greatest reliability.

Public networks are typically designed for population coverage rather than the geographic areas required by critical infrastructure providers, which often include remote locations.

Public networks are by definition oversubscribed, shared networks without the necessary prioritization service to support mission critical applications.

Public networks typically use shared infrastructure including tower sites and long-haul fiber connections resulting in vulnerabilities at many points.

Public networks are designed to support high capacity downloading and streaming applications with limited upload bandwidth available. Utilities typically require the reverse traffic flow, often uploading data from a large number of remote locations.

Other private wireless products:

Unlicensed Point to Multipoint Wireless (e.g. Wi-Fi) — This equipment is very inexpensive to purchase but is subject to interference, has many security vulnerabilities, uses a contention-based protocol and transmits only over short range. Deploying Wi-Fi over wide areas is cost prohibitive.

Private Licensed Narrowband Wireless Radios — These networks can provide good coverage and range but are typically too slow and lack sufficient bandwidth to support new applications and the increased number of data connections required.

Governmental Regulations

Our operations are subject to various federal, state and local laws and regulations including: (i) authorization from the FCC for operation in various licensed frequency bands; (ii) FAA regulations and approvals unique to the operation of commercial or industrial drones; (iii) customers’ licenses from the FCC; (iv) licensing, permitting and inspection requirements applicable to contractors, electricians and engineers; (v) regulations relating to worker safety and environmental protection; (vi) permitting and inspection requirements applicable to construction projects; (vii) wage and hour regulations; (viii) regulations relating to transportation of equipment and materials, including licensing and permitting requirements; (ix) building and electrical codes; and (x) special bidding, procurement and other requirements on government projects. 


 

Authorization from the Federal Communications Commission (FCC) for operation in various licensed frequency bands,

customers’ licenses from the FCC,

licensing, permitting and inspection requirements applicable to contractors, electricians and engineers,

regulations relating to worker safety and environmental protection,

permitting and inspection requirements applicable to construction projects,

wage and hour regulations,

regulations relating to transportation of equipment and materials, including licensing and permitting requirements,

building and electrical codes; and

special bidding, procurement and other requirements on government projects.

We believe we have all the licenses materially required to conduct our operations, and we are in substantial compliance with applicable regulatory requirements. The operation of our manufactured products by our customers (network providers and service providers) in the U.S. or in foreign jurisdictions in a manner not in compliance with local law could result in fines, business disruption, or harm to our reputation. The changes to regulatory and technological requirements may also alter our product offerings, impacting our market share and business.  Failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses or could give rise to termination or cancellation rights under our contracts or disqualify us from future bidding opportunities.

Environmental Regulation

Our operations are subject to extensive, and frequently changing, federal, state and local environmental laws and substantial related regulation by government agencies, including the Environmental Protection Agency. Among other matters, these regulatory authorities impose requirements that regulate the operation, handling, transportation and disposal of hazardous materials; protect the health and safety of workers; and require us to obtain and maintain licenses and permits in connection with our operations. This extensive regulatory framework imposes significant compliance burdens and risks on us. Notwithstanding these burdens, we believe that we are in material compliance with all federal, state and local environmental laws and regulations governing our operations.

There has been no material adverse effect to our consolidated financial statements nor competitive positions as a result of these environmental regulations.

Employees

As of March 13, 2020,10, 2023, we have 21116 full-time employees, including 40 in the Ondas Networks segment and one part-time employee.76 in the Ondas Autonomous Systems segment. In addition, we have consulting agreements with 17 consultants for manufacturing, supply chain, documentation, engineering, regulatory, IT, and business development support. Additionally, from time to time, we may hire temporary employees. We also utilize contractors to manufacture components, for certain research and development and for system deployment functions. None of our employees are covered by a collective bargaining agreement and we are unaware of any union organizing efforts. We have never experienced a major work stoppage, strike or dispute. We consider our relationship with our employees to be good.


Subsidiaries

Corporate Information

We have two wholly owned subsidiaries,

Ondas Holdings Inc. was originally incorporated in Nevada on December 22, 2014, under the name Zev Ventures Incorporated. On September 28, 2018, we acquired Ondas Networks Inc., a Delaware corporation, which ischanged our operating company,name to Ondas Holdings Inc., and discontinued the prior business of Zev Ventures Incorporated. On August 5, 2021, Ondas Holdings Inc. acquired American Robotics, Inc., a Delaware Corporation. See Note 5 – Goodwill and Business Acquisitions of the accompanying Consolidated Financial Statements for further information regarding the American Robotics acquisition. On January 23, 2023, Ondas Holdings Inc. acquired Airobotics Ltd., an Israeli corporation. See Note 16 - Subsequent Events of the accompanying Consolidated Financial Statements for further information regarding the Airobotics acquisition. On February 14, 2023, the Company formed Ondas Autonomous Systems, a new business unit to manage the combined drone operations of American Robotics and Airobotics.

As a result of the acquisitions described above, Ondas Networks, American Robotics and Airobotics became our wholly owned subsidiaries. Also, we had one wholly owned subsidiary, FS Partners (Cayman) Limited, a Cayman Islands limited liability company. We have twocompany, and one majority owned subsidiaries,subsidiary, Full Spectrum Holding Limited, a Cayman Islands limited liability company, and Ondas Network Limited, a company registered to do business in China. Full Spectrum Holding Limited owns 100% of Ondas Network Limited, a company registered to do business in China.company. Both FS Partners (Cayman) Limited and Full Spectrum Holding Limited were formed for the purposehave been dissolved as of beginning operationsJanuary 4, 2023.

Ondas Holdings’ corporate headquarters are located in China. As described above, we revised our business strategy and are in the process of dissolving our China-affiliated subsidiaries. Once this process is complete, we will have only one wholly owned subsidiary,Waltham, Massachusetts. Ondas Networks Inc.

Corporate Information

We are a Nevada corporation. Our corporate headquartershas offices and operationfacilities in Sunnyvale, California, American Robotics’ offices and facilities are located at 165 Gibraltar Court, Sunnyvale, CA 94089. Our telephone number is (888) 350-9994in Waltham, Massachusetts and our fax number is (408) 300-5750. We maintain a website at http://www.ondas.com.Marlborough, Massachusetts, and Airobotics’ offices and facilities are located in Petah Tikva, Israel.

 

Available Information

Our annual reportsInternet website is www.ondas.com. Our Annual Report on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, and amendments to such reports filed or furnished pursuant to sectionSections 13(a) orand 15(d) of the Securities and Exchange Act of 1934, as well as section 16 reports on Form 3, 4, or 5,amended (the “Exchange Act”) are available, free of charge, onunder the Investors tab of our website at http://www.ondas.com as soon as it is reasonably practicable after they are filedwe electronically file such material with, or furnishedfurnish it to, the SEC. Additionally, the SEC maintains a website located at www.sec.gov that contains the information we file or furnish electronically with the SEC. Our Code of Business Conduct and the charters for the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee of our Board of Directors (“Board”) are also available on our website. The Code of Business Conduct and charters are also available in print to any shareholder upon request without charge. Requests for such documents should be directed to Eric Brock, Chief Executive Officer, at 165 Gibraltar Court, Sunnyvale, CA 94089. Our Internet website and the information contained on it or connected to it are not part of, or incorporated by, reference into this Form 10-K. Our filings with the SEC are also available on the SEC’s website athttp://www.sec.gov.


Item 1A.Risk Factors

Item 1A. Risk Factors

RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks, as well as general economic and business risks, and all of the other information contained in this Form 10-K. Any of the following risks could harm our business, operating results and financial condition and cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this Form 10-K including our financial statements and the related notes thereto.

Risks Related to Our Business and Industry

We have incurred significant operating losses since inception and cannot assure you that we will ever achieve or sustain profitability.

Since our inception, we have incurred significant net losses. As of December 31, 2022 and December 31, 2021, we had an accumulated deficit of approximately $154 million and $80 million, respectively. To date, we have financed our operations primarily through sales of our equity securities and debt financings.financing.

To implement our business strategy we need to, among other things, continue to attract and retain talented officers, employees, contractors and other service providers, complete the development of our low cost Mercury end points, further develop an ecosystem for the IEEE 802.16s wireless standard, manage new ecosystem partnerships and OEM relationships, establish high volume manufacturing (outsourced), and establish new distribution channels including those in international markets. We have never been profitable and do not expect to be profitable in the foreseeable future. We expect our operating expenses to increase significantly as we pursue these objectives.our growth strategy, including expending substantial resources for research, development and marketing. The extent of our future operating losses and the timing of profitability are highly uncertain, and we expect to continue incurring significant expenses and operating losses over the next several years. Any additional operating losses may have an adverse effect on our stockholders’ equity and the price of our common stock, and we cannot assure you that we will ever be able to achieve profitability.

Even if we achieve profitability, we may not be able to sustain or increase such profitability.profitability. Additionally, our costs may increase in future periods and we may expend substantial financial and other resources on, among things, sales and marketing, the hiring of additional officers, employees, contractors and other service providers, and general administration, which may include a significant increase in legal and accounting expenses related to public company compliance, continued compliance and various regulations applicable to our business or arising from the growth and maturity of our company.company. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals, diversify our product and service offerings or continue our operations,, and may cause the price of our common stock to decline.decline.

While we have historically worked with electrical utilities, we are currently expanding into new vertical end markets such as water utilities, oil and gas and transportation, in which we have limited prior operating history. Failure to establish ourselves in these new markets can have a material adverse effect on our business prospects.

We have historically worked with and geared our product offerings to the requirementsThe adoption of the electrical utilities and other suppliers of electrical power. We have in the past few years expanded our product design and development efforts to address the needs of other mission critical infrastructures, such as water utilities, oil and gas production and transportation. Achieving market acceptance in these new markets, of which no assurance can be provided, is critical to our success, and accordingly, failure to establish ourselves in these new markets may materially adversely affect our business or operating results. While we believe that the adoption of industry standards should facilitate our entry into these new markets, no assurance can be provided that our product and service offerings will be adopted or accepted.


The IEEE 802.16s wireless broadband standard is newly published and adoption of this standard by customers in our target critical infrastructure sectors is uncertain.

The IEEE 802.16s wireless broadband standard was published in October 2017. In addition, we are currently the only manufacturer of IEEE 802.16s compliant equipment. The benefit of the standard to buyers of our equipment are greater when there exists a large, deep market in terms of the number of customers. A large market benefits from the scale provided such that many vendors can compete on service, price and quality of solution driving improved value for customers. If a large end market doesn’tdoes not develop and customers don’tdo not see the related benefits from the standard, we may not be able to grow our business. However,


Our growth depends in part on the success of our strategic partnerships with third parties such as Siemens Mobility, who are also customers, as well as on our ability to establish a broad range of additional ecosystem partner and customer relationships with leading global industrial vendors.

In order to grow our business, we believe that it is too earlydepend on partnerships with market leading technology and industrial companies such as Siemens Mobility, who are also customers of Ondas Networks in order to accurately gaugeaccelerate the adoption of our wireless technology. If we are unsuccessful in maintaining our partnership and customer relationships with third parties, including Siemens Mobility, or if our partnerships do not provide us the anticipated benefits, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results may suffer. In addition, adoption of our FullMAX wireless platform and Optimus System™ requires us to establish additional ecosystem relationships with leading global industrial vendors and customers. Even if we are successful in executing these partnerships and integrating with additional ecosystem vendors, we cannot assure you that these partnerships and relationships will result in increased adoption of our technology or increased revenue.

If the commercial UAS markets do not experience significant growth, if we cannot expand our customer base or if our products and services do not achieve broad acceptance, then we may not be able to achieve our anticipated level of growth.

We cannot accurately predict the future growth rates or sizes of the markets for our products and services. Demand for our products and services may not increase, or may decrease, either generally or in specific markets, for particular types of products and services or during particular time periods. We believe the market for commercial UAS is nascent and the expansion of the market for our products and services in particular, depends on a number of factors, including the following:

customer satisfaction with these types of systems as solutions;

the cost, performance and reliability of our products and products offered by our competitors;

customer perceptions regarding the effectiveness and value of these types of systems;

obtaining timely regulatory approvals for new customer deployments; and

marketing efforts and publicity regarding these types of systems and services.

Even if commercial UAS gain wide market acceptance, our products and services may not adequately address market requirements and may not continue to gain market acceptance. If these types of systems generally, or our products and services specifically, do not gain wide market acceptance, then we may not be able to achieve our anticipated level of growth and our revenue and results of operations would decline.

Negative customer perception regarding the commercial UAS industry or the Company’s automated data solutions could have a material adverse effect on the demand for the Company’s products and the business, results of operations, financial condition and cash flows of the Company.

The Company believes the commercial UAS industry is highly dependent upon customer perception regarding the safety, efficacy, and quality of the commercial UAS system deployed. Customer perception of these products can be significantly influenced by our target markets of this new evolving standardscientific research or findings, regulatory investigations, litigation, media attention, and thereother publicity. There can be no assurancesassurance that this technology standardfuture scientific research, findings, regulatory proceedings, litigation, media attention, or other research findings or publicity will be widely adopted by our target customers.favorable to the UAS market. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for the Company’s products and the business, results of operations, financial condition and cash flows of the Company. The dependence upon customer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on the Company, the demand for the Company’s products, and the business, results of operations, financial condition and cash flows of the Company.

 


Failure to manage our planned growth could place a significant strain on our resources.

Our ability to successfully implement our business plan requires an effective plan for managing our future growth. We plan to increase the scope of our operations. Current and future expansion efforts will be expensive and may significantly strain our managerial and other resources and ability to manage working capital. To manage future growth effectively, we must manage expanded operations, integrate new personnel and maintain and enhance our financial and accounting systems and controls. If we do not manage growth properly, it could harm our business, financial condition or results of operations and make it difficult for us to satisfy our debt obligations.

We may be unsuccessful in achieving our organic growth strategies, which could limit our revenue growth or financial performance. Our ability to generate organic growth will be affected by our ability to, among other things:

attract new customers;

increase the number of products purchased from customers;

maintain profitable gross margins in the sale and maintenance of our products;

increase the number of projects performed for existing customers;

achieve the estimated revenue we announced from new customer contracts;

hire and retain qualified employees;

expand the range of our products and services we offer to customers to address their evolving network needs;

expand geographically, including internationally; and

address the challenges presented by difficult and unpredictable global and regional economic or market conditions that may affect us or our customers.

Many of the factors affecting our ability to generate organic growth may be beyond our control, and we cannot be certain that our strategies for achieving internal growth will be attempted, realized or successful.

Our growth depends in part on the success of our strategic partnerships with third parties.

In order to grow our business, we depend on partnerships with market leading technology companies to accelerate the adoption of our wireless technology. If we are unsuccessful in maintaining our partnerships with third parties, or if our partnerships do not provide us the anticipated benefits, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results may suffer. Even if we are successful, we cannot assure you that these partnerships will result in increased adoption of our technology or increased revenue.


If we fail to retain our existing customers and consumers or do not acquire new customers or consumers in a cost-effective manner, our revenue may decrease and our business, financial condition or results of operations may be harmed.

We believe that our success is dependent on our ability to continue identifying and anticipating the needs of our customers, and consumers, to retain our existing customers and consumers and to add new customers and consumers.customers. For example, we launched aour business expansion plan in 2018is designed to leverage our FullMAX platform and penetrate the large, critical infrastructure end markets we targetwith our wireless and grewUAS driven data solutions and have expanded our dedicated sales resources and field personnel to broaden our marketing and field support efforts into new industries and sectors. As a result, we have significantly increased customer engagement in the transportation, oil and gas, security and UAS end markets with Ondas Networks and wein the industrial, public safety and government markets with Ondas Autonomous Systems. We expect that our qualified customer pipeline will increase throughout 2020.in other additional strategic end markets. However, as we become larger through organic growth, the growth rates for consumercustomer engagement, project volume and average spend per customer may slow, even if we continue to add consumers and customers on an absolute basis. In addition, the costs associated with customer and consumer retention may be substantially lower than costs associated with the acquisition of new customers or consumers.customers. Therefore, our failure to retain existing customers, or consumers, even if such losses are offset by an increase in revenue resulting from the acquisition of new customers, or consumers, could have an adverse effect on our business, financial condition or results of operations.

Additionally, while a key part of our business strategy is to add customers and consumers in our existing geographic markets, we mayexpect to expand our operations into new geographic markets. In doing so, we may incur losses or otherwise fail to enter new markets successfully. Our expansion into new markets may place us in unfamiliar and competitive environments and involve various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years or at all.


The Company faces uncertainty and adverse changes in the economy.

 

Adverse changes in the economy could negatively impact the Company’s business. Future economic distress may result in a decrease in demand for the Company’s products, which could have a material adverse impact on the Company’s operating results and financial condition. Uncertainty and adverse changes in the economy could also increase costs associated with developing and publishing products, increase the cost and decrease the availability of sources of financing, and increase the Company’s exposure to material losses from bad debts, any of which could have a material adverse impact on the financial condition and operating results of the Company.

Any outbreak or worsening of an outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations, financial condition and results of operations.

Any outbreak or worsening of an outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations, financial condition and results of operations. For example, in December 2019, a novel strain of coronavirus (“COVID-19”) was identified in Wuhan, China, and has subsequently spread to other regions of the world, and has resulted in increased travel restrictions, business disruptions and emergency quarantine measures across the world including the United States. The Company’s business, financial condition and results of operations were impacted from the COVID-19 pandemic during the year ended December 31, 2022 and 2021 as follows:

sales and marketing efforts were disrupted as our business development team was unable to travel to visit customers and customers were unable to receive visitors for on-location meetings;

field activity for testing and deploying our wireless systems was delayed due to the inability for our field service team to install and test equipment for our customers;

supply chain disruptions led to component shortages and inefficiencies in and delays in producing and delivering equipment for certain purchase orders; and

delays in fulfilling purchase orders reduced our cash flow from operations.

The Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2023, primarily due to supply chain disruptions due to pandemic-related plant and port shutdowns, transportation delays, government actions and other factors, which may be beyond our control. The global shortage of certain components such as semiconductor chips, strains on production or extraction of raw materials, cost inflation, and labor and equipment shortages, could escalate in future quarters. Labor shortages have led and may continue to lead to difficult conditions for hiring and retention of employees, and increased labor costs. Further, the COVID-19 pandemic is ongoing and remains an unknown risk for the foreseeable future. The extent to which the coronavirus may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus. As a result, the Company is unable to reasonably estimate the full extent of the impact from the COVID-19 pandemic on its future business, financial condition and results of operations. In addition, if the Company were to experience any new impact to its operations or incur additional unanticipated costs and expenses as a result of the COVID-19 pandemic, such operational delays and unanticipated costs and expenses there could be a further adverse impact on the Company’s business, financial condition and results of operations during 2023.

We have significant dependence on a small number of customers, and the loss of such customers or a decrease in business conducted with such customers could materially harm our business, financial condition or results of operations.

Because we have only recently invested in our customer service and support organization, a small number of customers have accounted for a substantial amount of our revenue. During the year ended December 31, 2019, three customers2022, one customer accounted for approximately $144,000, $115,000 and $56,000$1,893,000 of our revenue, or approximately 45%, 36% and 18%, respectively.89%. During the year ended December 31, 2018,2021, two customers accounted for approximately $145,000$1,204,000 and $32,000$1,599,000 of our revenue, or 76%approximately 41% and 17%55%, respectively. No other customers provided more than 10% of our revenue during 2019 and 2018. The loss of either of these customersthe 2022 customer or a decrease in the business conducted with such customers could have a material adverse impact on our business, financial condition or results of operations.


Project performance delays or difficulties, including those caused by third parties, or certain contractual obligations may result in additional costs to us, reductions in revenues or the payment of liquidated damages.

Many projects involve challenging engineering, construction or installation phases that may occur over extended time periods. We may encounter difficulties as a result of delays or changes in designs, engineering information or materials provided by our customer or a third party, delays or difficulties in equipment and material delivery, schedule changes, delays from our customer’s failure to timely obtain permits or meet other regulatory requirements including the securing of necessary FCC certifications or FAA approvals, weather-related delays and other factors, many of which are beyond our control, that impact our ability to complete the project in accordance with the original delivery schedule. In addition, we contract with third-party subcontractors to assist us with the completion of contracts. Any delay or failure by suppliers or by subcontractors in the completion of their portion of the project may be beyond our control and may result in delays in the overall progress of the project or may cause us to incur additional costs, or both. Delays and additional costs may be substantial, and, in some cases, we may be required to compensate the customer for such delays. Delays may also disrupt the final completion of our contracts as well as the corresponding recognition of revenues and expenses therefrom. In certain circumstances, we guarantee project completion by a scheduled acceptance date or achievement of certain acceptance and performance testing levels; failure to meet any of our guarantees, schedules or performance requirements could also result in additional costs or penalties to us, including obligations to pay liquidated damages, and such amounts could exceed expected project profit. In extreme cases, the above-mentioned factors could cause project cancellations, and we may be unable to replace such projects with similar projects or at all. Such delays or cancellations may impact our reputation, brand or relationships with customers, adversely affecting our ability to secure new contracts.


Our contractors may fail to satisfy their obligations to us or other parties, or we may be unable to maintain these relationships, either of which may have a material adverse effect on our business, financial condition and results of operations.

We depend on third party contractors to complete manufacturing, certain research and development and deployment functions. There is a risk that we may have disputes with contractors arising from, among other things, the quality and timeliness of work performed by the contractor, customer concerns about the contractor or our failure to extend existing task orders or issue new task orders. In addition, if any of our contractors fail to deliver on a timely basis the agreed-upon supplies and/or perform the agreed-upon services, then our ability to fulfill our obligations may be jeopardized. In addition, the absence of qualified contractors with whom we have a satisfactory relationship could adversely affect the quality of our service and our ability to perform under some of our contracts. Any of these factors may have a material adverse effect on our business, financial condition or results of operations.

Material delays or defaults in customer payments could leave us unable to cover expenditures related to such customer’s projects, including the payment of our subcontractors.

Because of the nature of most of our contracts, we commit resources to projects prior to receiving payments from our customers in amounts sufficient to cover expenditures as they are incurred. In certain cases, these expenditures include paying our contractors and purchasing parts. If a customer defaults in making its payments on a project or projects to which we have devoted significant resources, it could have a material adverse effect on our business, financial condition or results of operations.

Certain of our officers, employees, contractors and other service providers may work on projects that are inherently dangerous, and a failure to maintain a safe worksite could result in significant losses.

Certain of our project sites can place our officers, employees, contractors and other service providers and others, including third parties, in difficult or dangerous environments, and may involve difficult and hard to reach terrain, high elevation, or locations near large or complex equipment, moving vehicles, high voltage or other safety hazards or dangerous processes. Safety is a primary focus of our business and maintaining a good reputation for safety is critical to our business. Many of our customers require that we meet certain safety criteria to be eligible to bid on contracts. We maintain programs with the primary purpose of implementing effective health, safety and environmental procedures throughout our company. Maintaining such programs involves variable costs which may increase as governmental, regulatory and industry safety standards evolve, and any increase in such costs may materially affect or business, financial condition or results of operations. Further, if we fail to implement appropriate safety procedures or if our procedures fail, our officers, employees, contractors and other service providers, including third parties, may suffer injuries. Failure to comply with such procedures, client contracts or applicable regulations, or the occurrence of such injuries, could subject us to material losses and liability and may adversely impact our ability to obtain projects in the future or to hire and retain talented officers, employees, contractors and other services providers, therefore materially adversely affecting our business, financial condition or results of operations.operations.

 


Warranty claims resulting from our services could have a material adverse effect on our business, financial condition or results of operations.

We generally warrant our manufactured products, including hardware and software, for a period of one year from the date of receipt of the product by the customer. After the first year, the customer can pay for extended hardware warranty and software maintenance and upgrades on an annual basis in advance. While costs that we have incurred historically under our warranty obligations have not been material, the costs associated with such warranties, including any warranty related legal proceedings, are variable and could have a material adverse effect on our business, financial condition or results of operations.


We rely onOur products are subject to a lengthy sales cycle and our management teamcustomers may cancel or change their product plans after we have expended substantial time and need additional personnelresources in the design of their products.

Many of our customers are conservative in their decision-making process. Sales cycles for new customers can vary from one to grow our business, and the loss of one or more key officers, employees, contractors and other service providers or our inability to attract and retain qualified personnel could harm our business, financial condition or results of operations.

We depend, in part,three years depending on the performancecomplexity of Eric Brock, our Chief Executive Officer, Stewart Kantor, our Presidentthe customer’s network, whether the customer is subject to state regulations, and Chief Financial Officer, and Menashe Shahar, the Chief Technology Officer of Ondas Networks, to operate and grow our business. The loss of any of Messrs. Brock, Kantor or Shahar could negatively impact our ability to execute our business strategies. Although we have entered into employment agreements with Messrs. Brock, Kantor and Shahar, we may be unable to retain them or replace any of them if we lose their services for any reason.

Our future success will also depend on our ability to attract, retain and motivate highly skilled management, product development, operations, sales, technical and other personnel in the United States and abroad. Even in today’s economic climate, competition for these types of personnel is intense, particularly in the Silicon Valley, where our headquarters are located. All of our employees, contractors and other service providers in the United States work for us on an at-will basis. Given theannual budget cycles. During this lengthy sales cycles with utilities and deployment periods ofcycle, our networking platform and solutions, the loss of key personnelpotential customers may cancel or change their product plans. Customers may also discontinue products incorporating our devices at any time could adversely affector they may choose to replace our products with lower cost semiconductors. In addition, we are working with leading customers in our target markets to define our future products. If customers cancel, reduce or delay product orders from us, or choose not to release products that incorporate our devices after we have spent substantial time and resources developing products or assisting customers with their product design, our revenue levels may be less than anticipated and our business, results of operations and financial condition or results of operations.

Our ability to provide bid bonds, performance bonds or letters of credit is limited and could negatively affect our ability to bid on or enter into significant long-term agreements.

We have in the past been, and may in the future be required to provide bid bonds or performance bonds to secure our performance under customer contracts or, in some cases, as a pre-requisite to submit a bid on a potential project. Our ability to obtain such bonds primarily depends upon our capitalization, working capital, past performance, management expertise, reputation, brand and external factors beyond our control, including the overall capacity of the surety market and general and regional economic and regulatory conditions. Surety companies consider those factors in relation to the amount of our tangible net worth and other underwriting standards that may change from time to time. Surety companies may require that we collateralize a percentage of the bond with our cash or other form of credit enhancement. Events that affect surety markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. In addition, some of our utility customers also require collateral guarantees in the form of letters of credit to secure performance or to fund possible damages as the result of an event of default under our contracts with them. If we enter into significant long-term agreements that require the issuance of letters of credit, our liquidity could be negatively impacted. Our inability to obtain adequate bonding or letters of credit and, as a result, to bid or enter into significant long-term agreements, could have a material adverse effect on our future revenues and business prospects.

Substantially all our current products depend on the availability and are subject to the use of licensed radio frequencies regulated by the FCC in the United States.

Substantially all of our current hardware products are designed to communicate wirelessly via licensed radio frequencies and therefore depend on the availability of adequate radio spectrum in order to operate. It is possible that the FCC or the U.S. Congress could adopt additional regulations or policies which are, or may change or modify current regulations or policies so that they are, harmful to our business or incompatible with our current or future product offerings, as well as products currently installed in the field. Additional regulations or policies or changes or modifications to current regulations or policies may require modification or replacement of our products, including products currently installed in the field, at significant, or even prohibitive, cost to us, and may require changes or modifications to, or termination of, ongoing or planned projects. Any of these developments could materially and adversely impact our business, financial condition or results of operations.

affected.

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Our marketing efforts depend significantly on our ability to receive positive references from our existing customers.

Our marketing efforts depend significantly on our ability to call on our current and past customers to provide positive references to new, potential customers. A material portion of our current pipeline activity is concentrated in the transportation and aviation sectors as well as in the United Arab Emirates (UAE). Given our limited number of customers, the loss or dissatisfaction of any customer could substantially harm our brand and reputation, inhibit the market acceptance of our products and services, and impair our ability to attract new utility customers and maintain existing utility customers. Further, as we expand into new vertical and geographic end markets, such as oil and gas and transportation, references from existing customers could be similarly important. Any of these consequences could have a material adverse effect on our business, financial condition and results of operations.

If our products contain defects or otherwise fail to perform as expected, we could be liable for damages and incur unanticipated warranty, recall and other related expenses, our reputation could be damaged, we could lose market share and, as a result, our financial condition or results of operations could suffer.

Our products arerely on complex avionics, sensors, user-friendly interfaces and tightly integrated, electromechanical designs to accomplish their missions. Our products may contain defects or experience failures due to any number of issues in design, materials, manufacture, deployment and/or use. If any of our products contain a defect, compatibility or interoperability issue or other error, we may have to devote significant time and resources to find and correct the issue. Such efforts could divert the attention of our management team and other relevant personnel from other important tasks. A product recall or a significant number of product returns could:could (i) be expensive; (ii) damage our reputation and relationships with utilities and other third-party vendors; (iii) result in the loss of business to competitors; and (iv) result in litigation against us. Costs associated with field replacement labor, hardware replacement, re-integration with third-party products, handling charges, correcting defects, errors and bugs, or other issues could be significant and could materially harm our financial results.

As a manufacturer of UAV products, and with aircraft and aviation sector companies under increased scrutiny, claims could be brought against us if use or misuse of one of our UAV products causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources.


 

The existence of any defects, errors, or failures in our products or the misuse of our products could also lead to product liability claims or lawsuits against us. A defect, error or failure in one of our products could result in injury, death or property damage and significantly damage our reputation and support for our products in general. We anticipate this risk will grow as our products begin to be used in U.S. domestic airspace and urban areas.

Although we maintain insurance policies, we cannot provide assurance that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available in the future at economical prices or at all. A successful product liability claim could result in substantial cost to us. Even if we are fully insured as it relates to a claim, the claim could nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business, financial condition and results of operations.

Estimated future product warranty claims are based on the expected number of field failures over the warranty commitment period, the term of the product warranty period, and the costs for repair, replacement and other associated costs. Our warranty obligations are affected by product failure rates, claims levels, material usage and product re-integration and handling costs.

Because our products are relatively new and we do not yet have the benefit of long-term experience observing products’ performance in the field, our estimates of a product’s lifespan and incidence of claims may be inaccurate. Should actual product failure rates, claims levels, material usage, product re-integration and handling costs, defects, errors, bugs or other issues differ from the original estimates, we could end up incurring materially higher warranty or recall expenses than we anticipate.

To dateOur Optimus Systemmakes use of lithium-ion battery cells, which, if not appropriately managed and controlled, have occasionally been observed to catch fire or vent smoke and flames. If such events occur with our products, we could face liability associated with our warranty, for damage or injury, adverse publicity and a potential safety recall, any of which would adversely affect our business, prospects, financial condition and operating results.

The battery packs in our Optimus™ drone use lithium-ion cells, which have eliminatedbeen used for years in laptop computers and cell phones. On occasion, if not appropriately managed and controlled, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials. Highly publicized incidents of laptop computers and cell phones bursting into flames have focused consumer attention on the safety of these cells. These events also have raised questions about the suitability of these lithium-ion cells for automotive applications. There can be no assurance that a field failure of our battery packs will not occur, which would damage the vehicle or limitedlead to personal injury or death and may subject us to lawsuits. Furthermore, there is some risk of electrocution if individuals who attempt to repair battery packs on our vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity could adversely affect our business, prospects, financial condition and operating results.

Due to the extentvolatile and flammable nature of liquidated damagescertain components of our products and equipment, fires or explosions may disrupt our business or cause significant injuries, which could adversely affect our financial results.

The development and manufacture of certain of our products involves the handling of a variety of explosive and flammable materials as well as high power equipment. From time to time, these activities may result in incidents that could cause us to temporarily shut down or otherwise disrupt some manufacturing processes, causing production delays and resulting in liability for workplace injuries and/or consequentialfatalities. We have safety and loss prevention programs that require detailed reviews of process changes and new operations, along with routine safety audits of operations involving explosive materials, to mitigate such incidents, as well as a variety of insurance policies, however our insurance coverage may be inadequate to cover all claims and losses from our agreements with customers. It is possible that werelated to such incidents. We may not be able to achieve thisexperience such incidents in the future, which could expose us to significant liabilities.result in production delays or otherwise have a material adverse effect on our business and financial condition.

Our technology, products and services have only been developed in the last several years and we have had only limited opportunities to deploy and assess their performance in the field at full scale.

The current generation of our radio hardwareFullMAX and software hasOptimus System™ technology platforms have only been developed in the last several years and is continuingwill continue to evolve. Deploying and operating our technology is a complex endeavor and, until recently, had been done primarily by a small number of customers and primarily in the electric utility industry.customers. As the size, complexity and scope of our deployments grow we have been able to test product performance at a greater scale and in a variety of new geographic settings and environmental conditions. As the number, size and complexity of our deployments grow and we deploy FullMAX systemsour technology platforms for new applications in new critical infrastructure industries, beyond electric utilities, we may encounter unforeseen operational, technical and other challenges, some of which could cause significant delays, trigger contractual penalties, result in unanticipated expenses, and/or damage to our reputation, each of which could materially and adversely affect our business, financial condition and results of operations.


 


If we fail to respond to evolving technological changes, our products and services could become obsolete or less competitive.

Our industry isWe operate in highly competitive andindustries characterized by new and rapidly evolving technologies, standards, regulations, customer requirements, as well as frequent product introductions and revisions. Accordingly, our operating results depend upon our ability to develop and introduce new products and services, our ability to reduce production costs of our existing products. The process of developing new technologies and products is complex, and if we are unable to develop enhancements to, and new features for, our existing products and services or acceptable new products and services that keep pace with technological developments or industry standards, our products may become obsolete, less marketable and less competitive and our business,, financial condition or results of operations could be significantly harmed.

We depend on our ability to develop new products and to enhance and sustain the quality of existing products.

Our growth and future success will depend, in part, on our ability to continue to design and manufacture new competitive products and to enhance and sustain the quality and marketability of our existing products. As such, we have made, and expect to continue to make, substantial investments in technology development. In the future, we may not have the necessary capital, or access to capital on acceptable terms, to fund necessary levels of research and development. Even with adequate capital resources, we may nonetheless experience unforeseen problems in the development or performance of our technologies or products. In addition, we may not meet our product development schedules and, even if we do, we may not develop new products fast enough to provide sufficient differentiation from our competitors’ products, which may be more successful.

We expect to incur substantial research and development costs and devote significant resources to identifying and commercializing new products and services, which could significantly reduce our customers operateprofitability and may never result in a highly regulated business environmentrevenue to us.

Our future growth depends on penetrating new markets, adapting existing products to new applications and changes in regulation could imposenew environments, and introducing new products and services that achieve market acceptance. We plan to incur substantial research and development costs on us or makeas part of our products less economical.

Ourefforts to design, develop and commercialize new products and services and enhance existing products. For example, we will incur research and development costs to improve the functionality of our utility customers are subjectacoustic DAA solution configuration in certain environments, in addition to federal, state, localintegrating new payloads to broaden the functionality of our Optimus System™. Further, our research and foreign laws and regulations. Laws and regulations applicable to usdevelopment programs may not produce successful results, and our products govern, among other things, the manner in which our products communicate, and the environmental impact and electrical reliability of our products. Additionally, our critical infrastructure customers are often regulated by national, state and/or local bodies, including public utility commissions, the Department of Energy, the Federal Energy Regulatory Commission, the FCC, Federal Rail Association and other bodies. Prospective utility customers may be required to gain approval from any or all of these organizations prior to implementing ournew products and services including specific permissions related to the cost recovery of these systems. Regulatory agencies may impose special requirements for implementation and operation of our products. We may incur material costsnot achieve market acceptance, create additional revenue or liabilities in complying with government regulations applicable to us or our utility customers. In addition, potentially significant expenditures could be required in order to comply with evolving regulations and requirements that may be adopted or imposed on us or our utility customers in the future. Such costs could make our products less economical and could impact our utility customers’ willingness to adopt our products,become profitable, which could materially and adversely affect our revenue, results of operations and financial condition.

Furthermore, changes in the underlying regulatory conditions that affect critical infrastructure industries could have a potentially adverse effect on our customers’ interest or ability to implement our technologies. Many regulatory jurisdictions have implemented rules that provide financial incentives for the implementation of energy efficiency and demand response technologies, often by providing rebates or through the restructuring of utility rates. If these programs were to cease, or if they were restructured in a manner inconsistent with the capabilities enabled by our products and services,harm our business, prospects, financial conditionresults and results of operations could be significantly harmed.

liquidity.


If our products do not interoperate with our customers’ other systems, the purchase or deployment of our products and services may be delayed or cancelled.

Our products are designed to interface with our customers’ other systems, each of which may have different specifications and utilize multiple protocol standards and products from other vendors. Our products will be required to interoperate with many or all of these products as well as future products in order to meet our customers’ requirements. If we find errors in the existing software or defects in the hardware used in our utility customers’ systems, we may need to modify our products or services to fix or overcome these errors so that our products will interoperate with the existing software and hardware, which could be costly and negatively affect our business, financial condition, and results of operations. In addition, if our products and services do not interoperate with our customers’ systems, customers may seek to hold us liable, demand for our products could be adversely affected or orders for our products could be delayed or cancelled. This could hurt our operating results, damage our reputation or brand, and seriously harm our prospects, business, financial condition or results of operations.


The Company operates in a competitive market.

The Company faces competition and new competitors will continue to emerge throughout the world. Services offered by the Company’s competitors may take a larger share of customer spending than anticipated, which could cause revenue generated from the Company’s products and services to fall below expectations. It is expected that competition in these markets will intensify. If competitors of the Company develop and market more successful products or services, offer competitive products or services at lower price points, or if the Company does not produce consistently high-quality and well-received products and services, revenues, margins, and profitability of the Company will decline.

The Company’s ability to compete effectively will depend on, among other things, the Company’s pricing of services and equipment, quality of customer service and field support, development of new and enhanced products and services in response to customer demands and changing technology, reach and quality of sales and distribution channels and capital resources. Competition could lead to a reduction in the rate at which the Company adds new customers, a decrease in the size of the Company’s market share and a decline in its customers.

We rely on our management team and need additional personnel to grow our business, and the loss of one or more key officers, employees, contractors and other service providers or our inability to attract and retain qualified personnel could harm our business, financial condition or results of operations.

We depend, in part, on the performance of Eric Brock, our Chief Executive Officer, Derek Reisfield, our Chief Financial Officer, Treasurer and Secretary, Reese Mozer, our President. Stewart Kantor and Menashe Shahar, the President and Chief Technology Officer of Ondas Networks, respectively, and Meir Kliner and Yishay Curelaru, the President and Chief Financial Officer of Ondas Autonomous Systems, respectively, to operate and grow our business. The loss of any of Messrs. Brock, Reisfield, Mozer, Kantor, Shahar, Kliner or Curelaru could negatively impact our ability to execute our business strategies. Although we have entered into employment agreements with Messrs. Brock, Reisfield, Mozer, Kantor and Shahar, we may be unable to retain them or replace any of them if we lose their services for any reason.

Our future success will also depend on our ability to attract, retain and motivate highly skilled management, product development, operations, sales, technical and other personnel in the United States and abroad. Even in today’s economic climate, competition for these types of personnel is intense, particularly in Silicon Valley. All of our employees, contractors and other service providers in the United States work for us on an at-will basis. Given the lengthy sales cycles with utilities and deployment periods of our networking platform and solutions, the loss of key personnel at any time could adversely affect our business, financial condition or results of operations.

Cyberattacks through security vulnerabilities could lead to disruption of business, reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.

Security vulnerabilities may arise from our hardware, software, employees, contractors or policies we have deployed, which may result in external parties gaining access to our networks, datacenters, cloud datacenters, corporate computers, manufacturing systems, and or access to accounts we have at our suppliers, vendors, and customers. They may gain access to our data or our users’ or customers’ data or attack the networks causing denial of service or attempt to hold our data or systems in ransom. The vulnerability could be caused by inadequate account security practices such as failure to timely remove employee access when terminated. To mitigate these security issues, we have implemented measures throughout our organization, including firewalls, backups, encryption, employee information technology policies and user account policies. However, there can be no assurance these measures will be sufficient to avoid cyberattacks. If any of these types of security breaches were to occur and we were unable to protect sensitive data, our relationships with our business partners and customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a risk of litigation and possible significant liability.


Further, if we fail to adequately maintain our infrastructure, we may have outages and data loss. Excessive outages may affect our ability to timely and efficiently deliver products to customers or develop new products and solutions. Such disruptions and data loss may adversely impact our ability to fulfill orders, patent our intellectual property or protect our source code, and interrupt other processes. Delayed sales or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.

Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information was to occur, our operations could be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and investigations, related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected persons and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on our business, financial condition and results of operations.

We do not control certain aspects of the manufacture of our product, including the supply of key components used to build our products and we also depend on a limited number of manufacturers.manufacturing process.

Our future success will depend significantly on the availability of key components, and our ability to manufacture our products timely and cost-effectively, in sufficient volumes, and in accordance with quality standards. Our reliance on a small number of manufacturers reduces our control over the manufacturing process, exposing us to risks, including reduced control over quality assurance, product costs and product supply including delays in transportation and delivery. Any manufacturing disruption by our usual manufacturers could impair our ability to fulfill orders. We may be unable to manage our relationships with our usual manufacturers effectively as they may experience delays, disruptions, capacity constraints or quality control problems in their manufacturing operations or otherwise fail to meet our future requirements for timely delivery. Similarly, to the extent that our usual manufacturers procure materials on our behalf, we may not benefit from any warranties received by our usual manufacturers from the suppliers or otherwise have recourse against the original supplier of the materials or even the manufacturer. In such circumstances, if the original supplier were to provide us or our usual manufacturers with faulty materials, we might not be able to recover the costs of such materials or be compensated for any damages that arise as a result of the inclusion of the faulty components in our products.

One or more of our usual manufacturers may suffer an interruption in its business, or experience delays, disruptions or quality control problems in its manufacturing operations, or seek to terminate its relationship with us, or we may choose to change or add additional manufacturers for other reasons. Additionally, we do not have long-term supply agreements with our usual manufacturers. As a result, we may be unable to renew or extend our agreement on terms favorable to us, if at all. Although the manufacturing services required to manufacture and assemble our products may be readily available from a number of established manufacturers, it may be risky, time consuming and costly to qualify and implement new manufacturer relationships.

Any of these risks could have a material adverse effect on our business, financial condition and results of operations.

If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business.

In order to produce our Optimus System™ and related safety systems, we obtain certain hardware components, as well as subsystems and systems from a limited group of suppliers, some of which are sole source suppliers. We do not have long-term agreements with any of these suppliers that obligate them to continue to sell components, subsystems, systems or products to us. Our reliance on these suppliers involves significant risks and uncertainties, including whether our suppliers will provide an adequate supply of required components, subsystems, or systems of sufficient quality, will increase prices for the components, subsystems or systems and will perform their obligations on a timely basis.


 

We may seek

In addition, certain raw materials and components used in the manufacture of our products and in our development programs, are periodically subject to growsupply shortages, and our business through acquisitionsis subject to the risk of complementary companies,price increases and periodic delays in delivery. Particularly, the market for electronic components is experiencing increased demand and a global shortage of semiconductors, creating substantial uncertainty regarding our suppliers’ continued production of key components for our products. If any additional shortages occur and we are unable to obtain components from third party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, then we may not be able to timely complete development programs or deliver our products serviceson a timely or technologies,cost effective basis to our customers, which could cause customers to terminate their contracts with us, increase our costs and the failure to manage acquisitions, or the failure to integrate them with our existing business, couldseriously harm our business, results of operations and financial condition. Moreover, if any of our suppliers become financially unstable, or otherwise unable or unwilling to provide us with raw materials or components, then we may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to redesign our products to accommodate components from different suppliers. We may experience significant delays in manufacturing and shipping our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if we lose any of these sources or are required to redesign our products. We cannot predict if we will be able to obtain replacement components within the time frames that we require at an affordable cost, if at all. In particular, governmental measures responsive to the global COVID-19 pandemic have disrupted manufacturing and some supply chains, including our supply chain, which has had, and is expected to continue to have, a significant impact, both direct and indirect, on businesses and commerce worldwide. Although we have not yet seen significant delays from our suppliers and we keep stock of all our raw materials and other product components with long lead times to assist in the event that our supply chain is disrupted, if the COVID-19 outbreak continues and results in a prolonged period of commercial and/or governmental restrictions, this may impact our ability to obtain certain raw materials and certain components used in the manufacture of our products and in our development programs.

We currently do not have long-term supply contracts with guaranteed pricing which exposes us to fluctuations in component, materials and equipment prices. Substantial increases in these prices would increase our operating costs and could adversely affect our business, prospects, financial condition and operating results.

FromBecause we currently do not have long-term supply contracts with guaranteed pricing, we are subject to fluctuations in the prices of the raw materials, parts and components and equipment we use in the production of our Optimus System™. Substantial increases in the prices for such raw materials, components and equipment would increase our operating costs and could reduce our margins if we cannot recoup the increased costs through increased prices. Any attempts to increase prices of our automated data solutions in response to increased costs could be viewed negatively by our customers and could adversely affect our business, prospects, financial condition and operating results.

We may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.

We intend to consider additional potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business. We may also consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. Should our relationships fail to materialize into significant agreements, or should we fail to work efficiently with these companies, we may considerlose sales and marketing opportunities and our business, results of operations and financial condition could be adversely affected.

These activities, if successful, create risks such as, among others: (i) the need to acquire other companies,integrate and manage the businesses and products services or technologies that may enhanceacquired with our product platform or technology, expand the breadthown business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our marketsongoing business; (iv) potential unknown or customer base,unquantifiable liabilities associated with the target company; and (v) diversion of management’s attention from other business concerns. Moreover, these transactions could involve: (a) substantial investment of funds or advance our business strategies. Potential acquisitions involve numerous risks, including:

problems assimilating the acquired companies, products, services or technologies;

issues maintaining uniform standards, procedures, controls and policies;

unanticipated costs associated with acquisitions;

diversion of management’s attention from our existing business;

risks associated with entering new markets in which we have limited or no experience;

increased legal and accounting costs relating to the acquisitions or compliance with regulatory matters; and

unanticipated or undisclosed liabilities of any target.


We have no current commitmentsfinancings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers and operational integration; and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of our existing shareholders or result in the issuance of, or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources. Any such activities may not be successful in generating revenue, income or other returns, and any acquisition. We doresources we committed to such activities will not knowbe available to us for other purposes. Moreover, if we will be ableare unable to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitionsaccess the capital markets on favorableacceptable terms or at all, or whether we willmay not be able to successfully integrate any acquired companies, products, servicesconsummate acquisitions, or technologies.may have to do so on the basis of a less than optimal capital structure. Our potential inability to identify and complete suchtake advantage of growth opportunities or address risks associated with acquisitions or investments in businesses may negatively affect our operating results.


Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings. Future acquisitions or joint ventures may not result in their anticipated benefits, and we may not be able to properly integrate any acquired products, technologies or technologies effectivelybusinesses with our existing products and operations or successfully combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions.

If the Company is required to write down goodwill and other intangible assets, the Company’s financial condition and results could be negatively affected.

Goodwill impairment arises when there is deterioration in the capabilities of acquired assets to generate cash flows, and the fair value of the goodwill dips below its book value. The Company is required to review its goodwill for impairment at least annually. Events that may trigger goodwill impairment include deterioration in economic conditions, increased competition, loss of key personnel, and regulatory action. Should any of these occur, an impairment of goodwill could have a negative effect on the assets of the Company.

For the year ended December 31, 2022, the Company engaged a third-party service provider to carry out a valuation of the American Robotics entity. Using a discounted cash flow analysis and revised forecasts for revenue and cash flows that are lower than the previous valuation, it was determined that the fair value of the entity was lower than the carrying value as of December 31, 2022, and an impairment of $19,419,600 was recognized in operating expenses in the Consolidated Statements of Operations for the year ending December 31, 2022. See Note 5 – Goodwill and Business Acquisition of the accompanying Consolidated Financial Statements for further information regarding the impairment of goodwill.

War, terrorism, and other acts of violence may affect the markets in which we operate, our clients and our product and service delivery.

Our business may be adversely affected by regional or global instability, disruption or destruction, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest. For example, the significant military action against Ukraine launched by Russia may affect the markets in which we operate. Such events may cause clients to delay their decisions on spending for the products and services provided by us and give rise to sudden significant changes in regional and global economic conditions and cycles. These events pose risks which could materially adversely affect our business, financial conditionresults.

We may not be able to secure adequate insurance policies, or secure insurance policies at reasonable prices.

We maintain general liability insurance, aviation flight testing insurance, aircraft liability coverage, directors and officers insurance, and other insurance policies and we believe our level of coverage is customary in the industry and adequate to protect against claims. However, there can be no assurance that it will be sufficient to cover potential claims or that present levels of coverage will be available in the future at reasonable cost. Further, we expect our insurance needs and costs to increase as we grow our commercial operations and expand into new markets and its uncertain if such insurance will be available on commercially reasonable terms.

The Company will be affected by operational risks and may not be adequately insured for certain risks.

The Company will be affected by a number of operational risks and the Company may not be adequately insured for certain risks, including: labor disputes; catastrophic accidents; fires; blockades or other acts of social activism; changes in the regulatory environment; impact of non-compliance with laws and regulations; natural phenomena, such as inclement weather conditions, floods, earthquakes and ground movements. There is no assurance that the foregoing risks and hazards will not result in damage to, or destruction of, the Company’s technologies, personal injury or death, environmental damage, adverse impacts on the Company’s operation, costs, monetary losses, potential legal liability and adverse governmental action, any of which could have an adverse impact on the Company’s future cash flows, earnings and financial condition. Furthermore, the unmanned aerial systems industry lacks a formative insurance market. As a result, the Company may be subject to or affected by liability or sustain loss for certain risks and hazards against which the Company cannot insure or which the Company may elect not to insure because of the cost. This lack of insurance coverage could have an adverse impact on the Company’s future cash flows, earnings, results of operations.operations and financial condition.


 

Litigation may adversely affect our business, financial condition, and results of operations.

From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial condition as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a significant diversion of our resources,, and there is no guarantee that we will be able to successfully defend against any such litigation regardless of particular merits.merits. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available on favorable terms, at all, or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business, financial condition and the results of our operations.

Our cash could be adversely affected if the financial institutions in which we hold our cash fail.

 

Any outbreakThe Company maintains domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks. The domestic bank deposit balances may exceed the FDIC insurance limits. Also, in the foreign markets we serve, we also maintain cash deposits in foreign banks, some of contagious diseases,which are not insured or partially insured by the FDIC or other similar agency. These balances could be impacted if one or more of the financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets. For example, on March 10, 2023, Silicon Valley Bank failed and was taken into receivership by the FDIC. The Company held $361,813 in excess of federally insured limits with Silicon Valley Bank as of March 10, 2023. However, on March 12, 2023, the federal government announced they will back all customer deposits at Silicon Valley Bank.

Risks Related to Regulatory Requirements

We and our customers operate in a highly regulated business environment and changes in regulation could impose costs on us or make our products less economical.

Our products and services and our utility customers are subject to federal, state, local and foreign laws and regulations. Laws and regulations applicable to us and our products govern, among other things, the manner in which our products communicate, and the environmental impact and electrical reliability of our products. Additionally, our critical infrastructure customers are often regulated by national, state and/or local bodies, including public health developments,utility commissions, the Department of Energy, the Federal Energy Regulatory Commission, Federal Aviation Administration, the FCC, Federal Rail Association, Israeli Defense Export Controls Agency of the Ministry of Defense and other bodies. Prospective customers may be required to gain approval from any or all of these organizations prior to implementing our products and services, including specific permissions related to the cost recovery of these systems. Regulatory agencies may impose special requirements for implementation and operation of our products, which may result in unforeseen delays. We may incur material costs or liabilities in complying with government regulations applicable to us or our utility customers. In addition, potentially significant expenditures could be required in order to comply with evolving regulations and requirements that may be adopted or imposed on us or our utility customers in the future. Such costs could make our products less economical and could impact our utility customers’ willingness to adopt our products, which could materially and adversely affect our revenue, results of operations and financial condition.

Furthermore, changes in the underlying regulatory conditions that affect critical infrastructure industries could have a material andpotentially adverse effect on our business operations,customers’ interest or ability to implement our technologies. Many regulatory jurisdictions have implemented rules that provide financial condition and resultsincentives for the implementation of operations.

In December 2019, a novel strain of coronavirus was first identified in Wuhan, Hubei Province, China, and has since spread to a number of other countries, including the United States. Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations. For example, the coronavirus may impact the global economy or negatively affect various aspects of our business, including our workforceenergy efficiency and demand forresponse technologies, often by providing rebates or through the restructuring of utility rates. If these programs were to cease, or if they were restructured in a manner inconsistent with the capabilities enabled by our products and services. An impact to our workforce could impact our ability to deliver our products and services, to our customers and make it more difficult to meet our expectations and obligations. The extent to which the coronavirus may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus. A health epidemic or other outbreak could materially and adversely affect our business, financial condition and results of operations.operations could be significantly harmed.

Failure to obtain necessary regulatory approvals from the FAA or other governmental agencies, or limitations put on the use of small UAS in response to public privacy and other concerns, may prevent us from expanding the sales of our drone solutions to industrial and government customers in the United States.

The regulation of small UAS for commercial use in the United States is undergoing substantial change and the ultimate treatment is uncertain.


 

On February 14, 2012, the FAA Modernization and Reform Act of 2012 was enacted, establishing various deadlines for the FAA to allow expanded use of small UAS for both public and commercial applications. On June 21, 2016, the FAA released its final rules regarding the routine use of certain small UAS (under 55 pounds) in the U.S. National Airspace System pursuant to the act (the “Part 107 Rules”). The Part 107 Rules, which became effective in August 2016, provided safety regulations for small UAS conducting non-recreational operations and contain various limitations and restrictions for such operations, including a requirement that operators keep UAS within visual-line-of-sight and prohibiting flights over unprotected people on the ground who are not directly participating in the operation of the UAS. On December 28, 2020, the FAA announced final rules requiring remote identification of drones and allowing operators of small drones to fly over people and at night under certain conditions. On June 8, 2021, the FAA announced the formation of an Aviation Rulemaking Committee (“ARC”) to develop new rules to further define regulations for the operations of UAS Beyond Visual Line-of-Site (“BVLOS”). The timing of additional rulemaking is uncertain as is the outcome of the still developing regulatory environment related to the operation of small UAS.

We cannot assure you that any final rules enacted in furtherance of the FAA’s announced proposals will result in the expanded use of our drones and drone solutions by commercial and industrial entities. In addition, there exists public concern regarding the privacy and other implications of U.S. commercial use of small UAS. This concern has included calls to develop explicit written policies and procedures establishing usage limitations. We cannot assure you that the response from regulatory agencies, customers and privacy advocates to these concerns will not delay or restrict the adoption of small UAS by the commercial use markets.

Substantially all our current products depend on the availability and are subject to the use of licensed radio frequencies regulated by the FCC in the United States.

Substantially all of our current wireless networking products are designed to communicate wirelessly via licensed radio frequencies and therefore depend on the availability of adequate radio spectrum in order to operate. It is possible that the FCC or the U.S. Congress could adopt additional regulations or policies which are or may change or modify current regulations or policies so that they are, harmful to our business or incompatible with our current or future product offerings, as well as products currently installed in the field. Additional regulations or policies or changes or modifications to current regulations or policies may require modification or replacement of our products, including products currently installed in the field, at significant, or even prohibitive, cost to us, and may require changes or modifications to, or termination of, ongoing or planned projects. Any of these developments could materially and adversely impact our business, financial condition or results of operations.

As a manufacturer of commercial UAS, we are subject to various government regulations, restrictions and requirements, and may be subject to additional regulations in the future, violation of which could subject us to sanctions or otherwise harm, restrict or add costs to our business.

As a manufacturer of consumer products, we are subject to significant government regulations, restrictions and requirements, including, in the United States, those issued under the Consumer Products Safety Act, as well as those issued under product safety and consumer protection statutes in our international markets. Failure to comply with any applicable product safety or consumer protection regulation could result in sanctions that could have a negative impact on our business, financial condition and results of operations.

Governments and regulatory agencies in the markets where we manufacture and sell products may enact additional regulations relating to product safety and consumer protection in the future and may also increase the penalties for failure to comply with product safety and consumer protection regulations. In addition, one or more of our customers might require changes in our products, such as the non-use of certain materials, in the future. Complying with any such additional regulations or requirements could impose increased costs on our business. Similarly, increased penalties for non-compliance could subject us to greater expenses in the event any of our products were found to not comply with such regulations. Such increased costs or penalties could harm our business.


Our business is subject to federal, state and international laws regarding data protection, privacy, and information security, as well as confidentiality obligations under various agreements, and our actual or perceived failure to comply with such obligations could damage our reputation, expose us to litigation risk and adversely affect our business and operating results.

In connection with our business, we receive, collect, process and retain certain sensitive and confidential customer information. As a result, we are subject to increasingly rigorous federal, state and international laws regarding privacy and data protection. Personal privacy, data protection and information security are significant issues in the United States and the other jurisdictions where we offer our products and services. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, including the United States Federal Trade Commission (“FTC”) and various state, local and foreign bodies and agencies. We also execute confidentiality agreements with various parties under which we are required to protect their confidential information.

The United States federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use and storage of personal information of individuals, including end-customers and employees. In the United States, the FTC and many state attorneys general are applying federal and state consumer protection laws to the online collection, use and dissemination of data. Additionally, many foreign countries and governmental bodies, and other jurisdictions in which we operate or conduct our business, have laws and regulations concerning the collection and use of personal information obtained from their residents or by businesses operating within their jurisdiction. These laws and regulations often are more restrictive than those in the United States. Such laws and regulations may require companies to implement new privacy and security policies, permit individuals to access, correct and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personal information for certain purposes.

We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security in the United States, the European Union and other jurisdictions, and we cannot yet determine the impact of such future laws, regulations and standards may have on our business. For example, the California Consumer Privacy Act, which became effective in 2020, provides new data privacy rights for consumers and new operational requirements for companies. Additionally, we expect that existing laws, regulations and standards may be interpreted differently in the future. There remains significant uncertainty surrounding the regulatory framework for the future of personal data transfers from the European Union to the United States with regulations such as the recently adopted General Data Protection Regulation (“GDPR”), which imposes more stringent E.U. data protection requirements, provides an enforcement authority, and imposes large penalties for noncompliance. Future laws, regulations, standards and other obligations, including the adoption of the GDPR, as well as changes in the interpretation of existing laws, regulations, standards and other obligations could impair our ability to collect, use or disclose information relating to individuals, which could decrease demand for our products, require us to restrict our business operations, increase our costs and impair our ability to maintain and grow our customer base and increase our revenue.

Although we are working to comply with those federal, state and foreign laws and regulations, industry standards, contractual obligations and other legal obligations that apply to us, such laws, regulations, standards and obligations are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another, other requirements or legal obligations, our practices or the features of our products. As such, we cannot assure ongoing compliance with all such laws or regulations, industry standards, contractual obligations and other legal obligations, and our efforts to do so may cause us to incur significant costs or require changes to our business practices, which could adversely affect our business and operating results. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulations, industry standards, contractual obligations or other legal obligations, or any actual or suspected security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of personal information or other data, may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business and operating results.


We are subject to numerous legal and regulatory regimes, and we could be harmed by changes to, or the interpretation or the application of, the laws and regulations of each of the jurisdictions in which it operates.

In addition to the United States, Airobotics operates in Israel, Singapore and the United Arab Emirates. The international scope of Airobotics’ business requires us to comply with a wide range of national and local laws and regulations, which may in certain cases diverge from or even conflict with each other.

With the geographic expansion of our business, and that of our subsidiaries, into new markets, we have become subject to additional and changing legal, regulatory, tax, licensing, and compliance requirements and industry standards.

In countries where we operate, legislators and regulatory authorities may introduce new interpretations of existing laws and regulations or introduce new legislation or regulations concerning our business. Changes in government regulation of or successful challenges to the business model used by us in certain markets may require us to change our existing business models and operations. Any additional regulatory scrutiny or changes in legal requirements may impose significant compliance costs and make it uneconomical for us to continue to operate in all of the current markets or to expand in accordance with our strategy, particularly if regulations or their interpretations vary greatly or conflict between different operating countries. This may negatively impact our revenue and profitability by preventing our business from reaching sufficient scale in particular markets or having to change our business model or incur additional costs, which would adversely impact business. Our inability, or perceived inability, to comply with existing or new compliance obligations, could lead to regulatory scrutiny, which could result in administrative or enforcement action, such as fines, penalties, and/or enforceable undertakings and adversely affect our business.

We may become subject to increasing global trade laws and regulations.

We may become subject to increasing global trade laws and regulations, including economic sanctions, export controls, and import laws. Failure to comply with global trade laws and regulations can result in penalties and reputational harm. Our international sales efforts expose us to increased risk under these laws and regulations, and increasing and evolving global trade laws could impact our business.

We are subject to Israeli regulations, restrictions and requirements which could adversely affect our business and operating results.

Restrictions imposed on us by the Government of Israel, as a result of strategic ties and treaties with foreign countries, limit our activities and access to certain countries, in a manner that may restrict and even prevent in certain situations our operations in certain countries and affect its results.

Risks Related to our Intellectual Property

Our ability to protect our intellectual property and proprietary technology is uncertain.

We rely primarily on patent, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements, to protect our proprietary technologies and intellectual property. As of this filing, wethe Ondas Networks segment held a total of sixseven issued patents in the U.S., seventwo issued international patents, four patent pending applications in the U.S., and oneeleven international pending patent application. OurThe Ondas Networks segment patents expire between 20302028 and 2037,2040, subject to any patent extensions that may be available for such patents. As of this filing, the Ondas Autonomous Systems segment held a total of six issued patents in the U.S., ten issued international patents, six patent pending applications in the U.S., and eleven international pending patent applications. The Ondas Autonomous Systems segment patents expire between 2036 and 2042, subject to any patent extensions that may be available for such patents. Our intellectual property incorporates internally developed software and hardware design incorporating machine and computer vision and was developed with artificial intelligence and machine learning techniques. This intellectual property is critical to the development of end-to-end systems which reliably enable the automated operation of drones in real-world environments.

We have applied for patent protection relating to certain existing and proposed products and processes. Currently, several of our issued U.S. patents as well as various pending U.S. and foreign patent applications relate to our FullMAX systems and are therefore important to the functionality of our products. If we fail to timely file a patent application in any jurisdiction, we may be precluded from doing so at a later date. Furthermore, we cannot assure you that any of our patent applications will be approved in a timely manner or at all. The rights granted to us under our patents, and the rights we are seeking to have granted in our pending patent applications, may not be meaningful or provide us with any commercial advantage. In addition, those rights could be opposed, contested or circumvented by our competitors, or be declared invalid or unenforceable in judicial or administrative proceedings. The failure of our patents to adequately protect our technology might make it easier or cheaper for our competitors to offer the same or similar products or technologies. Even if we are successful in receiving patent protection for certain products and processes, our competitors may be able to design around our patents or develop products that provide outcomes which are comparable or superior to ours without infringing on our intellectual property rights. Due to differences between foreign and U.S. patent laws, our patented intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States. Even if patents are granted outside the U.S., effective enforcement in those countries may not be available without significant cost and time expense or at all.all.


 

We rely on our trademarks and trade names to distinguish our products from the products of our competitors. Third-partiesThird parties may challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote additional resources to marketing new brands. Further, we cannot assure you that competitors will not infringe upon our trademarks, or that we will have adequate resources to enforce our trademarks.


We also rely on trade secrets, know-how and technology, which are not protectable by patents, to maintain our competitive position. We try to protect this information by entering into confidentiality agreements and intellectual property assignment agreements with our officers, employees, contractors and other service providers regarding our intellectual property and proprietary technology. In the event of unauthorized use or disclosure or other breaches of those agreements, we may not be provided with meaningful protection for our trade secrets or other proprietary information. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our commercial partners, collaborators, officers, employees, contractors and other service providers use intellectual property owned by others in their work for us, disputes may arise as to the rights in the related or resulting know-how and inventions. If any of our trade secrets, know-how or other technologies not protected by a patent were to be disclosed to or independently developed by a competitor, our business, financial condition and results of operations could be materially adversely affected.

If a competitor infringes upon one of our patents, trademarks or other intellectual property rights, enforcing those patents, trademarks and other rights may be costly, difficult and time consuming. Patent law relating to the scope of claims in the industry in which we operate is subject to rapid change and constant evolution and, consequently, patent positions in our industry can be uncertain. Even if successful, litigation to defend our patents and trademarks against challenges or to enforce our intellectual property rights could be expensive and time consuming and could divert management’s attention from managing our business. Moreover, we may not have sufficient resources or desire to defend our patents or trademarks against challenges or to enforce our intellectual property rights. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third-partiesthird parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may harm our business, financial condition and operating results.

Our business may suffer if it is alleged or found that our products infringe the intellectual property rights of others.

Our industry isindustries are characterized by the existence of a large number of patents and by litigation based on allegations of infringement or other violations of intellectual property rights. Moreover, in recent years, individuals and groups have purchased patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements from companies like ours. To date we have received no claims with respect to our infringement of intellectual property or patents but, in the future, third parties may claim that we are infringing upon their patents or other intellectual property rights. In addition, we may be or may become contractually obligated to indemnify our utility customers or other third parties that use or resell our products in the event our products are alleged to infringe a third-party’s intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand, and cause us to incur significant expenses. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations. Further, claims of intellectual property infringement might require us to redesign affected products, delay affected product offerings, enter into costly settlement or license agreements or pay costly damage awards or face a temporary or permanent injunction prohibiting us from marketing, selling or distributing the affected products. If we cannot or do not license the alleged infringed technology on reasonable terms or at all, or substitute similar technology from another source, our revenue and earnings could be adversely impacted. Additionally, our utility customers may not purchase our products if they are concerned that our products infringe third-party intellectual property rights. This could reduce the market opportunity for the sale of our products and services. The occurrence of any of these events may have a material adverse effect on our business, financial condition and results of operations.


 


If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely on our unpatented technology, trade secrets and know-how. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our officers, employees, contractors and other service providers and with parties with which we do business. These agreements may be breached, which breach may result in the misappropriation of such information, and we may not have adequate remedies for any such breach. We cannot be certain that the steps we have taken will prevent unauthorized use or reverse engineering of our technology.

Moreover, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our officers, employees, contractors, other service providers, or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and have a material adverse effect on our business, financial condition, and results of operations.

We use open sourceopen-source software in our products and services that may subject our products and services to general release or require us to re-engineer our products and services, which may cause harm to our business.

We use open sourceopen-source software in connection with our products and services. From time to time, companies that incorporate open sourceopen-source software into their products have faced claims challenging the ownership of open sourceopen-source software and/or compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open sourceopen-source software or noncompliance with open sourceopen-source licensing terms. Some open sourceopen-source software licenses require users who distribute open sourceopen-source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open sourceopen-source code on unfavorable terms or at no cost. While we monitor the use of open source software in our products and services and try to ensure that none is used in a manner that would require us to disclose the source code to the related product or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our products, discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, operating results and financial condition.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

others may be able to make devices that are the same as or similar to our remote radios but that are not covered by the claims of the patents that we own;

we or any collaborators might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own;

we might not have been the first to file patent applications covering certain of our inventions;

others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

it is possible that our pending patent applications will not lead to issued patents;

issued patents that we own may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;

our competitors might conduct research and development activities in the U.S. and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; and

we may not develop additional proprietary technologies that are patentable.

24


 

 

Risks Related to our Financial Results and Need for Financing

We will need to generate significant sales to achieve profitable operations.

We intend to increase our operating expenses substantially in connection with the planned expansion of our business, establishment of our sales and marketing infrastructure, our ongoing research and development activities, and the commensurate development of our management and administrative functions,, but there is no guarantee that we will succeed in these endeavors.endeavors. We will need to generate significant sales to achieve profitability, and we might not be able to do so. Even if we do generate significant sales, we might not be able to achieve, sustain or increase profitability on a quarterly or annual basis in the future. If our sales grow more slowly than we expect, or if our operating expenses exceed our expectations, our business, financial condition and results of operations may be adversely affected.

Our future profitability may be dependent upon achieving cost reductions and projected economies of scale from increasing manufacturing quantities of our products. Failing to achieve such reductions in manufacturing costs and projected economies of scale could materially adversely affect our business.

We maydo not know whether or when we will be able to generate sufficient cashdevelop efficient, low-cost manufacturing capabilities and processes that will enable us to manufacture (or contract for the manufacture of) these products in commercial quantities while meeting the volume, speed, quality, price, engineering, design and production standards required to successfully market our products. Our failure to develop such manufacturing processes and capabilities in locations that can efficiently service our indebtedness, which currently consists of the secured loans with Steward Capital.

We currently have issued secured notes to Steward Capital in the aggregate principal amount of $10 million, pursuant to term loans under a Loan and Security Agreement, as amended, that mature September 19, 2020, or the Steward Capital Loan and Security Agreement. At December 31, 2019, the accrued interest on the secured loans was $438,000. In addition, we must pay $550,000 to Steward Capital at maturity for end-of-loan and loan extension fees. Our obligations under the Steward Capital Loan and Security Agreement are secured by a first priority security interest in substantially all of our assets. The Steward Capital Loan and Security Agreement also contains certain restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. We were in compliance with the affirmative and restrictive covenants as of December 31, 2019 and as of the date of this filing. We may also enter into other debt agreements in the future which may contain similar or more restrictive terms.

Our ability to make the scheduled payment to Steward Capital depends on numerous factors, including the amount of our cash reserves and our actual and projected financial and operating performance. These amounts and our performance are subject to certain financial and business factors, as well as prevailing economic and competitive conditions, some of which may be beyond our control. We cannot assure you that we will maintain a level of cash reserves or cash flows from operating activities sufficient to permit us to pay the Steward Capital secured loans when due. If our cash flows and capital resources are insufficient to fund our debt service obligation to Steward Capital, we may be forced sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, or that these actions would permit us to meet our scheduled obligation to Steward Capital. Failure to comply with the conditions of the Steward Capital Loan and Security Agreementmarkets could result in an event of default, which could result in an acceleration of amounts due under the Steward Capital Loan and Security Agreement. We may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness and Steward Capital could seek to enforce security interests in the collateral securing such indebtedness, which would have a material adverse effect on our business.

business, financial condition, results of operations and prospects. Our future profitability is, in part, dependent upon achieving increased savings from volume purchases of raw materials and component parts, achieving acceptable manufacturing yield and capitalizing on machinery efficiencies. We expect our suppliers to experience a sharp increase in demand for their products. As a result, we may not have reliable access to supplies that we require or be able to purchase such materials or components at cost effective prices. There is no assurance that we will ever be in a position to realize any material, labor and machinery cost reductions associated with higher purchasing power and higher production levels. Failure to achieve these cost reductions could adversely impact our business and financial results.


If business growth falls short of expectations, we do notmay need to obtain additional capital to fund our growth, operations, and obligations, our growthobligations.

We may be limited.

We will require additional capital to fund our growth, operations, and obligations.obligations if our growth plan falls short or takes more time than we anticipate. As our business has grown, we have managed periods of tight liquidity by accessing capital from our stockholders and their affiliates. Our capital requirements will depend on several factors, including:

our ability to enter into new agreements with customers or to extend the terms of our existing agreements with customers, and the terms of such agreements;

the success of our sales efforts;

our working capital requirements related to the costs of inventory and accounts receivable;

costs of recruiting and retaining qualified personnel;

expenditures and investments to implement our business strategy; and

the identification and successful completion of acquisitions.


 

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. For example, increases in interest rates could negatively impact the costs of seeking additional funds through debt offerings and/or borrowings. If adequate funds are not available or are not available on commercially acceptable terms, our ability to fund our operations, support the growth of our business or otherwise respond to competitive pressures could be significantly delayed or limited, which could materially adversely affect our business, financial condition or results of operations.

Our revenue is not predictable and recognition of a significant portion of it will be deferred into future periods.

Once a customer decides to move forward with a large-scale deployment of our products and services, the timing of and our ability to recognize related revenue will depend on several factors, some of which may not be under our control. These factors include shipment schedules that may be delayed or subject to modification, the rate at which our utility customers choose to deploy our products in their network, customer acceptance of all or any part of our products and services, our contractual commitments to provide new or enhanced functionality at some point in the future, other contractual provisions such as liquidated damages, our suppliers’ ability to provide an adequate supply of components, the requirement to obtain regulatory approval, and our ability to deliver quality products according to expected schedules. In light of these factors, the application of complex revenue recognition rules to our products and services has required us to defer, and in the future will likely continue to require us to defer, a significant amount of revenue until undetermined future periods. It may be difficult to predict the amount of revenue that we will recognize in any given period and amounts recognized may fluctuate significantly from one period to the next.

Risks RelatedFollowing the completion of the acquisition of Airobotics, our exposure to fluctuations in foreign currency exchange rates has increased.

Airobotics conducts a significant portion of its operations outside of the United States, which also operate in their respective local currencies, the most significant of which are currently the Israeli New Shekel, the Singapore Dollar and the Emirati Dirham. Therefore, following the completion of the acquisition of Airobotics, our Common Stock

Our ability to continueinternational operations accounts for a more significant portion of our overall operations requires that we raise additional capitalthan they previously did and our operations could be curtailed if we are unableexposure to obtain the additional funding as or when needed on terms acceptable to us or at all. As a result,fluctuations in foreign currency exchange rates has increase. Because our registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements includedcontinue to be presented in this Form 10-K.

Our ability to generate revenue and achieve profitability requires us to successfully market and secure purchase orders for our products from customers currently identified in our sales pipeline and to new customers as well. We alsoU.S. dollars, the local currencies of Airobotics will be required to efficiently manufacturer and deliver equipment on those purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital through the end of 2020 and beyond. Based on our current operating plans, we believe that our existing cashtranslated into U.S. dollars at the time of this filing will only be sufficient to meetapplicable exchange rates for inclusion in our anticipated operating needs through March 2020 (seeNOTE 1 in the accompanying consolidated financial statements, for further detail). We currently do not have sufficient funds to repay our debt to Steward Capital due at maturity on September 19, 2020 and must secure additional equity or debt capital in order to repay this obligation. Atthereby increasing the present time we have no commitments for any such funding and no assurance can be provided that we will be able to raise the needed funds on commercially acceptable terms or at all. These factors raise substantial doubt about our ability to continue as a going concern through March 13, 2021. The financial information contained in these financial statements have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these financial statements do not include any adjustments that may result from the outcome of this uncertainty.

foreign exchange translation risk.


We will need to raise additional financing to continue operations beyond March 2020. We will require additional funding to continue operations and realize our business objectives in the future. If we are unable to continue as a going concern in the future, we may be unable to meet our obligations under the Steward Capital secured loans, which could result in an acceleration of our obligations to repay all amounts owed thereunder, and we may be forced to liquidate our assets. In such a scenario, the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

We previously identified a material weakness in our internal control over financial reporting. Ifreporting associated with the inadequate review of stock-based compensation issued in connection with the acquisition of American Robotics, which has since been remediated, and we are not able to remediatemay identify material weaknesses in the future.

We previously reported a material weakness and otherwise maintain an effective system ofin our internal control over financial reporting for the reliabilityyear ended December 31, 2021, associated with the inadequate review of our financial reporting, investor confidencestock-based compensation issued in us andconnection with the valueacquisition of our Common Stock could be adversely affected.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.American Robotics. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

In connection with this annual report forAs discussed in section entitled “Controls and Procedures,” we took a number of measures to remediate the year endedmaterial weakness described above, and based on these measures, management has tested the internal control activities and found them to be effective and has concluded that the material weakness described above has been remediated as of December 31, 2019,2022. However, if additional material weaknesses or significant deficiencies in our internal control occur in the future, it may adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. Although we identified a material weaknesscontinually review and evaluate internal control systems to allow management to report on the sufficiency of our internal control over financial reporting, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting related to lack of segregation of duties and accounting resources. Accordingly,reporting. If we identify one or more new material weaknesses, we may not assert that our Chief Executive Officer and Chief Financial Officer have certifiedinternal controls are effective. If we cannot assert that based on their knowledge, the consolidated financial statements, and other financial information included in this Form 10-K, fairly present in all material respects our financial condition, results of operations and cash flows as of, and for, the periods presented in this Form 10-K.

If our steps are insufficient to successfully remediate the material weakness and otherwise establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our Common Stock could be materially and adversely affected. Effective internal control over financial reporting is necessary foreffective, investors could lose confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on the price of our common stock and possibly impact our ability to obtain future financing on acceptable terms. Additionally, our management’s attention has been, and may further be, diverted from the operation of our business as a result of the time and attention required to address the remediation of any material weakness in our internal controls.


Risks Related to the Airobotics Transaction

Our business relationships, those of Airobotics or the combined company may be subject to disruption due to uncertainty associated with the acquisition of Airobotics (the “Airobotics Transaction”).

Parties with which we or Airobotics do business may experience uncertainty associated with the Airobotics Transaction, including with respect to current or future business relationships with us, Airobotics, or the combined company. Our and Airobotics’ business relationships may be subject to provide reliabledisruption, as customers, distributors, suppliers, vendors, and timelyothers may seek to receive confirmation that their existing business relationships with us or Airobotics, as the case may be, will not be adversely impacted as a result of the Airobotics Transaction or attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us, Airobotics, or the combined company as a result of the Airobotics Transaction. Any of these other disruptions could have a material adverse effect on our or Airobotics’ business, financial condition, or results of operations or on the business, financial condition, or results of operations of the combined company and could also have an adverse effect on our ability to realize the anticipated benefits of the Airobotics Transaction.

If we are unable to implement and maintain effective internal control over financial reporting following completion of the Airobotics Transaction, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and togetherthe market price of our securities may decline.

We and Airobotics historically maintained separate internal control over financial reporting with adequate disclosuredifferent financial reporting processes and different process control software. We are in the process of integrating our internal control over financial reporting with that of Airobotics. We may encounter difficulties and unanticipated issues in combining our respective accounting systems due to the complexity of the financial reporting processes. We may also identify errors or misstatements that could require audit adjustments. If we are unable to implement and maintain effective internal control over financial reporting following completion of the Airobotics Transaction, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline.

Airobotics may have liabilities that are not known, probable or estimable at this time.

After the Airobotics Transaction, Airobotics is subject to certain past, current, and future liabilities. There could be unasserted claims or assessments against or affecting Airobotics, including the failure to comply with applicable laws and regulations. In addition, there may be liabilities of Airobotics that are neither probable nor estimable at this time that may become probable or estimable in the future, including indemnification requests received from customers of Airobotics relating to claims of infringement or misappropriation of third party intellectual property or other proprietary rights, tax liabilities arising in connection with ongoing or future tax audits and liabilities in connection with other past, current and future legal claims and litigation. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results. We may learn additional information about Airobotics that adversely affects us, such as unknown, unasserted, or contingent liabilities and issues relating to compliance with applicable laws or infringement or misappropriation of third-party intellectual property or other proprietary rights.

Ondas may experience difficulties integrating Airobotics’ business.

Achieving the anticipated benefits of the Airobotics Transaction will depend in significant part upon whether Ondas and successfully integrates Airobotics and American Robotics in the Ondas Autonomous Systems in an efficient and effective manner. The actual integration and operations of the Ondas Autonomous Systems may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. The companies may not be able to accomplish the integration process smoothly, successfully or on a timely basis. The necessity of coordinating geographically separated organizations, systems of controls, and procedures, are designedfacilities and addressing possible differences in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. The companies operate numerous systems and controls, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll, and regulatory compliance. The integration of operations following the Airobotics Transaction will require the dedication of significant management and external resources, which may temporarily distract management’s attention from the day-to-day business of the combined company and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the combined company. Any inability of management to reasonably detectsuccessfully and prevent fraud. Any failuretimely integrate the operations of the two companies could have a material adverse effect on the business and results of operations of the combined company.


The combined company may not fully realize the anticipated benefits of the Airobotics Transaction within the timing anticipated or at all.

Ondas and Airobotics entered into the Agreement of Merger, dated August 4, 2022, because each company believes that the Airobotics Transaction will be beneficial to implement required neweach of Ondas and Airobotics primarily as a result of the anticipated benefits resulting from the combined company’s operations. The companies may not be able to achieve the anticipated long-term strategic benefits of the Airobotics Transaction. An inability to realize the full extent of, or improved controls, or difficultiesany of, the anticipated benefits of the Airobotics Transaction, as well as any delays that may be encountered in their implementationthe integration process, which may delay the timing of such benefits, could causehave an adverse effect on the business and results of operations of the combined company, and may affect the value of Ondas common stock after the completion of the Airobotics Transaction.

The Airobotics Transaction involved substantial costs.

We have incurred, and expect to continue to incur, a number of non-recurring costs associated with the Airobotics Transaction. The substantial majority of the non-recurring expenses will consist of transaction and regulatory costs related to the Airobotics Transaction. We will also incur transaction fees and costs related to formulating and implementing integration plans, including system consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred from the Airobotics Transaction and integration. Although we anticipate that the elimination of duplicative costs and the realization of other efficiencies and synergies related to the integration should allow us to failoffset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

Risks Related to meet our reporting obligations.

Common Stock


We have limited trading activity and as a result, the price of our common stock might fluctuate significantly, and you could lose all or part of your investment.

The limited trading activity and resulting volatility in the market price of our common stock may prevent you from being able to sell your shares of our common stock at or above the price you paid for your shares. The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, including, but not limited to:

actual or anticipated fluctuations in our financial and operating results;

adverse results from delays in our product development;

legal, political, governmental or other regulatory developments, decisions or interpretations;

publication of research reports or coverage about us or our industry or positive or negative recommendations;

perceptions about the market acceptance of our products and services, and the recognition of our brand;

adverse publicity about our products and services, operating or financial results or industry in general;

overall performance of the equity markets;

introduction or discontinuation of products or services, or announcements of significant contracts, licenses or acquisitions, by us or our competitors;

additions or departures of key personnel;

threatened or actual litigation and government or regulatory investigations;

sale of shares of our common stock by us or members of our management or our stockholders; and

general economic conditions, both global and regional.


 

Our common stock is listed on Nasdaq and the Tel Aviv Stock Exchange (“TASE”) under the symbol “ONDS.”    The first trading day of the Company’s shares on TASE was January 26, 2023. There can be no assurance that trading of our common stock on such market will be sustained. In the event that our common stock is not listed on Nasdaq or TASE, or if we do not sustain such listing, our common stock could be quoted only on the OTC Markets. Under such circumstances, you may find it significantly more difficult to trade, or to obtain accurate quotations for our common stock and our common stock may become substantially less attractive to certain purchasers, such as financial institutions, hedge funds, and other similar investors.

These and other factors might cause the market price of our common stock to fluctuate unpredictably and substantially, which may negatively affect the liquidity of our common stock. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies across many industries, including our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. Accordingly, the price of our common stock could fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially reduce our stock price.

Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources, and harm our business, operating results and financial condition.


We are an “emerging growth company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected consolidated financial data in this Report;

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) December 31, 2021, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such fiscal year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Under Section 107(b) of the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Our executive officers, directors and current beneficial owners of 5% or more of our common stock and their respective affiliates, in the aggregate, beneficially own approximately 42.8%15.6% of our outstanding common stock as of December 31, 2019,March 10, 2023, and as of the date of this filing.  As a result, these persons, acting together, would be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate transactions.

Some of these persons or entities may have interests different than yours. For example, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.

We may issue more shares to raise additional capital, which may result in substantial dilution.

Our Amended and Restated Articles of Incorporation authorize the issuance of a maximum of 350,000,000116,666,667 shares of common stock. Any additional financings effected by us may result in the issuance of additional securities without stockholder approval and the substantial dilution in the percentage of common stock held by our then existing stockholders. Moreover,In order to raise additional capital, we may in the future offer additional shares of our common stock issued in any such transactionor other securities convertible into or exchangeable for our common stock at prices that may be valued on an arbitraryhigher or non-arm’s-length basis by our management, resultinglower than the price per share in an additional reductionthis offering, and investors purchasing shares or other securities in the percentagefuture could have rights superior to purchases in this offering or other existing stockholders. Also, we have reserved 6,000,000 shares of common stock held by our current stockholders. Our Board hasfor issuance pursuant to future awards under the power to issue any or all2021 Stock Incentive Plan. As of such authorized but unissuedDecember 31, 2022, the number of securities remaining available for future issuance under the 2021 Stock Incentive Plan is 3,927,140 shares without stockholder approval. To the extent thatof common stock. The issuance of such additional shares of common stock, are issued in connection with a financing, dilution toor securities convertible or exchangeable into common stock, may cause the interestsprice of our stockholders will occur and the rights of the holder of common stock might be materially and adversely affected.

to decline. Additionally, if all or a substantial portion of these shares are resold into the public markets then the trading price of our common stock may decline.


Our Board may issue and fix the terms of shares of our preferred stock without stockholder approval, which could adversely affect the voting power of holders of our common stock or any change in control of our Company.

Our Amended and Restated Articles of Incorporation authorize the issuance of up to 10,000,0005,000,000 shares of “blank check” preferred stock, $0.0001 par value per share, with such designation rights and preferences as may be determined from time to time by our Board. Our Board is empowered, without the need to obtain stockholder approval, to issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock. In the event of such issuances, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company.


 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business,, which research and reports are not and would not be subject to our control.control. We currently do not have and may never obtain research coverage by securities analysts, and industry analysts that currently cover us may cease to do so. If no securities analysts commence coverage of our company, or if industry analysts cease coverage of our company, the trading price for our stock could be materially and adversely impacted. In the event we obtain securities analyst coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price may be materially and adversely impacted.impacted. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

We do not intend to pay dividends for the foreseeable future.

We have never declared or paid cash dividends on our capital stock nor are we under any obligation to declare or pay such cash dividends. We currently intend to retain any future earnings to fund our operations and the development and growth of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Our future ability to pay cash dividends on our capital stock may be limited by any future debt instruments or preferred securities. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases to a price above the price you paid for them and you sell such shares.

We expect to incur increased costs and demands upon management as a result of being a public company.

As a public company, we expect to incur significant legal, accounting, and other costs, which we anticipate could be up to $1 million annually, and such costs may increase over time. These additional costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the stock exchange on which we may list our common stock, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying and sometimes unclear interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities, which may harm our business, financial condition or results of operations. If, notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business, financial condition and results of operation may be harmed.

Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including, without limitation, director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain or maintain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board, on committees of our Board or as members of senior or executive management.

shares.


A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.

Of the 50,463,732 shares of our common stock issued and outstanding after the closing of the Acquisition, 8,948,500 shares are freely tradable without restriction by stockholders who are not our affiliates and 41,515,232 shares are “restricted securities” as defined in Rule 144. The 25,463,732 restricted shares issued to the former Ondas Networks stockholders are also subject to the terms of a lock up agreement entered into in connection with the Acquisition by each of the former Ondas stockholders, which lock up agreement was subsequently amended, under which these restricted shares cannot be sold until September 28, 2020.

In addition, we filed a registration statement on Form S-3, which was declared effective by the SEC on December 12, 2019, covering the resale of 8,684,353 shares of common stock and 4,630,739 shares of common stock underlying warrants held by selling stockholders (“Investor Warrants”) who participated in a private equity offering during the third and fourth quarter 2019. Pursuant to the registration statement on Form S-3, these selling stockholders may resell all or a portion of the 8,684,353 shares of common stock, and all or a portion of the 4,630,739 shares of common stock underlying the Investor Warrants after the Investor Warrants are exercised by the holders.

In addition, in the future, we intend to file one or more registration statements on Form S-8 registering the issuance of approximately 10,000,000 shares of common stock reserved for issuance under our 2018 Equity Incentive Plan. Shares registered under these registration statements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options and the restrictions of Rule 144 in the case of our affiliates.

You may experience future dilution as a result of future equity offerings.

In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price in this offering. We may sell shares or other securities in any other offering at a price that is less than the price paid by investors in this offering, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price paid by investors in this offering. Also, we have reserved 10,000,000 shares of common stock for issuance pursuant to future awards under the 2018 Equity Incentive Plan. The issuance of such additional shares of common stock, or securities convertible or exchangeable into common stock, may cause the price of our common stock to decline. Additionally, if all or a substantial portion of these shares are resold into the public markets then the trading price of our common stock may decline.

Our shares of common stock are subject to the penny stock rules.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If the price per share of our common stock continues to be is less than $5.00, our common stock will continue to be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.


Certain provisions of our Amended and Restated Articles of Incorporation and Bylaws and Nevada law make it more difficult for a third-party to acquire us and make a takeover more difficult to complete, even if such a transaction were in the stockholders’ best interest.

Certain provisions of our Amended and Restated Articles of Incorporation and Bylaws and Nevada law make it more difficult for a third-party to acquire us and make a takeover more difficult to complete, even if such a transaction were in the stockholders’ interest. For example, Nevada law provides that approval of two-thirds of the stockholders is required to remove a director, which may make it more difficult for a third-party to gain control of the Company. This concentration of ownership limits the power to exercise control by our minority stockholders.

Our bylaws designate the Eighth Judicial District Court of Clark County of the State of Nevada as the sole and exclusive forum for certain actions, which could limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company and its directors, officers, or other employees and may discourage lawsuits with respect to such claims.

Unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District Court of Clark County of the State of Nevada (the “Court”) shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any Director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company, any director or the Company’s officers or employees arising pursuant to any provision of the NRS, Chapters 78 or 92A of the NRS or our Amended and Restated Articles of Incorporation or our Bylaws, or (iv) any action asserting a claim against the Company, any director or the Company’s officers or employees governed by the internal affairs doctrine. However, each of these clauses (i) through (iv) will not apply to any claim (x) as to which the Court determines that there is an indispensable party not subject to the jurisdiction of the Court (and the indispensable party does not consent to the personal jurisdiction of the Court within ten (10) days following such determination), (y) for which the Court does not have subject matter jurisdiction, or (z) which is vested in the exclusive jurisdiction of a court or forum other than the Court, including pursuant to Section 27 of the Exchange Act, which provides for exclusive federal jurisdiction over suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act of 1933, as amended (the “Securities Act”), provides for concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and as such the exclusive jurisdiction clauses set forth above would not apply to such suits.

Risks Related to our Acquisition by Zev Ventures Incorporated

We may be subject to unknown risks as a result of our completed acquisition by Zev Ventures Incorporated.

Before the Acquisition, Zev Ventures conducted a business related to the resale to the public of sporting event and concert tickets purchased in bulk in advance from leading ticket vendors and reselling them at the price actually commanded by the market. In connection with the Acquisition, we discontinued this business. Even though we and our advisers conducted a due diligence investigation of Zev Ventures prior to committing to the Acquisition, there may be unknown liabilities, or liabilities that were known but believed to be immaterial, related to the business of Zev Ventures that may become material liabilities we are subject to in the future. If we are subject to material liability as a result of the conduct of Zev Ventures we may have limited recourse for such liabilities, which could have a material impact on our business, financial condition, results of operations, and stock price.

32


 

Item 1B. Unresolved Staff Comments.

Item 1B.None.Unresolved Staff Comments.

None.

Item 2.Properties.

Item 2. Properties.

Our corporate headquarters for Ondas Holdings is located at 411 Waverley Oaks Road, Suite 114, Waltham, MA 02452.

 Our offices and operational headquartersfacilities for Ondas Networks isare located at 165 Gibraltar Court in Sunnyvale, CA.CA (the Property”). On October 30, 2018, Ondas Networkswe entered into a sublease with Texas Instruments Sunnyvale Incorporated for the sublet of these corporate and operational headquarters,the Property, representing approximately 21,982 square feet. The sublease expiresexpired on February 28, 2021 and we have no optionwas extended to renew or extendMarch 31, 2021 under the sublease under its terms. We paysame terms which included a base rent of approximately $28,577 per month plus additional monthly fees to cover operating expenses, certain legal fees, and personal property taxes associated with the premises. Upon execution of the sublease, we delivered a security deposit to be held in trust equal to one month’s base rent.

Our headquarters were previously located at 687 N. Pastoria Avenuerent, which was applied to the balance of our sublease obligation in Sunnyvale, California.March 2021. On November 11, 2013,January 22, 2021, we entered into a three-year24-month lease agreementwith the owner and landlord of the Property (the “2021 Lease”), wherein the base rate is $45,000 per month and including a security deposit in the amount of $90,000. The 2021 Lease is effective April 1, 2021 through March 31, 2023. The Company is in the process of renewing this lease.

Our offices and facilities for American Robotics are located at 53 Brigham St, Unit 4, Marlborough, MA, representing approximately 10,450 square feet (the “Marlborough Lease”). On August 5, 2021, the Company acquired American Robotics and the Marlborough Lease, wherein the base rate is $15,469 per month, with an annual increase of 3% through January 2024, with a security deposit of $24,166. On August 19, 2021, American Robotics amended their lease to reduce their space. The Amendment reduced their annual base rent to $8,802 per month, with an annual increase of 3% through January 2024.

On October 8, 2021, American Robotics entered into an 86-month operating lease for space at 411 Waverley Oaks Road, Suite 114, Waltham, MA, representing approximately 18,000 square feet. The lease commenced on March 1, 2022 and terminates on April 30, 2029, wherein the base rate is $39,375 per month, increasing 3% annually, with a security deposit in the amount of $104,040. In conjunction with this new lease, American Robotics leased a short-term temporary space at 411 Waverley Oaks Road, Suite 118, Waltham, MA, representing approximately 6,000 square feet at $8,500 per month, until their primary space was available on June 1, 2022.

Our offices and facilities for Airobotics are located at 8 Modi’in St, Petah Tikva, Israel, representing approximately 13,240 square feet and an adjacent yard with an area of office spaceapproximately 9,690 square feet which expired onAirobotics leases according to three different lease agreements. Each agreement is with respect to different sections of the entire leased area and are in effect through December 31, 2017. On October 16, 2017, we extended the lease agreement for an additional three years expiring December 31, 2020 (“2018 Extension”) for an aggregate monthly lease payment of approximately $12,600. On January 24, 2020, we entered into a Sublease agreement with a third party (the “Sublessee”)2023, February 28, 2024, and November 30, 2024 wherein the Sublessee will occupy the premises for the remainderbase rate of the term of the 2018 Extension and will make payments totaling $106,323 ($9,666entire leased area is approximately $20,500 per month) for the remaining 11 months.month.

We had a combined office and laboratory facility for approximately 15,200 square feet in China, located in the capital city of Sichuan province. On June 15, 2018, effective June 1, 2018, Ondas Networks entered into a five-year lease agreement expiring May 31, 2023, with a base monthly lease payment ranging from approximately $9,200 to $9,700 US. Upon execution of the lease, the first three months were free and we paid $28,000 US in advance for the second three months. The base monthly lease payment for the period from June 1, 2018 through April 30, 2020 was approximately $9,200 US. The base monthly lease payment for the period from May 1, 2020 through May 31, 2023 was approximately $9,700 US. We also paid a monthly management fee of approximately $1,800 US. In connection with our process of dissolving our China-affiliated subsidiaries, on December 20, 2019, we entered into a lease termination agreement (“Termination Agreement”) wherein the five-year lease agreement was terminated, we agreed to vacate no later than December 31, 2019, and we agreed to transfer leasehold improvements to the landlord, pay the current quarterly rent of approximately $13,675 US, forfeit 1.5 months of our prepaid deposit, and pay other miscellaneous fees of approximately $4,000 US. As outlined in the Termination Agreement, we vacated the premises by December 31, 2019, transferred leasehold improvements to the landlord, and paid all rental and other fees due.

We believe that our offices and facilities are sufficient for our current needs.

Item 3.Legal Proceedings.

Item 3. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. We are not currently involved in any legal proceeding or investigation by a governmental agency that we believe will have a material adverse effect on our business, financial condition, or operating results.

Item 4.Mine Safety Disclosures.

Item 4. Mine Safety Disclosures.

Not applicable.


 

Not applicable.


PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock originally traded on OTC Markets, the OTC Pink (Current Information) tier of OTC Markets Group, Inc. under the trading symbol “ZVVT” on a very limited basis. On October 5, 2018, the trading symbol changed to “ONDS.” On December 19, 2018, our common stock was uplisted to the OTCQB under the symbol “ONDS”. On December 4, 2020, our common stock was uplisted to the Nasdaq Capital Market (“Nasdaq”) under the symbol “ONDS” where it continues to trade on a very limited basis. On January 26, 2023, our common stock began trading on the Tel Aviv Stock Exchange (“TASE”) and was dual listed on both Nasdaq and TASE.

Stockholders

As of March 10, 2020,7, 2023, there were 27298 stockholders of record.

Dividends

We have never declared nor paid any cash dividends to stockholders. We do not intend to pay cash dividends on our common stock for the foreseeable future, and currently intend to retain any future earnings to fund our operations and the development and growth of our business. The declaration of any future cash dividend, if any, would be at the discretion of our Board (subject to limitations imposed under applicable Nevada law) and would depend upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions.

Unregistered Sales of Securities

None other than those previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.during the year ended December 31, 2022

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None during the quarter ended December 31, 2019.2022.

Item 6.

Selected Financial Data.

We are a smaller reporting company as defined by Rule 229.10(f)(1) and are not required to provide information under Item 301(c).

6. [Reserved]

34

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. See “Statement“Cautionary Note Regarding Forward-Looking Information.Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

On September 28, 2018, we consummatedOndas Holdings is a reverse acquisition transaction to acquire a privately-held company, Ondas Networks Inc.,leading provider of private wireless, drone, and changed our name from “Zev Ventures Incorporated” to “Ondas Holdings Inc.” As a result,automated data solutions through its wholly owned subsidiaries Ondas Networks Inc. (“Ondas Networks”) became, American Robotics, Inc. (“American Robotics” or “AR”) and Airobotics, Ltd. (“Airobotics”). American Robotics and Airobotics are operated together, under a separate business unit called Ondas Autonomous Systems. Ondas Holdings acquired American Robotics, a leading developer of highly automated commercial drone systems on August 5, 2021. Ondas Holdings acquired Airobotics, an Israeli-based developer of autonomous drone systems on January 23, 2023. American Robotics and Airobotics are operated together, under a separate business unit called Ondas Autonomous Systems. Ondas Networks and Ondas Autonomous Systems together provide users in rail, energy, mining, agriculture, public safety and critical infrastructure and government markets with improved connectivity, data collection capabilities, and data collection and information processing capabilities. We operate Ondas Networks and Ondas Autonomous Systems as separate business segments, and the following is a discussion of each segment. See Note 1 and Note 2 of the accompanying Consolidated Financial Statements for further information regarding our wholly owned subsidiary.segments.


Ondas Networks Segment

Ondas Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to this transactionthese applications as the “Acquisition.” In connectionMission-Critical Internet of Things (“MC-IoT”). Our wireless networking products are applicable to a wide range of MC-IoT applications, which are most often located at the very edge of large industrial networks. These applications require secure, real-time connectivity with the closingability to process large amounts of data at the edge of large industrial networks. Such applications are required in all of the Acquisition, we discontinued the prior businessmajor critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, homeland security and government, where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure a high degree of Zev Ventures as a reseller of sportingsafety and concert tickets and our sole business became that of Ondas Networks.security.

We design, develop, manufacture, sell and support FullMAX, our multi-patented wireless radio systemspatented, Software Defined Radio (“SDR”) platform for secure, wide area mission-critical field arealicensed, private, wide-area broadband networks. This radioOur customers install FullMAX systems in order to upgrade and expand their legacy wide-area network provides point-to-multipoint, non-lineinfrastructure. Our MC-IoT intellectual property has been adopted by the Institute of sight connectivity for industrial wireless networks. Since its inception on February 26, 2006, Ondas Networks has devoted its efforts principally to researchElectrical and developmentElectronics Engineers (“IEEE”), the leading worldwide standards body in data networking protocols, and forms the commercializationcore of our FullMAX wireless technology platform. We helped create the IEEE 802.16s standard. Because standards-based communications solutions are preferred by our mission-critical customers and ecosystem partners, we have taken a leadership position in IEEE as it relates to wireless broadband standard,networking for industrial markets. As such, management believes this standards-based approach supports the adoption of our technology across a burgeoning ecosystem of global partners and end markets.

Our software-based FullMAX platform is an important and timely upgrade solution for privately-owned and operated wireless wide-area networks, leveraging Internet Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. We believe industrial and critical infrastructure markets throughout the globe have reached an inflection point where legacy serial and analog based protocols and network transport systems no longer meet industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent networking platform enabling the adoption of sophisticated operating systems and equipment supporting next-generation MC-IoT applications over wide field areas. These new MC-IoT applications and related equipment require more processing power at the edge of large industrial networks and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the “Fog-computing” capability integrated in our end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing and data and application prioritization in the field enabling our customers more reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the edge.

Our Partnership with Siemens Mobility

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

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

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

In November 2021, Siemens secured its first commercial 900 MHz rail order for a major Class I Railroad in the United States which was publisheddelivered in December 2021. In August 2022, we announced that we had secured an initial volume order from Siemens for the Class I Rail 900 MHz Network consisting of both ATCS compatible products along with Ondas’ catalog products. In September 2022, we received government authorization to sell ATCS radios in Canada.


Additional Critical Markets

We have launched additional initiatives to take our MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure markets. In June 2022, we announced the first successful installation of our technology into an Integrated Coastal Surveillance System (ICSS) in the Caribbean with a global defense contractor. In the fourth quarter of 2017. 2022, we received and delivered on a new ICSS order for the defense contractor to be deployed in India. We expect additional orders from this defense vendor for the ICSS application in 2023. We believe our FullMAX technology’s licensed frequency flexibility, reliability, and long communications range over ocean surfaces, is broadening the scale of our technology in this emerging market for homeland security.

Ondas Autonomous Systems Segment

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

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

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

In 2018,addition to the Autonomous Drone Platforms, we initiatedalso offer a counter-drone system called the Raider™. The Raider™ was developed by Iron Drone and is deployed by government and enterprise customers to provide security and protect critical infrastructure, assets and people from the threat of hostile drones. Ondas Holdings acquired Iron Drone on March 6, 2023.

Autonomous Drone Platforms

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

The Optimus System™ has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the real world. Powered by innovations in robotics automation, machine vision, edge computing, and AI. Once installed in the field at customer locations, a fleet of connected Optimus Systems™, which are often deployed as networked drone infrastructure, which we refer to as Urban Drone Infrastructure, remains indefinitely positioned in an area of operation, automatically collecting and seamlessly delivering data and information regularly and reliably.

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


 

We

The Optimus System™ consists of (i) Optimus™, a highly automated, AI-powered drone with advanced imaging payloads, (ii) the Airbase™, a ruggedized weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud transfer, and (iii) Insightful™, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere in the world. These major subsystems are connected via a host of supporting technologies. Airbase™ has internal robotic systems that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of Optimus as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus System to provide multiple applications and use cases from a single location.

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

The Raider

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

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

COVID-19

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and has resulted in increased travel restrictions, business disruptions and emergency quarantine measures across the world including the United States.

The Company’s business, financial condition and results of operations were impacted from the COVID-19 pandemic for the years ended December 31, 20192022 and 2018,2021 as follows:

sales and marketing efforts were disrupted as our business development team was unable to travel to visit customers and customers were unable to receive visitors for on-location meetings;

field activity for testing and deploying our wireless systems was delayed due to the inability for our field service team to install and test equipment for our customers;

supply chain disruptions led to component shortages and inefficiencies in and delays in producing and delivering equipment for certain purchase orders; and

delays in fulfilling purchase orders reduced our cash flow from operations.

The Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2023, primarily due to supply chain disruptions due to pandemic-related plant and port shutdowns, transportation delays, government actions and other factors, which may be beyond our accumulated deficit was approximately $52control. The global shortage of certain components such as semiconductor chips, strains on production or extraction of raw materials, cost inflation, and $33 million, respectively. We expectlabor and equipment shortages, could escalate in future quarters. Labor shortages have led and may continue to continue incurring substantial losseslead to difficult conditions for hiring and retention of employees, and increased labor costs. Further, the COVID-19 pandemic is ongoing and remains an unknown risk for the next severalforeseeable future. The extent to which the coronavirus may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus. As a result, the Company is unable to reasonably estimate the full extent of the impact from the COVID-19 pandemic on its future business, financial condition and results of operations. In addition, if the Company were to experience any new impact to its operations or incur additional unanticipated costs and expenses as a result of the COVID-19 pandemic, such operational delays and unanticipated costs and expenses there could be a further adverse impact on the Company’s business, financial condition and results of operations during the year ended December 31, 2023.


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

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

Under the Tax Cuts and Jobs Act of 2017, we continueare required to develop, manufacturecapitalize R&D expenses for tax purposes and market our technologies. Our operating expenses are comprised of research and development expenses, general and administrativeamortize over five years for domestic based expenses and sales and marketingfifteen years for foreign expenses. Given our tax net operating loss carryforward position we do not expect this change to have a material impact on our financial statements.

 

Our future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing our technologies,American Robotics Acquisition

Merger Agreement

On May 17, 2021, 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 business consists of a single segment of products and services, all of which are sold and provided in the United States and certain international markets.

The Acquisition

On September 28, 2018, weCompany entered into thean Agreement and Plan of Merger and Reorganization (the “Merger“AR Agreement”) with ZevDrone Merger Sub I Inc., a Delaware corporation and Ondas Networks to acquire Ondas Networks.a direct wholly owned subsidiary of the Company (“Merger Sub I”), Drone Merger Sub II Inc., a Delaware corporation and a direct wholly owned subsidiary of the Company (“Merger Sub II”), American Robotics, and Reese Mozer, solely in his capacity as the representative of American Robotics’ Stockholders (as defined in the AR Agreement). American Robotics is a company focused on designing, developing, and marketing industrial drone solutions for rugged, real-world environments. AR’s Scout System™ is a highly automated, AI-powered drone system capable of continuous, remote operation and is marketed as a “drone-in-a-box” turnkey data solution service under a Robot-as-a-Service (RAAS) business model. The transactions contemplatedScout System™ is the first drone system approved by the Merger Agreement were consummated on September 28, 2018FAA for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site.

On August 5, 2021 (the “Closing”“AR Closing Date”), and pursuant to the termsCompany’s stockholders approved the issuance of shares of the Merger Agreement, all outstandingCompany’s common stock, including shares of common stock of Ondas Networks, $0.00001 par value per share, (the “Ondas Networks Shares”)underlying Warrants (as defined below), were exchanged for shares of our common stock, $0.0001 par value per share (the “Company Shares”). Accordingly, Ondas Networks became our wholly-owned subsidiary and its business became the business of the Company.

At the Closing, each Ondas Networks Share outstanding immediately prior to the Closing was exchanged for 3.823 Company Shares (the “Exchange Ratio”), with all fractional shares rounded down to the nearest whole share. Accordingly, we issued an aggregate of 25,463,732 Company Shares for all of the then-outstanding Ondas Networks Shares.


In connection with the Closing, we amended and restated our articles of incorporation, effective September 28, 2018 to (i) change our name to Ondas Holdings Inc., and (ii) increase our authorized capital to 360,000,000 shares, consisting of 350,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of “blank check” preferred stock, par value $0.0001 per share. In connection with the Acquisition, our trading symbol changed to “ONDS” effective at the opening of business on October 5, 2018.

Also in connection with the acquisition of American Robotics.

On the AR Closing (i) our sole director appointed additional individuals, who previously sat onDate, American Robotics merged with and into Merger Sub I, with American Robotics continuing as the board of Ondas Networkssurviving entity, and its chief executive officer, to serve on our Board,American Robotics then subsequently and our Board subsequently appointed our executive officers; (ii)immediately merged with and into Merger Sub II (“Merger II”), with Merger Sub II continuing as the former holderssurviving entity and as a direct wholly owned subsidiary of the Ondas Networks Shares executed lock-up agreements (the “Lock-Up Agreements”), which provided forCompany. Simultaneously with Merger II, Merger Sub II was renamed American Robotics, Inc.

Pursuant to the AR Agreement, American Robotics stockholders and certain service providers received (i) cash consideration in an initial twelve-month lock-up period followed by a subsequent 12-month limited sale period, commencing withamount equal to $7,500,000, less certain indebtedness, transaction expenses and other expense amounts as described in the date of Closing; (iii) we entered into a Common Stock Repurchase Agreement with an entity pursuant to which the entity sold an aggregate of 32,600,000 Company Shares (the “Repurchase Shares”) to us at $0.0001 per share, for an aggregate consideration of $3,260 (the Repurchase Shares were canceled and returned to our authorized but unissued shares); (iv) our Board approved, and our stockholders adopted, the 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which 10 million Company Shares have been reserved for issuance to employees, including officers, directors and consultants; and (v) we entered into a Loan and Security Agreement with Energy Capital, a stockholderAR Agreement; (ii) 6,750,000 shares of the Company, pursuant to which Energy Capital agreed to lend the Company an aggregate principal amount of up to $10 million, subject to specified conditions.

Subsequent to the Closing, (i) the Lock-Up Agreements were amended on August 30, 2019 to delete the 12-month limited sale period making all shares locked up until September 28, 2020, and (ii) Energy Capital loaned the Company the full $10 million available under the Loan and Security Agreement. On September 27, 2019, Energy Capital, LLC entered into a Securities Purchase Agreement with other subscribers in which it converted an aggregate of approximately $10,563,000 principal and interest outstanding under the Loan and Security Agreement into an aggregate of 4,225,242 Units (wherein a unit consisted of one share ofCompany’s common stock and one-half(inclusive of one warrant to purchase one share26 fractional shares paid in cash as set forth in the AR Agreement); (iii) warrants exercisable for 1,875,000 shares of Companythe Company’s common stock (the “Investor Warrant”“Warrants”)) (inclusive of 24 fractional shares paid in cash and the equivalent of Warrants for 309,320 shares representing the value of options exercisable for 211,038 shares issued under the Company’s incentive stock plan and reducing the aggregate amount of Warrants as set forth in the AR Agreement); and (iv) the cash release from the PPP Loan Escrow Amount (as defined in the AR Agreement). Each of the Company. AtWarrants entitle the closingholder to purchase a number of shares of the transaction,Company’s common stock at an exercise price of $7.89. Each of the debt owed Energy Capital underWarrants shall be exercisable in three equal annual installments commencing on the Loanone-year anniversary of the AR Closing Date and Security Agreement was extinguishedshall have a term of ten years. 59,544 of the stock options were issued fully vested to employees who did not exercise their American Robotics options prior to the AR Closing Date and the Loan terminated pursuant to its terms. SeeNOTE 8had no ongoing service requirements and were included in the accompanying consolidated financial statements for additional details.

Key Components of Our Results of Operationspurchase consideration. The remaining 151,494 stock options issued vest over four years and Financial Condition

Revenues

Our revenues are derived principally fromcontingent on ongoing employment by the sale of our multi-patented FullMAX wireless radio system. We also provide a warranty/maintenance program through an annual contract. The warranty/maintenance contract requires payment in full at the time of execution of the contract. Revenue from the warranty/maintenance contract is initiallyCompany and are recorded as deferred revenue and is subsequently recorded as income spread equitablycompensation expense over the term of the contract. Due to the ongoing development and commercialization process of our FullMAX solutions, our revenues have historically been generated by equipment trial and pilot programs and related services, in addition to a modest number of full network deployments. We have historically had limited sales and customer service resources to support higher sales volumes. In 2018 and 2019, we expanded our sales and marketing effort across multiple industries which dramatically increased our sales pipeline and the number of customers and projects we are targeting. We expect this increased customer engagement to lead to a larger number of sales opportunities and revenue in 2020.period.

 

36


 

CostAlso on the AR Closing Date, the Company entered into employment agreements and issued 1,375,000 restricted stock units (“RSUs) under the Company’s incentive stock plan to key members of Sales

Our cost of sales is comprised primarilyAmerican Robotics’ management. These RSUs vest in equal installments on the next three anniversaries of the cost of componentsAR Closing Date and vesting is contingent on the individuals remaining employed by the Company. These RSUs are not included in our FullMAX systempurchase consideration and other costs associated withare expensed ratably over the assemblyservice period. They were valued at the closing market price on the AR Closing Date.

The Company’s Consolidated Financial Statements for the year ended December 31, 2022 include results of operations of American Robotics for the period from the AR Closing Date to December 31, 2022.

See Note 5 – Goodwill and delivery thereto. We expect our investment in expanding our customer sales and service efforts to lead to increased volume of FullMAX equipment sales in future periods, which will lead to higher costs of sales. Cost of sales as a percentage of revenue has historically been volatile due to low levels of revenue and can be skewed higher or lower dueBusiness Acquisition to the mix of high margin base station units relativeaccompanying Consolidated Financial Statements for further information regarding the American Robotics acquisition.

Airobotics Transaction

 On January 23, 2023, the Company acquired Airobotics, Ltd. See Note 16 - Subsequent Events to remote units sold. Higher unit sales volume will provide scale manufacturing opportunities which could lead to a decline in the cost of sales as a percentage of revenue in future periods.accompanying Consolidated Financial Statements for further information regarding the Airobotics acquisition.

 

General and Administration

General and administration expenses primarily include salary and benefit expense, legal and accounting services, professional services, rent and facilities costs, general liability insurances, and travel expenses. We expect these expenses to increase as a result of continued growth in headcount and support of our business and operations.

Sales and Marketing

Sales and marketing expenses primarily include salary and benefit expense, trade shows, marketing programs and promotional material, travel expenses, and the allocation of certain facility costs. We expect these expenses to increase as a result of continued growth in headcount and support of our business and operations.

Research and Development

Research and development expenses primarily include salary and benefit expense and costs for contractors engaged in research, design and development activities including intellectual property, travel expenses, and the allocation of certain facility costs. We expect our research and development costs to increase as we continue making investments in developing new products in addition to new versions of FullMAX.

Other Income (Expense)

Other income (expense) primarily includes interest expense and impairment of deferred offering and financing costs.

Results of Operations

 

Year ended December 31, 20192022 compared to year ended December 31, 20182021

  Year ended December 31,    
  2019  2018  Change 
  (000s) 
Revenue $320  $190  $130 
Cost of sales  79   39   40 
Gross profit  241   151   90 
Operating expenses:            
General and administrative  4,793   2,612   2,181 
Sales and marketing  5,404   2,898   2,506 
Research and development  5,416   3,077   2,339 
Total operating expense  15,613   8,587   7,026 
Operating loss  (15,372)  (8,436)  6,936 
Other income (expense)  (4,018)  (3,661)  357 
Net loss $(19,390) $(12,097) $7,293

 


Revenues

 

Revenue

  Year Ended
December 31,
 
  2022  2021  Increase
(Decrease)
 
Revenue, net         
Ondas Networks $1,931,677  $2,840,154  $(908,477)
American Robotics  194,140   66,617   127,523 
             
Total $2,125,817  $2,906,771  $(780,954)

 

Revenue increaseddecreased to approximately $320,000$2,125,817 for the year ended December 31, 20192022 from approximately $190,000$2,906,771 for the year ended December 31, 2018.2021. Revenues during the year ended December 31, 2022 included $872,660 for products, $319,140 for maintenance, service, support, and subscriptions, and $934,017 for development agreements with Siemens Mobility. Revenues during the same period in both years were primarily generated via pilot programs2021 included $405,569 for products, $96,934 for maintenance service, support, and small customer deployments which increased year over year in 2019.subscriptions, $2,401,474 for development agreements with Siemens Mobility and AURA Networks, and $2,794 for other revenues.

 

Cost of salesgoods sold

 

  Year Ended
December 31,
 
  2022  2021  Increase
(Decrease)
 
Cost of goods sold         
Ondas Networks $914,612  $1,783,033  $(868,421)
American Robotics  102,042   27,909   74,133 
             
Total $1,016,654  $1,810,942  $(794,288)


Cost of sales increasedgoods sold decreased to approximately $79,000$1,016,654 for the year ended December 31, 20192022 from approximately $39,000$1,810,942 for the year ended December 31, 2018. This increase2021. The decrease in cost of sales is a directgoods sold was the result of less development costs being allocated to development agreements in line with the increase in revenue during 2019.decreased revenue.

 

Gross profit

  Year Ended
December 31,
 
  2022  2021  Increase
(Decrease)
 
Gross Profit         
Ondas Networks $1,017,065  $1,057,121  $(40,056)
American Robotics  92,098   38,708   53,390 
             
Total $1,109,163  $1,095,829  $13,334 

Our gross profit increased to approximately $241,000by $13,334 for the year ended December 31, 2019 from approximately $151,000 for2022 compared to the year ended December 31, 20182021 based on the changes in revenuerevenues and costcosts of sales as discussed above. Gross marginsmargin for the years ended December 31, 2019periods in 2022 and 2018 were 75%2021 was 52% and 79%38%, respectively. This increase in gross margin percentage is due to a higher mix of higher margin product, support and subscription sales as compared to the prior year period, which had a higher mix of development projects with lower margins.

 

Operating Expenses

 

  Year Ended
December 31,
 
  2022  2021  Increase (Decrease) 
Operating expenses:         
General and administrative $23,618,823  $11,781,503  $11,837,320 
Sales and marketing  3,456,257   1,487,394   1,968,456 
Research and development  24,044,005   5,800,549   18,243,533 
Goodwill impairment  19,419,600   -   19,419,600 
             
Total $70,538,685  $19,069,446  $51,469,329 

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

 

  Year Ended
December 31,
 
  2019  2018 
Human resource costs, including benefits  45%  43%
Travel and entertainment  4%  5%
Other general and administration costs:        
Professional fees and consulting expenses  28%  33%
Other expense  11%  9%
Depreciation and amortization  1%  1%
Other research and deployment costs, excluding human resources and travel and entertainment  6%  5%
        
Other sales and marketing costs, excluding human resources and travel and entertainment  5%  4%
  Year Ended
December 31,
 
  2022  2021 
Human resource costs, including benefits  28%  36%
Travel and entertainment  2%  1%
Other general and administration costs:        
Professional fees and consulting expenses  12%  30%
Facilities and other expenses  9%  15%
Depreciation and amortization  6%  7%
Other research and deployment costs, excluding human resources and travel and entertainment  15%  10%
Other sales and marketing costs, excluding human resources and travel and entertainment  -%  1%
Goodwill impairment  28%  -%

 

As a direct result of (i) the aforementioned Acquisition and (ii) the two $10 million dollars loan and security agreements discussed herein and inNOTE 8 in the accompanying consolidated financial statements, the Company was able to launch its business expansion effort to open new markets for FullMAX and invest in product development programs, through significant increases in human resources costs and professional and consulting costs.


 

Operating expenses changedfor the year ended December 31, 2022 increased by approximately $7,026,000 (82%)$51,469,329 as a result of the following items:

 

  (000s) 
Human resource costs, including benefits$3,238 
Travel and entertainment 262 
Other general and administration costs:   
Professional fees and consulting costs 1,612 
Other expense 931 
Depreciation and amortization 89 
   
Other research and deployment costs, excluding human resources and travel and entertainment 479 
   
Other sales and marketing costs, excluding human resources and travel and entertainment 415 
 $7,026 
Human resource costs, including benefits $12,910,965 
Travel and entertainment  1,004,877 
Other general and administration costs:    
Professional fees and consulting costs  2,974,047 
Facilities and other expenses  3,609,599 
Depreciation and amortization  2,448,538 
Goodwill impairment  19,419,600 
Other research and deployment costs, excluding human resources and travel and entertainment  8,883,674 
Other sales and marketing costs, excluding human resources and travel and entertainment  217,939 
  $51,469,239 

 

The increase in operating expenses was primarily due to an increase of approximately $2,974,000 in professional fees, of which approximately $2,100,000 related to the Airobotics acquisition; an increase of $3,609,000 in facilities and other expenses including insurance due to increased operations at American Robotics; an increase of approximately $2,448,000 in depreciation and amortization expense due to amortization of American Robotics intangible assets and new lease and leasehold improvements in Waltham; and an increase of approximately $8,884,000 in R&D development expenses for the year ended December 31, 2022 to improve and expand the product offerings at American Robotics and Ondas Networks. Travel and entertainment expenses increased by approximately $1,005,000, compared to 2021, due to new offsite operating locations for American Robotics and Ondas Networks, as well as travel related to the Airobotics acquisition. Human resource costs increased by approximately $12,911,000 in 2022 compared to 2021 due to increased headcount at both American Robotics and Ondas Networks, combined with an increase of approximately $2,604,000 in stock-based compensation. In 2022, there was an impairment of Goodwill from the American Robotics acquisition of approximately $19,420,000.

Operating Loss

 

  Year Ended 
  December 31, 
  2022  2021  

Increase

 
             
Operating loss $(69,429,522) $(17,973,617) $51,455,905 

As a result of the foregoing, our operating loss increased approximately $6,936,000, or 82%,by $51,455,905 to approximately $15,372,000$69,429,522 for the year ended December 31, 2019,2022, compared with approximately $8,436,000$17,973,617 for the year ended December 31, 2018,2021. The operating loss increased primarily as a result of increasesan increase in operating expenses of approximately $32,036,000 primarily associated with administrative supportincreased operations at American Robotics and increased spendingimpairment of Goodwill of approximately $19,420,000, as we ramp up our sales and marketing and research and development efforts.described above.

 

38Other Income (Expense), net

  Year Ended 
  December 31, 
  2022  2021  Increase
(Decrease)
 
             
Other income (expense), net $(3,812,283) $27,793  $3,840,076 


 

Other Income (Expense)

Other expenseincome (expense), net, increased by approximately $357,000, or 10%,$3,840,076 to approximately $4,018,000other expense, net of $3,812,283 for the year ended December 31, 20192022, compared with approximately $3,661,000to other income, net of $27,793 for the comparable periodyear ended December 31, 2021. During the year ended December 31, 2022, we reported an increase in 2018.interest expense of approximately $176,000, amortization of debt discount of approximately $2,359,000, and amortization debt issuance costs of approximately $1,187,000 for the 2022 Convertible Promissory Notes, offset by approximately $536,000 due to the payoff of the Steward Capital note payable in the second quarter of 2021. Other income decreased by approximately $668,000 to other expense of $76,127 during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the PPP loan forgiveness of $666,091 in 2021.

  Year ended December 31,    
  2019  2018  Change 
  (000s) 
Interest expense $2,929  $2,664  $265 
Impairment of deferred offering and financing costs associated with canceled financing efforts  920   -   920 
Loss on disposal of fixed assets  183   -   183 
Interest and other income  (14)  (23)  9 
Change in fair value of derivative liability  -   976   (976)
Loss on extinguishment of debt  -   44   (44)
  $4,018  $3,661  $357 

Net Loss

  Year Ended 
  December 31, 
  2022  2021  Increase
(Decrease)
 
             
Net Loss $(73,241,805) $(15,023,842) $58,217,963 

Because

As a result of the net effects of the foregoing, partially offset by the provision for income tax benefit reported in the amount of $0 and $2,921,982 for the year ending December 31, 2022 and 2021, respectively, net loss increased approximately $7,293,000, or 60%,by $58,217,963 to approximately $19,390,000$73,241,805 for the year ended December 31, 2019,2022, compared with approximately $12,097,000$15,023,842 for the year ended December 31, 2018.2021. Net loss per share of common stock, basic and diluted, was ($0.37)$(1.73) for the year ended December 31, 2019,2022, compared with ($0.42) per share of common stockapproximately $(0.44) for the year ended December 31, 2018.2021. The income tax benefit in 2021 resulted from the release of valuation allowance against Ondas net operating loss carryforwards to offset the deferred liability acquired as part of the American Robotics acquisition.

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

  Year ended December 31, 
  2019  2018 
  (000s) 
Net cash used in operating activities $(14,665) $(8,517)
Net cash used in investing activities  (355)  (630)
Net cash provided by financing activities  16,042   9,821 
Increase in cash  1,023   674 
Cash and cash equivalents, beginning of year  1,130   456 
Cash and cash equivalents, end of year $2,153  $1,130 


  Year Ended
December 31,
 
  2022  2021 
Net cash used in operating activities $(37,963,076) $(16,895,416)
Net cash used in investing activities  (6,934,568)  (10,210,631)
Net cash provided by financing activities  33,857,617   41,860,437 
(Decrease) Increase in cash and cash equivalents  (11,040,027)  14,754,390 
Cash and cash equivalents, beginning of period  40,815,123   26,060,733 
Cash and cash equivalents, end of period $29,775,096  $40,815,123 

The principal use of cash in operating activities for the year ended December 31, 20192022, was to fund the Company’s current expenses primarily related to both sales and marketing and research and development activities necessary to allow us to service and support a higher levelcustomers, and expenses for professional fees related to the acquisition of business activity as we expanded into new industry and geographic markets. Airobotics.

The increase in cash flows used in operating activities of approximately $6,148,000 is$21,068,000 was primarily a resultdue to the increase in net loss of the addition$58,218,000, of personnel, both employeeswhich approximately $32,271,000 related to non-cash and third-party consulting services. The decreasecredits, including goodwill impairment, amortization of debt discount, stock-based compensation, amortization of intangibles assets, depreciation, retirement of assets and amortization of right of use asset, deferred income taxes and PPP Loan forgiveness. This resulted in cash used of approximately $25,947,000. This was partially offset by changes operating assets and liabilities resulting in a cash inflow of $4,879,000 primarily from changes in accounts receivable and accrued expenses.

Cash flows used in investing activities ofdecreased by approximately $275,000 is primarily a result of a decrease in$3,276,000. The year ended December 31, 2021, included the purchase of equipment partially offset byAmerican Robotics, net of cash acquired of $6,517,338 as well as a loan to American Robotics of $2,000,000 with no corresponding amounts in the current year. Investing activities in 2022 included an increased investment in Dynam A.I., asset purchase of two companies, and the purchase of wireless spectrum licenses. leasehold improvements and other equipment at American Robotics.


The increasedecrease in cash provided by financing activities is primarily a resultof approximately $8,003,000 was due to cash proceeds from the 2022 Convertible Promissory Notes, which provided approximately $27,702,000, and the ATM Offering, which raised approximately $6,090,000, compared to the 2021 Public Offering which raised approximately $47,524,000, and approximately $1,461,000 of proceeds from the exercise of stock options and warrants in 2021, partially offset by repayment of the Company’s private placementSteward Capital Loan in 2021 of its common stock totaling $6,110,000, net of closing fees (seeNOTE 9 in the accompanying consolidated financial statements for further details).approximately $7,124,000.

 

For a summary of our outstanding Notes Payable and Other Financing Agreements and Secured Promissory Note, seeNOTES 7 and8 in the accompanying consolidated financial statements.

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 ofOn December 31, 2019,2022, we had a stockholders’ deficitequity of approximately $12.4 million. At$58,223,000. On December 31, 2019,2022, we had short-term andnet long-term borrowings outstanding of approximately $10.1 million$15,147,000 and $0.5 million, respectively. Asshort-term borrowings outstanding of approximately $14,901,000, net of debt discount and issuance costs of approximately $3,252,000. On December 31, 2019,2022, we had cash of approximately $2.2 million$29,775,000 and a working capital deficit of approximately $12.5 million.$14,200,000.

 

In June 2021, the Company completed a registered public offering of its common stock, generating net proceeds of approximately $47,524,000. In October 2022, the Company entered into a convertible debt agreement, which provided cash proceeds of approximately $27,660,000. Also in 2022, the Company raised approximately $6,090,000 through the ATM Offering. We believe the funds raised in 2021 and 2022, the remaining fund availability under the ATM Offering and 2022 Convertible Promissory Notes, in addition to growth in revenue expected as the Company executes its business plan, will fund its operations for at least the next twelve months from the issuance date of the accompanying financial statements.

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 and toas well as new customers as well.customers. We also will be required to efficiently manufacturermanufacture and deliver equipment on those purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital through the end of 2020 and beyond. Based on our current operating plans, we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs through March 2020.

Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-K (“evaluation period”). As such, we have evaluated if cash on hand and cash generated through operating activities would be sufficient to sustain projected operating activities through March 13, 2021. We anticipate that our current resources will be insufficient to meet our cash requirements throughout the evaluation period, including funding anticipated losses and scheduled debt maturities. We expect to seek additional funds from a combination of dilutive and/or non-dilutive financings in the future. Because such transactions have not been finalized, receipt of additional funding is not considered probable under current accounting standards. If we do not generate sufficient cash flows from operations and obtain sufficient funds when needed, we expect that we would scale back our operating plan by deferring or limiting some, or all, of our capital spending, reducing our spending on travel, and/or eliminating planned headcount additions, as well as other cost reductions to be determined. Because such contingency plans have not been finalized (the specifics would depend on the situation at the time), such actions also are not considered probable for purposes of current accounting standards. Because, under current accounting standards, neither future cash generated from operating activities, nor management’s contingency plans to mitigate the risk and extend cash resources through the evaluation period, are considered probable, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern. As we continue to incur losses, our transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure. We may never achieve profitability, and unless and until doing so, we intend to fund future operations through additional dilutive or non-dilutive financings.capital. There can be no assurances, however,assurance that we will generate revenue and cash as expected in our current business plan. We may seek additional fundingfunds 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 us, if at all.

Thefund 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 information contained in these financial statements have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realizationconditions, or results of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these financial statements do not include any adjustments that may result from the outcome of this uncertainty.

operations.

40

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019,2022, we had no off-balance sheet arrangements.

 

Contractual Obligations

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

Critical Accounting Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“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:

 

if requires assumptions to be made that were uncertain at the time the estimate was made, and

 

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. We have identified the following accounting policies and estimates as those that we believe are most critical to our financial condition and results of operations and that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties: share-based compensation expense, income taxes, complex derivative financial instruments and impairment of long-lived assets.assets including intangible assets acquired in business combinations. 

Share-Based Compensation Expense. We calculate share-based compensation expense for option awards and certain warrant issuances (“Share-based Awards”Award(s)”) based on the estimated grant/issue date fair value using the Black-Scholes-Merton option pricing model (“Black-SholesBlack-Scholes Model”) and recognize the expense on a straight-line basis over the vesting period, net of estimated forfeitures.period. We have not included an estimateaccount for forfeitures due to our limited history and we revise based on actual forfeitures each period.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 of the Share-based Award in determining the fair value of Share-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.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. See Note 13 - Income Taxes 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 sell common stock, and we issue convertible debt, both with common stock purchase warrants, which may include terms requiring conversion price or exercise price adjustments based on subsequent issuance of securities at prices lower than those in the agreements of such securities. In these situations, the instruments may be accounted for as liabilities and recorded at fair value each reporting period. Due to the complexity of the agreement, we use an outside expert to assist in providing the mark to market fair valuation of the liabilities over the reporting periods in which the original agreement was in effect. It was determined that a Binomial Lattice option pricing model using a Monte Carlo simulation would provide the most accuracy given all the potential variables encompassing a future dilutive event. This model incorporated transaction assumptions such as our stock price, contractual terms, maturity, risk free rates, as well as estimates about future financings, volatility, and holder behavior. Although we believe our estimates and assumptions used to calculate the fair valuation liabilities and related expense were reasonable, these assumptions involved 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.

 

Impairment of Long-Lived Assets.Assets. Carrying values of property and equipment and 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 isare 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.

 

Recently Adopted Accounting Pronouncements

 

In June 2018,May 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation - accounting standards update (“ASU”) 2021-04—Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Improvements Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactionsare effective for acquiring goodspublic and services from nonemployees. ASU 2018-07 is effectivenonpublic entities for fiscal years beginning after December 15, 2018,2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption was permitted, including adoption in an interim period. The adoption of this pronouncement during the year ended December 31, 2022 had no impact on our accompanying consolidated financial statements.


In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Company has elected to early adopt ASU 2018-07. The adoption of this pronouncement hadpermitted, but no impact on our accompanying consolidated financial statements.


In July 2017, the FASB issued ASU 2017-11 (“ASU 2017-11”), Earnings Per Share (“Topic 260”),Distinguishing Liabilities from Equity (“Topic 480”), andDerivatives and Hedging (“Topic 815”). ASU 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable non-controlling interests. ASU 2017-11 was effective for the Company on January 1, 2019. There was no material effect on the 2019 financial statements upon adoption.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periodsearlier than fiscal years beginning after December 15, 2017, including2020, and interim periods within those fiscal years. There was no material effect on the 2019 and 2018 financial statements upon adoption.

In February 2016, the FASB issued ASU 2016-02,Leases. This guidance requires lesseesEntities can elect to record most leases on their balance sheet while recognizing expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. In July 2018, the FASB amendedadopt the new leasesguidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company has elected to adopt the standard and issued ASU 2018-11, Leases, (Topic 842): Targeted Improvements to give entities another option forearly using the modified retrospective method of transition and to provide lessors with practical expedient. We adopted ASU 2016-02 oneffect from January 1, 2019 utilizing2022. At the alternative transition method allowed for under ASU 2018-11. Comparative financial information was not adjusted and will continue to be reported under ASC 840. We also elected the transition relief packagetime of practical expedients and as a result we did not assess (1) whether existing or expired contracts contain leases, (2) lease classification for any existing or expired leases, and (3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 month or less. We elected not to separate lease components from non-lease components for our specified asset classes. Additionally, the adoption of the new standard resulted in increased disclosure requirements in our quarterly and annual filings.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under previous guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU 2016-08), accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10), narrow-scope improvements and practical expedients (ASU 2016-12) and technical corrections and improvements to Topic 606 (ASU 2016-20) in its new revenue standard. The guidance is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. Our services are performed over the term of our contracts and customers are billed for those services as they are performed on a monthly basis. Revenue is recognized each month for the services that have been provided to our customers. Additionally, we do not have significant exposure related to uncollectible accounts. We have performed a review of the requirements of the new revenue standard and have performed our analysis of our customer contracts on a portfolio basis (by each hospital group) utilizing the five-step model of the new standard. We have compared the results of our analysis to our current accounting practices. We adopted Topic 606 on January 1, 2018 using the full retrospective transition method for recognizing revenue. The adoption of Topic 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of our services to our customers and will provide financial statement readers with enhanced disclosures. The adoption of this standard did not have a material effectimpact on the timing and recognition of revenueconsolidated financial statements. However, ASU 2020-06 precluded the Company from having to record a derivative liability for convertible notes entered into during the services provided to our customers.year ended December 31, 2022.

 


Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12,Income Taxes (Topic 740):Simplifying the Accounting for Income Taxes,, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiodintra-period tax allocation and calculating income taxes in interim periods. ASU 2019-12 is applicable to all entities subject to income taxes. ASU 2019-12 provides guidance to minimize complexity in certain areas by introducing a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and guides whether to relate a step-up tax basis to a business combination or separate transaction. ASU 2019-12 changes the current guidance of making an intraperiod allocation, determining when a tax liability is recognized after a foreign entity investor transitionstransition to or from equity method of accounting, accounting for tax law changes and year-to-date losses in interim periods, and determining how to apply income tax guidance to franchise taxes. The amendments from ASU 2019-12 are effective for all public business entities for fiscal years beginning after December 15, 2020 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after December 15, 2021 and for interim periods beginning after December 15, 2022. Early adoption iswas permitted. The Company is evaluatingadoption of this pronouncement during the year ended December 31, 2021 had no impact on our accompanying consolidated financial statements.

 


In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326,Financial Instruments-Credit Losses, which amends certain aspects of the Board’s new credit loss standard (ASC 326). ASU 2019-11 is applicable to companies that hold financial assets in the scope of the credit losses standard. FASB permits to include the following in estimate if expected credit losses: expected recoveries of financial assets previously written offItem 7A. Quantitative and expected recoveries of financial assets with credit deterioration. The scope of guidance related to expected recoveries includes purchased financial assets with credit deterioration. ASU 2019-11 permits entities to record negative allowance when measuring expected credit losses for a purchased credit deteriorated financial asset and expected recoveries cannot exceed the aggregate amount previously written off or expected to be written off. When discounted cash flow method is not being used to estimate expected credit losses, expected recoveries cannot include any amounts in an acceleration of the noncredit discount. An entity may include increases in expected cash flows after acquisition. Early adoption is not permitted. The Company is evaluating impact on our accompanying consolidated financial statements.

In August 2018, the FASB issued ASU, 2018-13 that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to ASC 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. We are currently evaluating the effect of this guidance on our disclosures.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, that relate to future events or to our future operations or financial performance.  Any forward-looking statement involves known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statement. Forward-looking statements include statements, other than statements of historical fact,Qualitative Disclosures about among other things:Market Risk.

our plans to further develop our FullMAX system of wireless base stations;

our plans to further develop remote radios;

the adoption by our target industries of the new IEEE 802.16s standard for private cellular networks;

our future development priorities;

our estimates regarding the size of our potential target markets;

our expectations about the impact of new accounting standards;

our future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements, our need for additional financing or the period for which our existing cash resources will be sufficient to meet our operating requirements; or

our strategies, prospects, plans, expectations, forecasts or objectives.

 


Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,” “will,” “would,” “could,” “should,” “continue,” “scheduled” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on our estimates or projections of the future that are subject to known and unknown risks and uncertainties and other important factors that may cause our actual results, level of activity, performance, experience or achievements to differ materially from those expressed or implied by any forward-looking statement.  Actual results, level of activity, performance, experience or achievements may differ materially from those expressed or implied by any forward-looking statement as a result of various important factors, including our critical accounting policies and risks and uncertainties relating, among other things, to:

our ability to obtain additional financing on reasonable terms, or at all;

our ability to repay our indebtedness;

the accuracy of our estimates regarding expenses, costs, future revenues, uses of cash and capital requirements;

the market acceptance of our wireless connection products and the IEEE 802.16s standard and IEEE 802.16t standard;

our ability to develop future generations of our current products;

our ability to generate significant revenues and achieve profitability;

our ability to successfully commercialize our current and future products, including their rate and degree of market acceptance;

our ability to attract and retain key scientific or management personnel and to expand our management team;

our ability to establish licensing, collaboration or similar arrangements on favorable terms and our ability to attract collaborators with development, regulatory and commercialization expertise;

our ability to manage the growth of our business;

the success of our strategic partnerships with third parties;

expenditures not resulting in commercially successful products;

our outreach to global markets;

our commercialization, marketing and manufacturing capabilities and strategy;

our ability to expand, protect and maintain our intellectual property position;

the success of competing third-party products;

our ability to fully remediate our identified internal control material weaknesses;

regulatory developments in the United States and other countries; and

our ability to comply with regulatory requirements relating to our business, and the costs of compliance with those requirements, including those on data privacy and security.

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.

 

Item 8.Financial Statements and Supplementary Data.

Item 8. Financial Statements and Supplementary Data.

 

Financial statements begin on page F-1 following this Report.

 


INDEX TO FINANCIAL STATEMENTS

 

Index to Financial Statements

 Page
  
Report of Independent Registered Public Accounting FirmFirms [PCAOB No. 89]F-2
Consolidated Balance Sheets as of December 31, 20192022 and 20182021F-3F-4
Consolidated Statements of Operations for the years endedYears Ended December 31, 20192022 and 20182021F-4F-5
Consolidated Statements of Changes in Stockholders’ DeficitEquity for the years endedYears Ended December 31, 20192022 and 20182021F-5F-6
Consolidated Statements of Cash Flows for the years endedYears Ended December 31, 20192022 and 20182021F-6F-7
Notes to the Consolidated Financial StatementsF-7F-8

 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Ondas Holdings Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ondas Holdings Inc. (the Company)“Company”) as of December 31, 20192022 and 2018,2021, and the related statements of operations, stockholders’ deficit,equity, and cash flows for each of the years in the two-year period ended December 31, 2019,2022, 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, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019,2022, 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 accompanying financial statements have been prepared assuming thatcritical audit matters communicated below are matters arising from the Company will continue as a going concern. As discussed in Note 1current 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.


Goodwill Impairment Evaluation

As discussed in Notes 2 and 5 to the financial statements, management conducts a goodwill impairment assessment annually at December 31, and when events or changes in circumstances indicate that the carrying value of a reporting unit exceeds its fair value. The fair value of a reporting unit is determined through the use of the income approach using estimates of future cash flows attributable to the respective reporting units. As a result of the annual impairment assessment, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its abilityrecognized $19.4 million of goodwill impairment related to continuethe American Robotics reporting unit.

We identified the impairment of goodwill as a going concern. Management’s planscritical audit matter because of significant judgments required by management to estimate the fair value of its Autonomous Solutions reporting unit, including forecasted cash flows, revenue growth rates and discount rate. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s cash flow estimates and the selection of cash flow multiples used in regardthe market approach.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcomeforecasts of this uncertainty.management’s estimates of future cash flows, the selection of cash flow multiples for the Company’s reporting units, and the evaluation of the discount rate included the following, among others:

 

/s/ Rosenberg Rich Baker Berman, P.A.
We have served asobtained an understanding and evaluated the Company’s auditor since 2017.
Somerset, NJ
March 13, 2020design of the controls over the assessment of goodwill impairment, including those over the determination of fair value of the reporting unit.

Tested the mathematical accuracy of the calculations and evaluated significant assumptions and the underlying data used by the Company by performing procedures to test the projected revenues, projected direct costs, projected operating expenses, and projected capital expenditures by comparing them with the historical forecasted results of the respective reporting unit and assessing the impacts of internal and/or external economic factors. We also evaluated this information by comparing the projections to information included in analyst reports, as well as industry outlook information.

We involved valuation professionals with specialized skills and knowledge, who assisted in the evaluation of the discount rates used in the valuations.

/s/ Rosenberg Rich Baker Berman, P.A.

We have served as the Company’s auditor since 2017.

Somerset, New Jersey

March 14, 2023


ONDAS HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

  December 31, 
  2022  2021 
ASSETS      
Current Assets:      
Cash $29,775,096  $40,815,123 
Accounts receivable, net  104,276   1,213,195 
Inventory, net  2,173,017   1,178,345 
Note receivable  2,000,000   - 
Other current assets  1,749,613   1,449,610 
Total current assets  35,802,002   44,656,273 
         
Property and equipment, net  3,099,887   1,031,999 
         
Other Assets:        
Goodwill  25,606,983   45,026,583 
Intangible assets, net  28,787,171   25,169,489 
Long-term equity investment  1,500,000   500,000 
Lease deposits  218,206   218,206 
Operating lease right of use assets  2,930,996   836,025 
Total other assets  59,043,356   71,750,303 
Total assets $97,945,245  $117,438,575 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable $2,965,829  $2,411,085 
Operating lease liabilities  580,593   550,525 
Accrued expenses and other current liabilities  3,092,364   1,149,907 
Convertible note payable, net of debt discount and issuance cost of $3,251,865 and $0, respectively  14,901,244   - 
Deferred revenue  61,508   512,397 
Total current liabilities  21,601,538   4,623,914 
         
Long-Term Liabilities:        
Notes payable  300,000   300,000 
Convertible notes payable, net of current  15,146,891   - 
Accrued interest  217,594   40,152 
Operating lease liabilities, net of current  2,456,315   241,677 
Total long-term liabilities  18,120,800   581,829 
Total liabilities  39,722,338   5,205,743 
         
Commitments and Contingencies (Note 14)        
         
Stockholders’ Equity        
Preferred stock - par value $0.0001; 5,000,000 shares authorized at December 31, 2022 and December 31, 2021, respectively, and none issued or outstanding at December 31, 2022 and December 31, 2021, respectively  -   - 
Preferred stock, Series A - par value $0.0001; 5,000,000 shares authorized at December 31, 2022 and December 31, 2021, respectively, and none issued or outstanding at December 31, 2022 and December 31, 2021, respectively  -   - 
Common stock - par value $0.0001; 116,666,667 shares authorized; 44,108,661 and 40,990,604 issued and outstanding, respectively December 31, 2022 and December 31, 2021, respectively  4,411   4,099 
Additional paid in capital  211,733,690   192,502,122 
Accumulated deficit  (153,515,194)  (80,273,389)
Total stockholders’ equity  58,222,907   112,232,832 
Total liabilities and stockholders’ equity $97,945,245  $117,438,575 

The accompanying footnotes are an integral part of these consolidated financial statements. 


 

  December 31, 
  2019  2018 
ASSETS    
Current Assets:      
Cash and cash equivalents $2,153,028  $1,129,863 
Accounts receivable, net  20,212   30,440 
Inventory, net  427,516   347,945 
Other current assets  700,599   533,481 
Total current assets  3,301,355   2,041,729 
         
Property and equipment, net  252,246   502,146 
         
Other Assets:        
Operating lease right of use assets  331,419   - 
Licenses  200,000   - 
Intangible assets, net  126,344   53,288 
Lease deposits  52,152   49,376 
Deferred offering costs  -   14,982 
Total other assets  429,561   117,646 
Total assets $4,263,516  $2,661,521 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current Liabilities:        
Accounts payable $2,322,198  $1,111,929 
Operating lease liabilities  489,407   - 
Accrued expenses and other current liabilities  3,141,649   2,188,271 
Secured promissory note, net of debt discount of $252,933 and $72,038, respectively  10,106,895   10,063,208 
Notes payable  -   3,882,868 
Total current liabilities  16,060,149   17,246,276 
         
Long-Term Liabilities:        
Notes payable  539,921   300,000 
Accrued interest  41,239   - 
Operating lease liabilities, net of current  52,449   - 
Total long-term liabilities  633,609   300,000 
Total liabilities  16,693,758   17,546,276 
         
Commitments and Contingencies        
         
Stockholders’ Deficit:        
Preferred stock - par value $0.0001; 10,000,000 shares authorized  -   - 
Common stock - par value $0.0001; 350,000,000 shares authorized; 59,268,085 and 50,463,732 issued and outstanding, respectively  5,927   5,046 
Additional paid in capital  39,335,498   17,491,734 
Accumulated deficit  (51,771,667)  (32,381,535)
Total stockholders’ deficit  (12,430,242)  (14,884,755)
Total liabilities and stockholders’ deficit $4,263,516  $2,661,521 

 

ONDAS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

  Years Ended
December 31,
 
  2022  2021 
       
Revenues, net $2,125,817  $2,906,771 
Cost of goods sold  1,016,654   1,810,942 
Gross profit  1,109,163   1,095,829 
         
Operating expenses:        
General and administration  23,618,823   11,781,503 
Sales and marketing  3,456,257   1,487,394 
Research and development  24,044,005   5,800,549 
Goodwill impairment  19,419,600   - 
Total operating expenses  70,538,685   19,069,446 
         
Operating loss  (69,429,522)  (17,973,617)
         
Other income (expense), net        
Other income (expense), net  (76,127)  591,900 
Interest income  25,542   11,578 
Interest expense  (3,761,698)  (575,685)
Total other income (expense), net  (3,812,283)  27,793 
         
Loss before benefit from income taxes  (73,241,805)  (17,945,824)
         
Benefit from income taxes  -   2,921,982 
         
Net loss $(73,241,805)  (15,023,842)
         
Net loss per share - basic and diluted $(1.73) $(0.44)
         
Weighted average number of common shares outstanding, basic and diluted  42,242,525   34,180,897 

The accompanying footnotes are an integral part of these consolidated financial statements.


ONDAS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONSSTOCKHOLDERS’ EQUITY

  

  Years Ended December 31, 
  2019  2018 
Revenues, net $320,383  $190,029 
Cost of goods sold  79,126   39,365 
Gross profit  241,257   150,664 
         
Operating expenses:        
General and administration  4,792,867   2,611,992 
Sales and marketing  5,403,901   2,897,703 
Research and development  5,416,425   3,076,502 
Total operating expense  15,613,193   8,586,197 
         
Operating loss  (15,371,936)  (8,435,533)
         
Other income (expense)        
Interest expense  (2,929,369)  (2,663,645)
Impairment of deferred offering costs and financing costs associated with canceled financing efforts  (919,950)  - 
Change in fair value of derivative liability  -   (975,902)
Loss on disposal of fixed assets  (183,431)  - 
Loss on extinguishment of debt  -   (44,353)
Interest income  1,863   18,147 
Other income  12,691   4,422 
Total other income (expense)  (4,018,196)  (3,661,331)
         
Loss before provision for income taxes  (19,390,132)  (12,096,864)
         
Provision for income taxes  -   - 
         
Net loss $(19,390,132) $(12,096,864)
         
Net loss per share - basic and diluted $(0.37) $(0.42)
         
Weighted average number of common shares outstanding - basic and diluted  52,704,911   28,528,060 
        Additional       
  Common Stock  Paid in  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
                     
Balance, January 1, 2021  26,540,769  $2,654  $80,330,488  $(65,249,547) $15,083,595 
Stock-based compensation  -   -   3,253,590   -   3,253,590 
Issuance of shares from 2021 Public Offering, net of costs  7,360,000   736   47,522,833   -   47,523,569 
Issuance of shares in connection with acquisition of American Robotics, Inc.  6,749,974   675   52,514,123   -   52,514,798 
Issuance of warrants in connection with acquisition of American Robotics, Inc.  -   -   6,904,543   -   6,904,543 
Issuance of vested stock options in connection with acquisition of American Robotics, Inc.  -   -   380,330   -   380,330 
Restricted stock units issued  152,410   15   (15)  -   - 
Shares issued in exercise of options  47,846   5   99,993   -   99,998 
Shares issued in exercise of warrants  139,605   14   1,361,134   -   1,361,148 
Forgiveness of accrued officer’s salary  -   -   135,103   -   135,103 
Net loss  -   -   -   (15,023,842)  (15,023,842)
                     
Balance, December 31, 2021  40,990,604  $4,099  $192,502,122  $(80,273,389) $112,232,832 

 

Balance, December 31, 2021  40,990,604  $4,099  $192,502,122  $(80,273,389) $112,232,832 
Stock-based compensation  -   -   5,857,435   -   5,857,435 
Issuance of shares in connection with acquisition of Ardenna, Inc.  780,000   78   5,943,522   -   5,943,600 
Issuance of shares per ATM agreement (net of offering costs)  864,674   86   6,090,330   -   6,090,416 
Issuance of shares in connection with acquisition of asset from Field of View LLC  16,000   2   75,518   -   75,520 
Issuance of shares for payment on convertible debt  415,161   42   1,199,958   -   1,200,000 
Delivery of shares for restricted stock units  1,011,165   101   (101)  -   - 
Shares issued in exercise of options  31,057   3   64,906   -   64,909 
Net loss  -   -   -  $(73,241,805)  (73,241,805)
                     
Balance, December 31, 2022  44,108,661  $4,411  $211,733,690  $(153,515,194) $58,222,907 

The accompanying footnotes are an integral part of these consolidated financial statements.


ONDAS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

        Additional       
  Common Stock  Paid in  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
Balance, December 31, 2018  50,463,732  $5,046  $17,491,734  $(32,381,535) $(14,884,755)
Stock-based compensation  -   -   938,052   -   938,052 
Shares issued in private placement, net of costs  2,885,600   289   6,109,433   -   6,109,722 
Shares issued in exchange for debt  5,798,753   580   14,496,291   -   14,496,871 
Shares issued for extension of debt  120,000   12   299,988   -   300,000 
Net loss  -   -   -   (19,390,132)  (19,390,132)
Balance, December 31, 2019  59,268,085  $5,927  $39,335,498  $(51,771,667) $(12,430,242)

        Additional       
  Common Stock  Paid in  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
Balance, December 31, 2017  16,797,744  $1,679  $12,361,205  $(20,284,671) $(7,921,787)
Issuance of shares in private placement  6,648,586   665   4,031   -   4,696 
Issuance of shares in debt conversion  2,017,402   202   4,002,816   -   4,003,018 
Reclassification of derivative liability  -   -   1,141,995   -   1,141,995 
Purchase and retirement of common stock  (32,600,000)  (3,260)  -   -   (3,260)
Effect of merger and recapitalization pursuant to execution of Agreement and Plan of Merger and Reorganization  57,600,000   5,760   (18,313)  -   (12,553)
Net loss  -   -   -   (12,096,864)  (12,096,864)
Balance, December 31, 2018  50,463,732  $5,046  $17,491,734  $(32,381,535) $(14,884,755)

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F-5 


 

ONDAS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  Years Ended December 31, 
  2019  2018 
CASH FLOWS FROM OPERATING ACTIVITES      
Net loss $(19,390,132) $(12,096,864)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation  143,459   54,946 
Allowance for doubtful accounts  -   (7,914)
Amortization of debt discount and deferred financing costs  119,105   835,849 
Amortization of intangible assets  1,055   194 
Amortization of right of use assets  (81,659)  - 
Impairment of operating lease  292,095   - 
Impairment of deferred offering and financing costs  82,332   - 
Accreted interest  224,582   - 
Stock-based compensation  938,052   - 
Loss on disposal of fixed assets  183,431   - 
Loss on conversion of debt  -   31,943 
Change in fair value of derivative liability  -   975,902 
Changes in operating assets and liabilities:        
Accounts receivable  10,228   9,329 
Inventory  (79,591)  (174,624)
Other current assets  (167,192)  (477,937)
Accounts payable  1,210,269   (44,359)
Accrued expenses and other current liabilities  1,849,581   2,376,272 
Net cash flows used in operating activities  (14,664,385)  (8,517,263)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of licenses  (200,000)  - 
Purchase of equipment  (77,936)  (544,236)
Patent costs  (74,111)  (53,482)
Deposits  (2,775)  (31,965)
Net cash flows used in investing activities  (354,822)  (629,683)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from secured promissory note  10,000,000   9,875,000 
Payments for deferred offering costs  (67,350)  - 
Proceeds from convertible notes payable  -   100,000 
Proceeds from sale of common stock, net of costs  6,109,722   4,696 
Repayment of advances from related party  -   (155,645)
Purchase and retirement of common stock  -   (3,260)
Net cash flows provided by financing activities  16,042,372   9,820,791 
         
Increase in cash and cash equivalents  1,023,165   673,845 
Cash and cash equivalent, beginning of year  1,129,863   456,018 
Cash and cash equivalents, end of year $2,153,028  $1,129,863 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
         
Cash paid for interest $1,038,246  $979,167 
Cash paid for income taxes $-  $- 
         
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:        
         
Debt exchanged for common stock $14,496,871  $- 
Accrued interest converted to debt $230,565  $17,310 
Increase in debt for non cash interest $-  $135,246 
Derivative liability $-  $1,141,995 
  Years Ended
December 31,
 
  2022  2021 
       
CASH FLOWS FROM OPERATING ACTIVITES      
Net loss $(73,241,805) $(15,023,842)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation  449,458   116,231 
Amortization of debt discount and issuance cost  3,545,843   120,712 
Provision for obsolete inventory  -   100,254 
PPP Loan forgiveness  -   (666,091)
Amortization of intangible assets  3,570,090   1,396,364 
Deferred income taxes, release of valuation allowance  -   (2,921,982)
Amortization of right of use asset  833,940   302,931 
Retirement of assets  382,060   - 
Impairment of goodwill  19,419,600   - 
Loss on Intellectual Property  12,343   97,789 
Stock-based compensation  5,857,435   3,253,590 
Changes in operating assets and liabilities:        
Accounts receivable  1,108,919   (1,153,315)
Inventory  (994,672)  (126,494)
Other current assets  (300,003)  (696,280)
Accounts payable  554,744   (86,658)
Deferred revenue  (450,889)  314,370 
Operating lease liability  (684,205)  (336,432)
Accrued expenses and other current liabilities  1,974,066   (1,586,563)
Net cash flows used in operating activities  (37,963,076)  (16,895,416)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Patent costs  (49,501)  (104,112)
Purchase of equipment  (2,880,900)  (923,718)
Cash paid for Ardenna Inc. asset acquisition  (900,000)  - 
Purchase of American Robotics, Inc., net of cash acquired  -   (6,517,338)
Investment in Dynam A.I.  (1,000,000)  (500,000)
Cash paid for Field of View LLC asset acquisition  (104,167)  - 
Security deposit  -   (165,463)
Cash disbursement on note receivable  (2,000,000)  (2,000,000)
Net cash flows used in investing activities  (6,934,568)  (10,210,631)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sale of common stock, net of costs  -   47,523,569 
Proceeds from exercise of stock options and warrants  64,909   1,461,146 
Proceeds from convertible notes payable, net of issuance costs  27,702,292   - 
Payments on loan payable  -   (7,124,278)
Proceeds from sale of shares under ATM agreement  6,090,416   - 
Net cash flows provided by financing activities  33,857,617   41,860,437 
         
Increase (Decrease) in cash and cash equivalents  (11,040,027)  14,754,390 
Cash and cash equivalents, beginning of period  40,815,123   26,060,733 
Cash and cash equivalents, end of period $29,775,096  $40,815,123 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
         
Cash paid for interest $14,187  $1,042,737 
Cash paid for income taxes $-  $- 
         
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:        
         
Forgiveness of accrued officer’s salary $-  $135,103 
Debt exchanged for common stock $1,200,000  $- 
Common stock, warrants and forgiveness of note receivable in relation to acquisition of American Robotics $-  $61,811,179 
Non-cash consideration for purchase of intangible assets $6,019,120  $- 
Operating leases right-of-use assets obtained in exchange of lease liabilities $2,928,911  $937,245 

The accompanying footnotes are an integral part of these consolidated financial statements.


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

The Company

 

Ondas Holdings Inc. (the “Company”(“Ondas Holdings”, “Ondas”, the “Company,” “we,” or “our”) was originally incorporated in Nevada on December 22, 2014, under the name of Zev Ventures Incorporated. On September 28, 2018, we closed the Acquisition, described below, changed our name to Ondas Holdings Inc., andacquired Ondas Networks Inc., a Delaware corporation (“Ondas Networks”), becameand changed our sole focus and wholly owned subsidiary. The corporate headquarters forname to Ondas Holdings Inc. and operational headquarters forOn August 5, 2021, we acquired American Robotics, Inc. (“American Robotics” or “AR”), a Delaware corporation. On January 23, 2023, we acquired Airobotics, Ltd. (“Airobotics”), an Israeli-based developer of autonomous drone systems. See Note 16 – Subsequent Events.

As a result of these acquisitions, Ondas Networks, Inc. is located in Sunnyvale, California. Unless otherwise stated or unless the context otherwise requires, the description ofAmerican Robotics and Airobotics became our business set forth below is provided on a combined basis, taking into account our subsidiary, Ondas Networks. Ondas Networks was originally incorporated in Delaware on February 16, 2006 under the name of Full Spectrum Inc. On August 10, 2018, the name was changed to Ondas Networks Inc.

We have twowholly owned subsidiaries. These three wholly owned subsidiaries are now Ondas’ primary focus. Ondas’ corporate headquarters are located in Waltham, Massachusetts. Ondas Networks Inc.,has offices and facilities in Sunnyvale, California, American Robotics’ offices and facilities are located in Waltham, Massachusetts and Marlborough, Massachusetts, and Airobotics’ offices and facilities are located in Petah Tikva, Israel.

Ondas has a Delaware corporation, which is our operating company, andfourth wholly owned subsidiary, FS Partners (Cayman) Limited, a Cayman Islands limited liability company. We have twocompany (“FS Partners”), and one majority owned subsidiaries,subsidiary, Full Spectrum Holding Limited, a Cayman Islands limited liability company and Ondas Network Limited, a company registered to do business in China. Full Spectrum Holding Limited owns 100% of Ondas Network Limited. Both(“FS Holding”). FS Partners (Cayman) Limited and Full SpectrumFS Holding Limited were both formed for the purpose of beginning operationsoperating in China. As of December 31, 2019, we revised our business strategy, and arediscontinued all operations in China. Both FS Partners and FS Holding had no operations for the processyears ended December 31, 2022 and 2021, and these entities have been dissolved as of dissolving our Cayman Islands and China-affiliated subsidiaries.January 4, 2023.  

 

Business Activity

Ondas Networks’is a leading provider of private wireless, networking products are applicabledrone, and automated data solutions through its wholly owned subsidiaries Ondas Networks and American Robotics and Airobotics.

On February 14, 2023, the Company announced the formation of Ondas Autonomous Systems, a new business unit to a wide rangemanage the combined drone operations of missionwholly owned subsidiaries American Robotics and Airobotics. Ondas Networks and Ondas Autonomous Systems together provide users in rail, energy, mining, agriculture, public safety and critical operations that require secure communications over large geographic areas.infrastructure and government markets with improved connectivity, data collection capabilities, and data collection and information processing capabilities. We provideoperate Ondas Networks and Ondas Autonomous Systems as separate business segments.

Ondas Networks

Ondas Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the Mission-Critical Internet of Things (MC-IoT)(“MC-IoT”). Our wireless networking products are applicable to a wide range of MC-IoT applications, which are most often located at the very edge of large industrial networks. These applications require secure, real-time connectivity with the ability to process large amounts of data at the edge of large industrial networks. Such applications are required in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, homeland security and government, where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure a high degree of safety and security.

 


We design, develop, manufacture, sell and support FullMAX, our multi-patented, state-of-the-art, point-to-multipoint,patented, Software Defined Radio (SDR)(“SDR”) platform for secure, licensed, private, wide-area broadband networks. Our customers install FullMAX systems in order to upgrade and expand their legacy wide-area network infrastructure. Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers (“IEEE”), the leading worldwide standards body in data networking protocols, and forms the core of the IEEE 802.16s standard. Because standards-based communications solutions are preferred by our mission-critical customers and ecosystem partners, we have taken a leadership position in IEEE as it relates to wireless networking for industrial markets. As such, management believes this standards-based approach supports the adoption of our technology across a burgeoning ecosystem of global partners and end markets.

Our software-based FullMAX platform is an important and timely upgrade solution for privately-owned and operated wireless wide-area networks, leveraging Internet Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. We believe industrial and critical infrastructure markets throughout the globe have reached an inflection point where legacy serial and analog based protocols and network transport systems no longer meet industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent networking platform enabling the adoption of sophisticated operating systems and equipment supporting next-generation MC-IoT applications over wide field areas. These new MC-IoT applications and related equipment require more processing power at the edge of large industrial networks and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the “Fog-computing” capability integrated in our end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing and data and application prioritization in the field enabling our customers more reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the edge.

Ondas Autonomous Systems

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

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

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


In addition to deploy wide-area intelligent networks (WANs)the Autonomous Drone Platforms, Ondas Autonomous Systems offers a counter-drone system called the Raider™. The Raider™ was developed by Iron Drone and is deployed by government and enterprise customers to provide security and protect critical infrastructure, assets and people from the threat of hostile drones. Airobotics acquired the assets of Iron Drone on March 6, 2023.

Autonomous Drone Platforms

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

The Optimus System™ has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the real world. Powered by innovations in robotics automation, machine vision, edge computing, and AI, the Optimus System™ provides efficiencies as a drone solution for commercial use. Once installed in the field at customer locations, a fleet of connected Optimus Systems™, which are often deployed as networked drone infrastructure, which we refer to as Urban Drone Infrastructure, remains indefinitely in an area of operation, automatically collecting and seamlessly delivering data and information regularly and reliably.

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

The Optimus System™ consists of (i) Optimus™, a highly automated, AI-powered drone with advanced imaging payloads (ii) the Airbase™, a ruggedized weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud transfer, and (iii) Insightful™, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere in the world. These major subsystems are connected via a host of supporting technologies. Airbase™ has internal robotic systems that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of the Optimus as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus System™ to provide multiple applications and use cases from a single location.

American Robotics and Airobotics have industry leading regulatory successes which include having the first drone system approved by the FAA for automated operation BVLOS without a human operator or visual observer on-site. American Robotics’ FAA approvals were enabled by integrating a suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and other mission critical network that need internet protocol connectivity. We sell our products and services globally through a direct sales force and value-added sales partnersproprietary intelligent safety systems into its autonomous drone platform, which we plan to critical infrastructure providers including electric and gas utilities, water and wastewater utilities, oil and gas producers and pipeline operators, andintegrate into the Optimus System™. Airobotics is in the advanced stages of receiving approval for other critical infrastructure applications in areas such as homeland security and defense, and transportation. In addition, our FullMAX platformType Certification (“TC”) from the FAA for the Optimus UAV. TC approval will be deployed to provide command and control connectivity solutionsenable expanded operation for drones and unmanned aerial systems (UAS).

Our business consists of a single segment of products and services all of which are sold and providedthe Optimus System™ in the United States and certain international markets.including flight operations in populated areas.

 


The AcquisitionRaider

 

On September 28, 2018,The Raider™ is a counter-drone system, which was designed and developed by Iron Drone, that we entered intoare marketing to government and enterprise customers who can utilize the Agreementsystem for security and Planthe protection of Mergercritical infrastructure, assets and Reorganization (the “Merger Agreement”)people from the threat of hostile drones. A typical Raider™ deployment location would include sensitive locations such as borders, stadiums or schools, or near critical assets such as power plants and military bases, and for high profile locations such as amusement parks or where public events are held.

The Raider™ is designed to detect, track and intercept unauthorized, or hostile unmanned aircraft and is most often sold with Zev Merger Sub, Inc.three small UAVs that are housed in a docking station. The Raider UAV has live video capability and Ondas Networksa payload containing a net that can be deployed to acquire Ondas Networks. The transactions contemplated byintercept a hostile drone. Upon detection of an unauthorized drone, one or more Raider™ UAVs can be autonomously deployed at high speeds to track the Merger Agreement were consummated on September 28, 2018 (the “Closing”), and pursuantunauthorized aircraft. If the unauthorized aircraft is deemed hostile, the Raider™ UAV can deploy the netting to physically intercept the aircraft. A parachute integrated with the netting allows the intercepted drone to safely fall to the terms of the Merger Agreement, all outstanding shares of common stock of Ondas Networks, $0.00001 par value per share, (the “Ondas Networks Shares”), were exchangedground for shares ofcollection by our common stock, $0.0001 par value per share (the “Company Shares”). Accordingly, Ondas Networks became our wholly-owned subsidiary and its business became the business of the Company.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTScustomer.

 

At the Closing, each Ondas Networks Share outstanding immediately prior to the Closing was converted into 3.823 Company Shares (the “Exchange Ratio”), with all fractional shares rounded down to the nearest whole share. Accordingly, we issued an aggregate of 25,463,732 Company Shares for all of the then-outstanding Ondas Networks Shares.Liquidity

 

In connection with the Closing, we amended and restated our articles of incorporation, effective September 28, 2018 to (i) change our name to Ondas Holdings Inc. and (ii) increase our authorized capital to 360,000,000 shares, consisting of 350,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of “blank check” preferred stock, par value $0.0001 per share. In connection with the Acquisition, our trading symbol changed to “ONDS” effective at the opening of business on October 5, 2018.

Also in connection with the Closing, (i) our sole director appointed additional individuals, who previously were members of the board of directors of Ondas Networks and its chief executive officer, to serve on our board of directors, and our board of directors subsequently appointed executive officers; (ii) the former holders of the Ondas Networks Shares executed lock-up agreements (the “Lock-Up Agreements”), which provide for an initial 12-month lock-up period followed by a subsequent 12-month limited sale period, commencing with the date of the Closing (Effective August 30, 2019, the Company entered into a First Amendment to Lock-Up Agreements (the “Amendment”) with stockholders owning an aggregate of 24,428,681 of the Ondas Shares, representing 41% of the Company’s currently outstanding shares of common stock. The Amendment revised the terms of the Lock-Up Agreements to extend the lock-up period an additional twelve months to September 28, 2020 and eliminated the 12-month limited sale period); (iii) we entered into a Common Stock Repurchase Agreement with Energy Capital, LLC, a current stockholder of the Company (“Energy Capital”), pursuant to which the entity sold an aggregate of 32.6 million Company Shares (the “Repurchase Shares”) to us at $0.0001 per share, for an aggregate consideration of $3,260, which Repurchase Shares were canceled and returned to our authorized but unissued shares; (iv) our board of directors approved, and our stockholders adopted, the 2018 Incentive Stock Plan (the “2018 Plan”) pursuant to which 10 million Company Shares have been reserved for issuance to employees, including officers, directors and consultants; and (v) we entered into a Loan and Security Agreement with Energy Capital, pursuant to which Energy Capital agreed to lend us an aggregate principal amount of up to $10 million, subject to specified conditions.

In accordance with ASC 805-40,Reverse Acquisitions, the historical capital stock account of Ondas Networks immediately prior to the Closing was carried forward and retroactively adjusted to reflect the par value of the outstanding stock of the Company, including the number of shares issued in the Closing as we are the surviving legal entity. Additionally, retained earnings of Ondas Networks have been carried forward after the Closing. All share and per share amounts in the condensed consolidated financial statements and related notes have been retrospectively adjusted to reflect the one for 3.823 exchange of shares of common stock in connection with the Acquisition.

Liquidity

We have incurred losses since inception and have funded our operations primarily through debt and the sale of capital stock. As ofOn December 31, 2019,2022, we had an stockholders’ deficitequity of approximately $12.4 million. At$58,223,000. On December 31, 2019,2022, we had short-term andnet long-term borrowings outstanding of approximately $10.1 million$15,147,000 and $0.5 million, respectively. Asshort-term borrowings outstanding of approximately $14,901,000, net of debt discount and issuance costs of approximately $3,252,000. On December 31, 2019,2022, we had cash of approximately $2.2 million$29,775,000 and a working capital deficit of approximately $12.8 million.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS$14,200,000.

  

In June 2021, the Company completed a registered public offering of its common stock, generating net proceeds of approximately $47,524,000. In October 2022, the Company entered into a convertible debt agreement, which provided cash proceeds of approximately $27,660,000. Also in 2022, the Company raised approximately $6,090,000 through the ATM Offering. We believe the funds raised in 2021 and 2022, the remaining fund availability under the ATM Offering and 2022 Convertible Promissory Notes, in addition to growth in revenue expected as the Company executes its business plan, will fund its operations for at least the next twelve months from the issuance date of the accompanying financial statements.

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 and toas well as new customers as well.customers. We also will be required to efficiently manufacturermanufacture and deliver equipment on those purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital through the end of 2020 and beyond. Based on our current operating plans, we believe that our existing cash at the time of this filing will only be sufficient to meet our anticipated operating needs through March 2020.

Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-K (“evaluation period”). As such, we have evaluated if cash on hand and cash generated through operating activities would be sufficient to sustain projected operating activities through March 13, 2021. We anticipate that our current resources will be insufficient to meet our cash requirements throughout the evaluation period, including funding anticipated losses and scheduled debt maturities. We expect to seek additional funds from a combination of dilutive and/or nondilutive financings in the future. Because such transactions have not been finalized, receipt of additional funding is not considered probable under current accounting standards. If we do not generate sufficient cash flows from operations and obtain sufficient funds when needed, we expect that we would scale back our operating plan by deferring or limiting some, or all, of our capital spending, reducing our spending on travel, and/or eliminating planned headcount additions, as well as other cost reductions to be determined. Because such contingency plans have not been finalized (the specifics would depend on the situation at the time), such actions also are not considered probable for purposes of current accounting standards. Because, under current accounting standards, neither future cash generated from operating activities, nor management’s contingency plans to mitigate the risk and extend cash resources through the evaluation period, are considered probable, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern. As we continue to incur losses, our transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure. We may never achieve profitability, and unless and until doing so, we intend to fund future operations through additional dilutive or non-dilutive financings.capital. There can be no assurances, however,assurance that we will generate revenue and cash as expected in our current business plan. We may seek additional fundingfunds 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 us, if at all.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.

 


COVID-19

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and has resulted in increased travel restrictions, business disruptions and emergency quarantine measures across the world including the United States.

The Company’s business, financial condition and results of operations were impacted from the COVID-19 pandemic for the years ended December 31, 2022 and 2021 as follows:

sales and marketing efforts were disrupted as our business development team was unable to travel to visit customers and customers were unable to receive visitors for on-location meetings;

field activity for testing and deploying our wireless systems was delayed due to the inability for our field service team to install and test equipment for our customers;

supply chain disruptions led to component shortages and inefficiencies in and delays in producing and delivering equipment for certain purchase orders; and

delays in fulfilling purchase orders reduced our cash flow from operations.

The Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2023, primarily due to supply chain disruptions due to pandemic-related plant and port shutdowns, transportation delays, government actions and other factors, which may be beyond our control. The global shortage of certain components such as semiconductor chips, strains on production or extraction of raw materials, cost inflation, and labor and equipment shortages, could escalate in future quarters. Labor shortages have led and may continue to lead to difficult conditions for hiring and retention of employees, and increased labor costs. Further, the COVID-19 pandemic is ongoing and remains an unknown risk for the foreseeable future. The extent to which the coronavirus may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information contained in thesewhich may emerge concerning the severity of the coronavirus. As a result, the Company is unable to reasonably estimate the full extent of the impact from the COVID-19 pandemic on its future business, financial statements have been prepared on a basis that assumes that we will continuecondition and results of operations. In addition, if the Company were to experience any new impact to its operations or incur additional unanticipated costs and expenses as a going concern, which contemplatesresult of the realizationCOVID-19 pandemic, such operational delays and unanticipated costs and expenses there could be a further adverse impact on the Company’s business, financial condition and results of assetsoperations during the year ended December 31, 2023.

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

On August 16, 2022, the satisfactionInflation Reduction Act of liabilities and commitments in the normal course of business. This financial information and these financial statements2022 (“IRA”) was signed into law. The IRA includes a 15% Corporate Alternative Minimum Tax (“Corporate AMT”) for tax years beginning after December 31, 2022. We do not include any adjustments that may result fromexpect the outcomeCorporate AMT to have a material impact on our consolidated financial statements. Additionally, the IRA imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations. The excise tax is imposed on the value of the net stock repurchased or treated as repurchased. The new law will apply to stock repurchases occurring after December 31, 2022. 

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


NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

 

PrinciplesBasis of ConsolidationPresentation

 

The consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, Ondas Networks, American Robotics, and FS Partners, and our majority owned subsidiaries, Full Spectrum Holding and Ondas Network Limited.subsidiary, FS Holding. All significant inter-company accounts and transactions between these entities have been eliminated in these historical consolidated financial statements.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Segment InformationBusiness Combinations

 

We operateutilize the purchase method of accounting for business combinations. This method requires, among other things, that results of operations of acquired companies are included in oneOndas’ results of operations beginning on the respective acquisition dates and that assets acquired, and liabilities assumed are recognized at fair value as of the acquisition date. Any excess of the fair value of consideration transferred over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized at the estimated fair value on the acquisition date; these are recorded in either other accruals within current liabilities (for expected payments in less than a year) or other non-current liabilities (for expected payments in greater than a year), both on our consolidated balance sheets. Subsequent changes to the fair value of contingent consideration liabilities are recognized in other income (expense) in the Consolidated Statements of Operations. Contingent consideration payments made soon after the acquisition date are classified as investing activities in the consolidated statements of cash flows. Contingent consideration payments not made soon after the acquisition date that are related to the acquisition date fair value are reported as financing activities in the consolidated statements of cash flows, and amounts paid in excess of the original acquisition date fair value are reported as operating activities in the consolidated statements of cash flows. The fair value of assets acquired, and liabilities assumed in certain cases, may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business segment, which is the development, marketingvaluation costs and sale of wireless radio systems for secure, wide area mission-critical business-to-business networks.all other business acquisition costs are expensed when incurred.  

 

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform goodwill impairment process. The impairment of Goodwill was $19,419,600 and $0 for the years ended December 31, 2022 and 2021, respectively, see Note 5 – Goodwill and Business Acquisition, for further details.

Intangible assets represent patents, licenses, and allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

We amortize our intangible assets with a finite life on a straight-line basis, over 10 years for patents; 10 years for developed technology, 10 years for licenses, trademarks, and the FAA waiver; 5 years for customer relationships; and 1 year for non-compete agreements.

Segment Information

Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in making decisions regarding resource allocation and performance assessment. The Company’s CODM is its Chief Executive Officer. The Company determined it has two reportable segments: Ondas Networks and Ondas Autonomous Systems as the CODM reviews financial information for these two businesses separately. The Company has no inter-segment sales. 


Use of Estimates

 

The process of preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements. Such management estimates include those relating to allocation of consideration for business combinations to identifiable tangible and intangible assets, revenue recognition, inventory write-downs to reflect net realizable value, assumptions used in the valuation of stock-based awards and warrants, and valuation allowances against deferred tax assets. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

We considerThe Company considers all highly liquid instruments purchased with an original maturity of three months or less as well as deposits in financial institutions, to be cash equivalents. On December 31, 2022 and 2021, we had no cash equivalents. The Company periodically monitors its positions with, and the credit quality of the financial institutions with which it invests. Periodically, throughout the year, and as of December 31, 2022, the Company has maintained balances in excess of federally insured limits. As of December 31, 2019 and 2018, we had no cash equivalents.2022, the Company was approximately $29,268,000 in excess of federally insured limits.

 

Trade Accounts Receivable

 

Accounts receivable are stated at a gross invoice amount less an allowance for doubtful accounts.credit losses. We estimate allowance for doubtful accountscredit losses by evaluating specific accounts where information indicates our customers may have an inability to meet financial obligations, such as customer payment history, credit worthiness and receivable amounts outstanding for an extended period beyond contractual terms. We use assumptions and judgment, based on the best available facts and circumstances, to record an allowance to reduce the receivable to the amount expected to be collected. These allowances are evaluated and adjusted as additional information is received. We had no allowance for doubtful accountscredit losses as of December 31, 20192022 and 2018.2021.

 

Inventory

 

Inventories, which consist solely of equipment components,raw materials, work in process and finished goods, are stated at the lower of cost (first-in, first-out) or net realizable value, net of reserves for obsolete inventory. We continually analyze our slow-moving and excess inventories. Based on historical and projected sales volumes and anticipated selling prices, we established reserves. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete are written down to net realizable value. As ofOn December 31, 20192022 and 2018, we determined that no2021, such reserves were necessary.$100,254.

 

Inventory consists of the following:

 

  Years Ended December 31, 
  2019  2018 
Raw material $372,101  $307,947 
Finished goods  55,415   39,998 
     Total inventory $427,516  $347,945 
  December 31,
2022
  December 31,
2021
 
Raw Material $2,041,776  $1,153,254 
Work in Process  89,080   65,192 
Finished Goods  142,415   60,153 
Less Inventory Reserves  (100,254)  (100,254)
Total Inventory, Net $2,173,017  $1,178,345 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Property and Equipment

 

All additions, including improvements to existing facilities, are recorded at cost. Maintenance and repairs are charged to expense as incurred. Depreciation of property and equipment is principally recorded using the straight-line method over the estimated useful lives of the assets. The estimated useful lives typically are (i) three to seven years for computer equipment and software, and (ii) five years for vehicles and base stations, (iii) five to seven years for furniture and fixtures.fixtures, and (iv) two years for drones. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Upon the disposal of property, the asset and related accumulated depreciation accounts are relieved of the amounts recorded therein for such items, and any resulting gain or loss is recorded in operating expenses in the year of disposition.

 

Software

 

Costs incurred internally in researching and developing a software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. There were no capitalized softwareThe amortization of these costs atis included in cost of revenue over the estimated life of the products. As of December 31, 20192022 and 2018.2021, the Company had no internally developed software.

 

Impairment of Long-Lived Assets

 

Long-lived assets are evaluated whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. Such indicators include significant technological changes, adverse changes in market conditions and/or poor operating results. The carrying value of a long-lived asset group is considered impaired when the projected undiscounted future cash flows isare less than its carrying value. The amount of impairment loss recognized is the difference between the estimated fair value and the carrying value of the asset or asset group. Fair market value is determined primarily using the projected future undiscounted cash flows discounted at a rate commensurate with the risk involved. Based upon our evaluation, there were no impairments of long-lived assets required during the years ended December 31, 2019 and 2018.flows.

 

Patents

We have adopted the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 350,Intangibles - Goodwill and Other (“ASC 350”). Capitalized patent costs, net of accumulated amortization, includes legal costs incurred for patent applications. In accordance with ASC 350, once a patent is granted, we amortize the capitalized patent costs over the remaining life of the patent using the straight-line method. If the patent is not granted, we write-off any capitalized patent costs at that time. We review intangible assets for impairment annually or when events or circumstances indicate that their carrying amount may not be recoverable. (See NOTE 5 for further details).

Research and Development

 

Costs for research and development are expensed as incurred. Research and development expense consistsexpenses consist primarily of salaries, salary related expenses and costs of contractors and materials.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Fair Value of Financial Instruments

 

Our financial instruments consist primarily of receivables, accounts payable, accrued expenses and shortshort- and long-term debt. The carrying amount of receivables, accounts payable and accrued expenses approximates our fair value because of the short-term maturity of such instruments.

 

We have categorized our assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy in accordance with U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).

 


Assets and liabilities recorded in the balance sheets at fair value are categorized based on a hierarchy of inputs, as follows:

 

Level 1--Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2--
Level 2--Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3--Unobservable inputs for the asset or liability.

 

AtThe Company had no financial instruments that are required to be valued at fair value as of December 31, 20192022 and 2018, we had no instruments requiring a fair value determination.2021.

 

Deferred Offering Costs

The following table providesCompany capitalizes within other assets, certain legal, accounting and other third-party fees that are directly related to the Company’s in-process equity financings. After consummation of the equity financing, these costs are recorded as a summaryreduction of changes in fair value associated with the Level 3 liabilities forproceeds received as a result of the offering. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are immediately written off to operating expenses. For the years ended December 31, 20192022 and 2018:

  

Fair Value Measurements Using Significant Unobservable Inputs

(Level 3)

 
  December 31, 
  2019  2018 
Balance, beginning of period $-  $(166,093)
Issuances of derivative liability  -   - 
Reclassification to additional paid in capital  -   1,141,995 
Change in fair value of derivative liability  -   (975,902)
Balance, end of period $-  $- 

2021, the Company recorded reduction in proceeds received of $35,841 and $390,032, respectively, related to the ATM Offering and 2021 Public Offering, respectively. See Note 11 – Stockholders’ Equity. For the years ended December 31, 2022 and 2021, the Company expensed offering costs of $45,283 and $0, respectively. The above table of Level 3 liabilities begins with the prior period balancedeferred offering costs outstanding as on December 31, 2022 and adjusts the balance for changes that occurred during the current period. The ending balance of the Level 3 financial instrument presented above represent our best estimates2021, was $145,293 and may not be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.$0, respectively.

 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDeferred Financing Costs

 

Income TaxesThe Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with the issuance of notes payable, elsewhere referred to as issuance costs. These issuance costs are amortized on a straight-line basis over the term of the related note payable, which approximates the amortization we would have recorded under the effective interest method. See Note 10 – Long-Term Notes Payable.

 

Income Taxes

The Company files a consolidated tax return for federal purposes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In accordance with GAAP, we recognize the effect of uncertain income tax positions only if the positions are more likely than not of being sustained in an audit, based on the technical merits of the position. Recognized uncertain income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which those changes in judgment occur. We recognize both interest and penalties related to uncertain tax positions as part of the income tax provision.

 


Share-Based Compensation

We calculate share-based compensation expense for option awards (“Share-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 Share-based Awards. The expected term is based on the “simplified method”, due to the Company’s limited option exercise history. 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 size, 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.

Shipping and Handling

 

We expense all shipping and handling costs as incurred. These costs are included in costCost of goods sold on the accompanying consolidated financial statements.Consolidated Statements of Operations.

 

Deferred Offering CostsAdvertising and Promotional Expenses

 

The Company capitalizes certain legal, professional accountingWe expense advertising and other third-party fees that are directly associated with in-process equity financingspromotional costs as deferred offering costs until such financings are consummated. After consummationincurred. We recognized expense of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statement of operations. In accordance with this policy,$80,934 and $28,142 for the years ended December 31, 20192022, and 2018,2021, respectively. These costs are included in Sales and marketing on the accompanying Consolidated Statements of Operations.

Post-Retirement Benefits:

We have one 401(k) Savings Plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under this 401(k) Plan, matching contributions are based upon the amount of the employees’ contributions subject to certain limitations. We recognized expense of $351,837 and $84,303 for the years ended December 31, 2022, and 2021, respectively.

Revenue Recognition

Ondas has two business segments that generate revenue: Ondas Networks and Ondas Autonomous Systems. Ondas Networks generates revenue from product sales, services, and development projects. American Robotics, as part of the Ondas Autonomous Systems segment, generates revenue through data subscription services.


Ondas Networks is engaged in the development, marketing, and sale of wireless radio systems for secure, wide area mission-critical, business-to-business networks. Ondas Networks generates revenue primarily from the sale of our FullMAX System and the delivery of related services, along with non-recurring engineering (“NRE”) development projects with certain customers.

American Robotics generates revenue by selling a data subscription service to its customers based on the information collected by their autonomous systems. The customer pays for a monthly, annual, or multi-annual subscription service to remotely access the data collected by their autonomous systems.

Revenue for development projects is typically recognized over time using a percentage of completion input method, whereby revenues are recorded on the basis of the Company’s estimates of satisfaction of the performance obligation based on the ratio of actual costs incurred to total estimated costs. The input method is utilized because management considers it to be the best available measure of progress as the performance obligations are completed.

Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Impacts from changes in estimates of revenue and cost of revenue are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods base in the performance completed to date.

Subscription revenue is recognized on straight line basis over the length of the customer subscription agreement. If a subscription payment is received prior to installation and operation of their autonomous systems, it is held in deferred revenue and recognized after operation commences over the length of the subscription service.

Collaboration Arrangements within the Scope of ASC 808, Collaborative Arrangements

The Company’s development revenue includes contracts where the Company expensed financing costs of $919,950 and $0, respectively.

Off-Balance Sheet Arrangements

the customer work cooperatively to develop software and hardware applications. The Company analyzes these contracts to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are deemed to be within the scope of ASC 808, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Company’s policy is generally to recognize amounts received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research and development expense. As of December 31, 2022 and 2021, the Company has no off-balance sheet risk such as foreign exchangenot identified any contracts option contracts, or other hedging arrangements.with its customers that meet the criteria of ASC 808.

 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Arrangements within the Scope of ASC 606,Revenue from Contracts with Customers

 

On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective method with respect to all non-completed contracts. Revenues and contract assets and liabilities for contracts completed prior to January 1, 2018 are presented in accordance with ASC 605,Revenue Recognition. ASC 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes nearly all existing revenue recognition guidance, including industry-specific guidance. The new guidance is based on the principle that an entity should recognize revenue to depict the transfer of products or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those products or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgment and changes in judgments and assets recognized from costs incurred to fulfill a contract. The adoption of ASC 606 did not have a material effect on our financial position, results of operations, or internal controls over financial reporting.

Under ASC 606, the Company recognizes revenue when the customer obtains control of promised products or services, in an amount that reflects the consideration which is expected to be received in exchange for those products or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the products or services it transfers to the customer.

 


At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the products or services promised within each contract and determines those that are performance obligations and assesses whether each promised product or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the expected value method. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current, and forecasted) that is reasonably available. Sales value add, and other taxes collected on behalf of third parties are excluded from revenue. For the years ended December 31, 20192022 and 2018,2021, none of our contracts with customers included variable consideration.

 

Contracts that are modified to account for changes in contract specifications and requirements are assessed to determine if the modification either creates new or changes the existing enforceable rights and obligations. Generally, contract modifications are for products or services that are not distinct from the existing contract due to the inability to use, consume or sell the products or services on their own to generate economic benefits and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. For the years ended December 31, 20192022 and 2018,2021, there were no modifications to contract specifications.

  

The Company is engaged in the development, marketing and sale of wireless radio systems for secure, wide area mission-critical business-to-business networks. We generate revenue primarily from the sale of the FullMAX System and the delivery of related services.

Product revenue is comprised of sales of the Company’sOndas Networks’ software defined base station and remote radios, its network management and monitoring system, and accessories. The Company’sOndas Networks’ software and hardware is sold with a limited one-year basic warranty included in the price. The limited one-year basic warranty is an assurance-type warranty, is not a separate performance obligation, and thus no transaction price is allocated to it. The nature of tasks under the limited one-year basic warranty only provideprovides for remedying defective product(s) covered by the warranty. Product revenue is generally recognized when the customer obtains control of our product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract, or upon installation when the combined performance obligation is not distinct within the context of the contract.


 

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Service revenue is comprised of separately priced extended warranty sales, network support and maintenance, remote monitoring, as well as ancillary services directly related to the sale of the Company’sOndas Networks’ wireless communications products including wireless network design, systems engineering, radio frequency planning, software configuration, product training, installation, and onsite support. The extended warranty sold by the CompanyOndas Networks sells provides a level of assurance beyond the coverage for defects that existed at the time of a sale or against certain types of covered damage. The extended warranty includes 1) factory hardware repair or replacement at our election, of the base station and remote radios, at our election, 2) software upgrades, bug fixes and new features of the radio software and NMS,network management systems (“NMS”), 3) deployment and network architecture support, and 4) technical support by phone and email. Extended warranty, network support and maintenance, and remote monitoring revenues are recognized ratably over the term of the service contract. Ancillary service revenues are recognized at the point in time when those services have been provided to the customer and the performance obligation has been satisfied. With respectThe Company allocates the transaction price to the service and extended warranty sales and remote monitoring,based on the Company appliesstand-alone selling prices of these performance obligations, which are stated in our contracts. Revenue for the input method using straight-line recognition.extended warranty is recognized overtime.

 

Development revenue is comprised primarily of non-recurring engineering service contracts to develop software and hardware applications for various customers. For Ondas Networks, in 2022, a significant portion of this revenue is generated from one parent customer whereby Ondas Networks is to develop such applications to interoperate within the customers infrastructure. For these contracts, Ondas Networks and the customers work cooperatively, whereby the customers’ involvement is to provide technical specifications for the product design, as well as, to review and approve the project progress at various markers based on predetermined milestones. The products developed are not able to be sold to any other customer and are based in part upon existing Ondas Networks and customer technology. Development revenue is either recognized at the point in time when those services have been provided to the customer and the performance obligation has been satisfied recognized, or as services are provided over the life of the contract as Ondas Networks has an enforceable right to payment for services completed to date and there is no alternative use of the product, depending on the contract.


If the customer contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. We enter into certain contracts within our service revenues that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. We allocate the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. We determine standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Revenue is then allocated to the performance obligations using the relative selling prices of each of the performance obligations in the contract.

 

OurOndas Networks’ payment terms vary and range from Net 15 to Net 30 days from the date of the invoices.invoices for product and services related revenue. Ondas Networks’ payment terms for the majority of their development related revenue carry milestone related payment obligations which span the contract life. For milestone-based contracts, the customer reviews the completed milestone and once approved, makes payment pursuant to the applicable contract.

 

American Robotics generates revenue by selling a data subscription service to its customers based on the information collected by their autonomous systems. The customer pays for a monthly, annual, or multi-annual subscription service to remotely access the data collected by their autonomous systems. American Robotics’ payment terms vary and range from Net 30 to Net 60 days from the date of the invoices for product and services related revenue.

Disaggregation of Revenue

 

The following tables present our disaggregated revenues by Type of Revenue and Timing of Revenue.

 

  Years Ended December 31, 
  2019  2018 
Type of Revenue      
Product revenue $212,905  $125,664 
Service revenue  107,478   64,365 
Total revenue $320,383  $190,029 

  Years Ended December 31, 
  2019  2018 
Timing of Revenue      
Revenue recognized point in time $281,333  $147,863 
Revenue recognized over time  39,050   42,166 
Total revenue $320,383  $190,029 
  Years Ended
December 31,
 
  2022  2021 
Type of Revenue      
Product revenue $872,660  $405,570 
Service and subscription revenue  319,140   96,933 
Development revenue  934,017   2,401,474 
Other revenue  -   2,794 
Total revenue $2,125,817  $2,906,771 

 

F-15 Of the service and subscription revenue above, $194,140 and $66,617 represents American Robotics subscription revenue for the years ended December 31, 2022 and 2021, respectively.

  Years Ended
December 31,
 
  2022  2021 
Timing of Revenue      
Revenue recognized point in time $872,660  $438,413 
Revenue recognized over time  1,253,157   2,468,358 
Total revenue $2,125,817  $2,906,771 

Of the revenue recognized over time above, $194,140 and $66,617 represents American Robotics subscription revenue for the years ended December 31, 2022 and 2021, respectively.


 

 

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Contract Assets and Liabilities

We recognize a receivable or contract asset when we perform a service or transfer a good in advance of receiving consideration. A receivable is recorded when our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due. A contract asset is recorded when our right to consideration in exchange for goodgoods or services that we have transferred or provided to a customer is conditional on something other than the passage of time. We did not have any contract assets recorded aton December 31, 20192022 and 2018.2021.

 

We recognize a contract liability when we receive consideration, or if we have the unconditional right to receive consideration, in advance of satisfying the performance obligation. A contract liability is our obligation to transfer goods or services to a customer for which we have received consideration, or an amount of consideration is due from the customer. The table below details the activity in our contract liabilities during the years ended December 31, 20192022 and 2018,2021, and the balance at the end of each year is reported as deferred revenue in the Company’s consolidated balance sheet.

 

  Years Ended December 31, 
  2019  2018 
Balance, beginning of year $20,631  $30,690 
Additions  20,826   32,106 
Transfer to revenue  (39,050)  (42,166)
Balance, end of year $2,467  $20,631 
  Years Ended
December 31,
 
  2022  2021 
Balance, beginning of year $512,397  $165,035 
Additions  527,268   2,238,137 
Transfer to revenue  (978,157)  (1,890,775)
Balance, end of year $61,508  $512,397 

Warranty Reserve

 

WeFor our software and hardware products, we provide a limited one-year assurance-type warranty onand for our software and hardware products.development service, we provide no warranties. The assurance-type warranty covers defects in material and wordsmanshipworkmanship only. If a warranted software or hardware component is determined to be defective after being tested by the Company within the one-year, the Company will repair, replace or refund the price of the covered hardware and/or software to the customer (not including any shipping, handling, delivery or installation charges). We estimate, based upon a review of historical warranty claim experience, the costs that may be incurred under our warranties and record a liability in the amount of such estimate at the time a product is sold. Factors that affect our warranty liability include the number of units sold, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our recorded warranty liability and adjust the accrual as claims data and historical experience warrants. The Company has assessed the costs of fulfilling its existing assurance-type warranties and has determined that the estimated outstanding warranty obligation atobligations on December 31, 20192022 and 2018 is2021 are immaterial to the Company’s financial statements.

 

Accounting Standard Update 2016-02, Leases

 

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. During 2019, the Company had operating leases primarily consisting of two office space leases in Sunnyvale, CA and one in Chengdu, Sichuan Province, People’s Republic of China (the “Chengdu Lease”). Lease costs were approximately $475,000 for the year ended December 31, 2019. In December 2019,2022, the Company’s operating leases consisted of office space in conjunction with the closure of Ondas Networks Limited, the Chengdu Lease was terminated. Our remaining lease terms range from 12 to 14 months. There was no sublease rental income forSunnyvale, CA (the “Gibraltar Lease”), Marlborough, MA (the “American Robotics Lease”), and Waltham, MA (the “Waltham Lease”). For the year ended December 31, 2019. In2021, the Company’s operating leases consisted of office space in Sunnyvale, CA (the “Gibraltar Lease”) and Marlborough, MA (the “American Robotics Lease”).  

On January 2020, the Company22, 2021, we entered into a sublease rental agreement for one24-month lease (effective April 1, 2021) with the owner and landlord (the “2021 Gibraltar Lease”), wherein the base rate is $45,000 per month, with a security deposit in the amount of its leases in Sunnyvale, CA. See NOTE 13 for further details.$90,000.

 

LeasesOn August 5, 2021, the Company acquired American Robotics and the American Robotics Lease, wherein the base rate is $15,469 per month, with an initialannual increase of 3% through January 2024, with a security deposit of $24,166. On August 19, 2021, American Robotics amended their lease to reduce their space to approximately 10,450 square feet. The amendment reduced their annual base rent to $8,802 per month, with an annual increase of 3% through January 2024.


On October 8, 2021, American Robotics entered into an 86-month operating lease for space in Waltham, MA. The Waltham Lease commenced on March 1, 2022 and is scheduled to terminate on April 30, 2029, wherein the base rate is $39,375 per month, increasing 3% annually, with a security deposit in the amount of $104,040. These facilities also serve as Ondas corporate headquarters.

We determine if an arrangement is a lease, or contains a lease, at the inception of the arrangement. If we determine the arrangement is a lease, or contains a lease, at lease inception, we then determine whether the lease is an operating lease or finance lease. Operating and finance leases result in recording a right-of-use (“ROU”) asset and lease liability on our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term of twelve months or lessand lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are not recordedrecognized at the commencement date based on the balance sheet. Forpresent value of lease agreements entered into or reassessed after the adoption of Topic 842, we combinepayments over the lease term. For purposes of calculating operating lease ROU assets and non-lease components in determiningoperating lease liabilities, we use the non-cancellable lease term plus options to extend that we are reasonably certain to take. Lease expense for operating lease payments is recognized on a straight-line basis over the lease liabilities and right of use (“ROU”) assets.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

term. Our lease agreementsleases generally do not provide an implicit borrowing rate; therefore, an internalrate. As such, we use our incremental borrowing rate is determined based on the information available at lease commencement date for purposes ofin determining the present value of lease payments. This rate is generally consistent with the interest rate we pay on borrowings under our credit facilities, as this rate approximates our collateralized borrowing capabilities over a similar term of the lease payments. We used the incremental borrowing rate on December 31, 2018have elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for all leases that commenced priorany class of underlying assets. We have elected not to that date.separate lease and non-lease components for any class of underlying asset.

 

Lease Costs

 

  Year ended
December 31, 2019
 
Components of total lease costs:    
Operating lease expense $593,707 
Short-term lease costs(1)  46,575 
Total lease costs $640,282 
  Years ended
December 31,
 
  2022  2021 
Components of total lease costs:      
Operating lease expense $1,151,453  $522,012 
Common area maintenance expense  103,691   42,738 
Short-term lease costs (1)  48,870   45,498 
Total lease costs $1,304,014  $610,248 

(1)(1)Represents short-term leases with an initial term of 12 months or less, which are immaterial.

 

Lease Positions as of December 31, 20192022 and 2021

 

ROU lease assets and lease liabilities for our operating leases were recorded in the consolidated balance sheet as follows:

 

  As of
December 31, 2019
 
Assets:   
Operating lease assets $331,419 
Total lease assets $331,419 
     
Liabilities:    
Operating lease liabilities, current $489,406 
Operating lease liabilities, net of current  52,449 
Total lease liabilities $541,855 
  December 31, 
  2022  2021 
Assets:      
Operating lease assets $2,930,996  $836,025 
Total lease assets $2,930,996  $836,025 
         
Liabilities:        
Operating lease liabilities, current $580,593  $550,525 
Operating lease liabilities, net of current  2,456,315   241,677 
Total lease liabilities $3,036,908  $792,202 

 


Lease Terms and Discount RateOther Leases Information

  Years ended
December 31,
 
  2022  2021 
Operating cash flows for operating leases $878,627  $525,938 
         
Weighted average remaining lease term (in years)- operating lease  5.86   1.48 
Weighted average discount rate – operating lease  5.78%  10.93%

Undiscounted Leases Cash Flows

 

Weighted average remaining lease term (in years) – operating lease1.1
Weighted average discount rate – operating lease14%

Cash Flows

  Year ended
December 31, 2019
 
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cash flows for operating leases $570,568 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Undiscounted Cash Flows

Future lease payments included in the measurement of lease liabilities on the consolidated balance sheet as ofon December 31, 2019,2022, as follows:

 

Years ending December 31,    
2020  $531,166 
2021   57,153 
Thereafter   - 
Total future minimum lease payments   588,319 
Lease imputed interest   (46,464)
Total  $541,855 
Years ending December 31,   
2023 $730,592 
2024  508,208 
2025  513,900 
2026  529,320 
2027  545,250 
Thereafter  752,490 
Total future minimum lease payments $3,579,760 
Lease imputed interest  (542,852)
Total $3,036,908 

  

In March 2019, one of our long-term operating leases was abandoned and the likelihood of entering into a sublease agreement for the property was minimal; therefore, the Right to Use Asset value of $259,962 was considered impaired and the amount was charged to asset impairment on the accompanying unaudited condensed consolidated financial statements.

Net Loss Per Common Share

 

Net loss per share for all periods presented is based on the equity structure of the legal acquirer, which assumes common stock is outstanding and is reflected on a retrospective basis for all periods presented. Basic net loss per share is computed by dividing net loss by the weighted average shares of common stock outstanding for each period. Diluted net loss per share is the same as basic net loss per share since the Company has net losses for each period presented.

 

The following potentially dilutive securities for the years ended December 31, 20192022 and 20182021 have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.

 

  Years Ended December 31, 
  2019  2018 
Warrants to purchase common stock  4,771,417   - 
Options to purchase common stock  675,000   - 
Restricted stock purchase offers  383,478   - 
Convertible debt  -   140,678 
     Total potentially dilutive securities  5,829,895   140,678 
  Years Ended
December 31,
 
  2022  2021 
Warrants to purchase common stock  1,901,802   3,305,854 
Options to purchase common stock  2,412,286   687,448 
Potential shares issuable under 2022 Convertible Promissory Notes  24,177,835   - 
Restricted stock units  1,111,617   1,958,172 
Total potentially dilutive securities  29,603,540   5,951,474 

  

Debt Issuance Costs

Debt issuance costs represent costs incurred for the issuance of debt. Once the associated debt instrument is issued, these costs would be recorded as a debt discount and amortized using the effective interest method over the term of the related debt instrument. Upon abandonment of a pending financing transaction, the related deferred financing costs are charged to interest expense.

Concentrations of Credit Risk

 

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. As of December 31, 2022, the Company was approximately $29,268,291 in excess of federally insured limits.

 

Credit is extended to customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintainmaintains an allowance for doubtful accounts and sales credits.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTScredit losses.

 


Concentration of Customers

 

Because we have only recently invested in our customer service and support organization, a small number of customers have accounted for a substantial amount of our revenue.

The table below sets forth the Company’s Revenue from significant customers, that accountedthose representing 10% or more of total revenue, was composed of one customer accounting for greater than 10% of its revenues for the years ended December 31, 2019 and 2018, respectively:

  Years Ended December 31, 
Customer 2019  2018 
A  45%  17%
B  18%  76%
C  36%  0%

100% of the Company’s accounts receivable balance at December 31, 2019 was held by a customer with less than 5%89% of the Company’s revenue for the year ended December 31, 2019.2022. Two customers accounted for 55% and 41% of the Company’s revenue for the year ended December 31, 2021, respectively.

 

Accounts receivable from significant customers, those representing 10% or more of the total accounts receivable, were composed of two customers accounting for 67% and 33%, respectively, of the Company’s accounts receivable balance as of December 31, 2022. Two customers accounted for 54% and 36% of the Company’s accounts receivable balance as of December 31, 2021, respectively.

Recently Adopted Accounting Pronouncements

 

In June 2018,May 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation - accounting standards update (“ASU”) 2021-04—Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):Improvements Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactionsare effective for acquiring goodspublic and services from nonemployees. ASU 2018-07 is effectivenonpublic entities for fiscal years beginning after December 15, 2018,2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption was permitted, including adoption in an interim period. The adoption of this pronouncement during the year ended December 31, 2022 had no impact on our accompanying consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Company has elected to early adopt ASU 2018-07. The adoption of this pronouncement hadpermitted, but no impact on our accompanying consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11 (“ASU 2017-11”), Earnings Per Share (“Topic 260”),Distinguishing Liabilities from Equity (“Topic 480”), andDerivatives and Hedging (“Topic 815”). ASU 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable non-controlling interests. ASU 2017-11 was effective for the Company on January 1, 2019. There was no material effect on the 2019 financial statements upon adoption.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periodsearlier than fiscal years beginning after December 15, 2017, including2020, and interim periods within those fiscal years. There was no material effect on the 2019 and 2018 financial statements upon adoption.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2016, the FASB issued ASU 2016-02,Leases. This guidance requires lesseesEntities can elect to record most leases on their balance sheet while recognizing expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. In July 2018, the FASB amendedadopt the new leasesguidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company has elected to adopt the standard and issued ASU 2018-11, Leases, (Topic 842): Targeted Improvements to give entities another option forearly using the modified retrospective method of transition and to provide lessors with practical expedient. We adopted ASU 2016-02 oneffect from January 1, 2019 utilizing2022. At the alternative transition method allowed for under ASU 2018-11. Comparative financial information was not adjusted and will continue to be reported under ASC 840. We also elected the transition relief packagetime of practical expedients and as a result we did not assess (1) whether existing or expired contracts contain leases, (2) lease classification for any existing or expired leases, and (3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 month or less. We elected not to separate lease components from non-lease components for our specified asset classes. Additionally, the adoption of the new standard resulted in increased disclosure requirements in our quarterly and annual filings.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under previous guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU 2016-08), accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10), narrow-scope improvements and practical expedients (ASU 2016-12) and technical corrections and improvements to Topic 606 (ASU 2016-20) in its new revenue standard. The guidance is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. Our services are performed over the term of our contracts and customers are billed for those services as they are performed on a monthly basis. Revenue is recognized each month for the services that have been provided to our customers. Additionally, we do not have significant exposure related to uncollectible accounts. We have performed a review of the requirements of the new revenue standard and have performed our analysis of our customer contracts on a portfolio basis (by each hospital group) utilizing the five-step model of the new standard. We have compared the results of our analysis to our current accounting practices. We adopted Topic 606 on January 1, 2018 using the full retrospective transition method for recognizing revenue. The adoption of Topic 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of our services to our customers and will provide financial statement readers with enhanced disclosures. The adoption of this standard did not have a material effectimpact on the timing and recognition of revenueconsolidated financial statements. However, ASU 2020-06 precluded the Company from having to record a derivative liability for convertible notes entered into during the services provided to our customers.year ended December 31, 2022.

 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12,Income Taxes (Topic 740):Simplifying the Accounting for Income Taxes,, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiodintra-period tax allocation and calculating income taxes in interim periods. ASU 2019-12 is applicable to all entities subject to income taxes. ASU 2019-12 provides guidance to minimize complexity in certain areas by introducing a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and guides whether to relate a step-up tax basis to a business combination or separate transaction. ASU 2019-12 changes the current guidance of making an intraperiod allocation, determining when a tax liability is recognized after a foreign entity investor transitionstransition to or from equity method of accounting, accounting for tax law changes and year-to-date losses in interim periods, and determining how to apply income tax guidance to franchise taxes. The amendments from ASU 2019-12 are effective for all public business entities for fiscal years beginning after December 15, 2020 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after December 15, 2021 and for interim periods beginning after December 15, 2022. Early adoption iswas permitted. The Company is evaluatingadoption of this pronouncement during the year ended December 31, 2021 had no impact on our accompanying consolidated financial statements.

 


Recently Issued Accounting Pronouncements Not Yet Adopted

On June 30, 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, which (1) clarifies existing guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and (2) introduces new disclosure requirements for equity securities subject to contractual sale restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security. Instead, the contractual sale restriction is a characteristic of the reporting entity. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value. Additionally, the ASU clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company has evaluated the effects of the adoption of ASU No. 2022-03, and it will have no impact on its consolidated financial statements.

In November 2019,March 2022, FASB issued Accounting Standards Update (ASU) No. 2022-02, Financial Instruments—Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, as an amendment to ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Regarding Troubled Debt Restructurings by Creditors, this amendment eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Regarding Vintage Disclosures—Gross Writeoffs, this amendment requires that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. For entities that have not yet adopted the amendments in Update 2016-13, ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022. The Company has evaluated the effects of the adoption of ASU No. 2022-02, and it will have no impact on its consolidated financial statements. 

On September 29, 2022, FASB issued Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency about the use of supplier finance programs for investors and other allocators of capital. Under the new ASU, a company that uses a supplier finance program in connection with the purchase of goods or services will be required to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. ASU No. 2022-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022, except for the roll forward of the supplier finance program obligations, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of ASU No. 2022-03 on its consolidated financial statements.  

In October 2021, the FASB issued ASU 2019-11, Codification Improvements to Topic 326,Financial Instruments-Credit Losses,2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends certain aspects of the Board’s new credit loss standard (ASC 326). ASU 2019-11 is applicable to companies that hold financialrequires contract assets and contract liabilities (i.e., deferred revenue) acquired in the scope of the credit losses standard. FASB permits to include the following in estimate if expected credit losses: expected recoveries of financial assets previously written off and expected recoveries of financial assets with credit deterioration. The scope of guidance related to expected recoveries includes purchased financial assets with credit deterioration. ASU 2019-11 permits entities to record negative allowance when measuring expected credit losses for a purchased credit deteriorated financial asset and expected recoveries cannot exceed the aggregate amount previously written off or expectedbusiness combination to be written off. When discounted cash flow method is not being used to estimate expected credit losses, expected recoveries cannot include any amountsrecognized and measured by the acquirer on the acquisition date in an acceleration ofaccordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the noncredit discount. An entity may include increases in expected cash flows after acquisition. Early adoption is not permitted. The Company is evaluating impact on our accompanying consolidated financial statements.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2018, the FASB, issued ASU, 2018-13 that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to ASC 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements.contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business Combinations. The new guidance should be applied prospectively and is effective for all public business entities for fiscal years beginning after December 15, 20192022 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. An entityEarly adoption is permittedpermitted. The Company has evaluated the effects of the adoption of ASU No. 2021-08, and it will have no impact on its consolidated financial statements. 

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to early adopt eitheras the entirecurrent expected credit loss (“CECL”) methodology. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models previously used under U.S. generally accepted accounting principles, which generally require that a loss be incurred before it is recognized. The new standard or onlyalso applies to financial assets arising from revenue transactions such as contract assets and accounts receivables. For public business entities that meet the provisions that eliminate or modify requirements. We are currently evaluatingdefinition of an SEC filer, excluding entities eligible to be SRCs as defined by the effectSEC, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019. All other entities, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2022. The Company has evaluated the effects of this guidancethe adoption of ASU No. 2016-13, and it did not have a material impact on our disclosures.its consolidated financial statements.   


Reclassification

Certain amounts reported in the prior year financial statements have been reclassified to conform to the current year presentation.

NOTE 3 – OTHER CURRENT ASSETS

 

Other current assets consist of the following:

 

  Years Ended December 31, 
  2019  2018 
Advances for raw material purchases $450,691  $- 
Other prepaid expenses  105,013   40,654 
Prepaid insurance  85,201   102,743 
Prepaid marketing costs  31,579   125,525 
Deposits  28,115   31,965 
Miscellaneous receivables  -   44,294 
Prepaid financing costs  -   188,300 
     Total other current assets $700,599  $533,481 

  Years Ended
December 31,
 
  2022  2021 
Prepaid insurance $782,538  $1,026,212 
Other prepaid expenses  957,388   423,398 
Other receivables  9,687   - 
Total other current assets $1,749,613  $1,449,610 

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

  Years Ended December 31, 
  2019  2018 
Leasehold improvements $58,613  $256,920 
Vehicle  149,916   143,560 
Furniture and fixtures  93,464   132,088 
Test equipment  20,493   - 
Computer equipment  109,509   87,087 
Software  67,287   61,287 
   499,282   680,942 
Less: accumulated depreciation  (247,036)  (178,796)
     Total property and equipment $252,246  $502,146 
  Years Ended
December 31,
 
  2022  2021 
       
Vehicles $149,916  $149,916 
Computer equipment  348,408   183,869 
Furniture and fixtures  461,352   141,053 
Software  161,284   88,284 
Leasehold improvements  2,093,812   37,401 
Development equipment  342,142   56,275 
Base stations  -   117,850 
Drones  -   54,969 
Construction in progress  330,541   627,044 
   3,887,455   1,456,661 
Less: accumulated depreciation  (787,568)  (424,662)
Total property and equipment $3,099,887  $1,031,999 

 

Depreciation expense for the years ended December 31, 20192022 and 20182021 was $143,459$449,458 and $54,946,$116,231, respectively. For the years ended December 31, 2022 and 2021, due to obsolescence, Base station and Drone assets with a net-book value totaling $382,060 and $0, respectively, were written off.

NOTE 5 – GOODWILL AND BUSINESS ACQUISITION

We account for acquisitions in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), and goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other” (“ASC 350”). The excess of the purchase price over the estimated fair value of net assets acquired in a business combination is recorded as goodwill.


American Robotics

On May 17, 2021, the Company entered into an Agreement and Plan of Merger (the “Agreement”) with Drone Merger Sub I Inc., a Delaware corporation and a direct wholly owned subsidiary of the Company (“Merger Sub I”), Drone Merger Sub II Inc., a Delaware corporation and a direct wholly owned subsidiary of the Company (“Merger Sub II”), American Robotics, and Reese Mozer, solely in his capacity as the representative of American Robotics’ Stockholders (as defined in the Agreement).

On August 5, 2021 (the “Closing Date”), the Company’s stockholders approved the issuance of shares of the Company’s common stock, including shares of common stock underlying Warrants (as defined below), in connection with the acquisition of American Robotics.

On the Closing Date, American Robotics merged with and into Merger Sub I (“Merger I”), with American Robotics continuing as the surviving entity, and American Robotics then subsequently and immediately merged with and into Merger Sub II (“Merger II” and, together with Merger I, the “Mergers”), with Merger Sub II continuing as the surviving entity and as a direct wholly owned subsidiary of the Company. Simultaneously with Merger II, Merger Sub II was renamed American Robotics, Inc.

Pursuant to the Agreement, American Robotics stockholders and certain service providers received (i) cash consideration in an amount equal to $7,500,000, less certain indebtedness, transaction expenses and other expense amounts as described in the Agreement; (ii) 6,750,000 shares of the Company’s common stock (inclusive of 26 fractional shares paid in cash as set forth in the Agreement); (iii) warrants exercisable for 1,875,000 shares of the Company’s common stock (the “Warrants”) (inclusive of 24 fractional shares paid in cash and the equivalent of Warrants for 309,320 shares representing the value of options exercisable for 211,038 shares issued under the Company’s incentive stock plan and reducing the aggregate amount of Warrants as set forth in the Agreement); and (iv) the cash release from the PPP Loan Escrow Amount (as defined in the Agreement). Each of the Warrants entitle the holder to purchase a number of shares of the Company’s common stock at an exercise price of $7.89. Each of the Warrants shall be exercisable in three equal annual instalments commencing on the one-year anniversary of the Closing Date and shall have a term of ten years. 59,544 of the stock options were issued fully vested to employees who did not exercise their American Robotics options prior to the Closing Date and had no ongoing service requirements and therefore they were included in the purchase consideration. The remaining 151,494 stock options issued vest over four years and are contingent on ongoing employment by the employee and are recorded as compensation expense over the service period.

During the year ended December 31, 2021, the Company incurred approximately $1,644,000 in transaction costs for professional fees and expenses, which are included in General and administration operating expenses on the Consolidated Statements of Operations.

Also, on the Closing Date, the Company entered into employment agreements and issued 1,375,000 restricted stock units (“RSUs”) under the Company’s incentive stock plan to key members of American Robotics’ management. These RSUs vest in equal installments on the next three anniversaries of the Closing Date and vesting is contingent on the individuals remaining employed by the Company. These RSUs are not included in purchase consideration and are expensed ratably over the service period. They were valued at the closing market price on the Closing Date. The compensation expense recognized for the years ended December 31, 2022 and 2021, in respect of these restricted stock units, was $3,554,748 and $1,452,385, respectively. As of December 31, 2022 and 2021 the unrecognized compensation expense was $5,690,367 and $9,245,115, respectively.

The following table summarizes the consideration paid for American Robotics and the final allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date.


Consideration:

Fair value of total consideration transferred $69,311,577 
Fair value of assets acquired:    
Cash $920,011 
Other current assets  148,043 
Property and equipment  61,430 
Intangible assets  26,180,000 
Right of use asset  463,252 
Other long-term assets  87,217 
Total assets acquired  27,859,953 
Fair value of liabilities assumed:    
Accounts payable  129,541 
Deferred revenue  32,992 
Accrued payroll and rent  42,617 
Lease liabilities  447,827 
Deferred tax liability  2,921,982 
Total liabilities assumed  3,574,959 
Total net assets acquired  24,284,994 
Goodwill  45,026,583 
Total $69,311,577 

The intangible assets acquired include the trademarks, FAA waiver, developed technology, non-compete agreements, and customer relationships (see note 6). The deferred tax liability represents the tax effected timing differences relating to the acquired intangible assets to the extent they are not offset by acquired deferred tax assets.

The goodwill represents the assembled workforce, acquired capabilities, and future economic benefits resulting from the acquisition. No portion of the goodwill is deductible for tax purposes.

Our results for the year ended December 31, 2022 and 2021 include results from American Robotics between August 6, 2021 and December 31, 2022. The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of American Robotics had occurred on January 1, 2021. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred on January 1, 2021 or what the Company’s operating results will be in future periods.

  (Unaudited)
Year Ended
December 31,
 
   2021 
Revenue, net $2,967,591 
Net loss $(23,974,346)
Basic Earnings Per Share $(0.56)
Diluted Earnings Per Share $(0.56)

 We acquired American Robotics in order to broaden the industrial data solutions Ondas is able to provide to customers. The drone is the ultimate data gathering device at the edge of field area operations and American Robotics’ Scout System is a world class drone platform. We believe that combining the technical and industry expertise of Ondas Networks and American Robotics will be highly valued by our customers.

Airobotics Ltd

On January 23, 2023, the Company acquired Airobotics, Ltd. See Note 16 - Subsequent Events for further information regarding the Airobotics acquisition.

Promissory Note

During the year ended December 31, 2022, the Company made a loan to Airobotics in the aggregate amount of $2,000,000 million. The note carries interest at a rate of 6% per annum. The principal and any accrued and unpaid interest were due on February 15, 2023. On February 15, 2023, the note was extended until March 31, 2023. As of and for the year ended December 31, 2022, the Company recorded $25,542 of interest receivable and interest income related to the note in the Consolidated Balance Sheets and Consolidated Statements of Operations, respectively.


Goodwill Impairment

The Company has goodwill acquired as part of the American Robotics acquisition in 2021. The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021, are as follows:

  American Robotics 
Balance as of January 1, 2021 $- 
Goodwill acquired during the year  45,026,583 
Balance as of December 31, 2021  45,026,583 
Impairment loss  (19,419,600)
Balance as of December 31, 2022 $25,606,983 

Goodwill is tested for impairment in the fourth quarter after the annual forecasting process. The Company initially carried out a qualitative analysis and determined that because of changes in market conditions as well as a slower increase in revenue than previously forecast, it was more likely than not that goodwill was impaired. The Company engaged a third-party service provider to carry out a valuation of the American Robotics entity. Using a discounted cash flow analysis and revised forecasts for revenue and cash flows that are lower than the previous valuation, it was determined that the fair value of the entity was lower than the carrying value as of December 31, 2022, and an impairment of $19,419,600 was recognized in operating expenses in the Consolidated Statements of Operations for the year ending December 31, 2022.

NOTE 56 – INTANGIBLE ASSETS

 

OurThe components of intangible assets, include patent costs totaling $127,593 less amortizationall of which are finite lived, were as follows:

  December 31, 2022  December 31, 2021       
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net Carrying Amount  Useful
Life
 
                      
Patents $82,431  $(27,331) $55,100  $75,266  $(13,077) $62,189   10 
Patents in process  119,760   -   119,760   89,767   -   89,767   N/A 
Licenses  241,909   (65,665)  176,244   241,909   (41,472)  200,437   10 
Trademarks  3,230,000   (453,242)  2,776,758   3,230,000   (130,242)  3,099,758   10 
FAA waiver  5,930,000   (832,113)  5,097,887   5,930,000   (239,113)  5,690,887   10 
Developed technology  23,270,614   (2,752,353)  20,518,261   16,120,000   (650,000)  15,470,000   10 
Non-compete agreements  840,000   (840,000)  -   840,000   (338,710)  501,290   1 
Customer relationships  60,000   (16,839)  43,161   60,000   (4,839)  55,161   5 
  $33,774,714  $(4,987,543) $28,787,171  $26,586,942  $(1,417,453) $25,169,489     

Amortization expense for years ended December 31, 2022 and 2021 was $3,570,091 and $1,396,364, respectively.

We recognized losses on intellectual property of $12,343 and $97,789 due to expiration of patent costs of $1,249 atapplications for the years ended December 31, 2019. Our intangible2022 and 2021, respectively.


On March 20, 2022, the Company entered into a Purchase Agreement to acquire the assets include patent costs totaling $53,482 less amortization of patent costsArdenna, Inc., a leading provider of $194 atimage processing and machine learning software solutions for rail infrastructure monitoring and inspections. The consideration for the acquisition was $900,000 in cash and 780,000 shares of the Company’s common stock (the “Ardenna Consideration Shares”). In connection of the acquisition, the parties entered into a Registration Rights and Lock-Up Agreement, which required the Company to file a resale registration statement covering the resale of the Ardenna Consideration Shares no later than ninety (90) days after the closing date and restricted the holder from transferring the Ardenna Consideration Shares for 180 days from the closing date, subject to certain exceptions. On April 5, 2022, the Company completed the acquisition. As a result of this transaction, the Company recognized developed technology in the amount of $6,843,600. The Company filed the registration statement Form S-3 on July 1, 2022, and it was declared effective on July 15, 2022.

On August 31, 2022, the Company entered into the asset purchase agreement with Field of View LLC, a North Dakota limited liability company. The total purchase consideration consisted of $250,000 of cash payable in monthly instalments over twelve months, and $75,520 shares of the Company’s common stock, representing 16,000 shares (“FOV Consideration Shares”). The asset purchase agreement restricts the holder from transferring the FOV Consideration Shares for 180 days from the closing date, subject to certain exceptions. The Company acquired computer and research and development equipment amounting to $18,506 and intangibles for developed technology for $307,014. As of December 31, 2018.2022, the equity was issued in full and cash paid amounted to $104,167 the balance payable of $145,333 being accounted for as accrued purchase consideration included in accrued expenses and other current liabilities payable over twelve months

 

Estimated amortization expense for the next five years for the patent costintangible costs currently being amortized is as follows:

 

Year Ending December 31,  Estimated Amortization 
2020  $1,252 
2021  $1,252 
2022  $1,252 
2023  $1,252 
2024  $1,252 
Year Ending December 31, Estimated
Amortization
 
2023 $3,287,497 
2024 $3,287,497 
2025 $3,287,497 
2026 $3,282,658 
2027 $3,275,497 
Thereafter $12,366,528 
Total $28,787,171 

NOTE 7 – LONG-TERM EQUITY INVESTMENT

On October 5, 2021, Ondas Holdings irrevocably subscribed and agreed to purchase 3,141,098 shares of Series A-1 Preferred Stock of Dynam.AI, Inc. (“Dynam”), a tech-enabled services provider for critical or complex artificial intelligence and machine learning projects, par value $0.00001 for the aggregate price of $500,000 representing subscription price of $0.15918 per share by way of a non-brokered private placement for approximately 11% ownership in Dynam. In addition to the equity investment, Ondas Holdings’ wholly owned subsidiary, American Robotics, Inc., entered into a development, services and marketing agreement with Dynam.AI on October 1, 2021. The agreement allows American Robotics to expand and enhance its IP library and analytics capabilities with artificial intelligence using physics-based algorithms and allows Dynam to further the development of Vizlab™, Dynam’s proprietary AI/ML platform, an advanced developer toolkit for data scientists.

On July 15, 2022, Ondas Holdings irrevocably subscribed and agreed to purchase 3,357,958 shares of Series Seed Preferred Stock of Dynam for the aggregate price of $1,000,000 representing a subscription price of $0.2978 per share by way of a non-brokered private placement for approximately 8% ownership in Dynam. This brings Ondas Holdings investment in Dynam to 6,499,056 shares or approximately 19% ownership.

This long-term equity investment consists of an equity investment in a private company through preferred shares, which are not considered in-substance common stock, that is accounted for at cost, with adjustments for observable changes in prices or impairments, and is classified as long-term equity investment on our consolidated balance sheets with adjustments recognized in other (expense) income, net on our consolidated statements of operations. The Company has determined that the equity investment does not have a readily determinable fair value and elected the measurement alternative. Therefore, the equity investment’s carrying amount will be adjusted to fair value at the time of the next observable price change for the identical or similar investment of the same issuer or when an impairment is recognized. Each reporting period, the Company performs a qualitative assessment to evaluate whether the investment is impaired. The assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other publicly available data. If the investment is impaired, the Company writes it down to its estimated fair value. As of December 31, 2022 and 2021 the long-term equity investment had a carrying value of $1,500,000 and $500,000, respectively. 

Our CEO Eric Brock is a director of Dynam. An officer and a director of the Company have invested an aggregate of $35,000 in Dynam as of December 31, 2022.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 68 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consist of the following:

 

  Years Ended December 31, 
  2019  2018 
Accrued payroll and other benefits $2,094,536  $1,659,577 
Accrued interest  437,569   138,605 
Deferred revenue  378,850   20,631 
Accrued professional fees  104,602   126,384 
Other accrued expenses  67,848   - 
D&O insurance financing payable  33,660   52,530 
Accrued rent and facilities costs  24,584   160,544 
Accrued travel and entertainment  -   30,000 
Total accrued expenses and other current liabilities $3,141,649  $2,188,271 

NOTE 7 – NOTES PAYABLE AND OTHER FINANCING AGREEMENTS

July 31, 2019 Amendment

In August 2019, effective as of July 31, 2019, the Company and certain lenders entered into amendments to their respective debt agreements and promissory notes (the “July 31, 2019 Amendment”) wherein one lender extended the maturity date on its loan to September 30, 2021 (the “September 2021 Extended Lender”) (described more fully below), and the remaining lenders extended the maturity date of their loans to October 31, 2019. In addition to extending the maturity dates of the instruments to October 31, 2019, the lenders agreed that if the Company completes an equity offering of not less than $8,000,000 (subsequently reduced to $5,000,000 effective on September 6, 2019) on or before the maturity date, at or at less than a specified offering price per security, the lenders shall extinguish their indebtedness in exchange for securities of the Company upon the same terms and conditions of the investors in such equity offering, provided Energy Capital LLC (“Energy Capital”) participates in an extinguishment of all the indebtedness owed to it under the Energy Capital Loan and Security Agreement (See NOTE 8 for further details) in such equity offering.

Loan Agreements

In October 2007, Ondas Networks entered into a 6% per annum loan agreement, as amended, with a lender in the amount of $550,000 in connection with the issuance of common stock of Ondas Networks (the “October 2007 Loan”); however, the October 2007 Loan was not memorialized. The October 2007 Loan has been amended several times through June 30, 2019 (the “Amended October 2007 Loan”). Effective July 31, 2019, Ondas Networks further amended the Amended October 2007 Loan, as described above under the July 31, 2019 Amendment. On September 27, 2019, the lender exchanged $610,346 of principal and interest for 244,139 Units (see NOTE 9 for additional details). Pursuant to the terms of the July 31, 2019 Amendment, the outstanding principal and interest at September 27, 2019 was extinguished. The outstanding principal balance of the Amended October 2007 Loan at December 31, 2018 was $567,310.

On December 31, 2013, Ondas Networks entered into a 10% per annum Promissory Note, as amended, with a lender in the amount of $250,000, of which $25,000 was repaid in February 2015 (the “December 2013 Note”). The original maturity of the December 2013 Note was December 31, 2014. On November 1, 2014, Ondas Networks entered into a Loan Agreement, as amended, with the Lender in the amount of $210,000. (the “November 2014 Loan”). The original maturity of the November 2014 Loan was March 16, 2015. The December 2013 Note and the November 2014 Loan have been amended several times and a portion of each note has been assigned through June 30, 2019 (the “Amended December 2013 Note” and Amended November 2014 Loan”, respectively). Effective July 31, 2019, Ondas Networks further amended the Amended December 2013 Note and Amended November 2014 Loan, as described above under the July 31, 2019 Amendment. On September 27, 2019, the lenders exchanged $586,181 of principal and interest for 234,473 Units (see NOTE 9 for additional details). Pursuant to the terms of the July 31, 2019 Amendment, the outstanding principal and interest at September 27, 2019 was extinguished. The outstanding principal balance of the Amended December 2013 Note and the Amended November 2014 Loan at December 31, 2018 was $285,679 and $259,170, respectively.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On April 1, 2015, Ondas Networks entered into a 10% per annum Loan Agreement, as amended, with two individuals in the amount of $50,000 (the “April 2015 Note”). The original maturity of the April 2015 Note was July 1, 2015. The April 2015 Note has been amended several times through June 30, 2019 (the “Amended April 2015 Note”). Effective July 31, 2019, Ondas Networks further amended the Amended April 2015 Note, as described above under the July 31, 2019 Amendment. On September 27, 2019, the lender exchanged $71,556 of principal and interest for 28,623 Units (see NOTE 9 for additional details). Pursuant to the terms of the July 31, 2019 Amendment, the outstanding principal and interest at September 27, 2019 was extinguished. The outstanding principal balance of the April 2015 Note at December 31, 2018 was $66,511.

Financing Agreement

On November 3, 2016, Ondas Networks entered into a Purchase Order Financing Agreement with an accompanying 20% per annum Promissory Note, as amended, with an individual in the amount of $250,000 (the “November 2016 Note”). The original maturity of the November 2016 Note was the earlier of the payment of the purchase order for which the loan was advanced or 180 days after issuance. On December 20, 2016, Ondas Networks entered into a second Purchase Order Financing Agreement with an accompanying 10% per annum Promissory Note, as amended, with the same individual in the amount of $100,000 (the “December 2016 Note”). The original maturity of the December 2016 Note was the earlier of the payment of the purchase order for which the loan was advanced or 180 days after issuance. The November 2016 Note and the December 2016 Note have been amended several times through June 30, 2019 (the “Amended November 2016 Note” and Amended December 2016 Note”, respectively). Effective July 31, 2019, Ondas Networks further amended the Amended November 2016 Note and Amended December 2016 Note, as described above under the July 31, 2019 Amendment. On September 27, 2019, the lender exchanged $433,131 of principal and interest for 173,252 Units (see NOTE 9 for additional details). Pursuant to the terms of the July 31, 2019, Amendment the outstanding principal and interest at September 27, 2019 was extinguished. The outstanding principal balance of the Amended November 2016 and Amended December 2016 Note at December 31, 2018 was $319,530 and $113,601, respectively.

On February 28, 2014, Ondas Networks entered into a Purchase Order Financing Agreement (the “Financing Agreement”) with a lender. Interest on the Financing Agreement accrued at 30% per annum for the first 104 days and at 51% per annum thereafter. Between June 2014 and January 2015, Ondas Networks received an aggregate of $660,000 of which $285,000 was repaid. The Financing Agreement has been amended several times through June 30, 2019 (the “Amended Financing Agreement”). Effective July 31, 2019, Ondas Networks further amended the Amended Financing Agreement, as described above under the July 31, 2019 Amendment. On September 27, 2019, the lender exchanged $1,030,593 of principal and interest for 412,238 Units (see NOTE 9 for additional details). Pursuant to the terms of the July 31, 2019 Amendment, the outstanding principal and interest at September 27, 2019 was extinguished. The outstanding principal balance of the Amended Financing Agreement at December 31, 2018 was $957,925.

Promissory Notes

On December 14, 2015, Ondas Networks approved a private placement offering (“Private Placement”) seeking to sell to investors certain 10% promissory notes in the aggregate face amount of $750,000, which amount was later increased to $1,250,000, with a term of 18 months (“Private Placement Notes”). In connection with the Private Placement Notes, each investor (the “Private Placement Noteholders”) received warrants to purchase shares of common stock of Ondas Networks (“Private Placement Warrants”), equal to 25% of the principal amount of the Private Placement Notes, exercisable at the lower of (i) $2.00 per share or (ii) 40% of the selling price of Ondas Networks’ shares in its proposed initial public offering.

In December 2015, pursuant to the terms of security purchase agreements entered into in connection with the Private Placement, Ondas Networks completed the sale of an aggregate of $325,000 in Private Placement Notes to Private Placement Noteholders, of which $25,000 was repaid during 2017, and issued them Private Placement Warrants to purchase an aggregate of 81,250 shares of common stock of Ondas Networks, with a term of ten years, at an exercise price of $2.00 and a fair value of $63,398. Between February and July 2016, pursuant to the terms of such security purchase agreements, Ondas Networks completed the sale of an aggregate of $925,000 in Private Placement Notes to Private Placement Noteholders and issued them Private Placement Warrants to purchase an aggregate of 231,250 shares of Ondas Networks common stock, with a term of ten years, at an exercise price of $2.00 and a fair value of $168,678. As of January 1, 2018, the Private Placement Warrants for the 312,500 shares of Ondas Networks common stock were surrendered to Ondas Networks in exchange for participation in a private placement of Ondas Networks’ shares dated April 13, 2018.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Private Placement Notes have been amended several times through June 30, 2019 (the “Amended Private Placement Notes”). Effective July 31, 2019, Ondas Networks further amended the Amended Private Placement Notes, wherein (i) the September 2021 Extended Lender agreed to transfer all accrued and unpaid interest through July 31, 2019 in the amount of $1,983 to principal, to extend the maturity date to September 30, 2021, and to accrue interest from the date of the extension to the maturity date and (ii) all other lender agreements were amended as described above under the July 31, 2019 Amendment. On September 27, 2019, the lenders, excluding the September 2021 Extended Lender, exchanged $1,201,960 of principal and interest for 480,786 Units (see NOTE 9 for additional details). Pursuant to the terms of the July 31, 2019 Amendment, the outstanding principal and interest at September 27, 2019 was extinguished. The aggregate outstanding principal balance of the Amended Private Placement Notes at December 31, 2019 and 2018 was $239,921 and $1,343,682, respectively.

Convertible Promissory Notes

During 2017, Ondas Networks and certain entities and individuals entered into convertible promissory notes defined herein as (i) notes with mutual conversion preferences (“Group 1 Notes”) and (ii) notes with unilateral conversion preferences (“Group 2 Notes”).

On July 11, 2018, the Ondas Networks board of directors approved certain changes to the outstanding convertible promissory notes. The action approved changes to the Group 2 Notes to match the Group 1 Notes and authorized the issuance of a Security Holder Consent Agreement wherein each holder of a Group 2 Note would agree to the change. The changes modified the conversion option for the Group 2 Notes which resulted in a loss on extinguishment of debt in the amount of $44,348 and caused the derivative liability related to the Group 2 Notes to cease to exist and be classified as additional paid in capital at its fair value on July 11, 2018 in the amount of $1,141,995.

On September 28, 2018, in conjunction with the Merger Agreement discussed in NOTE 1, the holders of Group 1 Notes and all but one holder of Group 2 Notes converted their outstanding convertible promissory notes into an aggregate of 2,017,402 Company Shares. At both December 31, 2019 and 2018, the total outstanding balance of the remaining convertible promissory note (the “Note”) was $300,000. The maturity date of the Note is based on the payment of 0.6% of quarterly gross revenue until 1.5 times the amount of the Note is paid. On September 27, 2019, the holder of the Note was granted a warrant to purchase 140,678 shares of common stock of the Company. The fair value of this warrant was recorded as financing costs on the accompanying condensed consolidated financial statements. See NOTE 9 for further details.

Notes payable and other financing consists of:

  Years Ended December 31, 
  2019  2018 
Short Term:        
Loan Agreements $-  $1,178,670 
Financing Agreement  -   1,360,516 
Promissory Notes  -   1,343,682 
  $-  $3,882,868 
         
Long Term:        
Promissory Note $239,921  $- 
Convertible Promissory Note  300,000   300,000 
  $539,921  $300,000 
  Years Ended
December 31,
 
  2022  2021 
Accrued payroll and other benefits $390,698  $269,725 
D&O insurance financing payable  516,619   719,313 
Accrued professional fees  792,367   117,008 
Accrued purchase consideration  145,833   - 
Other accrued expenses and payables  1,246,847   43,861 
Total accrued expenses and other current liabilities $3,092,364  $1,149,907 

 

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 89 – SECURED PROMISSORY NOTES

Steward Capital Holdings LP

 

On March 9, 2018, we entered into a loan and security agreement (the “Agreement”) with Steward Capital Holdings LP (the “Steward Capital”) wherein Steward Capital made available to us a loan in the aggregate principal amount of up to $10,000,000 (the “Loan”). On March 9, 2018, the Company and Steward Capital, pursuant to the Agreement, entered into a Secured Term Promissory Note for $5,000,000, having a maturity date of September 9, 2019 (“Tranche A”). The Note bearsbore interest at a per annum rate equal to the greater of (a) 11.25% or (b) 11.25% plus the Prime Rate, less 3.25%. The Agreement also includesincluded payments of $25,000 in loan commitment fees and $100,000 (1%) of the funding in loan facility charges. The loan commitment fees and $50,000 in loan facility charges associated with Tranche A were recorded as debt discount and amortized over the life of the loan.Loan. There iswas also an end of term charge of $250,000. The end of term charge iswas being recorded as accreted costs over the term of the loan.Loan. The Note iswas secured by substantially all of the assets of the Company.

 

On October 9, 2018, the Company and Steward Capital, pursuant to the Agreement, entered into a second Secured Term Promissory Note for $5,000,000 having a maturity date of April 9, 2020 (the “Second Note”) to complete the Agreement for $10,000,000. The Second Note bearsbore interest at a per annum rate equal to the greater of (a) 11.25% or (b) 11.25% plus the Prime Rate, less 3.25%. Pursuant to the terms of the Agreement, the Company iswas required to pay a $50,000 loan facility charge.

  

On June 18, 2019, the Company and Steward Capital entered into a letter of agreement to amend the Loan and Security Agreement (the “First Amendment”) to (i) extend and amend the Maturity Date,maturity date, as defined in Section 1.1 of the Agreement, to read in its entirety “means September 9, 2020” (the “Maturity Date”); (ii) waive the repayment requirement to Steward Capital under Section 2.3 of the Agreement, in connection with the then proposed public offering of the Company as described in the Company’s Registration Statement on Form S-1, as amended, originally filed on April 12, 2019, and (iii) waive the restriction by Steward Capital on the prepayment of Indebtedness under Section 7.4 of the Agreement. In connection with the waivers, extension and amendment, the Company agreed to pay to Steward Capital, upon the earlier of (a) the completion of the public offering as set forth in Section 2.3 of the Agreement and (b) ten (10) days following the Company’s receipt of Steward’s written demand therefor, a fee equal to three percent (3%) of the current outstanding principal balance of the Loan (as defined in the Agreement), neither of which have occurred at the time of this filing. The Company concluded that the modifications created by the First Amendment resulted in a troubled debt restructuring under Accounting Standard Codification—Debt (Topic 470) as it was determined that a concession was granted by Steward Capital. However, as the future payments to be made subsequent to the modification arewere greater than the carrying value at the time of the modification, no gain or loss was required to be recognized on the troubled debt restructuring. As the difference between the effective interest rate method and the straight-line method iswas deemed immaterial, the Company will continuecontinued to amortize the deferred loan costs using the straight-line method over the remaining term of the Loan.

 


On October 28, 2019, the Company and Steward Capital entered into a letter of agreement (the “Second Amendment”) to amend the Agreement, as amended (the “Second Amendment”) wherein the parties agreed to (i) extend and amend the due date for all accrued and unpaid interest starting September 2, 2019 to the Maturity Date (September 9, 2020) and (ii) extend and amend the due date for the 3% fee payable to Steward Capital in connection with the amendmentFirst Amendment and waiver dated June 2019 to be payable on the Maturity Date. Also inIn connection with the extensions and amendments, the Company issued Steward Capital 120,000 shares of the Company’s common stock valued at $300,000 on December 15, 2019. The value was recorded as debt discount and amortized over the life of the loan.Loan. The Company concluded that the modifications created by the Second Amendment resulted in a troubled debt restructuring under Accounting Standard Codification—Debt (Topic 470) as it was determined that a concession was granted by Steward Capital. However, as the future payments to be made subsequent to the modification arewere greater than the carrying value at the time of the modification, no gain or loss was required to be recognized on the troubled debt restructuring. As the difference between the effective interest rate method and the straight-line method iswas deemed immaterial, the Company will continuecontinued to amortize the deferred loan costs using the straight-line method over the remaining term of the Loan.

 

The Agreement also containscontained covenants which included certain restrictions with respect to subsequent indebtedness, liens, loans and investments, asset sales and share repurchases and other restricted payments, subject to certain exceptions. The Agreement also contained financial reporting obligations. An event of default under the Agreement includes,included, but iswas not limited to, breach of covenants, insolvency, and occurrence of any default under any agreement or obligation of the Company. In addition, the Agreement contained a customary material adverse effect clause which statesstated that in the event of a material adverse effect, an event of default would occur, and the lender hashad the option to accelerate and demand payment of all or any part of the loan. A material adverse effect iswas defined in the Agreement as a material change in our business, operations, properties, assets or financial condition or a material impairment of its ability to perform all obligations under its Agreement.

 

AsOn September 4, 2020, the Company and Steward Capital entered into the Second Amendment to the Loan and Security Agreement (the “Second Amendment”) to (i) extend the Maturity Date to September 9, 2021 (the “Extended Maturity Date”) and agree to convert all accrued interest into the note, resulting in a new principal balance of $11,254,236, (ii) make all accrued and unpaid interest from September 9, 2020 through the date of maturity due on the Extended Maturity Date, (iii) on or before October 1, 2020, Company were to issue 40,000 shares of Company’s stock to Steward valued at $9.75 per share, or total of $390,000 (issued on September 30, 2020) and (iv) make the fee of 3% of the outstanding principal balance of the loan, or $300,000 (as defined in the First Amendment) due at the updated maturity date of September 9, 2021. The Company concluded that the modifications created by the Second Amendment resulted in a troubled debt restructuring under Accounting Standard Codification—Debt (Topic 470) as it was determined that a concession was granted by Steward Capital. However, as the future payments to be made subsequent to the modification were greater than the carrying value at the time of the modification, no gain or loss was required to be recognized on the troubled debt restructuring.

On April 14, 2021, the Company requested Steward Capital’s waiver of Section 7 (Covenants of Borrower), in connection with the acquisition of American Robotics, Inc (“American Robotics”). In connection with the waiver, the Company agreed to, upon consummation of the proposed acquisition, pay Steward Capital an additional $280,000, and upon the consummation of the proposed acquisition, Steward and the Company would amend the Agreement to modify the defined term “collateral” to include the intellectual property of American Robotics; however, the Company made a final payment to Steward Capital before closing of the acquisition.

On December 9, 2020, the Company made a $5,000,000 payment to Steward Capital, applying $4,679,958 to principal and $320,042 to accrued interest. On December 31, 2019,2020, the principal balance was $10,000,000,$7,003,568, net of debt discount of $252,933$120,711 and accreted cost of $359,828$550,000. On June 25, 2021, the Company made a final payment of $7,044,750 to Steward Capital, applying $6,574,278 to principal, $404,729 in interest and accrued interestother fees, and $65,743 in early payment penalties. The agreement was $437,569.terminated on July 1, 2021. Interest expense for the years ended December 31, 2022 and 2021 was $0 and $426,448, respectively.


ONDAS HOLDINGS INC.

NOTE 10 – LONG-TERM NOTES TO CONSOLIDATED FINANCIAL STATEMENTSPAYABLE

 

Energy Capital, LLC2017 Convertible Promissory Note

 

On October 1, 2018, weSeptember 14, 2017, the Company and an individual entered into a loanconvertible promissory note with unilateral conversion preferences by the individual (the “2017 Convertible Promissory Note”). On July 11, 2018, the Company’s Board approved certain changes to the 2017 Convertible Promissory Note wherein the conversion feature was changed from unilateral to mutual between the individual and securitythe Company. 

The Company may at any time on or after a qualified public offering convert any unpaid repayment at the IPO conversion price. The conversion price is the lesser of the (i) price per share of Common Stock sold in the Qualified Public Offering, discounted by 20%, and (ii) the price per share of Common Stock based on a pre-money Company valuation of $50 million on a Fully Diluted Basis.

On both December 31, 2022 and 2021, the total outstanding balance of the 2017 Convertible Promissory Note was $300,000. The maturity date of the 2017 Convertible Promissory Note is based on the payment of 0.6% of quarterly gross revenue until 1.5 times the amount of the Note is paid. Accrued interest on December 31, 2022 and 2021 was $40,965 and $40,152, respectively. Interest expense for both years ended December 31, 2022 and 2021 was $15,000.

2022 Convertible Promissory Notes

On October 28, 2022, the Company entered into a securities purchase agreement (the Loan and Security“Purchase Agreement”) withEnergy Capital, LLC certain investors pursuant to which we issued convertible notes (“Energy Capital”2022 Convertible Promissory Notes”)wherein Energy Capital made available to us an aggregate in the principal amount of $34.5 million, with a debt discount of $4.5 million and issuance costs of $2.3 million. The net amount of proceeds to us from the 2022 Convertible Promissory Notes after deducting the placement agent’s fees and transaction expenses (issuance costs) were approximately $27,703,000. The Company intends to use the net proceeds of the 2022 Convertible Promissory Notes for general corporate purposes, including funding capital, expenditures, or the expansion of its business and providing working capital.

As of December 31, 2022, the total outstanding principal on the 2022 Convertible Promissory Notes was $30,048,135, net of debt discount and issuance costs of $3,251,865.

For the year ended December 31, 2022, we recognized interest expense of $176,629 and amortization expense of $2,358,871 and $1,186,972 related to the debt discount and issuance costs, respectively. The remaining unamortized debt discount of $2,141,129 and issuance costs of $1,110,736 will be amortized via the straight-line method through the maturity date. This method is materially consistent with the interest method under ASC 835. Interest expense and amortization expense of the debt discount and issuance costs are included in Interest expense on the Consolidated Statements of Operations.

The 2022 Convertible Promissory Notes bears interest at the rate of 3% per annum. The 2022 Convertible Promissory Notes are payable in monthly installments beginning on November 1, 2022 through the maturity date of February 28, 2023 (each such date, an “Installment Date”). On each Installment Date, we will make monthly payments by converting the applicable “Installment Amount” (as defined below) into shares of our common stock (an “Installment Conversion”), subject to satisfaction of certain equity conditions, including a minimum $1.50 share price, $500,000 minimum daily volume, and maintaining continued Nasdaq listing requirements among other conditions. If these conditions are not met, installments can be requested in cash. In 2022, we issued 415,161 common shares as a result of Installment Conversion. At each Installment Date the note holder may defer some or all of the amount due until the subsequent Installment Date. In between Installment Dates, the note holder also has the option to accelerate certain portions of principal due. At each Installment Date the price used to exchange outstanding notes into common stock is based on an 8% discount to the lowest volume weighted average price (“VWAP”) of the respective previous five trading days. The maximum conversion price is $4.25 per share.


The “Installment Amount” will equal:

(i)for all Installment Dates other than the maturity date, the lesser of (x) the Holder Pro Rata Amount of $1,437,500 and (y) the principal amount then outstanding under the Note; and

(ii)on the maturity date, the principal amount then outstanding under the Note.

Each month, the note holders may accelerate a portion of the note due up to $10,000,000 (the “Loan”). Betweenfive times the minimum Installment Amount of $1,437,500.

The 2022 Convertible Promissory Notes were issued with a maturity date of February 28, 2023. See Exchange Note in Note 16 - Subsequent Events for a description of an amendment to the 2022 Convertible Promissory Notes executed in January 29 and August 13, 2019,2023, which includes an extension of the maturity date to October 28, 2024.  

A full summary of the 2022 Convertible Promissory Notes, including a full text of the related agreements, are available on the Form 8-K dated October 28, 2022.

Paycheck Protection Program Loan

On May 4, 2020, the Company applied for a loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Energy Capital entered into a series of secured term promissory notesEconomic Security Act (the “Promissory Notes”“CARES Act”) for an aggregate of $10,000,000., as administered by the U.S. Small Business Administration (the “SBA”). The advance proceeds were utilized primarily for operating capital and inventory. Theloan, in the principal amount outstanding under theof $666,091 (the “PPP Loan”), was disbursed by Wells Fargo Bank, National Association (“Lender”) on May 6, 2020, pursuant to a Paycheck Protection Program Promissory Notes bear interest ata per annum rate equal to the greater of (a) 11.25% or (b) 11.25% plus the Prime Rate (as publishedNote and Agreement (the “Note and Agreement”).

The program was later amended by the Wall Street Journal (National Edition))Paycheck Protection Flexibility Act of 2020 whereby debtors were granted a minimum maturity date of the five-year anniversary of the funding date and a deferral of ten months from the end of the covered period. The PPP Loan bore interest at a fixed rate of 1.00% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), less 3.25%.were to commence after the sixteen-month anniversary of the funding date. The Promissory Notes containCompany did not provide any collateral or guarantees for the PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The Note and Agreement provided for customary events of default, including those relating to failure to make payment, bankruptcy, breaches of representations and affirmative and negative covenants for transactionsmaterial adverse effects. The Company could prepay the principal of this nature. Upon an eventthe PPP Loan at any time without incurring any prepayment charges.

All or a portion of default, Energy Capital has the rightPPP Loan could be forgiven by the SBA upon application to requirethe Lender by the Company to prepaywithin 10 months after the outstanding principal amountlast day of the Promissory Notes plus allcovered period. The Lender would have 90 days to review borrower’s forgiveness application and the SBA had an additional 60 days to review the Lender’s decision as to whether the borrower’s loan could be forgiven. Under the CARES Act, loan forgiveness was available for the sum of documented payroll costs, covered rent payments, and covered utilities, and certain covered mortgage interest payments during the twenty-four-week period beginning on the date of the first disbursement of the PPP Loan. For purposes of the CARES Act, payroll costs excluded compensation of an individual employee earning more than $100,000, prorated annually. Not more than 40% of the forgiven amount could be for non-payroll costs. Forgiveness was reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually were reduced by more than 25%. On May 4, 2021, the Company submitted an application to the lender with supporting detail requesting forgiveness of the loan. On May 26, 2021, the Company received full forgiveness for both the principal and accrued and unpaid interest. All amounts outstanding under the Promissory Notes are secured by a lieninterest, which is included in other income on the Company’s assets, subject to termsaccompanying consolidated statements of outstanding debt obligations, and become due and payable on the earlier to occur of September 30, 2019or the completion by the Company of a capital raise with minimum proceeds to the Company of $20 million.On April 2, 2019, the Company and Energy Capital entered into a First Amendment to Loan and Security Agreement (the “First Amendment”) to (i) amend the notice provisions of an Advance Request under the Loan Agreement from at least five (5) business days to at least one (1) business day before the Advance Date, (ii) increase the amount of the Advance from up to $1,000,000 a month to up to $1,500,000 a month, and (iii) change the definition of the term Maturity Date from the earlier of September 30, 2019 or 10 business days following the date of an Underwritten Public Offering to September 30, 2020. The Promissory Notes, with an aggregate of $10,563,104 principal and interest outstanding, were converted into 4,225,242 Units (see NOTE 9 for additional details), and the debt owed under the Promissory Notes was extinguished. As a result, the Promissory Notes terminated pursuant to their terms.operations.

NOTE 911 – STOCKHOLDERS’ EQUITY

 

PreferredCommon Stock

 

AtAs of December 31, 2019,2022 and 2021, the Company had 10,000,000116,666,667 shares of Preferred Stock, par value $0.0001, authorized for issuance, of which no shares of preferredcommon stock, were issued or outstanding.

Common Stock

At December 31, 2019, the Company had 350,000,000 shares of Common Stock, par value $0.0001 (the “Common Stock”), authorized for issuance, of which 59,268,08544,108,661 and 40,990,604 shares of our Common Stock were issued and outstanding, respectively.


Preferred Stock

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

 

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

 

Form S-3

On September 27, 2019, Ondas HoldingsJanuary 29, 2021, the Company filed a shelf Registration Statement on Form S-3 for up to $150,000,000 with the SEC (the “Form S-3”) for shares of its Common Stock; shares of its preferred stock, which the Company may issue in one or more series or classes; debt securities, which the company may issue in one or more series; warrants to purchase its Common Stock, preferred stock or debt securities; and units. The Form S-3 was declared effective by the SEC on February 5, 2021. In connection with the 2022 Convertible Promissory Notes, on October 26, 2022, the Company filed a Registration Statement on Form S-3MEF to register an additional $11,696,000 aggregate maximum amount of the Company’s securities. This registration statement became effective upon filing.

2021 Public Offering

On June 8, 2021, the Company entered into a securities purchasean underwriting agreement (the “Purchase“2021 Underwriting Agreement”) with certain purchasers (the “Investors”)Oppenheimer & Co. Inc., which providedacting as the representative for the saleunderwriters identified therein (the “Underwriters”), relating to the Company’s public offering (the “2021 Public Offering”) of up6,400,000 shares (the “2021 Firm Shares”) of the Company’s Common Stock. Pursuant to $12,500,000 of Units (including an over-allotment option exercisable by the placement agent for2021 Underwriting Agreement, the Company also granted the Underwriters a 30-day option to sellpurchase up to an additional $2,500,000 of Units) at a cash purchase price of $2.50 per Unit (the “Offering”). Each Unit consists of one share960,000 shares of Common Stock (the “2021 Option Shares,” and one-half of one warranttogether with the 2021 Firm Shares, the “2021 Shares”) to cover over-allotments.

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

On June 11, 2021, pursuant to the 2021 Public Offering, the Company issued 7,360,000 shares of Common Stock (2021 Firm Shares and 2021 Option Shares) at an exercisea public price of $3.25 per share$7.00 for a period commencing six months and ending 36 months after the closing date (the “Investor Warrants”).

On September 27, 2019 (the “Initial Closing Date”), pursuant to the Purchase Agreement, the Company issued an aggregate of 2,426,000 Units to the Investors (the “Initial Closing”). In connection with the Initial Closing, Eric Brock, the Company’s Chief Executive Officer, purchased 400,000 Units totaling $1,000,000. The aggregate grossnet proceeds to the Company fromof $47,523,569 after deducting the Initial Closing was $6,065,000.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSunderwriting discount and offering fees and expenses payable by the Company.

  

On October 30, 2019 (the “Second Closing Date”), pursuantThe Underwriting Agreement included customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. The representations, warranties and covenants contained in the 2021 Underwriting Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the Purchase Agreement,agreement and were subject to limitations agreed upon by the Company issued an aggregate of 206,000 Units to the Investors (the “Second Closing”). The aggregate gross proceeds to the Company from the Second Closing was $515,000.contracting parties.

 

On November 27, 2019 (the “Third Closing Date”), pursuant to the Purchase Agreement, the Company issued an aggregate of 253,600 Units to the Investors (the “Third Closing”). The aggregate gross proceeds to the Company from the Third Closing was $634,000.

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

 

Gross Proceeds:   
Initial Closing $6,065,000 
Second Closing  515,000 
Third Closing  634,000 
   7,214,000 
Offering Costs:    
Placement Agent fees  (721,400)
Other offering costs  (382,878)
Net Proceeds $6,109,722 
Gross Proceeds:   
Initial Closing $44,800,000 
Over-allotment Closing  6,720,000 
   51,520,000 
Offering Costs:    
Underwriting discounts and commissions  (3,806,400)
Other offering costs  (190,031)
Net Proceeds $47,523,569 

 

Pursuant toThe Company will use the Purchase Agreement, the Company has agreed to indemnify the Investors for liabilities arising out of or relating to (i) any breach of anynet proceeds of the representations, warranties, covenants or agreements made by2021 Public Offering for working capital and general corporate purposes, which includes further technology development, increased spending on marketing and advertising and capital expenditures necessary to grow the Company or its subsidiary in the Purchase Agreement or related documents or (ii) any action instituted against an Investor with respect to the Offering, subject to certain exceptions. The Purchase Agreement also contains customary representations and warranties and covenants of the Company and was subject to customary closing conditions.Ondas Holdings business.

 

In addition, on the Initial Closing Date,


ATM Offering

On March 22, 2022, the Company, entered into a registration rights agreementan Equity Distribution Agreement (the “Registration Rights“ATM Agreement”) with Oppenheimer. (the “Sales Agent”). Pursuant to the Investors, pursuant to whichterms of the ATM Agreement, the Company agreedcould offer and sell (the “ATM Offering”) from time to register for resale bytime through the InvestorsSales Agent, as the Company’s sales agent, up to $50 million of shares of Common Stock, (the “ATM Shares”). Sales of the ATM Shares, if any, may be made in sales deemed to be “at the market offerings” as defined in Rule 415 promulgated under the Securities Act. The Sales Agent is not required to sell any specific number or dollar amount of ATM Shares but will act as a sales agent using commercially reasonable efforts consistent with its normal trading and sales practices and applicable state and federal laws, rules, and regulations and the shares of Common Stock issuable upon exerciserules of the Investor Warrants purchased byNasdaq Stock Market, on mutually agreed terms between the Investors pursuant toSales Agent and the Purchase Agreement.Company. The Company previously committed to file the registration statement no later than October 27, 2019, however it filed the registration statement December 5, 2019. The Registration Rights Agreement provides for liquidated damages upon the occurrence of certain events, including the Company’s failure to file the registration statement by the deadline set forth above. The amount of liquidated damages payable to an Investor is 1.0% of the aggregate amount invested by such Investor for each 30-day period, or pro rata portion thereof, during which the default continues. To dateSales Agent will receive from the Company has paid $60,650 and accrued $19,053 in liquidated damages. Also, in connection with the Offering, the Company’s executive officers and directors entered into lock-up agreements with the Placement Agent (as defined below) that restrict their ability to sell or transfer their shares for a periodcommission of 180 days after the Initial Closing Date (the “Lock-Up Agreement”).

National Securities Corporation, a wholly owned subsidiary of National Holdings, Inc., acted as placement agent (the “Placement Agent”) in the Offering. As detailed above, the Placement Agent received an aggregate cash fee of $721,400, or 10.0%3.0% of the gross proceeds raised in connection withfrom the Offering, reimbursementsales of transaction expensesATM Shares by the Sales Agent pursuant to the terms of $40,000 (included in Otherthe Agreement. Net proceeds from the sale of the ATM Shares will be used for general corporate purposes.

On October 26, 2022, Ondas entered into Amendment No. 1 to the Equity Distribution Agreement, dated March 22, 2022 (“Amendment No. 1”), the Sales Agent. Amendment No. 1 provides for the reduction of the aggregate offering costs above), and warrantsprice from up to purchase an aggregate$50 million to up to $40 million of 288,560 shares of Common StockStock.

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

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

During 2022, the Company sold (1) 852,679 ATM Shares through the Sales Agent at an exerciseaverage price equal to $3.25 per share (the “Placementof $7.29 with the net proceeds of $6.03 million; (2) 11,995 ATM Shares through the Sales Agent Warrants”). The Placement Agent Warrants are exercisable for a period commencing six months and ending 36 months afterat an average price of $5.62 with the Initial Closing Date.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Units were offered and sold exclusively to accredited investors, and the Placement Agent Warrants were offered and sold to the Placement Agent, in a transaction exempt from registration under the Securities Actnet proceeds of 1933, as amended (the “Securities Act”), as a transaction not involving a public offering, pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. The Investors and the Placement Agent represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates, Investor Warrants and Placement Agent Warrants issued in the transaction. The offer and sale of the securities were made without any general solicitation or advertising.

Conversion of Notes Payable and Other Financing Agreements

$65 thousand. In connection with the Initial Closing, onsale of these ATM Shares, the Initial Closing Date,compensation paid by the notes payable and other financing agreements (the “Debt Obligations”) (see NOTE 7Company to the Sales Agent was $227,116.

Stock Issued for further details), with an aggregate of $3,933,767 principal and interest outstanding, were converted into an aggregate of 1,573,511 Units.Convertible Debt

 

Conversion of Loan and Security Agreement with Energy Capital, LLC

In connection with the Initial Closing, on the Initial Closing Date, the Loan and Security Agreement by and between the Company and Energy Capital, a greater than five percent stockholder of the Company, with an aggregate of $10,563,104 principal and interest outstanding, was converted into of 4,225,242 Units.

Issuance of Common Stock

On December 15, 2019,1, 2022 and November 1, 2022, the Company issued 120,000212,450 and 202,711 shares of its common stock, respectively, to Steward Capitalthe lenders in conjunction with an amendment to loanlieu of cash payments for the outstanding interest and security agreementprincipal on the 2022 Convertible Promissory Notes (See NOTE 810 for further details).

 

Warrants to Purchase Common Stock

 

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

 

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

 

As of December 31, 2019,2022, we had Warrants outstanding to purchase an aggregate of 4,771,4171,901,802 shares of Common Stock with a weighted-average contractual remaining life of approximately 2.87.47 years, and exercise prices ranging from $0.01$0.03 to $3.25$7.89 per share, resulting in a weighted average exercise price of $3.15$7.63 per share. At


Warrants Granted During 2021

As of December 31, 2019, no warrants were exercised.

On September 27, 2019,2021, we grantedhad Warrants outstanding to purchase an aggregate of 4,495,657 3-year Warrants to participants in our Securities Purchase Agreement (see above for further details). The Warrants vested on the date of the grant and had a grant date fair value of $0.33 per share. Also, on September 27, 2019, we granted a Warrant to an individual lender for the purchase of an aggregate of 140,6783,305,854 shares of Common Stock (see NOTE 7 for further details). The Warrant vested on the datewith a weighted-average contractual remaining life of the grant, expires on September 26, 2024approximately 5.24 years, and hasexercise prices ranging from $0.03 to $9.75 per share, resulting in a grant date fair valueweighted average exercise price of $2.49$8.53 per share.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On October 30, 2019, we grantedAugust 8, 2021 the Company issued warrants to purchase an aggregate of 123,600 3-year Warrants to participants1,565,656 shares of Common Stock with an exercise price of $7.89 per share as consideration in our Securities Purchase Agreement (see above for further details). The Warrants vestedthe acquisition of American Robotics. These warrants vest in three equal installments on the datenext three anniversaries of the grant and had a grant date fair value of $0.35 per share.their issuance.

 

On November 27, 2019, we granted an aggregate of 152,160 3-year Warrants to participants in our Securities Purchase Agreement (see above for further details). The Warrants vested on the date of the grant and had a grant date fair value of $0.34 per share.

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

 

Stock price $2.50 
Risk-free interest rate  1.58-1.63%
Volatility  38.50-39.57%
Expected life in years  3-5 
Dividend yield  0.00%
  2021 
Stock price $7.78 
Risk-free interest rate  1.23%
Volatility  46.91%
Expected life in years  10 
Dividend yield  0.00%

 

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

A summary of our Warrants activity and related information follows:

        Weighted 
     Weighted  Average 
  Number of  Average  Remaining 
  Shares Under  Exercise  Contractual 
  Warrant  Price  Life 
Balance on January 1, 2021  1,879,803  $9.16   2.20 
Issued  1,565,656  $7.89   4.50 
Exercised  (139,605) $9.75     
Balance on December 31, 2021  3,305,854  $8.53   5.20 
Expired  (1,404,052) $9.75     
Balance on December 31, 2022  1,901,802  $7.63   7.47 

Equity Incentive Plan

 

In connection with the Closing, our board of directors (the “Board”) approved, and2018, our stockholders adopted the 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which 10 million3,333,334 shares of our Common Stock has been reserved for issuance to employees, including officers, directors and consultants. The 2018 Plan shall be administered by the Board, provided however, that the Board may delegate such administration to the compensation committee (the “Committee”). Subject to the provisions of the 2018 Plan, the Board and/or the Committee shall have authority to grant, in its discretion, incentive stock options, or non-statutory options, stock awards or restricted stock purchase offers (“Equity Awards”).

  

In August 2019, pursuant


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

Stock Options to Purchase Common Stock

The Company awards stock options to certain employees, directors, and consultants, which represent the right to purchase common shares on the date of exercise at a stated exercise price. Stock options granted to employees generally vest over a two to four-year period and are contingent on ongoing employment. Compensation expenses related to these awards is recognized straight-line over the applicable vesting period. Stock options granted to consultants are subject to the attainment of pre-established performance conditions. The actual number of shares subject to the award is determined at the end of the performance period and may range from zero to 100% of the target shares granted depending upon the terms of Severance Agreements, 675,000 incentive stock options with deferred distribution were promisedthe award. Compensation expenses related to two formerthese awards is recognized when the performance conditions are satisfied.

On August 5, 2021, the Company issued 211,038 Stock Options to employees of American Robotics in connection with the Company pursuant to the 2018 Plan (both employees participated in the restricted stock purchase offers (“RSUs”) discussed below). For the year ended December 31, 2019, $435,312 in related stock compensation expense has been recordedmerger. Of these Stock Options 50,543 were issued as fully vested with no further service obligations and iswere included in the accompanying consolidated financial statements.purchase consideration. The remaining 151,495 vest over a four-year period and are contingent on ongoing employment. They are included in compensation expense.

 

During 2018, the Company entered into an agreement wherein 378,478 RSUs with deferred distribution were promised to a consultant for the Company pursuant to the 2018 Plan. For the year ended December 31, 2019, $50,599 in related stock compensation expense has been recorded and is included in the accompanying consolidated financial statements. The Company has not yet executed the RSU agreement with the consultant. Also during 2018, the Company entered into agreements where an aggregate of 408,478 RSUs pursuant to the 2018 Plan were promised to employees for services provided during 2019. In August 2019, certain employees were terminated and, in accordance with their separation agreements, any liabilities related to their promised RSUs were eliminated. Accordingly, the Company has recorded expense of $71,789 for the year ended December 31, 2019, with respect to such awards which is included in the accompanying consolidated financial statements. The Company has not yet executed RSU agreements with the remaining employees. The total amount of non-vested restricted units awarded as of December 31, 2019 is $143,804 shares. The weighted average grant-date fair value for the restricted stock awards is $0.25. The weighted average vesting period of the restricted stock awards is 2.0 years. As of December 31, 2019,2022, we had Stock Options outstanding to purchase an aggregate of 2,412,286 shares of Common Stock with a weighted-average contractual remaining life of approximately 7.58 years, and exercise prices ranging from $3.51 to $6.79 per share, resulting in a weighted average exercise price of $5.77 per share.

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

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

  2022 2021
Stock price $3.81 - $6.55 $7.50 - $12.92
Risk-free interest rate 1.82 - 3.95% 0.35 - 0.87%
Volatility 46.42 - 48.96% 45.53 - 53.99%
Expected life in years 5.80 - 6.30 3.00 - 5.89
Dividend yield 0.00% 0.00%


A summary of our Option activity and related information follows:

  Number of Shares Under Option  Weighted Average Exercise Price  Weighted
Average
Remaining
Contractual
Life
 
Balance on January 1, 2021  568,006  $7.39   9.40 
Granted  336,038  $4.91     
Exercised  (47,846) $2.09     
Canceled  (168,750) $6.39     
Balance on December 31, 2021  687,448  $6.79   8.20 
Granted  2,094,000  $5.17     
Exercised  (31,057) $2.09     
Forfeited  (168,105) $2.77     
Canceled  (170,000) $6.43     
Balance on December 31, 2022  2,412,286  $5.77   7.58 
Vested and Exercisable at December 31, 2022  635,288  $7.88   5.78 

As of December 31, 2022, total unrecognized compensation expense related to the unvested portion of the Company’s restricted stock awardsnon-vested Options was $42,759,$2,631,636 which is expected to be recognized over a weighted averageweighted-average period of 0.752.21 years.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

  Years Ended
December 31,
 
  2022  2021 
General and administrative $536,269  $306,055 
Sales and marketing  509,789   - 
Research and development  720,554   - 
Total stock-based expense related to options $1,766,612  $306,055 

Restricted Stock Units

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

 


A summary of our RSUs activity and related information follows:

  RSUs  Weighted Average Grant Date Fair Value  Weighted
Average
Vesting Period (Years)
 
Unvested balance at January 1, 2021  625,000  $2.80   1.25 
Granted  1,458,172  $7.98     
Vested  (526,250) $3.75     
Cancelled  (125,000) $2.80     
Unvested balance at December 31, 2021  1,431,922  $12.12   2.5 
Granted  190,860  $2.52     
Vested  (512,755) $8.06     
Unvested balance at December 31, 2022  1,110,027  $6.89   1.52 

As of December 31, 2019,2022, there were 1,590 RSUs that vested, but were not yet issued as common stock. Total stock-based compensation expense for RSUs for the Board has not approved the grant of any Equity Awards under the 2018 Plan.years ended December 31, 2022 and 2021 is as follows:

 

  Years Ended
December 31,
 
  2022  2021 
General and administrative $3,259,648  $2,947,585 
Sales and marketing  24,632   - 
Research and development  806,543   - 
Total stock-based expense related to RSUs $4,090,823  $2,947,585 

NOTE 1012 – SEGMENT INFORMATION

Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in making decisions regarding resource allocation and performance assessment. The Company’s CODM is its Chief Executive Officer. The Company determined it has two reportable segments: Ondas Networks and Ondas Autonomous Systems, which only includes the results of American Robotics for the year ended December 31, 2022 and 2021, as the CODM reviews financial information for these two businesses separately The Company has no inter-segment sales. The following table presents segment information for years ended December 31, 2022 and 2021:

  Year Ended  Year Ended 
  December 31, 2022  December 31, 2021 
  Ondas
Networks
  Ondas
Autonomous
Systems
  Total  Ondas
Networks
  Ondas
Autonomous
Systems
  Total 
Revenue, net $1,931,677  $194,140  $2,125,817  $2,840,154  $66,617  $2,906,771 
Depreciation and amortization  1,915,557   5,649,834   7,565,391   126,728   1,385,866   1,512,594 
Interest income  12,771   12,771   25,542   10,399   1,179   11,578 
Interest expense  1,294,863   1,279,863   2,574,726   574,889   796   575,685 
Stock based compensation  1,188,217   4,669,218   5,857,435   1,642,507   1,611,083   3,253,590 
Goodwill impairment  -   19,419,600   19,419,600   -   -   - 
Benefit from income taxes  -   -   -   -   2,921,982   2,921,982 
Net loss  (14,361,407)  (58,880,398)  (73,241,805)  (7,888,588)  (7,135,254)  (15,023,842)
Goodwill  -   25,606,983   25,606,983   -   45,026,583   45,026,583 
Capital expenditure  97,853   2,783,047   2,880,900   123,854   799,864   923,718 
Total assets  34,227,117   63,718,129   97,945,245   45,226,925   72,211,650   117,438,575 


NOTE 13 – INCOME TAXES

 

The provision (benefit) from income taxes was as follows:

  December 31, 
  2022  2021 
Current      
U.S. Federal $  $ 
State and local      
  $  $ 
Deferred        
U.S. Federal $  $(2,360,923)
State and local     (561,059)
  $  $(2,921,982)
Total        
U.S. Federal $  $(2,360,923)
State and local     (561,059)
  $  $(2,921,982)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

 

  Years Ended December 31, 
  2019  2018 
Deferred Tax Assets:      
Tax benefit of net operating loss carry-forward $11,828,268  $6,465,826 
Depreciation and amortization  27,949   (5,102)
Accrued liabilities  360,204   261,876 
Stock based compensation  34,493   - 
Interest Expense  -   740,285 
R&D Credit  851,413   393,165 
Total deferred tax assets  13,102,327   7,856,050 
Valuation allowance for deferred tax assets  (13,102,327)  (7,856,050)
Deferred tax assets, net of valuation allowance $-  $- 
  December 31, 
  2022  2021 
Deferred Tax Assets:      
Tax benefit of net operating loss carry-forward $27,478,875  $17,577,952 
Accrued liabilities  96,363   69,525 
Stock based compensation  949,089   1,630,004 
Depreciation  91,639    
Inventory Reserve  27,321    
Operating Lease Liabilities  827,607   159,558 
R&D Capitalization  5,683,784    
R&D Credit  751,488   1,046,841 
Total deferred tax assets  35,906,166   20,483,880 
         
Deferred Tax Liabilities:        
Depreciation     (12,706)
Amortization  (3,078)  (5,331)
Intangibles  (5,885,385)  (5,743,441)
Deferred Rent  (798,745)  (193,482)
Total deferred tax liabilities  (6,687,208)  (5,954,960)
Total net deferred tax assets  29,218,958   14,528,920 
Valuation allowance for deferred tax assets  (29,218,958)  (14,528,920)
Deferred tax assets, net of valuation allowance $-  $- 

 


The change in the Company’s valuation allowance is as follows:

 

  Years Ended December 31, 
  2019  2018 
Beginning of the year $7,856,050  $4,726,411 
Change in valuation account  5,246,277   3,129,639 
End of the year $13,102,327  $7,856,050 

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Years Ended
December 31,
 
  2022  2021 
       
Beginning of the year $14,528,920  $16,655,023 
Change in valuation account  14,690,038   (2,126,103)
End of the year $29,218,958  $14,528,920 

 

A reconciliation of the provision for income taxes with the amounts computed by applying the Federal income tax rate to income from operations before the provision for income taxes is as follows:

 

  Years Ended December 31, 
  2018  2018 
U.S. federal statutory rate  (21.0)%  (21.0)%
Federal true ups  0.8%    
State taxes, net of federal benefit  (6.2)%  (6.9)%
Share-based compensation  -%  -%
Effect of U.S. tax law change  -%  -%
Change in valuation allowance  27.1%  25.8%
         
Nondeductible expenses  0.5%  2.0%
R&D credit  (2.4)%  (3.2)%
Stock Options  -%  3.3%
Foreign rate differential  (0.2)%    
China liquidation  1.4%    
Effective income tax rate  -%  -%
  Years Ended
December 31,
 
  2022  2021 
U.S. federal statutory rate  (21.0)%  (21.0)%
Federal True Ups  0.40%  0.5%
State taxes, net of federal benefit  (7.61)%  14.01%
Change in valuation allowance  20.06%  (11.85)%
Goodwill Impairment  5.57%  %
Stock Compensation  2.02%  %
Nondeductible Expenses  0.56%  2.01%
R&D Credit  %  0.05%
Effective income tax rate  %  (16.28)%

 

In assessing the realizabilityrealization of deferred tax assets, including the net operating loss carryforwards (NOLs), the Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize its existing deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible. Based on its assessment, the Company has provided a full valuation allowance against its net deferred tax assets as their future utilization remains uncertain at this time. The December 31, 2022 change in valuation allowance is mainly related to the acquisition of ARI.

 

As of December 31, 20192022 and 2018,2021, the Company had approximately $42$102 million and $23$79 million, respectively, of Federal NOLs available to offset future taxable income. The Federal NOLs of $15 million generated in 2007 through 2017 will begin to expire in 2027 through 2037. The Federal NOLs of $87 million generated in 2018 through 2022 have no expiration. As of December 31, 2022 and state2021, the Company had approximately $105 million and $70 million, respectively, of State NOLs available to offset future taxable income with $23 million expiring from 20302028 through 2037 while the Federal NOL of $17 Million generated in 2019 has no expiration.2042. As of December 31, 20192022 and 2018,2021, the Company had approximately $851,000$752,000 and $393,000,$1,047,000, respectively of Federal research and development credits available to offset future tax liability expiring from 20302038 through 2039. 2040. The Company’s Federal income tax returns for the 2019 to 2021 tax years remain open to examination by the IRS. Upon utilization of Federal NOLs in the future, the IRS may examine records from the year the loss occurred, even if outside the three-year statute of limitations. The Company’s State tax returns also remain open to examination.

In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s Federal Carryforwards could be limited in the event of a change in ownership. As of December 31, 20192021, the company has notCompany completed an analysis asand determined that there were multiple ownership changes. Provided sufficient taxable income is generated the annual base limitation plus increased limitation calculated pursuant to whether or not an ownership change has occurred.IRS Notice 2003-65 will allow the Company to utilize all existing losses within the carryover periods.

 


The Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes the two-step process to determine the amount of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties associated with uncertain tax positions as a component of income tax expense.

 

As of December 31, 2019,2022, management does not believe the Company has any material uncertain tax positions that would require it to measure and reflect the potential lack of sustainability of a position on audit in its financial statements. The Company will continue to evaluate its uncertain tax positions in future periods to determine if measurement and recognition in its financial statements is necessary. The Company does not believe there will be any material changes in its unrecognized tax positions over the next year.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (“Tax Cuts and Jobs Act”) was enacted which contained substantial changes to the Code, some of which could have an adverse effect on our business. Among other things, the Tax Cuts and Jobs Act (i) reduces the U.S. corporate income tax rate from 35% to 21% beginning in 2018, (ii) generally will limit annual deductions for net interest expense to no more than 30% of our “adjusted taxable income,” plus 100% of our business interest income for the year, and (iii) will permit a taxpayer to offset only 80% (rather than 100%) of its taxable income with any U.S. net operating losses (“NOLs”) generated for taxable years beginning after 2017. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued. While the U.S. Department of the Treasury has issued some proposed regulations since the enactment of the Tax Cuts and Jobs Act, additional guidance is likely forthcoming. The measurement period allowed by Staff Accounting Bulletin (“SAB”) No. 118 has closed during the fourth quarter of 2018. The prospects of supplemental legislation or regulatory processes to address uncertainties that arise because of the Act, or evolving technical interpretations of the tax law, may cause our financial statements to be impacted in the future. We will continue to analyze the effects of the Act as subsequent guidance continues to emerge.

NOTE 1114 – COMMITMENTS AND CONTINGENCIES

 

Legal Proceedings

 

We may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There are no such loss contingencies that are included in the financial statements as of December 31, 2019.2022.

    

Operating Leases

 

On November 11, 2013, Ondas Networks entered into a three-year lease agreement for 5,858 square feet of office space at 687 North Pastoria Avenue, Sunnyvale, California expiring on December 31, 2017 with a base rent ranging from $2,929 to $9,079 per month plus certain various expenses incurred (the “North Pastoria Lease”). On October 16, 2017, Ondas Networks extended the lease agreement for an additional three years with an expiration date of December 31, 2020 (“2018 Extension”). Rent expense for the years ended December 31, 2019 and 2018 related to the North Pastoria Lease was $170,148 and $170,151, respectively. The base rent in the 2018 Extension is $15,231 for 2020. In late 2018, we vacated this location and completed our move into the location described below. In late January 2020, we entered into a sublease agreement of the North Pastoria Lease for the remainder of the lease term (see NOTE 13 for further details).

The future minimum lease payments related to the North Pastoria Lease is as follows:

Year Ending December 31, 2020   
North Pastoria Lease $182,772 
Sublease (see NOTE 13)  (106,323)
Net payments in 2020 $76,449 

On October 30, 2018, Ondas Networks entered into a Sublease with Texas Instruments Sunnyvale Incorporated, regarding the sublease of approximately 21,982 square feet of rentable space at 165 Gibraltar Court, Sunnyvale, CA 94089 (the “Gibraltar Sublease”), constituting the entire first floor of the premises (except the lobby and two stairwells), as defined under that certain Lease dated April 12, 2004, as amended by the First Lease Amendment dated March 15, 2005, a Second Amendment to Lease dated November 30, 2005, and a Third Amendment to Lease dated November 30, 2010 between Gibraltar Sunnyvale Holdings LLC and Texas Instruments Sunnyvale Incorporated. The Sublease began on November 1, 2018 and endsended on February 28, 2021 at a base monthly rent of $28,577. A security deposit of $28,577 was paid upon execution of the Sublease.Sublease and refunded during the year ended December 31, 2021. Rent expense for the years ended December 31, 2022 and 2021 was $0 and $80,627, respectively.

The lease for our offices and facilities for Ondas Networks at 165 Gibraltar Court, Sunnyvale, CA expired on February 28, 2021 and was verbally extended to March 31, 2021 under the same terms. On January 22, 2021, we entered into a 24-month lease (effective April 1, 2021) with Google LLC, the owner and landlord, wherein the base rate is $45,000 per month and including a security deposit in the amount of $90,000. Rent expense for the years ended December 31, 2022 and 2021 was $540,000 and $405,000, respectively.

On August 5, 2021, the Company acquired American Robotics and their Lease (American Robotics Lease), wherein the base rate is $15,469 per month, with an annual increase of 3% through January 2024, with a security deposit of $24,166. On August 19, 2021, American Robotics amended their lease to reduce their space. The amendment reduced their annual base rent to $8,802 per month, with an annual increase of 3% through January 2024. Rent expense for the years ended December 31, 2022 and 2021 was $109,155 and $45,050, respectively.

On October 8, 2021, American Robotics entered into an 86-month operating lease for space in Waltham, MA. Lease is scheduled to commence on March 1, 2022 and terminate on April 30, 2029, wherein the base rate is $39,375 per month, increasing 3% annually, with a security deposit due in the amount of $104,040. In conjunction with this new lease, American Robotics is leasing a short-term temporary space at $8,500 per month, until their primary space is available, which is targeted for May 1, 2022. Rent expense for the year ended December 31, 2019 and November and December 31, 2018 related to the Gibraltar Sublease2022 was $312,301 and $52,050, respectively.$502,298.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The future minimum lease payments related to the Gibraltar Sublease are as follows:

 

Years Ending December 31,    
2020  $342,924 
2021  $57,154 

NOTE 1215 – RELATED PARTY TRANSACTIONS

  

On March 14, 2020, Mr. Brock waived accrued payroll amounts in the amount of $141,667. Between January 1 and December 15, 2020 we accrued $131,494 for salary owed during 2020 to Mr. Brock. On January 29, 2021, Mr. Brock was paid $64,344 of the accrued amount and the remaining $67,150 was paid on April 15, 2021.

On March 14, 2020, Stewart Kantor, President of Ondas Networks, waived accrued payroll amounts in the amount of $8,334. As of December 31, 2020, Ondas Networks accrued an additional $2,850 for salary owed during 2020 to Mr. Kantor, which was paid on April 15, 2021.

Between June 2 and December 31, 2020, we accrued $115,385 for salary owed to Thomas V. Bushey, then President of the Company. On January 19, 2021, Mr. Bushey waived the accrued payroll amounts in the amount of $115,385. Pursuant to the terms of a Separation Agreement and General Release (the “Separation Agreement”) dated January 19, 2021 (the “Effective Date”), between Mr. Bushey and the Company, Mr. Bushey agreed to waive his entitlement to accrued salary in the amount of $125,256 and accrued vacation in the amount of $9,846 as of the Effective Date. At the Closing, wetime of Mr. Bushey’s resignation as President in January 2021, Mr. Bushey had the right to receive 500,000 RSU Shares (375,000 vested as of December 31, 2020 and 125,000 of which the Compensation Committee accelerated vesting), which will be issued on June 3, 2022 pursuant to Mr. Bushey’s deferral election. The remaining 500,000 RSU Shares were canceled. As part of the Separation Agreement, Mr. Bushey and the Company entered into a Loan and SecurityConsulting Agreement with Energy Capital, a greater than 10% stockholder ofdated January 19, 2021 (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Bushey provided services to the Company pursuant to which Energy Capital loanedat the Company an aggregate principal amountdirection of $10 million (see NOTE 8 for further details). The Promissory Notes, with an aggregate of $10,563,104 principal and interest outstanding, were converted into 4,225,242 Units in the aforementioned Purchase Agreement (see NOTE 9 for further details), and the debt owed under the Promissory Notes was extinguished. Also, in connection with the Purchase Agreement, Eric Brock, the Company’s Chief Executive Officer, purchased 400,000 Units totaling $1,000,000.Officer. The Consulting Agreement terminated on July 19, 2021. Mr. Bushey was paid $7,500 per month for these services.

The Company has a long-term equity investment in Dynam with a carrying value of $1,500,000 and $500,000 as December 31, 2022 and 2021, respectively. See Note 7 – Long-Term Equity Investment. In addition to the equity investment, the Company paid Dynam for services of $2,026,400 and $275,200 during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, amounts owed to Dynam were $0 and $151,893, respectively, which are included in Accounts payable on the Consolidated Balance Sheets.

As of December 31, 2022, the Company owed $359,159 to independent directors, which is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

NOTE 1316 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events as of March 14, 2023, the date the consolidated financial statements were available to be issued according to the requirements of ASC Topic 855.

Exchange Note

On November 11, 2013,January 20, 2023, the Company entered into a three-year lease agreement for office space at 687 North Pastoria Avenue, Sunnyvale, California expiringan Amendment No. 1 to Securities Purchase Agreement (“Amended SPA”) to that certain Purchase Agreement. The Amended SPA amends the notes attached as exhibits to the Purchase Agreement.

Pursuant to the terms of the Purchase Agreement, on December 31, (the “North Pastoria Lease”). On October 16, 2017,January 20, 2023, the Company extendedexchanged the lease agreement for an additional three years with an expiration2022 Convertible Promissory Notes, on a dollar-for-dollar basis, into 3% Senior Convertible Notes Due 2024 (the “2022 Convertible Exchange Notes”).

The 2022 Convertible Exchange Notes are identical in all material respects to the 2022 Convertible Promissory Notes, except that they (i) are issued pursuant to the Base Indenture (as defined below) and the First Supplemental Indenture (as defined below); (ii) have a maturity date of December 31, 2020 (“2018 Extension”October 28, 2024; (iii) allow for the Acceleration of Installment Amounts not to exceed eight (8) times the Installment Amount with respect to the Installment Date related to the Current Acceleration; and (iv) modify the Acceleration Conversion Price. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the 2022 Convertible Exchange Notes attached as an exhibit to this report.


The 2022 Convertible Exchange Notes were issued pursuant to the first supplemental indenture (the “First Supplemental Indenture”). On, dated as of January 24, 2020,20, 2023, between the Company and a third partyWilmington Savings Fund Society, FSB, as trustee (the “Sublessee”“Trustee”). The First Supplemental Indenture supplements the indenture entered a Sublease agreementinto by and between the Company and the Trustee, dated as of January 20, 2023 (the “Sublease”), wherein“Base Indenture” and, together with the Sublessee will occupyFirst Supplemental Indenture, the premises for“Indenture”). The Indenture has been qualified under the remainderTrust Indenture Act of 1939, and the terms of the term2022 Convertible Exchange Notes include those set forth in the Indenture and those made part of the 2018 Extension. The Sublessee will make payments total $106,323 ($9,666 per month) forIndenture by reference to the remaining 11 months.Trust Indenture Act.

 

Between April 16 andSubsequent to December 31, 2019, we accrued $141,6672022, the Company issued approximately 2,105,000 shares as a result of Installment Conversion.

Airobotics Transaction

On January 23, 2023, the Company, completed the acquisition of Airobotics, pursuant to the Agreement of Merger, dated as of August 4, 2022 (the “Original Airobotics Agreement”), and that certain Amendment to Agreement of Merger, dated November 13, 2022 (the “Airobotics Amendment,” and together with the Original Airobotics Agreement, the “Airobotics Agreement”), by and among the Company, Talos Sub Ltd., an Israeli company and a wholly owned subsidiary of the Company (“Merger Sub”), and Airobotics. In accordance with the terms of the Airobotics Agreement, Merger Sub merged with and into Airobotics (the “Merger”), with Airobotics continuing as the surviving company of the Merger and as a wholly owned subsidiary of the Company.

At the effective time of the Merger (the “Effective Time”), each ordinary share of Airobotics, par value NIS 0.01 per share (the “Airobotics Ordinary Shares”), issued and outstanding (other than shares owned by Airobotics or its subsidiaries (dormant or otherwise) or by the Company or Merger Sub) was converted into, and exchanged for salary owed during 20190.16806 (the “Exchange Ratio”) fully paid and nonassessable shares of common stock of the Company common stock, without interest and subject to Mr. Brock,applicable tax withholdings (“Merger Consideration”)All fractional shares of the Company's Chief Executive Officer. On March 12, 2020, Mr. Brock waived accrued payroll amountsCompany common stock that would have otherwise been issued to a holder of Airobotics Ordinary Shares as part of the Merger Consideration were rounded up to the nearest whole share based on the total number of shares of the Company’s common stock issued to such holder of Airobotics Ordinary Shares. Holders of Airobotics Ordinary Shares received approximately 2.8 million shares as consideration (excluding approximately 1.7 million shares underlying equity awards to be outstanding following the Merger).

As provided in the amountAirobotics Agreement, each outstanding option, warrant or other right, whether vested or unvested, to purchase Airobotics Ordinary Shares (each, an “Airobotics Stock Option,” and collectively, the “Airobotics Stock Options”) issued pursuant to the Airobotics Ltd. 2015 Israeli Share Option Plan and 2020 Incentive Equity Plan (the “Airobotics Plans”), was assumed by Ondas and converted as of $141,667.the Effective Time into an option, warrant or right, as applicable, to purchase shares of Company common stock. Subject to the terms of the relevant Airobotics Stock Option, each Airobotics Stock Option is deemed to constitute an option, warrant, or other right, as applicable, to purchase, on substantially the same terms and conditions as were applicable under such Airobotics Stock Option, a number of shares of Company common stock equal to the number of shares of Company common stock (rounded up to the nearest whole share) that the holder of such Airobotics Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such option, warrant, or right to purchase full Airobotics Ordinary Shares immediately prior to the Effective Time at a price per share of Company common stock (rounded down to the nearest whole cent) equal to (i) the former per share exercise price for Airobotics Ordinary Shares otherwise purchasable pursuant to such Airobotics Stock Option, divided by (ii) the Exchange Ratio.

 

On March 12, 2020, Stewart Kantor,As a result of the Merger, the Company will be dual listed on The Nasdaq Stock Market and the Tel Aviv Stock Exchange (“TASE”). The first trading day of the Company’s Chief Financial Officer, waived accrued payroll amounts in the amount of $8,334.shares on TASE was January 26, 2023.

 

F-35 


 

 

The following table summarizes the preliminary allocation of the purchase price based on the estimated fair value of the acquired assets and assumed liabilities as of January 23, 2023 (in thousands, except share amounts):

Purchase price consideration   
Parent loan $2,000 
Common Stock – 2,844,291 Shares  5,262 
Vested Stock Options – 605,349 Shares  925 
Warrants – 586,440 Shares  - 
Total purchase price consideration $8,187 
     
Estimated fair value of assets:    
Cash and cash equivalents and restricted cash $1,050 
Accounts receivable  112 
Inventory  1,495 
Other current assets  836 
Property, plant and equipment  2,624 
Right of use asset  340 
Intangible assets  3,565 
Other long-term assets  63 
   10,085 
     
Estimated fair value of liabilities assumed:    
Accounts payable  969 
Customer Prepayments  1,603 
Government grant liability  1,783 
Other payables  1,156 
Lease liabilities  385 
Loan from related party  3,131 
   9,027 
     
Net Assets Acquired $1,058 
     
Goodwill $7,129 

The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in valuation of intangible assets such as trade names, customer relationships, and technology, as well as goodwill and (3) other changes to assets and liabilities.

The table below estimates the financial results of the Company had both the American Robotics and Airobotics acquisitions occurred on January 1, 2021. All numbers except loss per shares are in thousands.

  (Unaudited)
Year Ended
December 31,
 
  2022  2021 
Revenue, net $2,874  $7,214 
Net loss $(87,092) $(43,663)
Basic Earnings Per Share $(1.93) $(1.02)
Diluted Earnings Per Share $(1.93) $(1.02)


Iron Drone Asset Acquisition

As previously disclosed, on October 19, 2022, Airobotics entered into an Asset Purchase Agreement, as amended, to acquire all of the intellectual property, technical systems, and operations of Iron Drone Ltd. (“Iron Drone”), an Israeli-based company specializing in the development of autonomous counter-drone systems (the “Iron Drone Transaction”). The consideration for the Iron Drone Transaction was (i) $135,000 in cash, (ii) 46,129 shares of the Company’s common stock, (iii) warrants exercisable for 26,553 shares of the Company’s commons stock with an exercise price of $11.95, which shall be exercisable if, during the 48 month period following the closing, the average price per share of the Company’s common stock exceeds $52.38 for a period of at least 90 consecutive trading days, (iv) a right to acquire 35,377 shares of the Company’s common stock if during the 48 month period after the closing, the average price per share of the Company’s common stock exceeds $18.25 for a period of at least 90 consecutive trading days, and (v) a right to acquire 70,753 shares of the Company’s common stock if during the 48 month period after the closing, the average price per share of Company’s common stock exceeds $20.27 for a period of at least 90 consecutive trading days. On March 6, 2023, the Company completed the Iron Drone Transaction.

Ondas Autonomous Systems

On February 14, 2023, the Company announced the formation of Ondas Autonomous Systems, a new business unit to manage the combined drone operations of wholly owned subsidiaries American Robotics and Airobotics.

As part of the integration of American Robotics and Airobotics to form Ondas Autonomous Systems and focus on a single product platform, the Company undertook certain restructuring actions:

A reduction in workforce of 45 full time employees at American Robotics was implemented that results in a one-time restructuring charge of approximately $264,000 that will be recognized in the quarter ending March 31, 2023.

A contract entered into on August 29, 2022, with a third party for development, that committed the Company to 24 monthly payments, of which the first twelve months were non-cancellable, was renegotiated. The original contract had a minimum commitment of $4,995,833 of which $3,633,332 was outstanding as of December 31, 2022. The company ended all development efforts and agreed to a termination fee of $1,589,585 payable over nine months from March 15, 2023. The full cost of the termination fee will be recorded in the quarter ending March 31, 2023.

Silicon Valley Bank Failure

On March 10, 2023, Silicon Valley Bank failed and was taken into receivership by the FDIC. Federal Deposit Insurance Corporation (FDIC). The Company held $361,813 in excess of federally insured limits with Silicon Valley Bank as of March 10, 2023. However, on March 12, 2023, the federal government announced they will back all customer deposits at Silicon Valley Bank.


Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosures.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.

 

None.

 

Item 9A.Controls and Procedures

Item 9A. Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2019.2022. Based on that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that as of the period ended December 31, 2019, due to the existence of the material weakness in the Company’s internal control over financial reporting described below,2022 the Company’s disclosure controls and procedures were not effective.

 

Management’s Annual Report on Internal Control overOver Financial Reporting

 

Our senior management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board, senior management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

 


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

 

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the control deficiencies identified duringresults of this evaluation, and set forth below, our senior management has concluded that we did not maintain effective internal controlthe Company’s controls over financial reporting as ofwere effective for the period ending December 31, 2019 due to2022, and the existence of a material weakness in internal control over financial reporting as described below.

As set forth below, management will take steps to remediate the control deficiencies identified below. Notwithstanding the control deficiencies described below, we have performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this Form 10-K fairly present, in all material respects, our financial condition and results of operations as of and for the quarter endedperiod ending December 31, 2019.2021 has been remediated.

 

Remediation of Material Weakness

 

A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management has determined that the Company did not maintain effective internal control over financial reporting as ofmaterial weakness described below that was identified for the period endedending December 31, 2019 due to2021 was remediated during the existence of the following material weakness identified by management:

Lack of Segregation of Duties and Accounting Resources

Due to our limited accounting staff, the Company’s Chief Executive Officer and Chief Financial Officer were responsible for initiating transactions, had custody of assets, recorded transactions and prepared financial reports. Therefore, it was determined that the Company had inadequate segregation of duties in place related to its financial reporting and other management oversight procedures due to the lack of accounting resources.

Accordingly, management has determined that these control deficiencies constitute a material weakness. During 2019, management began implementing the Remediation Plan described herein and intends to continue working on it through the year endedperiod ending December 31, 2020.

2022.

47

 

Management’s Remediation PlanInadequate review of stock- based compensation issued in connection with the acquisition of American Robotics

The Company has completed the remediation plan that includes the following:

 

Management believes that progress has been made during the year ended December 31, 2019, and through the date of this report, to remediate the underlying causes of the material weakness in internal control over financial reporting. Management intends to remediate the material weakness in the following manner:

Identify and employ full time additional senior level accounting personnelImplemented a third-party equity management software to join the corporate accounting function in ordercalculate stock compensation expense relating to enhance overall monitoring and accounting oversight within the Company;all equity awards

 

continue to engage third-party subject matter experts to aid in identifyingRestructured working papers and applying US GAAP rules related to complex financial instruments as well as to enhance the financial reporting function;

design and implementadded an additional internal controls and policiesreview process to ensure that we routinely review and document our application of established significant accounting policies; andstock compensation expense is correctly calculated.

 

implement additional systems and technologies to enhance the timeliness and reliability of financial data within

the organization.

Changes in internal control over financial reporting

 

Our assessment of internal controls included American Robotics’ for the year ending December 31, 2022. It was excluded for the year ending December 31, 2021, because it was the first year of the acquisition.

Other than the Remediation Planmatters set forth above, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three monthsyear ended December 31, 20192022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

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

 

Item 9B.Other Information.

On March 12, 2020, the Board of Directors of the Company adopted an Amended and Restated Code of Business Conduct and Ethics (the “Amended Code”), which applies to all officers, directors, employees and agents of the Company. The Amended Code replaced the Ondas Code of Business Conduct and Ethics adopted on September 28, 2018 (the “Prior Code”) and reflects, among other matters, certain updates to conform the Amended Code to current governance best practices and the Nasdaq governance requirements. The replacement of the Prior Code with the Amended Code did not relate to or result in any waiver, explicit or implicit, of any provision of the Prior Code.

Also on March 12, 2020, the Board adopted amended and restated charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and a set of corporate governance principles to conform to current governance best practices and the Nasdaq governance requirements.

Our common stock remains quoted on the OTCQB under the symbol “ONDS.”

The foregoing descriptions of the Amended Code, the charters and the corporate governance principles are qualified in their entirety by reference to the full text of the Amended Code, the charters and the corporate governance principles, copies of which are publicly available in the corporate governance section of the Company’s website at: www.ondas.com.

Also, on March 12, 2020, Eric Brock and Stewart Kantor waived accrued payroll amounts in the amount of $141,667 and $8,334, respectively.  See Part III – Item 11 – Executive Compensation for further details.9B. Other Information.

 

48None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.


 

PART III

 

Item 10.Directors, Executive Officers, and Corporate Governance.

Item 10. Directors, Executive Officers, Promoters and Control PersonsCorporate Governance.

 

Directors and Executive Officers

The following table sets forth information on our executive officers and directors as of the filing of this Report. The terms of service for each of our directors expires at our next annual meeting of shareholders or until their successors are duly elected and qualified. We do not have any promoters or control persons.

 

Name Age Position
Eric A. Brock 4952 Chairman and Chief Executive Officer
Stewart KantorDerek Reisfield 5760 Director, President, Chief Financial Officer, Treasurer and Secretary
Reese Mozer31President
Thomas V. Bushey43Director
Richard M. Cohen 6972 Director
Randall P. Seidl59Director
Richard H. Silverman 8082 Director
Derek ReisfieldJaspreet Sood 5749 Director

 

Family Relationships

 

There are no family relationships between our executive officers and members of our Board.

 

Business Experience of Directors and Executive Officers

 

The business experience of each of our directors and executive officers follows.

Information About Our Executive Officers

 

Eric A. Brock - Chairman of the Board and Chief Executive Officer

 

Mr. Brock was electedappointed as one of our directors and was appointed as our President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer on June 28, 2018. On September 28, 2018, following the completion of the Acquisition,reverse acquisition transaction to acquire Ondas Networks Inc. (the “Acquisition”), he was appointed Chairman of the Board and resigned from the positions of Chief Financial Officer, Secretary and Treasurer. Mr. Brock also serves as Chairman of the Board and Chief Executive Officer of Ondas Networks Inc. since September 28, 2018. Since October 2021, Mr. Brock has served as a member of the Board of Directors of Dynam.AI. Mr. Brock is an entrepreneur with over 20 years of global banking and investing experience. He served as a founding Partner and Portfolio Manager with Clough Capital Partners, a Boston-based investment firm from 2000 to 2017. Prior to Clough, Mr. Brock was an investment banker at Bear, Stearns & Co. and an accountant at Ernst & Young, LLP. Mr. Brock holds an MBA from the University of Chicago and a BS from Boston College. Our Board believes that Mr. Brock’s experience in the public markets makes him well qualified to serve on our Board.

 


Stewart Kantor –Derek Reisfield - Director, President, Chief Financial Officer, Treasurer and Secretary

 

Mr. KantorReisfield was electedappointed as one of our directors on September 28, 2018, and was appointed as our President, Chief Financial Officer, Treasurer and Secretary on September 28, 2018 following the completion of the Acquisition.December 9, 2021. Mr. Kantor is a co-founder of Ondas Networks Inc. and had served as its Chief Executive Officer since inception on February 16, 2006 until the completion of the Acquisition. He nowReisfield also serves as President, Chief Financial Officer, Treasurer and Secretary of Ondas Networks Inc. since December 9, 2021. Also, Mr. Kantor brings 27 yearsReisfield served as our President from December 9, 2021 to February 14, 2023. Previously, he had served as a member of the Board of Ondas Networks Inc. from April 2016 to September 2018. From December 2020 to the present, he has served as the President and Chief Executive Officer of Thetis Business Solutions, LLC. From 2018 to 2020, he served as an independent business consultant. From 2015 to December 2018, Mr. Reisfield served as Vice President, Strategy and Business Development of MetaRail, Inc. (formerly, Wayfare Interactive Technologies, Inc.), a company that provides commerce search capabilities to digital publishers and marketers. In 2008, Mr. Reisfield co-founded BBN Networks, LLC, formerly known as BBN Networks, Inc., a digital advertising and marketing solutions company focused on the B2B sector, where he served as Chief Executive Officer until 2014 and as Chairman until 2015. Mr. Reisfield was Executive Vice President and Chief Financial Officer of Fliptrack, Inc., a social mobile gaming company, from 2007 to 2008. He was an independent consultant from 2002 to 2007 working with digital startups and large consumer-oriented companies facing digital threats and opportunities. He was Co-Founder and Managing Principal of i-Hatch Ventures, LLC from 1999-2001, Co-Founder, Vice Chairman and Executive Vice President of Luminant, Inc., a digital consulting firm, from 1999-2000, Co-Founder and Chairman of Marketwatch, a financial and business news and information company, from 1997-1998, President CBS New Media from 1997-1998, Vice President, Business Development of CBS from 1996-1997, Director of Strategic Management CBS and its predecessor Westinghouse Electric Corporation, Inc. from 1996-1997. Prior to that, Mr. Reisfield was the Co-Founder of the Media and Telecommunications Practice of Mitchell Madison Group, LLC, a management consultancy and a leader of the Media and Telecommunications practice of McKinsey & Company, Inc. a management consultancy. He has served on several public corporation boards. Mr. Reisfield is a director emeritus of the San Francisco Zoological Society. Mr. Reisfield holds a BA from Wesleyan University, and an AM in Communications Management from the Annenberg School of Communications of USC in 1986. We believe Mr. Reisfield’s experience in the wireless industrysenior leadership positions at both privately held and publicly traded technology companies, including senior levelholding board positions in businesscorporate governance, make him a well-qualified candidate to serve on our Board.

Reese Mozer – President

Mr. Mozer was appointed President of the Company effective February 14, 2023 and product development,is the CEO and marketingCo-Founder of American Robotics since 2015, the developer of FAA-approved fully-automated drone systems that provide ultra-high resolution aerial data to enterprise customers. Prior to founding American Robotics, Mr. Mozer worked for the Association for Unmanned Vehicle Systems International (AUVSI) from 2010 to 2014 researching the uses, markets, and finance at AT&T Wireless, BellSouthtechnology gaps for drones in the commercial sector, as well as Palm Ventures from 2010 to 2011, a private equity firm analyzing and evaluating both early stage and growth capital businesses. Mr. Mozer is a member of several industry standards bodies and associations, including the Board of the Commercial Drone Alliance (CDA), FAA Center of Excellence for UAS Research (ASSURE), the Association for Unmanned Vehicle Systems International and Nokia Siemens Networks. Since 2004, Mr. Kantor has focused exclusively on the development of private wireless data network technology for mission critical industries including electric utilities, oil and gas companies(AUVSI), and the transportation industries. Massachusetts Technology Leadership Council (MassTLC).

Non-Management Directors

Thomas V. Bushey - Director

Mr. Kantor obtained his B.A.Bushey was appointed as one of our directors effective June 3, 2020. Mr. Bushey served as our President from June 2, 2020 to January 19, 2021. Mr. Bushey has served as our consultant from January 19, 2021 to July 19, 2021. Mr. Bushey has served as a director and Chief Executive Officer of Newbury Street Acquisition Corporation (NASDAQ: NBST) since November 2020. Mr. Bushey has been Chief Executive Officer of Sunderland Capital, an investment management firm, since 2015. Prior to founding Sunderland Capital in Political Science from Columbia University2015, Mr. Bushey was a portfolio manager at Blackrock. Previously he worked as an investment banker at Credit Suisse, as a private equity professional at Thayer Capital, and as a hedge fund analyst at Millennium Partners. Mr. Bushey earned a B.S. in 1984 and an MBA in FinanceEconomics from the Wharton School in 1991.of the University of Pennsylvania. We believe that Mr. Kantor’s industryBushey’s investment banking and private equity background and experience makesmake him well qualified to serve on our Board.


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Non-Management Directors

 

Richard M. Cohen - Director

Mr. Cohen was electedappointed as a directorone of Ondas Holdings Inc.our directors on September 28, 2018. Previously, he had served as a member of the Board of Ondas Networks Inc. sincefrom April 2016.2016 to September 2018. He has been the President of Richard M Cohen Consultants since 1995, a company providing financial consulting services to both public and private companies. He has served as a director of Great Elm Capital Corp. (NASDAQ: GECC) since March 2022, Direct Digital Holdings, Inc. (NASDAQ: DRCT) since November 2021, and Smart For Life, Inc. (NASDAQ: SMFL) from February 2022 to October 2022. From March 2012 to July 2015, he was the Founder and Managing Partner of Chord Advisors, a firm providing outsourced CFO services to both public and private companies. From May 2012 to August 2013, he was the Interim CEO and member of the Board of Directors of CorMedix Inc. (NYSE: CRMD). From July 2008 to August 2012, Mr. Cohen was a member of the Audit Committee of Rodman and Renshaw, an investment banking firm. From July 2001 to August 2012, he was a partner with Novation Capital until its sale to a private equity firm. Mr. Cohen holds a BS with honors from the University of Pennsylvania (Wharton), an MBA from Stanford University and a CPA from New York State. He is considered an expert to Chair the Audit Committee of a publicly traded company. We believe that Mr. Cohen’s educational background and financial experience supporting publicly traded companies including as a CEO and Board member of a public traded company on the New York Stock Exchange makes him well qualified to serve on our Board.

Randall P. Seidl - Director

Randall P. Seidl was appointed as one of our directors on November 16, 2020. In September 2020, he founded and continues to serve as Chief Executive Officer of Sales Community, a sales social network with a mission to add value to technology sales professionals. In 2016, he founded and continues to serve as Chief Executive Officer of Top Talent Recruiting, a boutique contingency-based recruiting business. In 2013, he founded and continues to serve as Chief Executive Officer of Revenue Acceleration to help tech companies accelerate revenue growth. From 2009 to 2013, Mr. Seidl served as Sr. Vice President/General Manager of Hewlett Packard’s Americas and U.S. Enterprise Group. From 2006 to 2009, he served as Sr. Vice President/General Manager of Sun Microsystems’ North America business and as Vice President/General Manager for its Financial Services Area. From 2004 to 2006, he served as Vice President/General Manager of East Region at StorageTek. From 2003 to 2004, he served as Chief Executive Officer and director at Permabit, from 2000 to 2003 was co-founder and Executive Vice President of GiantLoop, and from 1996 to 1999 was Chairman and Chief Executive Officer of Workgroup Solutions. He began his career at EMC Corporation, holding various positions including Vice President of Open Systems Sales for North America from 1985 to 1996. Since 2015, Mr. Seidl has served as director of Data Dynamics, a privately held company, a leader in intelligent file management solutions. Since 2014, he has served as director of Cloudgenera, a privately held company, a leading supplier of vendor agnostic IT analytics that arm organizations with the business cases needed to optimize technology spend. He previously served as director of Datawatch Corporation (2015-2018, Nasdaq: DWCH, acquired by Altair). He continues to serve on the advisory boards or consults with DataRobot, Trilio, WekalO, ISG, CXO Nexus, Corent, DecisionLink, Dooly, Sendoso, Emissary, and CaptivateIQ. Mr. Seidl is a graduate of Boston College’s Carroll School of Management. Mr. Seidl serves as a trustee on Boston College’s Board of Trustees, on the Board of Trustees of St. Sebastian’s School, and is active with other charities. We believe Mr. Seidl’s experience in senior leadership positions at private/public technology companies and his private/public board experience makes him well-qualified to serve on our board of directors.

Richard H. Silverman – Director

Mr. Silverman was electedappointed as a directorone of Ondas Holdings Inc.our directors on September 28, 2018. Previously, he had served as a member of the Board of Ondas Networks Inc. sincefrom April 2016.2016 to September 2018. Mr. Silverman is a well-recognized and respected professional in the energy industry in Arizona and on a national level. He is past Chair of the board of directors for the Electric Power Research Institute; past Chair and former steering committee member of the Large Public Power Council; and former executive committee member of the board of directors for the American Public Power Association. Since August 2011, Mr. Silverman has been Of Counsel at Jennings, Strouss & Salmon, PLC, where he focuses his practice on energy law. Prior to joining the firm, he served as General Manager of Salt River Project from 1994 to 2011. Mr. Silverman holds a Juris Doctor from the University of Arizona and B.A. in Business from the University of Arizona. We believe Mr. Silverman’s prior experience as general manager of Salt River Project, one of the nation’s largest public power utilities serving approximately one million customers in the Phoenix metropolitan area, will help the Company navigate strategic issues in the rapidly changing electric utility industry with specific knowledge of the impact of renewables like solar energy on the electric grid and makes him well qualified to serve on our Board.


Jaspreet (Jas) Sood – Director

 

Derek Reisfield – Director

Derek ReisfieldMs. Sood was electedappointed as one of our directors on January 19, 2021. Ms. Sood is a directorseasoned executive who has strategic expertise in the areas of Ondas Holdings Inc. on September 28, 2018. Previously, he had servedsales, product management, P&L management, operational transformation and go to market strategies. Since August 2021, Ms. Sood serves as a member of the Board of Ondas Networks Inc. since April 2016. From December 2018 to the present, he has also served as an independent business consultant. From 2015 to December 2018, Mr. Reisfeld served as Vice President, Strategy and Business Development of MetaRail, Inc. (formerly, Wayfare Interactive Technologies, Inc.), a company that provides commerce search capabilities to digital publishers and marketers. In 2008, Mr. Reisfield co-founded BBN Networks, LLC, formerly known as BBN Networks, Inc., a digital advertising and marketing solutions company focused on the B2B sector, where he served as Chief Executive Officer until 2014 and as Chairman until 2015. Mr. Reisfield was ExecutiveSenior Vice President of Fliptrack, Inc.,Sales — US Enterprise for Palo Alto Networks (NYSE: PANW). Prior to joining Palo Alto Networks, Ms. Sood held a social mobile gaming company, from 2007 to 2008. He was an independent consultant from 2002 to 2007 workingvariety of executive level positions with digital startups and large consumer oriented companies facing digital threats and opportunities. He was Co-Founder and Managing Principal of i-Hatch Ventures, LLC from 1999-2001, Co-Founder, Vice Chairman and Executive Vice President of Luminant, Inc., a digital financial and business news and information company, from 1999-2000, Co-Founder and Chairman of Marketwatch from 1997-1998, President CBS New Media from 1997-1998, Vice President, Business Development of CBS, 1996-97, Director of Strategic Management CBSHewlett Packard Enterprise (NYSE: HPE) and its predecessor Westinghouse Electric Corporation, Inc. 1996-1997. Prior to that, Mr. Reisfieldcompanies in the areas of business operations, strategy, product management, and finance. Ms. Sood was employed by Hewlett Packard Enterprise and its predecessor companies for twenty-five years. Ms. Sood holds an MBA with an emphasis in Technology Management from Pepperdine University and a bachelor’s degree in Economics from the Co-FounderUniversity of California, Irvine. In 2018, 2019, 2020, and 2021, she was honored as a “CRN Power 100 Woman of the MediaChannel” and Telecommunications Practice of Mitchell Madison Group, LLC,is routinely featured as a management consultancy and a leader of the Media and Telecommunications practice of McKinsey & Company, Inc. a management consultancy. He has served on several public corporation boards. Mr. Reisfield is a director emeritus of the San Francisco Zoological Society. Mr. Reisfield holds a BA from Wesleyan University, and an AM in Communications Management from the Annenberg School of Communications of USC in 1986.guest speaker at various technology industry events. We believe Mr. Reisfield’sMs. Sood’s business experience in senior leadership positions at both privately held and publicly traded technology companies, including holding board positions in corporate governance, make him a well-qualified candidatemakes her well qualified to serve on our Board.

board of directors.

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Other Directorships

 

Other than as indicated within this section atunder the caption titled Business Experience of Directors and Executive Officers, none of our directors hold or have been nominated to hold a directorship in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, (the “Act”“Exchange Act”) or subject to the requirements of Section 15(d) of the Securities Act of 1933, as amended, or any company registered as an investment company under the Investment Company Act of 1940.

 

Committees of the Board

 

Audit Committee

 

Our audit committee reviews our internal accounting procedures and consults with and reviews the services provided by our independent registered public accountants. Our audit committee consists of three directors, Messrs. Cohen and Silverman and Reisfield,Ms. Sood, and our Board has determined that each of them is independent within the meaning of listing requirements of The Nasdaq Stock Market (“Nasdaq”) and the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Mr. Cohen is the chairman of the audit committee, and our Board has determined that Mr. Cohen is an “audit committee financial expert” as defined by SEC rules and regulations implementing Section 407 of the Sarbanes-Oxley Act. Our Board has determined that the composition of our audit committee meets the criteria for independence under, and the functioning of our audit committee complies with, the applicable requirements of the Sarbanes-Oxley Act, Nasdaq listing requirements and SEC rules and regulations. We intend to continue to evaluate the requirements applicable to us and to comply with the future requirements to the extent that they become applicable to our audit committee. The principal duties and responsibilities of our audit committee include:

 

overseeing the accounting and financial reporting processes of the Company, internal systems of control of the Company and audits of the Company’s consolidated financial statements;

overseeing the Company’s relationship with its independent auditors, including appointing or changing the Company’s auditors and ensuring their independence;

providing oversight regarding significant financial matters, including the Company’s tax planning, treasury policies, dividends and share issuance and repurchases;

overseeing the Code of Conduct;Conduct (as defined below); and

reviewing and approving all transactions with related persons for potential conflict of interest situations on an ongoing basis.

51

 


Compensation Committee

 

Our compensation committee reviews and determines the compensation of all our executive officers. Our compensation committee consists of three directors, Messrs. Cohen, SilvermanSeidl, and Reisfield,Silverman, each of whom is a non-employee member of our Board as defined in Rule 16b-3 under the Exchange Act and independent within the meaning of listing requirements of Nasdaq. Mr. ReisfieldSeidl is the chairman of the compensation committee. Our Board has determined that the composition of our compensation committee satisfies the applicable independence requirements under, and the functioning of our compensation committee complies with the applicable listing requirements of Nasdaq and SEC rules and regulations. We intend to continue to evaluate and intend to comply with all future requirements applicable to our compensation committee. The principal duties and responsibilities of our compensation committee include:

 

establishing, overseeing and administering the Company’s employee compensation policies and programs;

reviewing and approving compensation and incentive programs and awards for the Company’s CEO, all other executive officers of the Company and the non-employee members of the Company’s Board ;Board; and

administering the Company’s equity compensation plans.

 

Nominating and Corporate Governance Committee

The nominating and corporate governance committee consists of three independent directors, Messrs. Cohen, SilvermanSeidl, and Reisfield.Silverman. Mr. Cohen is the chairman of the nominating and corporate governance committee.

 

Our Board has determined that the composition of our nominating and corporate governance committee satisfies the applicable independence requirements under, and the functioning of our nominating and corporate governance committee complies with the applicable listing requirements of Nasdaq and SEC rules and regulations. We will continue to evaluate and will comply with all future requirements applicable to our nominating and corporate governance committee. The nominating and corporate governance committee’s responsibilities include:

 

assisting the Board in identifying individuals qualified to become Board members, consistent with criteria approved by the Board;

 
recommending for the Board’s approval the slate of nominees to be proposed by the Board to stockholders for election to the Board;

 
developing, updating and recommending to the Board the governance principles applicable to the Company;

 
overseeing the evaluation of the Board and management;

 
recommending to the Board the directors who will serve on each committee of the Board; and

 
addressing any related matters required by the federal securities laws.

 

Code of Business Conduct and Ethics for Employees, Executive Officers and DirectorsCommittee Charters

 

We have adopted a Code of Business Conduct and Ethics or the Code(the “Code of Conduct,Conduct”), applicable to all of our employees, executive officers and directors. The Code of Conduct is available on our website at www.ondas.com. The audit committee of our Board is responsible for overseeing the Code of Conduct and our Board must approve any waivers of the Code of Conduct for employees, executive officers and directors. In addition, we intend to post on our website all disclosures that are required by law concerning any amendments to, or waivers from, any provision of the Code of Conduct. All of our directors, executive officers and employees are required to certify in writing their understanding of and intent to comply with the Code.

 

Committee Charters and Code of Business Conduct

Our Board adopted a Code of Business Conduct and charters for the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee of the Board describing the authority and responsibilities delegated to each committee.

We post on our website www.ondas.com the charters of each of our board committees and our Code of Business Conduct, and all disclosures that are required by law concerning any amendments or waivers thereto applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; and any other corporate governance materials contemplated by the Nasdaq listing requirements and SEC regulations. These documents are also available in print, without charge, to any stockholder requesting a copy in writing from our Secretary at our executive offices set forth in this Report.

 

52


 

Item 11.Executive Compensation.

Delinquent Section 16(a) Reports

 

Section 16(a) of the Exchange Act requires directors, officers and greater than 10 percent beneficial owners of our common shares to file reports concerning their ownership of, and transactions in, such common shares.

Based solely on our review of these reports filed by the Company’s officers, directors and shareholders, and written representations from our executive officers and directors that they filed such reports, we believe that our officers, directors, and shareholders complied with all filing requirements under Section 16(a) of the Exchange Act on a timely basis during fiscal year 2022, except each of Messrs. Reisfield, Bushey, Seidl, and Silverman and Ms. Sood untimely filed a Form 4 to report the delivery of shares underlying restricted stock units and the sale of shares to fund tax liability attributable to the vesting of the restricted stock units.

Item 11. Executive Compensation.

Summary Compensation Table

 

The following table below sets forthprovides the compensation information for services rendered in all capacitiesearned by our principal executive officer and other executive officers whose total compensation exceeded $100,000 for the last two fiscal years ended December 31, 20192022 and 2018. The information includes the dollar value of base salaries, bonus awards, stock awards, non-qualified stock options (“Options”) grants and certain other compensation, if any, whether paid or deferred. No stock awards or Options grants were made in 2019 or 2018. At the time of the Acquisition, Mr. Brock was the sole executive officer of the Company, and he received no compensation for his services from the time of his election on June 28, 2018 until the execution of his employment agreement on September 28, 2018 at the closing of the Acquisition.2021.

 

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

Name and Principal Position Year  Salary
($)
  Bonus
($)(1)
  Stock Awards
($)
  Option
Awards
($)
  Non-Equity
Incentive
Plan
Compensation ($)
  Nonqualified
Deferred
Compensation
Earnings
($)
  All Other
Compensation
($)
  Total
($)
 
Eric A. Brock (2)  2022  $200,000  $       -  $        -  $-  $     -  $           -  $28,451  $228,451 
(CEO)  2021  $200,000  $-  $-  $-  $-  $-  $30,661  $230,661 
                                     
Derek Reisfield (3)  2022  $200,000  $-  $-  $332,800  $-  $-  $37,847  $570,287 
(CFO, Treasurer and Secretary)  2021  $8,333  $-  $-  $-  $-  $-  $30,661  $38,994 

 

(1)(1)On November 23, 2021, Mr. Brock was granted cash bonuses of $125,000 but informed the Compensation Committee that he would forego his bonus.

(2)In 2019,2020, Mr. Brock’s salary of $200,000 includes $58,333$131,494 was accrued. On January 29, 2021, Mr. Brock was paid between January 1$64,344 of the accrued amount and the remaining $67,150 was paid on April 15, 2019 and $141,667 accrued between April 16 and December 31, 2019. On March 12, 2020, Mr. Brock waived accrued payroll amounts2021, which is not included in the amount of $141,667. In 2018, Mr. Brock’s salary of $50,769 wascompensation for the period from September 28 through December 31, 2018.2021 presented above. All Other Compensation for 20192022 and 20182021 includes health insurance premiums paid on Mr. Brock’s behalf.

(3)(2)In 2018, $8,334Mr. Reisfield was appointed as President, Chief Financial Officer, Treasurer and Secretary of Mr. Kantor’s salary was accrued. On March 12, 2020, Mr. Kantor waived accrued payroll amounts in the amount of $8,334.Company on December 10, 2021. All Other Compensation for 20192022 includes health insurance premiums paid on Mr. Reisfield’s behalf totaling $27,487 and 2018 represents employer matching of 401(k). totaling $10,000.

 


Outstanding Equity Awards at Fiscal Year End

 

We had noThe following table provides the outstanding equity awards for our principal executive officer and other executive officers as of the fiscal year ended December 31, 2019.2022 and 2021.

 

  Option Awards
Name and Principal Position Grant Date Number of
securities
underlying
unexercised
options
(#)
exercisable
  Number of
securities
underlying
unexercised
options
(#)
unexercisable
  Equity
incentive plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
  Option
exercise
price
($)
  Option
expiration
date
 
Eric A. Brock (1) -  -   -         -   -   - 
(CEO)                      
                       
Derek Reisfield 01/25/2021  30,000   -   -  $12.72   01/25/2031 
(CFO, Treasurer and Secretary) 02/07/2022  -   160,000(2)  -  $4.78   02/07/2032 

(1)As of December 31, 2022, Mr. Brock had no outstanding equity awards.

(2)The stock option vests in two successive equal annual installments with the first vesting date commencing on the first anniversary of the grant date.

Employment Agreements with Executive Officers

 

Eric Brock serves as our Chief Executive Officer pursuant to an employment agreement entered into on September 28, 2018 (the “Brock Agreement”). The BrockAgreement provides for a continuous term and may be terminated by either party at any time. Pursuant to the Brock agreement, Mr. Brock will receive an initial salary of $200,000 per annum, subject to annual review by our Board. Mr. Brock is eligible to participate in benefit plans generally available to our employees. During 2020, in response to COVID-19 employee furloughs, Mr. Brock accepted a pay reduction of 90% for the period from March 21 to May 19, 2020 and a 35% pay reduction from May 20 to December 15, 2020. Mr. Brock’s salary was returned to 100% effective December 16, 2020.

  

Stewart KantorDerek Reisfield serves as our President, Chief Financial Officer, Secretary and Treasurer pursuant to an employment agreement entered into on September 28, 2018December 10, 2021 (the “Kantor“Reisfield Agreement”), which replaces the prior employment agreement he had with Ondas Networks.. The KantorReisfield Agreement provides for a continuous term and may be terminated by either party at any time. Pursuant to the KantorReisfield Agreement, Mr. KantorReisfield will receive an initial salary of $200,000 per annum, subject to annual review by our Board. Mr. KantorReisfield is eligible to participate in benefit plans generally available to our employees.

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As part of the terms of the Brock and KantorReisfield Agreements, each of Messrs. Brock and KantorReisfield entered into aan Employment, Non-Competition, Confidential Information and Intellectual Property Assignment Agreement (the “Supplemental Agreements”). As part of the Supplemental Agreements, each of Messrs. Brock and KantorReisfield agreed (i) not to engage in Competitive Business (as defined in the Supplemental Agreements) during his term of employment with us and for a period of 12 months following termination; (ii) not to disclose Confidential Information (as defined in the Supplemental Agreements), subject to certain customary carve-outs; and (iii) to assign to the Company any Intellectual Property (as defined in the Supplemental Agreements) developed using the Company’s resources or related to the Company’s business within the scope of and during the period of employment.

 

Mr.Messrs. Brock isand Reisfield are entitled to severance compensation from the Company if his employment is terminated i)(i) without cause or ii)(ii) due to “constructive termination” or iii)(iii) due to disability, with these causes of termination being defined in the Brock and Reisfield Agreement. The severance compensation would consist of i)(i) accrued and vested benefits, and ii)(ii) continued payment of Mr. Brock’sthe executive base salary and benefits as follows: (i) for a period of six (6) months following Messrs. Brock’s and Reisfield’s separation.

 

Mr. Kantor


Director Compensation

On January 25, 2021, the Compensation Committee (the “Compensation Committee”) of the Board approved the Director Compensation Policy (the “Policy”). The Policy is entitledapplicable to severanceall directors that are not employees or compensated consultants of the Company. Pursuant to the Policy, the cash compensation fromto non-employee directors will be the Company if his employment is terminated i) without cause or ii) duefollowing: (i) quarterly board retainer - $2,500; (ii) additional Board Chair retainer - $2,000; (iii) additional Audit Committee Chair retainer - $2,000; (iv) additional Compensation Committee Chair retainer - $3,000; and (v) additional Nominating Committee Chair retainer - $1,000. Also, pursuant to “constructive termination” or iii) duethe Policy, the annual equity award to disability,non-employee directors will be restricted stock units representing $60,000. Also, pursuant to the Policy, non-employee directors will be reimbursed for reasonable out-of-pocket business expenses incurred in connection with these causes of termination being defined in the Kantor Agreement. The severance compensation would consist of i) accrued and vested benefits, and ii) continued payment of Mr. Kantor’s base salary and benefits for a period of twelve (12) months following separation.

Director Compensation

We do not pay cash fees to directors who attend regularly scheduled and special board meetings; however, we did reimburse directors for travel expensesbusiness related to attending such board meetings. We also did not pay cash fees to our directors prior to the Acquisition; however, we did reimburse them for travel expenses related to their attendance at board meetings.Board of Directors.

We granted no equity awards to our directors for services rendered for the year ended December 31, 2019.

 

54

Name Fees Earned or Paid in Cash
($)
  Stock awards
($)(1)
  Option awards
($)(1)
  Non-equity incentive plan compensation
($)
  Nonqualified deferred compensation earnings
($)
  All other compensation
($)
  Total
($)
 
Thomas V. Bushey  10,000   59,026            -           -         -             -   69,026 
Richard M. Cohen  22,000   59,026   -   -   -   -   81,026 
Randall P. Seidl  18,000   59,026   -   -   -   -   77,026 
Richard H. Silverman  10,000   59,026   -   -   -   -   69,026 
Jaspreet Sood  10,000   59,026   -   -   -   -   69,026 

 

(1)The amounts reflected in this column represent the aggregate grant date fair value of the awards made during each respective year, as computed in accordance with FASB ASC Topic 718. For additional information related to the measurement of stock-based compensation awards, see Note 11 of the accompanying Consolidated Financial Statements.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Beneficial Security Ownership Table

 

As of March 13, 2020,10, 2023, the following table sets forth certain information with respect to the beneficial ownership of our common stock by (i) each stockholder known by us to be the beneficial owner of more than five percent (5%) of our common stock, (ii) by each of our current directorsexecutive officers, named executive officers, and executive officersdirectors as identified herein, and (iii) all of our directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock, non-qualifiedoptions, restricted stock options (“Options”),units, and common stock purchase warrants (“Warrants”) that are currently exercisable or convertible into shares of our common stock within sixty (60) days of the date of this document, are deemed to be outstanding and to be beneficially owned by the person holding the Options or Warrantssuch securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise noted, the address for all officers and directors listed below is 165 Gibraltar Court, Sunnyvale, CA 94089.411 Waverley Oaks Road, Waltham, MA 02452.

 

Name and Address of Officer and Directors Amount and Nature
of Beneficial
Ownership(1)
  Percent
of
Class
 
Eric A. Brock (Chairman of the Board and Chief Executive Officer)(2)  5,673,585   9.54%
Stewart Kantor (Director, President, Chief Financial Officer, Treas. and Sec.)  2,725,333   4.60%
Richard M. Cohen (Director)  72,942   * 
Richard H. Silverman (Director)  72,942   * 
Derek Reisfield (Director)  72,942   * 
All Officers & Directors as a Group (5 persons)(3)  8,417,744   14.49%
         
Name and Address of Stockholders        
Energy Capital, LLC(4)  17,389,363   28.33%
Name Amount and Nature of Beneficial Ownership(1)  Percent of Class 
Directors and Executive Officers      
Eric A. Brock (Chairman of the Board and Chief Executive Officer) (2)  1,891,206   3.85%
Derek Reisfield (Director, Chief Financial Officer, Treas. and Sec.) (3)  149,546   * 
Reese Mozer (President)(4)  1,675,447   3.40%
Thomas V. Bushey (Director) (5)  343,858   * 
Richard M. Cohen (Director) (6)  78,383   * 
Randall P. Seidl (Director) (7)  32,735   * 
Richard H. Silverman (Director) (8)  78,618   * 
Jaspreet Sood (Director) (9)  31,463   * 
All Executive Officers & Directors as a Group (8 persons) (10)  2,605,809   5.28%
5% or Greater Stockholders        
Energy Capital, LLC(11)  5,092,248   10.38%

**Represents beneficial ownership of less than 1%.

(1)Unless otherwise noted, we believe that all shares are beneficially owned and that all persons named in the table have sole voting and investment power with respect to all shares of common stock owned by them. Applicable percentage of ownership is based on 59,268,08549,062,030 shares of common stock currently outstanding, as adjusted for each stockholder.


(2)Mr. Brock exercises sole voting and dispositive power over the 5,473,5851,891,206 shares of common stock.

(3)Mr. Reisfield exercises sole voting and dispositive power over 39,546 shares of common stock (including 2,250 shares held by his son), and 200,000110,000 shares of common stock issuable upon exercise of Warrants. The percentage beneficially owned is basedoptions.

(4)Mr. Mozer exercises sole voting and dispositive power over 1,506,518 shares of common stock, 50,000 shares of common stock issuable upon exercise of an option, and 118,929 shares of common stock issuable upon exercise of warrants.

(5)Mr. Bushey exercises sole voting and dispositive power over 327,642 shares of common stock, 8,108 shares of common stock issuable upon the vesting of RSUs, and 8,108 shares of common stock underlying RSUs that have vested and are pending delivery.

(6)Mr. Cohen exercises sole voting and dispositive power over 32,167 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option, 8,108 shares of common stock issuable upon the vesting of RSUs, and 8,108 shares of common stock underlying RSUs that have vested and are pending delivery.

(7)Mr. Seidl exercises sole voting and dispositive power over 16,519 shares of common stock, 8,108 shares of common stock issuable upon the vesting of RSUs, and 8,108 shares of common stock underlying RSUs that have vested and are pending delivery.

(8)Mr. Silverman exercises sole voting and dispositive power over 32,402 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option, 8,108 shares of common stock issuable upon the vesting of RSUs, and 8,108 shares of common stock underlying RSUs that have vested and are pending delivery.

(9)Ms. Sood exercises sole voting and dispositive power over 15,247 shares of common stock, 8,108 shares of common stock issuable upon the vesting of RSUs, and 8,108 shares of common stock underlying RSUs that have vested and are pending delivery.

(10)Includes 220,000 shares of common stock issuable upon exercise of options, 118,929 shares of common stock issuable upon the exercise of warrants, 40,540 shares of common stock issuable upon vesting of RSUs, and 40,540 shares of common stock underlying RSUs that have vested and are pending delivery.

(11)Based on 59,468,085 shares which would be outstanding if Mr. Brock exercised the Warrants within sixty days of March 13, 2020. This information is based on theAmendment No. 1 to Schedule 13-D/A (Amendment No. 2)13D filed with the SEC on January 27, 2020.
(3)The percentage beneficially owned is based on 59,468,085 shares which would be outstanding if Mr. Brock exercised2020, the Warrants within sixty days of March 13, 2020.
(4)The address for Energy Capital, LLC (“Energy Capital”) is 13650 Fiddlesticks Blvd., Suite 202-324, Ft. Myers, FL 33912. Robert J. Smith is the sole owner of Energy Capital and exercises sole voting and dispositive power over the 15,276,7425,092,248 shares of common stock and 2,112,621 shares of common stock issuable upon exercise of Warrants. The percentage beneficially owned is based on 61,380,706 shares which would be outstanding if Mr. Smith exercised the Warrants owned by Energy Capital within sixty days of March 13, 2020. This information is based on the Schedule 13-D/A (Amendment No.1) filed with the SEC on January 27, 2020.stock.

 

55


 

EQUITY COMPENSATION PLAN INFORMATIONEquity Compensation Plan Information

 

The following table showssummarizes the number ofequity compensation plans under which our securities tomay be issued upon exercise of outstanding options as of December 31, 2019.2022.

 

Plan Category Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
  Weighted-
average
exercise
price
per
share of
outstanding
options,
warrants
and rights
  Number of
securities
remaining
available
for future
issuance
under
equity
compensation
plans
 
Equity compensation plans approved by security holders:         
2018 Incentive Stock Plan (1)  2,693,461  $6.52  $639,873 
2021 Incentive Stock Plan (2)  2,072,860  $4.85   3,927,140 
Equity compensation plans not approved by security holders  -   -   - 

(1)The 2018 Incentive Stock Plan CategoryNumberwas approved by stockholders in September 2018. The number of
securities to be
issued upon
exercise of
outstanding
options,
(a) warrants and rights consist of 609,189 shares underlying outstanding options and 2,084,272 shares underlying outstanding restricted stock units granted pursuant to the 2018 Incentive Stock Plan.

(2)Weighted-
average
exercise price
of
outstanding
options
(b)
Number of
securities
remaining available
for
future issuance
under
equity
compensation
plans (excluding
securities
reflected in
column(a))
(c)
Equity compensation plansThe 2021 Incentive Stock Plan was approved by security holders10,000,000
Equity compensation plans not approved by security holders
Total10,000,000stockholders in November 2021. The number of securities to be issued upon exercise of outstanding options, warrants and rights consist of 1,882,000 shares underlying outstanding options and 190,860 shares underlying outstanding restricted stock units granted pursuant to the 2021 Incentive Stock Plan.

 

Item 13.Certain Relationships and Related Transactions and Director Independence.

Item 13. Certain Relationships and Related Transactions and Director Independence.

 

Related Party Transactions Policy

 

Our Board adopted a Related Party Transactions Policy as we recognize that transactions involving related parties present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof). Therefore, our Board determined that our Audit Committee shall review, approve and, if necessary, recommend to the Board forUnder its approval all related party transactions and any material amendments to such related party transactions. Our Board may determine that a particular related party transaction or a material amendment thereto shall instead be reviewed and approved by a majority of directors disinterested in the related party transaction. No director shall participate in any approval of a related party transaction for which the director is a related party, except that the director shall provide all material information concerning the related party transaction to the committee. Our Chief Executive Officer is responsible for providing towritten charter, the Audit Committee on a quarterly basis, a summary of all payments made by or to us in connection with duly approved related party transactions during the preceding fiscal quarter. The CEOour Board of Directors is responsible for reviewing and approving all payments made byany transaction between our company and a related person (as defined in Item 404 of Regulation S-K). Our management is responsible for bringing any such transaction to the attention of the Audit Committee. In approving or to us in connection with duly approved related party transactions and shall certify torejecting any such transaction, the Audit Committee that any payments made by or to us in connection with such related party transactions have been made in accordance withconsiders the policy. All related party transactions shall be disclosed in our applicable filings as required byrelevant facts and circumstances, including the Securities Act of 1933 and the Securities Exchange Act of 1934 and related rules and regulations.

Related Party Transactions

On September 27, 2019, Eric A. Brock, our Chairman and Chief Executive Officer, entered into a Securities Purchase Agreement with other subscribers in which he purchased 400,000 units (wherein a unit consisted of one share of common stock and one-half of one warrant to purchase one share of Company common stock (the “Investor Warrant”)) of the Company for $1,000,000. The Investor Warrant for 200,000 underlying shares of common stock vests six months from the date of the Securities Purchase Agreement and may be exercised at a price of $3.25 per share.

56

On September 27, 2019, Energy Capital, LLC entered into a Securities Purchase Agreement with other subscribers in which it converted an aggregate of $10,563,104 principal and interest outstanding under the Loan and Security Agreement into an aggregate of 4,225,242 Units (wherein a unit consisted of one share of common stock and one-half of one warrant to purchase one share of Company common stock (the “Investor Warrant”)) of the Company. At the closingmaterial terms of the transaction, risks, benefits, costs, availability of other comparable services or products and, if applicable, the debt owed under the Loan and Security Agreement was extinguished and the Loan terminated pursuant to its terms. Energy Capital, LLC owns 2,112,621 shares of common stock underlying the Investor Warrant, which Investor Warrant vests six months from the date of the Securities Purchase Agreement and may be exercised atimpact on a price of $3.25 per share.director’s independence.

 

In connection with the Acquisition and pursuant to a Common Stock Repurchase Agreement dated September 28, 2018, we purchased from Energy Capital, LLC (“Energy Capital”), a more than 10% stockholder, 32,600,000 (post-split) shares of our common stock in exchange for the payment of $3,260. The repurchased shares were cancelled and returned to the authorized but unissued shares of the Company. In connection with the Acquisition, we also entered into the Loan and Security Agreement with Energy Capital pursuant to which Energy Capital agreed to lend an aggregate principal amount of up to $10 million, subject to specified conditions. During 2019, we drew down the entire $10 million, with all advances used for operating capital.Related Party Transactions

 

Between April 16 and December 31, 2019, we accrued $141,667 for salary owed during 2019 to Mr. Brock, the Company's Chief Executive Officer. On March 14, 2020, Mr. Brock waived accrued payroll amounts in the amount of $141,667.

Stewart Kantor, Chief Executive Officer of Ondas Networks, advanced funds to Ondas Networks to fund its operations. As of Between January 1 and December 31, 2017, the advance due to Mr. Kantor was $155,645, which was non-interest bearing and due on demand. The advance was repaid as of June 30, 2018.

As of December 31, 2017, Ondas Networks15, 2020 we accrued $271,875 in salary owed for 2016 and 2017 to Stewart Kantor, Chief Executive Officer of Ondas Networks. As of December 31, 2018, Ondas Networks accrued an additional $8,334$131,494 for salary owed during 20182020 to Mr. Kantor. Brock. On January 29, 2021, Mr. Brock was paid $64,344 of the accrued amount and the remaining $67,150 was paid on April 15, 2021.

On March 14, 2020, Mr.Stewart Kantor, President of Ondas Networks, waived accrued payroll amounts in the amount of $8,334.

As of December 31, 2017, Ondas Networks accrued $178,125 in salary owed for 2016 and 2017 to Menashe Shahar, an employee of Ondas Networks and more than 5% stockholder of Ondas Holdings. As of December 31, 2018,2020, Ondas Networks accrued an additional $8,334$2,850 for salary owed during 20182020 to Mr. Shahar.Kantor, which was paid on April 15, 2021.

 

Zev Turetsky, former Chief Executive OfficerBetween June 2 and December 31, 2020, we accrued $115,385 for salary owed to Thomas V. Bushey, then President of Zev Ventures Incorporated priorthe Company. On January 19, 2021, Mr. Bushey waived the accrued payroll amounts in the amount of $115,385. Pursuant to the Acquisition, advanced fundsterms of a Separation Agreement and General Release (the “Separation Agreement”) dated January 19, 2021 (the “Effective Date”), between Mr. Bushey and the Company, Mr. Bushey agreed to waive his entitlement to accrued salary in the amount of $125,256 and accrued vacation in the amount of $9,846 as of the Effective Date. At the time of Mr. Bushey’s resignation as President in January 2021, Mr. Bushey had the right to receive 500,000 RSU Shares (375,000 vested as of December 31, 2020 and 125,000 of which the Compensation Committee accelerated vesting), which will be issued on June 3, 2022 pursuant to Mr. Bushey’s deferral election. The remaining 500,000 RSU Shares were canceled. As part of the Separation Agreement, Mr. Bushey and the Company entered into a Consulting Agreement dated January 19, 2021 (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Bushey provided services to the Company to fund operations. In 2018,at the direction of the Company’s Chief Executive Officer. The Consulting Agreement terminated on July 19, 2021. Mr. Turetsky advanced $12,500 to the Company. On June 27, 2018, Mr. Turetsky forgave the advances in the aggregate amount of $89,633.Bushey was paid $7,500 per month for these services.

 


Director Independence

 

We are not currently listed on a national securities exchange; however aA majority of our Board is independent under the rules of Nasdaq. Our Board has undertaken a review of the independence of our directors and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our Board has determined that Messrs. Cohen, Seidl, Silverman and Reisfield,Ms. Sood are “independent directors” as defined under the rules of Nasdaq.

Promoters and Certain Control Persons

None.

 

57

Item 14.Principal Accountant Fees and Services.

Item 14. Principal Accountant Fees and Services.

 

On June 28, 2018, our Board engaged Rosenberg Rich Baker Berman, P.A. (“RRBB”) has served as the Company’s independent registered public accounting firm for the year ended December 31, 2018. Also, onsince June 28, 2018, the Company dismissed Weinstein & Co. C.P.A. (Isr) (“Weinstein”) as the Company’s independent registered public accounting firm, effective immediately.  2018.

 

Aggregate fees billed to the Company for the years ended December 31, 20192022 and 2021 by RRBB and December 31, 2018 by RRBB and Weinstein, were as follows:

 

  For the years ended December 31, 
  2019  2018 
       
Audit Fees $149,740  $92,300 
Audit - Related Fees  -   - 
Tax Fees  10,000   10,000 
All Other Fees  -   - 
  $159,740  $102,300 
  For the years ended
December 31,
 
  2022  2021 
       
Audit Fees $241,665  $192,400 
Audit-Related Fees  -   - 
Tax Fees  19,800   12,500 
All Other Fees  26,500   16,098 
  $287,965  $220,998 

 

Audit fees consist of fees associated with the annual audit, including the reviews of our quarterly reports andreports. Tax fees include the preparation on our tax returns. All other fees consist of fees associated with services provided related to all other filings with the SEC as well as consents. Tax fees included the preparation of our tax returns.

 

On September 28, 2018, the Audit Committee of our Board adopted a policy and related procedures requiring its pre-approval of all audit and non-audit services to be rendered by its independent registered public accounting firm. These policies and procedures are intended to ensure that the provision of such services do not impair the independent registered public accounting firm’s independence. These services may include audit services, audit related services, tax services and other services. Previous to that date, no Audit Committee was in place as our Board consisted of a single member. All services provided by RRBB after September 28, 2018 representing $81,300 during 2018the years ended December 31, 2022 and all of the fees during 2019 as set forth above2021 were approved by the Audit Committee.

 

58


 

PART IV

Item 15. Exhibits and Financial Statement Schedules.

Item 15.Exhibits and Financial Statement Schedules.

Exhibit
No.
 Name of Document
2.0 
2.1Agreement and Plan of Merger, and Reorganization, dated as of September 28, 2018,May 17, 2021, by and among the Registrant, ZevOndas Holdings Inc., Drone Merger Sub I Inc., Drone Merger Sub II Inc., American Robotics, Inc., and Ondas Networks Inc.the Company Stockholder’s Representative (incorporated herein  by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 17, 2021 (File No. 001-39761)).
2.2Agreement of Merger, dated August 4, 2022 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on October 4, 2018August 8, 2022 (File No. 333-205271)001-39761)).
3.0 
2.3Amendment to Agreement of Merger, dated November 13, 2022 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2022 (File No. 001-39761)).
3.1Amended and Restated Articles of Incorporation of the Registrant, dated September 28, 2018 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2018 (File No. 333-205271)).
3.1 
3.2Amended and Restated Bylaws of the Registrant, dated September 28, 2018 (incorporated herein by reference to Exhibit No. 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2018 (File No. 333-205271)).
4.1 Description of Registrant’s Securities*
4.23.3 Certificate of Designation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 17, 2020 (File No. 000-56004)).
3.4Certificate of Change (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 13, 2020 (File No. 000-56004)).
4.1Form of Common Stock Certificate (incorporated herein by reference to Exhibit No. 4.1 to the Company’s Current ReportRegistration Statement on Form 8-KS-3 filed with the SEC on October 4, 2018January 29, 2021 (File No. 333-205271)333-252571)).
4.3 Form of Investor Warrant (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 1, 2019 (File No. 000-56004))
4.44.2 Form of Placement Agent Warrant (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 1, 2019 (File No. 000-56004))
4.5Form of Warrant (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 1, 2019 (File No. 000-56004)).
10.0 
4.3Form of Warrant (included as Exhibit E to Exhibit 2.1 and incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 17, 2021 (File No. 001-39761)).
4.4Form of Lock-up3% Series A Senior Convertible Note Due 2023 (see Exhibit A-1 to the Securities Purchase Agreement executedfiled as Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-39761)).

4.5Form of 3% Series B-1 Senior Convertible Note (see Exhibit A-2 to the Amendment No. 1 to Securities Purchase Agreement filed as Exhibit 10.1 to this Current Report on Form 8-K (File No. 001-39761)).
4.6Form of 3% Series B-2 Senior Convertible Note (see Exhibit A-2 to the Amendment No. 1 to Securities Purchase Agreement filed as Exhibit 10.1 to this Current Report on Form 8-K (File No. 001-39761)).
4.7Base Indenture, dated January 20, 2023, between Ondas Holdings Inc. and Wilmington Savings Fund Society, FSB (incorporated by reference to Exhibit 4.3 to the former stockholdersCompany’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2023 (File No. 001-39761)).
4.8Supplemental Indenture, dated January 20, 2023, between Ondas Holdings Inc. and Wilmington Savings Fund Society, FSB (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 23, 2023 (File No. 001-39761)).
4.9Description of Registrant’s Securities (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (File No. 000-56004)).


10.1Form of Warrant Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 7, 2020 (File No. 000-56004)).
10.2#Amended and Restated Employment Agreement, dated June 3, 2020, between Ondas Networks,Holdings Inc. and Eric Brock. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 3, 2020 (File No. 000-56004)).
10.3#2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271)).
10.4#Form of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 7, 2020 (File No. 000-56004)).
10.5#Form of Restricted Stock Unit Agreement. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 3, 2020 (File No. 000-56004)).
10.6Form of Nonstatutory Stock Option Agreement.# (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 3, 2020 (File No. 000-56004)).
10.7Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 17, 2020 (File No. 000-56004)).
10.8Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 1, 2020 (File No. 000-56004)).

10.9Ondas Holdings Inc. 2021 Director Compensation Policy (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2018 (File No. 333-205271)January 29, 2021)).
10.1 
10.10#Lease Agreement, dated November 11, 2013, between Full SpectrumOndas Holdings Inc. and SCP-1, LP2021 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.310.1 to the Company’s Current Report on Form 8-K filed on November 5, 2021 (File No. 001-39761)).
10.11#Ondas Holdings, Inc. 2021 Incentive Stock Israeli Appendix (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission on October 4, 2018January 13, 2023 (File No. 333-205271)001-39761)).
10.2 
10.12#Amendment to Lease Agreement, dated October 16, 2017, between Full Spectrum Inc. and SCP-1, LPAirobotics Ltd. 2015 Israeli Share Option Plan (incorporated herein by reference to Exhibit 10.410.1 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 25, 2023 (File No. 001-269418)). 
10.13#2020 Incentive Equity Plan (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 25, 2023 (File No. 001-269418)).

10.14#Employment Agreement, dated December 10, 2021, between Ondas Holdings Inc. and Derek Reisfield. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December  13, 2021 (File No. 001-39761)).
10.15#Employment Agreement, dated August 5, 2021, between Ondas Holdings Inc. and Reese Mozer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission on October 4, 2018February 15, 2023 (File No. 333-205271)001-39761)).
10.3# 
10.16EmploymentEquity Distribution Agreement, dated September 28, 2018, between Ondas Holdings Inc. and Eric BrockMarch 22, 2022 (incorporated herein by reference to Exhibit 10.510.1 to the Company’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission on October 4, 2018March 22, 2022 (File No. 333-205271)001-39761)).


10.4#10.17 EmploymentAmendment No. 1 to Equity Distribution Agreement, dated September 28, 2018, between Ondas Holdings Inc. and Stewart KantorOctober 26, 2022 (incorporated herein by reference to Exhibit 10.610.1 to the Company’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission on October 4, 201826, 2022 (File No. 333-205271)001-39761)).
10.5# 
10.182018 Equity Incentive PlanForm of Securities Purchase Agreement, dated October 26, 2022, between Ondas Holdings Inc. and the Investors (incorporated herein by reference to Exhibit 10.710.1 to the Company’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission on October 4, 201826, 2022 (File No. 333-205271)001-39761)).

59

 

10.6 
10.19Loan and SecurityForm of Amendment No. 1 to Securities Purchase Agreement, dated as of March 9, 2018, by andJanuary 20, 2023, between Full SpectrumOndas Holdings Inc. and Stewart Capital Holdings, LPthe Investors (incorporated herein by reference to Exhibit 10.810.1 to the Company’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission on October 4, 2018January 23, 2023 (File No. 333-205271)001-39761)).
10.7 Form of Secured Promissory Note issued to Steward Capital Holdings LP by Ondas Networks Inc. dated March 19, 2018 (incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with the SEC on October 4, 2018 (File No. 333-205271))
10.8Secured Promissory Note for $5,000,000 issued to Steward Capital Holdings, LP by Full Spectrum Inc. dated March 9, 2018 (incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))
10.910.20 Secured Promissory Note for $5,000,000 issued to Steward Capital Holdings, LP by Ondas Networks Inc.Placement Agent Agreement, dated October 9, 201826, 2022, between Ondas Holdings Inc. and Oppenheimer & Co. Inc. (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SECSecurities and Exchange Commission on October 10, 201826, 2022 (File No. 333-205271)001-39761)).

10.1021 Form of Convertible Promissory Note (incorporated herein by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2019 (File No. 000-56004))
10.11Form of Lock-Up Agreement  (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on October 1, 2019 (File No. 000-56004))
10.12Form of First Amendment to Lock-Up Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 30, 2019 (File No. 000-56004))
10.13First Amendment to Loan and Security Agreement dated as of June 18, 2019 by and between Ondas Holdings Inc. and Steward Capital Holdings, LP (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on June 18, 2019 (File No. 000-56004))
10.14Second Amendment to Loan and Security Agreement, dated as of October 28, 2019, by and between Ondas Networks Inc. and Steward Capital Holdings, LP. (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2019 (File No. 000-56004))
10.15Amendment to Secured Term Promissory Notes issued to Steward Capital Holdings, LP dated June 18, 2019 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form   8-K filed with the SEC on June 18, 2019 (File No. 000-56004))
21.00Subsidiaries of the Registrant*.
23.1 
23.1Consent of Rosenberg Rich Baker Berman, P.A.*
31.1 
31.1Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a) dated March 13, 2020.*14, 2023*
31.2 
31.2Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a) dated March 13, 2020.*14, 2023*
32.1 
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated March 13, 2020.14, 2023***
32.2 
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated March 13, 2020.14, 2023***
101.INS XBRL Instance Document*
101.SCH101.INS Inline XBRL Instance Document.*
101.SCHInline XBRL Taxonomy Extension Schema Document*Document.*
101.CAL 
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*Document.*
101.DEF 
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*Document.*
101.LAB 
101.LABInline XBRL Taxonomy Extension Label Linkbase Document*Document.*
101.PRE 
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*Document.*
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*

 

**Filed herewith.
**This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
#Management contract or compensatory plan or arrangement.

 

Item 16.Form 10-K Summary.

Item 16. Form 10-K Summary.

None.

 

60None.

 


SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

DATE: March 13, 2020

DATE: March 14, 2023ONDAS HOLDINGS INC.
   
 By:/s/ Eric A. Brock
  Eric A. Brock
  Chief Executive Officer
  (Principal Executive OfficerOfficer)
   
 By:/s/ Stewart G. KantorDerek Reisfield 
  Stewart G. KantorDerek Reisfield
  PrincipalChief Financial Officer
  (Principal Financial Officer
Principal Accounting OfficerOfficer)

 

61

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

  

Signature Title Date
     
/s/ Eric A. Brock Chairman and Chief Executive Officer March 13, 202014, 2023
Eric A. Brock    
     
/s/ Stewart G. KantorDerek Reisfield  Director, President, Chief Financial Officer, Treasurer and March 13, 202014, 2023
Steward G. KantorDerek Reisfield Treasurer and Secretary  
     
/s/ Richard M. CohenThomas V. Bushey  Director March 13, 202014, 2023
Richard M. CohenThomas V. Bushey    
     
/s/ Richard H. SilvermanM. Cohen  Director March 13, 202014, 2023
Richard H. SilvermanM. Cohen    
     
/s/ Derek ReisfieldRandall P. Seidl  Director March 13, 202014, 2023
Derek ReisfieldRandall P. Seidl
/s/ Richard H. Silverman DirectorMarch 14, 2023
Richard H. Silverman
/s/ Jaspreet Sood DirectorMarch 14, 2023
Jaspreet Sood    

 

 

6270

 

 

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