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, 2022
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)
411
Waverley Oaks Road, Suite 114,Waltham, MA02452
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number (888)350-9994
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 par value $0.0001 ONDS The Nasdaq Stock Market LLC
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” 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. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2022 (the last business day of the
registrant’s most recently completed second fiscal quarter) was approximately $187,729,280. For purposes of this computation, all
officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed
to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.
The
number of shares outstanding of the issuer’s common stock as of March 10, 2023 was 49,062,030.
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
Risk 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
Risks
Related to Regulatory Requirements
Risks
Related to our Intellectual Property
Risks
Related to our Financial Results
● We will need to generate significant sales to achieve profitable operations.
Risks Related to the Airobotics Transaction
● Ondas may experience difficulties integrating Airobotics’ business.
● The Airobotics Robotics Transaction involved substantial costs.
Risks
Related to our Common Stock
ii
Item
1. Business.
This
business description should be read in conjunction with our audited consolidated financial statements and accompanying notes thereto
appearing elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”), which
are incorporated herein by this reference.
The
use of the words “we,” “our,” the “Company” and “Ondas Holdings” in this Form 10-K refer
to Ondas Holdings Inc. and its subsidiaries.
Corporate
Overview
Ondas
Holdings Inc. is a leading provider of private wireless, drone, and automated data solutions through its wholly owned subsidiaries Ondas
Networks Inc. (“Ondas Networks”), American Robotics, Inc. (“American Robotics” or “AR”) and Airobotics,
Ltd. (“Airobotics”).
Ondas
Holdings acquired American Robotics, a leading developer of highly automated commercial drone systems on August 5, 2021.
Ondas
Holdings acquired Airobotics, an Israeli-based developer of autonomous drone systems on January 23, 2023.
American
Robotics and Airobotics are operated together, under a separate business unit called Ondas Autonomous Systems. Ondas Networks and Ondas
Autonomous Systems together provide users in rail, energy, mining, agriculture, public safety and critical infrastructure and government
markets with improved connectivity, data collection capabilities, and data collection and information processing capabilities. We operate
Ondas Networks and Ondas Autonomous Systems as separate business segments. See Note 1 and Note 2 of the accompanying Consolidated Financial
Statements for further information regarding our segments.
Ondas
Networks
Ondas
Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to
these applications as the Mission-Critical Internet of Things (“MC-IoT”). 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.
1
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 infrastructure. Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers (“IEEE”),
the leading worldwide standards body in data networking protocols, and forms the core of the IEEE 802.16s standard. Because standards-based
communications solutions are preferred by our mission-critical customers and ecosystem partners, we have taken a leadership position
in IEEE as it relates to wireless networking for industrial markets. As such, management believes this standards-based approach supports
the adoption of our technology across a burgeoning ecosystem of global partners and end markets.
Our
software-based FullMAX platform is an important and timely upgrade solution for privately-owned and operated wireless wide-area networks,
leveraging Internet Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure
customers. We believe industrial and critical infrastructure markets throughout the globe have reached an inflection point where legacy
serial and analog based protocols and network transport systems no longer meet industry needs. In addition to offering enhanced data
throughput, FullMAX is an intelligent networking platform enabling the adoption of sophisticated operating systems and equipment supporting
next-generation MC-IoT applications over wide field areas. These new MC-IoT applications and related equipment require more processing
power at the edge of large industrial networks and the efficient utilization of network capacity and scarce bandwidth resources which
can be supported by the “Fog-computing” capability integrated in our end-to-end network platform. Fog-computing utilizes
management software to enable edge compute processing and data and application prioritization in the field enabling our customers more
reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the edge.
Ondas
Autonomous Systems
Our
Ondas Autonomous Systems business unit designs, develops, and markets commercial drone solutions via the Optimus SystemTM and Scout
SystemTM (the “Autonomous Drone Platforms”).
The
Autonomous Drone Platforms are highly automated, AI-powered drone systems capable of continuous, remote operation and are marketed as
“drone-in-a-box” turnkey data solution services. They are deployed for critical industrial and government applications where
data and information collection and processing are required. These use cases include public safety, security and smart city deployments
where routine, high-resolution automated emergency response, mapping, surveying, and inspection services are highly valued, in addition
to industrial markets such as oil & gas, rail and ports which emphasize security and inspection solutions. The Autonomous Drone Platforms
are typically provided to customers under a Data-as-a-Service (DaaS) business model, while some customers will choose to purchase and
own and operate an Optimus SystemsTM.
American
Robotics and Airobotics have industry leading regulatory successes which include having the first drone system approved by the Federal
Aviation Administration (“FAA”) for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site.
In
addition to the Autonomous Drone Platforms, we also offer a counter-drone system called the RaiderTM. The Raider was developed by
Iron Drone and is deployed by government and enterprise customers to provide security and protect critical infrastructure, assets and
people from the threat of hostile drones. Ondas Holdings acquired Iron Drone on March 6, 2023.
Autonomous
Drone Platforms
We design, develop and manufacture autonomous drone systems, providing
high-fidelity, ultra-high-resolution aerial data to enterprise and government customers. We currently prioritize the marketing of our
Optimus SystemTM which provides customers with a turnkey data and information solution and the ability to continuously digitize,
analyze, and monitor their assets and field operations in real-time or near real-time. We believe the market opportunity for our Scout
SystemTM remains significant. As we drive market adoption with the Optimus platform, we anticipate re-introducing the Scout platform
including newly enhanced versions to help segment the market for different use cases and price points.
The
Optimus SystemTM has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the
real world. Powered by innovations in robotics automation, machine vision, edge computing, and AI. Once installed in the field at customer
locations, a fleet of connected Optimus SystemsTM, which are often deployed as networked drone infrastructure, which we refer to
as Urban Drone Infrastructure, remains indefinitely positioned in an area of operation, automatically collecting and seamlessly delivering
data and information regularly and reliably.
2
We
market the Optimus SystemTM under a DaaS business model, whereby our drone platform aggregates customer data and provides the data
analytics meeting customer requirements in return for an annual subscription fee. Some customers purchase Optimus SystemsTM to own
and operate themselves. We also engage distributors to assist in the sales and marketing of our Optimus SystemTM in geographic markets
where its more cost effective to identify and service potential customers by engaging local third parties. These distribution agreements
can include joint ventures, where Ondas Autonomous Systems will provide technical expertise to support the joint venture partner in the
provision of aerial data services to customers.
The
Optimus SystemTM consists of (i) OptimusTM, a highly automated, AI-powered drone with advanced imaging payloads, (ii) the AirbaseTM,
a ruggedized weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud
transfer, and (iii) InsightfulTM, a secure web portal and API which enables remote interaction with the system, data, and resulting
analytics anywhere in the world. These major subsystems are connected via a host of supporting technologies. AirbaseTM has internal
robotic systems that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of
Optimus as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to
autonomously swap sensors and advanced payloads without human intervention allows for the Optimus SystemTM to provide multiple applications
and use cases from a single location.
American
Robotics and Airobotics have industry leading regulatory successes which include having the first drone system approved by the FAA for
automated operation BVLOS without a human operator or visual observer on-site. American Robotics’ FAA approvals were enabled by
integrating a suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and other proprietary intelligent safety
systems into its autonomous drone platform, which we plan to integrate into the Optimus SystemTM. Airobotics is in the advanced
stages of receiving approval for Type Certification (“TC”) from the FAA for the Optimus UAV. TC approval will enable expanded
operation for the Optimus SystemTM in the United States including flight operations in populated areas.
The
RaiderTM
The
RaiderTM is a counter-drone system, which was designed and developed by Iron Drone, that we are marketing to government and enterprise
customers who can utilize the system for security and the protection of critical infrastructure, assets and people from the threat of
hostile drones. A typical RaiderTM deployment location would include sensitive locations such as borders, stadiums or schools, or
near critical assets such as power plants and military bases, and for high profile locations such as amusement parks or where public
events are held.
The
RaiderTM is designed to detect, track and intercept unauthorized, or hostile unmanned aircraft and is most often sold with three
small UAVs that are housed in a docking station. The Raider UAV has live video capability and a payload containing a net that can be
deployed to intercept a hostile drone. Upon detection of an unauthorized drone, one or more RaiderTM UAVs can be autonomously deployed
at high speeds to track the unauthorized aircraft. If the unauthorized aircraft is deemed hostile, the RaiderTM UAV can deploy the
netting to physically intercept the aircraft. A parachute integrated with the netting allows the intercepted drone to safely fall to
the ground for collection by our customer.
Partnership
with Siemens
In
April 2020, Ondas Networks entered into a strategic partnership with Siemens Mobility (“Siemens”), a worldwide leader in
seamless, sustainable, reliable and secure transportation solutions for more than 160 years, to both market our FullMAX-based networking
technology and services and to jointly develop wireless communications products for the North American Rail Industry based on Siemens’
Advanced Train Control System (“ATCS”) protocol and our FullMAX MC-IoT platform.
3
We
believe Siemens has both the sales and marketing reach and support to drive our technology to wide scale acceptance across the global
rail market beginning with the North American Class I Railroad market. In the third quarter of 2021 we completed the development of our
first jointly-developed product with Siemens – the dual-mode ATCS/MC-IoT radio systems. Siemens is now marketing and selling these
proprietary systems under the brand name Airlink to our railroad customers. The dual-mode ATCS radio systems support Siemens’
extensive installed base of ATCS radios as well as offer Siemens’ customers the ability to support a host of new advanced rail
applications utilizing our MC-IoT wireless system. These new applications, including Advanced Grade Crossing Activation and Monitoring,
Wayside Inspection, Railcar Monitoring and next generation signaling and train control systems, are designed to increase railroad productivity,
reduce costs and improve safety. In addition, Siemens markets and sells Ondas Networks’ standalone MC-IoT 802.16 products under
the Siemens Airlink brand.
Our
relationship with Siemens has expanded significantly since entering into the partnership both with (i) the wider marketing of our wireless
technology platform and (ii) multiple additional joint-product programs. Siemens has expanded its marketing reach of Ondas Networks products
with identified opportunities in North American Transit Rail as well as in European and Asian Rail markets. We believe our technology
has broad potential in these large, newly targeted markets.
In
November 2021, Siemens secured its first commercial 900 MHz rail order for a major Class I Railroad in the United States which was delivered
in December 2021. In August 2022, we announced that we had secured an initial volume order from Siemens for the Class I Rail 900 MHz
Network consisting of both ATCS compatible products along with Ondas’ catalog products. In September 2022, we received government
authorization to sell ATCS radios in Canada.
Our
Strategy
Our
goal is to be a global leader in providing turnkey data solutions for industrial, public safety and government markets by offering i)
secure wireless connectivity solutions enabling high-bandwidth, mission-critical Industrial Internet applications and services through
Ondas Networks and ii) automated commercial drone services through Ondas Autonomous Systems.
The
acquisition of Airobotics was a transformative event for Ondas. Our strategy will emphasize realizing the financial and strategic benefits
of combining American Robotics and Airobotics under the Ondas Autonomous Systems business unit. We believe this combination will allow
us to accelerate revenue generation and allow us to operate more cost efficiently. The revenue benefits come via expanded global sales
and marketing which is significantly enhanced by introducing the Optimus SystemTM to the US market via our American Robotics customer
and field operations staff. Cost efficiencies can be realized via these global sales efforts, elimination of redundant R&D efforts,
and through the integration of our product development and engineering teams focused on a single product roadmap.
The
key elements of our growth strategy include the following:
4
● Continue to enhance the value of our Optimus SystemTM for customers.
Our
Business Model
Ondas
Networks
We
sell our FullMAX MC-IoT wireless products and services globally through a direct sales force and value-added sales partners to industrial
and critical infrastructure providers including major rail operators, commercial and industrial drone operators, electric and gas utilities,
water and wastewater utilities, oil and gas producers and pipeline operators, and for other critical infrastructure applications in areas
such as public safety, homeland security and defense, and transportation. We continue to develop our value-added reseller relationships
which today include a strategic partnership with Siemens for the development of new types of wireless connectivity for the North American
Rail market as well as selected global markets in both Europe and Asia. We believe our Siemens’ partnership is indicative of the
potential for additional Tier 1 partnerships in our other vertical markets including securing reseller relationships with major suppliers
to the worldwide government and homeland security markets. To that end, in 2022, we expanded our relationship with Israel Aerospace Industries’
(IAI) Elta division to deliver wireless solutions for the Integrated Coastal Surveillance markets in the Caribbean and India.
In
executing our go-to-market strategy, we intend to monetize our software-based intellectual property and grow revenue and cash flow with
embedded FullMAX software sales, Software-as-a-Service (“SaaS”) arrangements, IP royalties based on Ondas Networks software
and through additional services provided to customers and ecosystem partners. Customers deploy our connectivity and Fog-computing platform
in private networks that are designed for lifetimes of 10 – 15 years or even longer. Our FullMAX platform is software-defined and
offers customers flexibility to expand capacity and evolve network utilization. Similarly, our ecosystem partners often integrate our
FullMAX 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 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.
5
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.
Ondas
Autonomous Systems
Ondas
Autonomous Systems markets its Optimus SystemTM drone platform via a direct sales force to enterprise and government customers.
We focus on identifying and qualifying large, sophisticated customers with active drone programs who have the ability and intent to expand
those programs and eventually deploy fleets of automated drones across their portfolio of assets. After initial customer qualification,
contracting and the receipt of a purchase order, we ship and install the Optimus SystemTM 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.
Our
Optimus SystemTM and the services provided via the autonomous drone platform can typically be acquired by customers under several
arrangements ranging from Data-as-a-Service (“DaaS”) agreements to a full, outright sale of an Optimus SystemTM.
6
Airobotics
is in the advanced stages of receiving approval for Type Certification (“TC”) from the FAA for the Optimus UAV. TC approval
will enable expanded operation for the Optimus SystemTM in the United States including flight operations in populated areas. The
significance of TC approval was highlighted by the FAA decision in April 21, 2021, to amend Part 107 rules which defined new conditions
for Drone flights above people and enables night flight. The new regulations define four categories of Drones and clarify that small
UAS (“sUAS”) such as the Optimus drone which are below a certain weight will be permitted to conduct flights above populated
areas without receiving a specific certificate of Part 107 waiver for systems that have TC designations.
We also market The RaiderTM, the counter-drone system designed
and developed by Iron Drone, a unit within Ondas Autonomous Systems. The RaiderTM is targeted towards government and enterprise customers
who can utilize the system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones.
The RaiderTM was formally launched and available to customers in March 2022. We offer this product directly to customers and we intend
to broaden the sales & marketing of the RaiderTM with distribution through value-added resellers and partners in the future.
Our
Products and Services
Ondas
Networks
Ondas
Networks has developed a next-generation radio platform specifically to meet the evolving data needs of large industrial and government
customers and markets. These markets are differentiated from consumer markets in that the customers assets are dispersed over very
wide and remote geographies with specific challenges to installation, maintenance, and upgrades. These challenges led us to design
a new type of software-based radio platform capable of supporting a long useful life to the network hardware. Instead of using
low cost, off the shelf, dedicated communications chipsets (“ASICs”), we selected powerful programmable embedded general-purpose
processors, DSPs, and FPGAs, all of which are software upgradable. Our software defined radio (“SDR”) architecture,
with more than 12 years in development and supported by a team of over 50 software engineers, allows us to customize almost any aspect
of the air interface protocol, the key components of which are patented and have been incorporated into new IEEE wireless standards.
The ability to constantly improve customer networks and hosted software applications with flexible, over-the-air software upgrade helps
create customer loyalty and creates high switching costs.
Our
FullMAX SDR platform is designed to enable highly secure and reliable industrial-grade connectivity for truly mission-critical applications.
An end-to-end FullMAX network consists of connected wireless base stations, fixed and mobile edge radios and supporting technology all
enabled by critical software developed and owned by Ondas Networks. The Fog-computing capability integrated in our end-to-end FullMAX
SDR platform is valued by our customers and ecosystem partners as they seek to leverage the value of MC-IoT applications for improved
safety, efficiency, and profitability. Our IEEE 802.16s compliant equipment is designed to optimize the performance of unused or underutilized
low frequency licensed radio spectrum and narrower channels. We do this through various patented software algorithms including via “spectrum
harvesting” techniques which aggregate narrowband channels to create increased broadband network capacity. Our channel aggregation
algorithms include the ability to aggregate hard to utilize, non-contiguous narrowband channels and are a hallmark feature of a FullMAX
broadband system.
The
critical software algorithms powering our end-to-end FullMAX wireless SDR platform and related Fog-computing architecture have been developed
by and are owned by Ondas Networks. FullMAX is an intelligent networking system which integrates core network management systems with
edge computing resources including computing hardware and MC-IoT software applications. In the MC-IoT Fog enabled by FullMAX, base stations
are enabled with a highly configurable Quality of Service algorithms which coordinate the data traffic within the Fog for both the edge
radio and the resident MC-IoT applications. The intelligent base stations control and manage all network resources including our edge
remotes; dynamically allocating bandwidth, prioritizing data packets and managing edge applications. The intelligent software-managed
base stations determine whether to process data at the edge, distribute data traffic across the Fog to other edge remote radios or to
transport information to the corporate Cloud. Our Edge remotes have embedded compute capability and are able to host MC-IoT applications
including those from third party vendors via virtualized software systems managed in docker / container architectures and can also manage
data from intelligent equipment or sensor networks that interface with the edge remotes in the field. Our software-managed edge remotes
offer security via authentication, multi-layer encryption and virtual software firewalls which are requirements for mission-critical
data networks.
We
are dedicated to promoting standards-based wireless connectivity solutions for our customers. Our FullMAX platform is compliant with
the mission critical wireless Industrial Internet IEEE 802.16s. The specifications in the IEEE 802.16s standard are primarily based on
our FullMAX technology, and many of our customers and industrial partners actively supported our technology during the IEEE standards-making
process. In January 2020, a new working group was launched by the IEEE to establish IEEE 802.16t, a further evolution of this wireless
standard. The IEEE 802.16t working group includes industry-leading trade organizations such as the Association of American Railroads
(“AAR”), MxV Rail (“MxV Rail”), the Utilities Technology Council (UTC) and the Electric Power Research Institute
(EPRI), as well as representation from world-leading transportation and oil and gas companies. We expect our technology to remain a prominent
feature of this evolving standard.
7
Ondas
Autonomous Systems
We
provide our customers with turnkey data and information solutions designed to meet their unique requirements in the field. We do this
via our internally developed Optimus SystemTM, a highly automated commercial drone platform which provides customers with the ability
to continuously digitize, analyze, and monitor their assets and field operations in real-time or near real-time.
The
Optimus SystemTM has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the
real world. The Optimus SystemTM consists of (i) OptimusTM, a highly automated, AI-powered drone with advanced imaging payloads
(ii) the AirbaseTM, a ruggedized weatherproof base station for housing, data processing, and cloud transfer, and (iii) InsightfulTM,
a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere in the world. These
major subsystems are connected via a host of supporting technologies. Using advanced robotic techniques, the AirbaseTM has
functionality that enables the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of
OptimusTM as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability
to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus SystemTM to provide multiple
applications and use cases from a single location.
When
deployed in smart city applications, the Optimus SystemTM is designed to operate as a network of smart drones linked to an urban
control center and will function as a municipal infrastructure providing a variety of automated data solutions. The primary function
of the deployed Urban Drone Infrastructure is to shorten response times of security and rescue forces to emergency situations, supporting
law enforcement and homeland security activities, and streamlining diverse services provided by the municipality for the public’s benefit.
The Company is also examining drone parcel delivery and other smart city applications to be provided by the infrastructure.
In
these deployments, customers establish permanent infrastructure which rely on fleets of automated drones that do not require on the ground
human intervention to operate. The drones are able to operate as a task force that can simultaneously collect and provide critical information
for a variety of customer requirements. The Airobotics drone infrastructure is specifically designed for urban environments and strategic
facilities that require immediate security, monitoring and emergency response. Each system within the infrastructure framework includes
a smart Airbase enabling automated battery changes enabling 24/7 operations, along with the automated loading and installation of sensors
appropriate for each specified mission. Each system covers a perimeter up to 80 square kilometers surrounding an Airbase. Drone flights
can be tasked to carry specific sensors, enabling every drone in the system to execute diverse tasks. The drones can be activated for
complex longer-term operations. Flights are overseen by remote operators in a command-and-control center.
In
certain geographic markets we will partner with a distributor to support the marketing and provision of aerial data services provided
by an Optimus SystemTM. These distributors typically have unique local knowledge and can more cost effectively target customers
for Urban Drone Infrastructure deployment. In some instances, we will form joint ventures with distributors to provide aerial data services
to government and enterprise customers. These joint ventures typically include agreements to purchase Optimus SystemsTM and are
arranged so that Ondas Autonomous Systems and our partner can share in the revenue and profitability in the provision of aerial data
services.
The RaiderTM is a counter-drone
system, which was designed and developed by Iron Drone, that we are marketing to government and enterprise customers who can utilize the
system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. A typical RaiderTM
deployment location would include sensitive locations such as borders, stadiums or schools, or near critical assets such as power plants
and military bases, and for high profile locations such as amusement parks or where public events are held.
The RaiderTM is designed to detect, track and intercept unauthorized,
or hostile unmanned aircraft and is most often sold with three small UAVs that are housed in a docking station. The Raider UAV has live
video capability and a payload containing a net that can be deployed to intercept a hostile drone. Upon detection of an unauthorized drone,
one or more RaiderTM UAVs can be autonomously deployed at high speeds to track the unauthorized aircraft. If the unauthorized aircraft
is deemed hostile, the RaiderTM UAV can deploy the netting to physically intercept the aircraft. A parachute integrated with the
netting allows the intercepted drone to safely fall to the ground for collection by our customer.
8
The
Market for Our Products and Services
We
have targeted the North American freight rail operators for the initial adoption of our FullMAX platform. These rail operators currently
operate legacy communications systems utilizing serial-based narrowband wireless technologies for voice and data communications. These
legacy wireless networks have limited data capacity and are unable to support the adoption of new, intelligent train control and management
systems. In addition to data capacity challenges, rail operators need to reliably cover the vast and often remotely located rail track
and related infrastructure which extends nationwide. The rail operators require a next-generation, robust broadband system with significantly
increased data throughput capacity and flexibility to adopt new applications. We believe a transition to integrated Fog-computing wireless
communications systems will enable the rail operators to drive more intelligence to the edge of their operating environments enabling
real time automation and better operator control of many critical operating systems related to train control, crossing safety, train
and track integrity and drone operations. This upgrade cycle is being driven by a recent key event which occurred in August 2020 in which
the Class 1 rail systems in the U.S. were awarded new nationwide “greenfield” wideband radio spectrum by the Federal Communications
Committee (“FCC”). As part of the award, the rail operators are required by 2025, to vacate a series of legacy narrowband
channels. The completion of this multiyear negotiation between the FCC and other licensed users is projected to generate a major network
upgrade cycle for the rail industry which will support enhanced safety and improved efficiency and profitability of train operations.
The
North American Rail Network is vast in scale, consisting of 140,000 miles of track, 25,000 locomotives, and 1.6 million railcars. Within
this large footprint, we believe there are 200,000 highway crossings, with at least 65,000 of the crossings equipped with electronic
systems today, a number which is expected to increase in the coming years. The Class I railroads currently operate four separate private
wireless networks in support of train operations. Those networks are deployed using spectrum in the 160 MHz, 220 MHz, 450 MHz and 900
MHz bands. We believe a significant portion of the communications infrastructure has been in operation for more than 20 years and now
requires a technological upgrade to support new applications and increased capacity requirements. Our FullMAX MC-IoT platform 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. Based upon management estimates, we believe the addressable market for the four private North
American Railroad networks is approximately $1.3 billion. We believe the 900 MHz network will be the first network upgrade to adopt our
FullMAX technology and we estimate that the market size for the 900 MHz network is approximately $450 million.
Additional
Critical Markets
We
have launched additional initiatives to take our MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure
markets. In June 2022, we announced the first successful installation of our technology into an Integrated Coastal Surveillance System
(ICSS) in the Caribbean with a global defense contractor. In the fourth quarter of 2022, we received and delivered on a new ICSS order
for the defense contractor to be deployed in India. We expect additional orders from this defense vendor for the ICSS application in
2023. We believe our FullMAX technology’s licensed frequency flexibility, reliability, and long communications range over ocean surfaces,
is broadening the scale of our technology in this emerging market for homeland security.
Ondas
Autonomous Systems
The
total addressable market (“TAM”) for commercial drone applications is also large – measuring over $100 billion in size,
according to management estimates and independent third-party research. For the vast majority of commercial drone applications, full
automation is required to make economic sense. The time and cost requirements of human pilots are too high for the demanding and monotonous
routines that must be performed to extract value. Ondas Autonomous Systems’ drone platforms target the majority of “drone-in-a-box”-applicable
commercial, public safety and defense markets.
Based
upon management estimates, we believe the market size for the Smart City applications for the Optimus SystemTM to be over $15 billion.
9
According
to a report by GrandView Research published in 2020, Counter-UAS markets are estimated to have a market size of over $10 billion in size.
A
report from PWC in 2016 stated that the market size for the commercial drone sector was in excess of $125 billion. PWC segmented the
commercial market into three primary categories, Industrial, Agricultural, and Defense. We estimate the collective TAM for the Optimus
SystemTM and anticipated derivative products within these three target markets to be $114 billion. For each market, the core automation
technology is similar, but the product is optimized for that set of use cases. Primary differences include payload as well as the user
interface (“UI”) and user experience (“UX”) and analytics packages within InsightfulTM.
Customer
Activity
Ondas
Networks
The
majority of Ondas Networks customer activity has been with the Class 1 freight railroad operators and Siemens in North America. There
are seven 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 railroad customers new radio spectrum.
In August 2022, we received our first commercial volume order for the
900 MHz network from Siemens. We also delivered a Rail Lab (the “dot16 Rail Lab”) to MxV Rail, a subsidiary of the AAR, in
September 2022. The dot16 Rail Lab is hosting multiple Class 1 freight rail operators where they will perform on going network design
and configuration related to optimizing the performance of our IEEE 802.16 complaint systems in connection with wide-scale field deployment.
We expect the commercial rollout of the 900 MHz to accelerate with the Class 1 freight rail operators throughout 2023 with multiple rail
customers providing purchase orders and deploying our software-defined network. We expect a 900 MHz network upgrade cycle across 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.
10
As
of December 31, 2022, Ondas Networks was active with six of the Class 1 Rails in North America and with one of the largest railroads
in the world, Indian Railways, for a multi-year delivery program of locomotive radios for on-board telemetry applications. Also in 2022,
we received our first order for 160 MHz radios, a bridge to the next major rail network in North America, which we believe will be upgraded
to our FullMAXTM platform.
Ondas
Autonomous Systems
Our
Optimus SystemTM addresses a wide number of applications and use cases across enterprise, industrial, and government end markets.
The platform has been extensively tested both internally and externally with customers for reliability, safety, and performance. We received
purchase orders from two customers in the UAE in December 2022, which represented our initial orders for commercial deployment as Urban
Drone Infrastructure fleets. The initial purchase order was received for a UAE government entity with plans to primarily use the system
for public safety and homeland security applications. We also announced a purchase order from Abu Dhabi-based SkyGo Transport of Goods
L.L.C. (“SkyGo”). Airobotics and SkyGo have also signed a Term Sheet agreeing to enter into a joint venture (the “SkyGo
JV”) to provide aerial drone services to municipal and government customers focused on Smart City use cases.
Customer
interest in our aerial data services has grown significantly since receiving these initial fleet orders and that is reflected in a growing
customer pipeline. The initial two customers have indicated plans to deploy approximately 50 systems in the UAE by 2025 and we believe
demand could grow further. In addition, moving customers from proof-of-concept deployments to Urban Drone Infrastructure fleet deployments
has validated the performance and value of our Optimus SystemTM, which has helped both accelerate our marketing activity with existing
customers and generated new customer interest to help expand the pipeline. We expect interest in our Optimus System TM to grow significantly
as awareness builds which will expand our customer pipeline.
We
expect to expand customer activity in the United States as American Robotics introduces Optimus to its existing customers and expands
marketing to new customers. In the United States, we are qualifying our oil and gas customers for marketing programs, and we plan to
expand marketing to other industrial and government markets.
We launched our RaiderTM counter-drone system in March 2023 and
began seeking customer orders at the same time. We have seen significant interest in the RaiderTM For potential customers and partners
and on March 10, 2023 we announced that the Dubai Police has signed an MOU which expressed their intent to purchase a certain number of
units of the RaiderTM. We expect to receive additional orders as we expand marketing channels in 2023.
Manufacturing,
Availability and Dependence upon Suppliers
Ondas
Networks and Ondas Autonomous Systems utilize outsourced manufacturing partners in the building of product to fulfill customer orders.
Utilizing contract manufacturers allows us to focus on designing, developing and selling our products. Furthermore, outsourced manufacturing
allows us to leverage the economies of scale and expertise of specialized outsourced manufacturers, reduce manufacturing and supply chain
risk and distribution costs.
Ondas
Networks designs the printed circuit boards and enclosures for our radios and maintains the bill of materials for all of the products
we manufacturer. A Bill of Materials (“BOM”) is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components,
parts and the quantities of each needed to manufacture the 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. Ondas Networks
maintains multiple contract manufacturers, both domestically and internationally, to ensure competitive pricing and to reduce the risk
from a single manufacturer.
11
Ondas
Autonomous Systems designs the Optimus SystemTM and specifies all components of the BOM including the raw materials, sub-assemblies,