About Ondas Holdings

Ondas Holdings Inc. provides private wireless, drone, and automated data solutions through its subsidiaries Ondas Networks Inc. (Ondas Networks), American Robotics, Inc. (American Robotics or AR) and Airobotics, Ltd. (Airobotics). American Robotics and Airobotics are operated together, under a separate business unit called Ondas Autonomous Systems. Ondas 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. Segments The company operates through Ondas Networks and Ondas Autonomous Systems segments. Ondas Networks Ondas Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. The company refers to these applications as the Mission-Critical Internet of Things (MC-IoT). The company’s wireless networking products are applicable to a wide range of MC-IoT applications, which are most often located at the very edge of large industrial networks. These applications require secure, real-time connectivity with the ability to process large amounts of data at the edge of large industrial networks. Such applications are required in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety, 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. The company designs, develops, manufactures, sells and supports FullMAX, its patented, Software Defined Radio (SDR) platform for secure, licensed, private, wide-area broadband networks. The company’s customers install FullMAX systems in order to upgrade and expand their legacy wide-area network infrastructure. The company’s 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 the company’s mission-critical customers and ecosystem partners, it has taken a leadership position in IEEE as it relates to wireless networking for industrial markets. As such, management believes this standards-based approach supports the adoption of the company’s technology across a burgeoning ecosystem of global partners and end markets. The company’s 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 its mission-critical infrastructure customers. 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 the company’s end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing and data and application prioritization in the field enabling the company’s customers more reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the edge. Ondas Autonomous Systems The company’s Ondas Autonomous Systems business unit designs, develops, and markets commercial drone solutions via the Optimus System and Scout System (the Autonomous Drone Platforms). The Autonomous Drone Platforms are highly automated, AI-powered drone systems capable of continuous, remote operation and are marketed as ‘drone-in-a-box’ turnkey data solution services. They are deployed for critical industrial and government applications where data and information collection and processing are required. These use cases include public safety, security and smart city deployments where routine, high-resolution automated emergency response, mapping, surveying, and inspection services are highly valued, in addition to industrial markets, such as oil & gas, rail and ports which emphasize security and inspection solutions. The Autonomous Drone Platforms are typically provided to customers under a Data-as-a-Service (DaaS) business model, while some customers will choose to purchase and own and operate an Optimus Systems. American Robotics and Airobotics have industry leading regulatory successes which include having the first drone system approved by the Federal Aviation Administration (FAA) for automated operation beyond-visual-line-of-sight (BVLOS) without a human operator on-site. In addition to the Autonomous Drone Platforms, the company offers a counter-drone system called the Raider. The Raider was developed by Iron Drone and is deployed by government and enterprise customers to provide security and protect critical infrastructure, assets and people from the threat of hostile drones. Autonomous Drone Platforms The company designs, develops and manufactures autonomous drone systems, providing high-fidelity, ultra-high-resolution aerial data to enterprise and government customers. The company prioritizes the marketing of its Optimus System which provides customers with a turnkey data and information solution and the ability to continuously digitize, analyze, and monitor their assets and field operations in real-time or near real-time. The market opportunity for the company’s Scout System remains significant. As the company drives market adoption with the Optimus platform, it anticipates re-introducing the Scout platform, including newly enhanced versions to help segment the market for different use cases and price points. The Optimus System has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the real world. Powered by innovations in robotics automation, machine vision, edge computing, and AI. Once installed in the field at customer locations, a fleet of connected Optimus Systems, which are often deployed as networked drone infrastructure, which the company refers to as Urban Drone Infrastructure, remains indefinitely positioned in an area of operation, automatically collecting and seamlessly delivering data and information regularly and reliably. The company markets the Optimus System under a DaaS business model, whereby its drone platform aggregates customer data and provides the data analytics meeting customer requirements in return for an annual subscription fee. Some customers purchase Optimus Systems to own and operate themselves. The company also engages distributors to assist in the sales and marketing of its Optimus System in geographic markets where its more cost effective to identify and service potential customers by engaging local third parties. These distribution agreements can include joint ventures, where Ondas Autonomous Systems will provide technical expertise to support the joint venture partner in the provision of aerial data services to customers. The Optimus System consists of Optimus, a highly automated, AI-powered drone with advanced imaging payloads; the Airbase, a ruggedized weatherproof base station for housing, battery swapping, battery charging, payload swapping, data processing, and cloud transfer; and Insightful, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere in the world. These major subsystems are connected via a host of supporting technologies. Airbase has internal robotic systems that enable the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of Optimus as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus System to provide multiple applications and use cases from a single location. American Robotics and Airobotics have industry leading regulatory successes which include having the first drone system approved by the FAA for automated operation UAS Beyond Visual Line-of-Site (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 the company plans to integrate into the Optimus System. Airobotics is in the advanced stages of receiving approval for Type Certification (TC) from the FAA for the Optimus UAV. TC approval will enable expanded operation for the Optimus System in the United States, including flight operations in populated areas. The Raider The Raider is a counter-drone system, which was designed and developed by Iron Drone, that the company is marketing to government and enterprise customers who can utilize the system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. A typical Raider deployment location would include sensitive locations, such as borders, stadiums or schools, or near critical assets, such as power plants and military bases, and for high profile locations, such as amusement parks or where public events are held. The Raider is designed to detect, track and intercept unauthorized, or hostile unmanned aircraft and is most often sold with three small UAVs that are housed in a docking station. The Raider UAV has live video capability and a payload containing a net that can be deployed to intercept a hostile drone. Upon detection of an unauthorized drone, one or more Raider UAVs can be autonomously deployed at high speeds to track the unauthorized aircraft. If the unauthorized aircraft is deemed hostile, the Raider UAV can deploy the netting to physically intercept the aircraft. A parachute integrated with the netting allows the intercepted drone to safely fall to the ground for collection by its 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 its 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 its FullMAX MC-IoT platform. In 2021, the company completed the development of its first jointly-developed product with Siemens – the dual-mode ATCS/MC-IoT radio systems. Siemens is marketing and selling these proprietary systems under the brand name Airlink to its 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 the company’s 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. The company’s relationship with Siemens has expanded significantly since entering into the partnership both with the wider marketing of its wireless technology platform and 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. 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, the company announced that it 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, the company received government authorization to sell ATCS radios in Canada. Strategy The key elements of the company’s strategy are to deliver multiple North American class I railroad network opportunities through its FullMAX platform; expand fleet deployments of its Optimus System as Urban Drone Infrastructure; continue to enhance the value of its Optimus System for customers; and expand its MC-IoT capabilities via partnerships, joint ventures, or acquisitions. Business Model Ondas Networks The company sells its 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. The company continues to develop its value-added reseller relationships which 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. The company’s Siemens’ partnership is indicative of the potential for additional Tier 1 partnerships in its other vertical markets, including securing reseller relationships with major suppliers to the worldwide government and homeland security markets. To that end, in 2022, the company expanded its 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 the company’s go-to-market strategy, it intends to monetize its 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 the company’s connectivity and Fog-computing platform in private networks that are designed for lifetimes of 10 – 15 years or even longer. The company’s FullMAX platform is software-defined and offers customers flexibility to expand capacity and evolve network utilization. Similarly, the company’s ecosystem partners often integrate its FullMAX software and wireless capability into their own long-lived equipment and systems which their customers purchase and deploy. As such, the company’s 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 company to design additional features which create opportunities for additional, recurring revenue and profit streams. The company’s monetization strategies include: Systems Sales: The company’s FullMAX deployments are typically large, mission-critical wide-area networks deployed and privately operated by the company’s industrial and government customers. These end-to-end system deployments involve sales consisting of both base stations and edge radio end points with embedded FullMAX software and network management software and tools. Software and Hardware Maintenance Agreements: The company’s customers contract with it for extended software and hardware maintenance which provide them with critical ongoing support for their installed network. These SaaS contracts provide revenue to the company 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 the company’s customers to continue to maintain a modern, flexible and upgradeable network over a long period of time. Licensing / Royalties: In certain system deployments, the company’s ecosystem partners will choose to embed FullMAX software into their own hardware and software platforms providing it with an ongoing per device multi-year revenue stream. Other Services: The company provides ancillary services directly related to the sale of its wireless communications products which include wireless network design, systems engineering, radio frequency planning, software configuration, product training, installation, and onsite support. Furthermore, the company also provides engineering and product development services to ecosystem partners who are interested in integrating their intelligent equipment with its FullMAX SDR platform and need its expertise to do so. Ondas Autonomous Systems Ondas Autonomous Systems markets its Optimus System drone platform via a direct sales force to enterprise and government customers. The company focuses 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, the company ships and installs the Optimus System on the customer premises. The company’s field service personnel remain on location for a short period of time to ensure the programmed automated drone operations are meeting customer requirements. The company’s Optimus System 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 System. Under a DaaS agreement where the company bundles hardware, software, operations, and maintenance into one annual subscription fee. The company installs an Optimus System on premises and one or multiple customers can procure services. For example, on a construction site, Airobotics can provide aerial data services via and Optimus System for security and safety applications, in addition to monitoring and inspection use cases. In many instances, multiple customers will subscribe for each unique service. The DaaS model is the most typical agreement the company has with customers. The company’s Optimus System and services can also be provided to end customers via partnerships or joint ventures with third party drone services providers. Under these arrangements, Airobotics sells an Optimus System to the drone services provider for an upfront payment. Airobotics and the drone services provider then enter into an agreement to share in the revenues that the system generates via the provision of aerial data services to end customers. Airobotics is in the advanced stages of receiving approval for Type Certification (TC) from the FAA for the Optimus UAV. TC approval will enable expanded operation for the Optimus System in the United States, including flight operations in populated areas. The significance of TC approval was highlighted by the FAA decision in April 21, 2021, to amend Part 107 rules which defined new conditions for Drone flights above people and enables night flight. The new regulations define four categories of Drones and clarify that small UAS (sUAS), such as the Optimus drone which are below a certain weight will be permitted to conduct flights above populated areas without receiving a specific certificate of Part 107 waiver for systems that have TC designations. The company also markets The Raider, the counter-drone system designed and developed by Iron Drone, a unit within Ondas Autonomous Systems. The Raider is targeted towards government and enterprise customers who can utilize the system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. The Raider was formally launched and available to customers in March 2022. The company offers this product directly to customers and it intends to broaden the sales & marketing of the Raider with distribution through value-added resellers and partners in the future. 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 the company 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), the company selected powerful programmable embedded general-purpose processors, DSPs, and FPGAs, all of which are software upgradable. The company’s software defined radio (SDR) architecture, with more than 12 years in development and supported by a team of over 50 software engineers, allows it 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 company’s 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 the company’s end-to-end FullMAX SDR platform is valued by its customers and ecosystem partners as they seek to leverage the value of MC-IoT applications for improved safety, efficiency, and profitability. The company’s IEEE 802.16s compliant equipment is designed to optimize the performance of unused or underutilized low frequency licensed radio spectrum and narrower channels. The company does this through various patented software algorithms, including via ‘spectrum harvesting’ techniques which aggregate narrowband channels to create increased broadband network capacity. The company’s 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 the company’s 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 the company’s 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. The company’s Edge remotes have embedded compute capability and are able to host MC-IoT applications, including those from third party vendors via virtualized software systems managed in docker / container architectures and can also manage data from intelligent equipment or sensor networks that interface with the edge remotes in the field. The company’s software-managed edge remotes offer security via authentication, multi-layer encryption and virtual software firewalls which are requirements for mission-critical data networks. The company is dedicated to promoting standards-based wireless connectivity solutions for its customers. The company’s 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 the company’s FullMAX technology, and many of its customers and industrial partners actively supported its 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. Ondas Autonomous Systems The company provides its customers with turnkey data and information solutions designed to meet their unique requirements in the field. The company does this via its internally developed Optimus System, a highly automated commercial drone platform which provides customers with the ability to continuously digitize, analyze, and monitor their assets and field operations in real-time or near real-time. The Optimus System has been designed from the ground up as an end-to-end product capable of continuous unattended operations in the real world. The Optimus System consists of Optimus, a highly automated, AI-powered drone with advanced imaging payloads; the Airbase, a ruggedized weatherproof base station for housing, data processing, and cloud transfer; and Insightful, a secure web portal and API which enables remote interaction with the system, data, and resulting analytics anywhere in the world. These major subsystems are connected via a host of supporting technologies. Using advanced robotic techniques, the Airbase has functionality that enables the automated swapping of batteries and payloads. Automated battery swapping allows for 24/7 operation of Optimus as the Optimus drone can immediately be redeployed after returning to the dock for a battery swap. Similarly, the ability to autonomously swap sensors and advanced payloads without human intervention allows for the Optimus System to provide multiple applications and use cases from a single location. When deployed in smart city applications, the Optimus System is designed to operate as a network of smart drones linked to an urban control center and will function as a municipal infrastructure providing a variety of automated data solutions. The primary function of the deployed Urban Drone Infrastructure is to shorten response times of security and rescue forces to emergency situations, supporting law enforcement and homeland security activities, and streamlining diverse services provided by the municipality for the public’s benefit. The company is also examining drone parcel delivery and other smart city applications to be provided by the infrastructure. The Airobotics drone infrastructure is specifically designed for urban environments and strategic facilities that require immediate security, monitoring and emergency response. In certain geographic markets the company will partner with a distributor to support the marketing and provision of aerial data services provided by an Optimus System. These distributors typically have unique local knowledge and can target customers for Urban Drone Infrastructure deployment. In some instances, the company will form joint ventures with distributors to provide aerial data services to government and enterprise customers. These joint ventures typically include agreements to purchase Optimus Systems and are arranged so that Ondas Autonomous Systems and its partner can share in the revenue and profitability in the provision of aerial data services. The Raider is a counter-drone system, which was designed and developed by Iron Drone, that the company is marketing to government and enterprise customers who can utilize the system for security and the protection of critical infrastructure, assets and people from the threat of hostile drones. A typical Raider deployment location would include sensitive locations, such as borders, stadiums or schools, or near critical assets, such as power plants and military bases, and for high profile locations, such as amusement parks or where public events are held. The Raider is designed to detect, track and intercept unauthorized, or hostile unmanned aircraft and is most often sold with three small UAVs that are housed in a docking station. The Raider UAV has live video capability and a payload containing a net that can be deployed to intercept a hostile drone. Upon detection of an unauthorized drone, one or more Raider UAVs can be autonomously deployed at high speeds to track the unauthorized aircraft. If the unauthorized aircraft is deemed hostile, the Raider UAV can deploy the netting to physically intercept the aircraft. A parachute integrated with the netting allows the intercepted drone to safely fall to the ground for collection by the company’s customer. The Market for Products and Services The company has targeted the North American freight rail operators for the initial adoption of its FullMAX platform. These rail operators 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. Additional Critical Markets The company has launched additional initiatives to take its MC-IoT connectivity and ecosystem partnering strategy into other critical infrastructure markets. In June 2022, the company announced the first successful installation of its technology into an Integrated Coastal Surveillance System (ICSS) in the Caribbean with a global defense contractor. In the fourth quarter of 2022, the company received and delivered on a new ICSS order for the defense contractor to be deployed in India. 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. The market size for the Smart City applications for the Optimus System to be over $15 billion. Smart City Market ($15.1 billion TAM): The Smart City market consists of a range of sub-markets, including police, fire, medical, logistics, construction, utilities, infrastructure, ports, airports, and environmental surveys. For these markets, the Optimus System is used for routine, high-resolution automated emergency response, mapping, surveying, and inspection. These automated operations reduce the response time to emergency situations, increase safety and security, and reduce the cost of city services. 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. Counter-UAS Market ($10.8 billion TAM): The Counter-UAS market consists of a range of sub-markets, including homeland security, defense, stadiums and public events, energy sites, airports, and cities. For these markets, autonomous drone technology is used for automated immediate response to potential drone threats and disabling of hostile drones if required. A 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. The company estimates the collective TAM for the Optimus System and anticipated derivative products within these three target markets to be $114 billion. For each market, the core automation technology is similar, but the product is optimized for that set of use cases. Primary differences include payload, as well as the user interface (UI) and user experience (UX) and analytics packages within Insightful. Industrial Market ($68.1 billion TAM): The Industrial market consists of a range of sub-markets, including those within the Energy, Infrastructure, and Security sectors. For these markets, the Optimus System is used for routine, high-resolution automated monitoring of assets, such as well pads, pipelines, solar panels, rail track, stockpile yards, and electrical substations. This automated monitoring helps reduce customer operations and maintenance costs, increase uptime of assets, increase safety and security, and improve regulatory compliance. Industrial Market ($68.1 billion TAM): The Industrial market consists of a range of sub-markets, including those within the Energy, Infrastructure, and Security sectors. For these markets, the Optimus System is used for routine, high-resolution automated monitoring of assets, such as well pads, pipelines, solar panels, rail track, stockpile yards, and electrical substations. This automated monitoring helps reduce customer operations and maintenance costs, increase uptime of assets, increase safety and security, and improve regulatory compliance. Defense Market (20.2 billion TAM): The Defense market consists of a range of sub-markets, each relating to increased Information, Surveillance, and Reconnaissance (ISR) capabilities for Border, Site, and Vehicle assets. For these markets, the Optimus System is used for automated immediate response ISR, providing high-resolution, real-time situational awareness for multiple applications, including warfighters on the battlefield. Customer Activity Ondas Networks The majority of Ondas Networks customer activity has 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. The company’s 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). The company’s 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 its railroad customers new radio spectrum. In August 2022, the company received its first commercial volume order for the 900 MHz network from Siemens. It 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 its IEEE 802.16 complaint systems in connection with wide-scale field deployment. The company expects 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 its software-defined network. The company expects 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. 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. In 2022, the company received its first order for 160 MHz radios, a bridge to the next major rail network in North America, which will be upgraded to its FullMAX platform. Ondas Autonomous Systems The company’s Optimus System 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. The company received purchase orders from two customers in the United Arab Emirates (the UAE) in December 2022, which represented its initial orders for commercial deployment as Urban Drone Infrastructure fleets. The initial purchase order was received for a United Arab Emirates government entity with plans to primarily use the system for public safety and homeland security applications. The company 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 the company’s 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 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 the company’s Optimus System, which has helped both accelerate its marketing activity with existing customers and generated new customer interest to help expand the pipeline. The company expects interest in its Optimus System to grow significantly as awareness builds which will expand its customer pipeline. The company expects 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, the company is qualifying its oil and gas customers for marketing programs, and it plans to expand marketing to other industrial and government markets. The company launched its Raider counter-drone system in March 2023 and began seeking customer orders at the same time. Acquisitions In January 2023, the company acquired Airobotics, an Israeli-based developer of autonomous drone systems. In March 2023, the company acquired Iron Drone Ltd (Iron Drone). Intellectual Property As of December 31, 2022, the Ondas Networks segment held a total of seven issued patents in the U.S., two international issued patents, four pending patent applications in the U.S., and eleven international pending patent application. The Ondas Networks segment’s patents expire between 2028 and 2040, subject to any patent extensions that may be available for such patents. As of December 31, 2022, the Ondas Autonomous Systems segment held a total of six issued patents in the U.S., ten international issued patents, six pending patent applications in the U.S., and eleven international pending patent application. The Ondas Autonomous Systems segment’s patents expire between 2036 and 2042, subject to any patent extensions that may be available for such patents. Research & Development The company’s research and development expenses were $24,044,000 for the year ended December 31, 2022. Governmental Regulations The company’s operations are subject to various federal, state and local laws and regulations, including authorization from the Federal Communications Committee (FCC) for operation in various licensed frequency bands; the Federal Aviation Administration (FAA) regulations and approvals unique to the operation of commercial or industrial drones; customers’ licenses from the FCC; licensing, permitting and inspection requirements applicable to contractors, electricians and engineers; regulations relating to worker safety and environmental protection; permitting and inspection requirements applicable to construction projects; wage and hour regulations; regulations relating to transportation of equipment and materials, including licensing and permitting requirements; building and electrical codes; and special bidding, procurement and other requirements on government projects. Environmental Regulation The company’s operations are subject to extensive, and frequently changing, federal, state and local environmental laws and substantial related regulation by government agencies, including the Environmental Protection Agency.