UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______ to _____
Commission
File Number: 000-56004
ONDAS
HOLDINGS INC.
(Exact
name of Registrant as specified in its charter)
61
Old South Road, #495, Nantucket, MA02554
(Address
of principal executive offices) (Zip Code)
(888)350-9994
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value per share ONDS The Nasdaq Stock Market LLC
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The
aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2020 (the last business day
of the registrant’s most recently completed second fiscal quarter) was approximately $91,733,000. 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.
As of March 5, 2021, the registrant had 26,637,038 outstanding
shares of common stock, $0.0001 par value.
ONDAS
HOLDINGS INC.
INDEX
TO ANNUAL REPORT ON FORM 10-K
FOR
THE YEAR ENDED DECEMBER 31, 2020
Table
of Contents
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS ii
PART I
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 21
ITEM 1B. UNRESOLVED STAFF COMMENTS 39
ITEM 2. PROPERTIES 39
ITEM 3. LEGAL PROCEEDINGS 39
ITEM 4. MINE SAFETY DISCLOSURES 39
PART II
ITEM 6. SELECTED FINANCIAL DATA 40
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 49
ITEM 9A. CONTROLS AND PROCEDURES 50
ITEM 9B. OTHER INFORMATION 51
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 52
ITEM 11. EXECUTIVE COMPENSATION 56
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 62
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 63
i
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.
ii
Risk Factor Summary
We are subject to various
risks that could have a material adverse impact on our financial position, results of operations or cash flows. The following is
a summary of the principal factors that make investing in our securities risky and may cause our actual results to differ materially
from forward-looking statements included in this Annual Report on Form 10-K. The following is only a summary of the principal risks
that may materially adversely affect our business, financial condition, results of operations and cash flows and should be read
in conjunction with the more complete discussion of the risk factors we face, which are set forth in the section entitled “Risk
Factors” in Part I, Item 1A. in this report:
● We will need to generate significant sales to achieve profitable operations.
iii
PART
I
Item
1. Business.
Corporate
Overview of Ondas Holdings Inc.
Ondas
Holdings Inc. (the “Company”) was originally incorporated 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., and changed our name from “Zev Ventures Incorporated” to “Ondas Holdings Inc.” As a result,
Ondas Networks Inc. (“Ondas Networks”) became our wholly owned subsidiary. We refer to 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 (“Form 10-K”) reports our business and financial results on a consolidated basis and therefore,
the use of the words “we,” “our,” the “Company” and “Ondas Holdings” means Ondas
Holdings Inc. and its subsidiaries. Where necessary for clarification purposes, Ondas Holdings, Ondas Networks or Zev Ventures
may be used independently.
Corporate
Overview of Ondas Networks Inc.
Ondas
Networks was originally incorporated in Delaware on February 16, 2006 under the name of Full Spectrum Inc. On August 10, 2018,
the name was changed to Ondas Networks Inc.
Ondas
Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer
to these applications as the Mission-Critical Internet of Things (“MC-IoT”). The Company’s 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 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 patented, 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 (“WAN”)
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, Ondas has 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 the Company’s technology across a burgeoning ecosystem of partners and end markets.
Our
FullMAX SDR platform is an important and timely upgrade solution for privately-owned and operated wireless WANs, leveraging Internet
Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers.
Critical infrastructure markets throughout the globe have reached an inflection point where legacy serial and analog based protocols
and network transport systems no longer meet industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent
networking platform enabling the adoption of sophisticated operating systems and equipment supporting next-generation MC-IoT applications
over wide field areas. These new MC-IoT applications and related equipment require more processing power at the edge of large industrial
networks and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the “Fog-computing”
capability integrated in our end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing
and data and application prioritization in the field enabling our customers more reliable, real-time operating control of these
new, intelligent MC-IoT equipment and applications at the edge.
1
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 for the development of new types of wireless connectivity for the North American
Rail. In addition, Ondas and JVCKenwood, a global supplier of Land Mobile Radio (LMR) systems, have jointly responded to a request
from the rail industry for the design and delivery of a next generation data and voice platform. We believe our Siemens’
partnership and our joint effort with JVCKenwood are 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. 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.
Background
The
Internet of Things (“IoT”) is transforming the way businesses and industries function with a massive shift from on-premise
locally executed software to cloud computing. IoT is applicable across all global consumer, enterprise, industrial and government
markets. By storing and processing data using cloud technology, there is now an ability to access, analyze and utilize vast amounts
of information and liberate operators from accessing data in limited amounts. Cloud computing has enabled the access of additional
features on IoT devices such as smartphones, computers and laptops without the need for investing in additional computing power
or memory.
However,
specific areas of IoT, particularly the mission-critical industrial markets, have additional requirements when compared to enterprise
and consumer markets. With industrial markets, the bulk of the critical assets are dispersed over vast field area operations and
varying geographical locations. This wide dispersion of assets shifts the emphasis from the centralized private Cloud to the network
edge and Fog which requires reliance on edge computing and the processing of data in the field, closer to the source of the data
generation. The primary benefit of Fog networks is to enable the execution of mission-critical functions and manage and operate
intelligent field equipment and systems many of which require real-time decision-making. Edge computing is required for low-latency
applications where real-time performance is critical for safety and efficient systems performance. In addition, processing data
closer to the source improves reliability and offers security benefits. The Fog and edge computing advantages enabled by our FullMAX
technology are now driving the adoption of our connectivity solutions by some of the largest industrial companies worldwide including
the major North American freight rail operators.
In
a MC-IoT wide-area network, a Fog-computing architecture requires an intelligent communications system able to manage all network
resources, including edge remotes, smart equipment and machinery and other network elements such as sensor networks. Importantly,
advanced MC-IoT applications require highly reliable network performance over the air with customized Quality of Service (“QoS”)
standards which are not available in legacy narrowband wireless networks. The intelligent communications system is coordinated
via base stations which contain network management software algorithms designed to control critical operations and distribute
bandwidth across multiple edge computing applications required by customers. The Fog-computing environment can be further enhanced
by high-power edge remote radios with embedded computing power and software providing the ability to host MC-IoT software applications
or to reliably interface with intelligent equipment and sensor networks deployed across the field of operations. The interplay
between base stations and remote edge radios requires a robust software communications layer to ensure that network performance
and operating data is properly communicated to the corporate cloud located in the network operations center.
2
For
example, the North American freight rail operators are seeking to deploy new, on-locomotive and wayside MC-IoT technologies along
the track in order to reliably enhance safety and improve efficiency and profitability of train operations. 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 over 140,000 miles. The rail
operators require a next-generation, robust broadband system with significantly increased data throughput capacity and Fog networking
capability. A transition to integrated Fog-computing communications wireless systems will enable the rail operators to drive more
intelligence to the edge of their operating environments enabling real time automation and better operator control of many critical
operating systems related to train control, crossing safety, train and track integrity and drone operations. This upgrade cycle
is being driven by a recent key event which occurred in May 2020 in which the Class 1 rail systems in the U.S. were awarded new
nationwide “greenfield” wideband radio spectrum by the Federal Communications Committee (“FCC”). As part
of the award, the rail operators are required, over the next three years, 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.
There
are many other mission-critical industries across the globe operating private networks that are similarly constrained by their
legacy narrowband wireless communications systems. The lack of bandwidth, appropriate software and integrated edge computing and
Fog capability are a bottleneck for the adoption of next-generation MC-IoT applications and intelligent equipment that can serve
to create more efficient, profitable, and safer operations. This can be seen in Land Mobile Radio (“LMR”) markets
where legacy critical voice networks lack increasingly valuable data capacity and next generation networks such as FullMAX can
provide voice over IP as a data application. Similarly, the adoption of smart grid technologies by electric utilities, well pump
automation systems by oil producers and new navigation systems for commercial and industrial drones require new, robust wireless
network platforms such as FullMAX that can also offer the capability of Fog-computing architectures.
COVID-19
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.
3
The
Company’s business, financial condition and results of operations were impacted from the COVID-19 pandemic for the year
ended December 31, 2020 as follows:
● delays in fulfilling purchase orders reduced our cash flow from operations.
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 corporate offices and headquarters and
as of December 31, 2020 we have no employees remaining on furlough. Of the 18 employees previously furloughed, 14 are currently
employed by us.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”) was enacted. The CARES Act is an approximately $2 trillion emergency economic stimulus
package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions. Some of these
tax provisions are expected to be effective retroactively for years ending before the date of enactment. The Company applied for,
and received, funds under the Paycheck Protection Program in the amount of $666,091. The application for these funds requires the
Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support operations
of the Company. This certification further requires the Company to consider its current business activity and ability to access
other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business.
The receipt of these funds, and the forgiveness of the loan related to these funds, is dependent on the Company having initially
qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.
The Company is in discussion with the lender regarding the forgiveness of the loan, however no determination has been made at the
time of the filing of this Form 10-K.
The
Company expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during
2021, primarily due to the slowdown of customer activity during 2020 and 2021. 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.
Although COVID-19 has
had an immediate near-term impact on our business operations, we also believe the one outcome of the pandemic will be to reinforce
the need for more reliable private commercial and industrial communications. This can be seen specifically in the need for new
Unmanned Aerial Systems (“UAS”) solutions including the safe command and control of drones as remote delivery method.
In a recent filling at the FCC, the Drone Responders Public Safety Alliance stated, (the) “current COVID-19 pandemic only
emphasizes this need, as remote methods of commercial delivery will only become more essential to serve the public good. In light
of the current COVID-19 crisis, UAS have the potential to deliver payloads of medical equipment and supplies.”
Our
Strategy
Our
goal is to be a global leader in providing secure wireless connectivity solutions enabling high-bandwidth, mission-critical Industrial
Internet applications and services. We intend to leverage our patented FullMAX technology and the IEEE 802.16s standard to achieve
this goal. We have adopted a “Deep and Wide” marketing strategy designed to drive adoption of our mission-critical
connectivity solutions into global critical infrastructure end markets. Our strategy is to deeply penetrate the Class 1 Freight
Rail, government and aviation markets while continuing the expansion of our distribution and support capabilities alongside ecosystem
partners such as Siemens into adjacent vertical end markets such as oil and gas, electric, gas and water utilities and military
sectors.
The
key elements of our growth strategy include the following:
4
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, Software-as-a-Service (“SaaS”) arrangements, IP royalties based on Ondas
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 equipment and systems which their customers purchase and deploy are
also designed for long lifetimes. 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 for extended software and hardware maintenance which provide them with critical
ongoing support for their installed network. These SaaS contracts provide revenue to Ondas 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 Ondas 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.
The
Siemens Partnership
In
April 2020, we entered into a strategic partnership with Siemens Mobility, a separately managed company of Siemens AG (“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. These dual-mode ATCS/MC-IoT radio systems will 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. The new ATCS-compatible products will be introduced in two
phases, including a field-selectable ATCS or MC-IoT remote radio and a related MC-I0T base station, both which will be available
by the end of the first quarter of 2021 available in the first quarter of 2021. Furthermore, Siemens has begun to market and sell
Siemens-branded MC-IoT wireless systems based on our technology platforms.
5
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. 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. The Class
I Railroads value the ability of the 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.
We
believe the Siemens partnership validates our wireless connectivity solutions and will accelerate the adoption of our wireless
technology in the North American Class I Railroad market. We believe Siemens has both the sales and marketing reach and support
to drive our technology to wide scale acceptance. Siemens also brings Ondas access to the North American transit market where
our technology has broad potential. In addition to our strategic partnership with Siemens Mobility, we expect to establish additional
formal sales and marketing partnerships and OEM relationships with other leading Tier 1 vendors of industrial equipment in 2021.
The
Market for Our Products
Our
FullMAX system of Software Defined Radios, base stations, fixed and mobile edge radios and supporting technology is designed to
enable highly secure and reliable Industrial-grade connectivity for truly mission-critical applications. We offer a range of products
with different options for narrowband and broadband applications. Our SDR platforms offer unmatched flexibility with respect to
the radio frequencies in which they operate (ranging from 70 MHz to 6 GHz) and channel size configurations (ranging from 12.5
kHz to 10 MHz).
The
global end markets for our MC-IoT solutions are established, large, and we believe, poised to grow rapidly given the key role connectivity
will play in next generation IoT-type applications. Firms like Cisco Systems, Inc. and Gartner, Inc. say that there are 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 2.5Xs from 2017. In many of our industrial end markets,
we believe the adoption of low-cost edge computing and increased penetration of “smart machinery” is driving demand
for next-generation networks for IoT applications such as those powered by FullMAX. 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 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.
6
According
to research firm MarketsandMarkets, worldwide spending on communications by the electric utility sector is estimated to grow over
15% per year and is expected to reach $15.4 billion annually by 2021. This growth is being driven by distributed and renewable
power generation projects and regulatory requirements for secure and reliable power generation and distribution as the industry
deals with aging infrastructure. Market forecasts for oil and gas producers, water and wastewater utilities, homeland security,
transportation and other critical infrastructure segments are similarly large. According to Market Reports World, the global LMR
market is expected to reach $32.2 billion by 2027. In oil and gas, 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 U.S. Railroad sector
is expected to spend over $10.0 billion in aggregate by 2020 to fully implement Positive Train Control (“PTC”) safety
functions as required by Federal regulations according to the American Association of Railroads. We estimate the addressable market
for our FullMAX solution with the North American Class 1 Railroads is over $1.5 billion. Our innovative, standards-based FullMAX
system offers Unmanned Aircraft Systems (“UAS”) operators and users a high-performing, cost-effective solution for
reliable command and control of drones. The end market opportunity for UAS network solutions is large and rapidly growing. According
to analysts at Barclays Capital, spending on commercial drones will rise more than 10-fold over five years from $4 billion to
nearly $43 billion in 2024. The U.S. Federal Aviation Administration (“FAA”) raised its forecast in 2019 and now expects
over 450,000 commercial drones flying in the U.S. by 2022, a four-fold increase from 2017. Improvements in drone navigation capability
allowing for the safe command and control of industrial UAS beyond visual line of sight (“BVLOS”) will be a key enabler
driving the growth of the UAS market. Industrial UAS applications offer significant value to our core critical infrastructure
markets and the economy at large, which supports the growth outlook for this market. In addition to broad use by government agencies
and agriculture markets, utilities, railroads, and oil and gas industries are actively evaluating, or are in the process of incorporating,
the extensive use of drones into their business operations. These critical infrastructure sectors can realize substantial savings
and improved reliability in operations from deploying drones to monitor and inspect their remote infrastructure and assets.
Our
Products and Services
Ondas
was founded in 2006 to develop a new type of 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 45 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 creates customer stickiness with high switching costs.
FullMAX
Software: 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. The target customers for our products operate in critical
infrastructure sectors of the global economy. Private wireless networks are typically the preferred choice of these large industrial
customers with business operations spanning large field areas. Private networks provide enhanced protection against cyber terrorism,
as well as natural and man-made disasters, and the ability for the operator to maintain and control their desired quality of service.
In
many of our industrial end markets, the adoption of low-cost Edge computing and increased penetration of “smart machinery”
and sensors is driving demand for higher bandwidth, next-generation networks for IoT applications such as those powered by FullMAX.
These new technologies often require Fog-computing capabilities to maximize their utility to customers. 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. Consequently, a FullMAX wireless
network is significantly less expensive to build compared to traditional LTE and 5G networks given its ability to optimize the
performance of lower cost, low frequency radio spectrum and provide much greater coverage and capacity.
7
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. 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 the Ondas edge remotes; dynamically allocating bandwidth, prioritizing data packets and managing
edge applications. The intelligent software-managed base stations determine whether to process data at the edge, distribute data
traffic across the Fog to other edge remote radios or to transport information to the corporate Cloud. Ondas’ Edge remotes
have embedded compute capability and are able to host MC-IoT applications including those from third party vendors via virtualized
software systems managed in docker / container architectures and can also manage data from intelligent equipment or sensor networks
that interface with the edge remotes in the field. The Ondas software-managed edge remotes offer security via authentication,
multi-layer encryption and virtual software firewalls which are requirements for mission-critical data networks.
Our
FullMAX Software Defined Radio platform:
8
FullMAX
System: FullMAX base stations and edge radios are deployed by our customers to create wide-area wireless communication
networks. A FullMAX network provides end-to-end IP connectivity, allowing critical infrastructure providers to extend their
secure corporate networks into the far reaches of their service territories. A FullMAX network also provides more data
capacity allowing our customers to transition legacy applications such as critical Push-to-Talk Voice operating in legacy LMR
networks to Voice over IP data networks which provide network capacity for other data requirements alongside voice. We refer
to these networks as Land Mobile Data Radio (LMDR) systems.
FullMAX
radios can operate at high transmit power (up to 100 watts) at both the base station and edge remote sites providing fixed and
mobile data connectivity up to 30 miles from the tower site. This results in up to 2,800 square miles of coverage from a single
FullMAX tower compared with the 28 square miles typically supported by other 4G technologies and three-square miles by 5G technologies.
This dramatically reduces the infrastructure cost of building and operating a private Fog 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.
Figure
1
9
Figure
2
We
also provide a variety of services associated with the sale of our FullMAX products including network design, RF planning, product
training and spectrum consulting. We provide customers with technical support, extended hardware warranties, and software.
10
TARGET
MARKETS AND APPLICATIONS
We
are dedicated to promoting standards-based wireless connectivity solutions for our customers. Our FullMAX platform is compliant
with the mission critical wireless Industrial Internet IEEE 802.16s. The specifications in the IEEE 802.16s standard are primarily
based on our FullMAX technology, and many of our customers and industrial partners actively supported our technology during the
IEEE standards-making process. In January 2020, a new working group was launched by the IEEE to establish IEEE 802.16t, a further
evolution of this wireless standard. The IEEE 802.16t working group includes industry-leading trade organizations such as the
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.
We
believe that the current standard and its evolution have been instrumental in broadening the appeal of our FullMAX platform globally
across all critical infrastructure markets. Since the publishing of IEEE 802.16s in November 2017, there has been a significant
increase in interest from customers in end markets including oil and gas, water and wastewater, transportation, aviation and homeland
security, as well as for the command and control of industrial drones. We believe we are currently the only supplier able to offer
IEEE 802.16s compliant systems and are actively working with customers and industry partners to help develop and support a multi-vendor
MC-IoT industry ecosystem for this standard.
Our
FullMAX system of wireless base stations, fixed and mobile remote radios and supporting technology is designed to enable highly
secure and reliable industrial-grade connectivity for truly mission-critical applications. The target customers for our products
operate in critical infrastructure sectors of the global economy. Private wireless networks are typically the preferred choice
of these large industrial customers with business operations spanning large field areas. Private networks provide enhanced protection
against cyber terrorism, as well as natural and man-made disasters, and the ability for the operator to maintain and control their
desired quality of service. Our IEEE 802.16s compliant equipment is designed to optimize performance of unused or underutilized
low frequency licensed radio spectrum and narrower channels. A FullMAX wireless network is significantly less expensive to build
compared to traditional LTE and 5G networks given its ability to optimize the performance of lower cost radio spectrum (non-traditional
LTE and 5G bands) and provide much greater coverage and capacity. In many of our industrial end markets, the adoption of low-cost
edge computing and increased penetration of “smart machinery” and sensors is driving demand for higher bandwidth,
next-generation networks for IoT applications such as those powered by FullMAX.
11
Effective
April 24, 2020, we entered into a strategic partnership with Siemens Mobility, Inc., a separately managed company of Siemens AG
(“Siemens”), to jointly develop wireless communications products for the North American Rail Industry by integrating
Siemens’ Advanced Train Control System (“ATCS”) protocol with our MC-IoT platform to create (i) a dual-mode
900 MHz over-the-air ATCS compatible, MC-IoT capable base station radio and (ii) a dual-purpose 900 MHz, over-the-air ATCS compatible,
MC-IoT capable wayside ratio. These dual-mode ATCS/MC-IoT radio systems will support Siemens’ extensive installed base of
ATCS radios and offer Siemens’ customers the ability to support a host of new advanced rail applications utilizing Ondas’
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. The new ATCS-compatible products will be introduced in two phases, including a field-selectable
ATCS or MC-IoT remote radio and a related MC-IOT base station, both of which will be available by the end of the first quarter
of 2021. Siemens began to market and sell Siemens-branded MC-IoT wireless systems based on our technology platforms to the North
American Rail industry in the second quarter 2020.
Our FullMAX platform
has been selected by Aura Network Systems (“Aura”) to be the connectivity backbone for the deployment of a nationwide
wireless network for operators of UAS. Our technology was selected for its unique capabilities to operate with very high reliability
and high throughput using narrowband licensed VHF frequencies. Our technology solves the need for robust command and control functionality
which is required by the FAA to operate commercial, industrial and governmental drones beyond visual line of site (BVLOS). The
network, once fully deployed, will be capable of supporting the simultaneous operation of tens of thousands of drones throughout
US Airspace. We are currently working with Aura and expect to engage multiple Tier 1 ecosystem partners to fully commercialize
the network. Organizations that have publicly announced their support for Aura’s network include Aerospace Industries Association
(AIA) AeroVironment, Inc., AiRXOS Inc. (GE Aviation), the Commercial Drone Alliance, Crown Castle International Corp., the Edison
Electric Institute, General Atomics Aeronautical Systems, Inc., the National Public Safety Telecommunications Council (NPSTC)
and Xcel Energy Services Inc.
Our
FullMAX platform also addresses the increasing need for data capability in the private Land Mobile Radio (LMR) push-to-talk mission
critical voice markets. Land mobile radio refers to the two-way mobile and handheld radio-based systems with the ability to offer
seamless communication to field personnel working across industrial and governmental sectors. LMR systems have traditionally offered
very limited data capacity (9.6 kbps) alongside voice-centric services. Our FullMAX platform offers the unique ability to utilize
narrow and non-adjacent channels in traditional LMR radio spectrum bands with 300x or greater capacity creating a Land Mobile
Data Radio (LMDR) platform. Our LMDR network platform simultaneously supports legacy voice services alongside the growing demand
for data services. This advancement allows customers to deploy our FullMAX data platform where push-to-talk, critical voice services
are provided as one of multiple data applications running on the network. LMR markets are seeing a growing demand for remote monitoring
and control capabilities driven by the need for efficiencies (e.g., rail sensor bed networks) and new sensor-based networks to
monitor climate conditions. We see the need to upgrade these networks across all industries and government users worldwide.
In
addition to selling our FullMAX solutions for dedicated private wide area networks, we offer private mission-critical wireless
services to industrial and governmental customers in select regions of the United States. In June 2019, we acquired 2 MHz of licensed
spectrum in the 700 MHz band including the State of Alaska and four strategic industrial counties bordering the Gulf of Mexico.
These counties are gateways into the Gulf of Mexico for the industrial transport of goods (e.g., Liquid Natural Gas) and include
the ports of Cameron Parish Port in Louisiana and Port Arthur and Port Lavaca in Texas.
12
Target
Customers
The
target customers for our products operate in critical infrastructure sectors of the global economy. Private wireless networks
are typically the preferred choice of these large industrial customers with business operations spanning large field areas. Private
networks provide enhanced protection against cyber terrorism, as well as natural and man-made disasters, and the ability for the
operator to maintain and control their desired quality of service. The existing public carrier networks based on LTE and 5G technology
are designed for mobile consumer usage and are not architected for MC-IoT applications. Wi-Fi-based IoT offerings have similar
shortcomings related to security, availability, and reliability, which are likewise unacceptable for mission-critical functions.
Our
FullMAX technology offers a next-generation upgrade path for existing private networks currently managed by our industrial customers.
These networks will typically be deployed on the existing tower and backhaul infrastructure owned by our customers thereby reducing
incremental infrastructure costs. We offer much faster data throughput and more efficient radio frequency utilization relative
to existing private networks that are based largely on legacy, proprietary technologies. We believe the IEEE 802.16s standard,
and its next iteration as 802.16t, are important catalysts for the MC-IoT upgrade cycle as our critical infrastructure customers
increasingly prefer standards-based technology. Standards-based solutions offer a deeper ecosystem of suppliers resulting in more
price and service competition and lower costs. The standard is relevant for all critical infrastructure providers with operations
covering large field areas making the market potential sizeable enough to attract a deep ecosystem of hardware and software solutions
providers along with ancillary service organizations to support our customers.
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, Sigfox and NB-IoT technologies which are being offered by public carriers. Our customers require wide-area coverage
with broadband speeds and low latency performance for operating environments managed over large field areas, which we can provide
cost effectively.
13
Customer
Activity
We
launched a business expansion plan in 2018 to leverage our world-class, standards based FullMAX platform and penetrate the large,
fast-growing critical infrastructure end markets we target. We grew our dedicated sales resources to broaden our marketing efforts
beyond the electric utility sector, which had historically been our primary end market. Since the second half of 2018, we have