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

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

For the fiscal year ended December 31, 20182021

or

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

☐ 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)

NevadaNevada47-2615102
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

165 Gibraltar Court, Sunnyvale, CA 94089

(Address of principal executive offices) (Zip Code)

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

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

(Address of principal executive offices) (Zip Code)

(888) 350-9994

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act:None

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: None

Common Stock, $0.0001 par value
(Title of Class)

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

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 ☑

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 ☐

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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 filerSmaller 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 31(a)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. ☐

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

The registrant is unable to determine the aggregate market value of itsthe common stock held by non-affiliates of the registrant as of June 30, 2018. The registrant’s common stock was listed on the OTC Pink tier of the OTC Markets Group, Inc. under the symbol ZVVT; however, only a bid price of $1.00 was submitted on June 30, 2018, an ask price was not submitted and a trade2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $206,986,796. 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.

The number of shares outstanding of the issuer’s common stock had not been executed through June 30, 2018.

Asas of March 11, 2019, the registrant had 50,463,732 outstanding shares of common stock, $0.0001 par value.22, 2022 was 40,990,604.

ONDAS HOLDINGS, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2018

Table of Contents

PART I
ITEM 1.BUSINESS1
ITEM 1A.RISK FACTORS11
ITEM 1B.UNRESOLVED STAFF COMMENTS31
ITEM 2.PROPERTIES31
ITEM 3.LEGAL PROCEEDINGS32
ITEM 4.MINE SAFETY DISCLOSURES32
PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES33
ITEM 6.SELECTED FINANCIAL DATA33
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS34
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.44
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA45
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE45
ITEM 9A.CONTROLS AND PROCEDURES45
ITEM 9B.OTHER INFORMATION47
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE47
ITEM 11.EXECUTIVE COMPENSATION52
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS54
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE55
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES56
PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES58
ITEM 16.FORM 10-K SUMMARY61

CAUTIONARY 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.

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

PART IRisk Factor Summary

Our business is subject to a number of risks 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 adoption of the IEEE 802.16s wireless broadband standard by customers in our target critical infrastructure sectors is uncertain.
Our growth depends in part on the success of our strategic partnerships with third parties such as Siemens Mobility, 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.
The Company operates in evolving markets, which makes it difficult to evaluate the Company’s business and future prospects.
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.
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.
The Company faces uncertainty and adverse changes in the economy.
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.
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.
If we fail to respond to evolving technological changes, our products and services could become obsolete or less competitive.
We depend on our ability to develop new products and to enhance and sustain the quality of existing products.
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 profitability and may never result in revenue to us.
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.
Cyberattacks through security vulnerabilities could lead to disruption of business, reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.
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.

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

ii

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

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

We may not be able to secure adequate insurance policies, or secure insurance policies at reasonable prices.
Litigation may adversely affect our business, financial condition, and results of operations.

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.

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.
If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.
We use open-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.
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.
If business growth falls short of expectations, we may need to obtain additional capital to fund our growth, operations, and obligations

We identified a material weakness in our internal control over financial reporting. If we are not able to remediate the material weakness and otherwise 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 adversely affected.

Risks Related to the American Robotics Acquisition

Our business relationships, those of American Robotics or the combined company may be subject to disruption due to uncertainty associated with the acquisition of American Robotics (the “Transaction”).
Ondas may experience difficulties integrating American Robotics’ business.
The combined company may not fully realize the anticipated benefits of the Transaction within the timing anticipated or at all.
The 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.

iii

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 and 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 reports our business and financial results on a consolidated basis and therefore,for the year ended December 31, 2021 (the “Form 10-K”), 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”) and American Robotics, Inc. (“American Robotics” or “AR”). Ondas Networks was originally incorporatedand American Robotics together provide users in Delaware on February 16, 2006 underrail, energy, mining, agriculture, and critical infrastructure markets with improved connectivity, data collection capabilities, and automated decision-making to improve operations. We operate our two subsidiaries as separate business segments. See Notes 1 and 2 of the name of Full Spectrum Inc. On August 10, 2018, the name was changed to accompanying Consolidated Financial Statements for further information regarding our segments.

Ondas Networks

Ondas Networks Inc.

Ondas Networks’ wireless networking products are applicable to a wide range of mission critical operations that require secure communications over large geographic areas. We provideprovides 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, SDR systempatented, Software Defined Radio (“SDR”) platform for secure, licensed, private, wide-area broadband networks. Our customers purchaseinstall FullMAX system solutionssystems in order to deployupgrade and expand their legacy wide-area intelligent networks (WANs) for smart grids, smart pipes, smart fields and any 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 partners to critical infrastructure providers including electric utilities, water and wastewater utilities, oil and gas producers, and for other critical infrastructure applications in areas such as homeland security and defense, and transportation.

TARGET INDUSTRIES AND APPLICATIONS

 


In 2015, Ondas Networks began working closely withinfrastructure. Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers (IEEE)(“IEEE”), the Utilities Technology Council (UTC),leading worldwide standards body in data networking protocols, and forms the Electric Power Research Institute (EPRI) and leading U.S. electric utilities to develop a new mission critical wireless Industrial Internet standard.Ondas Networks served in a leadership capacity during the developmentcore of the new IEEE 802.16s standard for private cellular networks, which was published in the fourth quarter of 2017. The specifications in the IEEE 802.16s standardstandard. Because standards-based communications solutions are primarily based onpreferred by our FullMAX technologymission-critical customers and manyecosystem 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 customerstechnology across a burgeoning ecosystem of global partners and industrial partners actively supportedend 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 technology during the standards-making process.mission-critical infrastructure customers. We believe thatindustrial and critical infrastructure markets throughout the standard will be instrumental in driving widespreadglobe 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 technologyedge of large industrial networks and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the electric utility“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.

American Robotics

American Robotics designs, develops and manufactures autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise customers. We provide our customers turnkey data solutions designed to meet their unique requirements in the field. We do this via our internally developed Scout System™, an industrial drone platform which provides commercial and government customers with the ability to continuously digitize, analyze, and monitor their assets and field operations in near real-time.

The Scout 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 Scout System™ provides efficiencies as a drone solution for commercial use. Once installed in the field at customer locations, a fleet of connected Scout Systems remain indefinitely in an area of operation, automatically collecting data each day, self-charging, and seamlessly delivering data analysis regularly and reliably. AR markets the Scout System™ under a Robot-as-a-Service (“RaaS”) business model, whereby our drone platform aggregates customer data and provides the data analytics meeting customer requirements in return for an annual subscription fee.


The Scout System™ consists of (i) Scout™, a highly automated, AI-powered drone with advanced imaging payloads (ii) the ScoutBaseTM, a ruggedized weatherproof base station for housing, charging, data processing, and cloud transfer, and (iii) ScoutViewTM, 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 a suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and other critical infrastructure industries bothproprietary intelligent safety systems, we achieved the first and only Federal Aviation Administration (“FAA”) approval for automated operations without a human on-site in the United States on January 15, 2021. As a result, American Robotics currently has the unique ability to serve markets which require automated drone technology to enable scalable drone operations, which the Company estimates to be 90% of all commercial drone applications.

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 international markets. Since IEEE 802.16s was published, there has been a significant increase in interest from customers in end markets including oil & gas, watersecure transportation solutions for more than 160 years, to both market our FullMAX-based networking technology and wastewater, transportationservices and homeland security. 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 we are currentlySiemens has both the only supplier able to offer IEEE 802.16s compliant systemssales and are actively working with customers and industry partners to help developmarketing reach and support a multi-vendor MC-IoT industry ecosystem for this standard.

Our FullMAX system of wireless base stations, fixed and mobile remote radios and supportingto drive our 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 ofwide scale acceptance across the global economy. Private cellular networks are typicallyrail market beginning with the preferred choiceNorth 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 large industrial customers with business operations spanning large field areas. Private networks provide enhanced protection against cyber terrorism,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 natural and man-made disasters, andoffer Siemens’ customers the ability for the operator to maintainsupport 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 their desired quality of service. Our IEEE 802.16s compliant equipment issystems, are designed to optimize performance of unused or underutilized low frequency licensed radio spectrumincrease railroad productivity, reduce costs and narrower channels. A FullMAX wireless network isimprove safety. In addition, Siemens has begun to market and sell Ondas Networks’ standalone MC-IoT 802.16 products under the Siemens Airlink brand.

Our relationship with Siemens expanded significantly less expensive to build compared to traditional LTE networks given its ability to optimizein 2021 both with (i) the performance of lower cost radio spectrum (non-traditional LTE bands) and provide much greater coverage. In allwider marketing of our industrial end markets, the adoptionwireless technology platform and (ii) multiple additional joint-product programs. Siemens has expanded its marketing reach 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.

In addition to selling our FullMAX solutions for dedicated private wide area networks, we have begun to offer a mission critical wireless service to industrial customers and municipalitiesOndas Networks products with identified opportunities in the form of a Managed Private Network. We currently have demonstration networks in the metropolitan New York area and in Northern California in association with a nationwide spectrum owner. We have deployed, with our spectrum associate, a FullMAX-powered network along the east coast covering the “Route 5 corridor” reaching from eastern Pennsylvania and southern New Jersey and the metropolitan New York network northward up to the metropolitan Boston area. Collectively, these networks cover tens of thousands of square miles in some of the nation’s most strategic economic areas. When fully deployed and operational, this managed service will be priced on a monthly usage basis for our customers.

Target Customers

The target customers for our products operate in critical infrastructure sectors of the global economy. Private cellular 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,North American Transit Rail as well as naturalin European 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 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 reducing incremental infrastructure costs. Ondas networks offer much faster data throughput and more efficient radio frequency utilization relative to existing private networks which are based largely on legacy, proprietary technologies. We believe the IEEE 802.16s standard is an important catalyst 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 which results in more price and service competition and lower costs. The IEEE 802.16s standard is relevant for all critical infrastructure providers with operations covering large field areas and as such, the market potential is sizeable enough to attract a deep ecosystem of hardware and software solutions providers as well as ancillary service organizations to support our customers.

Asian Rail markets. We believe our FullMAX powered WANs serve the high end of the value chain as compared to mass-market, low-powered, narrowband solutions such as LoRa, Sigfoxtechnology has broad potential in these large, newly targeted markets. Siemens 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 managed over large field areas, which we can provide cost effectively.

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 30 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 poised to grow rapidly given the key role connectivity will play in next generation IoT-type applications. Firms like Cisco and Gartner forecast that there will be billions of connected IoT devices installed by 2020; many of them will be deployed for industrial applications. Dell’Oro Group estimates that Wide Area IoT spending; including low power WAN deployments which we compete with 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 andbegan a second major joint development program in the first quarter of 2021 to deliver a new dual mode on-board locomotive radio combining FullMAX MC-IoT technology with Siemens’ Head-of-Train (“HOT”) system. This new development, initially focused on the North American Class 1 rail market, has now expanded to develop an enhanced rangeglobal markets including for the delivery of productsa dual mode MC-IoT/HOT radio to capitalize on this burgeoning opportunity and is poised to become the leading supplier of private cellular network products. In all our industrial end markets, 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 anda major Asian rail customer. Additional joint-product development projects are expected to reach $15.4 billion annually by 2021. This growth is being driven by distributedin 2022 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 & 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.

beyond.


Our Products and Services

Ondas Networks’ 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 utilities to extend their secure corporate networks into the far reaches of their service territories.

FullMAX radios include a variety of security measures to protect the network against cyber terrorist attacks, and to safeguard critical assets and information.

FullMAX radios are frequency agile and may be deployed in a wide variety of channel sizes, operating in any frequency between 30 MHz and 6 GHz.

FullMAX radios use a SDR platform to implement standard versions of the IEEE 802.16 protocol, including Mobile WiMAX and the new 802.16s amendment which supports narrower channels.

The FullMAX SDR platform also supports extensions to provide further flexibility and performance beyond the standard implementations.

FullMAX radios can operate at high transmit power (up to 20 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. 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 provide a variety of services associated with the sale of our FullMAX products including network design, RF planning, product training and spectrum consulting. We generate annual recurring revenue from maintenance agreements to provide customers with technical support, extended hardware warranties and software services — including software fixes, upgrades and new features.

FullMAX Network ArchitectureStrategy


Our Growth 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. We intend to leverage our FullMAX technologyservices through Ondas Networks 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 and water utilities while continuing the expansion of our distribution and support capabilities into new vertical end markets such as we have recently done in the oil & gas and transportation sectors.ii) automated industrial data services through American Robotics’ Scout System™.

The key elements of our growth strategy include the following:

Expand our Global Customer Sales and Field Support organization. To penetrate our targeted critical infrastructure end markets, we will continue to grow our customer sales and field support capabilities by recruiting and hiring personnel with relevant industry expertise. We currently have 26 people in sales and support functions and, we expect to recruit and hire additional talent in these functional areas by the end of 2019. These employees are staffed out of our Sunnyvale headquarters and our Chengdu headquarters in China. We also have smaller regional offices located in Massachusetts,Deliver multiple North Carolina and Washington, D.C. targeting specific vertical end markets including electric utilities, oil and gas, and transportation. We also intend to expand our third-party distribution efforts by entering into additional value-added reseller agreements.

Promote the development of a multi-vendor ecosystem in support of IEEE 802.16s.Through our market development efforts, we plan to engage with established communications hardware and software vendors and open our technology platform to them via OEM or licensing arrangements. To further our ecosystem development efforts, we will also pursue partnerships and joint ventures with value-added technology providers including IoT software platform providers or manufacturers of industrial sensors or smart machinery in need of next-generation enabling connectivity solutions.

Develop new products to continuously improve our customer value. We expect to introduce two new hardware platforms, Jupiter and Mars, over the next two quarters. These platforms provide enhanced functionality for bay station applications. In addition, we are developing our Mercury remote radio which will address the burgeoning MC-IoT market for high volume, lower cost endpoint radios. The Mercury radios are integrated intoAmerican Class I Railroad network opportunities through our FullMAX private network solutions, are compliant with IEEE 802.16s requirements and can be utilized in both Tier 1 and Tier 2 network configurations. We expect to release our Mercury radios in the second quarter of 2019.

Expand mainland China operations. We have established a subsidiary in China to grow ourplatform. Our marketing and business development activitiesefforts combined with our exclusive strategic partnership with Siemens has generated the potential for significant sales in Chinaour 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. Furthermore, Siemens has begun marketing and selling the new, jointly developed ATCS/MC-IoT radio platform which operates in the 900 MHz frequency and replaces a legacy ATCS platform. We received an initial purchase for commercial deployment in December 2021 from Siemens and are now working with our railroad customers to market our wireless broadband solutionsdevelop a commercial deployment strategy which we expect will significantly increase purchase orders for equipment and standards-based technology to critical infrastructure sectors within Chinaservices in 2022 and throughout Asia. Marketing and customer support activity will be executed via a mixture of direct sales and third-party relationships thatsubsequent years. In addition, together with Siemens, we are currently exploring.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.


Secure and service “Franchise Customers” for our Scout System™. We focus the marketing of our Scout System™ on engagements with blue-chip industrial customers with emerging and substantial Unmanned Aerial Systems (“UAS”) programs. These “Franchise Customers” have the potential to move from initial field trials consisting of one to five systems to fleet deployments consisting of hundreds or even thousands of Scout Systems. Our focus for 2022 is on growing the number of Franchise Customer field engagements and successfully securing additional orders for fleet deployments from those customers.
Continue to enhance the value of our Scout System™. We plan to develop and integrate additional payload capabilities to expand the number of high-value applications we can address for our customers. These new capabilities greatly expand the number of applications for which our customers can utilize our services, and thus expand the value the Scout System provides our customers. In addition, we planintend to supplementcontinue to develop proprietary data analytics utilizing artificial intelligence, machine learning, and computer vision techniques. We believe continuous enhancements to our production capabilities by further developingScout System™ via increased diversity of payloads and more robust analytics capability will serve to increase the value of our components supply chain and assembly and test capabilities in Chinadrone-driven data solutions to produce FullMAX systems for both domestic customers and export from China.lead to larger and faster deployments with customers.

Continue to lower product manufacturing costs to drive customer value and enhance our profitability. We currently use best in class outsourced contract manufacturing while leveraging our internal product design and development capabilities. We expect to secure lower component costs via the further development of our supply chain in Asia for high volume production. In addition, we plan to develop internal capabilities for product assembly and testing in China. Certain target markets (e.g. government and security) may require domestic manufacturing and/or final assembly in local markets. Using discrete, portable manufacturing packages will allow us to retain this option.


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 focusedWe intend to focus on companies with complementary technologies or product offerings or synergistic distribution strategies.

SalesOur Business Model

Ondas Networks

We sell our FullMAX MC-IoT wireless products and Marketing

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 generatecontinue 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. 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.

In 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, leadsSoftware-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 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 software 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 and sales models both related to both connectivity value and edge computing capability. Customers and ecosystem partners will require ongoing FullMAX system and security enhancements and for us to design 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 year following an initial installation. Software maintenance licenses entitle the customer to ongoing software and security upgrades as well as enabling the provision of additional 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 ancillary 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 onsite 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.

American Robotics

American Robotics markets its Scout System™ drone platform via a direct sales force to industrial, agricultural 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 Scout System™ on the customer premises. Our field service personnel remain on location for a short period of time to ensure the programmed automated drone operations are meeting customer requirements.

By virtue of offering a truly automated data solution, American Robotics is able to structure its business under a Robot-as-a-Service (“RaaS”) model. The RaaS model bundles hardware, software, operations, and maintenance into one annual subscription fee. This business model results in a lower annual cost of data acquisition to a customer via the drone, to what AR believes is approximately ten times less than current manual methods which are labor intensive. Our RaaS business model also provides enhanced accuracy, consistency and completeness over human collection methods. In addition, it offers American Robotics recurring, software-like margins in return for these services. This model also presents the opportunity for continued software improvements, upgrades, and new features that can be monetized through tiered pricing and app store-like concepts, allowing for continued user experience improvement and potential increase in revenue per unit over time.

The RaaS business model offers many benefits for customers through direct sales efforts, third-party resellers,including:

Annual Subscription for Service: The Scout System is bundled into an annual subscription fee, encompassing the full suite of hardware, software, and services, allowing American Robotics to provide customers the highest performing product at the lowest possible cost.

Real-Time Automated Operation: Once installed, each Scout system operates at its maximum capacity. Automated missions occur multiple times per day, guaranteeing customers the highest quality data at the highest frequency.

Low Upfront Capital Costs: The Robot-as-a-Service (RaaS) model allows American Robotics to lower the burden of upfront manufacturing and hardware costs. Aside from initial installation, set up and shipping costs, all that a customer referrals, consultant referrals, trade show attendance, general marketing effortspays for is the service that the Scout System provides.

Limited Long-term Risk: Subscription fees are billed annually, and public relations.

After basic qualificationreplacement units can be swapped out at the end of the prospect,service life. American Robotics will also periodically install new software updates and provide access to new features, assuring optimal performance throughout a customer’s subscription.

No Maintenance Responsibilities: Our staff remotely oversee the typical salesoperation of customer units and manage routine and unscheduled maintenance requirements.

No Customer Pilot Training: Both the technology itself and our staff oversee the real-time operation of a customer’s units. Health status and performance are constantly monitored to assure optimal performance, and no pilot training is required for a customer’s staff to integrate this technology into their business.

Reduced Warranty Exposure: American Robotics owns and operates each Scout System™ unit. This reduces warranty exposure and customer friction. Non-performing units will be replaced, repaired, and validated at our expense.

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 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 startsdata 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 customer supplying usedge 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 key information regarding their network assets including the location of their existing radio tower sites andmission critical wireless Industrial Internet IEEE 802.16s. The specifications in the remote locations where they require data connectivity. We use this information to generate radio frequency coverage mapsIEEE 802.16s standard are primarily based on our FullMAX technology. This information is formatted intotechnology, and many of our customers and industrial partners actively supported our technology during the IEEE standards-making process. In January 2020, a proposalnew 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”), Transportation Technology Center, Inc. (“TTCI”), 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.

American Robotics

American Robotics provides our customers with turnkey automated data solutions designed to meet their unique requirements in the field. We do this via our internally developed Scout System™, our autonomous drone platform which is then reviewedprovides commercial and government customers with the customerability to determinecontinuously digitize, monitor and analyze their assets in near real-time.

The Scout System™ has been designed from the suitabilityground up as an end-to-end product capable of continuous unattended operations in the real world. The Scout System™ consists of (i) Scout™ Drone, a highly automated, AI-powered drone with advanced imaging payloads (ii) the ScoutBaseTM, a ruggedized base station for housing, charging, data processing, and cloud transfer, and (iii) ScoutViewTM, American Robotics’ analytics and user interface software package, as well as a host of supporting technologies that connect these major subsystems. Using a suite of proprietary technologies, including DAA and other proprietary intelligent safety systems, American Robotics achieved the first and only approval for automated operations without a human on-site in the United States on January 15, 2021.

American Robotics’ Concept of Operations (CONOPS) was designed in concert with the end-to-end technology stack to optimize for FAA-approval of fully automated operation. The Company has developed a proprietary suite of layered, redundant technological risk mitigations and layered, redundant operational risk mitigations to achieve this industry-first FAA approval of continuous, automated, remote operations. The combination of AR’s technologies and the corresponding CONOPS enables a solution that is considered both uniquely safe and uniquely scalable, by taking piloting out of the hands of customers.


CONOPS Overview: A ScoutBase is installed at a fixed location within the desired Area of Operation (AO). Under AR’s current set of FAA approvals, a Scout drone is permitted to fly anywhere under 400 feet within a 2-mile radius of the ScoutBase and the accompanying ground-based DAA system. Once installed, no further physical human interaction is required to conduct daily operations. All pre-flight inspections, mission planning, flight, obstacle avoidance, air traffic avoidance, health diagnostics, and precision landing are conducted autonomously via our proprietary software. An American Robotics Remote Operator (RO) is located offsite in the Company’s Network Operations Center (NOC) and monitors the automated drone systems operations.

The Market for Our Products and Services

Ondas Networks

The global end markets for Ondas Networks’ MC-IoT wireless networking 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 billions of connected IoT devices installed throughout the economy; many of which are 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 2.5X from 2017. In many of our solution. The next step typically involves a customer paid onsite lab evaluationindustrial 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. Demand for edge computing solutions is growing rapidly and adopting edge computing applications can help our customers run their businesses more efficiently, profitably, and safely. According to MarketsandMarkets the market for global edge computing solutions is expected to grow over 34% per year from $3.6 billion in 2020 to $15.7 billion by 2025. Ondas Networks is leveraging its industry expertise and FullMAX connectivity and Fog-computing platform to develop an enhanced range of products to capitalize on this expanding opportunity with the goal of becoming the leading supplier of private industrial networks.

We have targeted the North American freight rail operators for the initial adoption of our products duringFullMAX platform. These rail operators currently operate antiquated 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 Fog networking capability. We believe a transition to integrated Fog-computing wireless communications systems will enable the customer tests for basic functionality, securityrail operators to drive more intelligence to the edge of their operating environments enabling real time automation and application compatibility.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 typically followedbeing driven by a live, real world outdoor testrecent key event which occurred in August 2020 in which the customer purchases additional equipment to communicate with a representative number of utility infrastructure control points.

FollowingClass 1 rail systems in the successful evaluationU.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 2024, 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. 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 productMC-IoT platform offers 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.

American Robotics

The total addressable market (“TAM”) for commercial drone applications is also large – measuring $127 billion according to a pilot network,2016 report from consulting firm PwC. For the customer may choose, or bevast majority of commercial drone applications, full automation is required to complete a Request for Proposal (RFP) or Request for Quotation (RFQ) process to address themake economic sense. The time and cost requirements of their entire network. We have participated in many such processeshuman pilots are too high for the demanding and have developed an extensive librarymonotonous routines that must be performed to extract value.


American Robotics’ Scout System™ targets the majority of material“drone-in-a-box”-applicable commercial and processesdefense markets, as estimated by PwC. The commercial market is segmented into two primary categories, Agriculture and Industrial. AR estimates the collective TAM for responding effectivelythe Scout System within these three target markets to be $114 billion. For each market, the core automation technology is the same, but the product is optimized for that set of use cases. Primary differences include payload as well as the user interface (“UI”) and efficiently in a timely manner.user experience (“UX”) and analytics packages within ScoutView™.

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 Scout 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.

If we are selected, we typically enter into contract negotiations

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 Scout 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 Scout 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 been with the customer basedClass 1 freight railroad operators and Siemens in North America. There are six Class I railroads in North America, all of which run multiple, frequency-specific networks for different applications. Our FullMAX platform has the flexibility to operate in all 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 focus with these rail customers has been for train control applications and related safety systems in the 900 MHz frequency band where the FCC has recently awarded our standard termsrailroad customers new radio spectrum in connection with the Anterix 900 MHz Report and condition of sale, software licensing agreement and warranty policy. The customer then generatesOrder.

In November 2021, we received our first commercial order for the 900 MHz network from Siemens. We also received a purchase order and we commence fulfillmentin December 2021 to establish a Rail Lab (the “dot16 Rail Lab”) via Siemens on behalf of the order. ManyAAR. The dot16 Rail Lab will host 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 2022 with multiple rail customers providing purchase orders allowand deploying our software-defined network. We expect a 900 MHz network upgrade cycle across all Class I railroad systems over the next few years in order to comply with FCC license requirements and meet business needs related to safety and profitability.

American Robotics

American Robotics’ Scout System™ addresses a wide number of applications and use case across industrial, enterprise and government end markets. We believe strong demand for or require phased deliveryAR’s automated data solutions is reflected in a robust pipeline of products over several months or years.

Manypotential customers which grew significantly following the FAA approval received in January 2021. American Robotics launched its commercial marketing effort in May 2021, after receiving an initial investment from Ondas Holdings. Marketing activity accelerated in August 2021 after the acquisition by Ondas Holdings which allowed for the further scaling of ourpeople and infrastructure to support customers are conservative in their decision-making process. Sales cycles for new customers can vary from one to three years dependingthe field. American Robotics initial marketing activity is focused on the complexitymining, oil & gas, rail and solar industries. In these markets we focus our attention on large, sophisticated and often blue-chip industrial customers with active drone programs and who have the ability and intent to deploy fleets of drones with a scalable solution such as the Scout System™. We refer to these customers as “Franchise Customers”.

In 2021, American Robotics announced purchase orders from Stockpile Reports and Conoco-Phillips and, in January 2022, a purchase order was received from Chevron Corporation. In addition, American Robotics is in the final procurement stage with a number of other industrial customers, with expected purchase orders and installations occurring throughout 2022. AR’s strategy is to deliver an exceptional service experience to these Franchise Customers in order to generate additional purchases 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.Scout System™ for nationwide fleet deployments.


Manufacturing, Availability and Dependence upon Suppliers

We designOndas Networks and American Robotics utilize outsourced manufacturing partners in 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

American Robotics designs the Scout 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. Our acoustics-based DAA sub-system is provided by a California-based supplier, and we retain the contractual right to manufacturer that DAA system ourselves. The building of a Scout 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 Scout™ 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 supportScout Base™. 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 QA 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 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. American Robotics 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 30 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.

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.

other comparable contract manufacturers. 


FullMAX is currently available on our Venus hardware platform with transmit power up to four (4) watts. In addition, we have two new hardware platforms under development. Our Jupiter hardware platform offers enhanced processing power combined with two (2) four-watt power amplifiers and will be available in the first quarter of 2019. We expect to introduce our Mars hardware platform in the second quarter of 2019 which will be our highest transmit power radio with up to 100 watts. Both Jupiter and Mars are targeted toward customer Base Station applications.

Our new ruggedized outdoor platform, Neptune, is at an advanced stage of development and will be productized 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.

We have various development programs in place to enable multi-input and multi-output (MIMO) functionality for the Venus, Jupiter and Mars platforms with various projects expected to be completed in each of the first three quarters of 2019.

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 will be 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. We expect to have the Tier 2 network elements available for customer deployments in the second quarter of 2019.

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 Company 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-partythird party consultants to assist us in our research and development activities.

American Robotics research and development activities are headed by Vijay Somandepalli, Chief Technology Officer, based in our Waltham, MA 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 $3,076,502approximately $5,801,000 and $1,002,625approximately $3,587,000 for the years ended December 31, 20182021 and 2017,2020, 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, weOndas Networks held a total of four7 issued patents in the U.S. and nine, 3 pending patent applications worldwide. Ourin the U.S., and 13 international pending patent application.  Ondas Networks patents expire between 20292030 and 2036,2037, 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 ourOndas Networks 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.


American Robotics relies primarily on patent, trademark and trade secret laws to protect our proprietary technologies and intellectual property. As of this filing, American Robotics held a total of 4 issued patents in the U.S., 6 pending patent applications in the U.S., and 6 international pending patent application. AR’s patents expire between 2036 and 2039, subject to any patent extensions that may be available for such patents. AR’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 prospectiveour officers, employees, contractors and other service providers and parties with which we do business partners to enter into confidentiality, non-disclosure (“NDAs”) and non-disclosureassignment of invention agreements (NDAs) before disclosure of any of our confidential or proprietary information.

Seasonality

We do not believe that the industry in which we competeOndas Networks 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 customerfluctuation.

The industries in which American Robotics offers its automated data solutions is subject to state regulations and/or annual budget cycles.some seasonal sales fluctuation, which differs by end markets and customer geographic locations. For example, weather and growing patterns means that demand from agricultural customers is typically greatest early in the growing season. Most industrial end markets are subject to much less seasonality.

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, 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 2018. During the year ended December 31, 2107, three2020, two customers accounted for approximately $156,000, $50,000$1,012,000 and $41,000$1,005,000 of our revenue, or 51%approximately 47%, 18% and 15%46%, respectively. No other customers provided more than 10% of our revenue during 2017. The loss of either of these customers could have a material impact on our business results of operations, at least in the short term.

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.FullMAX, as described below.

Non-wireless technologies:Public cellular data networks:

Leased Phone Lines – Analog linesPublic networks are being retiredmore 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 phone companiesnecessary 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 not being replaced by new digital lines, especially wheredesigned to support high capacity downloading and streaming applications with limited upload bandwidth available. Industrial networks typically require the grid assets are located.reverse traffic flow, often uploading data from a large number of remote locations.


Other private wireless products:

Power Line Carrier – The transmit speeds supported by this technologyUnlicensed 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 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 cellularAmerican Robotics

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.

None of our competitors offering automated UAS systems have secured FAA approval or waivers comparable to those received by American Robotics and are not able to operate at scale without human intervention when systems are deployed.

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:

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

2.FAA regulations and approvals unique to the operation of commercial or industrial drones,
3.customers’ licenses from the FCC,

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

5.regulations relating to worker safety and environmental protection,

6.permitting and inspection requirements applicable to construction projects,

7.wage and hour regulations,

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

9.building and electrical codes; and

10.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 15, 2019,18, 2022, we have 3574 full-time employees.employees, including 24 in the Ondas Networks segment and 50 in the American Robotics segment. In addition, we have consulting agreements with 10 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.

SubsidiariesCorporate 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 1 of the accompanying Consolidated Financial Statements for further information regarding the American Robotics acquisition.

As a result of the acquisitions described above, Ondas Networks and American Robotics became our wholly owned subsidiaries. Also, we have 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 businesscompany. We are in China. Full Spectrum Holding Limited owns 100%the process of Ondas Network Limited, a company registered to do business in China. Bothdissolving both FS Partners (Cayman) Limited and Full Spectrum Holding Limited were formed for the purpose of beginning operations in China.Limited.

Corporate Information

We are a Nevada corporation. OurOndas Holdings’ corporate headquarters are located in Waltham, Massachusetts. Ondas Networks has offices and operationfacilities in Sunnyvale, California, and 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.

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 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 Report.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 ReportForm 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, 2021 and December 31, 2020, we had an accumulated deficit of approximately $80 million and $65 million, respectively. To date, we have financed our operations primarily through sales of our equity securities and debt financings.

To implement our business strategy we need to, among other things, continue to attract new employees, complete the development of our low cost Mercury end points, develop an eco-system for the IEEE 802.16s wireless standard, 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 profitabilitysuch 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 quarterlysignificant increase in legal and accounting expenses related to public company compliance, continued compliance and various regulations applicable to our business or annual basis.arising from the growth and maturity of our 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.operations, and may cause the price of our common stock to 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. 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 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 vendormanufacturer 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 Scout 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 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.growth or financial performance. Our ability to generate organic growth will be affected by our ability to: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 occurbe attempted, realized or successful.


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 successful.harmed.

We believe that our success is dependent on our ability to continue identifying and anticipating the needs of our customers, to retain our existing customers and to add new customers. For example, our business plan is designed to penetrate large, critical infrastructure end markets with our wireless and UAS 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, security and UAS end markets with Ondas Networks and in the oil & gas and mining sectors with American Robotics. We expect that our qualified customer pipeline will increase in other additional strategic end markets. However, as we become larger through organic growth, the growth rates for customer engagement, project volume and average spend per customer may slow, even if we continue to add customers on an absolute basis. In addition, the costs associated with customer retention may be substantially lower than costs associated with the acquisition of new customers. Therefore, our failure to retain existing customers, even if such losses are offset by an increase in revenue resulting from the acquisition of new customers, 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 in our existing geographic markets, we expect 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, 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 2022, 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 2021.


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, 2021, two customers accounted for approximately $1,204,000 and $1,599,000 of our revenue, or approximately 41% and 55%, respectively. During the year ended December 31, 2020, two customers accounted for approximately $1,012,000 and $1,005,000 of our revenue, or approximately 47% and 46%, respectively. The loss of either of these 2021 customers 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 theour customer or a third-party,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, somemany 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. Failurelevels; 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-partythird 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 contractorsother 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, includingand may involve difficult and hard to reach terrain, high elevation, or locations high above the ground or 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 reputation.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. IfMaintaining 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 othersother service providers, including third parties, may suffer injuries. The failureFailure 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.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.


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 on our management team and need additional personnel to grow our business, and the loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business.

We depend, in part, on the performance of Eric Brock, our Chief Executive Officer, Stewart Kantor, our President 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 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 could adversely affect our business.


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 and reputation and external factors beyond our control, including the overall capacity of the surety market. 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 Federal Communications Commission (“FCC”)a lengthy sales cycle and our customers may cancel or change their product plans after we have expended substantial time and resources in the United States.design of their products.

Substantially allMany of our current hardware productscustomers are designedconservative in their decision-making process. Sales cycles for new customers can vary from one to communicate wirelessly via licensed radio frequencies and therefore dependthree years depending on the availabilitycomplexity of adequate radio spectrumthe customer’s network, whether the customer is subject to state regulations, and annual budget cycles. During this lengthy sales cycle, our potential customers may cancel or change their product plans. Customers may also discontinue products incorporating our devices at any time or they may choose to replace our products with lower cost semiconductors. In addition, we are working with leading customers in orderour target markets to operate. It is possibledefine our future products. If customers cancel, reduce or delay product orders from us, or choose not to release products that the FCCincorporate our devices after we have spent substantial time and resources developing products or the U.S. Congress could adopt additional changes in regulations or policies thatassisting customers with their product design, our revenue levels may be incompatible withless than anticipated and our current or future product offerings, as well as products currently installed in the field, or require them tobusiness, results of operations and financial condition may be modified at significant, or even prohibitive, cost.materially adversely affected.

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 the in oil & Gas and mining industries. 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 Scout System makes 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 Scout 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 damages and/certain components of our products and equipment, fires or consequential losses fromexplosions may disrupt our agreements with customers. It is possible that we may not be able to achieve this in all future business or cause significant injuries, which could exposeadversely 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 significant liabilities.temporarily shut down or otherwise disrupt some manufacturing processes, causing production delays and resulting in liability for workplace injuries and/or fatalities. 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 related to such incidents. We may experience such incidents in the future, which could 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 hasScout 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, andas well as frequent product introductions.introductions and revisions. Accordingly, our operating results depend upon our ability to develop and introduce new products and services, as well as 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 our customers operate in a highly regulated business environmentdevelopment costs and changes in regulation could impose costs on us or make our products less economical.

Our productsdevote significant resources to identifying 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 utility commissions, the Department of Energy, the Federal Energy Regulatory Commission, the Federal Communications Commission, 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 ourcommercializing new products and services, including specific permissions relatedwhich could significantly reduce our profitability and may never result in revenue to the cost recovery of these systems. Regulatory agencies may impose special requirements for implementationus.

Our future growth depends on penetrating new markets, adapting existing products to new applications and operationnew environments, and introducing new products and services that achieve market acceptance. We plan to incur substantial research and development costs as part of our efforts to design, develop and commercialize new products and services and enhance existing products. WeFor example, we will incur research and development costs to improve the functionality of our acoustic DAA solution configuration in certain environments. Further, our research and development programs may incur material costsnot produce successful results, and our new products and services may not 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 prospects.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 President, Chief Financial Officer, Treasurer and Secretary, Stewart Kantor and Menashe Shahar, the President and Chief Technology Officer of Ondas Networks, respectively, and Reese Mozer and Vijay Somandepalli, the Chief Executive Officer and Chief Technology Officer of American Robotics, respectively, to operate and grow our business. The loss of any of Messrs. Brock, Reisfield, Kantor, Shahar, Mozer or Somandepalli could negatively impact our ability to execute our business strategies. Although we have entered into employment agreements with Messrs. Brock, Reisfield, 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. 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 out 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 Scout 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 may seekdo not have long-term agreements with any of these suppliers that obligate them to growcontinue 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.

In addition, certain raw materials and components used in the manufacture of our products and in our development programs, are periodically subject to supply shortages, and our business through acquisitionsis subject to the risk of complementaryprice 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 on 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.

From timeBecause we currently do not have long-term supply contracts with guaranteed pricing, we are subject to time,fluctuations in the prices of the raw materials, parts and components and equipment we use in the production of our Scout 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 opportunities to acquire other companies,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 enhancealso 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 product platformrelationships fail to materialize into significant agreements, or technology, expandshould we fail to work efficiently with these companies, we may lose 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 breadthneed to integrate and manage the businesses and products acquired with our own 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 products 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 successfullyconsummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability to take 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. businesses 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.

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

Our potential inabilitybusiness 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 integrate any acquireddelay their decisions on spending for the products or technologies effectively mayand 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, operating resultsfinancial results.

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 and financial condition.

2NTD: Need to speak to specific insurance requirements for customer field and operational activity.
3NTD: Chevron, Conoco, Vulcan?


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 statementscondition 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.resources, and there is no guarantee that we will be able to successfully defend against any such litigation regardless of particular 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.

Risks Related to Regulatory Requirements4

DoingWe and our customers operate in a highly regulated business environment and changes in China may subjectregulation could impose costs on us to international economic and political risks over which we will have little or no control.

In December 2018, we established a China-based subsidiary to marketmake our products in China. Doing business in the communications sector outside the U.S., particularly in China, subjects usless economical.

Our products and services and our utility customers are subject to various risks including changing economic and political conditions, major work stoppages, exchange controls, currency fluctuations, armed conflicts and unexpected changes in U.S.federal, state, local and foreign laws relatingand regulations. Laws and regulations applicable to tariffs, trade restrictions, transportation regulations, foreign investmentsus and taxation. We have no control over mostour 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, Federal Aviation Administration, the FCC, Federal Rail Association and other bodies. Prospective customers may be required to gain approval from any or all of these risks and may be unableorganizations prior to anticipate changes in international economic and political conditions which could negatively impact our business.

While a substantial portion of productive assets and a significant number of corporations in China are owned and controlled by the Chinese government, the Chinese government has particularly significant influence in the communications sector in which we operate. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. Chinese government ownership and regulatory control is particularly high in the critical infrastructure sectors in which we intend to sellimplementing our products and services. The Chinese government could adopt policies or instruct customer purchasing intentions in favor of local technology providers, at the detrimentservices, including specific permissions related to the Company.

While the Chinese economy has experiencedcost 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 growthexpenditures 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 past decades, growth has been uneven across different regionsfuture. Such costs could make our products less economical and among various economic sectorscould impact our utility customers’ willingness to adopt our products, which could materially and adversely affect our revenue, results of China. The Chinese government has implemented various economicoperations and political policies and laws and regulations to encourage economic development and guidefinancial condition.

Furthermore, changes in the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may alsounderlying regulatory conditions that affect critical infrastructure industries could have a negativepotentially adverse effect on us. For example,our customers’ interest or ability to implement our technologies. Many regulatory jurisdictions have implemented rules that provide financial incentives for the Chinese government could decideimplementation of energy efficiency and demand response technologies, often by providing rebates or through the restructuring of utility rates. If these programs were to reducecease, or if they were restructured in a manner inconsistent with the rate of fixed asset investment in the critical infrastructure sectors where we sellcapabilities enabled by our products and services. Ourservices, our business, financial condition and results of 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.

4Regulatory counsel to review.


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 affected by government control over capital investments which would reduce demand forimpact our products and servicesbusiness, financial condition or results of operations.

There

As a manufacturer of commercial UAS, we are uncertainties regarding the interpretation and enforcement of laws, rules and regulations in China.

A portion of our operations are conducted in the China through our Chinese subsidiary, and are governed by Chinese laws, rules and regulations. Our Chinese subsidiary is subject to laws, rulesvarious government regulations, restrictions and regulations applicable to foreign investment in China. The Chinese legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.


In 1979, the Chinese government began to promulgate a comprehensive system of laws, rulesrequirements, and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by Chinese regulatory agencies. In particular, because these laws, rules andadditional regulations are relatively new, and because ofin the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the Chinese legal system is based in part on government policies and internal rules, somefuture, 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 not published on a timely basissubject 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 at all, and which mayconsumer protection regulation could result in sanctions that could have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affectnegative 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.

China’s currency exchange controlOur 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 restrictionsagencies, 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 dividendsthe 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 transfer funds outside of China.

Ourcollect, use or disclose information relating to individuals, which could decrease demand for our products, require us to restrict our business in China is conducted utilizing the RMB as currency. Regulations in China permitoperations, 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 owned entities to freely convert the RMB into foreign currency for transactions that fall under the “current account,” which includes trade related receipts and payments, interest and dividends. Accordingly, our China subsidiary may use RMB to purchase foreign exchange for settlement of such “current account” transactions without pre-approval. However, pursuant to applicable regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In calculating accumulated profits, foreign investment enterprises in China are required to allocate at least 10% of their realized profits each year, if any, to fund certain reserves, including mandated employee benefits funds, until these reserves have reached 50% of the registered capital of the enterprises.

Transactions other than those that fall under the “current account” and that involve conversion of RMB into foreign currency are classified as “capital account” transactions; examples of “capital account” transaction include repatriations of investment by or loans to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity. “Capital account” transactions will be examined and registered by banks or State Administration of Foreign Exchange (“SAFE”) in China to convert a remittance into a foreign currency, such as U.S. dollars, and transmit the foreign currency outside of China.

This system could be changed at any time and any such change may affect the ability of us or our subsidiaries in China to repatriate capital or profits, if any, outside China. Furthermore, SAFE has a significant degree of administrative discretion in implementing the laws and regulations, industry standards, contractual obligations and has used this discretionother legal obligations that apply to limit convertibilityus, 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 current account payments out of China. Whether as a result of a deterioration in the Chinese balance of payments, a shift in China’s macroeconomic prospectsour 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 numberactual or suspected security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of other reasons, China could impose additional restrictions on capital remittances abroad. As a result of these and other restrictions under the laws and regulations of China, our Chinese subsidiary is restricted in its ability to transfer a portion of its net assets to the parent. We have no assurance that the relevant Chinese governmental authorities in the future will not limit further or eliminate the ability of our Chinese subsidiary to purchase foreign currencies and transfer such funds to us to meet our liquiditypersonal information or other business needs. Any inabilitydata, may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties or adverse publicity and could cause our customers to access fundslose trust in China, if and when needed for use by us, outside of China,which could have a material andan adverse effect on our liquidityreputation 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 business.


Fluctuations in the value of the RMB relative to the U.S. dollar could affect our operating results and may have a material adverse effect on your investment.

We prepare our financial statements in U.S. dollars, though we conduct business in China where the only legitimate currency for use within China is RMB. The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s monetary or fiscal policies and political and economic conditions and supply and demand in local markets. The foreign exchange value of the RMB has fluctuated since 2015 when the Chinese government changed its decade-old policy of pegging its value to the U.S. dollar.

It is difficult to predict how market forces or Chinese or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. Any significant revaluation of the RMB may materiallyreputation, inhibit sales, and adversely affect our cash flows, revenue, earningsbusiness and financial position, and the value of, and any dividends payable on, our ordinary shares in U.S. dollars.operating 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, weOndas Networks held a total of foursix issued patents in the U.S., seven patent pending applications in the U.S., and sixone international pending patent applications worldwide. Ourapplication. Ondas Networks patents expire between 20292030 and 2036,2037, subject to any patent extensions that may be available for such patents. As of this filing, American Robotics held a total of 4 issued patents in the U.S., 6 pending patent applications in the U.S., and 6 international pending patent application. American Robotics patents expire between 2036 and 2039, 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 United States,U.S., effective enforcement in those countries may not be available.available without significant cost and time expense or at 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, temporary employeescontractors and consultantsother 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 consultantsother 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. Inpatents 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 trade secrets.know-how. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our officers, employees, contractors and contractorsother 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;

otherothers 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 United StatesU.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.

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.functions, but there is no guarantee that we will succeed in these 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 performancecondition and operating results willof 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 term loans and the secured loans with Steward Capital and Energy Capital. In addition, although we have a borrowing facility with Energy Capital, we may be unable to continue borrowing under such agreement or to generate sufficient cash to service any such indebtedness that we do incur.

We currently have outstanding unsecured loans in the aggregate principal amount of approximately $4 million, which will come due on March 30, 2019. In addition, we 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 that mature September 19, 2019, or the Steward Capital Loan and Security Agreement. 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 contained in the Steward Capital Loan and Security Agreement as of December 31, 2018. We may also enter into other debt agreements in the future which may contain similar or more restrictive terms.

In addition, on September 28, 2018, we entered into a Loan and Security Agreement with Energy Capital, or the Energy Capital Loan and Security Agreement, pursuant to which Energy Capital may lend an aggregate principal amount of up to $10 million, or the Energy Capital Loan, subject to the conditions specified in the Energy Capital Loan and Security Agreement. During 2019, we issued secured notes to Energy Capital in the aggregate principal amount of $3.3 million, pursuant to term loans under a Loan and Security Agreement that mature September 19, 2019. The repayment obligation under the Energy Capital Loan is also secured by a lien on all of our assets. We were in compliance with the affirmative and restrictive covenants contained in the Energy Capital Loan and Security Agreement as of December 31, 2018.

The terms of the Steward Capital and Energy Capital facilities are intended for operations and by their terms do not permit the repayment of unrelated outstanding indebtedness. In the event that we are unable to repay the unsecured loans in the current outstanding amount of $4 million that come due on March 30, 2019 or the amounts under the term loans when due, we may be in default under the terms thereof, which may also trigger an event of default under the investor loans and the Steward Capital and Energy Capital Loan and Security Agreements.

Our ability to make scheduled payments or to refinance our debt obligations 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 principal, premium, if any, and interest on our existing or future indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, 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 debt service obligations. Failure to comply with the conditions of the Steward Capital Loan and Security Agreement and/or the Energy 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 and/or the Energy Capital Loan and Security Agreement. We may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments, and Steward Capital and Energy 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 then 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 ifor 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 Related to our Common Stock

 

Our ability to continueWe identified a material weakness in our operations requires that we raise additional capital and our operations could be curtailed if we are unable to obtain the additional funding as or when needed. As a result, 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 auditedinternal control over financial statements included in this Report.

Our ability to generate revenue and achieve profitability depends on our completion of our second-generation products and commencing the manufacture, marketing and sales of those products. These activities, including our planned research and development efforts, will require significant uses of working capital through the end of 2019 and beyond. Based on our current operating plans, we believe that our existing cash and cash equivalents, as well as the $3.3 million in borrowings we drew down thus far in 2019 from the Energy Capital Loan and Security Agreement (seeNOTE 14 in the accompanying consolidated financial statements for further details) will only be sufficient to meet our anticipated operating needs through March 2019. We currently do not have sufficient funds to repay our debt due at maturity on March 30, 2019 and must secure additional equity or debt capital in order to repay those obligations (the balance of funds available under the Energy Capital Loan and Security Agreement are contractually not available for this repayment). Aside from the balance available under the Energy Capital Loan and Security Agreement, at 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 19, 2020. 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.

We will need to raise additional financing to continue operations beyond early 2019. We will require additional funding to continue operations and realize our business objectives in the future.reporting. If we are unablenot able to continue as a going concern inremediate the future, we may be unable to meet our obligations under the Steward Capitalmaterial weakness and Energy Capital 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.

Failure to establish andotherwise maintain an effective system of internal controls could result in material misstatementscontrol over financial reporting, the reliability of our financial statements or cause us to fail to meet our reporting, obligations or fail to prevent fraud in which case, our stockholders could loseinvestor confidence in our financial reporting, which would harm our businessus and could negatively impact the pricevalue of our stock.Common Stock could be adversely affected.

 

WeAs a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls. Ondas Networks was not subject to requirements to establish, and did not establish,maintain internal control over financial reporting and disclosure controls and procedures prior to the Acquisition. Our management team and Board of Directors will need to continue to devote significant efforts to maintaining adequate and effective disclosure controls and procedures and internal control over financial reporting in order to comply with applicable regulations, which may include hiring additional legal, financial reporting and other finance and accounting staff. Additionally,report any of our efforts to improve our internal controls and design, implement and maintain an adequate system of disclosure controls may not be successful and will require that we expend significant cash and other resources.


Under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, issuers that qualify as “emerging growth companies” under the JOBS Act will not be required to provide an auditor’s attestation report on internal controls for so long as the issuer qualifies as an emerging growth company. We currently qualify as an emerging growth company under the JOBS Act, and we may choose not to provide an auditor’s attestation report on internal controls. However, if we cannot favorably assess the effectiveness of our internal control over financial reporting, or if we require an attestation report from our independent registered public accounting firm in the future and that firm is unable to provide an unqualified attestation report on the effectiveness of our internal controls over financial reporting, investor confidence and, in turn, our stock price could be materially adversely affected.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We do not have sufficient accounting and supervisory personnel with the appropriate level of technical accounting experience and training necessary, or adequate accounting policies, processes and procedures, and consequently, we must rely on third-party consultants. These deficiencies represent a material weakness (as defined under the Exchange Act) in our internal control over financial reporting in both design and operation. We may identify additional material weaknesses in the future. Under the Exchange Act, asuch internal controls. 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 a company’s annual or interim financial statements will not be prevented or detected and corrected on a timely basis bybasis.

In connection with this annual report for the company’s internal controls. We intend to developyear ended December 31, 2021, we identified a plan to design, review, implement and refinematerial weakness in our internal control over financial reporting. However, we may identify deficienciesreporting related to the inadequate review of stock-based compensation issued in connection with the acquisition of American Robotics. Accordingly, our Chief Executive Officer and weaknesses or fail to remediate previously identified deficienciesChief Financial Officer have certified that, based on their knowledge, the consolidated financial statements, and other financial information included in our internal controls. Ifthis Form 10-K, fairly present in all material weaknesses or deficiencies in our internal controls exist and go undetected or unremediated,respects our financial statementscondition, 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 contain material misstatements that, when discoveredbe materially and adversely affected. Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in the future,their implementation could cause us to fail to meet our reporting obligations.


Risks Related to the American Robotics Acquisition

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

Parties with which we or American Robotics do business may experience uncertainty associated with the Transaction, including with respect to current or future business relationships with us, American Robotics, or the combined company. Our and American Robotics’ business relationships may be subject to disruption, as customers, distributors, suppliers, vendors, and others may seek to receive confirmation that their existing business relationships with us or American Robotics, as the case may be, will not be adversely impacted as a result of the Transaction or attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us, American Robotics, or the combined company as a result of the Transaction. Any of these other disruptions could have a material adverse effect on our or American Robotics’ 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 Transaction.

If we are unable to implement and maintain effective internal control over financial reporting obligationsfollowing completion of the 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 causecompleteness of our financial reports and the market price of our securities may decline.

We and American Robotics historically maintained separate internal control over financial reporting with different financial reporting processes and different process control software. We are in the process of integrating our internal control over financial reporting with that of American Robotics. 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 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.

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

After the Transaction, American Robotics is subject to certain past, current, and future liabilities. There could be unasserted claims or assessments against or affecting American Robotics, including the failure to comply with applicable laws and regulations. In addition, there may be liabilities of American Robotics 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 American Robotics 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 American Robotics 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 American Robotics’ business.

Achieving the anticipated benefits of the Transaction will depend in significant part upon whether Ondas and American Robotics integrate their businesses in an efficient and effective manner. Ondas has been able to conduct only limited planning regarding the integration of the companies following the Transaction and has not yet determined the exact nature of how the businesses and operations of the companies will be combined after the Transaction. The actual integration 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 facilities 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 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 successfully and timely 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 Transaction within the timing anticipated or at all.

Ondas and American Robotics entered into the Merger Agreement because each company believes that the Transaction will be beneficial to each of Ondas and American Robotics 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 Transaction. An inability to realize the full extent of, or any of, the anticipated benefits of the Transaction, as well as any delays that may be encountered in the integration process, which may delay the timing of such benefits, could have 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 Transaction.


The Transaction involved substantial costs.

We have incurred, and expect to decline.

There is not now,continue to incur, a number of non-recurring costs associated with the Transaction. The substantial majority of the non-recurring expenses will consist of transaction and there may never be, an active market for our common stock and we cannot assure you that our common stock becomes liquid or that it will be listed on a securities exchange.

There currently is no liquid market for our common stock. An investor may find it difficult to obtain accurate quotations asregulatory costs related to the market valueTransaction. 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 the common stockthese costs, and trading of our common stockadditional unanticipated costs may be extremely sporadic. For example, several days may pass before any shares may be traded. A more active market for our common stock may never develop. In addition, ifincurred from the Transaction and integration. Although we failedanticipate that the elimination of duplicative costs and the realization of other efficiencies and synergies related to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling the common stock, which may further affect its liquidity. This would also make it more difficult forintegration should allow us to raise additional capital.offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

Risks Related to our Common Stock

TheWe 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.

VolatilityThe 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:including, but not limited to:

actual or anticipated fluctuations in our quarterly financial and operating results;

adverse results from delays in our product development;


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

publication of research reports or coverage about us or our industry or positive or negative recommendations or withdrawal or research coverage by securities analysts;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;

legislative, political or regulatory developments;

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;management or our stockholders; and

general economic conditions.conditions, both global and regional. 

 


Our common stock is listed on Nasdaq under the symbol “ONDS.” 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 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.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 sharestock 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 date, including presenting only two years of audited financial statements and only two years of selected consolidated financial date 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) the last day of the fiscal year (a) ending December 31, 2019, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) 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 44%20.4% of our outstanding common stock as of March 15, 2019.11, 2022, 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 willmay 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 boardfor issuance pursuant to future awards under the 2021 Stock Incentive Plan. The issuance of directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that 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 of directorsBoard 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 the board of directors.our Board. Our board of directorsBoard is empowered, without shareholderthe 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.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.business, which research and reports are not and would not be subject to our 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 wouldcould be negativelymaterially 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 would likely decline.may be materially and adversely 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.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.

Certain provisions of our amendedincreases to a price above the price you paid for them 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 ifyou sell such a transaction were in the stockholders’ interest.

Our amended and restated articles of incorporation and Bylaws and certain provisions of Nevada State law could have the effect of making it more difficult or more expensive for a third-party to acquire, or discouraging a third-party from attempting to acquire, control of the Company, even when these attempts may be in the best interests of our stockholders. For example, Nevada law provides that approval of a majority 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 the minority shareholders.

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 additional legal, accounting and other costs, which we anticipate could be between $1 million and $2 million annually. 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 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. 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 may be harmed.

Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain 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 of directors, on committees of our board of directors or as members of senior 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 50,463,73240,990,604 shares of our common stock issued and outstanding after the closingas of the Acquisition, 8,948,500December 31, 2021, 25,786,038 shares are freely tradable without restriction by stockholders who are not our affiliates. Of our outstandingaffiliates, and 15,114,566 shares 16,051,500 shares that were outstanding before the Acquisition are “restricted securities” as defined in Rule 144. We issued an aggregate

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 25,463,7322,894,862 shares of our common stock and 1,447,431 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 former Ondas Networks Inc.registration statement on Form S-3, these selling stockholders pursuantmay resell all or a portion of the 2,894,862 shares of common stock, and all or a portion of the 1,447,431 shares of common stock underlying the Investor Warrants after the Investor Warrants are exercised by the holders.

In addition, we filed a registration statement on Form S-3, which was declared effective by the SEC on November 1, 2021, covering the resale of 6,749,974 shares of common stock and 1,565,656 shares of common stock underlying warrants held by selling stockholders (“AR Warrants”) in relation to an exemption fromthe acquisition of American Robotics. Pursuant to the registration requirementsstatement on Form S-3, these selling stockholders may resell all or a portion of the Securities Act6,749,974 shares of 1933, as amended,common stock, and all or a portion of the Securities Act, and such1,565,656 shares of common stock underlying the AR Warrants after the AR Warrants are also “restricted securities” as defined in Rule 144. exercised by the holders.

In addition, these restricted shares are subject to the terms ofwe filed a lock up agreement entered into in connection with the Acquisition by each of the former Ondas stockholders under which these restricted shares cannot be sold for a period of twelve months followed by a subsequent 12-month limited sale period.

In addition, in the future, we intend to file one or more registration statementsstatement on Form S-8 registering the issuance of approximately 10,000,0006,000,000 shares of common stock reserved for issuance under our 2018 Equity2021 Stock Incentive Plan. Shares registered under thesethis registration statementsstatement on Form S-8 will beare 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.

Risks Related to our Acquisition by Zev Ventures Incorporated

We may be subject to unknown risks as a resultOur shares of our recently 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 wecommon 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 future. Ifsecondary 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 areconsent 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 material liability as a resultthe jurisdiction of the conductCourt (and the indispensable party does not consent to the personal jurisdiction of Zev Ventures we maythe Court within ten (10) days following such determination), (y) for which the Court does not have limited recoursesubject 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 liabilities, which could have a material impact on our business and stock price.the exclusive jurisdiction clauses set forth above would not apply to such suits.

 


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.

rent, which was applied to the balance of our sublease obligation in March 2021. On January 22, 2021, we entered into a 24-month lease with 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 was effective April 1, 2021.


Our headquarters were previouslyoffices and facilities for American Robotics are located at 687 N. Pastoria Avenue53 Brigham St, Unit 4, Marlborough, MA, representing approximately 10,450 square feet (the “American Robotics Lease”). On August 5, 2021, the Company acquired American Robotics and the 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.

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. Lease was 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 Sunnyvale, California where wethe amount of $104,040. In conjunction with this new lease, American Robotics is leasing a short-term temporary space at 411 Waverley Oaks Road, Suite 118, Waltham, MA, representing approximately 6,000 square feet under a lease that expires in December 2020. The aggregate monthly lease paymentat $8,500 per month, until their primary space is available, which is targeted for this location is approximately $13,500 for 2019 and $15,200 for 2020. We intend to sublease this location for the remainder of that lease term.

We also have a combined office and laboratory facility for approximately 15,200 square feet in China, located in the high-tech district of Chengdu, 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 is approximately $9,200 US. The base monthly lease payment for the period from May 1, 2020 through May 31, 2023 is approximately $9,700 US. We also pay a monthly management fee of approximately $1,800 US.2022.

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.

The description of legal proceedings in “Note 14 – Commitments and Contingencies” in the accompanying Notes to Consolidated Financial Statements is incorporated herein by reference.

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 under the symbol “ONDS” where it continues to trade on a very limited basis. Any over-the-counter market quotations reflect inter-dealers prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Stockholders

 

As of March 11, 2019,18, 2022, there were 117373 stockholders of record of the common stock.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 of Directors (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, 2021

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None during the quarter ended December 31, 2018.2021.

 

Item 6.Selected Financial Data.

Item 6. [Reserved]

 

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


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.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 our wholly owned subsidiary and weAmerican Robotics, Inc. (“American Robotics” or “AR”). Ondas Networks and American Robotics together provide users in rail, energy, mining, agriculture, and critical infrastructure markets with improved connectivity, and data collection capabilities and automated decision making to improve operations. Ondas operates these two subsidiaries as separate business segments, and the following is a discussion of each segment.


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, 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 area mission-critical field area networks. This radioareas. 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 provides point-to-multipoint, non-linecapacity 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 sightthese new, intelligent MC-IoT equipment and applications at the edge.

We sell our products and services globally through a direct sales force and value-added sales partners to 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 homeland security and defense, and transportation. We continue to develop our value-added reseller relationships which today include a major strategic partnership with Siemens Mobility (“Siemens”) for the development of new types of wireless connectivity for industrial wireless networks. Since its inception on February 16, 2006,the global rail markets. In addition, Ondas Networks has devoted its efforts principallyand JVCKenwood, a global supplier of Land Mobile Radio (LMR) systems, have jointly responded to researcha request from the rail industry for the design and developmentdelivery of a next generation data and voice platform.  We believe our Siemens Mobility partnership and our joint effort with JVCKenwood are indicative of the commercializationpotential 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. These partnerships are being driven by the flexibility of our FullMAX software to support legacy industrial protocols (e.g., Push to Talk Voice, Dial-up Serial Data Communications, and Advanced Train Control System – ATCS) while simultaneously operating our state-of-the-art MC-IoT protocols. This dual and multi-mode software capability provides major industrial customers with a seamless migration path to advanced internet-protocol-based networks. Over time, these legacy functions, like Push to Talk Voice and ATCS, are transformed into just several of many new data applications we can support.

The Global Rail Markets and our Siemens Mobility Partnership

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. 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 MC-IoT platform offers an excellent migration path for these applications. We believe the Class I Rails value the ability of Ondas’ frequency-agnostic SDR architecture to enable a substantial 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. The Class 1 Rails operate four separate nationwide networks, all of which are addressable by our FullMAX platform. Ondas is targeting the 900 MHz network for the initial adoption of its wireless platform by the Class 1 Rails, who were awarded greenfield spectrum in the 900 MHz band by the FCC in 2020.


Siemens Partnership, ATCS Development Program

In April 2020, we entered a strategic partnership with Siemens, to jointly develop wireless communications products for the North American Rail Industry based on Siemens’ Advanced Train Control System (“ATCS”) protocol and our MC-IoT platform. At the same time, we entered into an agreement to allow Siemens to sell Ondas’ 802.16 MC-IoT standardized products to the North American Rails under the Siemens’ brand name “Airlink”. The dual-mode ATCS/MC-IoT radio system was designed to 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 support for next generation signaling and train control systems, are designed to increase railroad productivity, reduce costs, and improve safety. Siemens formally launched the dual mode ATCS / MC-IoT radio products along with the Siemens branded Airlink radios in September 2021 at the Railway Systems Suppliers (RSSI) conference in Indianapolis. In November 2021, Siemens secured its first commercial 900 MHz rail order for a major Class I Railroad for delivery by year-end. Ondas delivered this initial order as requested in December 2021.

Multiple New Joint Development Programs

In January of 2021, Ondas Networks and Siemens signed a Letter of Intent (“LOI”) for the development of a next generation radio product for the global rail markets including support for our first onboard locomotive radio. The formal agreement, referred to as the Next Generation Radio Board, was signed by the parties in July 2021 with a targeted completion date in first quarter 2022. Also in July 2021, Ondas Networks received a purchase order from Siemens Mobility for the development of a new industrial radio to support rail safety. This program was completed as requested by September 2021. In October 2021, Siemens substantially expanded the Next Generation Radio Board development program by issuing to Ondas Networks four new purchase orders which included customized hardware and software solutions for Head of Train (HOT) locomotive applications for the North American market and for a major Asian Rail customer. The expanded program reprioritized the July 2021 agreement deliverables with a Q2 2022 delivery of completed products to the Asian Rail customer.

802.16 (“dot16”) Rail Lab

In December 2021, we received an order from Siemens for the implementation of the “dot16” North American Rail Lab ("Rail Lab"). The Rail Lab, hosted at Ondas Networks headquarters facility in Sunnyvale, CA, serves multiple purposes including interoperability and coexistence testing of 802.16 compliant wireless systems, customization and optimization of different network rail configurations, and next generation rail application testing. Importantly, the lab is focused on multiple frequency bands and networks beyond the 900 MHz that Ondas is targeting for commercial deployment.

To summarize, since announcing our strategic partnership in April 2020, Ondas and Siemens have completed our first major joint development program for ATCS / MC-IoT 900 MHz radios for the North American market and have secured and delivered on initial orders of these products to a Class I railroad. In July 2021, we entered into our second major joint development program for a global onboard locomotive radio and this program was significantly expanded in October 2021 to incorporate specific locomotive protocols with initial delivery of completed products in Q2 2022. In September 2021, Siemens launched their Siemens-branded MC-IoT wireless systems under brand name ‘Airlink’. And in December 2021, Siemens together with Ondas secured the Rail Lab order from the North American railroads which will allow the companies to support the deployment of multiple North American rail communications networks based on the 802.16 standard.

Ondas believes the Siemens strategic partnership validates our wireless connectivity solutions and will serve as the foundation for the continued adoption of our wireless technology platform.in the global rail markets.


UAS, Drones and AURA Network Systems

In December 2019, Ondas Networks received a purchase order for FullMAX base stations and remote radios from AURA Networks Systems (“AURA”), a privately held company deploying a nationwide network for the command and control of commercial drones. AURA’s key differentiator is its exclusive ownership of dedicated, licensed Air-to-Ground frequencies. We began workingbelieve that operators of large, fast-moving, and high-flying drones, including those used for inspection and security applications as well as those for the Urban Air Mobility market (also known as “flying cars”), will require a secure command and control network like that planned by AURA. This command and control (C2) network will be designed to meet FAA requirements in order to fly long distances beyond visual line of site (BVLOS) of a drone operator.

In July 2020, we completed delivery of AURA’s first purchase order for the ground infrastructure. AURA has now installed its initial nationwide infrastructure based on our FullMAX technology in order to satisfy their FCC license requirements. In January 2021, AURA achieved another major milestone with approval from the FCC to use their frequencies for UAS/Drone operation. Based on this approval and other advances in the network, AURA placed a new purchase order in the first quarter of 2021 for continued system development related to the optimization of FullMAX base station and remote radio equipment for customer testing and demonstration networks. We have completed this project as of December 2021.

Additional Critical Markets

In the coming quarters we expect to launch additional initiatives to take our MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure markets. As evidence of this, in February 2021, we announced a new partnership with Rogue Industries to target opportunities in US Government and DoD markets. Rogue is an agile, focused marketing organization with significant expertise in bringing new technologies to these critical markets along with significant governmental procurement expertise. This expertise would otherwise require significant expense and time for Ondas to develop internally. Our agreement with Rogue is another example of Ondas leveraging what we refer to our “Ecosystem Flywheel” with our capital-light business model.

American Robotics Segment

American Robotics designs, develops and manufactures autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise customers. We provide our customers turnkey data solutions designed to meet their unique requirements in the field. We do this via our internally developed Scout System™, an industrial drone platform which provides commercial and government customers with the IEEEability to continuously digitize, analyze, and monitor their assets and field operations in 2015 to help createnear real-time.

The Scout System™ has been designed from the IEEE 802.16s wireless broadband standard which was publishedground up as an end-to-end product capable of continuous unattended operations in the fourthreal world. Powered by innovations in robotics automation, machine vision, edge computing, and AI, the Scout System™ provides efficiencies as a drone solution for commercial use. Once installed in the field at customer locations, a fleet of connected Scout Systems remain indefinitely in an area of operation, automatically collecting data each day, self-charging, and seamlessly delivering data analysis regularly and reliably. AR markets the Scout System™ under a Robot-as-a-Service (“RaaS”) business model, whereby our drone platform aggregates customer data and provides the data analytics meeting customer requirements in return for an annual subscription fee.

The Scout System™ consists of (i) Scout™, a highly automated, AI-powered drone with advanced imaging payloads (ii) the ScoutBaseTM, a ruggedized weatherproof base station for housing, charging, data processing, and cloud transfer, and (iii) ScoutViewTM, 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 a suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and other proprietary intelligent safety systems, we achieved the first and only Federal Aviation Administration (“FAA”) approval for automated operations without a human on-site in the United States on January 15, 2021. As a result, American Robotics currently has the unique ability to serve markets which require automated drone technology to enable scalable drone operations, which the Company estimates to be 90% of all commercial drone applications.


American Robotics sells its products and services nationally through a direct sales force to large enterprises that operate in the agriculture, industrial and critical infrastructure verticals that include major rail operators, electric and gas utilities, oil and gas producers, large agricultural input manufacturers, large agricultural coops, and for other critical infrastructure applications in areas such as homeland security and defense, and transportation.

As of December 31, 2021, American Robotics had signed subscription agreements of varying contract lengths with customers in multiple industries including agriculture, oil and gas and materials management

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, 2021 and 2020 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; and
Manufacturing and sales were disrupted due to ongoing supply chain constraints for certain critical parts.

In the first quarter of 2017.2020, we reduced our business activity to critical operations only, and furloughed 80% of our workforce. Per orders issued by the Health Officer of the County of Santa Clara, our corporate offices and facilities were closed, except for functions related to the support of remote workers and product support related to the essential transportation sector. On May 13, 2020, we reopened our offices and facilities and as of December 31, 2020 we had no employees remaining on furlough. Of the 18 employees previously furloughed, 14 are currently employed by us.

The Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2022, primarily due to the slowdown of customer activity during 2020 and 2021, ongoing supply chain constraints for certain critical parts, and difficulties in attracting employees. 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 COVID-19 and its variants. 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 conditions, and results of operations. In 2018,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 could further adversely impact the Company’s business, financial condition and results of operations during 2022.

American Robotics Acquisition

Merger Agreement

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). 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 Scout System™ is the first drone system approved by the FAA for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site.

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, with American Robotics continuing as the surviving entity, and American Robotics then subsequently and immediately merged with and into Merger Sub II (“Merger II”), 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 installments 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 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 Company and are recorded as compensation expense over the service period.

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 Company’s Consolidated Financial Statements for the year ended December 31, 2021 include results of operations of American Robotics for the period from the Closing Date to December 31, 2021.

See Note 5 to the accompanying Consolidated Financial Statements for further information regarding the American Robotics acquisition.

Results of Operations

Year ended December 31, 2021 compared to year ended December 31, 2020

Revenues

  Year Ended
December 31,
 
  2021  2020  Increase
(Decrease)
 
Revenue, net         
Ondas Networks $2,840,154  $2,163,719  $676,435 
American Robotics  66,617   -   66,617 
             
Total $2,906,771  $2,163,719  $743,052 

Revenue increased to $2,906,771 for the year ended December 31, 2021 from $2,163,719 for the year ended December 31, 2020. Revenues during the year ended December 31, 2021 included $405,569 for products, $96,934 for maintenance, service, support, and subscriptions, $2,401,474 for development agreements with Siemens Mobility and AURA Networks, and $2,794 for other revenues. Revenues during the same period in 2020 included $1,151,557 for products, $62,410 for maintenance/service contracts, $943,357 for development agreements, and $6,395 for other revenues.


Cost of goods sold

  Year Ended
December 31,
 
  2021  2020  Increase
(Decrease)
 
Cost of goods sold         
Ondas Networks $1,783,033  $1,236,051  $546,982 
American Robotics  27,909   -   27,909 
             
Total $1,810,942  $1,236,051  $574,891 

Cost of goods sold increased to $1,810,942 for the year ended December 31, 2021 from $1,236,051 for the year ended December 31, 2020. The increase in cost of goods sold was the result of additional development costs being allocated to development agreements in line with the increased revenue.

Gross profit

  Year Ended
December 31,
 
  2021  2020  Increase
(Decrease)
 
Gross Profit (Loss)         
Ondas Networks $1,057,121  $927,668  $129,453 
American Robotics  38,708   -   38,708 
             
Total $1,095,829  $927,668  $168,161 

Our gross profit increased by $168,161 for the year ended December 31, 2021 compared to the year ended December 31, 2020 based on the changes in revenues and costs of sales as discussed above. Gross margin for the periods in 2021 and 2020 was 38% and 43%, respectively. This decrease in gross margin is due to a higher mix of development projects with lower margins as compared to higher margin product sales in the prior year period.

Operating Expenses

  Year Ended
December 31,
 
  2021  2020  Increase
(Decrease)
 
Operating expenses:         
General and administrative $11,781,503  $7,641,234  $4,140,269 
Sales and marketing  1,487,394   1,223,767   263,627 
Research and development  5,800,549   3,586,553   2,213,996 
             
Total $19,069,446  $12,451,554  $6,617,892 

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

  Year Ended
December 31,
 
  2021  2020 
Human resource costs, including benefits  36%  51%
Travel and entertainment  1%  1%
Other general and administration costs:        
Professional fees and consulting expenses  30%  31%
Facilities and other expenses  15%  11%
Depreciation and amortization  7%  1%
Other research and deployment costs, excluding human resources and travel and entertainment  10%  5%
Other sales and marketing costs, excluding human resources and travel and entertainment  1%  -%


Operating expenses increased by $6,617,892 as a result of the following items:

   (000s) 
Human resource costs, including benefits $423 
Travel and entertainment  141 
Other general and administration costs:    
Professional fees and consulting costs  1,871 
Facilities and other expenses  1,479 
Depreciation and amortization  1,347 
Other research and deployment costs, excluding human resources and travel and entertainment  1,285 
Other sales and marketing costs, excluding human resources and travel and entertainment  72 
  $6,618 

The increase in operating expenses was primarily due to an increase of approximately $1,871,000 in professional fees, of which approximately $1,644,000 related to the American Robotics acquisition, increase of $1,479,000 in facilities and other expenses including insurance due to acquisition of American Robotics, increase of approximately $1,347,000 in depreciation and amortization expense due to amortization of American Robotics intangible assets, and an increase of approximately $1,285,000 in R&D development expenses for the year ended December 31, 2021. Human resource costs increased by approximately $423,000 in 2021 compared to 2020 due to addition of American Robotics payroll and increased headcount at Ondas Networks, initiatedpartially offset by a business expansion plan designeddecrease of approximately $1,423,000 in stock-based compensation.

Operating Loss

  Year Ended 
  December 31, 
  2021  2020  Increase
(Decrease)
 
          
Operating loss $(17,973,617) $(11,523,886) $6,449,731 

As a result of the foregoing, our operating loss increased by $6,449,731 to invest$17,973,617 for the year ended December 31, 2021, compared with $11,523,886 for the year ended December 31, 2020. The operating loss increased primarily as a result of an increase in ouroperating expenses of approximately $6,618,000 primarily associated with the American Robotics acquisition as described above.

Other Income (Expense), net

  Year Ended 
  December 31, 
  2021  2020  Increase
(Decrease)
 
             
Other income (expense), net $27,793  $(1,953,994) $(1,981,787)

Other expense, decreased by $1,981,787 to other income of $27,793 for the year ended December 31, 2021, compared to other expense of $1,953,994 for the year ended December 31, 2020. During the year ended December 31, 2021, compared to the year ended December 31, 2020, we reported a decrease in interest expense of $1,361,162 due to payoff of the Steward Capital note payable in the second quarter of 2021 as well as $571,691 increase in other income primarily due to the PPP loan forgiveness of $666,091.

Net Loss

  Year Ended 
  December 31, 
  2021  2020  Increase
(Decrease)
 
          
Net Loss $(15,023,842) $(13,477,880) $1,545,962 

As a result of the net effects of the foregoing partially offset by the provision for income tax benefit reported in the amount of $2,921,982, net loss increased by $1,545,962 to $15,023,842 for the year ended December 31, 2021, compared with $13,477,880 for the year ended December 31, 2020. Net loss per share of common stock, basic and diluted, was $(0.44) for the year ended December 31, 2021, compared with approximately $(0.66) for the year ended December 31, 2020. The income tax benefit 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 (Uses) and Sources of Cash

  Year Ended
December 31,
 
  2021  2020 
Net cash used in operating activities $(16,895,416) $(7,534,256)
Net cash used in investing activities  (10,210,631)  (16,140)
Net cash provided by financing activities  41,860,437   31,458,101 
Increase in cash  14,754,390   23,907,705 
Cash, beginning of period  26,060,733   2,153,028 
Cash, end of period $40,815,123  $26,060,733 

The principal use of cash in operating activities for the year ended December 31, 2021 was to fund the Company’s current expenses primarily related to both sales and marketing and customerresearch and development activities necessary to allow us to service and support capabilitiescustomers. The increase in ordercash flows used in operating activities of approximately $9,361,000 was primarily due to buildreduction in payables and accruals and increase in expenses related to acquisition of American Robotics. Cash flows used in investing activities increased by approximately $10,194,000 primarily due to the acquisition of American Robotics, investment in Dynam A.I., purchase of lab equipment, and a security deposit on our customer base. Followinglease renewal in Sunnyvale, CA. The increase in cash provided by financing activities of approximately $10,402,000 was due to the Acquisition on September 28, 2018, our business became2021 Public Offering which raised approximately $47,524,000 compared to 2020 Public offering that raised approximately $31,254,000, partially offset by repayment of Ondas Networks.the Steward Capital Loan and proceeds from sale of preferred stock in 2020.

Liquidity and Capital Resources

We have incurred significant net losses since inception. Asinception and have funded our operations primarily through debt and the sale of capital stock. On December 31, 2018, our accumulated deficit was2021, we had stockholders’ equity of approximately $33 million.$112,233,000. On December 31, 2021, we had net long-term borrowings outstanding of approximately $300,000 and no short-term borrowings. On December 31, 2021, we had cash of approximately $40,815,000 and working capital of approximately $40,032,000.

In December 2020, the Company completed a registered public offering of its common stock, generating net proceeds of approximately $31,254,000. In June 2021, the Company completed another registered public offering of its common stock, generating net proceeds of approximately $47,524,000. We expectbelieve the funds raised in the December 2020 and June 2021 equity offerings, in addition to continue incurring substantial lossesgrowth in revenue expected as the Company executes its business plan, will fund its operations for at least the next several years as we continue to develop, manufacture and market our technologies. Our operating expenses are comprisedtwelve months from the issuance date of research and development expenses, general and administrative expenses, and sales and marketing expenses.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 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, we entered into the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Zev Merger Sub, Inc. and Ondas Networks to acquire Ondas Networks. The transactions contemplated by the Merger Agreement were consummated on September 28, 2018 (the “Closing”), and pursuant 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 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 Closing, (i) our sole director appointed additional individuals, who previously sat on the board of Ondas Networks and its chief executive officer, to serve on our board of directors, and our board of directors subsequently appointed our 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; (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 of directors 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 stockholder 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. As of the date of this filing, Energy Capital has loaned the Company an aggregate of $3.3 million. SeeNOTE 14 in the accompanying consolidated financial statements for additional details.

Key Components of Our Results of Operations and Financial Condition

Restatement

The Company determined that its previously issued financial statements included in its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018 (“Restated Period”) should be restated due to classification errors related to the Company’s presentation of conversion of debt related to the conversion of certain Ondas Networks debt into shares of common stock of Ondas Networks prior to the above discussed Acquisition. SeeNOTE 13 in the accompanying consolidated financial statements for further details and quantitative information on the Restated Period.

Revenues

Our revenues are derived principally from 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 initially recorded as deferred revenue and is subsequently recorded as income spread equitably 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. In addition, we have historically had limited sales and customer service resources to support higher sales volumes. In 2018, we expanded our customer sales and service personnel across multiple industries which we expect to lead to a larger number of sales opportunities and revenue in 2019.


Cost of Sales

Our cost of sales is comprised primarily of the cost of components included in our FullMAX system and other costs associated with the assembly 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 due to the mix of high margin base station units relative 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.

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, amortization of debt discount, changes in fair value of derivative liability, and other miscellaneous income and expenses.


Results of Operations

Year ended December 31, 2018 compared to year ended December 31, 2017 

  Year ended December 31,    
  2018  2017  Change 
   (000s) 
Revenue $190  $274  $(84)
Cost of sales  39   79   (40)
Gross profit  151   195   (44)
Operating expenses:            
General and administrative  2,612   1,084   1,528 
Sales and marketing  2,898   1,002   1,896 
Research and development  3,077   503   2,574 
Total operating expense  8,587   2,589   5,998 
Operating loss  (8,436)  (2,394)  (6,042)
Other income (expense)  (3,661)  (628)  3,033 
Net loss $(12,097) $(3,022) $(9,075)

Revenue

Revenue decreased to approximately $190,000 for the year ended December 31, 2018 from approximately $274,000 for the year ended December 31, 2017. Revenues in both years were primarily generated via pilot programs and small customer deployments which decreased year over year in 2018.

Cost of sales

Cost of sales decreased to approximately $39,000 for the year ended December 31, 2018 from approximately $79,000 for the year ended December 31, 2017. This reduction in cost of sales is a direct result of the decrease in revenue during 2018.

Gross profit

Our gross profit decreased to approximately $151,000 for the year ended December 31, 2018 from approximately $195,000 for the year ended December 31, 2017 based on the changes in revenue and cost of sales as discussed above. Gross margin for the years ended December 31, 2018 and 2017 was 79% and 71%, respectively.


Operating Expenses

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

  Year Ended
December 31,
 
  2018  2017 
Human resource costs, including benefits  43%  27%
Travel and entertainment  5%  4%
Other general and administration costs:        
Professional fees and consulting expenses  33%  37%
Other expense  9%  2%
Depreciation and amortization  1%  1%
Other research and deployment costs, excluding human resources and travel and entertainment  5%  27%
Other sales and marketing costs, excluding human resources and travel and entertainment  4%  2%

As a direct result of (i) the aforementioned Acquisition and (ii) the $10 million dollars loan and security agreement 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 increase in human resources costs and professional and consulting costs.

Operating expenses changed by approximately $5,998,000 (232%) as a result of the following items:

   (000s) 
Human resource costs, including benefits $3,026 
Travel and entertainment  337 
Depreciation and amortization expense    
Other general and administration costs:    
Professional fees and consulting costs  1,844 
Other expense  736 
Depreciation and amortization  42 
Other research and deployment costs, excluding human resources and travel and entertainment  (242)
Other sales and marketing costs, excluding human resources and travel and entertainment  255 
  $5,998 

Operating Loss

As a result of the foregoing, our operating loss increased approximately $6,042,000, or 252%, to approximately $8,436,000 for the year ended December 31, 2018, compared with approximately $2,394,000 for the year ended December 31, 2017, primarily as a result of increases associated with administrative support and increased spending as we ramp up our sales and marketing and research and development efforts.

Other Income (Expense) 

Other non-operating expense increased by approximately $3,033,000, or 483%, to approximately $3,661,000 for the year ended December 31, 2018 compared with approximately $628,000 for the comparable period in 2017, primarily because of increased interest expense (approximately $2,664,000) and change in fair value of derivative liability (approximately $976,000). 


Net Loss 

Because of the net effects of the foregoing, net loss increased approximately $9,075,000, or 300%, to approximately $12,097,000 for the year ended December 31, 2018, compared with approximately $3,022,000 for the year ended December 31, 2017. Net loss per share of common stock, basic and diluted, was ($0.42) for the year ended December 31, 2018, compared with ($0.19) per share of common stock for the year ended December 31, 2017.

Summary of (Uses) and Sources of Cash

  Year ended December 31, 
  2018  2017 
  (000s) 
Net cash used in operating activities $(8,517) $(2,630)
Net cash used in investing activities  (630)   
Net cash provided by financing activities  9,821   3,041 
Increase in cash  674   411 
Cash and cash equivalents, beginning of period  456   45 
Cash and cash equivalents, end of period $1,130  $456 

The principal use of cash in operating activities for the year ended December 31, 2018 was to fund the Company’s current expenses primarily related to sales and marketing and research and development activities necessary to allow us to service and support a higher level of business activity as we expanded into new industry and geographic markets. The increase in cash flows used in operating activities of approximately $5,887,000 is primarily a result of the addition of personnel, both employees and third-party consulting services. The increase in cash flows used in investing activities of approximately $630,000 is primarily a result of an increase in fixed assets, including leasehold improvements to the Company’s facility in China. The increase in cash provided by financing activities is primarily a result of the loan and security agreement totaling $9,875,000, net of closing fees (seeNOTE 8 in the accompanying consolidated financial statements for further details).

For a summary of our outstanding Notes Payable and Other Financing Agreements and Secured Promissory Note, seeNOTES 7 and8in 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 of December 31, 2018, we had an accumulated deficit of approximately $32,382,000 and net borrowings outstanding of approximately $14,246,000, of which approximately $3,883,000 is contractually due on March 30, 2019 and $10,063,000 is contractually due on September 9, 2019. As of December 31, 2018, we had cash and cash equivalents of approximately $1,130,000 and a working capital deficit of approximately $15,205,000.

Our ability to generate revenue and achieve profitability depends onrequires us to successfully market and secure purchase orders for our completion of our second-generation products and commencing theservices from customers currently identified in our sales pipeline as well as new customers. We also will be required to efficiently manufacture marketing and sales ofdeliver equipment on those products.purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital through the end of 2019capital. There can be no assurance that we will generate revenue and beyond. Based oncash as expected in our current operating plans, we believe that our existing cash and cash equivalents, as well as the $3.3 million in borrowings we drew down thus far in 2019 from the Energy Capital Loan and Security Agreement (seeNOTE 14 in the accompanying consolidated financial statements for further details) will only be sufficient to meet our anticipated operating needsbusiness plan. We may seek additional funds through March 2019. We currently do not have sufficient funds to repay the debt discussed above (seeNote 7in the accompanying consolidated financial statements) at maturity on March 30, 2019 and must secure additional equity or debt capital in order to repay those obligations (the balanceofferings and/or borrowings under additional notes payable, lines of funds available under the Energy Capital Loan and Security Agreement are contractuallycredit or other sources. We do not available for this repayment). Aside from the balance available under the Energy Capital Loan and Security Agreement, at the present time we have no commitments for any such funding and no assurance can be provided that weknow whether additional financing will be able to raise the needed fundsavailable on commercially acceptable terms or at all. These factors raise substantial doubt aboutall, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to continue as a going concern through March 19, 2020. 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 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 financial statements do not include any adjustments that may result from the outcome of this uncertainty.

operations.


Off-Balance Sheet Arrangements

As of December 31, 2018,2021, 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.Expense. We calculate share-based compensation expense for option awards and certain warrant issuances (“Share-based 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 account for forfeitures as they occur. We have not included an estimate for forfeitures due to our limited history and we revise based on actual forfeitures each period. 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. 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.

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. SeeNOTE 10 Note 13 in the accompanying Notes to 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.trends


Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2014,December 2019, the FASB issued ASU 2014-09, Revenue2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intra-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 transition to or 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 amountequity method 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, accounting for licenses of intellectual propertytax law changes and identifying performance obligations (ASU 2016-10), narrow-scope improvementsyear-to-date losses in interim periods, and practical expedients (ASU 2016-12) and technical corrections and improvementsdetermining how to Topic 606 (ASU 2016-20) in its new revenue standard.apply income tax guidance to franchise taxes. The guidance isamendments from ASU 2019-12 are 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 effect on the timing and recognition of revenue for the services provided to our customers.

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 forall public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. There was no material effect on the 2018 financial statements upon adoption.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“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 Accounting Standards Codification (“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, 20192020 and forinclude 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 thisperiods. The guidance on our disclosures.

In June 2018, the FASB issued “ASU” 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for all other entities for fiscal years beginning after December 15, 2018,2021 and for interim periods beginning after December 15, 2022. Early adoption was permitted. The adoption of this pronouncement during the year ended December 31, 2021 had no impact on our accompanying consolidated financial statements. 


Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the 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, 2022 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. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of ASU No. 2021-08 on its consolidated financial statements.

In May 2021, the Financial Accounting Standards Board (“FASB”) issued 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): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to 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 are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effects of the adoption of ASU No. 2021-04 on its 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. We arepermitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of ASU 2018-07 on our financial statements.

In July 2017, the FASB issued ASU 2017-11 (“ASU 2017-11”), Earnings Per Share (“ASC 260”), Distinguishing Liabilities from Equity (“ASC 480”), and Derivatives and Hedging (“ASC 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 is effective for the Company on January 1, 2019. We are currently evaluating the potential impact of ASU 2017-11 on our financial statements.


In February 2016, the FASB issued ASU 2016-02,Leases(“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-10,Codification Improvements to Topic 842 Leases(“ASU 2018-10”) and ASU 2018-11,Leases (Topic 842), Targeted Improvements(“ASU 2018-11”). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02, including but not limited to lease residual value guarantee, rate implicit in the lease, lease term and purchase option. The amendments in ASU 2018-11 provide an optional transition method forpending adoption of the new standard which will allow entitieson its financial statements and intends to continue to applyadopt the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the yearstandard as of adoption. January 1, 2024.

In December 2018, theJune 2016, FASB issued ASU 2018-20,Leases2016-13, Financial Instruments – Credit Losses (Topic 842),Narrow-Scope Improvements326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The CECL model utilizes a lifetime expected credit loss measurement objective for Lessors(“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 also applies to financial assets arising from revenue transactions such as contract assets and accounts receivables. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC, ASU 2018-20”). ASU 2016-02No. 2016-13 is effective for annual and interim periods for fiscal years beginning after December 15, 2018, which will require us to adopt these provisions in2019. All other entities, ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the first quartereffects of 2019the adoption of ASU No. 2016-13 on a modified retrospective basis. While we continue evaluating our lease portfolio to assess the impact that ASU 2016-02 will have on ourits consolidated financial statements, we expect the primary impact to our consolidated financial statements upon adoption will be the recognition, on a discounted basis, of our future minimum rentals due under noncancelable leases on our consolidated balance sheet.

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, about:

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

our plans to further develop remote radios;

statements.


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, 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;

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;

expenditures not resulting in commercially successful products;

our outreach to global markets, particularly China;

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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined byRule 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-1
F-2
Consolidated Balance Sheets as of December 31, 20182021 and 20172020F-2
F-3
Consolidated Statements of Operations for the yearsYears Ended December 31, 20182021 and 20172020F-3
F-4
Consolidated Statements of Changes in Stockholders’ DeficitEquity for the years endedYears Ended December 31, 20182021 and 20172020F-4
F-5
Consolidated Statements of Cash Flows for the years endedYears Ended December 31, 20182021 and 20172020F-5
F-6
Notes to the Consolidated Financial StatementsF-6F-7

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 89)

 

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, 20182021 and 2017,2020, and the related consolidated statements of operations, stockholders’ deficit,equity, and cash flows for each of the years in the two-yeartwo year period ended December 31, 2018,2021, and the related notes (collectively referred to as the financial statements)“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the years in the two-yeartwo years period ended December 31, 2018,2021, 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 Company has suffered recurring losses from operationsaudit committee and has a net capital deficiencythat: (1) relate to accounts or disclosures that raise substantial doubt about its abilityare material to continuethe 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 going concern. Management’s plans in regardwhole, 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 these matters are alsowhich they relate.

Business Combinations – Valuation of Acquired Intangible Assets

As described in Note 1. The5 to the consolidated financial statements, do not include any adjustments that might result fromon August 5, 2021, the outcomeCompany acquired American Robotics, Inc. for purchase consideration of approximately $69.3 million. The Company accounted for the acquisition in accordance with ASC Topic 805, Business Combinations, which required the Company to exercise judgment and make estimates and assumptions based on available information regarding the fair values of intangible assets as of the date of the acquisition.

We identified the fair values of certain identifiable intangible assets, primarily developed technology, trademarks and FAA waiver, as critical audit matters. The principal considerations for our determination included the following: (i) changes in the key assumptions could have a significant impact on the fair value of the intangible assets acquired, (ii) subjectivity and judgment required to determine significant unobservable inputs and assumptions utilized by the Company in determining the fair value of the intangible assets, specifically projected revenue growth rates, expected cash flow, royalty rates and discount rates and (iii) the appropriateness of the use of various valuation models to determine the fair value of the developed technology, trademarks and FAA waiver acquired. Auditing these factors involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address the matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this uncertainty.critical audit matter included:

/s/ Rosenberg Rich Baker Berman, P.A.
We have served asAssessing the reasonableness of projected revenue growth rates and expected cash flow through: (i) evaluating the Company’s auditor since 2017.
Somerset, NJ
March 19, 2019
objectives, strategies, and related business risks, (ii) evaluating consistency with available industry or other third-party reports or data, and (iii) evaluating the Company’s relevant evidence and analysis for the significant assumptions.

Utilizing personnel with specialized knowledge and skill with valuations to (i) assess the reasonableness of royalty rates and discount rates utilized in the various valuation models and (ii) assess the appropriateness of the various valuation models utilized by management to determine the fair values of the developed technology, trademarks and FAA waiver acquired.

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

We served as the Company’s auditor since 2017.

Somerset, NJ

March 22, 2022 


ONDAS HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

 

  December 31, 
  2018  2017 
ASSETS  
Current Assets:        
Cash and cash equivalents $1,129,863  $456,018 
Accounts receivable, net of allowance for doubtful accounts of $0 and $7,914, respectively  30,440   31,855 
Inventory  347,945   173,320 
Other current assets  533,481   43,578 
Total current assets  2,041,729   704,771 
         
Property and equipment, net  502,146   12,856 
         
Other Assets:        
Intangible assets, net  53,288    
Lease deposits  49,376    
Deferred offering costs  14,982    
Total other assets  117,646    
         
Total assets $2,661,521  $717,627 
         
 LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current Liabilities:        
Accounts payable $1,111,929  $795,755 
Secured promissory note, net of debt discount $72,038  10,063,208    
Notes payable  3,882,868   3,865,558 
Derivative liability     166,093 
Advance from related party     155,645 
Accrued expenses and other current liabilities  2,188,271   879,022 
Total current liabilities  17,246,276   5,862,073 
         
Long-Term Liabilities:        
Notes payable, net of debt discount of $0 and $162,659, respectively  300,000   2,777,341 
Total long-term liabilities  300,000   2,777,341 
         
Total liabilities  17,546,276   8,639,414 
         
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; 50,463,732 and 16,797,744 issued and outstanding  5,046   1,679 
Additional paid in capital  17,491,734   12,361,205 
Accumulated deficit  (32,381,535)  (20,284,671)
         
Total stockholders’ deficit  (14,884,755)  (7,921,787)
         
Total liabilities and stockholders’ deficit $2,661,521  $717,627 
  December 31, 
  2021  2020 
ASSETS      
Current Assets:      
Cash $40,815,123  $26,060,733 
Accounts receivable, net  1,213,195   47,645 
Inventory, net  1,178,345   1,152,105 
Other current assets  1,449,610   629,030 
Total current assets  44,656,273   27,889,513 
         
Property and equipment, net  1,031,999   163,084 
         
Other Assets:        
Goodwill  45,026,583   - 
Intangible assets, net  25,169,489   379,530 
Long-term equity investment  500,000   - 
Lease deposits  218,206   28,577 
Operating lease right of use assets  836,025   51,065 
Total other assets  71,750,303   459,172 
Total assets $117,438,575  $28,511,769 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current Liabilities:        
Accounts payable $2,411,085  $2,368,203 
Operating lease liabilities  550,525   56,168 
Accrued expenses and other current liabilities  1,149,907   2,832,780 
Secured promissory note, net of debt discount of $0 and $120,711, respectively  -   7,003,568 
Deferred revenue  512,397   165,035 
Notes payable  -   59,550 
Total current liabilities  4,623,914   12,485,304 
         
Long-Term Liabilities:        
Notes payable 300,000   906,541 
Accrued interest  40,152   36,329 
Operating lease liabilities, net of current  241,677   - 
Total long-term liabilities  581,829   942,870 
Total liabilities  5,205,743   13,428,174 
         
Commitments and Contingencies (Note 14)        
         
Stockholders’ Equity        
Preferred stock - par value $0.0001; 5,000,000 shares authorized at December 31, 2021 and December 31, 2020, respectively, and none issued or outstanding at December 31, 2021 and December 31, 2020, respectively  -   - 
Preferred stock, Series A - par value $0.0001; 5,000,000 shares authorized at December 31, 2021 and December 31, 2020, respectively, and none issued or outstanding at December 31, 2021 and December 31, 2020, respectively  -   - 
Common stock - par value $0.0001; 116,666,667 shares authorized; 40,990,604 and 26,540,769 issued and outstanding, respectively December 31, 2021 and December 31, 2020, respectively  4,099   2,654 
Additional paid in capital  192,502,122   80,330,488 
Accumulated deficit  (80,273,389)  (65,249,547)
Total stockholders’ equity  112,232,832   15,083,595 
Total liabilities and stockholders’ equity $117,438,575  $28,511,769 

 

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


ONDAS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

  Years Ended December 31, 
  2021  2020 
       
Revenues, net $2,906,771  $2,163,719 
Cost of goods sold  1,810,942   1,236,051 
Gross profit  1,095,829   927,668 
         
Operating expenses:        
General and administration  11,781,503   7,641,234 
Sales and marketing  1,487,394   1,223,767 
Research and development  5,800,549   3,586,553 
Total operating expenses  19,069,446   12,451,554 
         
Operating loss  (17,973,617)  (11,523,886)
         
Other income        
Other income  591,900   20,209 
Interest income  11,578   251 
Interest expense  (575,685)  (1,936,847)
Change in fair value of derivative liability  -   (37,607)
Total other income (expense), net  27,793   (1,953,994)
         
Loss before benefit from income taxes  (17,945,824)  (13,477,880)
         
Benefit from income taxes  2,921,982   - 
         
Net loss  (15,023,842)  (13,477,880)
         
Net loss per share - basic and diluted $(0.44) $(0.66)
         
Weighted average number of common shares outstanding, basic and diluted  34,180,897   20,428,490 

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

 


ONDAS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONSSTOCKHOLDERS’ EQUITY

  

        Additional       
  Preferred Stock  Common Stock  Paid in  Accumulated    
  Shares  Amount  Shares  Amount  Capital  Deficit  Total 
                      
Balance, December 31, 2019  -  $-   19,756,154  $1,976  $39,339,449  $(51,771,667)  (12,430,242)
Stock-based compensation  -   -   -   -   4,676,362   -   4,676,362 
Issuance of Series A in connection with private placement, net of costs  2,217,500   222   -   -   4,217,748   -   4,217,970 
Issuance of Series A in connection with exchange of debt  132,890   13   -   -   265,766   -   265,779 
Derivative liability  -   -   -   -   (32,906)  -   (32,906)
Reclassification of derivative  -   -   -   -   70,513   -   70,513 
Mandatory conversion of Series A  (2,350,390)  (235)  994,452   99   136   -   - 
Issuance in connection with extension of debt          40,000   4   389,996   -   390,000 
Shares issued in public offering, net of costs  -   -   5,750,163   575   31,253,422   -   31,253,997 
Forgiveness of accrued officer’s salary  -   -   -   -   150,002   -   150,002 
Net loss  -   -   -   -   -   (13,477,880)  (13,477,880)
                             
Balance, December 31, 2020  -  $-   26,540,769  $2,654  $80,330,488  $(65,249,547) $15,083,595 
                             
Balance, December 31, 2020  -  $-   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 

  Year Ended December 31, 
  2018  2017 
     
Revenues, net $190,029  $274,403 
Cost of goods sold  39,365   79,768 
Gross profit  150,664   194,635 
         
Operating expenses:        
General and administration  2,611,992   1,083,557 
Sales and marketing  2,897,703   502,790 
Research and development  3,076,502   1,002,625 
Total operating expense  8,586,197   2,588,972 
         
Operating loss  (8,435,533)  (2,394,337)
         
Other income (expense)        
Interest expense  (2,663,645)  (642,718)
Change in fair value of derivative liability  (975,902)  5,025 
Loss on extinguishment of debt  (44,353)   
Other income  4,422   9,823 
Interest income  18,147    
Total other income (expense)  (3,661,331)  (627,870)
         
Loss before provision for income taxes  (12,096,864)  (3,022,207)
         
Provision for income taxes      
         
Net loss $(12,096,864) $(3,022,207)
         
Net loss per share - basic and diluted $(0.42) $(0.19)
         
Weighted average number of common shares outstanding, basic and diluted  28,528,060   16,191,240 

 

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

 


ONDAS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICITCASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 2018 AND 2017

 

        Additional       
  Common Stock  Paid in  Accumulated    
  Shares  Amount  Capital  Deficit  Total 
                
Balance, December 31, 2016  16,120,860  $1,612  $12,353,363  $(17,262,464) $(4,907,489)
Shares issued for exercise of warrants  676,884   67   6,676      6,743 
Share-based compensation        1,166      1,166 
Net loss           (3,022,207)  (3,022,207)
                     
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 conversion of debt  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)
  Years Ended
December 31,
 
  2021  2020 
       
CASH FLOWS FROM OPERATING ACTIVITES      
Net loss $(15,023,842) $(13,477,880)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation  116,231   97,759 
Amortization of deferred financing costs  120,712   712,395 
Provision for obsolete inventory  100,254   - 
PPP Loan forgiveness  (666,091)  - 
Amortization of intangible assets  1,396,364   19,840 
Deferred income taxes, release of valuation allowance  (2,921,982)  - 
Change in fair value of derivative liability  -   37,607 
Amortization of right of use asset  302,931   280,354 
Loss on Intellectual Property  97,789   33,334 
Stock-based compensation  3,253,590   4,676,362 
Changes in operating assets and liabilities:        
Accounts receivable  (1,153,315)  (27,433)
Inventory  (126,494)  (297,904)
Other current assets  (696,280)  (430,357)
Accounts payable  (86,658)  46,004 
Deferred revenue  314,370   (213,815)
Operating lease liability  (336,432)  (485,687)
Accrued expenses and other current liabilities  (1,586,563)  1,495,165 
Net cash flows used in operating activities  (16,895,416)  (7,534,256)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Patent costs  (104,112)  (31,117)
Purchase of equipment  (923,718)  (8,598)
Purchase of American Robotics, Inc., net of cash acquired  (6,517,338)  - 
Investment in Dynam A.I.  (500,000)  - 
Security deposit  (165,463)  23,575 
    Cash disbursement on note receivable  (2,000,000)  - 
Net cash flows used in investing activities  (10,210,631)  (16,140)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from paycheck protection program loan  -   666,091 
Proceeds from sale of preferred stock, net of costs  -   4,217,970 
Proceeds from sale of common stock, net of costs  47,523,569   31,253,998 
Proceeds from exercise of stock options and warrants  1,461,146   - 
Payments on loan payable  (7,124,278)  (4,679,958)
Net cash flows provided by financing activities  41,860,437   31,458,101 
         
Increase in cash and cash equivalents  14,754,390   23,907,705 
Cash and cash equivalent, beginning of period  26,060,733   2,153,028 
Cash and cash equivalents, end of period $40,815,123  $26,060,733 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
         
Cash paid for interest $1,042,737  $337,097 
Cash paid for income taxes $-  $- 
         
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:        
         
Forgiveness of accrued officer’s salary $135,103  $150,002 
Debt exchanged for preferred stock $-  $265,779 
Accrued interest converted to debt $-  $1,254,236 
Shares issue for extension of debt $-  $390,000 
Common stock, warrants and forgiveness of note receivable in relation to acquisition of American Robotics $61,811,179  $- 

 

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

 


ONDAS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

  Year Ended December 31, 
  2018  2017 
       
CASH FLOWS FROM OPERATING ACTIVITES        
Net loss $(12,096,864) $(3,022,207)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation  54,946   13,439 
Allowance for doubtful accounts  (7,914)  7,914 
Amortization of debt discount and deferred financing costs  835,849   106,676 
Amortization of intangible assets  194    
Change in fair value of derivative liability  975,902   (5,025)
Stock-based compensation     1,166 
Loss on conversion of debt  31,943    
Changes in operating assets and liabilities:        
Accounts receivable  9,329   (39,769)
Inventory  (174,624)  (156,289)
Other current assets  (477,937)  113,808 
Other assets  (44,359)   
Accounts payable  316,174   (58,752)
Accrued expenses and other current liabilities  2,060,098   408,557 
Net cash flows used in operating activities  (8,517,263)  (2,630,482)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Purchase of equipment  (544,236)   
Patent costs  (53,482)   
Deposits  (31,965)   
Net cash flows used in investing activities  (629,683)   
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from secured promissory note, net of costs  9,875,000    
Proceeds from convertible notes payable  100,000   2,940,000 
Proceeds from sale of common stock  4,696    
Repayment of advances from related party  (155,645)   
Purchase and retirement of common stock  (3,260)   
Proceeds from loans payable     50,000 
Proceeds from exercise of warrants     6,744 
Advances from related parties     119,508 
Repayment of short term loan     (75,000)
Net cash flows provided by financing activities  9,820,791   3,041,252 
         
Increase in cash and cash equivalents  673,845   410,770 
Cash and cash equivalent, beginning of period  456,018   45,248 
Cash and cash equivalents, end of period $1,129,863  $456,018 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
         
Cash paid for interest $979,167  $502,638 
Cash paid for income taxes $  $ 
         
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:        
         
Reclassification of derivative liability to additional paid in capital $1,141,995  $ 
Increase in debt for non cash interest $135,246  $ 
Interest converted to debt $17,310  $880,558 
Derivative liability $  $171,118 

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. As a result of these acquisitions, Ondas Networks Inc. isand American Robotics became our wholly owned subsidiaries. These two wholly owned subsidiaries are now Ondas’ primary focus. Ondas’ corporate headquarters are located in Sunnyvale, California. Unless otherwise stated or unless the context otherwise requires, the description of our business set forth below is provided on a combined basis, taking into account our subsidiary, Ondas Networks.Waltham, MA. Ondas Networks was originally incorporatedhas offices and facilities 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.Sunnyvale, California, and American Robotics’ offices and facilities are located in Waltham, Massachusetts and Marlborough, Massachusetts.

 

On July 4, 2018,Ondas has a third wholly owned subsidiary, FS Partners (Cayman) Limited, a Cayman Islands limited liability company (“FS Partners”) was formed by Eric A. Brock, CEO of Ondas Holdings,, and Stewart W. Kantor, President and L. Philip Chu, Vice President-Asia of Ondas Networks. On December 1, 2018, Messer Brock, Kantor and Chu transferred its ownership of FS Partners to Ondas Holdings, for a nominal amount, at which time FS Partners became a whollyone majority owned subsidiary, of Ondas Holdings. As of December 31, 2018, FS Partners had not begun formal operations and had not received any investment capital.

On July 13, 2018, Full Spectrum Holding Limited, a Cayman Islands limited liability company (“Full SpectrumFS Holding”) was formed by, which owned 100% of Ondas Network Limited, organized in Chengdu Province, China. FS Partners and Ondas Networks Inc., and Mr. Chu. On December 1, 2018, Ondas Networks transferred ownershipNetwork Limited were both formed for the purpose of Full Spectrum Holding to Ondas Holdings, for a nominal amount, at which time Full Spectrum Holding became a majority owned subsidiary of Ondas Holdings. Mr. Chu maintained a minority interestoperating in Full Spectrum Holding.China. As of December 31, 2018 Full Spectrum Holding had not begun formal2019, we revised our business strategy, and discontinued all operations and had not received any investment capital.

in China. On November 29, 2018,June 2, 2020, Ondas Network Limited a company established in Chengdu, Sichuan Province, received a business license underwas deregistered by the laws of Company Lawauthority of the People’s RepublicChengdu High-Tech Zone, Market Supervision Administration. Both FS Partners and FS Holdings had no operations during 2020 and 2021, and we are in the process of Chinadissolving them and expect the Lawprocess to be completed by the end of the People’s Republic of China on Wholly Foreign Invested Enterprises. Mr. Chu is legal representative of 2022.

Business Activity

Ondas Network Limited. Ondas Network Limited is a leading provider of private wireless, drone, and automated data solutions through its wholly owned subsidiary of Full Spectrum Holding. As of December 31, 2018subsidiaries Ondas Network Limited had not begun formal operationsNetworks and had not received any investment capital.American Robotics. Ondas Networks and American Robotics together provide users in rail, energy, mining, agriculture, and critical infrastructure markets with improved connectivity, data collection capabilities, and automated decision-making to improve operations. We operate our two subsidiaries as separate business segments.

 

Ondas Networks

Ondas Networks’ wireless networking products are applicable to a wide range of mission critical functions that require secure communications over large geographic areas. We provideNetworks 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 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 16, 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 began working with the IEEE in 2015 to help create the IEEE 802.16s wireless broadband standard which was publishedstandard.

American Robotics

American Robotics designs, develops and manufactures autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise customers. We provide our customers turnkey data solutions designed to meet their unique requirements in the fourth quarter of 2017. In 2018, Ondas Networks initiated a business expansion plan designedfield. We do this via our internally developed Scout System™, an industrial drone platform which provides commercial and government customers with the ability to investcontinuously digitize, analyze, and monitor their assets and field operations in our sales, and marketing and customer support capabilities in order to build our customer base.near real-time.

 

The Scout 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 Scout System™ provides efficiencies as a drone solution for commercial use. Once installed in the field at customer locations, a fleet of connected Scout Systems remain indefinitely in an area of operation, automatically collecting data each day, self-charging, and seamlessly delivering data analysis regularly and reliably. AR markets the Scout System™ under a Robot-as-a-Service (“RaaS”) business model, whereby our drone platform aggregates customer data and provides the data analytics meeting customer requirements in return for an annual subscription fee.


 

ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Our businessThe Scout System™ consists of (i) Scout™, a single segmenthighly automated, AI-powered drone with advanced imaging payloads (ii) the ScoutBaseTM, a ruggedized weatherproof base station for housing, charging, data processing, and cloud transfer, and (iii) ScoutViewTM, 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 productssupporting technologies. Using a suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and services all of which are soldother proprietary intelligent safety systems, we achieved the first and providedonly Federal Aviation Administration (“FAA”) approval for automated operations without a human on-site in the United States and certain international markets.on January 15, 2021.

 

The AcquisitionReverse Stock Split

 

On September 28, 2018, we entered intoNovember 3, 2020, the Agreement and PlanBoard of Merger and Reorganization (the “Merger Agreement”) with Zev Merger Sub, Inc. and Ondas Networks to acquire Ondas Networks. The transactions contemplated by the Merger Agreement were consummated on September 28, 2018 (the “Closing”), and pursuant to the termsDirectors of the Merger Agreement, allCompany approved a 1-for-3 reverse stock split of the Company’s authorized and outstanding shares of common stock, of Ondas Networks, $0.00001 par value per share,effective November 13, 2020 (the “Ondas Networks Share(s)”), were exchanged for shares of our common stock, $0.0001 par value per share (the “Company Shares”“Reverse Stock Split”). 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 converted into 3.823 Company Shares (the “Exchange Ratio”), with allNo fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split were rounded downup to the nearest whole share.  Accordingly, we issued an aggregate of 25,463,732 Company SharesThe Company’s common stock commenced trading on a post-split basis on November 16, 2020. All common stock, stock options, restricted stock units, warrants and related per share amounts 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 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; (iii) we entered into a Common Stock Repurchase Agreement with Energy Capital, a current stockholder of the Company (“Energy Capital”), pursuant to which the Energy Capital 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. The 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 hasperiods presented 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 reflectgive effect to 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.Reverse Stock Split.

 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSLiquidity

 

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, 2018,2021, we had an accumulated deficitstockholders’ equity of approximately $32,382,000 and$112,233,000. On December 31, 2021, we had net long-term borrowings outstanding of approximately $14,246,000, of which approximately $3,883,000, is contractually due on March 30, 2019$300,000 and $10,063,000 is contractually due on September 19, 2019. As ofno short-term borrowings. On December 31, 2018,2021, we had cash and cash equivalents of approximately $1,130,000$40,815,000 and a working capital deficit of approximately $15,205,000.$40,032,000.

 

In December 2020, the Company completed a registered public offering of its common stock, generating net proceeds of approximately $31,254,000. In June 2021, the Company completed another registered public offering of its common stock, generating net proceeds of approximately $47,524,000. We believe the funds raised in the December 2020 and June 2021 equity offerings, 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 depends onrequires us to successfully market and secure purchase orders for our completion of our second-generation products and commencing theservices from customers currently identified in our sales pipeline as well as new customers. We also will be required to efficiently manufacture marketing and sales ofdeliver equipment on those products.purchase orders. These activities, including our planned research and development efforts, will require significant uses of working capital through the end of 2019capital. There can be no assurance that we will generate revenue and beyond. Based oncash as expected in our current operating plans, we believe that our existing cash and cash equivalents, as well as the $3,300,000 in borrowings we drew down thus far in 2019 from the $10 million loan and security agreement (seeNOTE 14 for further details) will only be sufficient to meet our anticipated operating needsbusiness plan. We may seek additional funds through March 2019. We currently do not have sufficient funds to repay the debt discussed above at maturity on March 30, 2019 and must secure additional equity or debt capital in order to repay those obligations (the balanceofferings and/or borrowings under additional notes payable, lines of funds available under the $10 million loan and security agreement are contractuallycredit or other sources. We do not available for this repayment). Aside from the balance available under $10 million loan and security agreement, at the present time we have no commitments for any such funding and no assurance can be provided that weknow whether additional financing will be able to raise the needed fundsavailable on commercially acceptable terms or at all. These factors raise substantial doubt aboutall, when needed. If adequate funds are not available or are not available on commercially acceptable terms, our ability to continuefund 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, 2021 and 2020 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; and

Manufacturing and sales were disrupted due to ongoing supply chain constraints for certain critical parts.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the first quarter of 2020, we reduced our business activity to critical operations only, and furloughed 80% of our workforce. Per orders issued by the Health Officer of the County of Santa Clara, our corporate offices and facilities were closed, except for functions related to the support of remote workers and product support related to the essential transportation sector. On May 13, 2020, we reopened our offices and facilities and as of December 31, 2020 we had no employees remaining on furlough. Of the 18 employees previously furloughed, 14 are currently employed by us.

The Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2022, primarily due to the slowdown of customer activity during 2020 and 2021, ongoing supply chain constraints for certain critical parts, and difficulties in attracting employees. 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 COVID-19 and its variants. 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 conditions, 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 through March 19, 2020. Theresult of the COVID-19 pandemic, such operational delays and unanticipated costs and expenses could further adversely impact the Company’s 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 realizationcondition and 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 during 2022.

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, Inc. and FS Partners, (FS Partners has not begun operations) and our majority owned subsidiaries, Full Spectrum Holding and Ondas Network Limited (both have not begun operations).subsidiary, FS Holding. All significant inter-company accounts and transactions between these entities have been eliminated in these historical consolidated financial statements.

Segment Information

We operate in one business segment, which is the development, marketing and sale of wireless radio systems for secure, wide area mission-critical business-to-business networks.

 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations

 

The Company utilized ASC 805, Business Combinations (“ASC 805”) to account for the August 5, 2021 acquisition of American Robotics (see note 5 for more details).

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.

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 20 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 2 reportable segments: Ondas Networks and American Robotics 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.

 


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2021 and 2020, 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, 2021, the Company has maintained balances in excess of federally insured limits. As of December 31, 2018 and 2017, we had no cash equivalents.2021, the Company was approximately $40,180,000 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, 2018. We had an allowance for doubtful accounts of $7,914 as of December 31, 2017.2021 and 2020.

 

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, 20182021 and 2017, we determined that no2020, such reserves were necessary.$100,254 and $0, respectively.

 

Inventory consists of the following:

  December 31,
2021
  December 31,
2020
 
Raw Material $1,153,254  $911,753 
Work in Process  65,192   172,207 
Finished Goods  60,153   68,145 
Less Inventory Reserves  (100,254)  - 

Total Inventory, Net

 $1,178,345  $1,152,105 

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 test equipment, 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.

 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSoftware

 

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. The amortization of these costs is included in cost of revenue over the estimated life of the products. As of December 31, 2021 and 2020, the Company had no internally developed software.

 


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 is 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 cash flows discounted at a rate commensurate with the risk involved. Based upon our evaluation, there were noThe impairments of long-lived assets required duringwas $97,789 and $33,334 for the yearyears ended December 31, 2018.2021 and 2020, respectively.

 

Patents

We amortize our intangible assets with a finite life on a straight-line basis, over 20 years for patents. We begin amortization of these costs on the date patents are awarded.

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.

 

Derivative Financial Instruments

Derivatives are recorded on the balance sheet at fair value and changes in fair value are recorded in earnings at each reporting date in accordance with U.S. GAAP.

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).

 


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 -- 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.

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

 

We have elected not to carry our debt instruments at fair value. The carrying amount of our debt approximates fair value. Interest rates that are currently available to us for issuance of short and long-term debt with similar terms and remaining maturities are used to estimate the fair value of our short and long-term debt.

In accordance with accounting standards, we determined that at December 31, 2017, certain instruments qualified as derivative liabilities and should be recorded at their fair value on the date of issuance and re-measured at fair value each reporting period with the change reported in earnings). The fair value of these instruments were computed using the Binomial Lattice Monte Carlo model, incorporating transaction details such as the price of our common stock, contractual terms, maturity and risk-free rates, as well as assumptions about future financings, volatility, and holder behavior.

The assumptions used in computing the fair value as of December 31, 2017 are as follows:

Stock price $0.0027 
Conversion price $8.1500 
Expected volatility  63%
Term (years)  9.5 
Risk-free interest  2.36%
Expected dividend yield  0%

At December 31, 2018, we had no instruments requiring a fair value determination.

The following table provides the financial assets and liabilities reported at fair value and measured on a recurring basis at December 31, 2018 and 2017:

Description  Assets/
(Liabilities)
Measured at
Fair Value
  Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
  Significant
Other Observable
Inputs
(Level 2)
  Significant
Other Unobservable
Inputs
(Level 3)
 
              
Fair value of derivative liability as of:                 
                  

December 31, 2018

  $  $  $  $ 
                  

December 31, 2017

  $(166,093) $  $  $(166,093)

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a summary of changes in fair value associated with the Level 3 liabilities for the years ended December 31, 20182021 and 2017:2020:

 

  Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
 
  December 31, 
  2018  2017 
       
Balance, beginning of period $(166,093) $ 
Issuances of derivative liability     (171,118)
Reclassification to additional paid in capital  1,141,995    
Change in fair value of derivative liability  (975,902)  5,025 
Balance, end of period $  $(166,093)
  Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
 
  December 31, 
  2021  2020 
       
Balance, beginning of period $   -  $   - 
Recognition of derivative liability  -   (32,906)
Change in fair value of derivative liability  -   (37,607)
Reclassification to additional paid in capital  -   70,513 
Balance, end of period $-  $- 

 


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The above table of Level 3 liabilities begins with the prior period balance 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 estimates and may not be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.

 

Income TaxesWe utilized a “with-and-with-out” approach to determine the fair value of the derivative liability for the embedded antidilution conversion feature. We used an option pricing back solve method based on the closing price of the Company’s common stock to determine the implied value of the Series A Preferred both with and without the embedded antidilution conversion feature. The difference in the implied value was then multiplied by the probability the embedded antidilution conversion feature would be applicable upon conversion, as estimated by management, to determine the fair value of the embedded antidilution conversion feature as of the reporting period.

 

Derivative Liability for Embedded Conversion Features

The Company evaluates its financial instruments to determine if those contracts or embedded components of those contracts qualify as derivatives to be accounted for separately. In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other bifurcated embedded derivative instruments in the convertible instrument, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The result of this accounting treatment is that 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 in the statements of operations as other income or expense.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of equity financings, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering. Should the planned equity financings be abandoned, the deferred offering costs are expensed immediately as a charge to other income (expense) in the consolidated statement of operations. For the years ended December 31, 2021 and 2020, the Company recorded reduction in additional paid-in capital of $390,032 and $929,299, respectively. For the years ended December 31, 2021 and 2020, the Company expensed offering costs of $0 and $0, respectively.

Income Taxes

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 and certain warrant issuances (“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 of the Share-based Award in determining the fair value of Share-based Awards. 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.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 cost of goods sold on the accompanying consolidated financial statements.

 

Deferred Offering CostsRevenue Recognition

 

Development projects

Ondas has 2 business segments that generate revenue: Ondas Networks and American Robotics. Ondas Networks generates revenue from product sales, services, and development projects. American Robotics generates revenue through data subscription services and development projects.

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 the Scout System. The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummationScout System consists of the equity financing, these costsScout drone and the ScoutBaseTM and is owned, installed, and maintained on the customer premises by American Robotics. The customer pays for a monthly, annual, or multi-annual subscription service to access the data collected by the Scout System. The customer accesses its data remotely through ScoutViewTM, AR’s secure web portal for displaying, analyzing, and storing customer information and captured image data. American Robotics also generates revenue from development projects for customers who are interested in customized solutions.

Revenue for development projects is typically recognized over time using a percentage of completion input method, whereby revenues are recorded in stockholders’ deficit as a reduction of additional paid-in capital generated as a resulton the basis of the offering. ShouldCompany’s estimates of satisfaction of the planned equity financingperformance obligation based on the ratio of actual costs incurred to total estimated costs. The input method is utilized because management considers it to be abandoned, the deferred offering costs will be expensed immediatelybest 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 charge to operating expensescumulative catch-up basis, which recognizes in the consolidated statementcurrent period the cumulative effect of operations.


the changes on current and prior periods base in the performance completed to date.

 


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of August 5, 2021, American Robotics had signed subscription agreements of varying contract lengths with customers in multiple industries including agriculture, oil and gas and materials management. 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 the Scout System, it is held in deferred revenue and recognized after operation commences over the length of the subscription service. American Robotics also provides customized data solutions for certain customers and receives development revenue for those services.

 

Off-Balance SheetCollaboration Arrangements within the Scope of ASC 808, Collaborative Arrangements

 

The Company’s development revenue includes contracts where the Company and 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, 2021 and 2020, 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.

 

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 yearyears ended December 31, 2018,2021 and 2020, 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 yearyears ended December 31, 2018,2021 and 2020, 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.


 


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

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. The Company allocates the transaction price to the service and extended warranty based on the stand-alone selling prices of these performance obligations, which are stated in our contracts. Revenue for the 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, a significant portion of this revenue is generated through four contracts with 2 customers 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 recognized 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.

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 the Scout System. The customer pays for a monthly, annual, or multi-annual subscription service to access the data collected by the Scout System. The customer accesses its data remotely through ScoutViewTM, AR’s secure web portal for displaying, analyzing, and storing customer information and captured image data. American Robotics also generates development revenue from customers who are interested in customized solutions.

Disaggregation of Revenue

 

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

  Years Ended December 31, 
  2018  2017 
Type of Revenue      
Product revenue $125,664  $185,261 
Service revenue  64,365   89,142 
Total revenue $190,029  $274,403 

  Years Ended December 31, 
  2018  2017 
Timing of Revenue      
Revenue recognized point in time $147,863  $235,636 
Revenue recognized over time  42,166   38,767 
Total revenue $190,029  $274,403 

 


  Years Ended December 31, 
  2021  2020 
Type of Revenue      
Product revenue $405,570  $1,151,557 
Service and subscription revenue  96,933   62,410 
Development revenue  2,401,474   943,357 
Other revenue  2,794   6,395 
Total revenue $2,906,771  $2,163,719 

Of the service and subscription revenue above, $66,617 and $0 represents American Robotics subscription revenue for the years ended December 31, 2021 and 2020, respectively.


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Years Ended December 31, 
  2021  2020 
Timing of Revenue      
Revenue recognized point in time $438,413  $1,287,132 
Revenue recognized over time  2,468,358   876,587 
Total revenue $2,906,771  $2,163,719 

Of the revenue recognized over time above, $66,617and $0 represents American Robotics subscription revenue for the years ended December 31, 2021 and 2020, respectively.

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, 2018.2021 and 2020.

 

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, 20182021 and 2017,2020, 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, 
  2018  2017 
Balance, beginning of year $30,690  $36,299 
   Additions  32,106   39,895 
   Transfer to revenue  (42,166)  (45,504)
Balance, end of year $20,631  $30,690 
  Years Ended December 31, 
  2021  2020 
Balance, beginning of year $165,035  $378,850 
Additions  2,238,137   1,053,850 
Transfer to revenue  (1,890,775)  (1,267,665)
Balance, end of year $512,397  $165,035 

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, 2018 is2021 and 2020 are immaterial to the Company’s financial statements.

 

Leases

Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. During the year ended December 31, 2021, the Company’s operating leases consisted of office space in Sunnyvale, CA (the “Gibraltar Lease”) and Marlborough, MA (the “American Robotics Lease”). For the year ended December 31, 2020, the Company had operating leases primarily consisting of two office space leases in Sunnyvale, California (the “North Pastoria Lease” and the “Gibraltar Lease”) (collectively, the “Sunnyvale Leases”). On December 31, 2020, the North Pastoria Lease expired. The Gibraltar Lease expired on February 28, 2021 and was verbally extended to March 31, 2021 under the same terms.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On January 24, 2020, the Company and a third party (the “Sublessee”) entered into a Sublease agreement (the “Sublease”) on the North Pastoria Lease, wherein the Sublessee occupied the premises through December 31, 2020. The Sublessee made rent payments of approximately $9,666 and management fee payments of approximately $457 per month beginning February 1, 2020, and a one-time security deposit of $19,332. Sublease rental income for the period from February 1 through December 31, 2020 was $111,349. On December 31, 2020, $10,122 of the security deposit was applied to the December 2020 amount due and the balance was refunded on January 19, 2021.

On January 22, 2021, we entered into a 24-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 $90,000.

On August 5, 2021, the Company acquired American Robotics and the 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 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, Massachusetts. 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. 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 and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating 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 term. Our leases generally do not provide an implicit rate. As such, we use our incremental borrowing rate based on the information available at commencement date in 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 have elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying assets. We have elected not to separate lease and non-lease components for any class of underlying asset.

Lease Costs

  Years ended December 31, 
  2021  2020 
Components of total lease costs:      
Operating lease expense $522,012  $325,839 
Short-term lease costs (1)  45,498   7,650 
Sublease rental income  -   (111,349)
Total lease costs $567,510  $222,140 

(1)Represents short-term leases which are immaterial.

Lease Positions as of December 31, 2021 and 2020

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

  December 31, 
  2021  2020 
Assets:      
Operating lease assets $836,025  $51,065 
Total lease assets $836,025  $51,065 
         
Liabilities:        
Operating lease liabilities, current $550,525  $56,168 
Operating lease liabilities, net of current  241,677   - 
Total lease liabilities $792,202  $56,168 


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Leases Information

  Years ended
December 31,
 
  2021  2020 
Operating cash flows for operating leases $525,938  $531,166 
         
Weighted average remaining lease term (in years)- operating lease  1.48   0.2 
Weighted average discount rate – operating lease  10.93%  14%

Undiscounted Leases Cash Flows

Future lease payments included in the measurement of lease liabilities on the consolidated balance sheet on December 31, 2021, as follows:

Years ending December 31,   
2022 $603,003 
2023 246,242 
2024 9,338 
Total future minimum lease payments $858,583 
Lease imputed interest (66,381)
Total $792,202 

Net Loss Per Common Share

 

In a reverse merger transaction, 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 common stock equivalents were excluded from the calculation of diluted net loss per sharepotentially dilutive securities for the periods indicated because including them would have had an anti-dilutive effect:


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Potentially dilutive securities outlined in the table belowyears ended December 31, 2021 and 2020 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, 
  2018  2017 
Warrants to purchase common stock     1,953,722 
Options to purchase common stock     3,606,052 
Convertible debt  140,678   1,490,704 
Total potentially dilutive securities  140,678   7,050,478 
  Years Ended
December 31,
 
  2021  2020 
Warrants to purchase common stock  3,258,961   1,832,910 
Options to purchase common stock  687,448   568,006 
Restricted stock units  518,750   501,160 
Total potentially dilutive securities  4,465,159   2,902,076 

 

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.

 

ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2021, the Company was approximately $40,180,000 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 maintains an allowance for doubtful accounts and sales credits.credit losses.

Concentration of Customers

Because we have only recently invested in our customer service and support organization, a small number ofThe table below sets forth the Company’s customers havethat accounted for a substantial amountgreater than 10% of our revenue. Duringits revenues for the years ended December 31, 2021 and 2020, respectively:

  Years Ended
December 31,
 
Customer 2021  2020 
A  41%  47%
B  55%  46%

Customers A and B accounted for 54% and 36% of the Company’s accounts receivable balance as of December 31, 2021, respectively.

Customer B accounted for 14% of the Company’s accounts receivable balance, while 86% was held by customers with less than 5% of the Company’s revenue for the year ended December 31, 2018, two customers accounted2020.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for approximately $145,000Income Taxes, which removes certain exceptions for recognizing deferred taxes for investments, performing intra-period tax allocation and $32,000calculating 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 our revenuea consolidated tax return is not subject to income tax and guides whether to relate a step-up tax basis to a business combination or 76%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 transition to or from equity method of accounting, accounting for tax law changes and 17%, respectively. No other customers provided more than 10% of our revenue during 2018. During the year ended December 31, 2107, three customers accounted for approximately $156,000, $50,000year-to-date losses in interim periods, and $41,000 of our revenue or 51%, 18% and 15%, respectively. No other customers provided more than 10% of our revenue during 2017.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”), 2018-13 that eliminates certain disclosure requirements for fair value measurementsdetermining how to apply income tax guidance to franchise taxes. The amendments from ASU 2019-12 are effective for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to Accounting Standards Codification (“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 allbusiness entities for fiscal years beginning after December 15, 20192020 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 was permitted. The adoption of this pronouncement during the year ended December 31, 2021 had no impact on our accompanying consolidated financial statements.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the 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, 2022 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 permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. We arepermitted. The Company is currently evaluating the effecteffects of the adoption of ASU No. 2021-08 on its consolidated financial statements.

In May 2021, the Financial Accounting Standards Board (“FASB”) issued 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): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to 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 guidanceASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effects of the adoption of ASU No. 2021-04 on our disclosures.its consolidated financial statements.

In June 2018,August 2020, the FASB issued ASU 2018-07, Compensation - Stock CompensationNo. 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, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of January 1, 2024.

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 718)326): ImprovementsMeasurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to Nonemployee Share-Based Payment Accountingas the current 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 also applies to financial assets arising from revenue transactions such as contract assets and accounts receivables. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be SRCs as defined by the SEC, ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07No. 2016-13 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In July 2017, the FASB issued2019. All other entities, ASU 2017-11 (“ASU 2017-11”), Earnings Per Share (“Topic 260”),Distinguishing Liabilities from Equity (“Topic 480”), andDerivatives and Hedging (“Topic 815”). ASU 2017-11No. 2016-13 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 is effective for the Company on January 1, 2019. We are currently evaluating the potential impact of ASU 2017-11 on our financial statements.

In August 2016,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 became effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. There was no material effect on our 2018 financial statements upon adoption.

In February 2016, the FASB issued ASU 2016-02,Leases(“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. In July 2018, the FASB issued ASU 2018-10,Codification Improvements to Topic 842 Leases(“ASU 2018-10”) and ASU 2018-11,Leases (Topic 842), Targeted Improvements(“ASU 2018-11”). The amendments in ASU 2018-10 affect only narrow aspects of the guidance issued in the amendments in ASU 2016-02, including but not limited to lease residual value guarantee, rate implicit in the lease, lease term and purchase option. The amendments in ASU 2018-11 provide an optional transition method for adoption of the new standard, which will allow entities to continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year of adoption. In December 2018, the FASB issued ASU 2018-20,Leases (Topic 842),Narrow-Scope Improvements for Lessors(“ASU 2018-20”). ASU 2016-02 is effective for annual and interim periods for fiscal years beginning after December 15, 2018, which will require us to adopt these provisions2022. The Company is currently evaluating the effects of the adoption of ASU No. 2016-13 on its consolidated financial statements. 

Reclassification

Certain amounts reported in the first quarter of 2019 on a modified retrospective basis. While we continue evaluating our lease portfolio to assess the impact that ASU 2016-02 will have on our consolidatedprior year financial statements we expect the primary impact to our consolidated financial statements upon adoption will be the recognition, on a discounted basis, of our future minimum rentals due under noncancelable leases on our consolidated balance sheet.

Restatement

In connection with the year-end financial statement closing process, the Company determined that its previously issued financial statements included in its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018 (“Restated Period”) should be restated due to an error in recording the conversion of debt on September 28, 2018 and the omission of recognizing a modification of debt on July 11, 2018. With the modification on July 11, 2018, the Company should have recorded a loss on extinguishment of debt in the amount of $44,348 and reclassified the derivative liability at its fair value in the amount of $1,141,995 to additional paid in capital (see NOTE 7 for details). On September 28, 2018, the debt conversion was originally recorded as a gain of $3,976,992, however it should have been recorded in common stock and additional paid in capital as a result ofreclassified to conform to the July 11, 2018 debt modification. SeeNOTE 13 for further details and quantitative information on the Restated Period.current year presentation.


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – OTHER CURRENT ASSETS

Other current assets consist of the following:

  Years Ended December 31, 
  2018  2017 
Prepaid financing costs $188,300  $ 
Prepaid marketing cost  125,525    
Prepaid insurance  102,743    
Other prepaid expenses  40,654   13,755 
Other receivables  44,294   9,823 
Deposits  31,965   20,000 
TOTAL OTHER CURRENT ASSETS $533,481  $43,578 
  Years Ended
December 31,
 
  2021  2020 
Prepaid insurance $1,026,212  $623,627 
Other prepaid expenses  423,398   5,403 
Total other current assets $1,449,610  $629,030 

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

  Years Ended December 31, 
  2018  2017 
Leasehold improvements $256,920  $30,367 
Vehicle  143,560    
Furniture and fixtures  132,088   41,685 
Computer Equipment  87,087   39,382 
Software  61,287   25,272 
   680,942   136,706 
Less: accumulated depreciation  (178,796)  (123,850)
TOTAL PROPERTY AND EQUIPMENT $502,146  $12,856 

  Years Ended
December 31,
 
  2021  2020 
       
Vehicles $149,916  $149,916 
Computer equipment  183,869   112,615 
Furniture and fixtures  141,053   94,053 
Software  88,284   61,287 
Leasehold improvements  37,401   28,247 
Development equipment  56,275   25,395 
Base stations  117,850   - 
Drones  54,969   - 
Construction in progress  627,044   - 
   1,456,661   471,513 
Less: accumulated depreciation  (424,662)  (308,429)
Total property and equipment $1,031,999  $163,084 

Depreciation expense for the years ended December 31, 20182021 and 20172020 was $54,946$116,231 and $13,439,$97,759, respectively. During 2020, fully depreciated assets totaling $36,367 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. 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.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 in 2021 in respect of these restricted stock units was $1,452,385, and as of December 31, 2021 the unrecognized compensation expense was $9,244,115.

Lock-Up and Registration Rights Agreement

On May 17, 2021, the Company entered into a lock-up and registration rights agreement, by and among the Company and the directors and officers of American Robotics (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement (i) the Company agreed to file a resale registration statement for the Registrable Securities (as defined in the Registration Rights Agreement) no later than 90 days following the closing of the Mergers, and to use commercially reasonable efforts to cause it to become effective as promptly as practicable following such filing, (ii) the directors and officers and other American Robotics stockholders who sign a joinder to such agreement were granted certain piggyback registration rights with respect to registration statements filed subsequent to the closing of the Mergers, and (iii) the directors and officers of American Robotics agreed, subject to certain customary exceptions, not to sell, transfer or dispose of an aggregate of 2,583,826 shares of Company common stock for a period of 180 days from the closing of the Mergers. In connection with the Mergers, the stockholders of American Robotics entered into a Joinder to Lock-Up and Registration Rights Agreement.

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 


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our results for the year ended December 31, 2021 include results from American Robotics between August 6, 2021 and December 31, 2021. 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, 2020. 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, 2020 or what the Company’s operating results will be in future periods.

  (Unaudited) 
  Years Ended 
  December 31, 
  2021  2020 
Revenue, net $2,967,591  $1,977,698 
Net loss $(23,974,346) $(19,090,387)
Basic Earnings Per Share $(0.56) $(0.46)
Diluted Earnings Per Share $(0.56) $(0.46)

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 final allocation of purchase price has changed from the preliminary allocation because of changes in the valuation of intangibles and the 382 analysis of American Robotics net loss operating carryforwards. The resulting changes were a reduction in intangibles assets of $21,080,00, a reduction in the deferred tax liability of $9,818,238 and net other changes of $3,838 resulting in an increase in goodwill of $11,245,618.

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.

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.

NOTE 56 – INTANGIBLE ASSETS

OurThe components of intangible assets, include patent costs totaling $53,482 less amortizationall of which are finite lived, were as follows:

  December 31, 2021  December 31, 2020    
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net  Carrying Amount  Useful
Life
 
                      
Patents $75,266  $(13,077) $62,189  $25,598  $(3,809) $21,789   10 
Patents in process  89,767   -   89,767   133,112   -   133,112   N/A 
Licenses  241,909   (41,471)  200,438   241,909   (17,280)  224,629   10 
Trademarks  3,230,000   (130,242)  3,099,758   -   -   -   10 
FAA waiver  5,930,000   (239,113)  5,690,887   -   -   -   10 
Developed technology  16,120,000   (650,000)  15,470,000   -   -   -   10 
Non-compete agreements  840,000   (338,710)  501,290   -   -   -   1 
Customer relationships  60,000   (4,839)  55,161   -   -   -   5 
  $26,586,942  $(1,417,452) $25,169,489  $400,619  $(21,089) $379,530     

Amortization expense for years ended December 31, 2021 and 2020 was $1,396,364 and $19,840, respectively.

We recognized losses on intellectual property of $97,789 and $33,334 due to expiration of patent costs of $194 atapplications for the years ended December 31, 2018. We had no capitalized patent2021 and 2020, respectively.

Estimated amortization expense for the next five years for the intangible costs at December 31, 2017.currently being amortized is as follows:

Year Ending December 31, Estimated
Amortization
 
2022 $2,072,570 
2023 $2,571,280 
2024 $2,571,003 
2025 $2,571,003 
2026 $2,566,164 


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

 

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, 2021 and 2020 the long-term equity investment had a carrying value of $500,000 and $0, respectively. 

Our CEO Eric Brock is a director of Dynam.

NOTE 68 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

  Years Ended December 31, 
  2018  2017 
       
Accrued payroll and other benefits $1,659,577  $792,746 
Accrued rent and facilities costs  160,544    
Accrued interest  138,605   42,824 
Accrued professional fees  126,384    
D&O insurance financing payable  52,530    
Other accrued expenses  30,000   1,526 
Deferred revenue  20,631   30,690 
Other current liabilities     11,236 
TOTAL OTHER CURRENT LIABILITIES $2,188,271  $879,022 

NOTE 7 – NOTES PAYABLE AND OTHER FINANCING AGREEMENTS

Loan Agreements

In October 2007, Ondas Networks Inc. (“Ondas Networks”), the wholly owned subsidiary of Ondas Holdings Inc. (“Ondas Holdings” or the “Company”), entered into a 6% per annum loan agreement with an entity 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 original maturity date of the October 2007 Loan was September 30, 2011. On February 11, 2016, the entity and Ondas Networks entered into a Loan Amendment to amend the October 2007 Loan to (i) extend the maturity date to April 1, 2017 and (ii) clear and waive any existing defaults. On November 30, 2017, the entity and Ondas Networks entered into a Loan Modification Agreement to further amend the October 2007 Loan to (i) transfer all accrued and unpaid interest ($17,310) as of December 31, 2017 to principal in January 2018, (ii) extend the maturity date to December 31, 2018, (iii) clear and waive any existing defaults, and (iv) amend the interest rate to 10% per annum effective January 1, 2018. On October 1, 2018, the entity entered into an Assignment and Assumption Agreement to assign all of its rights and obligations including all principal and interest owing under the October 2007 Loan to an unaffiliated third-party. On December 31, 2018, the assignee and Ondas Networks entered into a Note Extension Agreement to further amend the October 2007 Loan to extend the maturity date to March 30, 2019. At December 31, 2018 and December 31, 2017, the outstanding balance of the October 2007 Loan was $567,310 and $550,000, respectively.

On December 31, 2013, Ondas Networks entered into a 10% per annum Promissory Note with an entity 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 with the same entity in the amount of $210,000. (the “November 2014 Loan”). The original maturity of the November 2014 Loan was March 16, 2015. The interest through the original maturity date of the November 2014 Loan was a fixed amount of $16,800. Subsequent to the original maturity date, the November 2014 Loan accrued interest at a rate of 18% per annum. On September 15, 2015, Ondas Networks and the entity verbally agreed to amend the November 2014 Loan to decrease the interest rate to 10% per annum. On April 1, 2016, the entity and Ondas Networks entered into a Loan Amendment to amend the December 2013 Note and November 2014 Loan to (i) extend the maturity date to April 1, 2017, and (ii) clear and waive any existing defaults. On November 30, 2017, the entity and Ondas Networks entered into a Loan Modification Agreement to further amend the December 2013 Note and November 2014 Loan to (i) transfer all accrued and unpaid interest on the December 2013 Note and November 2014 Loan ($60,679 and $49,170, respectively, as of December 31, 2017) to principal, (ii) extend the maturity dates to December 31, 2018, and (iii) clear and waive any existing defaults. On December 31, 2018, the entity and Ondas Networks entered into a Note Extension Agreement to further amend the December 2013 Note and November 2014 Loan to extend the maturity date to March 30, 2019. At December 31, 2018 and December 31, 2017, the outstanding balances of the December 2013 Note and November 2014 Loan was $285,679 and $259,170, respectively.


  Years Ended
December 31,
 
  2021  2020 
Accrued payroll and other benefits $269,725  $2,125,981 
D&O insurance financing payable  719,313   479,712 
Accrued interest  -   44,579 
Accrued professional fees  117,008   115,000 
Other accrued expenses  43,861   67,508 
Total accrued expenses and other current liabilities$1,149,907$2,832,780

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On April 1, 2015, Ondas Networks entered into a 10% per annum Loan Agreement 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 accrued interest on the April 2015 Note through the original maturity date was $4,000. Subsequent to the original maturity date, the April 2015 Note accrued interest at a rate of 10% per annum. On February 11, 2016, the individuals and Ondas Networks entered into a Loan Amendment to amend the April 2015 Note to (i) extend the maturity date to April 1, 2017 and (ii) clear and waive any existing defaults. On November 30, 2017, the individuals and Ondas Networks entered into a Loan Modification Agreement to further amend the April 2015 Note to (i) transfer all accrued and unpaid interest ($16,511) as of December 31, 2017 to principal, (ii) extend the maturity date to December 31, 2018 and (iii) clear and waive any existing defaults. On December 31, 2018, the entity and Ondas Networks entered into a Note Extension Agreement to further amend the April 2015 Note and to extend the maturity date to March 30, 2019. At December 31, 2018 and December 31, 2017, the outstanding balance of the April 2015 Note was $66,511.

In March 2017, Ondas Networks entered into a loan agreement with an individuals in the amount of $50,000 (the “March 2017 Note”). Accrued interest on the March 2017 Note was $10,000. The March 2017 Note and accrued interest were paid in full during 2017.

Financing Agreement

On November 3, 2016, Ondas Networks entered into a Purchase Order Financing Agreement with an accompanying 20% per annum Promissory Note 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 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. On November 30, 2017, the individual and Ondas Networks entered into a Loan Modification Agreement to amend the November and December 2016 Notes to (i) transfer all accrued and unpaid interest on the November and December 2016 Notes ($47,000 and $5,591, respectively) as of December 31, 2017 to principal, (ii) extend the maturity dates to December 31, 2018, and (iii) clear and waive any existing defaults. On December 31, 2018, the individual and Ondas Networks entered into a Note Extension Agreement to further amend the November and December 2016 Notes and to extend the maturity date to March 30, 2019. At December 31, 2018 and December 31, 2017, the outstanding balance of the November and December 2016 Notes was $297,000 and $105,591, respectively, in both years.

On February 28, 2014, Ondas Networks entered into a Purchase Order Financing Agreement (the “Financing Agreement”) with an entity. 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. At December 31, 2015, the principal outstanding totaled $375,000 and accrued interest totaled $223,393. During 2016, and for the period from January 1, 2017 through November 17, 2017, additional interest was accrued totaling $191,250 and $168,282, respectively. On November 17, 2017, the entity and Ondas Networks entered into an Amendment to Purchase Order Financing Agreement and agreed to (i) transfer all accrued and unpaid interest to principal, (ii) reduce the per annum interest rate to 10%, (iii) set the maturity date at December 31, 2018, and (iv) combine the Purchase Order Financing Agreements into a single loan (“November 2017 Loan”). On December 31, 2018, the entity and Ondas Networks entered into a Note Extension Agreement to further amend the November 2017 Loan and to extend the maturity date to March 30, 2019. As of December 31, 2018 and December 31, 2017, the outstanding principal balance of the November 2017 Loan 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.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2015, pursuant to the terms of Security Purchase Agreements, 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 exercise price of $2.00 and a fair value of $63,398. As of January 1, 2018, the Private Placement Warrants for the 81,250 shares were surrendered to Ondas Networks in exchange for participation in a private placement of Ondas Networks’ shares dated April 13, 2018.

Between February and July 2016, pursuant to the terms of 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, an exercise price of $2.00 and a fair value of $168,678. As of January 1, 2018, the Private Placement Warrants for the 231,250 shares of Ondas Networks of common stock was surrendered to Ondas Networks in exchange for participation in a private placement of Ondas Networks’ shares dated April 13, 2018.

On November 30, 2017, the Private Placement Noteholders and Ondas Networks entered into Loan Modification Agreements to amend the Private Placement Notes to (i) transfer all accrued and unpaid interest ($118,682) as of December 31, 2017 to principal, (ii) extend the maturity date to December 31, 2018 and (iii) clear and waive any existing defaults.

On December 31, 2018, the Private Placement Noteholders and Ondas Networks entered into Note Extension Agreements to further amend the Private Placement Notes and to extend the maturity date to March 30, 2019. At December 31, 2018 and December 31, 2017, the total outstanding balance of the Private Placement Notes was $1,343,682.

Convertible Promissory Notes

During 2017, Ondas Networks and certain entities and individuals (the “Noteholder(s)”) 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”).

Group 1 Notes.Between April 3, 2017 and August 1, 2017, convertible promissory notes in the aggregate amount of $1,865,000 were sold. Terms of the Group 1 Notes include (i) a maturity date based on the payment of the ratio of a Noteholders outstanding balance relative to the total of Group 1 and Group 2 Notes times 6% of gross revenue until 1.5 times the amount of each individual note is paid, (ii) the conversion price which is the lesser of (a) the price per share of common stock sold in a private placement or a public offering, discounted by 20%, or (b) the price per share of common stock based on a pre-money Ondas Networks valuation of $50 million on a fully diluted basis (the “Conversion Price”), (iii) the optional conversion, at any time after the closing of a private placement, wherein the Noteholder may convert the outstanding loan amount into common shares at the Conversion Price, (iv) the mandatory conversion, any time on or after a qualified public offering, wherein Ondas Networks may convert the outstanding loan amount into common shares at the Conversion Price, and (v) upon any conversion, Ondas Networks shall issue to the Noteholder warrants to purchase share of common stock equal to 10% of shares converted exercisable for three years at the Conversion Price.

Group 2 Notes.Between September 2, 2017 and January 8, 2018, convertible promissory notes in the aggregate amount of $1,175,000 were sold. Terms of the Group 2 Notes include (i) a maturity date based on the payment of the ratio of a Noteholders outstanding balance relative to the total of Group 1 and Group 2 Notes times 6% of gross revenue until 1.5 times the amount of each individual note is paid, (ii) the conversion price which is the lesser of (a) the price per share of common stock sold in a private placement or a public offering, discounted by 20%, or (b) the price per share of common stock based on a pre-money Ondas Networks valuation of $50 million on a fully diluted basis (the “Conversion Price”), (iii) the mandatory conversion, any time on or after a qualified public offering, wherein Ondas Networks may convert the outstanding loan amount into common shares at the Conversion Price, and (iv) upon the earlier of a private placement, initial public offering, or fundamental change, Ondas Networks shall issue to the Noteholder warrants to purchase share of common stock with an exercise price of $0.01 and exercisable for three years equal to the principal amount at the Conversion Price.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On July 11, 2018, the Ondas Networks board of directors, by written consent, approved certain changes to 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 Group 2 Note holder 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 Group 1 Note noteholders and all but one Group 2 Note noteholders converted their outstanding Convertible Promissory Notes into an aggregate of 2,017,416 Company Shares. At December 31, 2018 and December 31, 2017, the total outstanding balance of the Convertible Promissory Note(s) was $300,000 and $2,940,000, respectively.

Notes payable and other financing consists of:

  As of December 31, 
  2018  2017 
Short Term:        
Loan Agreements $1,178,670  $1,161,360 
Financing Agreement  1,360,516   1,360,516 
Promissory Notes  1,343,682   1,343,682 
  $3,882,868  $3,865,558 
Long Term:        
Convertible Promissory Notes $300,000  $2,940,000 
Debt Discount     (162,659)
  $300,000  $2,777,341 

NOTE 9 – SECURED PROMISSORY NOTES

NOTE 8 –SECURED PROMISSORY NOTE

Steward Capital Holdings LP

On March 9, 2018, we entered into a Loanloan and Security Agreementsecurity agreement (the “Agreement”) with an entitySteward Capital Holdings LP (the “Lender”“Steward Capital”) wherein the LenderSteward 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 LenderAgreement, 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 ratably 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 LenderAgreement, entered into a second Secured Term Promissory Note for $5,000,000 having a maturity date of SeptemberApril 9, 2019 or 10 days after a public offering2020 (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,charge.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 18, 2019, the Company and Steward Capital entered into a letter of agreement to amend the Agreement (the “First Amendment”) to (i) extend and amend the 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 is alsohave 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 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. As the difference between the effective interest rate method and the straight-line method was deemed immaterial, the Company continued 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 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 and (ii) extend and amend the due date for the 3% fee payable to Steward Capital in connection with the First Amendment and waiver dated June 2019 to be payable on the Maturity Date. In 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 a debt discount and amortized over the life of the 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 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. As the difference between the effective interest rate method and the straight-line method was deemed immaterial, the Company continued to amortize the deferred loan costs using the straight-line method over the remaining term of the Second Note.Loan.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Agreement also containscontained covenants which includeincluded 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 containscontained 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 containscontained 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. We were not in default of any conditions under

On September 4, 2020, the Company and Steward Capital entered into the Second Amendment to the Loan and Security AgreementsAgreement (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, 2018. As of December 31, 2018,2020, the principal balance was $10,000,000,$7,003,568, net of debt discount of $72,038$120,711 and accreted cost totaled $135,246.of $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 other fees, and $65,743 in early payment penalties. The agreement was terminated on July 1, 2021. On December 31, 2021 and 2020, accrued interest was $0 and $44,579, respectively, and was included in accrued expenses and other current liabilities in the balance sheet in the accompanying consolidated financial statements. Interest expense for the years ended December 31, 2021 and 2020 was $426,448 and $1,181,288, respectively.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – LONG-TERM NOTES PAYABLE

Convertible Promissory Notes

On September 14, 2017, the Company and an individual entered into a convertible promissory note with unilateral conversion preferences by the individual (the “Convertible Promissory Note”). On July 11, 2018, the Company’s Board approved certain changes to the Convertible Promissory Note wherein the conversion feature was changed from unilateral to mutual between the individual and the 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, 2021 and 2020, the total outstanding balance of the 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. Accrued interest on December 31, 2021 and 2020 was $40,152 and $36,329, respectively. Interest expense for both years ended December 31, 2021 and 2020 was $15,000.

On September 27, 2019, the holder of the Note was granted a warrant to purchase 46,893 shares of common stock of the Company. The fair value of this warrant was recorded as financing costs in the accompanying consolidated financial statements.

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 Economic Security Act (the “CARES Act”), as administered by the U.S. Small Business Administration (the “SBA”). The loan, in the principal amount of $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 Note and Agreement (the “Note and Agreement”).

The program was later amended by the 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), were to commence after the sixteen-month anniversary of the funding date. The Company 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 material adverse effects. The Company could prepay the principal of the PPP Loan at any time without incurring any prepayment charges.

All or a portion of the PPP Loan could be forgiven by the SBA upon application to the Lender by the Company within 10 months after the last day of the covered 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 interest, which is included in other income on the Company’s accompanying consolidated statements of operations.

NOTE 911 – STOCKHOLDERS’ EQUITY

Common Stock

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


 

Equity Incentive Plan

 

ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preferred Stock

On December 31, 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, 2021 and December 31, 2020, the Company had no preferred stock outstanding.

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

Series A Preferred Stock

On August 14, 2020, the Company filed a Certificate of Designation with the State of Nevada to designate 5,000,000 shares of the Company’s preferred stock as Series A Preferred. Shares of Series A Preferred rank pari passu with the Company’s common stock, except that holders of Series A Preferred shall have certain liquidation preferences as set forth in the Certificate of Designation and the holders of the Series A Preferred are not entitled to vote on any matters presented to the stockholder of the Company. The Certificate of Designation became effective in August 2020.

The Series A Preferred is convertible at a holder’s election any time beginning nine months from the 2020 Closing into shares of the Company’s common stock at an initial conversion price equal to the Purchase Price, subject to certain adjustments described below, so that, initially, each share of Series A Preferred shall be convertible into one (1) share of the Company’s common stock. Also, the Series A Preferred will be automatically converted into the Company’s common stock (a “Mandatory Conversion”), at the then applicable conversion price, in the event of an equity offering of shares of the Company’s common stock resulting in the Company uplisting to a national securities exchange (provided that if the per share offering price in such offering is less than the then applicable conversion price for the Series A Preferred, the Series A Preferred will automatically convert based on the offering price in such offering).

In the event of any stock split, stock dividend, or stock combination, the number of shares deliverable and the conversion price of the Series A Preferred will be appropriately adjusted. In the event a Mandatory Conversion is triggered, if the offering price on the date such Mandatory Conversion is triggered is less than a 25% premium to $6.00, the Company will issue additional shares of the Company’s common stock for each outstanding share of Series A Preferred to ensure the effective conversion price equals a 25% discount to $6.00.

Also, for a period of one year from the date of the Purchase Agreements, if the Company undertakes an underwritten public equity offering, the holders of Series A Preferred will enter into a lock-up agreement with respect to the sale of the Series A Preferred and the Company’s common stock underlying such Series A Preferred as may be reasonably requested by the Company or the Company’s underwriter for such public equity offering.

On August 14, 2020, the Company entered into securities purchase agreements (the “2020 Purchase Agreements”) with certain purchasers (the “2020 Investors”), which provided for the sale of an aggregate of $4,435,000 ($4,483,749 after payment of offering expenses) and the exchange for debt of $265,779 of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred”) at a purchase price of $2.00 per share (the “Purchase Price”) (the “Offering”). On August 14, 2020 and August 27, 2020, pursuant to the 2020 Purchase Agreements, the Company issued an aggregate of 2,350,390 shares of Series A Preferred to the 2020 Investors (collectively the “2020 Closing”). In connection with the 2020 Closing, Eric Brock, the Company’s Chief Executive Officer purchased 157,500 shares of Series A Preferred.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 8, 2020, the Company’s outstanding 2,350,390 shares of Series A Convertible Preferred Stock mandatorily converted into an aggregate of 979,361 shares of Common Stock, which includes an aggregate of 195,881 shares of Common Stock in connection with the 25% premium discussed above. Additionally, the Company issued an aggregate of 15,093 shares of Common Stock in lieu of declaring a dividend on shares of Series A Convertible Preferred Stock. The shares of Common Stock issued in connection with the offering and the conversion were issued in reliance upon the exemption set forth in Section 3(a)(9) of the Securities Act, for securities exchanged by the Company and existing security holders where no commission or other remuneration is paid or given directly or indirectly by the Company for soliciting such exchange, and the shares of Common Stock issued in lieu of declaring a dividend were issued in reliance upon the exemption set forth in Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder in a transaction not involving a public offering.

Reverse Stock Split

On November 3, 2020, the Board of Directors of the Company approved a one-for-three reverse stock split of the Company’s authorized and outstanding common stock, effective November 13, 2020 (the “Reverse Stock Split”).

On November 12, 2020, Company filed a Certificate of Change to the Company’s Articles of Incorporation with the Secretary of State of the State of Nevada to effect the Reverse Stock Split. The Reverse Stock Split became effective at 5:31 p.m., Eastern Time, on November 13, 2020. No fractional shares will be issued as a result of the Reverse Stock Split. Any fractional shares that would result from the Reverse Stock Split will be rounded up to the nearest whole share. Following the Reverse Stock Split, the Company has 116,666,667 shares of Common Stock authorized. On November 16, 2020, the Company’s Common Stock began trading on the OTCQB on a split-adjusted basis under the current trading symbol “ONDS” and the new CUSIP number 68236H 204.

Form S-3

On January 29, 2021, the Company filed a shelf Registration Statement on Form S-3 for up to $150,000,000 with the SEC (the “Form S-3”) for shares of its Common Stock; shares of its preferred stock, which the Company may issue in one or more series or classes; debt securities, which the company may issue in one or more series; warrants to purchase its Common Stock, preferred stock or debt securities; and units. The Form S-3 was declared effective by the SEC on February 5, 2021.

2021 Public Offering

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

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

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


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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 

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

2020 Public Offering

On October 26, 2020, the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission (the “Form S-1”) for a public offering of its common stock, which was declared effective by the SEC on December 3, 2020.

On December 3, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with the Underwriters, relating to the Company’s public offering (the ”2020 Public Offering”) of 5,000,000 shares (the “2020 Firm Shares”) of the Company’s Common Stock, par value $0.0001 per share. Pursuant to the 2020 Underwriting Agreement, the Company also granted the Underwriters a 30-day option to purchase up to an additional 750,000 shares of Common Stock (the “2020 Option Shares,” and together with the 2020 Firm Shares, the “2020 Shares”) to cover over-allotments.

The Underwriters agreed to purchase the 2020 Firm Shares from the Company with the option to purchase the 2020 Option Shares at a price of $5.58 per share. The 2020 Shares were offered, issued, and sold pursuant to the Form S-1 and accompanying prospectus filed with the SEC under the Securities Act.

On December 8, 2020, the Company issued the 2020 Firm Shares and closed the 2020 Public Offering at a public price of $6.00 per share for net proceeds to the Company of approximately $26,762,000 after deducting the underwriting discount and offering fees and expenses payable by the Company. In connection with the 2020 Public Offering, on December 4, 2020, the Common Stock uplisted from the OTCQB and began trading on The NASDAQ Capital Market under the symbol “ONDS”.

The 2020 Underwriting Agreement includes 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 2020 Underwriting Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the agreement and were subject to limitations agreed upon by the contracting parties.

On December 16, 2020, the Underwriters exercised in full and closed on their over-allotment option to purchase an additional 750,000 shares of Common Stock from the Company. In connection with the over-allotment option, the Company received approximately $4,200,000 in additional net proceeds.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below details the net proceeds of the 2020 Public Offering.

Gross Proceeds:   
Initial Closing $30,000,000 
Over-allotment Closing  4,500,000 
   34,500,000 
Offering Costs:    
Underwriting discounts and commissions  (2,415,000)
Other offering costs  (831,003)
Net Proceeds $31,253,997 

The Company used the net proceeds of the 2020 Public Offering for working capital and general corporate purposes, which included further technology development, increased spending on marketing and advertising and capital expenditures necessary to grow the Ondas Holdings business.

Stock Issued for Debt Extension

On September 9, 2020, the Company issued 120,000 shares of its common stock to Steward Capital in conjunction with an amendment to loan and security agreement (See NOTE 9 for further details).

Warrants to Purchase Common Stock

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

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrants. Estimated volatility is a measure of the amount by which our boardstock price is expected to fluctuate each year during the expected life of directors approved,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.

Warrants Granted During 2021

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

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

Warrants Granted During 2020

As of December 31, 2020, we had Warrants outstanding to purchase an aggregate of 1,879,803 shares of Common Stock with a weighted-average contractual remaining life of approximately 2.2 years, and exercise prices ranging from $0.03 to $9.75 per share, resulting in a weighted average exercise price of $9.16 per share.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 6, 2020, the Company’s Board granted (i) an aggregate of 47,917 Warrants with an exercise price of $7.50 per share and a grant date fair value of $1.00 per share, and (ii) an aggregate of 9,793 Warrants with an exercise price of $6.39 per share and a grant date fair value of $1.71 per share.

On May 6, 2020, the Company also granted an aggregate of 231,543 Warrants with an exercise price of $7.50 per share and a grant date fair value ranging from $1.40 to $2.37 per share to certain former employees in exchange for 231,543 stock options to purchase Common Stock of the Company. The Company did not recognize any incremental compensation as a result of the exchange.

The 289,253 warrants above, were granted to certain individuals for prior service to the Company. The Warrants are fully vested and have a term of five years. The Warrants were granted, and the shares of Common Stock underlying the Warrants will be issued in reliance on the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933. The assumptions used in the Black-Scholes Model are set forth in the table below.

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

  2021  2020 
Stock price $7.78  $6.00 
Risk-free interest rate  1.23%  0.24%
Volatility  46.91%  45.17%
Expected life in years  10   3 
Dividend yield  0.00%  0.00%

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 $1,361,149, all of which was received by the Company as of December 31, 2021. No warrant holders exercised their rights during the year ended December 31, 2020.

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 December 31, 2020  1,879,803  $9.16   2.2 
Issued  1,565,656  $7.89   4.5 
Exercised  (139,605) $9.75     
Expired  -   -     
Canceled  -   -     
Balance on December 31, 2021  3,305,854  $8.53   5.2 

Equity Incentive Plan

In 2018, our stockholders adopted the 2018 Equity Incentive Plan (the “2018 Plan”) pursuant to which 10 million Company Shares have3,333,334 shares of our Common Stock has been reserved for issuance to employees, including officers, directors and consultants. No equityThe 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 instruments were outstanding at December 31, 2018.stock options, or non-statutory options, stock awards or restricted stock purchase offers (“Equity Awards”).


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

 

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

As of December 31, 2021, we had Stock Options outstanding to purchase an aggregate of 856,198 shares of Common Stock with a weighted-average contractual remaining life of approximately 8.76 years, and exercise prices ranging from $1.37 to $12.92 per share, resulting in a weighted average exercise price of $6.72 per share.

As of December 31, 2020, we had Stock Options outstanding to purchase an aggregate of 568,006 shares of Common Stock with a weighted-average contractual remaining life of approximately 9.45 years, and exercise prices ranging from $6.39 to $12.72 per share, resulting in a weighted average exercise price of $7.39 per share.

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

  2021  2020 
Stock price  $7.50-$12.92   $6.00-$12.72 
Risk-free interest rate  0.35-0.87%   0.37-1.56% 
Volatility  45.53-53.99%   42.03-52.67% 
Expected life in years  3-5.89   3-10 
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 December 31, 2019  225,001  $9.75   4.7 
Granted  596,216  $7.36     
Expired  (16,876)        
Terminated  (4,792)        
Canceled  (231,543)        
Balance on December 31, 2020  568,006  $7.39   9.4 
Granted  336,038  $4.91     
Exercised  (47,846)        
Expired  (168,750)        
Terminated  -         
Canceled  -         
Balance on December 31, 2021  687,448  $6.79   8.2 
Vested and Exercisable at December 31, 2021536,078$7.957.9

As of December 31, 2021, total unrecognized compensation expense related to non-vested Options was $864,679 which is expected to be recognized over a weighted-average period of 3.9 years.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units

On November 5, 2021, the Compensation Committee approved the grants of 6,362 RSUs for each of Ondas’ directors (Messrs. Cohen, Reisfield, Silverman, Seidl, Bushey and Sood). Each restricted stock unit represents a contingent right to receive one share of common stock of the Company. These RSUs vest in four 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.

On August 5, 2021, the Company entered into employment agreements and awarded 1,375,000 restricted stock units pursuant to the 2018 Plan to key members of American Robotics’ management. Each restricted stock unit represents a contingent right to receive one share of common stock of the Company. The restricted stock units vest in three successive equal annual installments with the first vesting date commencing on the first anniversary of the award date and are contingent on continuing employment. The compensation expense recognized in 2021 in respect of these restricted stock units was $1,452,385, and as of December 31, 2021 the unrecognized compensation expense was $9,245,115.

On January 25, 2021, the Compensation Committee approved the following grants: (a) for Messrs. Cohen, Reisfield and Silverman (i) 5,000 restricted stock units pursuant to the 2018 Plan, and (b) for Mr. Seidl and Ms. Sood (i) 5,000 restricted stock units pursuant to the 2018 Plan, and (ii) 10,000 restricted stock units pursuant to the 2018 Plan. Each restricted stock unit represents a contingent right to receive one share of common stock of the Company. The 5,000 restricted stock units granted to each of Messrs. Cohen, Reisfield, Silverman and Seidl and Ms. Sood vest in four 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. The 10,000 restricted stock units granted to Mr. Seidl and Ms. Sood vest in 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. All restricted stock units granted to these directors shall vest in full immediately upon a change in control. The company recognized stock-based compensation of $445,200 for the year ended December 31, 2021. As of December 31, 2021, the unrecognized compensation expense was $127,200.

On June 3, 2020, the Company entered into an agreement wherein restricted stock units (“RSU(s)”) for the issuance of 1,000,000 shares of the Company’s Common Stock, with deferred distribution, was granted and issued to Thomas V. Bushey, the Company’s President, pursuant to the 2018 Plan. Stock-based compensation expense for the year ended December 31, 2020 was $3,150,000. Non-vested RSUs as of December 31, 2020 totalled 625,0000 shares. The weighted average grant-date fair value for the RSU is $8.40. The weighted average vesting period of the RSU is 2.0 years. As of December 31, 2020, unrecognized compensation expense related to the unvested portion of the RSU was $5,250,000, which was expected to be recognized over a weighted average period of 1.25 years. On January 19, 2021, Thomas V. Bushey resigned as the Company’s President. Effective January 19, 2021, (i) Mr. Bushey received 500,000 RSUs (375,000 RSUs vested as of December 31, 2020 and 125,000 RSUs on which the Compensation Committee accelerated vesting), which RSUs will be issued on June 3, 2022 pursuant to Mr. Bushey’s deferral election, and (ii) 500,000 RSUs were cancelled. The company recognized stock-based compensation of $1,050,000 and $3,150,000 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was no unrecognized compensation expense related to these RSU’s.

During 2018, the Company entered into an agreement wherein RSUs for the issuance of 126,160 shares of the Company’s Common Stock (the “2018 RSUs”), with deferred distribution, was promised to a consultant pursuant to the 2018 Plan (the “RSU Agreement”). On September 21, 2020, the Company executed the RSU Agreement with the consultant. The 2018 RSUs vested upon the issuance of the RSU Agreement, however, the underlying shares of the Company’s Common Stock were not to be issued and delivered to the consultant until December 1, 2021, at the request of the consultant. Shares were issued and delivered to the Consultant in December 2021. Stock-based compensation expense for the years ended December 31, 2021 and 2020 was $0 and $30,357, respectively. The grant-date fair value for the RSU is $0.64 per share. The vesting period of the RSU was 2.0 years. As of December 31, 2021, there was no unrecognized compensation expense related to these RSU’s.

The Company recognizes RSU 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.


ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 American Robotics as the CODM reviews financial information for these two businesses separately The Company has no inter-segment sales.  Our segment structure presented below represents a change from the prior year for the inclusion of our American Robotics segment, which the Company acquired on August 5, 2021. The following table presents segment information for years ended December 31, 2021 and 2020:

  Year Ended  Year Ended 
  December 31, 2021  December 31, 2020 
  Ondas
Networks
  American
Robotics
  Total  Ondas
Networks
  American
Robotics
  Total 
Revenue, net $2,840,154  $66,617  $2,906,771  $2,163,719  $       -  $2,163,719 
Depreciation and amortization  126,728   1,385,866   1,512,594   117,599   -   117,599 
Interest income  10,399   1,179   11,578   251   -   251 
Interest expense  574,889   796   575,685   1,936,847   -   1,936,847 
Stock based compensation  1,642,507   1,611,083   3,253,590   4,676,362   -   4,676,362 
Benefit from income taxes  -   2,921,982   2,921,982   -   -   - 
Net loss  (7,888,588)  (7,135,254)  (15,023,842)  (13,477,880)  -   (13,477,880)
Goodwill  -   45,026,583   45,026,583   -   -   - 
Capital expenditures  123,854   799,864   923,718   8,598   -   8,598 
Total assets  45,226,925   

72,211,650

   

117,438,575

   28,511,769   -   28,511,769 

NOTE 13 – INCOME TAXES

The provision (benefit) from income taxes was as follows:

  December 31, 
  2021  2020 
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:

  December 31, 
  2021  2020 
Deferred Tax Assets:      
Tax benefit of net operating loss carry-forward $17,577,952  $14,064,563 
Accrued liabilities  69,525   327,749 
Stock based compensation  1,630,004   1,252,855 
Deferred Rent  159,558   15,778 
R&D Credit  1,046,841   1,054,989 
Total deferred tax assets  20,483,880   16,715,934 
         
Deferred Tax Liabilities:        
Depreciation  (12,706)  (36,897)
Amortization  (5,331)  (9,670)
Intangibles  (5,743,441)  - 
Deferred Rent  (193,482)  (14,344)
Total deferred tax liabilities  (5,954,960)  (60,911)
Total net deferred tax assets  14,528,920   16,655,023 
Valuation allowance for deferred tax assets  (14,528,920)  (16,655,023)
Deferred tax assets, net of valuation allowance $-  $- 


 

  December 31, 
  2018  2017 
Deferred Tax Assets:        
Tax benefit of net operating loss carry-forward $6,465,826  $4,006,517 
Depreciation and amortization  (5,102)  (8,332)
Accrued liabilities  261,876   220,681 
Stock based compensation     507,545 
Interest Expense  740,285    
R&D Credit  393,165    
Total deferred tax assets  7,856,050   4,726,411 
Valuation allowance for deferred tax assets  (7,856,050)  (4,726,411)
Deferred tax assets, net of valuation allowance $  $ 

ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The change in the Company’s valuation allowance is as follows:

  Years Ended December 31, 
  2018  2017 
       
Beginning of the year $4,726,411  $3,848,878 
Change in valuation account  3,129,639   877,533 
End of the year $7,856,050  $4,726,411 

ONDAS HOLDINGS INC.

  Years Ended
December 31,
 
  2021  2020 
       
Beginning of the year $16,655,023  $13,102,327 
Change in valuation account  (2,126,103)  3,552,696 
End of the year $14,528,920  $16,655,023 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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  2017 
       
U.S. federal statutory rate  (21.0)%  (35.0)%
State taxes, net of federal benefit  (6.9)%  (5.8)%
Share-based compensation  %  17.5%
Effect of U.S. tax law change  %  (13.2)%
Change in valuation allowance  25.8%  30.2%
         
Nondeductible expenses  2.0%  6.3%
R&D credit  (3.2)%  %
Stock Options  3.3%  %
Effective income tax rate  %  %

  Years Ended
December 31,
 
  2021  2020 
U.S. federal statutory rate  (21.0)%  (21.0)%
Federal True Ups  0.5%  1.8%
State taxes, net of federal benefit  14.01%  (6.2)%
Change in valuation allowance  (11,85)%  26.4%
Nondeductible Expenses  2.01%  0.5%
R&D Credit  0.05%  (1.5)%
Effective income tax rate  (16.28)%  0.0%

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, 2021 change in valuation allowance is mainly related to the acquisition of ARI.

 

As of December 31, 20182021 and 2017,2020, the Company had approximately $23$79 million and $15$51 million, respectively, of Federal NOLs available to offset future taxable income. The acquisition of ARI resulted in the addition of Federal NOLs of $15 million. The Federal NOLs of $15 million generated in 2007 through 2017 will begin to expire in 2027 through 2037. The Federal NOLs of $64 million generated in 2018 through 2021 have no expiration. As of December 31, 2021 and state2020, the Company had approximately $70 million and $49 million, respectively, of State NOLs available to offset future taxable income with $15 million expiring from 20302028 through 2037 while2041. The acquisition of ARI resulted in the Federal NOLaddition of $8 Million generated in 2018 has no expiration.Massachusetts NOLs of $15 million. As of December 31, 20182021 and 2017,2020, the Company had approximately $393,000$1,047,000 and $295,000,$1,055,000, respectively of Federal research and development credits available to offset future tax liability expiring from 20302034 through 2038. 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, 20182021, 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, 2018,2021, 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.


 

Our U.S. federal and state tax returns since 2015 remain open to examination.


ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 22, 2017,March 27, 2020, H.R. 748, the U.S. Tax CutsCoronavirus Aid, Relief, and JobsEconomic Security Act, (“Tax Cuts“the CARES ACT” was signed into legislation which includes tax provisions relevant to businesses that will impact taxes related to 2018, 2019, and Jobs Act”) was enacted which contained substantial2020. Some of the significant tax law changes are to increase the Code, some of which could have an adverse effectlimitation 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 netdeductible business interest expense to no more than 30% of our “adjusted taxable income,” plus 100% of our business interest incomefor 2019 and 2020, allow for the year, and (iii) will permit a taxpayer to offset only 80% (rather than 100%)five-year carryback of its taxable income with any U.S. net operating losses (“NOLs”) generated for 2018-2020, suspend the 80% limitation of taxable years beginning after 2017.income for net operating loss carryforwards for 2018-2020, provide for the acceleration of depreciation expense from 2018 and forward on qualified improvement property, and accelerate the ability to claim refunds of AMT credit carryforwards. The U.S. Department of Treasury has broad authorityCompany is required to issue regulations and interpretative guidance that may significantly impact how we will applyrecognize the law and impact our results of operationseffect on the consolidated financial statements 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.was enacted.

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, 2018.2021.

On July 23, 2021, Robert Wilhelm (“Wilhelm Plaintiff”), filed a Complaint for Violations of the Federal Securities Laws against the Company and its Board of Directors: Eric A. Brock, Stewart W. Kantor, Thomas V. Bushey, Richard M. Cohen, Derek Reisfield, Randall P. Seidl, Richard H. Silverman, and Jaspreet Sood (together with the Company, the “Defendants”). Wilhelm Plaintiff alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), and U.S. Securities and Exchange Commission (“SEC”) Rule 14a-9, 17 C.F.R. § 240.14a-9, in connection with a then proposed transaction whereby Ondas will acquire American Robotics (the “Proposed Transaction”).

The Complaint seeks preliminary and permanent relief, including injunctive relief, to enjoin Defendants, and all persons acting in concert with them, from proceeding with, consummating, or closing the Proposed Transaction and any vote on the Proposed Transaction, unless and until additional disclosures are made to the Company’s shareholders. Wilhelm Plaintiff also seeks rescission and rescissory damages if the Proposed Transaction closes, attorneys’ fees, and costs, as well as a declaration that Defendants violated Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder.

Defendants were never served with the Complaint. The shareholder vote on the Proposed Transaction took place on August 5, 2021, and the Proposed Transaction was approved by the Company’s shareholders. The Proposed Transaction closed on the same date. The case was dismissed as of October 8, 2021.

Also, on July 23, 2021, Sam Carlisle (“Carlisle Plaintiff”), filed a Complaint for Violations of the Federal Securities Laws against the Defendants. Carlisle Plaintiff alleges violations of Sections 14(a) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78n(a), 78t(a), and SEC Rule 14a-9, 17 C.F.R. § 240.14a-9, in connection with the Proposed Transaction.

The Complaint seeks preliminary and permanent relief, including injunctive relief, to enjoin Defendants, and all persons acting in concert with them, from proceeding with, consummating, or closing the Proposed Transaction and any vote on the Proposed Transaction, unless and until Defendants disclose and disseminate additional disclosures to Company shareholders. Carlisle Plaintiff also seeks rescission and rescissory damages if the Proposed Transaction closes, attorneys’ fees, and costs, as well as a declaration that Defendants violated Sections 14(a) and 20(a) of the Exchange Act, and Rule 14a-9 promulgated thereunder.


 

Operating Leases

ONDAS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Defendants were never served with the Complaint. The shareholder vote on the Proposed Transaction took place on August 5, 2021, and the Proposed Transaction was approved by the Company’s shareholders. The Proposed Transaction closed on the same date. This case was dismissed on October 8, 2021.

On July 27, 2021, Binyamin Ostrov (“Ostrov Plaintiff”), filed a Complaint for Violations of the Federal Securities Laws against the Defendants. Ostrov Plaintiff alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78n(a), 78t(a), and SEC Rule 14a-9, 17 C.F.R. § 240.14a-9, in connection with the Proposed Transaction.

On November 11, 2013, Ondas Networks entered into

The Complaint seeks preliminary and permanent relief to enjoin Defendants, and all persons acting in concert with them, from proceeding with, consummating, or closing the Proposed Transaction and any vote on the Proposed Transaction, unless and until Defendants disclose and disseminate additional disclosures to Company shareholders. Ostrov Plaintiff also seeks rescission and rescissory damages if the Proposed Transaction closes, attorneys’ fees, and costs, as well as a three-year lease agreement for 5,858 square feetdeclaration that Defendants violated Sections 14(a) and 20(a) of office space at 687 North Pastoria Avenue, Sunnyvale, California expiringthe Exchange Act, and Rule 14a-9 promulgated thereunder.

Defendants were never served with the Complaint. The shareholder vote on the Proposed Transaction took place on August 5, 2021, and the Proposed Transaction was approved by the Company’s shareholders. The Proposed Transaction closed on the same date. This case was dismissed 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, 2018 and 2017 related to the North Pastoria Lease was $170,151 and $110,201, respectively. The base rent in the 2018 Extension is $13,473 and $15,231 for 2019 and 2020, respectively. We have completed our move to our new location described below and are attempting to sublet the property for the remainder of the lease agreement.14, 2021.

Operating Leases

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 November andyears ended December 31, 2018 related2021 and 2020 was $80,627 and $312,301, 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 Gibraltar Sublease was $52,050.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.

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.

On October 8, 2021, American Robotics entered into an 86-month operating lease for space in Waltham, Massachusetts. 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.


 

The future minimum lease payments related to the Gibraltar Sublease are as follows:

Years Ending 
December 31,
    
2019  $328,631 
2020  $342,924 
2021  $57,154 

ONDAS HOLDINGS INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On June 15, 2018, effective June 1, 2018, Ondas Networks entered into a five-year lease agreement for approximately 15,200 square feet of office space in Sichuan Province, China expiring on May 31, 2023 with a base rent ranging from, in U.S. dollars, approximately $9,200 to $9,700 (the “Sichuan Lease”). Under the terms of the Sichuan Lease, the first three months are rent free and, we paid $28,000 in advance for the second three months at the time of the execution. Ondas Networks also made a deposit payment of $15,000. The base rent is approximately $9,200 for the period from June 1, 2018 through April 30, 2020 and approximately $9,700 for the period from May 1, 2020 through May 31, 2023. In addition to the base rent, we will pay a management fee of approximately $1,800 per month. Rent expense for the June through December 31, 2018 related to the Sichuan Lease was $55,334.

The future minimum lease payments (allowing for exchange rates) are approximately as follows:

Years Ending 
December 31,
    
2019  $110,849 
2020  $114,544 
2021  $116,392 
2022  $116,392 
2023  $48,497 

NOTE 1215 – RELATED PARTY TRANSACTIONS

From time to time,On August 14, 2020, Eric Brock, the Ondas Networks’Company’s Chief Executive Officer, entered into a Securities Purchase Agreement with other subscribers in which he purchased 52,500 shares of Series A Preferred Convertible Preferred Stock (“Series A Preferred”) at a purchase price of $6.00 per share. On December 8, 2020, along with all other holders of Series A Preferred Mr. Brock converted his 52,500 shares of Series A Preferred into 66,676 shares of Common Stock of the Company, which includes an aggregate of 13,084 shares of Common Stock in connection with a 25% premium and an aggregate of 842 shares of Common Stock in lieu of declaring a dividend on shares of Series A Convertible Preferred Stock.

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, advanced funds toPresident of Ondas Networks, to fund its operations.waived accrued payroll amounts in the amount of $8,334. As of December 31, 20182020, 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, 2017, advances due2020, we accrued $115,385 for salary owed to Thomas V. Bushey, then President of the Company. On January 19, 2021, Mr. Kantor were $0 and $155,645, respectively. These advances are reported on our balance sheet as advance from related party.

AtBushey waived the Closing, we entered into a Loan and Security Agreement with Energy Capital, a greater than 10% stockholder the Company, pursuant to which Energy Capital agreed to lend an aggregate principal amount of up to $10 million, subject to specified conditions. SeeNOTE 14 for details of transaction under this agreement.

NOTE 13 – RESTATEMENT

In connection with the year-end financial statement closing process, the Company determined that its previously issued financial statements included in its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018 (“Restated Period”) should be restated due to an error in recording the conversion of debt on September 28, 2018 and the omission of recognizing a modification of debt on July 11, 2018. With the modification on July 11, 2018, the Company should have recorded a loss on extinguishment of debtaccrued payroll amounts in the amount of $44,348$115,385. Pursuant to the terms of a Separation Agreement and reclassifiedGeneral Release (the “Separation Agreement”) dated January 19, 2021 (the “Effective Date”), between Mr. Bushey and the derivative liability at its fair valueCompany, Mr. Bushey agreed to waive his entitlement to accrued salary in the amount of $1,141,995 to additional paid$125,256 and accrued vacation in capital (see NOTE 7 for details). On September 28, 2018, the debt conversion was originally recordedamount of $9,846 as a gain of $3,976,992, however it should have been recorded in common stock and additional paid in capital as a result of the July 11, 2018 debt modification.

ImpactEffective Date. At the time of this Restatement

BasedMr. 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 management’s reviewJune 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 discussions with our external auditors,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 at the direction of the Company’s has concluded that the misclassification includedChief Executive Officer. The Consulting Agreement terminated on its financial statements filed in our Quarterly Report on Form 10-QJuly 19, 2021. Mr. Bushey was paid $7,500 per month for the three and nine months ended September 30, 2018 (“Q3 10-Q”) requires restatement, included herewith.these services.


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheet 

(Unaudited) 

       
  September 30, 2018 
  As Previously Reported  As Restated  Restatement 
Total assets $1,206,063  $1,206,063  $ 
             
Total liabilities $11,101,777  $11,101,777  $ 
             
Stockholders’ Deficit:            
Preferred stock         
Common stock $5,046   5,046    
Additional paid in capital  14,334,570   17,616,073   (3,281,503)
Subscriptions receivable  (1,958)  (1,958)   
Accumulated deficit  (24,233,372)  (27,514,875)  3,281,503 
Total stockholders’ deficit  (9,895,714)  (9,895,714)   
Total liabilities and stockholders’ deficit $1,206,063  $1,206,063  $ 

Condensed Consolidated Statement of Operations 

(Unaudited) 

 
  

Three Months Ended 

September 30, 2018 

 
  As Previously Reported  As Restated  Restatement 
Gross profit $28,749  $28,749  $ 
             
Operating loss $(2,072,459) $(2,072,459) $ 
             
Other income (expense)            
Interest expense  (2,381,602)  (1,618,834)  (762,768)
Change in fair value of derivative liability  22,931      22,931 
Gain (loss) on conversion of debt  3,976,992   (44,348)  4,021,340 
Interest income  6,606   6,606    
Total other income (expense)  1,624,927   (1,656,576)  3,281,503 
Net loss $(447,532) $(3,729,035) $3,281,503 
Net loss per share – basic and diluted $(0.02) $(0.16) $(0.14)


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Operations

(Unaudited)  

  

Nine Months Ended

September 30, 2018 

 
  As Previously Reported  As Restated  Restatement 
Gross profit $83,180  $83,180  $ 
             
Operating loss $(3,953,657) $(3,953,657) $ 
             
Other income (expense)            
Interest expense  (2,932,674)  (2,169,906)  (762,768)
Change in fair value of derivative liability  (952,971)  (975,902)  22,931 
Gain (loss) on conversion of debt  3,976,992   (44,348)  4,021,340 
Interest income  13,416   13,416    
Total other income (expense)  104,763   (3,176,740)  3,281,503 
Net loss $(3,848,894) $(7,130,397) $3,281,503 
Net loss per share – basic and diluted $(0.18) $(0.34) $(0.16)


ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Statement of Cash Flows

(Unaudited)

  

Nine Months Ended 

September 30, 2018

 
  As Previously Reported  As Restated  Restatement 

CASH FLOWS FROM OPERATING ACTIVITIES 

            
Net loss $(3,848,894) $(7,130,397) $3,281,503 
Adjustments to reconcile net lost to net cash flows used in operating activities:            
Depreciation  15,405   15,405    
Allowance for doubtful accounts  (7,914)  (7,914)   
Amortization of debt discount and deferred financing costs  907,891   145,123   762,768 
Amortization of intangible assets  77   77    
Change in fair value of derivative liability  952,971   975,902   (22,931)
Loss (gain) on conversion  (3,976,992)  44,348   (4,021,340)
Changes in operating assets and liabilities:            
Accounts receivable  1,929   1,929    
Inventory  (137,725)  (137,725)   
Other current assets  (110,113)  (110,113)   
Accounts payable  45,355   45,355    
Accrued expenses and other current liabilities  1,515,384   1,515,384    
Net cash flows used in operating activities  (4,642,626)  (4,642,626)   
             

CASH FLOWS FROM INVESTING ACTIVITIES

            
Net cash flows used in investing activities  (185,780)  (185,780)   
             

CASH FLOWS FROM FINANCING ACTIVITIES 

            
Net cash flows provided by financing activities  4,884,593   4,884,593    
             
Increase in cash and cash equivalents  56,187   56,187    
Cash and cash equivalents, beginning of period  460,064   460,064    
Cash and cash equivalents, end of period $516,251  $516,251  $ 

ONDAS HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1416 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events as of March 22, 2022, the date the consolidated financial statements were available to be issued according to the requirements of ASC topic 855.

Ardenna Acquisition

On January 29, February 11, February 27,March 20, 2022, the Company entered into a Purchase Agreement to acquire the assets of Ardenna, Inc., a leading provider of image processing and machine learning software solutions for rail infrastructure monitoring and inspections. The consideration for the acquisition is $900,000 in cash and 780,000 shares of the Company’s common stock (the “Ardenna Consideration Shares”). This acquisition is subject to customary closing conditions and is expected to close in the second quarter of 2022. In connection with the acquisition, the parties have entered into a Registration Rights and Lock-Up Agreement, which requires the Company to file a resale registration statement covering the resale of the Ardenna Consideration Shares no later than nintey (90) days after the closing date and restricts the holder from transferring the Ardenna Consideration Shares for 180 days from the closing date, subject to certain exceptions.

ATM Offering

On March 14, 2019, we drew down advances of $1,000,000, $650,000, $750,000 and $900,000, respectively, available under a loan and security agreement22, 2022, the Company, entered into an Equity Distribution Agreement (the “Loan and Security“ATM Agreement”) with Energy Capital entered intoOppenheimer & Co. Inc. (the "Sales Agent"). Pursuant to the terms of the ATM Agreement, the Company may offer and sell (the “ATM Offering”) from time to time through the Sales Agent, as the Company’s sales agent, up to $50 million of shares of the Company’s common stock, par value $0.0001 per share (the “ATM Shares”). Sales of the ATM Shares, if any, may be made in sales deemed to be “at the market offerings” as defined in Rule 415 promulgated under the Securities Act. The Sales Agent is not required to sell any specific number or dollar amount of ATM Shares, but will act as a sales agent using commercially reasonable efforts consistent with its normal trading and sales practices and applicable state and federal laws, rules, and regulations and the rules of the Nasdaq Stock Market, on October 1, 2018 (the “Loan Agreement”)mutually agreed terms between the Sales Agent and the Company. The Sales Agent will receive from the Company a commission of 3.0% of the gross proceeds from the sales of ATM Shares by the Company and Energy Capital (the “Loan”). The advanceSales Agent pursuant to the terms of the Agreement. Net proceeds from the sale of the ATM Shares will be utilized primarilyused for operating capital. general corporate purposes.

The principal amount outstanding under the Loan bears interest ata per annum rate equaloffering of ATM Shares pursuant to the greaterATM Agreement will terminate upon the earliest of (a) 11.25% or (b) 11.25% plus(i) the Prime Rate (as published bysale of all ATM Shares subject to the Wall Street Journal (National Edition)), less 3.25%. The LoanATM Agreement, contains customary events of default and affirmative and negative covenants for transactions of this nature. Upon an event of default, Energy Capital has(ii) the right to require the Company to prepay the outstanding principal amounttermination of the Loan plus all accrued and unpaid interest. All amounts outstanding under the Loan are secured by a lien onATM Agreement pursuant to its terms.

The ATM Shares will be issued pursuant to the Company’s assets, subject to terms of outstanding debt obligations,shelf registration statement (the “Registration Statement”) on Form S-3 (File No. 333-252571) filed on January 29, 2021, which became effective on February 5, 2021, 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.prospectus supplement thereto dated March 22, 2022.


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, 2021. 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, 2021, due to existence of the material weakness in the Company’s internal control over financial reporting described below, the Company’s disclosure controls and procedures were not effective.

Management’s Annual Report on Internal Control over 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 of directors,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, and includes policies and procedures that:GAAP.

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

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 duringin this evaluation and set forth below, our senior management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2018. As of December 31, 2018, the deficiencies in internal control over financial reporting identified were the following: we have limited accounting staff and our Chief Executive Officer and Chief Financial Officer were responsible for initiating transactions, had custody of assets, recorded and reconciled transactions, and prepared our quarterly financial reports without the sufficient segregation of conflicting duties normally required for effective internal control.described below.

 


A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is 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 the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on its evaluation of internal control over financial reporting, management has determined that the control deficiencies identified should be considered a material weakness in our internal control over financial reporting.

As set forth below, management will take steps to remediate the control deficienciesdeficiency identified above.below. Notwithstanding the control deficienciesdeficiency described above,below, we have performed additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this 2018 Form 10-K fairly present, in all material respects, our financial condition and results of operations as of and for the year ended December 31, 2018.2021.

 

Management’s Remediation PlanAs permitted by the Securities and Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition and management elected to exclude American Robotics from its assessment of internal control over financial reporting as of December 31, 2021. See Note 5 of the Notes to Consolidated Financial Statements for additional information. The aggregate assets and net revenue of the excluded acquisition constituted 61% and 2% of the Company's consolidated total assets and net revenue as of and for the year ended December 31, 2021, respectively.

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. As of December 31, 2021, management identified the datematerial weakness described below:

Inadequate review of this 2018 Form 10-K, we have not been able to remediatestock- based compensation issued in connection with the control deficiencies identified above. To remediate such control deficiencies, weacquisition of American Robotics

The Company has initiated a remediation plan to implementthat includes the following change in the next fiscal year as resources allow:following:

 

Appoint additional qualified personnelImplementation of a third-party equity management software to address inadequate segregation of duties and implement modificationscalculate stock compensation expense relating to our financial controls to address such inadequacies; andall equity awards

Adopt sufficient written policiesRestructuring working papers and procedures for accounting and financial reporting.the review process to ensure that stock compensation expense is correctly calculated.


 

While

Remediation of Material Weakness identified as of and for the year ended December 31, 2020.

The Company’s senior management and our Audit Committee are closely monitoring the implementation of these remediation plans, there is no assurancehas concluded that the aforementioned plans will be sufficientfollowing material weakness identified as of and for the year ended December 31, 2020 has been remediated as detailed below:

Lack of Segregation of Duties and Accounting Resources

Due to fully remediateour limited accounting staff, the deficiencies identified aboveCompany’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 additionalthe 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.

Commencing in the latter part of 2020, management began implementing the remediation steps may be necessary.plan outlined below:

 

Management engaged an outside accounting consulting firm working under the direct supervision of the CFO that implemented the following changes:

Enhanced the overall monitoring and accounting oversight within the Company specifically to review all account reconciliations prepared by company personnel and to prepare financial statements.

Provided subject matter experts to aid in identifying and applying US GAAP rules related to complex financial instruments as well as to enhance the financial reporting function.

Recommended and designed additional internal controls and policies to ensure that we routinely review and document our application of established significant accounting policies. These controls and policies were implemented by company personnel.

Implemented additional systems and technologies to enhance the timeliness and reliability of financial data within the organization.

Reported back to management on the effectiveness of the newly implemented processes.

Changes in Internal Controlinternal control over financial reporting

 

ThereOther than the matters 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 monthsquarter ended December 31, 20182021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and is accumulated and communicated to our management, as appropriate, in order to allow timely decisions in connection with required disclosure.

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2018.Based upon that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2018 because of the control deficiencies in our internal control over financial reporting discussed in Management’s Report on Internal Control over Financial Reporting, presented above.

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.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.


 

None.

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

48

51

Chairman and Chief Executive Officer

Stewart KantorDerek Reisfield5659Director, President, Chief Financial Officer, Treasurer and Secretary
Thomas V. Bushey42Director
Richard M. Cohen6871Director
Randall P. Seidl58Director
Richard H. Silverman7982Director
Derek ReisfieldJaspreet Sood5648Director

Family Relationships

There are no family relationships between our executive officers and members of our Board of Directors.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 of Directors and resigned from the positions of Chief Financial Officer, Secretary and Treasurer. Mr. Brock also serves as Chairman of the Board of Directors 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 of directorsBoard believes that Mr. Brock’s experience in the public markets qualifymakes him well qualified to serve as a director ofon our company.Board.


Stewart Kantor –Derek Reisfield - Director, President, Chief Financial Officer, Treasurer and Secretary

Mr. KantorDerek Reisfield 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. 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. Kantor brings 27 yearsReisfield 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.


Non-Management Directors

Thomas V. Bushey - Director

Mr. 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 product development, marketingChief 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 2015, 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 financeas a hedge fund analyst at AT&T Wireless, BellSouth International and Nokia Siemens Networks. Since 2004,Millennium Partners. Mr. Kantor has focused exclusively on the development of private wireless data network technology for mission critical industries including electric utilities, oil & gas companies and the transportation industries. Mr. Kantor obtained his B.A.Bushey earned a B.S. in Political Science from Columbia University 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.

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 directorsBoard 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, Smart For Life, Inc. (NASDAQ: SMFL) since February 2022, and Direct Digital Holdings, Inc. (NASDAQ: DRCT) since November 2021. 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 Membermember 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 Directors.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 directorsBoard 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 (SRP) 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 1one million customers in the Phoenix metropolitan Phoenix 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 of Directors.Board.


Derek ReisfieldJaspreet (Jas) Sood – 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 directors of Ondas Networks Inc. since April 2016. From December 2018 to the present, he has served as an independent consultant. From 2015 to December 2018, Mr. Reisfeld served as Vice President, Strategy and Business Development of 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 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 Boardboard of Directors.directors.

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, 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 of directorsBoard has determined that each of them is independent within the meaning of listing requirements of the NYSE AmericanThe 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 of directorsBoard 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 of directorsBoard 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, NYSE AmericanNasdaq 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:

appointing and retaining an independent registered public accounting firm to serve as independent auditor to audit our financial statements, overseeing the independent auditor’s workaccounting and determiningfinancial reporting processes of the independent auditor’s compensation;Company, internal systems of control of the Company and audits of the Company’s consolidated financial statements;

approving in advance all audit servicesoverseeing the Company’s relationship with its independent auditors, including appointing or changing the Company’s auditors and non-audit services to be provided to us by our independent auditor;ensuring their independence;

establishing procedures forproviding oversight regarding significant financial matters, including the receipt, retentionCompany’s tax planning, treasury policies, dividends and treatment of complaints received by us regarding accounting, internal accounting controls, auditing or compliance matters, as well as for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;share issuance and repurchases;

reviewingoverseeing the Code of Conduct; and discussing with management and our independent auditor the results of the annual audit and the independent auditor’s review of our quarterly financial statements; and

conferringreviewing and approving all transactions with management and our independent auditor about the scope, adequacy and effectivenessrelated persons for potential conflict of our internal accounting controls, the objectivity of our financial reporting and our accounting policies and practices.interest situations on an ongoing basis.


 

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 of directorsBoard as defined in Rule 16b-3 under the Exchange Act and independent within the meaning of listing requirements of the NYSE American.Nasdaq. Mr. ReisfieldSeidl is the chairman of the compensation committee. Our board of directorsBoard 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 the NYSE AmericanNasdaq 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 making recommendations toincentive programs and awards for the board of directors regarding, performance goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives and setting, or recommending to the full board of directors for approval, the chief executive officer’s compensation, including incentive-based and equity-based compensation, based on that evaluation;

setting the compensation of ourCompany’s CEO, all other executive officers based in part on recommendations of the chief executive officer;Company and the non-employee members of the Company’s Board; and

exercising administrative authority under our stock plans and employee benefit plans; andadministering the Company’s equity compensation plans.

establishing policies and making recommendations to our board of directors regarding director compensation.

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 of directorsBoard 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 the NYSE AmericanNasdaq 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:

assessingassisting the need for new directors andBoard in identifying individuals qualified to become directors;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 of directors the persons to be nominated for election as directors and to each of the board’s committees;Board;

assessing individual director performance, participation and qualifications;

developing, updating and recommending to the board corporateBoard the governance principles;principles applicable to the Company;

monitoringoverseeing the effectiveness of the board and the quality of the relationship between management and the board; and

overseeing an annual evaluation of the board’s performance.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 atwww.ondas.com. The audit committee of our board of directorsBoard 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.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that our directors, executive officers and persons who beneficially own 10% or more of our common stock file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock and our other equity securities. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, our directors, executive officers and greater than 10% beneficial owners complied with all such applicable filing requirements, except that each of Messrs. Brock, Kantor, Cohen, Silverman, Reisfield, and Smith untimely filed a Form 3.

Committee Charters and Code of Business Conduct

Our Board of Directors adopted charters for the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee of the Board of Directors 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.


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 2021, except each of Messrs. Reisfield, Bushey, Cohen, Seidl, and Silverman and Ms. Sood untimely filed a Form 4 to report the grant of 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, 20182021 and 2017. 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 bonus awards, stock awards or Options grants were made in 2018 or 2017. 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. From January 1, 2018 to June 28, 2018, Zev Turetsky was the sole executive officer of the Company and he did not receive any compensation for his services.2020.

Name and 
Principal Position
Year Salary
($)
  Bonus
($)
  Stock
Awards
($)
  Option
Awards
($)
  Non-
Equity
Incentive
Plan
Compensation
($)
  Nonqualified
Deferred
Compensation
Earnings
($)
  All
Other
Compensation
($)
  Total
($)
 

Eric A. Brock(1) 

2018 $50,769  $  $  $  $  $  $5,846  $56,615 
(CEO)                                  

Stewart Kantor(2) 

2018 $162,500  $50,000  $  $  $  $  $  $212,500 
(President, CFO,2017 $150,000  $  $  $  $  $  $  $150,000 
Treasurer and Secretary)                                  

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)  2021  $200,000  $-  $-  $-  $        -  $        -  $30,661  $230,661 
(CEO)  2020  $131,494  $-  $-  $-  $-  $-  $47,284  $178,778 
                                     
Stewart G. Kantor (3)  2021  $200,000  $125,000  $-  $-  $-  $-  $11,643  $336,643 
(former President, CFO, Treasurer and Secretary)  2020  $131,494  $-  $-  $-  $-  $-  $7,176  $138,670 

(1)On November 23, 2021, Messrs. Brock and Kantor were granted cash bonuses of $125,000. Mr. Brock informed the Compensation Committee that he would forego his bonus.

(2)In 2020, Mr. Brock’s salary of $131,494 was accrued. 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. All Other Compensation for 2021 and 2020 includes health insurance premiums paid on Mr. Brock’s behalf.

(2)(3)Mr. Kantor resigned as a director and President, Chief Financial Officer, Treasurer and Secretary of the Company on December 7, 2021. Mr. Kantor currently serves as President of Ondas Networks Inc. In 2017,2020, Mr. Kantor’s salary of $150,000 was$131,494 includes $128,644 paid between January 1 and March 15, 2020 and May 13 and December 31, 2020, and $2,850 accrued between March 16 and as of this filing date remains unpaid. In 2018, Mr. Kantor earned $12,500 per month for January through September and $16,667 per month for October through December. In 2018, of the $162,500, $154,166May 12, 2020, which was paid and $8,334 ofon April 15, 2021. All Other Compensation for 2021 includes health insurance premiums paid on Mr. Kantor’s salary was accrued,behalf totaling $636 and asemployer matching of this filing date remains unpaid.401(k) totaling $11,007. All Other Compensation for 2020 includes health insurance premiums paid on Mr. Kantor’s behalf totaling $744 and employer matching of 401(k) totaling $6,432.

Outstanding Equity Awards at Fiscal Year End

WeAs of December 31, 2021, our named executive officers had no outstanding equity awards for our executive officers as of the fiscal year ended December 31, 2018.awards.

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 of directors.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 Kantor

Derek 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 Reisfield Agreement, Mr. Reisfield will receive an initial salary of $200,000 per annum, subject to annual review by our Board. Mr. Reisfield is eligible to participate in benefit plans generally available to our employees.

Stewart Kantor previously served as our President, Chief Financial Officer, Treasurer and Secretary and currently serves as President of Ondas Networks, pursuant to an employment agreement entered into on September 28, 2018, as amended (the “Kantor Agreement”). The Kantor Agreement provides for a continuous term and may be terminated by either party at any time.  Pursuant to the Kantor Agreement, Mr. Kantor will receive an initial salary of $200,000 per annum, subject to annual review by our board of directors.Board. Mr. Kantor is eligible to participate in benefit plans generally available to our employees.

During 2020, in response to COVID-19 employee furloughs, Mr. Kantor 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. Kantor’s salary was returned to 100% effective December 16, 2020.


As part of the terms of the Brock, Reisfield, and Kantor Agreements, each of Messrs. Brock, Reisfield and Kantor 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, Reisfield, and Kantor 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, isReisfield and Kantor 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 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 separation.

Mr. Kantor is entitled to severance compensation from the Company if his employment is terminated i) without cause or ii) due to “constructive termination” or iii) due to disability, with these causes of termination being defined in the Kantor Agreement. The severance compensation would consist of i) accruedMessrs. Brock’s and vested benefits,Reisfield’s separation and ii) continued payment of Mr. Kantor’s base salary and benefits(ii) for a period of twelve (12) months following Mr. Kantor’s separation.

Director Compensation

We doOn January 25, 2021, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of Ondas Holdings Inc. (the “Company”) approved the 2021 Director Compensation Policy (the “Policy”). The Policy is applicable to all directors that are not payemployees or compensated consultants of the Company. Pursuant to the Policy, the cash feescompensation to non-employee directors who attend regularly scheduledwill be the following: (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 special board meetings; however, we did reimburse(v) additional Nominating Committee Chair retainer - $1,000. Also, pursuant to the Policy, the annual equity award to non-employee directors will be restricted stock units representing $60,000. Also, pursuant to the Policy, non-employee directors will be reimbursed for travelreasonable out-of-pocket business expenses incurred in connection with business related to attending such board meetings. We also did not pay cash fees to our directors priorthe Board of Directors.


In addition, on January 25, 2021, the Compensation Committee approved the following grants: (a) for Messrs. Cohen, Reisfield and Silverman (i) 5,000 restricted stock units pursuant to the Acquisition; however, we did reimburse them2018 Incentive Stock Plan, and (ii) 30,000 stock options, which are immediately exercisable, pursuant to the 2018 Incentive Stock Plan, at an exercise price of $12.72 per share with a ten year term, and (b) for travel expenses relatedMr. Seidl and Ms. Sood (i) 5,000 restricted stock units pursuant to their attendance at board meetings.

Wethe 2018 Incentive Stock Plan, and (ii) 10,000 restricted stock units pursuant to the 2018 Incentive Stock Plan. Each restricted stock unit represents a contingent right to receive one share of common stock of the Company. The 5,000 restricted stock units granted no equity awards to oureach of Messrs. Cohen, Reisfield, Silverman and Seidl and Ms. Sood vest in four 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. The 10,000 restricted stock units granted to Mr. Seidl and Ms. Sood vest in 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. All restricted stock units granted to these directors for services rendered for the year ended December 31, 2018.shall vest in full immediately upon a change in control.


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   60,375   -   -   -   -   70,375 
Richard M. Cohen  22,000   123,975   171,622   -   -   -   317,597 
Derek Reisfield  18,000   123,975   171,622   -   -   8,333 (2)   321,930 
Randall P. Seidl  10,000   251,175   -   -   -   -   261,175 
Richard H. Silverman  10,000   123,975   171,622   -   -   -   305,597 
Jaspreet Sood  10,000   251,175   -   -   -   -   261,175 

(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 to the accompanying financial statements.

(2)Mr. Reisfield was appointed President, Chief Financial Officer, Treasurer and Secretary as of December 9, 2021. All other compensation for Mr. Reisfield reflects his salary from December 9, 2021 to December 31, 2021.

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 15, 2019,11, 2022, the following table sets forth certain information with respect to the beneficial ownership of our Common Stockcommon stock by (i) each stockholder known by us to be the beneficial owner of more than five percent (5%) of our Common Stock,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,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 and non-qualifiedcommon stock, options, (“Options”),restricted stock units, and common stock purchase warrants (“Warrants”), and convertible securities that are currently exercisable or convertible into shares of our Common Stockcommon 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, Warrants, or convertiblesuch 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 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)  1,957,873   4.77%
Derek Reisfield (Director, President, Chief Financial Officer, Treas. and Sec.) (3)  67,494     * 
Thomas V. Bushey (Director) (4)  503,180   1.21%
Richard M. Cohen (Director) (5)  62,494     * 
Randall P. Seidl (Director) (6)  14,430     * 
Richard H. Silverman (Director) (7)  62,494     * 
Jaspreet Sood (Director) (8)  14,430     * 
Stewart Kantor (President, Ondas Networks, Inc.) (9)  24,990    * 
All Executive Officers & Directors as a Group (7 persons) (10)  2,682,395   6.44%
5% or Greater Stockholders        
Energy Capital, LLC(11)  5,796,455   13.90%

 

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)  5,073,585   10.05%
Stewart Kantor (Director, President, Chief Financial Officer, Treasurer and Secretary)  3,030,606   6.01%
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)  8,323,017   16.49%

Name and Address of Stockholders 

        

Energy Capital, LLC(2)

  11,051,500   21.90%
Menashe Shahar  2,966,544   5.90%

*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 Stockcommon stock owned by them. Applicable percentage of ownership is based on 50,463,73240,990,604 shares of Common Stockcommon stock currently outstanding, as adjusted for each shareholder.stockholder.


(2)(2)Mr. Brock exercises sole voting and dispositive power over the 1,891,206 shares of common stock and 66,667 shares of common stock issuable upon exercise of Warrants.

(3)TheMr. Reisfield exercises sole voting and dispositive power over 33,064 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option, 1,590 shares of common stock issuable upon the vesting of RSUs, and 2,840 shares of common stock underlying RSUs that have vested and are pending delivery.

(4)Mr. Bushey has the right to receive 500,000 RSUs, which are fully vested and will be issued on June 3, 2022 pursuant to Mr. Bushey’s deferral election, subject to early delivery if Mr. Bushey’s service with the Company is terminated before June 3, 2022, 1,590 shares of common stock issuable upon the vesting of RSUs, and 1,590 shares of common stock underlying RSUs that have vested and are pending delivery.

(5)Mr. Cohen exercises sole voting and dispositive power over 28,064 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option, 1,590 shares of common stock issuable upon the vesting of RSUs, and 2,840 shares of common stock underlying RSUs that have vested and are pending delivery.

(6)Mr. Seidl exercises sole voting and dispositive power over 7,500 shares of common stock issuable upon the vesting of RSUs, 2,840 shares of common stock issuable upon the vesting of RSUs, and 4,090 shares of common stock underlying RSUs that have vested and are pending delivery.

(7)Mr. Silverman exercises sole voting and dispositive power over 28,064 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option, 1,590 shares of common stock issuable upon the vesting of RSUs, and 2,840 shares of common stock underlying RSUs that have vested and are pending delivery.

(8)Ms. Sood exercises sole voting and dispositive power over 7,500 shares of common stock issuable upon the vesting of RSUs, 2,840 shares of common stock issuable upon the vesting of RSUs, and 4,090 shares of common stock underlying RSUs that have vested and are pending delivery.
(9)Mr. Kantor resigned as a director and President, Chief Financial Officer, Treasurer and Secretary of the Company on December 7, 2021. Mr. Kantor currently serves as President of Ondas Networks, Inc.
(10)Includes 66,667 shares of common stock issuable upon exercise of Warrants, 90,000 shares of common stock issuable upon exercise of options, 12,040 shares of common stock issuable upon vesting of RSUs, and 518,290 shares of common stock underlying RSUs that have vested and are pending delivery.

(11)Based on Amendment No. 1 to Schedule 13D filed on January 27, 2020, 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 11,051,5005,092,248 shares owned by Energy Capital. This information is based on the Schedule 13-G filed with the SEC on January 31, 2019.of common stock and 704,207 shares of common stock issuable upon exercise of Warrants.

54

Equity Compensation Plan Information

EQUITY 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, 2018.2021.

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)  2,819,566  $6.49   513,768 
2021 Incentive Stock Plan (2)  -  $-   6,000,000 
Equity compensation plans not approved by security holders  -   -   - 

 

(1)The 2018 Incentive Stock Plan Category

Numberwas approved by stockholders in September 2018. The number of
securities to be
issued upon
exercise of
outstanding
options,

(a) warrants and rights consist of 735,294 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 holders(1)10,000,000
Equity compensation plans not approved by security holders
Total10,000,000stockholders in November 2021.


 

(1)  Represents shares authorized under the 2018 Equity Incentive 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

OurUnder its written charter, the Audit Committee of our Board of Directors 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 for 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 to 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 CEO is responsible for reviewing and approving any 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 rejecting any such transaction, the Audit Committee considers the relevant facts and circumstances, including the material terms of the transaction, risks, benefits, costs, availability of other comparable services or products and, if applicable, the impact on a director’s independence.

Related Party Transactions

On August 14, 2020, Eric Brock, the Company’s Chief Executive Officer, entered into a Securities Purchase Agreement with other subscribers in which he purchased 52,500 shares of Series A Preferred Convertible Preferred Stock (“Series A Preferred”) at a purchase price of $6.00 per share. On December 8, 2020, along with all payments made by or to usother holders of Series A Preferred Mr. Brock converted his 52,500 shares of Series A Preferred into 66,676 shares of Common Stock of the Company, which includes an aggregate of 13,084 shares of Common Stock in connection with duly approved related party transactionsa 25% premium and shall certifyan aggregate of 842 shares of Common Stock in lieu of declaring a dividend on shares of Series A Convertible Preferred Stock.

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 Audit Committee that any payments made by or to us in connection with such related party transactions have been made in accordance with the policy. All related party transactions shall be disclosed in our applicable filings as required by the Securities Act of 1933accrued amount and the Securities Exchange Act of 1934 and related rules and regulations.remaining $67,150 was paid on April 15, 2021.

Related Party Transactions

On March 14, 2020, Stewart Kantor, Chief Executive OfficerPresident of Ondas Networks, advanced funds to Ondas Networks to fund its operations.waived accrued payroll amounts in the amount of $8,334. As of 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 Networks accrued $271,875 in salary owed for 2016 and 2017 to Stewart Kantor, Chief Executive Officer of Ondas Networks. As of December 31, 2018,2020, Ondas Networks accrued an additional $8,334$2,850 for salary owed during 20182020 to Mr. Kantor.Kantor, which was paid on April 15, 2021.

AsBetween 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 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, 2017, Ondas Networks accrued $178,125 in salary owed for 20162020 and 2017 to Menashe Shahar, an employee125,000 of Ondas Networks and more than 5% stockholder of Ondas Holdings. As of December 31, 2018, Ondas Networks accrued an additional $8,334 for salary owed during 2018which the Compensation Committee accelerated vesting), which will be issued on June 3, 2022 pursuant to Mr. Shahar.

In connection with the Acquisition and pursuant to a Common Stock Repurchase Agreement dated September 28, 2018, we purchased from 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.Bushey’s deferral election. The repurchased sharesremaining 500,000 RSU Shares were cancelled and returned to the authorized but unissued sharescanceled. As part of the Company.

In connection withSeparation Agreement, Mr. Bushey and the Acquisition, weCompany entered into a Loan and SecurityConsulting Agreement with Energy Capital pursuantdated January 19, 2021 (the “Consulting Agreement”). Pursuant to which Energy Capital agreedthe Consulting Agreement, Mr. Bushey provided services to lend an aggregate principal amount of up to $10 million, subject to specified conditions. On January 29, February 11 and 27, and March 14, 2019, the Company drew down advancesat the direction of $1,000,000, $650,000, $750,000, and $900,000, respectively, to be usedthe Company’s Chief Executive Officer. The Consulting Agreement terminated on July 19, 2021. Mr. Bushey was paid $7,500 per month for working capital only. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”these services.

Director Independence

We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that aA majority of our Board is independent under the boardrules of directors be independent. However, our board of directorsNasdaq. Our Board has undertaken a review of the independence of theour 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 or her responsibilities. As a result of this review, our board of directorsBoard has determined that Messrs. Cohen, Seidl, Silverman and Reisfield,Ms. Sood are “independent directors” as defined under the rules of the NYSE American.Nasdaq.


 

Promoters and Certain Control Persons

None.

Item 14.Principal Accountant Fees and Services.

Item 14. Principal Accountant Fees and Services.

On June 28, 2018, the Board of Directors of the Company engaged

Rosenberg Rich Baker Berman, P.A. (“RRBB”) as the Company’s independent registered public accounting firm for the year ended December 31, 2018. Also, on June 28, 2018, the Company dismissed Weinstein & Co. C.P.A. (Isr) (“Weinstein”) as the Company’s independent registered public accounting firm, effective immediately. Weinsteinhas served as the Company’s independent registered public accounting firm since June 28, 2018.

Aggregate fees billed to the Company for the years ended December 31, 20172021 and 2016.


The following table presents fees for professional services rendered2020 by RRBB and Weinstein forwere as follows:

  For the years ended
December 31,
 
  2021  2020 
       
Audit Fees $192,400  $124,915 
Audit-Related Fees  0   6,558 
Tax Fees  12,500   10,000 
All Other Fees  16,098   50,000 
  $220,998  $191,473 

Audit fees consist of fees associated with the annual audit, including the reviews of our quarterly review andreports. Audit-related fees consist of travel costs. Tax fees include the preparation on our tax preparation.

  For the years ended December 31, 
  2018  2017 
       
Audit Fees(1) $107,300  $55,000 
Tax Fees(2)  10,000    
Audit Related Fees      
All Other Fees      
  $117,300  $55,000 

returns. All other fees consist of fees associated with services provided related to all other filings with the SEC as well as consents.

(1)The aggregate amount expected to be billed for professional services rendered by RRBB related to the reviews for the quarters ended June 30 and September 30, 2018 and the annual audit for the year ended December 30, 2018 for Ondas Holdings is $101,300. The amount billed for professional services rendered by Weinstein related to the review for the quarter ended March 31, 2018 for Ondas Holdings was $6,000.

The amount billed for professional services rendered by Weinstein related to the reviews for the quarters ended March 31, June 30 and September 30, 2017 and the annual audit for the year ended December 30, 2017 for Ondas Holdings is $10,000. The amount billed for professional services rendered by RRBB related to the annual audit for the year ended December 31, 2017 for Ondas Networks was $45,000.

(2)The amount expected to be billed for tax return preparation rendered by RRBB related to the year ended December 31, 2018 is $10,000.

On September 28, 2018, the Audit Committee of our Board of Directors 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 of Directors consisted of a single member. All services provided by RRBB after September 28, 2018 representing $81,300 ofduring the fees set forth aboveyears ended December 31, 2021 and 2020 were approved by the Audit Committee.


PART IV

Item 15. Exhibits and Financial Statement Schedules.

Exhibit No.Item 15.Exhibits and Financial Statement Schedules.

Exhibit
No.

Name of Document

2.1

Agreement and Plan of Merger and Reorganization, dated as of September 28, 2018, by and among the Registrant, Zev Merger Sub, Inc. and Ondas Networks Inc. (incorporated herein by reference to Exhibit No. 2.1 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

3.1

2.2Agreement and Plan of Merger, dated as of May 17, 2021, by and among Ondas Holdings Inc., Drone Merger Sub I Inc., Drone Merger Sub II Inc., American Robotics, Inc., and 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))
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 on October 4, 2018 (File No. 333-205271))

3.2

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 on October 4, 2018 (File No. 333-205271))

4.1

3.3Certificate 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 Registration Statement on Form S-3 filed on January 29, 2021 (File No. 333-252571))
4.2Form of Investor Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 4, 20181, 2019 (File No. 333-205271))000-56004).

10.1

4.3Form of Placement Agent Warrant (incorporated 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).


4.4Form of Warrant (incorporated 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).
4.5Form 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).
4.6Description 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, 2020 (File No. 000-56004)
10.1Form of Lock-up Agreement executed by the former stockholders of Ondas Networks Inc. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

10.2

Common Stock Repurchase Agreement, dated September 28, 2018, between Registrant and Energy Capital (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

10.3

10.2

Lease Agreement, dated November 11, 2013, between Full Spectrum Inc. and SCP-1, LP (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

10.4

10.3Amendment to Lease Agreement, dated October 16, 2017, between Full Spectrum Inc. and SCP-1, LP (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

10.5#

Employment Agreement, dated September 28, 2018, between Ondas Holdings Inc. and Eric Brock (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

10.6#

10.4

Employment Agreement, dated September 28, 2018, between Ondas Holdings Inc. and Stewart Kantor (incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

10.7#

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))

10.8

Loan and Security Agreement, dated as of March 9, 2018, by and between Full Spectrum Inc. and StewartSteward Capital Holdings, LP (incorporated herein by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

10.9

Loan and Security Agreement, dated as of September 28, 2018, by and between Zev Ventures Incorporated and Energy Capital (incorporated herein by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 333-205271))

58

10.10

10.5

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 on October 4, 2018 (File No. 333-205271))

10.11

10.6Secured Promissory Note for $5,000,000 issued to Steward Capital Holdings, LP by Ondas Networks Inc. dated October 9, 2018 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 15, 2018 (File No. 333-205271))

10.12

Form of Revenue Loan Agreement Convertible Promissory Note issued by Ondas Networks Inc. (formerly Full Spectrum Inc.) (incorporated herein by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2018 (File No. 333-205271))

10.13

10.7

Form of Securities Purchase Agreement of Ondas Networks Inc. (formerly Full Spectrum Inc.) (incorporated herein by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2018 (File No. 333-205271))

10.14

Form of Loan Amendment (incorporated herein by reference to Exhibit 10.0 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.15

10.8

Form of Loan Modification Agreement (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.16

Form of Assignment and Assumption Agreement (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.17

Form of Note Extension Agreement (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.18

Form of Promissory Note (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.19

Form of Loan Agreement (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.20

Form of Loan Amendment (incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.21

Form of Loan Agreement (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.22

Form of Loan Amendment (incorporated herein by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.23

Form of Purchasing Order Financing Agreement (incorporated herein by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.24

Form of Promissory Note for Purchase Order Financing Agreement (incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.25

Form of Purchasing Order Financing Agreement (incorporated herein by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))


10.26

Form of Amendment to Purchase Order Financing Agreement (incorporated herein by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.27

Form of Private Placement Note (incorporated herein by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.28

Form of Private Placement Warrant (incorporated herein by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.29

Form of Security Purchase Agreement (incorporated herein by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.30

Form of Security Purchase Agreement (incorporated herein by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.31

10.9Form of Convertible Promissory Note (incorporated herein by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed on January 7, 2019 (File No. 000-56004))

10.32

10.10First Amendment to Loan and Security Agreement, dated as of June 18, 2019, by and between Ondas Networks 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 on June 18, 2019 (File No. 000-56004)).
10.11Amendment to Secured Promissory Notes dated June 18, 2019 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 18, 2019 (File No. 000-56004)).
10.12Form of First Amendment to Lock-Up Agreement. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 30, 2019 (File No. 000-56004).
10.13Form of Securities Purchase Agreement, dated September 27, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2019 (File No. 000-56004).
10.14Form of Registration Rights Agreement, dated September 27, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 1, 2019 (File No. 000-56004).
10.15Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 1, 2019 (File No. 000-56004).


10.16Second Amendment to Loan and Security Agreement, dated as of October 28, 2019, by and between Ondas Networks Inc. and Steward Capital Holdings, LP. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 1, 2019 (File No. 000-56004).
10.17Paycheck Protection Program Promissory Note for $1,000,000 issuedand Agreement, dated as of May 7, 2020, by and between Ondas Networks Inc. and Steward Capital Holdings, LP. (incorporated by reference to Energy CapitalExhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 7, 2020 (File No. 000-56004).
10.18Form 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).
10.19Employment Agreement, dated June 3, 2020, between Ondas Holdings Inc. and Thomas Bushey.#(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 3, 2020 (File No. 000-56004).
10.20 #Amended and Restated Employment Agreement, dated June 3, 2020, between Ondas 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).
10.21 #Amended and Restated Employment Agreement, dated June 3, 2020, between Ondas Holdings Inc. and Stewart Kantor.# (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 3, 2020 (File No. 000-56004).
10.22 #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))
10.23 #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).
10.24 #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).
10.25Form 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).
10.26Form 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).
10.27Form 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).
10.28Second Amendment to Loan and Security Agreement, dated as of September 4, 2020, by and between Ondas Networks Inc. and Steward Capital Holdings, LP. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 11, 2020 (File No. 000-56004).
10.29Second Amendment to Secured Promissory Notes dated as of September 4, 2020, by and between Ondas Networks Inc. and Steward Capital Holdings, LP. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 11, 2020 (File No. 000-56004).
10.30 #Separation Agreement and General Release, including Consulting Agreement, dated January 19, 2021 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 20, 2021).
10.31Ondas 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 January 29, 20192021).
10.32Form of Lock-up Agreement executed by the former stockholders of American Robotics, Inc.. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 17, 2021 (File No. 001-39761))
10.33Form of Joinder to Lock-Up and Registration Rights Agreement executed by the former stockholders of American Robotics, Inc., (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 30, 2019August 9, 2021 (File No. 000-56004)001-39761))

10.33

10.34#Secured Promissory Note for $650,000 issued to Energy Capital by Ondas Holdings Inc. dated February 11, 20192021 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.210.1 to the Company’s Current Report on Form 8-K filed on February 13, 2019 (File No. 000-56004))November 5, 2021).

10.34

10.35#Secured Promissory Note for $750,000 issued to Energy Capital byEmployment Agreement, dated December 10, 2021, between Ondas Holdings Inc. dated February 27, 2019and Derek Reisfield. (incorporated herein by reference to Exhibit 10.210.1 to the Company’s Current Report on Form 8-K filed on March 5, 2019December  13, 2021 (File No. 000-56004))001-39761).


14.00

21

2018 CodeSubsidiaries of Business Conduct and Ethicsthe Registrant (incorporated herein by reference to Exhibit 14.004.5 to the Company’s CurrentAnnual Report on Form 8-K10-K for the year ended December 31, 2021 filed on October 4, 2018 (FileMarch 8, 2021(File No. 333-205271)001-39761)).

21.00

Subsidiaries of the Registrant*

31.1

23.1

Consent of Rosenberg Rich Baker Berman, P.A.*
31.1Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a) dated March 19, 2019.*22, 2021*

31.2

31.2Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a) dated March 19, 2019.*22, 2021*

32.1
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated March 19, 2019.*22, 2021**
  
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated March 19, 2019.*22, 2021**
101.INSInline XBRL Instance Document*Document.*
101.SCHInline XBRL Taxonomy Extension Schema Document*Document.*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document*Document.*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document*Document.*
101.LABInline XBRL Taxonomy Extension Label Linkbase Document*Document.*
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document*Document.*
*Filed herewith.
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.


 

None.


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 19, 2019

 DATE: March 22, 2022ONDAS HOLDINGS INC.
   
 By:/s/ Eric A. Brock
  Eric A. Brock
  Chief Executive Officer
  (Principal Executive OfficerOfficer)
   
 By:/s/ Stewart W. KantorDerek Reisfield 
  Stewart W. KantorDerek Reisfield
  PrincipalChief Financial Officer
  (Principal Financial Officer
Principal Accounting OfficerOfficer)


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 19, 2019 

22, 2022
Eric A. Brock

/s/ Stewart W. Kantor

Director, President, Chief Financial Officer, Treasurer and Secretary

March 19, 2019 

Stewart W. Kantor

/s/ Richard M. Cohen 

Director

March 19, 2019

Richard M. Cohen

/s/ Richard H. Silverman 

Director

March 19, 2019

Richard H. Silverman    
     
/s/ Derek Reisfield Director, President, Chief Financial Officer, March 19, 201922, 2022

Derek Reisfield

 

Treasurer and Secretary
 
/s/ Thomas V. Bushey DirectorMarch 22, 2022
Thomas V. Bushey
/s/ Richard M. Cohen DirectorMarch 22, 2022
Richard M. Cohen
/s/ Randall P. Seidl DirectorMarch 22, 2022
Randall P. Seidl
/s/ Richard H. Silverman DirectorMarch 22, 2022
Richard H. Silverman
/s/ Jaspreet Sood DirectorMarch 22, 2022
Jaspreet Sood

 

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