Item 1A. Risk Factors
Investing in our common
stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks, as well
as general economic and business risks, and all of the other information contained in this Form 10-K. Any of the following risks could
harm our business, operating results and financial condition and cause the trading price of our common stock to decline, which would cause
you to lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained
in this Form 10-K including our financial statements and the related notes thereto.
Risks Related to Our Business and Industry
We have incurred significant operating
losses since inception and cannot assure you that we will ever achieve or sustain profitability.
Since our inception, we
have incurred significant net losses. As of December 31, 2025 and December 31, 2024, we had an accumulated deficit of approximately
$368.4 million and $236.4 million, respectively. To date, we have financed our operations primarily through sales of our equity
securities and debt financing.
We expect our operating
expenses to increase significantly as we pursue our growth strategy, including expending substantial resources for research, development
and marketing. The extent of our future operating losses and the timing of profitability are highly uncertain, and we expect to continue
incurring significant expenses and operating losses over the next several years. Any additional operating losses may have an adverse effect
on our stockholders’ equity and the price of our common stock, and we cannot assure you that we will ever be able to achieve profitability.
Even if we achieve profitability, we may not be able to sustain or
increase such profitability. Additionally, our costs may increase in future periods and we may expend substantial financial and other
resources on, among other things, sales and marketing, the hiring of additional officers, employees, contractors and other service providers,
and general administration, which may include a significant increase in legal and accounting expenses related to public company compliance,
continued compliance and various regulations applicable to our business or arising from the growth and maturity of our company. Our failure
to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business,
maintain our development efforts, obtain regulatory approvals, diversify our product and service offerings or continue our operations,
and may cause the price of our common stock to decline.
We may not successfully
manage our growth.
We have grown substantially
over prior years, including by expanding our internal resources, making acquisitions and entering new markets and we intend to continue
to focus on growth, including organic growth and additional acquisitions. We may experience difficulties and higher than expected expenses
in executing this strategy as a result of unfamiliarity with new markets, changes in revenue and business models, entry into new geographic
areas or increased pressure on our existing infrastructure and information technology systems.
Our ability to successfully
implement our business plan requires an effective plan for managing our future growth. We plan to increase the scope of our operations.
Current and future expansion efforts will be expensive and may significantly strain our managerial and other resources and ability to
manage working capital. To manage future growth effectively, we must manage expanded operations, integrate new personnel and maintain
and enhance our financial and accounting systems and controls. If we do not manage growth properly, it could harm our business, financial
condition or results of operations and make it difficult for us to satisfy our debt obligations.
Our growth will place
a significant strain on our management, operational, financial and information technology resources. We will need to continually improve
existing procedures and controls, as well as implement new transaction processing, operational and financial systems and procedures and
controls to expand, train and manage our employee base. Our working capital needs will continue to increase as our operations grow. Failure
to manage our growth effectively or obtain necessary working capital could have a material adverse effect on our business, results of
operations, cash flows and financial condition.
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We may be unsuccessful
in achieving our organic growth strategies, which could limit our revenue growth or financial performance. Our ability to generate organic
growth will be affected by our ability to, among other things:
● attract new customers;
● increase the number of products purchased from customers;
● maintain profitable gross margins in the sale and maintenance of our products;
● increase the number of projects performed for existing customers;
● achieve the estimated revenue we announced from new customer contracts;
● hire and retain qualified employees;
● expand geographically, including internationally; and
Many of the factors affecting
our ability to generate organic growth may be beyond our control, and we cannot be certain that our strategies for achieving internal
growth will be attempted, realized or successful.
If we fail to retain our existing customers
or do not acquire new customers in a cost-effective manner, our revenue may decrease and our business, financial condition or results
of operations may be harmed.
We believe that our success
is dependent on our ability to continue identifying and anticipating the needs of our customers, to retain our existing customers and
to add new customers. For example, our business plan is designed to penetrate large, critical infrastructure end markets with our wireless
and UAS driven data solutions and have expanded our dedicated sales resources and field personnel to broaden our marketing and field support
efforts into new industries and sectors. As a result, we have significantly increased customer engagement in the transportation, security
and UAS end markets with Ondas Networks and in the defense, industrial, public safety and government markets with OAS. We expect that
our qualified customer pipeline will increase in other additional strategic end markets. However, as we become larger through organic
growth, the growth rates for customer engagement, project volume and average spend per customer may slow, even if we continue to add customers
on an absolute basis. In addition, the costs associated with customer retention may be substantially lower than costs associated with
the acquisition of new customers. Therefore, our failure to retain existing customers, even if such losses are offset by an increase in
revenue resulting from the acquisition of new customers, could have an adverse effect on our business, financial condition or results
of operations.
Additionally,
while a key part of our business strategy is to add customers in our existing geographic markets, we expect to expand our operations into
new geographic markets. In doing so, we may incur losses or otherwise fail to enter new markets successfully. Our expansion into new markets
may place us in unfamiliar and competitive environments and involve various risks, including the need to invest significant resources
and the possibility that returns on such investments will not be achieved for several years or at all.
We have significant dependence on a small number of customers,
and the loss of such customers or a decrease in business conducted with such customers could materially harm our business, financial condition
or results of operations.
Because we have only recently
invested in our customer service and support organization, a small number of customers have accounted for a substantial amount of our
revenue. During the year ended December 31, 2025, two customers accounted for approximately 55% and 11%, respectively. During the year
ended December 31, 2024, three customers accounted for approximately $3.8 million, $1.9 million, and $0.7 million of our revenue or approximately
52%, 26%, and 10%, respectively. As of December 31, 2025, one customer accounted for 73% of accounts receivable. The loss of any of our
customers or a decrease in the business conducted with such customers could have a material adverse impact on our business, financial
condition or results of operations.
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We depend on governmental customers
and funding, and our business could be adversely affected by changes in government spending, budget priorities, or procurement policies.
A significant portion
of our business, particularly through our OAS segment, involves sales to government customers, including defense, homeland security, and
public safety agencies. Our revenue from government customers depends on the availability of funding and continued government interest
in our products and services. Government contracts are subject to the government’s budgetary approval process, and there is no assurance
that budgets for our programs will continue at current levels or that our programs will not be terminated or experience funding delays.
Changes in government budgetary priorities, including continuing resolutions, government shutdowns, or sequestration, could result in
reduced or delayed funding for programs in which we participate, which could adversely affect our revenue and operating results.
Government contracts are
also subject to various uncertainties, including the risk of contract termination for convenience, modification, or non-renewal. The government
may terminate, reduce, or modify contracts or subcontracts if its requirements or budgetary constraints change. In addition, the government
contracts are subject to a competitive bidding process that can consume significant resources without generating any revenue. Much of
the government business that we expect to seek in the foreseeable future will likely be awarded through competitive bidding. Competitive
bidding presents a number of risks, including the substantial cost and managerial time that must be spent to prepare bids and proposals
for contracts that may not be awarded to us, the need to accurately estimate the resources and cost structure required to service any
contract we are awarded, and the expense and delay that may arise if competitors protest or challenge contract awards made to us. Any
of these factors could adversely affect our business, financial condition and results of operations.
The adoption of the IEEE 802.16t wireless
broadband standard, an evolution of the IEEE 802.16s standard published in 2017, by customers in our target critical infrastructure sectors
is uncertain.
Ondas Networks is currently
developing technology compatible with the proposed wireless broadband standard known as IEEE 802.16t, which is an evolution of the IEEE
802.16s wireless broadband standard published in October 2017. We believe we are currently the only manufacturer of IEEE 802.16s compliant
wireless solutions and are likely to be the only manufacturer of IEEE 802.16t compliant wireless solutions when that standard is formally
ratified. The benefits of the standard to buyers of our equipment are greater when there exists a large, deep market in terms of the number
of customers. A large market benefits from the scale provided such that many vendors can compete on service, price and quality of solution
driving improved value for customers. If a large end market does not develop and customers do not see the related benefits from the standard,
we may not be able to grow our business.
Our growth depends in part on the success
of our strategic collaborations with key customers, as well as on our ability to establish and expand a broad ecosystem of relationships
with leading global industrial vendors.
To support our growth,
we collaborate with leading technology and industrial companies, many of whom are also our customers, to help accelerate the adoption
of our wireless technology. If we are unable to sustain these customer relationships or if these collaborations do not deliver the expected
benefits, our ability to compete in the marketplace and grow our revenue could be adversely affected, and our operating results may suffer.
In addition, adoption of our FullMAX wireless platform, Optimus SystemTM, and Iron Drone RaiderTM requires us to establish additional
ecosystem relationships with leading global industrial vendors and customers. Even if we are successful in executing these partnerships
and integrating with additional ecosystem vendors, we cannot assure you that these partnerships and relationships will result in increased
adoption of our technology or increased revenue.
If the commercial UAS markets do not
experience significant growth, if we cannot expand our customer base or if our products and services do not achieve broad acceptance,
then we may not be able to achieve our anticipated level of growth.
We cannot accurately predict
the future growth rates or sizes of the markets for our products and services. Demand for our products and services may not increase,
or may decrease, either generally or in specific markets, for particular types of products and services or during particular time periods.
We believe the market for commercial UAS is nascent and the expansion of the market for our products and services in particular, depends
on a number of factors, including the following:
● customer satisfaction with these types of systems as solutions;
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● obtaining timely regulatory approvals for new customer deployments; and
● marketing efforts and publicity regarding these types of systems and services.
Even if commercial UAS
gain wide market acceptance, our products and services may not adequately address market requirements and may not continue to gain market
acceptance. If these types of systems generally, or our products and services specifically, do not gain wide market acceptance, then we
may not be able to achieve our anticipated level of growth and our revenue and results of operations would decline.
Project performance delays or
difficulties, including those caused by third parties, or certain contractual obligations may result in additional costs to us, reductions
in revenues or the payment of liquidated damages.
Many projects involve
challenging engineering, construction or installation phases that may occur over extended time periods. We may encounter difficulties
as a result of delays or changes in designs, engineering information or materials provided by our customer or a third party, delays or
difficulties in equipment and material delivery, schedule changes, delays from our customer’s failure to timely obtain permits or
meet other regulatory requirements including the securing of necessary FCC certifications or FAA approvals, weather-related delays and
other factors, many of which are beyond our control, that impact our ability to complete the project in accordance with the original delivery
schedule. In addition, we contract with third-party subcontractors to assist us with the completion of contracts. Any delay or failure
by suppliers or by subcontractors in the completion of their portion of the project may be beyond our control and may result in delays
in the overall progress of the project or may cause us to incur additional costs, or both. Delays and additional costs may be substantial,
and, in some cases, we may be required to compensate the customer for such delays. Delays may also disrupt the final completion of our
contracts as well as the corresponding recognition of revenues and expenses therefrom. In certain circumstances, we guarantee project
completion by a scheduled acceptance date or achievement of certain acceptance and performance testing levels; failure to meet any of
our guarantees, schedules or performance requirements could also result in additional costs or penalties to us, including obligations
to pay liquidated damages, and such amounts could exceed expected project profit. In extreme cases, the above-mentioned factors could
cause project cancellations, and we may be unable to replace such projects with similar projects or at all. Such delays or cancellations
may impact our reputation, brand or relationships with customers, adversely affecting our ability to secure new contracts.
We do not control certain aspects of
the manufacturing process.
Our reliance on a small
number of manufacturers reduces our control over the manufacturing process, exposing us to risks, including reduced control over quality
assurance, product costs and product supply including delays in transportation and delivery. Any manufacturing disruption by our usual
manufacturers could impair our ability to fulfill orders. We may be unable to manage our relationships with our usual manufacturers effectively
as they may experience delays, disruptions, capacity constraints or quality control problems in their manufacturing operations or otherwise
fail to meet our future requirements for timely delivery. Similarly, to the extent that our usual manufacturers procure materials on our
behalf, we may not benefit from any warranties received by our usual manufacturers from the suppliers or otherwise have recourse against
the original supplier of the materials or even the manufacturer. In such circumstances, if the original supplier were to provide us or
our usual manufacturers with faulty materials, we might not be able to recover the costs of such materials or be compensated for any damages
that arise as a result of the inclusion of the faulty components in our products.
One or more of our usual
manufacturers may suffer an interruption in its business, or experience delays, disruptions or quality control problems in its manufacturing
operations, or seek to terminate its relationship with us, or we may choose to change or add additional manufacturers for other reasons.
Additionally, we do not have long-term supply agreements with our usual manufacturers. As a result, we may be unable to renew or extend
our agreement on terms favorable to us, if at all. Although the manufacturing services required to manufacture and assemble our products
may be readily available from a number of established manufacturers, it may be risky, time consuming and costly to qualify and implement
new manufacturer relationships.
Any of these risks could
have a material adverse effect on our business, financial condition and results of operations.
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Material delays or defaults in customer
payments could leave us unable to cover expenditures related to such customer’s projects, including the payment of our subcontractors.
Because of the nature
of most of our contracts, we commit resources to projects prior to receiving payments from our customers in amounts sufficient to cover
expenditures as they are incurred. In certain cases, these expenditures include paying our contractors and purchasing parts. If a customer
defaults in making its payments on a project or projects to which we have devoted significant resources, it could have a material adverse
effect on our business, financial condition or results of operations.
Certain of our officers, employees,
contractors and other service providers may work on projects that are inherently dangerous, and a failure to maintain a safe worksite
could result in significant losses.
Certain of our project
sites can place our officers, employees, contractors and other service providers and others, including third parties, in difficult
or dangerous environments, and may involve difficult and hard to reach terrain, high elevation, or locations near large or complex equipment,
moving vehicles, high voltage or other safety hazards or dangerous processes. Safety is a primary focus of our business and maintaining
a good reputation for safety is critical to our business. Many of our customers require that we meet certain safety criteria to be eligible
to bid on contracts. We maintain programs with the primary purpose of implementing effective health, safety and environmental procedures
throughout our company. Maintaining such programs involves variable costs which may increase as governmental, regulatory and industry
safety standards evolve, and any increase in such costs may materially affect our business, financial condition or results of operations.
Further, if we fail to implement appropriate safety procedures or if our procedures fail, our officers, employees, contractors
and other service providers, including third parties, may suffer injuries. Failure to comply with such procedures, client contracts
or applicable regulations, or the occurrence of such injuries, could subject us to material losses and liability and may adversely impact
our ability to obtain projects in the future or to hire and retain talented officers, employees, contractors, and other services
providers, therefore materially adversely affecting our business, financial condition or results of operations.
Our products are subject to a lengthy
sales cycle and our customers may cancel or change their product plans after we have expended substantial time and resources in the design
of their products.
Many of our customers
are conservative in their decision-making process. Sales cycles for new customers can vary from one to three years depending on the complexity
of the customer’s network, whether the customer is subject to state regulations, and annual budget cycles. During this lengthy sales
cycle, our potential customers may cancel or change their product plans. Customers may also discontinue products incorporating our devices
at any time or they may choose to replace our products with lower cost semiconductors. In addition, we are working with leading customers
in our target markets to define our future products. If customers cancel, reduce or delay product orders from us, or choose not to release
products that incorporate our devices after we have spent substantial time and resources developing products or assisting customers with
their product design, our revenue levels may be less than anticipated and our business, results of operations and financial condition
may be materially adversely affected.
Our marketing efforts depend significantly
on our ability to receive positive references from our existing customers.
Our marketing efforts
depend significantly on our ability to call on our current and past customers to provide positive references to new, potential customers.
A material portion of our current pipeline activity is concentrated in the defense, transportation and aviation sectors. Given our limited
number of customers, the loss or dissatisfaction of any customer could substantially harm our brand and reputation, inhibit the market
acceptance of our products and services, and impair our ability to attract new customers and maintain existing customers. Further, as
we expand into new vertical and geographic end markets, references from existing customers could be similarly important. Any of these
consequences could have a material adverse effect on our business, financial condition and results of operations.
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If our products contain defects or otherwise
fail to perform as expected, we could be liable for damages and incur unanticipated warranty claims, recall and other related expenses,
our reputation could be damaged, we could lose market share and, as a result, our financial condition or results of operations could suffer.
Our products rely on complex
avionics, sensors, user-friendly interfaces and tightly integrated, electromechanical designs to accomplish their missions. Our products
may contain defects or experience failures due to any number of issues in design, materials, manufacture, deployment and/or use. If any
of our products contain a defect, compatibility or interoperability issue or other error, we may have to devote significant time and resources
to find and correct the issue. Such efforts could divert the attention of our management team and other relevant personnel from other
important tasks. A product recall or a significant number of product returns could (i) be expensive; (ii) damage our reputation and relationships
with utilities and other third-party vendors; (iii) result in the loss of business to competitors; and (iv) result in litigation against
us. Costs associated with field replacement labor, hardware replacement, re-integration with third-party products, handling charges, correcting
defects, errors and bugs, or other issues could be significant and could materially harm our financial results.
As a manufacturer of UAV
products, and with aircraft and aviation sector companies under increased scrutiny, claims could be brought against us if use or misuse
of one of our UAV products causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may
lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial
condition, strain our management and other resources.
The existence of any defects,
errors, or failures in our products or the misuse of our products could also lead to product liability claims or lawsuits against us.
A defect, error or failure in one of our products could result in injury, death or property damage and significantly damage our reputation
and support for our products in general. We anticipate this risk will grow as our products begin to be used in U.S. domestic airspace
and urban areas.
Although we maintain insurance
policies, we cannot provide assurance that this insurance will be adequate to protect us from all material judgments and expenses related
to potential future claims or that these levels of insurance will be available in the future at economical prices or at all. A successful
product liability claim could result in substantial cost to us. Even if we are fully insured as it relates to a claim, the claim could
nevertheless diminish our brand and divert management’s attention and resources, which could have a negative impact on our business,
financial condition and results of operations.
We generally warrant our
manufactured products, including hardware and software, for a period of one year from the date of receipt of the product by the customer.
After the first year, the customer can pay for extended hardware warranty and software maintenance and upgrades on an annual basis in
advance. Estimated future product warranty claims are based on the expected number of field failures over the warranty commitment period,
the term of the product warranty period, and the costs for repair, replacement and other associated costs. Our warranty obligations are
affected by product failure rates, claims levels, material usage and product re-integration and handling costs. While costs that we have
incurred historically under our warranty obligations have not been material, the costs associated with such warranties, including any
warranty related legal proceedings, are variable and could have a material adverse effect on our business, financial condition or results
of operations.
Because our products are
relatively new and we do not yet have the benefit of long-term experience observing products’ performance in the field, our estimates
of a product’s lifespan and incidence of claims may be inaccurate. Should actual product failure rates, claims levels, material
usage, product re-integration and handling costs, defects, errors, bugs or other issues differ from the original estimates, we could end
up incurring materially higher warranty or recall expenses than we anticipate.
Negative customer perception regarding
the commercial UAS industry or the Company’s automated data solutions could have a material adverse effect on the demand for the
Company’s products and the business, results of operations, financial condition and cash flows of the Company.
The Company believes the
commercial UAS industry is highly dependent upon customer perception regarding the safety, efficacy, and quality of the commercial UAS
system deployed. Customer perception of these products can be significantly influenced by scientific research or findings, regulatory
investigations, litigation, media attention, and other publicity. There can be no assurance that future scientific research, findings,
regulatory proceedings, litigation, media attention, or other research findings or publicity will be favorable to the UAS market. Future
research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable
than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for the Company’s
products and the business, results of operations, financial condition and cash flows of the Company. The dependence upon customer perceptions
means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether
or not accurate or with merit, could have a material adverse effect on the Company, the demand for the Company’s products, and the
business, results of operations, financial condition and cash flows of the Company.
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Certain of our products makes use of
lithium-ion battery cells, which, if not appropriately managed and controlled, have occasionally been observed to catch fire or vent smoke
and flames. If such events occur with our products, we could face liability associated with our warranty, for damage or injury, adverse
publicity and a potential safety recall, any of which would adversely affect our business, prospects, financial condition and operating
results.
The battery packs in certain
of our products use lithium-ion cells, which have been used for years in laptop computers and cell phones. On occasion, if not appropriately
managed and controlled, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can
ignite nearby materials. Highly publicized incidents of laptop computers and cell phones bursting into flames have focused consumer attention
on the safety of these cells. These events also have raised questions about the suitability of these lithium-ion cells for automotive
applications. There can be no assurance that a field failure of our battery packs will not occur, which would damage the vehicle or lead
to personal injury or death and may subject us to lawsuits. Furthermore, there is some risk of electrocution if individuals who attempt
to repair battery packs on our vehicles do not follow applicable maintenance and repair protocols. Any such damage or injury would likely
lead to adverse publicity and potentially a safety recall. Any such adverse publicity could adversely affect our business, prospects,
financial condition and operating results.
Due to the volatile and flammable nature
of certain components of our products and equipment, fires or explosions may disrupt our business or cause significant injuries, which
could adversely affect our financial results.
The development and manufacture
of certain of our products involves the handling of a variety of explosive and flammable materials as well as high power equipment. From
time to time, these activities may result in incidents that could cause us to temporarily shut down or otherwise disrupt some manufacturing
processes, causing production delays and resulting in liability for workplace injuries and/or fatalities. We have safety and loss prevention
programs that require detailed reviews of process changes and new operations, along with routine safety audits of operations involving
explosive materials, to mitigate such incidents, as well as a variety of insurance policies, however our insurance coverage may be inadequate
to cover all claims and losses related to such incidents. We may experience such incidents in the future, which could result in production
delays or otherwise have a material adverse effect on our business and financial condition.
Our technology, products and services
have only been developed in the last several years and we have had only limited opportunities to deploy and assess their performance in
the field at full scale.
The current generation
of our certain technology platforms have only been developed in the last several years and will continue to evolve. Deploying and operating
our technology is complex and, until recently, had been done primarily by a small number of customers. As the size, complexity and scope
of our deployments grow we have been able to test product performance at a greater scale and in a variety of new geographic settings and
environmental conditions. As the number, size and complexity of our deployments grow and we deploy our technology platforms for new applications
in new critical infrastructure industries, we may encounter unforeseen operational, technical and other challenges, some of which could
cause significant delays, trigger contractual penalties, result in unanticipated expenses, and/or damage to our reputation, each of which
could materially and adversely affect our business, financial condition and results of operations.
If we fail to respond to evolving technological
changes, our products and services could become obsolete or less competitive.
We operate in highly competitive
industries characterized by new and rapidly evolving technologies, standards, regulations, customer requirements, as well as frequent
product introductions and revisions. Accordingly, our operating results depend upon our ability to develop and introduce new products
and services, our ability to reduce production costs of our existing products. The process of developing new technologies and products
is complex, and if we are unable to develop enhancements to, and new features for, our existing products and services or acceptable new
products and services that keep pace with technological developments or industry standards, our products may become obsolete, less marketable
and less competitive and our business, financial condition or results of operations could be significantly harmed.
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We depend on our ability to develop
new products and to enhance and sustain the quality of existing products.
Our growth and future
success will depend, in part, on our ability to continue to design and manufacture new competitive products and to enhance and sustain
the quality and marketability of our existing products. As such, we have made, and expect to continue to make, substantial investments
in technology development. In the future, we may not have the necessary capital, or access to capital on acceptable terms, to fund necessary
levels of research and development. Even with adequate capital resources, we may nonetheless experience unforeseen problems in the development
or performance of our technologies or products. In addition, we may not meet our product development schedules and, even if we do, we
may not develop new products fast enough to provide sufficient differentiation from our competitors’ products, which may be more
successful.
We expect to incur substantial research
and development costs and devote significant resources to identifying and commercializing new products and services, which could significantly
reduce our profitability and may never result in revenue to us.
Our future growth depends
on penetrating new markets, adapting existing products to new applications and new environments, and introducing new products and services
that achieve market acceptance. We plan to incur substantial research and development costs as part of our efforts to design, develop
and commercialize new products and services and enhance existing products. For example, we will incur research and development costs to
improve the functionality of our acoustic DAA solution configuration in certain environments, in addition to integrating new payloads
to broaden the functionality of our products and services. Further, our research and development programs may not produce successful results,
and our new products and services may not achieve market acceptance, create additional revenue or become profitable, which could materially
harm our business, prospects, financial results and liquidity.
If our products do not interoperate
with our customers’ other systems, the purchase or deployment of our products and services may be delayed or cancelled.
Our products are designed
to interface with our customers’ other systems, each of which may have different specifications and utilize multiple protocol standards
and products from other vendors. Our products will be required to interoperate with many or all of these products as well as future products
in order to meet our customers’ requirements. If we find errors in the existing software or defects in the hardware used in our
customers’ systems, we may need to modify our products or services to fix or overcome these errors so that our products will interoperate
with the existing software and hardware, which could be costly and negatively affect our business, financial condition, and results of
operations. In addition, if our products and services do not interoperate with our customers’ systems, customers may seek to hold
us liable, demand for our products could be adversely affected or orders for our products could be delayed or cancelled. This could hurt
our operating results, damage our reputation or brand, and seriously harm our prospects, business, financial condition or results of operations.
The Company operates in a competitive market.
The Company faces competition
and new competitors will continue to emerge throughout the world. Services offered by the Company’s competitors may take a larger
share of customer spending than anticipated, which could cause revenue generated from the Company’s products and services to fall
below expectations. It is expected that competition in these markets will intensify. If competitors of the Company develop and market
more successful products or services, offer competitive products or services at lower price points, or if the Company does not produce
consistently high-quality and well-received products and services, revenues, margins, and profitability of the Company will decline.
The Company’s ability to compete effectively
will depend on, among other things, the Company’s pricing of services and equipment, quality of customer service and field support,
development of new and enhanced products and services in response to customer demands and changing technology, reach and quality of sales
and distribution channels and capital resources. Competition could lead to a reduction in the rate at which the Company adds new customers,
a decrease in the size of the Company’s market share and a decline in its customers.
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We rely on our management team and need
additional personnel to grow our business, and the loss of one or more key officers, employees, contractors and other service providers
or our inability to attract and retain qualified personnel could harm our business, financial condition or results of operations.
We depend, in part, on the performance of Eric Brock, our Chief Executive
Officer and President; Neil Laird, our Chief Financial Officer and Treasurer; and Patrick Huston, our Chief Operating Officer, General
Counsel and Secretary; Markus Nottelmann, Chief Executive Officer of Ondas Networks; Menashe Shahar, the Chief Technology Officer of Ondas
Networks; Oshri Lugassi the Co-Chief Executive Officer of OAS; Meir Kliner the President of OAS; and Amit Bigler, the Chief Financial
Officer of OAS to operate and grow our business. The loss of any of Messrs. Brock, Laird, Huston, Nottelmann, Shahar, Lugassi, Kliner
or Bigler could negatively impact our ability to execute our business strategies. Although we have entered into employment agreements
with Messrs. Brock, Laird, Huston, Nottelmann, Shahar, Lugassi, Kliner and Bigler, we may be unable to retain them or replace any of them
if we lose their services for any reason.
Our future success will
also depend on our ability to attract, retain and motivate highly skilled management, product development, operations, sales, technical
and other personnel in the U.S. and abroad. Even in today’s economic climate, competition for these types of personnel is intense.
Given the lengthy sales cycles with utilities and deployment periods of our networking platform and solutions, the loss of key personnel
at any time could adversely affect our business, financial condition or results of operations.
Cyberattacks through security vulnerabilities
could lead to disruption of business, reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position.
Security vulnerabilities
may arise from our hardware, software, employees, contractors or policies we have deployed, which may result in external parties gaining
access to our networks, datacenters, cloud datacenters, corporate computers, manufacturing systems, and or access to accounts we have
at our suppliers, vendors, and customers. They may gain access to our data or our users’ or customers’ data or attack the
networks causing denial of service or attempt to hold our data or systems in ransom. The vulnerability could be caused by inadequate account
security practices such as failure to timely remove employee access when terminated. To mitigate these security issues, we have implemented
measures throughout our organization, including firewalls, backups, encryption, employee information technology policies and user account
policies. However, there can be no assurance these measures will be sufficient to avoid cyberattacks. If any of these types of security
breaches were to occur and we were unable to protect sensitive data, our relationships with our business partners and customers could
be materially damaged, our reputation could be materially harmed, and we could be exposed to a risk of litigation and possible significant
liability.
Further, if we fail to
adequately maintain our infrastructure, we may have outages and data loss. Excessive outages may affect our ability to timely and efficiently
deliver products to customers or develop new products and solutions. Such disruptions and data loss may adversely impact our ability to
fulfill orders, patent our intellectual property or protect our source code, and interrupt other processes. Delayed sales or lost customers
resulting from these disruptions could adversely affect our financial results, stock price and reputation.
Unauthorized use or disclosure
of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems
of our suppliers or vendors by an unauthorized party, or through employee or contractor error, theft or misuse, or otherwise, could harm
our business. If any such unauthorized use or disclosure of, or access to, such personal information was to occur, our operations could
be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and investigations, related actions,
and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected persons and entities and
otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to,
or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such
information could harm our reputation, substantially impair our ability to attract and retain customers and have an adverse impact on
our business, financial condition and results of operations.
The development
and use of artificial intelligence technologies presents risks that may affect our business, operations, and competitive position.
We incorporate machine
learning and artificial intelligence capabilities into certain of our products and solutions and may seek to expand the use of AI in our
offerings in the future. As with many innovations, AI presents risks, challenges, and unintended consequences that could affect our business.
AI algorithms and training methodologies may be flawed. These deficiencies and other failures of AI systems could subject us to competitive
harm, regulatory action, legal liability, and brand or reputational harm. Further, incorporating AI could give rise to litigation risk
and risk of non-compliance and unknown cost of compliance, as AI is an emerging technology for which the legal and regulatory landscape
is not fully developed, including potential liability for breaching intellectual property or privacy rights or laws.
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Additionally, leveraging
AI capabilities to potentially improve internal functions and operations presents further risks and challenges. The use of AI to support
business operations carries inherent risks related to data privacy and security, such as intended, unintended, or inadvertent transmission
of proprietary, sensitive or export-controlled information, as well as challenges related to implementing and maintaining AI tools. Our
competitors might move faster than us to gain efficiencies by incorporating AI into their design and development processes, and our products
and/or cost structure could become less competitive as a result. The rapid evolution of AI will require the application of resources by
us to develop, test and maintain our products, services and operations to help ensure that AI is implemented ethically in order to minimize
unintended, harmful impact. Our competitors may be faster or more successful than we are in incorporating AI and other disruptive technology
into their offerings, which would impair our ability to compete successfully.
The regulatory framework
for AI technologies is rapidly evolving. Existing laws and regulations may be interpreted in ways that could affect the operation of our
AI technologies, and federal, state and foreign government bodies and agencies have introduced or are currently considering additional
laws and regulations applicable to AI technologies. The cost to comply with such laws, regulations, and guidance, or to adjust our business
plans based on changes to how such laws are enforced, could be significant and would increase our operating expenses or impact our ability
to use, procure or commercialize AI technologies. Such an increase in operating expenses, as well as any actual or perceived failure to
comply with such laws and regulations, could adversely affect our business, financial condition and results of operations.
If critical components
or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur
delays in manufacturing and delivery of our products and in completing our development programs, which could damage our business.
In order to produce our
products and services and related safety systems, we obtain certain hardware components, as well as subsystems and systems from a limited
group of suppliers, some of which are sole source suppliers. We do not have long-term agreements with any of these suppliers that obligate
them to continue to sell components, subsystems, systems or products to us. Our reliance on these suppliers involves significant risks
and uncertainties, including whether our suppliers will provide an adequate supply of required components, subsystems, or systems of sufficient
quality, will increase prices for the components, subsystems or systems and will perform their obligations on a timely basis.
In addition, certain raw
materials and components used in the manufacturing of our products and in our development programs, are periodically subject to supply
shortages, and our business is subject to the risk of price increases and periodic delays in delivery. Particularly, the market for electronic
components is experiencing increased demand and a global shortage of semiconductors, creating substantial uncertainty regarding our suppliers’
continued production of key components for our products. If any additional shortages occur and we are unable to obtain components from
third party suppliers in the quantities and of the quality that we require, on a timely basis and at acceptable prices, then we may not
be able to timely complete development programs or deliver our products on a timely or cost effective basis to our customers, which could
cause customers to terminate their contracts with us, increase our costs and seriously harm our business, results of operations and financial
condition. Moreover, if any of our suppliers become financially unstable, or otherwise unable or unwilling to provide us with raw materials
or components, then we may have to find new suppliers. It may take several months to locate alternative suppliers, if required, or to
redesign our products to accommodate components from different suppliers. We may experience significant delays in manufacturing and shipping
our products to customers and incur additional development, manufacturing and other costs to establish alternative sources of supply if
we lose any of these sources or are required to redesign our products.
We currently do not have long-term supply
contracts with guaranteed pricing which exposes us to fluctuations in component, materials and equipment prices. Substantial increases
in these prices would increase our operating costs and could adversely affect our business, prospects, financial condition and operating
results.
Because we currently do
not have long-term supply contracts with guaranteed pricing, we are subject to fluctuations in the prices of the raw materials, parts
and components and equipment we use in the production of our products and services. Substantial increases in the prices for such raw materials,
components and equipment would increase our operating costs and could reduce our margins if we cannot recoup the increased costs through
increased prices. Any attempts to increase prices of our automated data solutions in response to increased costs could be viewed negatively
by our customers and could adversely affect our business, prospects, financial condition and operating results.
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Our past acquisitions, as well as any acquisitions we may complete
in the future, may be unsuccessful or result in other risks or developments that adversely affect our financial condition and results.
We intend to consider additional potential strategic
transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies
that expand, complement or otherwise relate to our current or future business. While we intend for our acquisitions to improve our competitiveness
and profitability, we cannot be certain that our past or future acquisitions will be accretive to earnings or otherwise meet our operational
or strategic expectations. Special risks, including accounting, regulatory, compliance, information technology or human resources issues
may arise in connection with, or as a result of, the acquisition of an existing company, including the assumption of unanticipated liabilities
and contingencies, difficulties in integrating acquired businesses, possible management distractions or the inability of the acquired
business to achieve the levels of revenue, income, productivity or synergies we anticipate or otherwise perform as we expect on the timeline
contemplated. We are unable to predict all the risks that could arise as a result of our acquisitions.
If the performance of an acquired business varies
from our projections or assumptions or if estimates about the future profitability of an acquired business change, our revenues, earnings
or other aspects of our financial condition could be adversely affected. We may also experience difficulties in connection with integrating
any acquired companies into our existing businesses and operations, including our existing infrastructure and information technology systems.
The infrastructure and information technology systems of acquired companies could present issues that we were unable to identify prior
to the acquisition and could adversely affect our financial condition and results. Moreover, these transactions could involve: (a) substantial
investment of funds or financings by issuance of debt or equity securities; (b) substantial investment with respect to technology transfers
and operational integration; and (c) the acquisition or disposition of product lines or businesses. Also, such activities could result
in one-time charges and expenses and have the potential to either dilute the interests of our existing shareholders or result in the issuance
of, or assumption of debt.
Additionally, we may not realize all of the synergies
we anticipate from past and potential future acquisitions. Among the synergies that we may expect to realize are cross-selling opportunities
to our existing customers, as well as operational efficiencies. Variances from these or other assumptions or expectations could adversely
affect our financial condition and results of operations. Any impairment of goodwill or other intangible assets acquired in an acquisition
or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings.
Future acquisitions or joint ventures may not result in their anticipated benefits, and we may not be able to properly integrate acquired
products, technologies or businesses with our existing products and operations or successfully combine personnel and cultures. Failure
to do so could deprive us of the intended benefits of those acquisitions. Moreover, if we are unable to access the capital markets on
acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital
structure. Our inability to take advantage of growth opportunities or address risks associated with acquisitions or investments in businesses
may negatively affect our operating results.
If the Company is required to write down goodwill and other intangible
assets, the Company’s financial condition and results could be negatively affected.
Goodwill impairment arises
when there is deterioration in the capabilities of acquired assets to generate cash flows, and the fair value of the goodwill dips below
its book value. The Company is required to review its goodwill for impairment at least annually. Events that may trigger goodwill impairment
include deterioration in economic conditions, increased competition, loss of key personnel, and regulatory action. Should any of these
occur, an impairment of goodwill could have a negative effect on the assets of the Company.
In December 2025, the Company performed a qualitative analysis and
concluded there were no indications of impairment. As of December 31, 2025, goodwill was approximately $251.8 million. Refer to Note 6
of the accompanying Consolidated Financial Statements for further information regarding the impairment of goodwill.
War, terrorism, and other acts of violence
may affect the markets in which we operate, our clients and our product and service delivery.
Our business may be adversely affected by regional
or global instability, disruption or destruction, regardless of cause, including war, terrorism, riot, civil insurrection or social
unrest. For example, the war in Israel and the significant military action against Ukraine launched by Russia may
affect the markets in which we operate. Such events may cause clients to delay their decisions on spending for the products and services
provided by us and give rise to sudden significant changes in regional and global economic conditions and cycles. These events pose risks
which could materially adversely affect our financial results.
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Since many of our subsidiaries are located in Israel,
the Company has considered various ongoing risks relating to the military operation and related matters. All of the Company’s workforce
in Israel returned to work and inventory production restraints have eased. The Company is closely monitoring how the military operation
and related activities could adversely affect its anticipated milestones and its Israel-based activities to support future operations,
including the Company’s ability to import materials that are required to construct the products and services and to ship them outside
of Israel. To date, we have not had material disruptions to our ability to produce, manage and deliver products and services to customers
as our U.S. teams have supported our ongoing operations in Israel and the Middle East; however, a prolonged war or an escalation of the
current conditions in Israel could materially adversely affect our business, financial condition, and results of operations. Due to the
ongoing and evolving nature of these events, the extent of the adverse effect on our business operations is still unknown.
We may not be able to secure adequate
insurance policies, or secure insurance policies at reasonable prices.
We maintain general liability insurance, aviation
flight testing insurance, aircraft liability coverage, directors and officers insurance, and other insurance policies and we believe our
level of coverage is customary in the industry and adequate to protect against claims. However, there can be no assurance that it will
be sufficient to cover potential claims or that present levels of coverage will be available in the future at a reasonable cost. Further,
we expect our insurance needs and costs to increase as we grow our commercial operations and expand into new markets and it is uncertain
if such insurance will be available on commercially reasonable terms.
The Company will be affected by operational
risks and may not be adequately insured for certain risks.
The Company will be affected by a number of operational
risks and the Company may not be adequately insured for certain risks, including: labor disputes; catastrophic accidents; fires; blockades
or other acts of social activism; changes in the regulatory environment; impact of non-compliance with laws and regulations; natural phenomena,
such as inclement weather conditions, floods, earthquakes and ground movements. There is no assurance that the foregoing risks and hazards
will not result in damage to, or destruction of, the Company’s technologies, personal injury or death, environmental damage, adverse
impacts on the Company’s operation, costs, monetary losses, potential legal liability and adverse governmental action, any of which
could have an adverse impact on the Company’s future cash flows, earnings and financial condition. Furthermore, the unmanned aerial
systems industry lacks a formative insurance market. As a result, the Company may be subject to or affected by liability or sustain loss
for certain risks and hazards against which the Company cannot insure or which the Company may elect not to insure because of the cost.
This lack of insurance coverage could have an adverse impact on the Company’s future cash flows, earnings, results of operations
and financial condition.
Litigation may adversely affect our
business, financial condition, and results of operations.
From time to time in the
normal course of our business operations, we may become subject to litigation that may result in liability material to our financial condition
as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such
litigation may be significant and may require a significant diversion of our resources, and there is no guarantee that we will be able
to successfully defend against any such litigation regardless of particular merits. There also may be adverse publicity associated with
litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether
we are ultimately found liable. Insurance may not be available on favorable terms, at all, or in sufficient amounts to cover any liabilities
with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely
affect our business, financial condition and the results of our operations.
Our cash could be adversely affected
if the financial institutions in which we hold our cash fail.
The Company maintains
domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks. The domestic bank deposit balances
may exceed the FDIC insurance limits. Also, in the foreign markets we serve, we also maintain cash deposits in foreign banks, some of
which are not insured or partially insured by the FDIC or other similar agency. These balances could be impacted if one or more of the
financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets.
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Unstable market and economic conditions
may have serious adverse consequences on our business, financial condition and stock price.
Global credit and financial
markets have experienced extreme disruptions in recent years, including severely diminished liquidity and credit availability, declines
in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can
be no assurance that renewed deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general
business strategy may be adversely affected by any economic downturn, volatile business environment or continued unpredictable and unstable
market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing
more difficult, costlier and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could
have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon
implementing business initiatives.
Uncertainty about current
and future global economic conditions may cause governments, including the U.S. government, which is a target customer, other customers
and businesses to modify, defer or cancel purchases in response to tighter credit, decreased cash availability and declining consumer
confidence. Accordingly, future demand for our products could differ materially from our current expectations. Additionally, if customers