Form PREM14A Ondas Holdings Inc. For: Jun 23

June 23, 2021 5:21 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No. __)

 

Filed by the Registrant  

Filed by a party other than the Registrant  

 

Check the appropriate box:

 

☒  Preliminary Proxy Statement

  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

  Definitive Proxy Statement

  Definitive Additional Materials

  Soliciting Material under §240.14a-12

 

ONDAS HOLDINGS INC.  
(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

  No fee required

 

  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)Title of each class of securities to which transaction applies: Ondas Holdings Inc. common stock par value $0.0001.

 

(2)Aggregate number of securities to which transaction applies: 8,625,000 shares of common stock, including 1,875,000 shares of common stock underlying warrants.

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $7.94 (the average of the high and low prices reported on the Nasdaq Stock Market on June 21, 2021), plus $7,500,000 in cash.

 

  (4) Proposed maximum aggregate value of transaction: $75,982,500 (8,625,000 shares multiplied by $7.94 plus $7,500,000 in cash).

 

  (5) Total fee paid: $8,289.69. The fee has been calculated at a rate equal to $109.10 per $1,000,000 of the proposed maximum aggregate value of the transaction.

 

  Fee paid previously with preliminary materials.

 

  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)Amount Previously Paid:

 

(2)Form, Schedule or Registration Statement No.:

 

(3)Filing Party:

 

(4)Date Filed:

 

 

 

 

 

 

 

Ondas Holdings Inc.

 

TRANSACTION PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

Dear Ondas Stockholders:

 

The board of directors (the “Board”) of Ondas Holdings Inc., a Nevada corporation (“Ondas,” the “Company,” “we,” “us,” or “our”), has approved an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Drone Merger Sub I Inc., a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Merger Sub I”), Drone Merger Sub II Inc., a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”), American Robotics, Inc., a Delaware corporation (“American Robotics”), and Reese Mozer, solely in his capacity as the representative of American Robotics’ Stockholders (the “American Robotics Stockholders’ Representative”). Under the terms of the Merger Agreement, Merger Sub I will merge with and into American Robotics (“Merger I”), with American Robotics as the surviving entity, and American Robotics will then subsequently and immediately merge with and into Merger Sub II (“Merger II” and, together with Merger I, the “Mergers”), with Merger Sub II continuing as the surviving entity and as a direct wholly-owned subsidiary of the Company. Pursuant to the terms of the Merger Agreement, simultaneously with Merger II, Merger Sub II shall be renamed American Robotics, Inc. The Mergers are subject to customary closing conditions, including approval by the Company’s stockholders of the issuance of common stock, including common stock underlying the Warrants (as defined below), as consideration in connection with the Mergers. The Mergers and the transactions contemplated by the Merger Agreement are referred to herein as the “Transaction.” The Transaction is expected to close in the third quarter of 2021.

 

Upon completion of the Transaction, Ondas Holdings Inc.’s common stock will continue to trade on the Nasdaq Stock Market LLC (“Nasdaq”), under the symbol “ONDS.” On June 22, 2021, the closing price per share of the Company’s common stock as reported by Nasdaq was $8.05. You are urged to obtain current market quotations for the shares of the Company.

 

If the Transaction is completed, the Company will acquire American Robotics in exchange for (a) cash consideration in an amount equal to $7,500,000, less certain transaction expenses and indebtedness of American Robotics as described in the Merger Agreement (the “Cash Consideration”); (b) 6,750,000 validly issued, fully paid and non-assessable shares of the Company’s common stock, less certain shares which may be paid as transaction expenses; (c) warrants, in the form of Exhibit E of the Merger Agreement, exercisable for 1,875,000 shares of the Company’s common stock (each a “Warrant,” and collectively the “Warrants”), as such number may be adjusted pursuant to the terms of the Merger Agreement; and (d) the cash released to the American Robotics’ Stockholders from the PPP Loan Escrow Amount (as defined in the Merger Agreement) (if any) and from the Company Stockholders’ Representative Expense Fund (as defined in the Merger Agreement) (if any). Each Warrant entitles the holder to purchase a number of shares of the Company’s common stock at a price equal to the average of the high and low prices of one share of common stock as reported on Nasdaq on the trading day immediately preceding the closing date of the Transaction. Each Warrant shall be exercisable in three equal annual installments commencing on the one year anniversary of the closing date of the Transaction and shall have a term of ten years.

 

If American Robotics’ PPP loans are not forgiven by the U.S. Small Business Administration (the “SBA”) prior to the closing of the Transaction, a portion of the Cash Consideration equaling indebtedness owed by American Robotics on either of its PPP loans plus an amount equal to the amount of interest that would have accrued on such PPP loans as of their maturity dates will be held in escrow with American Robotics’ PPP lender. If an escrow account is established to hold the PPP Loan Escrow Amount at the closing, such amount or a portion thereof, as applicable, will be distributed as merger consideration to American Robotics’ Stockholders upon a determination by the SBA that one or both of the PPP loans are forgivable under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). As of the date of this proxy statement, one of American Robotics’ two PPP loans outstanding as of the date of signing of the Merger Agreement has been forgiven, representing an aggregate amount of $249,732.60 in principal and interest.

 

Also on the closing date of the Transaction, the Company expects to enter into employment agreements and issue up to 1,375,000 restricted stock units under the Company’s incentive stock plan to key members of American Robotics’ management.

 

The Transaction cannot be completed unless holders of Ondas common stock approve the issuance of common stock, including common stock underlying the Warrants, as consideration in connection with the Transaction.

 

In addition to the stock issuance in connection with the Transaction, the Board asks that you approve a proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposal.

 

The Company will hold a special meeting of its stockholders to vote on these matters. Whether or not you plan to attend the special meeting, please take the time to cause your shares to be voted by completing and mailing the enclosed proxy card or submitting your proxy by telephone or through the Internet, using the procedures in the proxy voting instructions included with your proxy card. Even if you return the proxy, you may attend the special meeting and vote your shares in person at the meeting.

 

 

 

 

YOUR VOTE IS IMPORTANT. The issuance of common stock is a condition to completing the Transaction, and as such, at the special meeting Ondas stockholders must approve the proposal relating to this matter in order for the Transaction to close.

 

This document describes the Transaction and other matters to be considered in more detail. The Company encourages you to read this entire document carefully, including the Merger Agreement, which is included as Annex A, and the section discussing “Risk Factors” relating to the Transaction beginning on page 8.

 

Ondas looks forward to seeing you at the special meeting and to the successful completion of the Transaction.

 

 

Eric A. Brock

  Chairman and Chief Executive Officer
 

Ondas Holdings Inc.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the matters described in this proxy statement or the Ondas common stock to be issued pursuant to the Transaction, or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated [●], 2021 and, together with the accompanying proxy card, is first being mailed or otherwise delivered to Ondas stockholders as of the record date for the special meeting on or about [●], 2021. 

 

 

 

 

THIS PROXY STATEMENT INCORPORATES ADDITIONAL INFORMATION

 

This document incorporates by reference important business and financial information about Ondas from other documents filed with the Securities and Exchange Commission (the “SEC”) that are not included in or delivered with this proxy statement. This information is available to you without charge upon your written or oral request. For a list of the documents incorporated by reference into this proxy statement, see “Where You Can Find More Information.” You can obtain electronic or hardcopy versions of the documents that are incorporated by reference into this proxy statement, without charge, from the Investor Relations section of Ondas’ website or by requesting them in writing or by telephone, in each case as set forth below:

 

 

 

Electronic:  

www.ondas.com

(please see “SEC Filings” page in the Investor portion of the site)

       
  By Mail:  

61 Old South Road, #495

Nantucket, Massachusetts 02554

Attention: Investor Relations

       
  E-mail Address:    inquiries@ondas.com
       
  By Telephone:   (888) 350-9994

 

IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY [●], 2021 IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.

 

SUBMITTING A PROXY ELECTRONICALLY, BY INTERNET, TELEPHONE, OR BY MAIL

 

Ondas stockholders of record on [●], 2021 may submit their proxies as follows:

 

Through the Internet, by visiting the website established for that purpose at [●] by [●] Eastern Time on [●], 2021 and following the instructions;

 

By telephone, by calling the toll-free number [●] in the United States, Canada or Puerto Rico on a touch-tone phone by [●] Eastern Time on [●], 2021 and following the recorded instructions; or

 

By mail, by marking, signing, and dating the enclosed proxy card and returning it in the postage-paid envelope provided or returning it pursuant to the instructions provided in the proxy card.

 

If you are a beneficial owner, please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ondas Holdings Inc.

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

To Be Held On [●], 2021

 

Dear Ondas Stockholder:

 

Ondas Holdings Inc. is pleased to invite you to attend a special meeting of the stockholders of Ondas which will be held on [●], 2021 at [●] a.m., Eastern time, at [●].

 

The purpose of the Ondas special meeting is to consider and to vote upon the following proposals:

 

1.Approval of Stock Issuance Proposal – a proposal to approve the issuance of shares of Ondas common stock, including shares of common stock underlying the Warrants, in connection with the Transaction; and

 

2.Adjournment Proposal – a proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposal.

 

The Board has approved the Mergers and related transactions, the Merger Agreement and the other agreements relating to the Mergers and related transactions, and determined that the Mergers and related transactions, the Merger Agreement and the other agreements relating to the Mergers and related transactions, are advisable and in the best interests of Ondas and its stockholders and unanimously recommends that Ondas stockholders vote “FOR” the issuance of shares of Ondas common stock, including shares of common stock underlying the Warrants, in connection with the Transaction and “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the Stock Issuance Proposal.

 

Your vote is very important. The Stock Issuance Proposal is a condition to completing the Transaction, and as such, Ondas stockholders must approve this proposal in order for the Transaction to be completed.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT THE ONDAS STOCKHOLDERS APPROVE THE STOCK ISSUANCE PROPOSAL AND ADJOURNMENT PROPOSAL.

 

The close of business on [●], 2021 has been fixed as the record date for the special meeting (the “Record Date”). Only holders of record of Ondas common stock on the Record Date are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting. A list of holders of common stock entitled to vote at the special meeting will be available for examination by any Ondas stockholder for any purpose germane to the special meeting at Ondas’ principal executive offices at 61 Old South Road, #495, Nantucket, Massachusetts 02554, for ten days before the special meeting, during normal business hours, and at the time and place of the special meeting as required by law.

 

Ondas directs your attention to the proxy statement accompanying this notice for more detailed information regarding the matters to be acted upon at the special meeting. You are encouraged to read the entire proxy statement carefully, including the Merger Agreement, which is included as Annex A to the proxy statement, and the section titled “Risk Factors” beginning on page 8.

 

SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU ATTEND THE SPECIAL MEETING, PLEASE SUBMIT A PROXY AS SOON AS POSSIBLE BY MAIL, BY TELEPHONE OR THROUGH THE INTERNET. INSTRUCTIONS ON THESE DIFFERENT WAYS TO SUBMIT YOUR PROXY ARE FOUND ON THE ENCLOSED PROXY FORM. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING. REMEMBER, YOUR VOTE IS IMPORTANT, SO PLEASE ACT TODAY!

 

  By Order of the Board of Directors,
   
  Eric A. Brock
  Chairman and Chief Executive Officer
   
  [●], 2021

 

 

 

 

TABLE OF CONTENTS

 

SUMMARY 1
The Companies 1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION 5
RISK FACTORS 8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 11
PROPOSAL 1:  THE STOCK ISSUANCE PROPOSAL 12
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS 45
REGULATORY MATTERS 45
PROPOSAL 2: THE ADJOURNMENT PROPOSAL 55
THE SPECIAL MEETING 56
Votes Required to Approve Proposals 57
AUDITORS, TRANSFER AGENT AND REGISTRAR 59
FUTURE STOCKHOLDER PROPOSALS 59
WHERE YOU CAN FIND MORE INFORMATION 60
AMERICAN ROBOTICS FINANCIAL STATEMENTS F-1
ANNEX A — MERGER AGREEMENT A-1
ANNEX B – LOCK-UP AND REGISTRATION RIGHTS AGREEMENT B-1
ANNEX C — OPINION OF NATIONAL SECURITIES CORP. C-1

 

i

 

 

SUMMARY

 

This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information that may be important to you. You are urged to carefully read this entire document, including the attached annexes, and the other documents to which this proxy statement refers you in order for you to understand fully the Transaction. See “Where You Can Find More Information.”

 

The Companies

 

Ondas Holdings Inc.

 

Ondas Holdings Inc., a Nevada corporation, through its wholly-owned subsidiary, Ondas Networks Inc., is a developer of proprietary, software-based wireless broadband technology for large established and emerging industrial markets. The Company’s standards-based, multi-patented, software-defined radio FullMAX platform enables MC-IoT applications by overcoming the bandwidth limitations of today’s legacy private licensed wireless networks. Ondas Networks’ customer end markets include railroads, utilities, oil and gas, transportation, aviation (including drone operators) and government entities whose demands span a wide range of mission critical applications. These markets require reliable, secure broadband communications over large and diverse geographical areas, many of which are within challenging radio frequency environments. Customers use the Company’s FullMAX technology to deploy their own private licensed broadband wireless networks. The Company also offers mission-critical entities the option of a managed network service. Ondas Networks’ FullMAX technology supports IEEE 802.16s, the new worldwide standard for private licensed wide area industrial networks.

 

Drone Merger Sub I Inc. and Drone Merger Sub II Inc.

 

Drone Merger Sub I Inc. and Drone Merger Sub II Inc., each a Delaware corporation, are newly formed, wholly-owned subsidiaries of Ondas and were organized specifically for the purpose of completing the Mergers. Merger Sub I and Merger Sub II have engaged in no business activities to date and have no material assets or liabilities of any kind, other than those incidental to their formation and in connection with the Transaction.

 

American Robotics, Inc.

 

American Robotics, a Delaware corporation, is a leading developer of highly automated commercial drone systems and the first and only company approved by the U.S. Federal Aviation Administration (“FAA”) to operate its drones beyond-visual-line-of-sight (“BVLOS”) without a human operator onsite.  American Robotics’ Scout System™ is a highly automated, AI-powered drone system capable of continuous, unattended operation and is marketed as a “drone-in-a-box” turnkey data solution service under a Robot-as-a-Service (RAAS) business model. American Robotics was founded by leading roboticists from Carnegie Mellon and Stanford with a shared vision for bringing robotic technology out of the lab and into the real-world to solve global challenges.

 

The Mergers

 

The Agreement and Plan of Merger, dated as of May 17, 2021, among Ondas, the Merger Subs, American Robotics, and the American Robotics Stockholders’ Representative, which is referred to as the Merger Agreement, is included as Annex A to this proxy statement. Ondas encourages you to carefully read the Merger Agreement in its entirety because it is the principal legal agreement that governs the Transaction.

 

Structure of the Mergers

 

Subject to the terms and conditions of the Merger Agreement, Ondas will acquire American Robotics through the Merger Subs. Merger Sub I will merge with and into American Robotics, with American Robotics continuing as the surviving entity, and American Robotics will then subsequently and immediately merge with and into Merger Sub II, with Merger Sub II continuing as the surviving entity and as a direct wholly-owned subsidiary of Ondas. Pursuant to the terms of the Merger Agreement, simultaneously with Merger II, Merger Sub II shall be renamed American Robotics, Inc.

 

Upon consummation of the Mergers, Ondas’ common stock will continue to trade on Nasdaq under the symbol “ONDS.”

 

Consideration

 

Ondas Stockholders. No consideration is being paid to Ondas stockholders in the Mergers. Ondas stockholders will continue to own their existing shares of Ondas common stock after the Transaction.

 

Holders of Interests in American Robotics. If the Transaction is completed, American Robotics’ stockholders will receive (a) cash consideration in an amount equal to $7,500,000, less certain indebtedness, transaction expenses and other expense amounts as described in the Merger Agreement; (b) 6,750,000 validly issued, fully paid and non-assessable shares of the Company’s common stock, less certain shares payable as transaction expenses, if any; (c) Warrants, in the form of Exhibit E of the Merger Agreement, exercisable for 1,875,000 shares of the Company’s common stock, as such number may be adjusted pursuant to the terms of the Merger Agreement; and (d) the cash released to the American Robotics’ Stockholders from the PPP Loan Escrow Amount (as defined in the Merger Agreement) (if any) and from the Company Stockholders’ Representative Expense Fund (as defined in the Merger Agreement) (if any). Each Warrant entitles the holder to purchase a number of shares of the Company’s common stock at a price equal to the average of the high and low prices of one share of common stock as reported on Nasdaq on the trading day immediately preceding the closing date of the Transaction. Each Warrant shall be exercisable in three equal annual installments commencing on the one year anniversary of the closing date of the Transaction and shall have a term of ten years.

 

1

 

 

If American Robotics’ PPP loans are not forgiven by the SBA prior to the closing of the Mergers, a portion of the Cash Consideration equaling indebtedness owed by American Robotics on either of its PPP loans plus an amount equal to the amount of interest that would have accrued on such PPP loans as of their maturity dates, will be held in escrow with American Robotics’ PPP lender. If an escrow account is established to hold the PPP Loan Escrow Amount at the closing, such amount or a portion thereof, as applicable, will be distributed as merger consideration to American Robotics’ Stockholders upon a determination by the SBA that one or both of the PPP loans are forgivable under the CARES Act. As of the date of this proxy statement, one of American Robotics’ two PPP loans outstanding as of the date of signing of the Merger Agreement has been forgiven, representing an aggregate amount of $249,732.60 in principal and interest.

 

Also on the closing date of the Transaction, the Company expects to enter into employment agreements and issue up to 1,375,000 restricted stock units under the Company’s incentive stock plan to key members of American Robotics’ management.

 

Ownership of Ondas after the Mergers

 

As of [●], 2021, Ondas has [34,032,040] shares of common stock outstanding.

 

Under the terms of the Merger Agreement, on the closing date of the Transaction, Ondas will issue to American Robotics’ stockholders an aggregate of 6,750,000 shares of common stock (less the shares, if any, paid as transaction expenses). Based on the foregoing, immediately after the closing of the Transaction, [40,782,040] shares of common stock will be issued and outstanding and the shares issued to American Robotics stockholders in the Transaction will represent approximately 16.6% of the outstanding common stock and voting power of the Company. Shares of common stock held by Ondas stockholders immediately before the closing of the Transaction will represent approximately 83.4% of the outstanding common stock and voting power of the Company after the closing of the Transaction. The foregoing are estimates of post-Transaction shares of common stock.

 

Interests of Ondas Executive Officers and Directors in the Transaction

 

When you consider the Board’s recommendations that stockholders vote in favor of the proposals described in this proxy statement, you should be aware that some Ondas executive officers and directors may have interests that may be different from, or in addition to, Ondas stockholders’ interests. For additional information see “Interests of Ondas Executive Officers and Directors in the Transaction.”

 

Accounting Treatment

 

Ondas will account for the Transaction as an acquisition of American Robotics by Ondas using the acquisition method of accounting in accordance with United States Generally Accepted Accounting Principles (“GAAP”). Ondas expects that, upon completion of the Transaction, holders of interests in American Robotics will receive approximately 16.6% of the outstanding common stock and voting power of the combined company, and Ondas stockholders will retain 83.4% of the outstanding common stock and voting power of the combined company. In addition to considering these relative voting powers, Ondas also considered the proposed composition of the combined company’s board of directors and the board committees, and the proposed members of the executive management team of the combined company, in determining the acquirer for accounting purposes. Based on the weighting of these factors, Ondas has concluded that it is the accounting acquirer.

 

Under the acquisition method of accounting, the assets, including identifiable intangible assets, and liabilities of American Robotics as of the effective time of the Mergers will be recorded at their respective fair values and added to those of Ondas. Any excess of the purchase price for the Mergers over the net fair value of American Robotics’ assets and liabilities will be recorded as goodwill. The results of operations of American Robotics will be combined with the results of operations of Ondas beginning at the closing of the Transaction. The consolidated financial statements of Ondas after closing will not be restated retroactively to reflect the historical financial position or results of operations of American Robotics. Following the Transaction, and subject to the finalization of the purchase price allocation, the earnings of Ondas will reflect the effect of any purchase accounting adjustments, including any increased depreciation and amortization associated with fair value adjustments to the assets acquired and liabilities assumed.

 

The allocation of the purchase price used in the unaudited pro forma financial statements included in this proxy statement is based upon a preliminary valuation by management. The final estimate of the fair values of the assets and liabilities will be determined with the assistance of a third-party valuation firm. Ondas’ preliminary estimates and assumptions are subject to materially change upon the finalization of internal studies and third-party valuations of assets, including investments, property and equipment, intangible assets including goodwill, and certain liabilities.

 

2

 

 

Regulatory Matters

 

Pursuant to the Merger Agreement, in the event Ondas does not qualify as a Citizen of the U.S. as defined in 49 U.S.C. 40102 (a)(15) (as determined after the Mergers), Ondas will be required to apply for and receive a U.S. Department of Transportation Foreign Civil Aircraft Permit or Special Authorization under Title 14 C.F.R. Part 375 related to American Robotics’ unmanned aircraft system (“UAS” or “drone”) operations (the “Requisite Regulatory Approval”). Ondas believes it currently qualifies and will qualify as of the closing of the Transaction as a Citizen of the U.S. as defined in 49 U.S.C. 40102 (a)(15) and, as a result, Ondas believes the Requisite Regulatory Approval is not required in connection with the Mergers.

 

Listing of Ondas Stock

 

Ondas has agreed to use commercially reasonable efforts to cause the shares of common stock to be issued in the Transaction to be approved for listing on Nasdaq.

 

Conditions to Consummation of the Transaction

 

Each party’s obligations to consummate the Transaction is subject to the satisfaction (or waiver in writing by each such party), at or prior to the closing of the Transaction, of the following conditions, including, among others:

 

obtaining the Requisite Regulatory Approval (if required);

 

the absence of any applicable Order (as defined in the Merger Agreement) (whether temporary, preliminary or permanent) being in effect which prohibits the consummation of the Mergers;

 

the absence of any Law prohibiting the consummation of the Mergers;

 

American Robotics obtaining the Requisite Company Vote (as defined in the Merger Agreement), which Requisite Company Vote has been obtained; and

 

Ondas obtaining the approval of the Stock Issuance Proposal (the “Ondas Stockholder Approval”).

 

Termination of the Merger Agreement

 

The Merger Agreement may be terminated prior to the closing of the Mergers:

 

by mutual written consent of Ondas and American Robotics;

 

by Ondas or American Robotics upon a breach by the other party which would constitute a failure of a closing condition that remains uncured by the earlier of (1) thirty (30) calendar days following receipt of written notice of such breach or (2) the date that is three (3) calendar days prior to 5:00 p.m., Eastern Time, on September 30, 2021;

 

if American Robotics has not obtained the Requisite Company Vote, which Requisite Company Vote has been obtained;

 

if the Ondas Stockholder Approval is not obtained;

 

if the Mergers have not been completed on or before 5:00 p.m., Eastern Time, on September 30, 2021; or

 

if any Governmental Authority having competent jurisdiction has issued or entered any Order or enacted any Law which, in any such case, permanently restrains, enjoins or otherwise prohibits the consummation of the Mergers.

 

The Special Meeting

 

Meeting. The special meeting will be held on [•] at [•] a.m., Eastern time, at [•]. At the special meeting, Ondas stockholders will be asked to:

 

Approval of Stock Issuance Proposal – approve the issuance of shares of Ondas common stock, including shares of common stock underlying the Warrants, in connection with the Transaction, which we refer to as the “Stock Issuance Proposal”; and

 

Adjournment Proposal – approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposal, which we refer to as the “Adjournment Proposal.”

 

3

 

 

The Stock Issuance Proposal is a condition to completing the Transaction, and as such, Ondas stockholders must approve this proposal in order for the Transaction to close.

 

Record Date; Votes. Ondas has fixed the close of business on [●], 2021 as the Record Date for determining the Ondas stockholders entitled to receive notice of and to vote at the special meeting. Only holders of record of Ondas common stock on the Record Date are entitled to receive notice of and vote at the special meeting and any adjournment or postponement thereof.

 

Each share of common stock is entitled to one vote on each matter brought before the meeting. On the Record Date, there were [34,032,040] shares of common stock issued and outstanding.

 

Required Vote. Approval of the Stock Issuance Proposal requires the affirmative vote of a majority of the votes cast by the holders of our common stock at the special meeting. Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the holders of our common stock at the special meeting.

 

Failure to Vote; Abstentions. Any of your shares that are not voted or as to which you abstain are not “votes cast” and will have no effect on the vote for the Stock Issuance Proposal or the Adjournment Proposal. Since the Stock Issuance Proposal and the Adjournment Proposal are non-routine matters under applicable rules, your bank, broker or other nominee cannot vote without instructions from you. For more information regarding the effect of abstentions, a failure to vote, or broker non-votes, see “The Special Meeting — Votes Required to Approve Proposals.”

 

Revocation of Proxies. You have the power to revoke your proxy at any time before the proxy is voted at the special meeting. You can revoke your proxy in one of four ways:

 

you can send a signed notice of revocation of proxy;

 

you can grant a new, valid proxy bearing a later date;

 

you can revoke the proxy in accordance with the telephone or Internet proxy submission procedures described in the proxy voting instructions attached to the proxy card; or

 

if you are a holder of record, you can attend the special meeting and vote in person, which will automatically cancel any proxy previously given, but your attendance alone will not revoke any proxy that you have previously given.

 

If you choose either of the first two methods to revoke your proxy, you must submit your notice of revocation or your new proxy to Ondas’ Corporate Secretary at: 61 Old South Road, #495, Nantucket, Massachusetts 02554 Attention: Corporate Secretary, so that it is received no later than the beginning of the special meeting.

 

Stock Ownership of Directors and Executive Officers. On the Record Date, directors and executive officers of Ondas and their respective affiliates owned and were entitled to vote [●] shares of common stock, or approximately [●]% of the voting power of the Company’s common stock outstanding on the Record Date. To Ondas’ knowledge, the directors and executive officers of Ondas and their respective affiliates intend to vote their shares of Company common stock in favor of all proposals presented at the special meeting, and any adjournment or postponement thereof.

 

Recommendations of the Board

 

YOUR VOTE IS IMPORTANT. The Stock Issuance Proposal to be presented at the special meeting is a condition to consummating the Transaction, and as such, Ondas stockholders must approve the Stock Issuance Proposal in order for the Transaction to close.

 

The Board unanimously recommends that Ondas stockholders vote:

 

FOR” the proposal to approve the issuance of shares of Ondas common stock, including the shares of common stock underlying the Warrants, in connection with the Transaction; and

 

FOR” the proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposal.

 

In making its recommendation, the Board considered, among other matters, the strategic benefits of combining the companies, synergies of the combined company, the strong financial and operational foundation of the combined company, and new growth opportunities available to the combined company. For additional information see “The Transaction— Rationale for the Transaction.” In addition, in making its respective recommendation, the Board considered those further matters set forth under the heading “The Transaction — Reasons for the Transaction.”

 

For additional information see “The Special Meeting — Board Recommendations.”


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QUESTIONS AND ANSWERS ABOUT THE TRANSACTION

 

The following are some questions you may have regarding the proposed Transaction, the terms and conditions of the Merger Agreement and certain related agreements and procedures and brief answers to those questions. You are urged to read carefully this entire proxy statement, including the Annexes attached hereto and the other documents to which this proxy statement refers or which it incorporates by reference because the information in this section may not provide all the information that is important to you. Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Merger Agreement attached hereto as Annex A.

 

Q:What will happen in the Transaction?

 

A:On May 17, 2021, the Company entered into the Merger Agreement to acquire American Robotics, a leading developer of highly automated commercial drone systems and the first and only company approved by the FAA to operate its drones beyond-visual-line-of-sight (“BVLOS”) without a human operator onsite. The Company anticipates that this acquisition will allow for integration between Ondas’ and American Robotics’ technology platforms and increase automation, data collection, and AI-powered analytics in industrial markets allowing for the improved maintenance, monitoring and operation of critical infrastructure.

 

Pursuant to the Merger Agreement, on closing date, Merger Sub I will merge with and into American Robotics, with American Robotics continuing as the surviving entity, and American Robotics will then subsequently and immediately merge with and into Merger Sub II, with Merger Sub II continuing as the surviving entity and as a direct wholly-owned subsidiary of Ondas. Pursuant to the terms of the Merger Agreement, simultaneously with Merger II, Merger Sub II shall be renamed American Robotics, Inc.

 

If the Mergers are completed, American Robotics’ stockholders will receive (a) cash consideration in an amount equal to $7,500,000, less certain indebtedness, transaction expenses and other expense amounts as described in the Merger Agreement; (b) 6,750,000 validly issued, fully paid and non-assessable shares of the Company’s common stock, $0.0001 par value per share (less certain shares, if any, which may be paid as transaction expenses); (c) Warrants, in the form of Exhibit E of the Merger Agreement, exercisable for 1,875,000 shares of the Company’s common stock, as such number may be adjusted pursuant to the terms of the Merger Agreement; and (d) the cash released to the American Robotics’ Stockholders from the PPP Loan Escrow Amount (as defined in the Merger Agreement) (if any) and from the Company Stockholders’ Representative Expense Fund (as defined in the Merger Agreement) (if any). Each Warrant entitles the holder to purchase a number of shares of the Company’s common stock at a price equal to the average of the high and low prices of one share of common stock as reported on Nasdaq on the trading day immediately preceding the closing date of the Transaction. Each Warrant shall be exercisable in three equal annual installments commencing on the one year anniversary of the closing date of the Transaction and shall have a term of ten years.

 

If American Robotics’ PPP loans are not forgiven by the SBA prior to the closing of the Mergers, a portion of the Cash Consideration equaling Indebtedness owed by American Robotics on either of its PPP loans plus an amount equal to the amount of interest that would have accrued on such PPP loans as of their maturity dates will be held in escrow with American Robotics’ PPP lender. If an escrow account is established to hold the PPP Loan Escrow Amount at the closing, such amount or a portion thereof, as applicable, will be distributed as merger consideration to American Robotics’ Stockholders upon a determination by the SBA that one or both of the PPP loans are forgivable under the CARES Act. As of the date of this proxy statement, one of American Robotics’ two PPP loans outstanding as of the date of signing of the Merger Agreement has been forgiven, representing an aggregate amount of $249,732.60 in principal and interest.

 

Also on the closing date of the Mergers, the Company expects to enter into employment agreements and issue up to 1,375,000 restricted stock units under the Company’s incentive stock plan to key members of American Robotics’ management.

 

Q:When and where is the special meeting?

 

A:A special meeting of Ondas stockholders will be held on [●] at [●] a.m., Eastern time, at [●], to consider and vote on the proposals related to the Transaction.

 

Q:What proposals are being submitted at the special meeting?

 

A:The proposals to be submitted at the special meeting are the following:

 

1.Stock Issuance Proposal – a proposal to approve the issuance of Ondas common stock, including common stock underlying the Warrants, in connection with the Transaction; and

 

2.Adjournment Proposal – a proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposal.

 

Q.What are the quorum requirements for the special meeting?

 

A:Under Nevada law and the Ondas bylaws, a quorum of Ondas’ stockholders at the special meeting is necessary to transaction business. The holders of a majority of the shares of stock, issued and outstanding and entitled to vote, shall be present in person or represented by proxy in order to constitute a quorum for the transaction of any business at the special meeting.

 

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Q:Why is my vote important?

 

A:The Stock Issuance Proposal is a condition to completing the Transaction. If the Stock Issuance Proposal is not approved by the Ondas Stockholders, the Transaction will not be completed.

 

Q:What do I do if I want to change my vote?

 

A:You can change your vote at any time before the special meeting. You can do this in one of four ways:

 

you can send a signed notice of revocation of proxy;

 

you can grant a new, valid proxy bearing a later date;

 

you can submit a proxy again by telephone or through the Internet; or

 

if you are a holder of record, you can attend the applicable special meeting and vote in person, but your attendance alone will not revoke any proxy that you have previously given.

 

If you choose either of the first two methods to revoke your proxy, you must submit your notice of revocation or your new proxy to Ondas’ Corporate Secretary at: 61 Old South Road, #495, Nantucket, Massachusetts 02554 Attention: Corporate Secretary, so that it is received no later than the beginning of the special meeting. If you are a stockholder, you can find further details on how to revoke your proxy in “The Special Meeting — Revocation of Proxies.”

 

Q:If my shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:Your broker is not permitted to vote on the Stock Issuance Proposal and the Adjournment Proposal unless you provide your broker with voting instructions on each proposal. You should instruct your broker to vote your shares by following the directions your broker provides you. Please review the voting information form used by your broker to see if you can submit your voting instructions by telephone or Internet.

 

Q:What if I fail to instruct my broker with respect to the Stock Issuance Proposal and the Adjournment Proposal?

 

A:A broker non-vote occurs when a beneficial owner fails to provide voting instructions to his or her broker as to how to vote the shares held by the broker in street name and the broker does not have discretionary authority to vote without instructions. See “The Special Meeting.”

 

A broker non-vote will have no effect on the Stock Issuance Proposal and the Adjournment Proposal. For additional information, see “The Special Meeting.”

 

Q:What do I do now?

 

A:Carefully read and consider the information contained in and incorporated by reference into this proxy statement, including its annexes.

 

In order for your shares to be represented at the special meeting:

 

you can submit a proxy by telephone or through the Internet by following the instructions included on your proxy card;

 

you can indicate on the enclosed proxy card how you would like to vote and sign and return the proxy card in the accompanying pre-addressed postage paid envelope; or

 

you can attend the special meeting in person and vote at the meeting.

 

Q:Are there risks involved in undertaking the Transaction?

 

A:Yes. In evaluating the Transaction, Ondas stockholders should carefully consider the factors discussed in “Risk Factors” beginning on page 8 of this proxy statement and other information about Ondas and American Robotics included in this proxy statement and the documents incorporated by reference into this proxy statement.

 

Q:When do you expect to complete the Transaction?

 

A:

Ondas is working to complete the Transaction as quickly as practicable. However, Ondas cannot assure you when or if the Transaction will be completed even if the Ondas stockholders approve the Stock Issuance Proposal. Completion of the Transaction is subject to satisfaction or waiver of the conditions specified in the Transaction Agreement, including regulatory approvals (if required). It is possible that factors outside the control of Ondas could result in the Transaction being completed later than expected. Although the exact timing of the completion of the Transaction cannot be predicted with certainty, Ondas anticipates completing the Transaction in the third quarter of 2021. If the Transaction is not completed on or before 5:00 p.m., Eastern Time, on September 30, 2021, the Merger Agreement may be terminated by Ondas or American Robotics. See “The Merger Agreement — Conditions to Closing.”

 

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Q:Whom should I call with questions?

 

A:If you have additional questions about the Transaction or the Special Meeting, you should contact:

 

Ondas Holdings Inc.
61 Old South Road, #495

Nantucket, Massachusetts 02554

Attention: Investor Relations
Phone Number: (888) 350-9994
E-mail Address: inquiries@ondas.com

 

If you would like additional copies of this proxy statement or you need assistance voting your shares, you should contact:

 

[INSERT CONTACT INFORMATION FOR PROXY SOLICITOR]


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RISK FACTORS

 

In addition to the other information included and incorporated by reference into this proxy statement, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements” below, you should carefully consider the following risk factors before deciding how to vote on the matters presented to stockholders at the special meeting. In addition to the risk factors set forth below, you should read and consider other risk factors specific to Ondas’ business and securities that will also affect the combined company after the Transaction, which are described in Part I, Item 1A of Ondas’ Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 8, 2021, and all of which are incorporated by reference into this proxy statement. If any of the risks described below or in the periodic reports incorporated by reference into this proxy statement actually occur, the business, financial condition, results of operations, prospects, or stock price of Ondas or the combined company could be materially adversely affected. See “Where You Can Find More Information.”

 

Risks Related to the Transaction

 

Completion of the Transaction is subject to the conditions contained in the Merger Agreement and if these conditions are not satisfied, the Transaction will not be completed.

 

The completion of the Transaction is subject to various closing conditions, including but not limited to (a) the Company obtaining stockholder approval of the Stock Issuance Proposal, and (b) the shares of the common stock to be issued as consideration, including shares of common stock underlying Warrants, in the Transaction being approved for listing on Nasdaq. Also, the Company may need to obtain approval from the United States Department of Transportation as a condition to closing if the Company is not a U.S. citizen under Department of Transportation rules.

 

Many of the conditions to the closing of the Transaction are not within our control, and we cannot predict with certainty when or if these conditions will be satisfied. The failure to satisfy any of the required conditions could delay the completion of the Transaction or prevent it from occurring. Any delay in completing the Transaction could cause us not to realize some or all of the benefits that we expect to achieve if the Transaction is successfully completed within the expected timeframe. There can be no assurance that the conditions to the closing of the Transaction will be satisfied or that the Transaction will be completed or that if completed we will realize the anticipated benefits.

 

Failure to complete the Transaction could negatively impact our stock price and our future business and financial results.

 

If the Transaction is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Transaction, we could be subject to a number of negative consequences, including, among others: (i) we may experience negative reactions from the financial markets, including negative impacts on our stock price; (ii) we will still be required to pay certain significant costs relating to the Transaction, including legal, accounting, and financial advisor costs; and (iii) matters related to the Transaction (including integration planning) require substantial commitments of our time and resources, which could result in our inability to pursue other opportunities that could be beneficial to us. If the Transaction is not completed or if completion of the Transaction is delayed, any of these risks could occur and may adversely affect our business, financial condition, financial results, and stock price.

 

The Transaction will involve substantial costs.

 

We have incurred, and expect to continue to incur, a number of non-recurring costs associated with the Transaction. The substantial majority of the non-recurring expenses will consist of transaction and regulatory costs related to the Transaction. We will also incur transaction fees and costs related to formulating and implementing integration plans, including system consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred from the Transaction and integration. Although we anticipate that the elimination of duplicative costs and the realization of other efficiencies and synergies related to the integration should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

 

Risks Related to the Combined Company if the Transaction is Completed

 

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

 

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

 

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If we are unable to implement and maintain effective internal control over financial reporting following completion of the Transaction, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline.

 

We and American Robotics currently maintain separate internal control over financial reporting with different financial reporting processes and different process control software. We plan to integrate our internal control over financial reporting with that of American Robotics. We may encounter difficulties and unanticipated issues in combining our respective accounting systems due to the complexity of the financial reporting processes. We may also identify errors or misstatements that could require audit adjustments. If we are unable to implement and maintain effective internal control over financial reporting following completion of the Transaction, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline.

 

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

 

After the Transaction, American Robotics will remain subject to certain past, current, and future liabilities. There could be unasserted claims or assessments against or affecting American Robotics, including the failure to comply with applicable laws and regulations. In addition, there may be liabilities of American Robotics that are neither probable nor estimable at this time that may become probable or estimable in the future, including indemnification requests received from customers of American Robotics relating to claims of infringement or misappropriation of third party intellectual property or other proprietary rights, tax liabilities arising in connection with ongoing or future tax audits and liabilities in connection with other past, current and future legal claims and litigation. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results. We may learn additional information about American Robotics that adversely affects us, such as unknown, unasserted, or contingent liabilities and issues relating to compliance with applicable laws or infringement or misappropriation of third party intellectual property or other proprietary rights.

 

Ondas stockholders will experience dilution as a consequence of the issuance of the common stock in connection with the Transaction.

 

Ondas stockholders will experience dilution upon the issuance of additional shares of common stock pursuant to the Merger Agreement. Such dilution will, among other things, limit the ability of the current Ondas stockholders to influence management of Ondas, including through the election of directors following the Transaction.

 

Ondas may experience difficulties integrating American Robotics’ business.

 

Achieving the anticipated benefits of the Transaction will depend in significant part upon whether Ondas and American Robotics integrate their businesses in an efficient and effective manner. Ondas has been able to conduct only limited planning regarding the integration of the companies following the Transaction and has not yet determined the exact nature of how the businesses and operations of the companies will be combined after the Transaction. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. The companies may not be able to accomplish the integration process smoothly, successfully or on a timely basis. The necessity of coordinating geographically separated organizations, systems of controls, and facilities and addressing possible differences in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. The companies operate numerous systems and controls, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance. The integration of operations following the Transaction will require the dedication of significant management and external resources, which may temporarily distract management’s attention from the day-to-day business of the combined company and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the combined company. Any inability of management to successfully and timely integrate the operations of the two companies could have a material adverse effect on the business and results of operations of the combined company.

 

The combined company may not fully realize the anticipated benefits of the Transaction within the timing anticipated or at all.

 

Ondas and American Robotics entered into the Merger Agreement because each company believes that the Transaction will be beneficial to each of Ondas and American Robotics primarily as a result of the anticipated benefits resulting from the combined company’s operations. The companies may not be able to achieve the anticipated long-term strategic benefits of the Transaction. An inability to realize the full extent of, or any of, the anticipated benefits of the Transaction, as well as any delays that may be encountered in the integration process, which may delay the timing of such benefits, could have an adverse effect on the business and results of operations of the combined company, and may affect the value of Ondas common stock after the completion of the Transaction.

 

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Charges to earnings resulting from the application of the acquisition method of accounting may adversely affect the market value of Ondas common stock following the Transaction.

 

In accordance with GAAP, Ondas will be considered the acquiror of American Robotics for accounting purposes. Ondas will account for the Transaction using the acquisition method of accounting. There may be charges related to the acquisition that are required to be recorded to Ondas’s earnings that could adversely affect the market value of Ondas common stock following the completion of the Transaction. Under the acquisition method of accounting, Ondas will allocate the total purchase price to the assets acquired, including identifiable intangible assets, and liabilities assumed from American Robotics based on their fair values as of the date of the completion of the Transaction, and record any excess of the purchase price over those fair values as goodwill. For certain tangible and intangible assets, revaluating them to their fair values as of the completion date of the Transaction may result in Ondas incurring additional depreciation and amortization expense that may exceed the combined amounts recorded by Ondas and American Robotics prior to the Transaction. This increased expense will be recorded by Ondas over the useful lives of the underlying assets. In addition, to the extent the value of goodwill or intangible assets were to become impaired after the Transaction, Ondas may be required to incur charges relating to the impairment of those assets.

 

The combined company’s goodwill or other intangible assets may become impaired, which could result in material non-cash charges to its results of operations.

 

The combined company will have goodwill and other intangible assets resulting from the Transaction. At least annually, or whenever events or changes in circumstances indicate a potential impairment in the carrying value as defined by GAAP, the combined company will evaluate this goodwill and other intangible assets for impairment based on the fair value of each reporting unit. Estimated fair values could change if there are changes in the combined company’s capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows, or market capitalization. Impairments of goodwill or other intangible assets could require material non-cash charges to the combined company’s results of operations.

 

The combined company may be unable to manage its growth effectively.

 

The combined company’s growth strategy will place significant demands on its financial, operational and management resources. In order to continue its growth, the combined company may need to add administrative and other personnel, and will need to make additional investments in operations and systems. There can be no assurance that the combined company will be able to find and train qualified personnel, or do so on a timely basis, or expand its operations and systems to the extent, and in the time, required.

 

The combined company may be unable to execute its acquisition growth strategy.

 

The combined company’s ability to execute its growth strategy depends in part on its ability to identify and acquire desirable acquisition candidates as well as its ability to successfully integrate American Robotics’ operations into its business. The consolidation of Ondas’s operations with the operations of American Robotics will present significant challenges to management, particularly during the initial phases of combining the operations of Ondas and American Robotics.

 

Additional factors may negatively impact the combined company’s growth strategy. The combined company’s strategy may require spending significant amounts of capital. If the combined company is unable to obtain additional needed financing on acceptable terms, it may need to reduce the scope of its acquisition growth strategy, which could have a material adverse effect on its growth prospects. If any of the aforementioned factors force management to alter the combined company’s growth strategy, the combined company’s growth prospects could be adversely affected.

 

Our largest stockholders may have the ability to exert substantial influence over actions to be taken or approved by our stockholders.

 

After the closing of the Transaction, the executive officers and directors and their affiliates of the combined company will beneficially own approximately [●%] of the voting power in the combined company. As a result, these individuals may have the ability to exert substantial influence over actions to be taken or approved by our stockholders, including the election of directors and any transactions involving a change of control.

 

In the future, our largest stockholders may acquire or dispose of shares of our common stock and thereby increase or decrease their ownership stake in us. Significant fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our common stock.

 

The loss of key personnel could have a material adverse effect on the combined company’s financial condition, results of operations and growth prospects.

 

The success of the combined company will depend on the continued contributions of key employees and officers. The loss of the services of key employees and officers, whether such loss is through resignation or other causes, or the inability to attract additional qualified personnel, could have a material adverse effect on the combined company’s financial condition, results of operations and growth prospects.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Ondas’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 8, 2021, and incorporated by reference into this proxy statement, and in particular, the risks discussed under the caption “Risk Factors” included in this proxy statement. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

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PROPOSAL 1: THE STOCK ISSUANCE PROPOSAL

 

The following discussion contains important information relating to the Transaction. The Merger Agreement is included as Annex A to this proxy statement. Ondas encourages you to carefully read the Merger Agreement in its entirety because it is the principal legal agreement that governs the Mergers. Capitalized terms used but not defined herein have the meanings ascribed to such terms in the Merger Agreement attached hereto as Annex A.

 

The Companies

 

Ondas Holdings Inc.

 

Ondas Holdings Inc., through its wholly-owned subsidiary, Ondas Networks Inc., provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. We refer to these applications as the Mission-Critical Internet of Things (“MC-IoT”). The Company’s wireless networking products are applicable to a wide range of MC-IoT applications, which are most often located at the very edge of large industrial networks. These applications require secure, real time connectivity with the ability to process large amounts of data at the edge of large industrial networks. Such applications are required in all of the major critical infrastructure markets, including rail, electric grids, drones, oil and gas, and public safety and government, where secure, reliable and fast operational decisions are required in order to improve efficiency and ensure a high degree of safety and security. We design, develop, manufacture, sell and support FullMAX, our patented, Software Defined Radio (“SDR”) platform for secure, licensed, private, wide-area broadband networks. Our customers install FullMAX systems in order to upgrade and expand their legacy wide-area network (“WAN”) infrastructure. Our MC-IoT intellectual property has been adopted by the Institute of Electrical and Electronics Engineers (“IEEE”), the leading worldwide standards body in data networking protocols, and forms the core of the IEEE 802.16s standard. Because standards-based communications solutions are preferred by our mission-critical customers and ecosystem partners, Ondas has taken a leadership position in IEEE as it relates to wireless networking for industrial markets. As such, management believes this standards-based approach supports the adoption of the Company’s technology across a burgeoning ecosystem of partners and end markets.

 

Our FullMAX SDR platform is an important and timely upgrade solution for privately-owned and operated wireless WANs, leveraging Internet Protocol-based communications to provide more reliability and data capacity for our mission-critical infrastructure customers. Critical infrastructure markets throughout the globe have reached an inflection point where legacy serial and analog based protocols and network transport systems no longer meet industry needs. In addition to offering enhanced data throughput, FullMAX is an intelligent networking platform enabling the adoption of sophisticated operating systems and equipment supporting next-generation MC-IoT applications over wide field areas. These new MC-IoT applications and related equipment require more processing power at the edge of large industrial networks and the efficient utilization of network capacity and scarce bandwidth resources which can be supported by the “Fog-computing” capability integrated in our end-to-end network platform. Fog-computing utilizes management software to enable edge compute processing and data and application prioritization in the field enabling our customers more reliable, real-time operating control of these new, intelligent MC-IoT equipment and applications at the edge.

 

We sell our products and services globally through a direct sales force and value-added sales partners to critical infrastructure providers including major rail operators, commercial and industrial drone operators, electric and gas utilities, water and wastewater utilities, oil and gas producers and pipeline operators, and for other critical infrastructure applications in areas such as homeland security and defense, and transportation. We continue to develop our value-added reseller relationships which today include a major strategic partnership with Siemens Mobility for the development of new types of wireless connectivity for the North American Rail. In addition, Ondas and JVCKenwood, a global supplier of Land Mobile Radio (“LMR”) systems, have jointly responded to a request from the rail industry for the design and delivery of a next generation data and voice platform. We believe our Siemens’ partnership and our joint effort with JVCKenwood are indicative of the potential for additional Tier 1 partnerships in our other vertical markets including securing reseller relationships with major suppliers to the worldwide government and homeland security markets. These partnerships are being driven by the flexibility of our FullMAX software to support legacy industrial protocols (e.g. Push to Talk Voice, Dial-up Serial Data Communications, and Advanced Train Control System – ATCS) while simultaneously operating our state of the art MC-IoT protocols. This dual and multi-mode software capability provides major industrial customers with a seamless migration path to advanced internet-protocol-based networks. Over time, these legacy functions, like Push to Talk Voice and ATCS, are transformed into just several of many new data applications we can support.

 

American Robotics, Inc.

 

American Robotics, a privately-owned company, is a leading developer of highly automated commercial drone systems and the first and only company approved by the FAA to operate its drones beyond-visual-line-of-sight (“BVLOS”) without a human operator onsite. American Robotics’ Scout System™ is a highly automated, AI-powered drone system capable of continuous, unattended operation and is marketed as a “drone-in-a-box” turnkey data solution service under a Robot-as-a-Service (“RAAS”) business model. American Robotics was founded by leading roboticists from Carnegie Mellon and Stanford with a shared vision for bringing robotic technology out of the lab and into the real-world to solve global challenges.

 

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The American Robotics team is comprised of expert engineers, entrepreneurs, business leaders, and industry veterans. American Robotics has a high margin, recurring revenue RAAS business model with a deep customer pipeline in industrial and agriculture markets.

 

American Robotics’ Scout System is the first and only drone system to receive FAA regulatory approval for operations without a human operator onsite. This gives the company an exclusive first-mover advantage to unlock the commercial drone market by overcoming the need for costly visual observers to be on the ground during every drone flight. With humans removed from the field and data processing achieved at the edge, users can achieve a 10X+ reduction in data acquisition costs.

 

The Scout System™ is the ultimate mobile data gathering application for wide field area operations in industrial, agricultural and governmental settings with the drone residing as a high-value mobile edge device in a Mission Critical IoT (MC-IoT) network deployment. The Scout System consists of:

 

Scout™, a highly automated drone with advanced imaging payloads;

 

ScoutBase™, a ruggedized base station for housing, charging, data processing, and cloud transfer; and

 

ScoutView™, American Robotics’ analytics and front-end software package.

 

The Transaction

 

Structure of the Transaction

 

Subject to the terms and conditions of the Transaction, Ondas will acquire American Robotics through the Merger Subs. Merger Sub I will merge with and into American Robotics, with American Robotics continuing as the surviving entity, and American Robotics will then subsequently and immediately merge with and into Merger Sub II, with Merger Sub II continuing as the surviving entity and as a direct wholly-owned subsidiary of Ondas. Pursuant to the terms of the Merger Agreement, simultaneously with Merger II, Merger Sub II shall be renamed American Robotics, Inc.

 

Upon consummation of the Transaction, Ondas’ common stock will continue to trade on Nasdaq under the symbol “ONDS.”

 

Consideration

 

Ondas Stockholders. No consideration is being paid to Ondas stockholders in the Transaction. Ondas stockholders will continue to own their existing shares of Ondas common stock after the Transaction.

 

Holders of Interests in American Robotics. If the Transaction is completed, American Robotics’ stockholders will receive (a) cash consideration in an amount equal to $7,500,000, less certain transaction expenses and indebtedness of American Robotics as described in the Merger Agreement; (b) 6,750,000 validly issued, fully paid and non-assessable shares of the Company’s common stock (less certain shares, if any, which may be paid as transaction expenses); (c) Warrants, in the form of Exhibit E of the Merger Agreement, exercisable for 1,875,000 shares of the Company’s common stock, as such number may be adjusted pursuant to the terms of the Merger Agreement; and (d) the cash released to the American Robotics’ Stockholders from the PPP Loan Escrow Amount (as defined in the Merger Agreement) (if any) and from the Company Stockholders’ Representative Expense Fund (as defined in the Merger Agreement) (if any). Each Warrant entitles the holder to purchase a number of shares of the Company’s common stock at a price equal to the average of the high and low prices of one share of common stock as reported on Nasdaq on the trading day immediately preceding the closing date of the Transaction. Each Warrant shall be exercisable in three equal annual installments commencing on the one year anniversary of the closing date of the Transaction and shall have a term of ten years.

 

Holders of “in the money” stock options of American Robotics that are vested or that will vest at the closing of the Transaction can elect to either exercise such options for shares in American Robotics or to convert such options into stock options or warrants of Ondas. Holders of “in the money” stock options of American Robotics that are unvested and will not become vested at the closing of the Transaction will be converted into stock options of Ondas. Ondas and American Robotics will work in good faith before the closing to determine the Equity Award Exchange Ratio (as defined in the Merger Agreement) which will determine the number of options or warrants in Ondas that will be issued for such stock options of American Robotics. Additionally, Ondas and American Robotics will also work in good faith before the closing of the Transaction to equitably reduce the number of Ondas Warrants that will be issued as part of the consideration in an amount equal to the value of the Ondas stock options and warrants being issued in exchange for such stock options of American Robotics.

 

If American Robotics’ PPP loans are not forgiven by the SBA prior to the closing of the Mergers, a portion of the Cash Consideration equaling Indebtedness owed by American Robotics on either of its PPP loans plus an amount equal to the amount of interest that would have accrued on such PPP loans as of their maturity dates will be held in escrow with American Robotics’ PPP lender. If an escrow account is established to hold the PPP Loan Escrow Amount at the closing, such amount or a portion thereof, as applicable, will be distributed as merger consideration to American Robotics’ Stockholders upon a determination by the SBA that one or both of the PPP loans are forgivable under the CARES Act. As of the date of this proxy statement, one of American Robotics’ two PPP loans outstanding as of the date of signing of the Merger Agreement has been forgiven, representing an aggregate amount of $249,732.60 in principal and interest.

 

Also on the closing date of the Transaction, the Company expects to enter into employment agreements and issue up to 1,375,000 restricted stock units under the Company’s incentive stock plan to key members of American Robotics’ management.

 

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Background of the Transaction

 

On January 29, 2020, Eric Brock, Chairman and Chief Executive Officer of the Company, was introduced to an American Robotics shareholder and board advisor (the “American Robotics board advisor”). The American Robotics board advisor has no material relationships with the Company. During the telephonic meeting, the American Robotics board advisor shared with Mr. Brock an overview of American Robotics Scout System™ platform and information regarding the prospects for Scout™ to receive FAA approval for highly automated BVLOS operations without a human operator onsite. Mr. Brock shared an overview of Ondas Networks and its FullMAX wireless platform.

 

From January 29, 2020 to January 15, 2021, the Company’s management team had no further contact with American Robotics.

 

On February 5, 2020, American Robotics retained HamiltonClark Sustainable Capital, Inc. (“HamiltonClark”) to assist American Robotics as a financial advisor. This engagement paused during 2020 awaiting FAA approvals.

 

On January 14, 2021, American Robotics received FAA approval to operate the highly-automated Scout System™ and BVLOS for research and development including for industrial applications. On or around that day, Mr. Brock reached out to the American Robotics board advisor and Reese Mozer, Chief Executive Officer of American Robotics, and Vijay Somandepalli, Chief Technology Officer of American Robotics, to discuss the FAA approval process and American Robotics’ business plan. Discussions between the management teams of the Company and American Robotics began on February 4, 2021.

 

On January 14, 2021, American Robotics re-engaged HamiltonClark as a financial advisor.

 

On January 26, 2021, Mr. Brock spoke to the American Robotics board advisor via telephone and learned that American Robotics had developed a business expansion plan and was launching a process to engage investors to raise capital or sell the company. Mr. Brock expressed interest in discussing opportunities for strategic cooperation and investment. The American Robotics board advisor noted he would share details of this conversation with Mr. Mozer and his management team.

 

On February 4, 2021, Mr. Brock held a telephonic meeting with Mr. Mozer to discuss the businesses of American Robotics and Ondas Networks. Mr. Mozer noted that the American Robotics Board of Directors was considering its strategic alternatives and was likely to commence a formal process to secure capital or sell American Robotics. Mr. Mozer noted that the management team preferred a path to remain with American Robotics and execute the growth plan if the company were acquired.

 

On February 9, 2021, Mr. Brock and Dr. Somandepalli held an introductory telephonic meeting to explore technology and marketing synergies between the two companies.

 

On February 15, 2021, Mr. Mozer introduced Mr. Brock to representatives of HamiltonClark during a telephonic meeting. The representatives of HamiltonClark explained their role in managing a formal sales process on behalf of the American Robotics Board of Directors. Mr. Brock provided an overview of the Ondas Networks business, and the group held a discussion regarding the business and financial outlook for American Robotics.

 

On February 16, 2021, the Company and American Robotics entered into a confidentiality agreement.

 

On February 16, 2021, Mr. Brock, Stewart Kantor, President, Chief Financial Officer, Secretary and Treasurer of the Company, and Mr. Mozer held discussions during a telephonic meeting focused on the initial financial diligence required to understand the respective business opportunities of each company, financing requirements, if any, and the opportunity for strategic cooperation and the related business and financial benefits. On that same day, the companies held a technical telephonic meeting to discuss in detail specific aspects of the Ondas wireless platform and American Robotics Scout System™. Mr. Brock and Mr. Kantor were joined by Guy Simpson, Chief Operating Officer of Ondas Networks, and Martin Paget, Director of Technical Solutions of Ondas Networks. Mr. Mozer and Dr. Somandepalli attended the technical meeting for American Robotics.

 

On February 17, 2021, Mr. Mozer provided the Company a Confidential Information Memorandum and access to a diligence data room. Mutual due diligence proceeded over the next several weeks on financial, operational, regulatory, accounting, information systems, legal, tax, environmental, labor and other matters.

 

On February 18, 2021, Ondas held an internal telephonic due diligence meeting attended by Messrs. Brock, Kantor, Simpson, and Paget. The meeting was also attended by Susan Roberts, an aviation and UAS expert, who the Company had engaged as a consultant to assist in managing Ondas’ UAS business efforts and explore opportunities to further grow the Company’s business in UAS and drone markets. Mrs. Roberts shared her independent analysis of American Robotics technical platform, standing with the FAA and the value of the FAA approval for remote automated BVLOS operation of the Scout System™.

 

On February 19, 2021, Messrs. Brock and Kantor hosted a telephonic meeting to share a business and financial outlook focused on the Company. Mr. Mozer, Dr. Somandepalli and representatives of HamiltonClark attended the meeting.

 

On February 21, 2021, Messrs. Brock and Mozer and a representative of HamiltonClark held a telephonic meeting to initiate preliminary discussions about the terms of an acquisition of American Robotics by the Company. Both companies discussed valuation concepts, structures and timelines. The representative of HamiltonClark stressed that American Robotics was continuing a process of reviewing strategic opportunities and had received substantial interest from other potential acquirors.

 

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On February 22, 2021, the Company held an internal telephonic due diligence meeting attended by Messrs. Brock, Kantor, Simpson, and Paget. Mrs. Roberts, the Company’s consultant, also attended and presented further analysis of American Robotics’ technical and regulatory position. Also, Mrs. Roberts shared some additional information regarding the competitive environment in the UAS and “drone-in-a-box” markets. The parties discussed valuation approaches and comparable transactions.

 

On March 4, 2021, Mr. Brock visited American Robotics headquarters in Marlborough, Massachusetts for further in-person diligence, a facility tour and for a flight demonstration for the Scout System™. Mr. Mozer, Dr. Somandepalli and representatives of HamiltonClark were present for this visit. In connection with Mr. Brock’s visit, Mr. Brock was also provided additional technical information regarding the Scout System™ base station and Scout™ drone vehicle and the related software analytics capabilities.

 

On March 4, 2021, the Company provided American Robotics a preliminary draft term sheet for a proposed acquisition of American Robotics by the Company, which included the following terms: 6,250,000 shares of the Company’s common stock, warrants exercisable for 1,875,000 shares of the Company’s common stock and 1,875,000 restricted stock units to American Robotics’ senior management.

 

From March 4 to April 14, 2021, the management teams of the Company and American Robotics negotiated the term sheet.

 

On March 9, 2021, the Company held telephonic meetings with certain American Robotics customers as part of its business diligence, which list was compiled by Messrs. Brock and Mozer. The telephonic meetings were attended by Messrs. Brock, Kantor, Simpson, and Paget.

 

On March 10, 2021, Mr. Mozer contacted Mr. Brock via telephone to express interest in moving forward with exploring a proposed transaction. Mr. Mozer advised Mr. Brock that American Robotics had attracted serious interest from other suitors, though it preferred a strategic transaction with the Company, subject to finalizing the term sheet with the Company.

 

On March 10, 2021, Messrs. Brock and Mozer preliminarily discussed in a telephonic meeting the financial terms of a possible acquisition.

 

On April 7, 2021, Messrs. Brock and Mozer discussed the proposed transaction further in a telephonic meeting and Mr. Mozer requested (i) a $7,500,000 cash payment (“Cash Consideration”) and (ii) a $2.0 million loan upon execution of the term sheet (the “Bridge Note”). The loan was intended to help fund American Robotics hiring and inventory expansion to support growing customer demand.

 

On April 9, 2021, Messrs. Brock, Kantor, Mozer and Somandepalli, representatives of HamiltonClark, and representatives of Akerman, legal counsel for Ondas, and representatives of Hogan Lovells, legal counsel for American Robotics, held a telephonic meeting to discuss and further negotiate the key aspects of a draft term sheet for the proposed acquisition of American Robotics.

 

On April 9, 2021, the Company provided American Robotics a revised term sheet, which included the Cash Consideration and Bridge Note.

 

On April 10, 2021, the Company’s Board of Directors held a telephonic meeting. All directors were present and, at the request of the Board of Directors, representatives of Akerman attended the meeting. Mr. Brock discussed the proposed acquisition of American Robotics by the Company and provided the Board of Directors a summary of American Robotics’ business. Messrs. Brock and Kantor presented the strategic opportunity and financial considerations to the Board of Directors, including a draft term sheet regarding the proposed transaction, which included the Cash Consideration and the terms of the Bridge Loan. Representatives of Akerman reviewed (i) the approvals required in connection with the proposed transaction, including shareholder approval of the Company, (ii) the ability for the Board to engage a financial advisor to render a fairness opinion regarding the fairness of the transaction consideration to the Company from a financial point of view, and (iii) the ability of the Company to acquire representation and warranty insurance for the proposed transaction. The Board of Directors discussed the proposed transaction and the term sheet, which did not include a financing contingency. The Board of Directors also discussed a proposed equity offering of the Company’s securities. Mr. Brock noted that based on discussions with Oppenheimer, the Company’s financial advisor, the plan was to commence an equity offering shortly after the announcement of the proposed acquisition; however, as noted earlier in the meeting the proposed transaction was not contemplated to have a financing contingency. Mr. Kantor advised the Board of Directors that he would not approve the proposed transaction without a financing contingency. Messrs. Brock, Bushey, Cohen, Reisfield, Seidl, Silverman and Ms. Sood authorized Mr. Brock to finalize and execute the term sheet and promissory note with such changes as required in his discretion.

 

On April 11, 2021, Messrs. Brock and Mozer held a telephonic meeting to further negotiate the key terms of the proposed transaction. The discussion focused on consideration to be offered, structure of the consideration and the timeline for executing the transaction. Mr. Mozer emphasized his prior request for the Bridge Loan.

 

On April 14, 2021, the Company and American Robotics executed the term sheet, which included a provision for the Bridge Loan, which was made on April 22, 2021. The final term sheet represented no material changes from the draft term sheet approved by the Board on April 10, 2021.

 

On April 15, 2021, Mr. Brock visited American Robotics headquarters in Marlborough, Massachusetts for further in-person diligence meetings and negotiations. Mr. Mozer, Dr. Somandepalli and a representative of HamiltonClark were present. Thereafter, Ondas and Akerman began coordinating with respect to due diligence, timing and the process of obtaining a representation and warranty insurance policy (the “R&W Insurance Policy”).

 

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Also, on April 15, 2021, American Robotics provided Ondas and Akerman access to the American Robotics data room.

 

On April 22, 2021, the Company loaned American Robotics $2.0 million pursuant to the Bridge Loan.

 

From April 20, 2021 to April 23, 2021, at the Board’s request, Messrs. Brock and Kantor spoke with two financial advisors, including National Securities, regarding the engagement of a financial advisor to render a fairness opinion in connection with the proposed transaction. After review by Messrs. Brock and Kantor, a written consent of the Board of Directors was presented to the Company’s Board of Directors to approve the engagement of National Securities Corp. (“National Securities”) to render an opinion as to the fairness to the Company, from a financial point of view, of the consideration to be paid by the Company in connection with the proposed transaction (the “Fairness Opinion”). All members of the Company’s Board of Directors executed the written consent.

 

On April 23, 2021, the Company executed an engagement letter with National Securities. Pursuant to the engagement letter, National Securities was retained as a financial advisor to the Company’s Board of Directors with respect to rendering the Fairness Opinion.

 

On April 23, 2021, the Company held a telephonic organizational meeting with representatives of National Securities. Messrs. Brock and Kantor and representatives of Akerman attended the meeting.

 

On April 27, 2021, Akerman provided Hogan an initial draft of the merger agreement.

 

Over the following weeks, due diligence and the negotiation of the merger agreement continued.

 

On May 4, 2021, American Robotics entered into additional confidentiality agreements with Ondas’ advisors for additional due diligence.

 

On May 4, 2021, representatives of National Securities held a telephonic diligence meeting with Messrs. Brock and Kantor focused on the business and financial outlook of the Company.

 

On May 5, 2021, Hogan provided Akerman a revised draft of the merger agreement.

 

On May 5, 2021, representatives of National Securities held a telephonic diligence meeting with Messrs. Mozer and Kantor. The meeting was focused on the business and financial outlook of American Robotics.

 

On May 6, 2021, representatives of National Securities held a telephonic diligence meeting with Messrs. Brock and Kantor to perform additional diligence on the financial outlook, business synergies and financial terms of the proposed transaction.

 

On May 6, 2021, Messrs. Brock, Mozer and a representative of HamiltonClark held a telephonic meeting to discuss key considerations in the draft merger agreement, the ongoing financial and legal diligence and timing of the transaction.

 

On May 10, 2021, Akerman provided Hogan a revised draft merger agreement.

 

On May 10, 2021, the Company’s Board of Directors held a telephonic meeting. All directors were present, except Mr. Silverman, and, at the request of the Board of Directors, representatives of Akerman attended the meeting. Mr. Brock provided the Board of Directors an update of the negotiations regarding the proposed acquisition of American Robotics. Also, Mr. Brock reviewed with the Board of Directors the expected execution of the merger agreement and public announcement of the transaction, which was scheduled for before market on Monday, May 17, 2021.

 

On May 11, 2021, the parties agreed to increase the shares of the Company’s common stock to be issued to stockholders of American Robotics in connection with the Transaction from 6,250,000 to 6,750,000 and reduce the number of restricted stock units to American Robotics’ senior management from 1,875,000 to 1,375,000.

 

On May 13, 2021, Hogan provided Akerman a revised draft of the merger agreement.

 

On May 14, 2021, Akerman provided Hogan a revised draft of the merger agreement.

 

 On May 13, 2021, an underwriting telephonic meeting with respect to the R&W Insurance Policy was held with Messrs. Brock and Kantor and representatives of Marsh Specialty Services, ASQ Underwriting Services, Akerman and of Berkeley Research Group.

 

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On May 14, 2021, the Company’s Board of Directors held a telephonic meeting. All directors were present and, at the request of the Board of Directors, representatives of Akerman and National Securities attended the meeting. Also, representatives of Holland & Knight, legal counsel to National Securities, attended the meeting. Representatives of National Securities provided the Board of Directors a presentation regarding its review and analysis regarding the consideration to be paid in connection with the proposed transaction. At the request of the Board of Directors, representatives of National Securities delivered the Fairness Opinion orally. The Board discussed the National Securities presentation and asked questions of the National Securities representatives. The representatives of National Securities and Holland & Knight excused themselves from the remainder of the meeting. Mr. Brock reviewed with the Board of Directors the expected execution of the merger agreement and public announcement of the transaction, which was scheduled for before market on Monday, May 17, 2021. At Mr. Brock’s request, representatives of Akerman reviewed the terms of the merger agreement and outstanding items to be finalized.

 

On May 14, 2021, National Securities issued the written Fairness Opinion to the Company’s Board of Directors.

 

On May 15, 2021, Hogan provided Akerman a revised merger agreement.

 

On May 16, 2021, Akerman and Hogan agreed to the final form of the merger agreement, subject to the approval of their respective clients.

 

On May 16, 2021, the Company’s Board of Directors held a telephonic meeting. All directors were present and, at the request of the Board of Directors, representatives of Akerman attended the meeting. Mr. Brock provided the Board of Directors an update on the transaction. At the request of Mr. Brock, representatives of Akerman reviewed the changes to the draft merger agreement since the meeting of the Board of Directors on May 14, 2021 and noted that there were no material changes since the Board meeting on May 14, 2021. Also, representatives of Akerman reviewed with the Board of Directors resolutions regarding the transaction. Mr. Kantor advised the Board of Directors again that he would not approve the proposed transaction without a financing contingency. Messrs. Brock, Bushey, Cohen, Reisfield, Seidl, Silverman and Ms. Sood approved the execution of the merger agreement and the related transaction matters as set forth in the resolutions.

 

On the morning of May 17, 2021, (i) the merger agreement was executed, (ii) the Company issued a press release announcing the merger agreement, (iii) the Company filed a Current Report on Form 8-K with the SEC reporting the entry into the merger agreement and filed as exhibits transaction documents, investor presentations and the press release, (iv) the Company hosted an earnings conference call and audio webcasts, which included an overview of the American Robotics acquisition, and (v) the R&W Insurance Policy was bound.

 

On May 26, 2021, the Company issued a press release announcing a call and webcast for May 27, 2021 to provide a business update, including information relating to the Company’s acquisition of American Robotics.

 

Also, on May 26, 2021, the Company filed a Current Report on Form 8-K with the SEC to file (i) the audited financial statements of American Robotics for the years ended December 31, 2020 and December 31, 2019, (ii) the unaudited financial statements of American Robotics for the three months ended March 31, 2021 and March 31, 2020, and (iii) the unaudited pro forma condensed combined financial statements (and related notes) of the Company as of and for the three months ended March 31, 2021 and the year ended December 31, 2020.

 

On the morning of May 27, 2021, the Company filed a Current Report on Form 8-K to file the investor presentation to be reviewed during the business update call, which was held later that morning.

 

On June 8, 2021, the Company issued a press release announcing the launch of an underwritten public offering of common stock (“Public Offering”), and later that day issued a press release announcing the pricing of the Public Offering.

 

On June 11, 2021, the Company issued a press release announcing the closing of the Public Offering and exercise of the over-allotment option. The Company estimates net proceeds from the Public Offering to be approximately $47.4 million, after deducting underwriting discounts and commissions and estimated offering expenses. The Company stated its intent to use the net proceeds of the Public Offering for working capital and general corporate purposes.

 

Following the closing of the Public Offering, Mr. Kantor advised Mr. Brock and representatives of Akerman that he approved the transaction and would recommend that the Company’s stockholders vote in favor of the proposals to be submitted to the Company’s stockholders in relation to the acquisition of American Robotics.

 

On June 23, 2021, the Company filed a preliminary proxy statement with the SEC.

 

Rationale for the Transaction

 

The Company has identified a number of potential benefits of the Transaction, which it believes will contribute to the success of the combined company, including the following:

 

Strategic Benefits. As leading innovators in next generation MC-IoT markets, the Company and American Robotics both provide advanced data capabilities to critical infrastructure markets such as transportation, oil & gas, and utilities, as well as solutions for security, agriculture, government, and defense markets. In combining these two platforms, the Company expects users will have access to a fully integrated, end-to-end industrial solution that optimizes the use of edge computing and data-intensive sensor-type technologies. The Company believes that integrating American Robotics’ Scout System™ with its FullMAX wireless technology will provide its customers and ecosystem partners with the capability to better inspect and manage their large field operations and critical infrastructure.

 

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Synergies of Combined Company. The Company expects to realize synergies from more rapid customer adoption and expanded end market penetration for both American Robotics’ Scout System™ and the Company’s FullMAX wireless platform. These synergies provide revenue benefits as well as reduced costs from a more efficient customer marketing and service platform. Market adoption for our industrial technology platforms is enhanced via:

 

Technical platform integration: American Robotics Scout Systems™ requires wireless network connectivity to both a) remotely command and control the highly automated drone and b) deliver payload data to customers from the remotely located base station. The Company’s FullMAX wireless networking platform provides an additional connectivity solution that offers enhanced coverage and bandwidth across wide and often remote field area operations where alternative wireless networks are often not available. The integration of a wireless network offering wider coverage and more reliable and secure connectivity allows customers to deploy and operate larger drone fleets and more rapidly scale purchases of the Scout System™. Similarly, we believe integrating drone command and control functionality, including a leading highly automated drone-in-a-box solution such as Scout™, with our FullMAX private wireless network platform creates substantial incremental value for our customers when they deploy a FullMAX network and will lead to additional FullMAX network demand. We believe the technical synergies between the drone and wireless network platforms will result in revenue growth for both companies, individually and on a combined basis.

 

Customer marketing and support: The Company and American Robotics provide next-generation data platforms to similar industrial, critical infrastructure and government end markets. In these markets, the operators and purchasers of wireless networks and drone solutions on behalf of our customers often evaluate solutions in parallel and consult each other prior to adopting private networks and drone platforms. A coordinated marketing effort between the Company and American Robotics can help increase revenue growth and also allow us to market our solutions more expertly and cost-efficiently to customers thereby reduce duplicative spending on the related customer marketing and support activity.

 

Strong Financial and Operational Foundation.  We believe the Company’s strong balance sheet and access to capital will provide the growth capital required to execute and accelerate the American Robotics expansion plan providing funds to increase the production of Scout Systems™ for customer pipeline demand and to execute a hiring plan to support larger customer activity. A strong capital position is a requirement for providers of mission-critical solutions to the industrial and government end markets we target and is similarly valuable to help the Company and American Robotics expand the number of ecosystem partnerships with Tier 1 industrial vendors such as Siemens.

 

New Growth Opportunities. The Company believes there is a substantial capital spending and investment cycle ahead in the end markets we target, driven by the adoption of MC-IoT technologies. As we drive market adoption of our FullMAX private wireless network platform and American Robotics Scout System™, we expect to find opportunities for the combined company to further enhance our customer solutions via the development of additional complementary products and technologies and by the expansion of our ecosystem partnering strategy. In addition, we plan to pursue strategic acquisitions of companies offering complementary products and technologies. Such acquisitions will be targeted to further enhance the platform solutions we offer to customers, as well as to provide financial scale and efficiency through consolidation as our end markets grow. We believe these strategies intended to drive new growth opportunities offer the potential to further enhance shareholder value.

 

Reasons for the Transaction

 

In reaching its decision to approve the Merger Agreement and unanimously recommend that its stockholders approve the proposals required as conditions to closing the Transaction, the Board consulted with its management and its financial and legal advisors and considered a number of factors, including the following material factors, which the Ondas Board viewed as supporting its determination:

 

all the reasons described above under “— Rationale for the Transaction,” including the strategic benefits and growth opportunities expected to be available to the combined company;

 

the fact that the Ondas stockholders will continue to hold approximately 83.4% of the voting power of a significantly larger combined company following the Transaction and will therefore participate meaningfully in the significant opportunities for long-term growth of the combined company;

 

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  the opinion of National Securities, dated as of March 14, 2021, to the Ondas Board as to the fairness, from a financial point of view, of the consideration to be paid by the Company in the Transaction (see “— Opinion of Financial Advisor”);

 

information concerning American Robotics’ businesses, prospects, financial condition and results of operations, management and competitive position, including the results of business, legal, and financial due diligence of American Robotics conducted by Ondas and its advisors;

 

the proposed governance and management of the combined company, including that the composition of the executive officers and Board would remain the same after the Transaction.

 

In addition to the factors described above, the Board identified and considered a variety of risks and potentially negative factors concerning the Transaction, including:

 

  the possibility that the Transaction may not be completed as a result of the failure to satisfy one or more conditions to the Transaction described under “The Merger Agreement — Conditions to Closing;”

 

the effect of the public announcement of the Transaction on Ondas’s revenues, operating results, stock price, customers, suppliers, management, employees, and other constituencies;

 

the risk that the operations of the two companies might not be successfully integrated or integrated in a timely manner, and the possibility of not achieving the anticipated synergies and other benefits sought to be obtained in the Transaction;

 

the substantial costs to be incurred in connection with the Transaction, including costs of integrating the businesses and expenses arising from the Transaction, which may exceed management’s estimates;

 

the risk that American Robotics has material liabilities which were not identified during Ondas’s due diligence;

 

the interests that certain Ondas executive officers and directors may have with respect to the Transaction in addition to their interests as Ondas stockholders; and

 

various other risks associated with the Transaction and the combined company set forth under the “Risk Factors” section.

 

As discussed in “Background of the Transaction” above, before the closing of the Public Offering on June 11, 2021, Mr. Kantor advised the Board that he would not approve the Transaction without a financing contingency. After the closing of the Public Offering, Mr. Kantor advised Mr. Brock and representatives of Akerman that he approved the Transaction and recommended that the Company’s stockholders vote in favor of the proposals to be submitted to the Company’s stockholders in relation to the acquisition of American Robotics.

 

The foregoing discussion of the material factors considered by the Ondas Board is not intended to be exhaustive, but does set forth the principal factors the Board considered.

 

In light of the number and wide variety of factors considered in connection with its evaluation of the Transaction, the Board did not consider it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its determination. Rather, the Board made its recommendation based on the totality of information presented to, and the investigations conducted by or at its direction. In addition, individual directors may have given different weight to different factors. This explanation of Ondas’s reasons for the Transaction and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Risk Factors.”

 

The Merger Agreement

 

The disclosure under this section provides a brief summary of the Merger Agreement but may not include all the information important to you. You should read the entire Merger Agreement, which is included as Annex A to this proxy statement. In this section, we have used defined terms from the Merger Agreement for consistency between this summary and the complete agreement. Capitalized terms used in this section but not defined should be used as defined in the Merger Agreement.

 

The Mergers

 

Pursuant to the terms and subject to the conditions set forth in Merger Agreement, Merger Sub I will merge with and into American Robotics, with American Robotics continuing as the surviving entity, and American Robotics will then subsequently and immediately merge with and into Merger Sub II, with Merger Sub II continuing as the surviving entity and as a wholly-owned subsidiary of Ondas. Pursuant to the terms of the Merger Agreement, simultaneously with Merger II, Merger Sub II shall be renamed American Robotics, Inc.

 

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Merger Consideration

 

Pursuant to the terms and conditions of the Merger Agreement, the shares of American Robotics common stock, par value $0.0001 per share issued and outstanding immediately prior to the Merger I Effective Time (including for this purpose all shares of American Robotics common stock issued upon the exercise of any vested American Robotics options and any conversion of the Convertible Notes), other than shares of American Robotics Common Stock cancelled pursuant to Section 2.01(a)(i) of the Merger Agreement and Dissenting Company Shares, will be converted into the right to the aggregate merger consideration comprised of the following components: (a) cash consideration in an amount equal to (i) $7,500,000, less (ii) Company Transaction Expenses incurred by American Robotics in connection with the Mergers and the Merger Agreement, to the extent unpaid prior to the closing date of the of the Mergers, including, among other items, any change of control or retention bonuses payable by American Robotics in connection with the Mergers, less (iii) Indebtedness of American Robotics as of the Merger I Effective Time, less (iv) a $200,000 representative expense fund, which will be transferred to the American Robotics Stockholders’ Representative to pay expenses incurred by him in such capacity and to satisfy certain indemnification obligations of the American Robotics Stockholders as set forth in Section 8.01 of the Merger Agreement, less (v) in the event that any American Robotics Stockholder perfects its exercise of appraisal rights pursuant to Section 262 of the DGCL prior to the Closing Date, an additional $500,000, to be used by the American Robotics Stockholders’ Representative to satisfy certain indemnification obligations of American Robotics under Section 8.01(c) of the Merger Agreement with respect to Dissenting Company Shares, (b) 6,750,000 validly issued, fully paid and non-assessable shares of Ondas common stock, $0.0001 par value per share, less the transaction expense shares, if any, payable to HamiltonClark; (c) Warrants, in the form of Exhibit E of the Merger Agreement, exercisable for 1,875,000 shares of Ondas common stock, $0.0001 par value per share, as such number may be adjusted pursuant to the terms of the Merger Agreement, including to reduce such number by the value of certain options of Ondas being issued in connection with certain American Robotics options, less the transaction expense warrants, if any, payable to HamiltonClark; and (d) a contingent right to receive the cash released to the American Robotics Stockholders from the PPP Loan Escrow Amount (if any) plus the cash released to the American Robotics Stockholders from the American Robotics Stockholders’ Representative Expense Fund (if any). HamiltonClark will receive part of the fee owed to it by American Robotics as shares of Ondas stock and Warrants, which will reduce the number of shares of Ondas and Warrants that the holders of shares of American Robotics are entitled to receive pursuant to the Merger Agreement.

 

The per share consideration to be paid by Ondas at the closing of the Mergers will be (a) the Cash Consideration divided by the Fully Diluted Share Number; plus (b) the Parent Payment Shares divided by the Fully Diluted Share Number plus (c) the Parent Payment Warrants divided by the Fully Diluted Share Number; plus (d) a contingent right to receive any Contingent Consideration divided by the Fully Diluted Share Number. If fractional shares of Ondas common stock would be issued in connection with the foregoing conversion (including with respect to any shares of Ondas common stock into which Parent Payment Warrants would be exercisable), such fractional shares will be paid out in cash.

 

Ondas is required to register for resale under the Securities Act of 1933, as amended, the shares issued in connection with the Mergers, including the shares of Ondas common stock underlying the Warrants, on a Form S-1 or S-3 registration statement (as applicable). Ondas is required to use commercially reasonable efforts to cause such registration statement to be declared effective no later than 90 days following the Closing Date, pursuant to the terms of a lock up and registration rights agreement executed by Ondas and the directors and officers of American Robotics at the same time the Merger Agreement was executed, which agreement is in the form attached hereto as Annex B.

 

Prior to the Merger I Effective Time, American Robotics is required to give notice to each holder of an In-Money Company Option that is either vested or will become vested as a result of the transactions contemplated by the Merger Agreement regarding information related to exercise of his or her vested American Robotics options prior to the Merger I Effective Time. American Robotics shall have the right to cause each such holder who does not so exercise to be subject to a deemed exercise procedure immediately before and on the same date on the Merger I Effective Time or permit conversion of the vested American Robotics options into options to purchase shares of Ondas common stock or warrants to purchase shares of Ondas common stock. Ondas and American Robotics will work in good faith before the Closing to determine the Equity Award Exchange Ratio which will determine the number of options or warrants to purchase shares of Ondas common stock that will be issued for such In-Money Company Options. Additionally, Ondas and American Robotics will also work in good faith before the Closing to equitably reduce the number of Ondas warrants constituting the Parent Warrants that will be issued as part of the consideration in an amount equal to the value of the Ondas stock options and warrants being issued in exchange for such In-Money Company Options. At the Merger I Effective Time, each Out-of-Money Company Option will automatically be terminated and of no further force and effect. Each holder of American Robotics common stock resulting from a vested American Robotics option so exercised will be treated as an American Robotics stockholder for all purposes of the Merger Agreement.

 

Each promissory note convertible into securities of American Robotics (each a “Convertible Note”) that remains outstanding immediately prior to the Merger I Effective Time will either (i) to the extent permitted by the terms of such Convertible Note, be included in the Funded Debt and repaid on the Closing Date pursuant to the Merger Agreement and the terms of such Convertible Note or (ii) be converted, immediately prior to the Merger I Effective Time, into American Robotics shares at the applicable conversion price specified in such Convertible Note pursuant to and in accordance with the terms thereof. Each holder of American Robotics common stock resulting from a Convertible Note that is so converted will be treated as an American Robotics stockholder for all purposes of the Merger Agreement. American Robotics may choose to (but is not required to) seek amendment of the Convertible Notes prior to the Closing in accordance with the terms and conditions of such Convertible Notes to require automatic conversion of the Convertible Notes as set forth in clause (ii) above.

 

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Representations and Warranties

 

The representations and warranties described below and included in the Merger Agreement were made by the parties as of specific dates. The assertions embodied in these representations and warranties may be subject to important qualifications and limitations mutually agreed to by the parties, in connection with negotiating the Merger Agreement. The representations and warranties may also be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders and may have been used for the purpose of allocating risk among the parties, rather than establishing matters as facts. The Merger Agreement is described in this proxy statement to provide you with information regarding its terms and conditions at the time it was entered into by Ondas and American Robotics.

 

Representations and Warranties of Ondas, Merger Sub I and Merger Sub II

 

The Merger Agreement contains representations and warranties of Ondas, Merger Sub I and Merger Sub II that are customary for transactions of the type contemplated by the Merger Agreement, including representations and warranties concerning:

 

Organization;

 

Subsidiaries;

 

Capital Structure;

 

Authority; Execution and Delivery, Enforceability;

 

No Conflicts; Consents;

 

Litigation;

 

SEC Filings; Financial Statements;

 

Advisors;

 

Controls and Procedures;

 

Nasdaq Matters;

 

Absence of Undisclosed Liabilities;

 

Affiliate Transactions;

 

Opinion of Financial Advisor;

 

Availability of Funds;

 

Investment;

 

Disclaimer Regarding Projections;

 

Solvency;

 

R&W Policy;

 

Tax-Free Reorganization; and

 

No Additional Representations.

 

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Representations and Warranties of American Robotics

 

The Merger Agreement also contains representations and warranties of American Robotics that are customary for transactions of the type contemplated by the Merger Agreement, including representations and warranties concerning:

 

Organization;

 

Authority; Enforceability; Company Board Recommendation;

 

No Conflicts; Consents;

 

Capital Structure;

 

No Subsidiaries;

 

Financial Statements;

 

Absence of Undisclosed Liabilities;

 

Absence of Certain Changes or Events;

 

Real Property;

 

Intellectual Property;

 

Material Contracts;

 

Taxes;

 

Benefit Plans;

 

Labor Relationships;

 

Litigation;

 

Compliance with Applicable Law; Regulatory Matters;

 

Environmental Matters;

 

Licenses and Permits;

 

Brokers and Other Fees;

 

Tangible Personal Property; Title; Sufficiency of Assets;

 

Certain Business Practices; OFAC;

 

Insurance;

 

Affiliate Transactions;

 

Customers, Suppliers and Key Relationships;

 

Business Continuity;

 

Information Security and Data Privacy Laws; and

 

No Additional Representations.

 

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Covenants Regarding Conduct Pending the Mergers

 

Pending the closing of the Mergers or the earlier termination of the Merger Agreement in accordance with its terms, American Robotics has agreed to, except for matters permitted or contemplated by the Merger Agreement and the other Transaction Agreements, set forth on a schedule, as required by applicable Law (including any applicable COVID-19 Measures) or unless we otherwise agree in writing (which agreement shall not be unreasonably withheld, conditioned or delayed), conduct its business in the ordinary course in substantially the same manner as previously conducted and use its reasonable best efforts to (i) preserve intact its corporate existence and current business organization in all material respects, (ii) preserve in all material respects the goodwill and present business relationships (contractual or otherwise) with customers, suppliers, distributors and others having business dealings with the Company, (iii) keep available the services of its current officers, directors, employees and consultants, (iv) preserve in all material respects its present properties and its tangible and intangible assets, (v) comply in all material respects with all applicable Laws and Material Contracts and (vi) pay all applicable Taxes as such Taxes become due and payable.

 

Pending the closing of the Mergers, American Robotics has agreed to not do any of the following without our written consent:

 

authorize any amendments to its organizational documents;

 
declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock, property or otherwise) in respect of the equity interests of American Robotics or enter into any agreement with respect to the voting of the equity interests of American Robotics; (ii) split, combine or reclassify any of its equity interests; (iii) issue, sell, pledge, dispose of, encumber or transfer any other securities in respect of, in lieu of or in substitution for, any of its equity interests or authorize any of the foregoing; or (iv) purchase, redeem or otherwise acquire or issue or sell any of its equity interests or any other securities thereof or any rights, options, warrants or calls to acquire or sell any such shares or other securities other than redemptions or purchases to allow holders of Vested Company Options to satisfy the exercise price and any withholding obligations by net settlement;
 
acquire or agree to acquire (i) by merging or consolidating with, or by purchasing a substantial equity interest in or portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof or (ii) any assets that are material, individually or in the aggregate, to American Robotics, except purchases of inventory in the ordinary course of business consistent with past practice;
 
grant to any executive officer, director, manager, employee or consultant of American Robotics any increase in compensation, except in the ordinary course of business consistent with past practice or to the extent required under certain employment agreements, (ii) grant to any executive officer, director, manager or employee of American Robotics any increase in severance or termination pay, except to the extent required under any agreement set forth in a schedule, (iii) enter into, modify or amend any employment, consulting, indemnification, severance or termination agreement, or a waiver of any terms thereof, with any such executive officer, director, manager or employee of American Robotics, (iv) establish, adopt, enter into or amend in any material respect any collective bargaining agreement or Benefit Plan or (v) take any action to accelerate any rights or benefits, or make any material determinations not in the ordinary course of business consistent with prior practice, under any collective bargaining agreement or Benefit Plan;
 
make, change or rescind any material Tax election, change its method of Tax accounting, prepare or file any Tax Returns in a manner which is inconsistent with the past practices of American Robotics with respect to the treatment of items on such Tax Returns, incur any material liability for Taxes other than in the ordinary course of business, file an amended Tax Return or a claim for refund of Taxes with respect to the income, operations or property of American Robotics, compromise or settle any Tax Proceedings, consent to any extension or waiver of the limitation period applicable to any Tax Proceedings, enter into any agreement with any Governmental Authority (including a “closing agreement” under Code Section 7121) with respect to any Tax matter, apply for or request any Tax ruling or take any other affirmative action with respect to any Governmental Authority that could reasonably be expected to negatively affect Ondas or American Robotics following the Closing;
 
make any change in accounting methods, principles or practices, except insofar as may have been required by a change in GAAP;
 
sell, lease, license, mortgage, sell and leaseback or otherwise encumber or subject to any Lien (other than any Permitted Lien), or otherwise dispose of, any of its material properties or other material assets or any interests therein, except for sales of inventory and used equipment in the ordinary course of business consistent with past practice and non-exclusive licenses granted in the ordinary course of business consistent with past practice, or (ii) enter into, modify or amend in a material respect any lease of material property, other than in the ordinary course of business consistent with past practice, or enter in any sublease or assignment thereof;
 
make any loans, advances or capital contributions to, or investments in, any other Person, other than in the ordinary course of business consistent with past practice;
 
enter into, modify, amend, accelerate, waive any material right under or terminate (excluding any expiration in accordance with its terms) (i) any Material Contract that would (x) result in payment by the American Robotics in excess of Fifty Thousand Dollars ($50,000), (y) that would impose exclusivity, most favored nation or other terms outside the ordinary course of business consistent with past practice or (z) that would provide any third party a right to consent to the Mergers or the other transactions contemplated by the Merger Agreement, (ii) any amendment to any Convertible Note other than any amendment providing for automatic conversion of such Convertible Note(s) into shares of American Robotics common stock immediately prior to the Merger I Effective Time that is made no earlier than thirty (30) days after the date of this Agreement or (iii) any Restrictive Covenant Agreement;

 

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pay, discharge or satisfy any material debt, claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the American Robotics latest financial statements or incurred in the ordinary course of business consistent with past practice after the date of the Latest Balance Sheet, (ii) cancel any material indebtedness (individually or in the aggregate) or waive any claims or rights of substantial value or (iii) waive the benefits of, or agree to modify in any manner, any exclusivity, standstill or similar agreement benefiting American Robotics;
 
allow any material Permit that was issued to American Robotics that otherwise relates to its business as currently conducted or anticipated to be conducted to lapse or terminate;
 
layoff or terminate employees that could result in a material liability under the WARN Act;
 
fail to keep in force its insurance policies or replacement or revised policies providing insurance coverage with respect to the assets, operations and activities of American Robotics as are currently in effect;
 
adopt a plan or agreement of complete or partial liquidation, dissolution or reorganization;
 
institute, settle, or agree to settle any material Proceeding pending or threatened;
 
agree to any exclusivity, standstill or non-competition provision or covenant binding on American Robotics;

 

  grant, permit or allow a Lien (other than a Permitted Lien) on any of its material assets other than in connection with any renewals, amendments, or restatements of the existing Indebtedness of American Robotics and to repay and reborrow with respect to such Indebtedness in the ordinary course of business or in connection with certain Indebtedness permitted by the Merger Agreement;

 

 
make (or fail to make) capital expenditures other than in the ordinary course of business;
 
incur any additional Indebtedness other than in the ordinary course of business;
 
make any material changes in policies, procedures or practices with respect to credit, collection, payment, accounts receivable or accounts payable, except, in each case, to the extent required to conform with GAAP;
 
pay any amounts of the type set forth in subsection (a) of the definition of “Company Transaction Expenses”; and
 
authorize any of, or commit or agree to take any of, the foregoing actions.

 

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Pending the closing of the Mergers or the earlier termination of the Merger Agreement in accordance with its terms, Ondas has agreed to, except for matters permitted or contemplated by the Merger Agreement and the other Transaction Agreements, set forth on a schedule, as required by applicable Law (including any applicable COVID-19 Measures) or unless American Robotics otherwise agrees in writing (which agreement shall not be unreasonably withheld, conditioned or delayed), conduct its business in the ordinary course in substantially the same manner as previously conducted and use commercially reasonable efforts to: (i) preserve intact its corporate existence and current business organization in all material respects, (ii) keep available the services of its current officers, directors and key employees and consultants, (iii) preserve in all material respects the goodwill and present business relationships (contractual or otherwise) with customers, suppliers, distributors and others having business dealings with them, (iv) preserve in all material respects its present properties and its tangible and intangible assets, and (v) comply in all material respects with all applicable Laws and material contracts of Ondas and its Subsidiaries.

 

Prior to the Closing, Ondas has agreed not to do any of the following without American Robotics’ written consent:

 

authorize any amendments to its, Merger Sub I’s or Merger Sub II’s organizational documents;

 

  declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock, property or otherwise) in respect of its equity interests (other than dividends paid by a direct or indirect wholly-owned subsidiary of Ondas to its parent); (ii) split, combine or reclassify any of its equity interests; or (iii) purchase, redeem or otherwise acquire any of its equity interests or any other securities thereof or any rights, options, warrants or calls to acquire any such shares or other securities of Ondas or its subsidiaries, unless appropriate corresponding and equitable adjustments are made to the Merger Consideration to the reasonable satisfaction of American Robotics; provided, that, Ondas and its subsidiaries are not prohibited or otherwise restricted from pre-paying all or any portion of certain of Ondas’ existing debt to the extent such prepayment does not materially impact or delay Ondas’, Merger Sub I’s or Merger Sub II’s ability to pay any amounts required under the Merger Agreement or to consummate the Merger Agreement and the transactions contemplated thereby;

 

  issue, deliver, sell, grant, pledge or otherwise encumber or subject to any Lien any shares of Ondas common stock or any shares of capital stock of Merger Sub I or Merger Sub II, any other Ondas voting securities or any securities convertible into, or exercisable for, Ondas common stock or capital stock of Merger Sub I or Merger Sub II, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, or any “phantom” stock, “phantom” stock rights, stock appreciation rights or stock based performance units thereon, including pursuant to contracts as in effect on the date hereof (other than (i) grants, deferrals or issuances under any plans, arrangements or contracts between Ondas or any of its subsidiaries and any other person, in each case that are in effect on the date hereof and have been disclosed in the Parent SEC Reports filed prior to the date of the Merger Agreement or otherwise disclosed to American Robotics and (ii) issuances and sales of equity securities of Ondas which are not issued or sold at less than fair market value and which would not require stockholder approval under NASDAQ rules; provided, that, in each case, any such grants, deferrals, issuances or sales may be made only if appropriate corresponding and equitable adjustments are made to the Merger Consideration to the reasonable satisfaction of American Robotics); provided, further, that notwithstanding anything to the contrary contained herein, Ondas shall not be prevented or otherwise restricted from issuing shares of Ondas common stock or other securities of Ondas on an arms’ length basis in connection with the Financing;

 

 
acquire or agree to acquire, (i) by merging or consolidating with, or by purchasing a substantial equity interest in or portion of the assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof, (ii) make any investment (in the form of a loan, capital contribution or otherwise) in any other Person other than a subsidiary of Ondas or (iii) any assets that are material, individually or in the aggregate to Ondas or its subsidiaries, as applicable, except purchases of inventory or capital expenditures in each case in the ordinary course of business consistent with past practice;
 
layoff or terminate employees that would reasonably be expected to result in a material liability under the WARN Act;
 
fail to keep in force insurance policies or replacement or revised policies providing insurance coverage with respect to the assets, operations and activities of Ondas and its subsidiaries as are currently in effect;
 
adopt a plan or agreement of complete or partial liquidation, dissolution or reorganization; or
 
authorize any of, or commit or agree to take any of, the foregoing actions.

 

The foregoing however, does not prevent Ondas or any of its subsidiaries from (i) granting any Lien, or taking any other action, as may be required under certain of its existing indebtedness, (ii) undertaking any action authorized prior to the date of the Merger Agreement under any 401(k) matching or similar benefit plan in effect as of the date of the Merger Agreement in the ordinary course of business consistent with past practice; or (iii) canceling or retiring any treasury shares held by Ondas or transferring any or all of such treasury shares to Ondas.

 

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Other Covenants and Agreements

 

The Merger Agreement contains certain other covenants and agreements by the parties customary for a transaction of the type contemplated by the Merger Agreement, including, but not limited to:

 

Convertible Notes. No earlier than 30 days after the date of the Merger Agreement, American Robotics must provide notice of the Mergers and other transactions contemplated by the Merger Agreement to all holders of Convertible Notes, subject to review by and consent from Ondas. Such notice must include, if permitted by the terms of the applicable Convertible Notes, a request that such holders elect to require American Robotics to repay such holder’s Convertible Note(s) at the Closing or to convert such holder’s Convertible Notes into shares of Ondas’ common stock immediately prior to the Closing. American Robotics may instead seek to amend the Convertible Notes in accordance with their terms so that they will automatically convert into shares of American Robotics immediately before the closing of the Mergers.

 

280G. Prior to the Closing and if required to avoid certain adverse tax consequences, American Robotics must use commercially reasonable efforts to obtain waivers from American Robotics’ voting shareholders for any payments and benefits provided by American Robotics to any “disqualified individual” (as such term is defined for purposes of Section 280G of the Code and the Treasury Regulations thereunder) which absent such shareholder waiver would reasonably be expected to be a “parachute payment”. Any documentation prepared in connection with the foregoing must be reviewed and approved by Ondas.

 

Notices. Each party must notify the other of (i) any event that would be likely to cause the condition to the obligations of the other party to effect the Mergers not to be satisfied, (ii) the failure of such party to comply with any covenant, condition or agreement to be complied with that would reasonably be expected to result in the conditions to the obligations of the other party to effect the Mergers not to be satisfied, or (iii) the occurrence of an event that has resulted in a Material Adverse Effect or Parent Material Adverse Effect.

 

Access to Information. American Robotics has agreed to give Ondas and its authorized representatives before the Closing reasonable access during normal business hours to the books, records, offices, properties and financial and operating data of American Robotics as Ondas may from time to time reasonably request. Any such access must be conducted in a manner that does not unreasonably interfere with the businesses or operations of American Robotics, and no such access is permitted to the extent such disclosure would result in a waiver of attorney-client privilege or other applicable privilege, or is prohibited by a third-party confidentiality agreement or would violate applicable law. Additionally, Ondas may not contact certain business relations of American Robotics regarding the Transaction without American Robotics’ prior consent.

 

After the Closing, Ondas has agreed to give the American Robotics Stockholders’ Representative and its authorized representatives reasonable access during normal business hours to the books, records, offices, properties and financial and operating data of American Robotics as the American Robotics Stockholders’ Representative may from time to time reasonably request in connection with any determination of the rights and obligations or liability of American Robotics or its stockholders under the Merger Agreement. Any such access must be conducted in a manner that does not unreasonably interfere with the businesses or operations of Ondas and its subsidiaries, and no such access is permitted to the extent such disclosure would result in a waiver of attorney-client privilege or other applicable privilege, or is prohibited by a third-party confidentiality agreement or would violate applicable law.

 

Efforts to Consummate. Each party must reasonably cooperate, and use its reasonable best efforts to take all action and do all things necessary under applicable law to consummate the Mergers and the other transactions contemplated by the Merger Agreement as promptly as practicable. Ondas must inform American Robotics within 30 days of the date of the Merger Agreement if the Requisite Regulatory Approval is required and cooperate with American Robotics if any filing is required to be made with the applicable Governmental Authority and use its reasonable best efforts to obtain any Requisite Regulatory Approval from such Governmental Authority with respect to the Mergers and the transactions contemplated by the Merger Agreement. The parties must reasonably cooperate and keep each other reasonably apprised of the status of and matters related to the completion of the transactions contemplated by the Merger Agreement, including obtaining consents from or communications with any Governmental Authority. Except with respect to the Requisite Regulatory Approval, no party is obligated to pay amounts in excess of $10,000 in the aggregate to obtain any consent.

 

Preparation of SEC Filings. Upon Ondas’ reasonable request, American Robotics must use reasonable best efforts to furnish information regarding American Robotics to Ondas as may be reasonably necessary in connection with the preparation of any filing with the SEC contemplated by the Merger Agreement, including certain audited and unaudited financial statements of American Robotics prepared in conformity with Regulation S-X under the Securities Act of 1933. Ondas must ensure that any required SEC filing complies in all material respects with all applicable requirements of law, and provide American Robotics and its counsel with copies of any correspondence or comments from the SEC or any other government officials with respect to the required SEC filings. Ondas and American Robotics must use commercially reasonable efforts to ensure the information provided for inclusion or incorporation in any required SEC filings does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

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Public Announcements. Prior to the Closing, Ondas may not issue a press release or other public announcement regarding American Robotics, the Mergers, Merger Agreement or the transactions contemplated thereby without the prior written consent of American Robotics. If Ondas is required by law to issue a press release or other public announcement, then Ondas may issue such press release or other public announcement without American Robotics’ consent if Ondas provides an advance copy to American Robotics’ so that, to the extent practicable, American Robotics has reasonable time to comment on such release or announcement and Ondas must reasonably consider in good faith any comments from American Robotics. American Robotics may not issue a press release or other public announcement regarding the Mergers, the Merger Agreement or the transactions contemplated thereby without the prior written consent of Ondas, but may issue a press release required by law, court process or obligations to any national securities exchange.

 

Listing. Ondas must use all reasonable efforts for Ondas to remain listed as a public company on, and for Ondas common stock to be tradable over, Nasdaq. On or prior to the Merger I Effective Time, Ondas must use commercially reasonable efforts to cause the shares to be issued in connection with the Mergers to be listed on Nasdaq at Ondas’ expense.

 

Tax Returns. Ondas must prepare and file, or cause to be prepared and filed, all tax returns of American Robotics required to be filed after the Closing Date. American Robotics Stockholders’ Representative and Ondas, and their respective affiliates, must reasonably cooperate in filing all tax returns or responding to tax proceedings with respect to American Robotics, including by furnishing prior years’ tax returns and such other information within the relevant party’s possession and promptly forwarding to the other party copies of notices and forms or other communications received from or sent to any Governmental Authority. American Robotics must terminate any tax sharing agreements as of the Closing Date such that there are no further rights or liabilities thereunder.

 

Books and Records. Ondas and American Robotics’ stockholders must (i) retain the books and records of American Robotics for a period of seven years following the Closing, (ii) make such books and records available to American Robotics Stockholders’ Representative and stockholders of American Robotics as reasonably requested, and (iii) provide other parties to the Merger Agreement reasonable written notice prior to transferring, destroying or discarding any such books and records.

 

Qualification as a Reorganization. Each party to the Merger Agreement has agreed to use its reasonable best efforts to cause the Mergers to qualify as a reorganization under Section 368(a) of the Code, and will not take any actions which could reasonably be expected to prevent the Mergers from qualifying as a reorganization under Section 368(a) of the Code. If the Mergers do not qualify as a reorganization, the parties to the Merger Agreement agree to treat the Mergers as separate transactions for U.S. federal income tax purposes not subject to the “integration doctrine” pursuant to Rev. Rul. 90-95, 1990-2 C.B. 67.

 

Employee Matters. For the period beginning on the Closing Date and ending the earlier of (i) the first anniversary of the Closing Date and (ii) the termination of the applicable employee of American Robotics, Ondas must provide employees of American Robotics who remain employed following the closing with base salary and cash bonus or commission opportunity that are in the aggregate substantially similar to those offered by Ondas to its similarly situated personnel and benefit plans that are the same as those offered by Ondas to its similarly situated personnel.

 

Ondas must use reasonable best efforts to take into account the service of continuing employees for purposes of participation, level of benefits and vesting and accrual of vacation and paid-time-off, as applicable, to the same extent such service was recognized for the same purpose under a similar benefit plan of American Robotics that such continuing employee participated in immediately prior to the Merger I Effective Time. Ondas must use commercially reasonable efforts to waive, or cause to be waived, any pre-existing condition limitations, exclusions, actively-at-work requirements and waiting periods under any group health benefit plan in which continuing employees will be eligible to participate from and after the Closing and in the plan year in which the Closing Date occurs, except to the extent that such items would not have been satisfied or waived under the comparable benefit plan immediately prior to the Closing.

 

American Robotics Stockholder Approval. American Robotics must use its commercially reasonable best efforts to obtain the written consent of the stockholders holding at least 70% of the outstanding common stock of American Robotics and at least a majority of certain holders of common stock party to a subscription agreement with American Robotics (“Written Consent”) within 48 hours after the execution of the Merger Agreement. Such Written Consent was delivered by American Robotics to Ondas immediately following the signing of this Agreement. Within 10 days after obtaining the Written Consent, American Robotics must prepare and mail a notice to every stockholder of American Robotics that did not sign the Written Consent, advising such stockholders that (i) the board of directors of American Robotics unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby, (ii) the Written Consent approved and adopted the Merger Agreement and the transactions contemplated thereby, and (iii) the dissent and appraisal rights such stockholders may have pursuant to Section 262 of the Delaware General Corporation Law (the “DGCL”). Such notice was not delivered because all of American Robotics’ stockholders executed the Written Consent.

 

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Parent Stockholder Approval. Ondas must file with the SEC a proxy statement and solicit proxies from the holders of Ondas common stock to obtain the requisite approval of the Mergers and the other transactions contemplated by the Merger Agreement, and the other matters to be voted on at the Ondas stockholders’ meeting, as promptly as practicable, but in no event more than fifteen (15) Business Days after the later of (i) date of the Merger Agreement and (ii) Ondas’ receipt of the American Robotics required financial statements, which filing date was mutually extended by Ondas and American Robotics. The proxy statement must seek approval of the issuance of the shares of Ondas common stock and Warrants to be issued in connection with the Merger Agreement. Ondas must keep American Robotics reasonably informed on matters relating to the proxy statement and Ondas’ annual stockholders meeting, including by promptly furnishing any voting or proxy solicitation reports received by Ondas related to such matters. American Robotics must promptly provide to Ondas such information concerning American Robotics as may be reasonably requested by Ondas and necessary for the proxy statement and compliance with the applicable provisions of and rules under the Securities Act of 1933, Exchange Act of 1934, and the DGCL, including certain financial statements of American Robotics.

 

Financing. Ondas must use reasonable best efforts to consummate an equity financing on arms’ length terms with minimum gross proceeds of $35 million (the “Financing) as promptly as practical after the date of the Merger Agreement, and provide American Robotics with proposed forms of the related documentation for review and comment by American Robotics and its representatives. On June 11, 2021, Ondas closed the Public Offering (as described above in the section titled “Background of the Transaction”).

 

Parent Stockholder Approval; Recommendation of Parent’s Board of Directors. Ondas’ board of directors must recommend that Ondas’ stockholders adopt and approve the Mergers and the other transactions contemplated by the Merger Agreement, and such recommendation may not be withdrawn or modified in a way adverse to American Robotics. Such recommendation must be included in the proxy statement, and Ondas must use its reasonable best efforts to solicit and obtain the requisite Ondas stockholder approval.

 

Parent Stockholders’ Meeting. Ondas must use reasonable best efforts to establish a record date, which must also be mutually agreed upon with American Robotics for Ondas’ stockholders meeting. Within 45 days after the proxy statement is “cleared” by the SEC or otherwise filed, Ondas’ stockholders’ meeting shall be held in accordance with applicable law and Ondas’ certificate of incorporation. If a sufficient vote to approve the Merger and the transactions contemplated by the Merger Agreement is not obtained on the date of the stockholders’ meeting, or if quorum is not established, Ondas has the right to two adjournments of the stockholders’ meeting.

 

No Solicitation; Other Offers. American Robotics agreed not to and to cause its officers, directors, employees, stockholders, representatives, agents, investment bankers and any of their respective affiliates not to, directly or indirectly (a) discuss, pursue, solicit, initiate, knowingly facilitate or encourage or otherwise enter into any discussions, negotiations, agreements or other arrangements regarding or which could lead to, a possible sale or other disposition (whether by merger, reorganization, recapitalization or otherwise) of all or any part of the capital stock or any substantial portion of the assets of American Robotics other than Ondas or its affiliates, (b) enter into any contract with any third party that has submitted, or is seeking to submit, a proposal described in (a), or (c) provide any non-public and confidential information relating to American Robotics to any person other than Ondas or its affiliates, other than information which is traditionally provided in the regular course of the Company’s business operations to third parties.

 

Paycheck Protection Program Loan. Prior to the Closing, American Robotics must file an application for forgiveness for its Paycheck Protection Program loans (“PPP Loans”) with the U.S. Small Business Administration (“SBA”). If American Robotics does not obtain forgiveness prior to the Closing, at Closing the amount of the PPP Loans will be held in escrow pending determination by the SBA of whether such PPP Loans are eligible for forgiveness under the CARES Act, and released to the stockholders of American Robotics following such forgiveness. As of the date of this proxy statement, one of American Robotics’ two PPP loans outstanding as of the date of signing of the Merger Agreement has been forgiven, representing an aggregate amount of $249,732.60 in principal and interest.

 

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Indemnification of Officers and Directors. From and after the Merger I Effective Time until the sixth (6th) anniversary thereof, Ondas must (i) cause the surviving entity of the Mergers to fulfill and honor in all respects to the fullest extent available under applicable Law the obligations of American Robotics pursuant to any indemnification provisions under American Robotics’ charter documents and any indemnification agreement set forth on the Disclosure Schedule, in each case, as in effect on the date of the Merger Agreement and (ii) cause the organizational documents of Merger Sub I, Merger Sub II, the intermediate surviving entity and the surviving entity of the Mergers to contain the same (or substantially similar) provisions with respect to indemnification and exculpation from liability set forth in American Robotics’ charter documents on the date of the Merger Agreement. Before the closing American Robotics may obtain, at its own expense, a “tail” policy for its directors and officers with a claims period of 6 years.

 

R&W Insurance. On the date of the Merger Agreement, Ondas must deliver a copy of the binder agreement with respect to the R&W Insurance. Ondas must bear all costs associated with obtaining the R&W Policy, including, as applicable, the premium, broker fee, underwriting fee, due diligence fee, carrier commissions, legal fees for counsel engaged by the underwriter and surplus lines fees. Ondas may not amend or modify the R&W Insurance Policy in a manner that would reasonably be expected to allow the insurer to subrogate against any stockholder of American Robotics or that would otherwise make or bring any action or proceeding against the stockholders of American Robotics.

 

Representation and Warranty Insurance Policy

 

In conjunction with the entry in the Merger Agreement, Ondas entered into a binder agreement for the R&W Insurance Policy which was bound by ASQ Underwriting. The R&W Insurance Policy is subject to a limit of liability of $7,000,000 in the aggregate, a retention amount of $700,000 subject to adjustment at the Closing as set forth in the binder, as well as certain exclusions and other terms and conditions set forth therein.

 

Conditions to Closing

 

The respective obligations of each of Ondas and American Robotics to effect the Mergers are subject to the satisfaction (or waiver in writing by each such party), at or prior to the Closing, of the following conditions:

 

obtaining the Requisite Regulatory Approval (if required);

 

the absence of any applicable Order (whether temporary, preliminary or permanent) in effect which prohibits the consummation of the Mergers;

 

the absence of any Law prohibiting the consummation of the Mergers;

 

American Robotics has obtained the Requisite Company Vote, which Requisite Company Vote has been obtained; and

 

Ondas has obtained the Ondas Stockholder Approval.

 

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The obligations of Ondas to effect the Mergers are subject to the satisfaction (or waiver in writing by Ondas) of certain conditions, including the following:

 

each of the representations and warranties of American Robotics set forth in Article III of the Merger Agreement (other than those set forth in the next bullet point) must be true and correct in all respects (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein) at and as of the Closing Date (except to the extent such representations and warranties address matters as of particular dates, in which case, such representations and warranties must be true and correct in all respects on and as of such dates), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth therein), individually or in the aggregate, has not had a Material Adverse Effect;

 

each of the representations and warranties of American Robotics set forth in Section 3.01 (Organization), Section 3.02(a) (Authority), Section 3.03(a) (No Conflicts), Section 3.04(a) (Capitalization), the first sentence of Section 3.04(b) (Capitalization) and Section 3.19 (Brokers and other Fees) must be true and correct in all respects at and as of the Closing Date (except for de minimis inaccuracies);

 

the performance by American Robotics of its agreements, covenants and conditions required under the Merger Agreement in all material respects at or prior to the Closing Date;

 

the absence of any event, change, effect or development that, individually or in the aggregate, has resulted in a Material Adverse Effect since the date of the Merger Agreement;

 

no more than five percent (5%) of American Robotics shares outstanding immediately prior to the Merger I Effective Time are Dissenting Company Shares;

 

the aggregate amount of (i) American Robotics transaction expenses, plus (ii) Indebtedness of American Robotics as of the Merger I Effective Time (other than Indebtedness arising pursuant to the Parent Note), plus (iii) the American Robotics Stockholders’ Representative Expense Amount plus, (iv) the American Robotics Stockholders’ Representative Indemnity Amount, if required to be transferred at Closing to the American Robotics Stockholders’ Representative in accordance with the Merger Agreement, shall not exceed $7,500,000;

 

American Robotics’ delivery of a certificate duly executed by its Chief Executive Officer dated as of the Closing, attesting to the satisfaction of the conditions set forth in Section 7.02(a) (relating to the accuracy of American Robotics’ representations and warranties), Section 7.02(b) (relating to American Robotics’ performance of its covenants) and Section 7.02(c) of the Merger Agreement (relating to the lack of a Material Adverse Effect);

 

American Robotics’ delivery to Ondas of one or more payoff letters with respect to all Funded Debt of American Robotics, accompanied by (if applicable) UCC termination statements, releases and any other documentation reasonably requested by Ondas to evidence the satisfaction in full of such indebtedness and the release of any and all Liens, other than Permitted Liens, relating to the assets, equity and property of American Robotics;

 

American Robotics’ delivery to Ondas of a certificate from the Secretary of American Robotics certifying on the Closing Date that the following are true, correct and complete and attaching a copy thereof (i) copies of the resolutions duly adopted by American Robotics’ Board, authorizing American Robotics’ execution, delivery and performance of the Merger Agreement and the other Transaction Agreements to which American Robotics is a party and the transactions contemplated by the Transaction Agreements to which American Robotics is a party, and (ii) the certificate of incorporation of American Robotics as in effect immediately prior to the Closing;

 

American Robotics’ delivery to Ondas of a certificate of the Secretary of State of the State of Delaware, dated as of a recent date prior to the Closing Date, as to the good standing of American Robotics;

 

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  to the extent that the grants of restricted stock units under Ondas’ 2018 Equity Incentive Plan to Reese Mozer, Vijay Somandepalli and Eitan Babcock will not result in “excess parachute payments” within the meaning of Section 280G(b) of the Code, American Robotics’ delivery to Ondas of copies of the grant agreements (each, a “Parent Grant Agreement”) for the issuance of such restricted stock units to such individuals and in the amounts set forth opposite such individual’s name set forth on Schedule 6.17(f) to the Merger Agreement, duly executed by each of such individuals;

 

American Robotics’ delivery to Ondas of copies of the employment agreements the form of Exhibit D to the Merger Agreement for each of Reese Mozer, Vijay Somandepalli and Eitan Babcock (the “Employment Agreements”), duly executed for each such individual;

 

American Robotics’ delivery to Ondas of resolutions of the American Robotics Board providing that the American Robotics Equity Incentive Plan will terminate immediately following the Merger I Effective Time;

 

American Robotics’ delivery to Ondas of a certificate in compliance with Treasury Regulations Section 1.1445-2(c), certifying that the American Robotics shares are not U.S. real property interests within the meaning of Section 897 of the Code and the Treasury Regulations, together with an accompanying notice in compliance with Treasury Regulations Section 1.897-2(h)(2); and

 

if there is any Indebtedness owed by American Robotics on the PPP Loans as of the Closing, (i) evidence reasonably satisfactory to Ondas that American Robotics has applied for forgiveness with the SBA and the applicable lender of the PPP Loans and (ii) American Robotics’ delivery to Ondas of the PPP Loan Escrow Agreement duly executed by the PPP Loans Escrow Agent and American Robotics.

 

The obligation of American Robotics to complete the Mergers is subject to the satisfaction (or waiver in writing by American Robotics) of certain conditions, including the following:

 

each of the representations and warranties of Ondas, Merger Sub I and Merger Sub II set forth in Article IV (other than those set forth in the next bullet point) must be true and correct in all respects (without giving effect to any limitation as to “materiality” or “material adverse effect” or “Parent Material Adverse Effect” set forth therein) at and as of the Closing Date (except to the extent such representations and warranties address matters as of particular dates, in which case, such representations and warranties must be true and correct in all respects on and as of such dates), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality” or “Parent Material Adverse Effect” set forth therein), individually or in the aggregate, has not had a Parent Material Adverse Effect or a material adverse effect on the ability of Ondas, Merger Sub I and Merger Sub II to consummate the Mergers and the transactions contemplated by the Merger Agreement;

 

each of the representations and warranties of Ondas, Merger Sub I and Merger Sub II set forth in Section 4.01 (Organization), Section 4.02 (Subsidiaries), Section 4.03 (Capital Structure), Section 4.04 (Authority), Section 4.05 (No Conflicts) and Section 4.08 (Advisors) of the Merger Agreement must be true and correct in all respects at and as of the Closing Date (except for de minimis inaccuracies), and each of the representations of Ondas, Merger Sub I and Merger Sub II set forth in Section 4.19 (Tax-Free Reorganization) of the Merger Agreement shall be true and correct in all respects as of the Closing Date;

 

the performance by Ondas, Merger Sub I and Merger Sub II in all material respects with all agreements, covenants and conditions required under the Merger Agreement to be performed or complied with by Ondas, Merger Sub I and Merger Sub II at or prior to the Closing Date;

 

the absence of any event, change, effect or development that, individually or in the aggregate, has resulted in a Parent Material Adverse Effect since the date of the Merger Agreement;

 

the submission by Ondas of the Nasdaq Notification in accordance with Nasdaq rules and Nasdaq must not have objected to such Nasdaq Notification on or prior to the Closing Date;

 

Ondas’ payment by wire transfer of immediately available funds of American Robotics’ transaction expenses in each case, in the amounts and pursuant to wire instructions provided by American Robotics to Ondas pursuant to Section 2.12 of the Merger Agreement;

 

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Ondas’s payment by wire transfer of immediately available funds of the Funded Debt in each case, in the amounts and pursuant to wire instructions set forth in the pay-off letters delivered pursuant to Section 6.17(b) of the Merger Agreement;

 

if there is any Indebtedness owed by American Robotics on the PPP Loans as of the Closing, Ondas’ payment by wire transfer of immediately available funds of an amount equal to the PPP Loan Escrow Amount to the PPP Loan Escrow Agent;

 

Ondas’ payment to the American Robotics Stockholders’ Representative by wire transfer of immediately available funds an amount equal to the American Robotics Stockholders’ Representative Expense Fund;

 

Ondas’ payment to the Exchange Agent by wire transfer of immediately available funds an amount equal to the Cash Consideration;

 

Ondas’s delivery to or through the Exchange Agent of the shares and Warrants to be issued in connection with the Mergers;

 

a certificate duly executed by the Chief Executive Officer of Ondas, dated as of the Closing, attesting to the satisfaction of the conditions set forth in Section 7.03(a) (relating to the accuracy of Ondas’, Merger Sub I’s and Merger Sub II’s representations and warranties), Section 7.03(b) (relating to Ondas’ performance of its covenants) and Section 7.03(c) (relating to the lack of a Parent Material Adverse Effect) of the Merger Agreement;

 

Ondas’ delivery of counterparts to each Employment Agreement, duly executed by the Surviving Entity; and

 

Ondas’ delivery of counterparts to each Parent Grant Agreement, duly executed by Ondas.

 

Indemnification

 

Indemnification by the American Robotics Stockholders

 

Each American Robotics Stockholder shall severally, not jointly, indemnify each Ondas indemnitee from and against, and defend and hold them harmless from, any losses, damages or liabilities, excluding any punitive or exemplary damages, except to the extent payable to third parties in respect of a Third Party Claim (collectively, “Losses”), suffered, sustained or incurred by any such indemnitee arising from, based upon, attributable to:

 

Fraud of American Robotics at or prior to the Closing;

 

any material breach by American Robotics of the covenants and agreements set forth in Section 5.01 of the Merger Agreement;

 

any Dissenting Company Shares; and

 

any claim by a holder of vested American Robotics options who (i) has not exercised (or exercised contingent upon the Closing) such holder’s vested American Robotics options at least one day prior to the Closing regarding the deemed exercise by American Robotics of such options as of immediately prior to the Merger I Effective Time and (ii) received any notice or written communication delivered by American Robotics related to treatment of the American Robotics options in connection with the Mergers to which Ondas did not consent.

 

Survival

 

Except with respect to the American Robotics stockholders’ indemnification obligations under Section 8.01 of the Merger Agreement and the covenants and agreements to which such indemnification obligations relate to, which shall survive for thirty (30) days after the applicable statute of limitations, the representations, warranties, covenants and agreements in this Agreement and in any certificate delivered hereunder do not survive the Closing except as set forth below.

 

Notwithstanding the foregoing: (a) Ondas and its Subsidiaries are not precluded from seeking recovery under the R&W Policy; (b) the foregoing does not limit any covenant or agreement of the Parties which by its terms contemplates performance after the Closing until such time that such covenant or agreement is fully performed or no longer operative; (c) Ondas, Merger Sub I and Merger Sub II will be jointly and not severally liable for breach of any covenant or agreement requiring performance by Ondas, Merger Sub I, Merger Sub II or the Surviving Entity after the Closing; and (d) the foregoing does not limit a claim for Fraud.

 

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Limitations of Liability

 

The obligations of each American Robotics stockholder to indemnify the Ondas indemnitees (i) shall be several, not joint, based on such American Robotics stockholder’s Pro Rata Indemnity Share and (ii) shall not exceed the portion of the Merger Consideration actually received by such American Robotics stockholder; provided that Ondas shall, and shall cause the other Ondas indemnitees, to recover any Losses for which an Ondas indemnitee is entitled to indemnification in respect to any Dissenting Company Shares first from the portion (if any) of the American Robotics Stockholders’ Representative Expense Fund which constitutes the American Robotics Stockholders’ Representative Indemnity Amount (and the liability of the American Robotics stockholders with respect to such Losses recovered against the American Robotics Stockholders’ Representative Indemnity Amount shall be joint and several) before seeking recourse against any individual American Robotics stockholder.

 

The amount of Losses subject to indemnification by the American Robotics stockholders shall be reduced by any insurance or other proceeds previously received by Ondas and its Subsidiaries with respect to such Losses (net of any deductible or co-payment, actual increase in insurance premiums attributable to such recovery and the reasonable out of pocket costs incurred in connection with such recovery) from any insurance carrier pursuant to any insurance coverage held by or on behalf of Ondas or its Affiliates (including, following the Closing, the Surviving Entity) or any other third party under any other indemnity or contribution agreements, Contracts or otherwise with respect to such Losses.

 

Termination Rights

 

The Merger Agreement provides that it may be terminated at any time prior to the Closing:

 

by mutual written consent of Ondas and American Robotics;

 

by Ondas (if none of Ondas, Merger Sub I or Merger Sub II is in material breach of its respective representations, warranties, covenants and obligations under the Merger Agreement) upon delivery of written notice to American Robotics, if there has been a breach of any representation, warranty, covenant or agreement made by American Robotics in the Merger Agreement, which breach (A) would cause any condition set forth in Section 7.01 or Section 7.02 of the Merger Agreement (Conditions Precedent) not to be satisfied and (B) (x) such breach cannot be cured by the End Date or (y) if capable of being cured, has not been cured by the earlier of (1) thirty (30) calendar days following receipt of written notice to American Robotics from Ondas of such breach or (2) the date that is three (3) calendar days prior to the End Date;

 

by American Robotics (if American Robotics is not in material breach of its representations, warranties, covenants and obligations under the Merger Agreement) upon delivery of written notice to Ondas, if there has been a breach of any representation, warranty, covenant or agreement made by Ondas in the Merger Agreement, which breach (A) would cause any condition set forth in Section 7.01 or Section 7.03 of the Merger Agreement (Conditions Precedent) not to be satisfied and (B) (x) such breach cannot be cured prior to the End Date or (y) if capable of being cured, has not been cured by the earlier of (1) thirty (30) calendar days following receipt of written notice from American Robotics of such breach or (2) the date that is three (3) calendar days prior to the End Date;

 

  by Ondas, upon delivery of written notice to American Robotics, if within forty-eight (48) hours following the execution and delivery of the Merger Agreement, American Robotics has not delivered to Ondas a copy of the executed written consent evidencing receipt of the Requisite Company Vote (which delivery has been made);

 

by either Ondas or American Robotics, upon delivery of written notice to the other, if the Ondas Stockholder Approval has not been obtained at the Ondas stockholders’ meeting;

 

by either Ondas or American Robotics, upon delivery of written notice to the other, if the Closing has not occurred on or before 5:00 p.m., Eastern Time, on September 30, 2021 (the “End Date”); provided, that this termination right shall not apply to either Ondas or American Robotics if such Person’s material breach of, or material failure to fulfill any obligation under, the Merger Agreement has been a significant cause of the failure of the Closing to occur on or prior to such time on the End Date;

 

by either Ondas or American Robotics, upon delivery of written notice to the other, if any Governmental Authority having competent jurisdiction has issued or entered any Order or enacted any Law which, in any such case, permanently restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated by the Merger Agreement; provided, that this termination right shall not apply to either Ondas or American Robotics if such Person’s material breach of, or material failure to fulfill any obligation under, the Merger Agreement is a significant cause of the issuance or entry of such judgment, Order or decree; or

 

  If Ondas’s stockholders do not approve the Mergers either at the stockholder’s meeting (or in either of two subsequent adjournments as set forth in the Merger Agreement) or prior to September 30, 2021, then either party may terminate the agreement and the $2.0 million promissory note issued by American Robotics to Parent will be forgiven and cancelled.

 

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 Amendments.

 

Any provision of this Agreement may be amended prior to the Merger I Effective Time if, but only if, such amendment or waiver is in writing and is signed by each party to the Merger Agreement.

 

The American Robotics Stockholders’ Representative

 

Reese Mozer has been appointed as the American Robotics Stockholders’ Representative under the Merger Agreement. By virtue of the execution of the written consent, Support or Agreement or the delivery of a duly executed Letter of Transmittal or Post-Closing Letter of Transmittal, by any American Robotics stockholder, the American Robotics Stockholders’ Representative will be irrevocably authorized and empowered to act, after the Closing of the Merger, as a representative, for the benefit of all American Robotics stockholders, as the exclusive agent and attorney-in-fact, in connection with and to facilitate the consummation of the Mergers and the other Transaction Agreements contemplated by the Merger Agreement. This includes the authority and power to:

 

execute and deliver such Transaction Agreements (with such modifications or changes therein as to which the American Robotics Stockholders’ Representative, in his sole discretion, shall have consented) and to agree to such amendments or modifications thereto as the American Robotics Stockholders’ Representative, in its sole discretion, determines to be desirable;

 

execute and deliver such amendments, waivers, consents, notices and instructions in connection with the Transaction Agreements, and the consummation of the Mergers and the other transactions contemplated by the Transaction Agreements as the American Robotics Stockholders’ Representative, in his sole discretion, may deem necessary or desirable;

 

administer and resolve any disputes or compromise such disputes with Ondas, on the American Robotics stockholders’ behalf (including in connection with any and all claims related to Taxes, or claims related to Merger Consideration), including to consent to, compromise and settle claims for indemnification pursuant to ARTICLE VIII of the Merger Agreement;

 

take any and all actions that the American Robotics Stockholders’ Representative believes are necessary or appropriate under the Transaction Agreements or to effectuate the Mergers or the other transactions contemplated thereby, for and on behalf of American Robotics stockholders and to resolve any dispute with Ondas or any of its Affiliates over any aspect of the Transaction Agreements and, on behalf of the American Robotics stockholders, to enter into any agreement to effectuate any of the foregoing that shall have the effect of binding the American Robotics stockholders as if the American Robotics stockholders had personally entered into such an agreement; provided, that no such failure to act on the part of the American Robotics Stockholders’ Representative, except as otherwise provided in the Merger Agreement, shall be deemed a waiver of any such right or interest by the American Robotics Stockholders’ Representative or by American Robotics stockholders unless such waiver is in writing signed by the waiving party or by the American Robotics Stockholders’ Representative;

 

  use the American Robotics Stockholders’ Representative Expense Fund and the funds therein to satisfy costs, expenses and/or liabilities of the American Robotics Stockholders’ Representative or American Robotics stockholders in connection with matters related to the Transaction Agreements, including to consent to, compromise and settle claims for indemnification pursuant to ARTICLE VIII of the Merger Agreement, with any balance of the American Robotics Stockholders’ Representative Expense Fund not used for such purposes to be disbursed and paid to each American Robotics stockholder in accordance with, and subject to, Section 10.14(b) of the Merger Agreement at such time as the American Robotics Stockholders’ Representative determines in his sole discretion that no such costs, expenses and/or liabilities shall become due and payable;

 

collect and receive all moneys and other proceeds and property payable to the American Robotics Stockholders’ Representative or the American Robotics stockholders as described in the Merger Agreement or otherwise payable to the American Robotics Stockholders’ Representative pursuant to the Transaction Agreements, and, subject to any applicable withholding Laws, and net of any out-of-pocket expenses incurred by the American Robotics Stockholders’ Representative, the American Robotics Stockholders’ Representative shall disburse and pay the same to each of the American Robotics stockholders in accordance with the American Robotics Certificate of Incorporation as in effect immediately prior to the Merger I Effective Time and the Payment Schedule at such time as the American Robotics Stockholders’ Representative determines in his sole discretion;

 

after the Closing, determine, from time to time, the allocation and distribution of any amounts payable to the American Robotics stockholders in accordance with the terms of the American Robotics Certificate of Incorporation and amend the Payment Schedule accordingly; provided, that any such determination shall be made by the American Robotics Stockholders’ Representative in good faith in his sole discretion; provided further, that any such determination by the American Robotics Stockholders’ Representative shall be final and binding on all American Robotics stockholders absent fraud or manifest error; and

 

make, execute, acknowledge and deliver all such other agreements, guarantees, orders, receipts, endorsements, notices, requests, instructions, certificates, unit and/or stock powers, letters and other writings, and, in general, to do any and all things and to take any and all action that the American Robotics Stockholders’ Representative, in his sole and absolute discretion, may consider necessary or proper or convenient in connection with or to carry out the transactions contemplated by the Transaction Agreements and all other agreements, documents or instruments referred to therein or executed in connection therewith.

 

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At the Closing, an aggregate amount of $200,000 will be transferred by or on behalf of the American Robotics stockholders to the American Robotics Stockholders’ Representative, to be used by the American Robotics Stockholders’ Representative to pay expenses incurred by him in such capacity. In the event that any American Robotics stockholder has perfected its exercise of appraisal rights pursuant to Section 262 of the DGCL prior to the Closing Date, an additional $500,000 will be transferred at the Closing by or on behalf of the American Robotics stockholders to the American Robotics Stockholders’ Representative in a segregated account maintained by him to be used by him to pay any Losses for which an Ondas indemnitee is entitled to indemnification with respect to Company Dissenting Shares, provided further that any payments from the American Robotics Stockholders’ Representative Indemnity Amount for anything other than such Losses shall require Ondas’ prior written consent. The American Robotics Stockholders’ Representative is not entitled to any fee, commission or other compensation for the performance of his services under the Merger Agreement, but is entitled to the payment of all of his out-of-pocket expenses incurred as the American Robotics Stockholders’ Representative. In no event will the American Robotics Stockholders’ Representative be required to advance his own funds on behalf of the American Robotics stockholders or otherwise.

 

If the Mergers and the other transactions are not consummated, American Robotics must reimburse the American Robotics Stockholders’ Representative for all costs and expenses reasonably incurred by him in connection with the Mergers and the other transactions contemplated by the Merger Agreement. Once the American Robotics Stockholders’ Representative determines, in his sole discretion, that he will not incur, or reasonably be expected to incur, any additional expenses in his capacity as the American Robotics Stockholders’ Representative, then he will distribute the remaining unused American Robotics Stockholders’ Representative Expense Fund, if any, to the American Robotics stockholders in accordance with their Pro Rata Percentages; provided that if the American Robotics Stockholders’ Representative Indemnity Amount has been deposited into the American Robotics Stockholders’ Representative Expense Fund, only the unused amount of the American Robotics Stockholders’ Representative Expense Amount, if any, may be so distributed and the unused amount of the American Robotics Stockholders’ Representative Indemnity Amount, if any, shall not be distributed until the final resolution of the claims for appraisal rights which triggered the requirement for the American Robotics Stockholders’ Representative Indemnity Amount. Additionally, if the American Robotics Stockholders’ Representative incurs expenses, in such capacity, in an amount exceeding the American Robotics Stockholders’ Representative Expense Amount, or after the distribution of the American Robotics Stockholders’ Representative Expense Amount, then the American Robotics stockholders are required to, in accordance with their respective Pro Rata Indemnity Share, reimburse the American Robotics Stockholders’ Representative for the difference between the total expenses incurred by him and the amount received by him from the American Robotics Stockholders’ Representative Expense Amount.

 

Under the Merger Agreement, the American Robotics Stockholders’ Representative will incur no liability of any kind with respect to any action or omission by him in connection with his services pursuant to any Transaction Agreement except in the event of liability directly resulting from the American Robotics Stockholders’ Representative’s willful misconduct.

 

The American Robotics Stockholders’ Representative is not liable for any action or omission pursuant to the advice of counsel. Each American Robotics stockholder is required to indemnify, on a pro rata basis (based on such American Robotics stockholders’ Pro Rata Indemnity Share), the American Robotics Stockholders’ Representative against all losses and liabilities (including any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened or any claims whatsoever), arising out of or in connection with any claim, investigation, challenge, action or proceeding or in connection with any appeal thereof, relating to the acts or omissions of the American Robotics Stockholders’ Representative under the Merger Agreement or otherwise. The foregoing indemnification does not apply to any action or proceeding which finally adjudicates liability against the American Robotics Stockholders’ Representative under the Merger Agreement for his willful misconduct. In the event of any indemnification upon written notice from the American Robotics Stockholders’ Representative to the American Robotics stockholders as to the existence of a deficiency toward the payment of any such indemnification amount, each American Robotics stockholder must promptly deliver to the American Robotics Stockholders’ Representative full payment of his, her or its ratable share of the amount of such deficiency (based on such American Robotics stockholder’s Pro Rata Indemnity Share).

 

Under the Merger Agreement, Ondas, Merger Sub I and Merger Sub II have the right to conclusively rely upon all actions taken or omitted to be taken by the American Robotics Stockholders’ Representative pursuant to the Merger Agreement and the Transaction Agreements and the transactions contemplated thereby, all of which actions or omissions shall be legally binding upon all American Robotics stockholders. The grant of authority provided to the American Robotics Stockholders’ Representative (i) is coupled with an interest and is irrevocable and survives the death, incompetency, bankruptcy or liquidation of any of the American Robotics Stockholders and (ii) will survive the closing of the Mergers.

 

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Opinion of Our Financial Advisor

 

On May 14, 2021, National Securities Corp. (“National Securities” or “NSC”) rendered its oral opinion to the Board, which was subsequently confirmed in writing by delivery of National Securities’ written opinion addressed to the Board dated the same date as to, as of such date, the fairness, from a financial point of view, to the merger consideration (the “Merger Consideration”) to be paid to stockholders of American Robotics pursuant to the Merger Agreement (the “Opinion”). The Opinion was based on the most recent draft of the Merger Agreement, dated May 13, 2021, distributed to National Securities prior to its issuance of the Opinion. 

 

National Securities’ opinion was directed to the Board (in its capacity as such) and only addressed the fairness, from a financial point of view, to Ondas of the Merger Consideration to be paid pursuant to the Merger Agreement. For purposes of the Opinion, National Securities assumed that (A) “Merger Consideration” includes the Company Transaction Expenses, the proceeds of the Parent Note (which National Securities assumed will be forgiven, but nonetheless, was included in “Merger Consideration” for purposes of the Opinion), the aggregate amount of the Company’s Stockholders’ Representative Expense Fund, the Parent Transaction Expenses Shares, the Parent Transactions Expenses Warrants, the Funded Debt, and the aggregate amount of the PPP Loan Escrow Amount (each as defined in the Merger Agreement)2, notwithstanding the definition of “Merger Consideration” in the Merger Agreement, (B) the Convertible Notes (as defined in the Merger Agreement) will be converted in full to shares of common stock, par value $0.0001 per share, of American Robotics (“American Robotics Shares”) on or before the Merger I Effective Time (as defined in the Merger Agreement) and (C) the Fully Diluted Share Number (as defined in the Merger Agreement) used to calculate Per Share Closing Merger Consideration (as defined in the Merger Agreement) and Per Share Contingent Consideration (as defined in the Merger Agreement) will be inclusive of such American Robotics Shares issuable upon such assumed full conversion of the Convertible Notes (as defined in the Merger Agreement). The Opinion did not address any other aspect or implication (financial or otherwise) of the Mergers, the Merger Agreement or any other agreement or understanding entered into in connection with the Mergers or otherwise. The summary of the Opinion in this proxy statement is qualified in its entirety by reference to the full text of the written Opinion, which is included as Annex C to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by National Securities in preparing its Opinion. The Opinion does not constitute advice or any recommendation to any holder of Ondas’ or American Robotics’ common stock as to how such holder should act or vote on any matter relating to the Mergers.

 

In connection with rendering the Opinion, National Securities reviewed:

 

Draft Transaction Agreements (as defined in the Merger Agreement), including drafts of the Merger Agreement, a form of agreement for the Parent Warrants (as defined in the Merger Agreement), forms of lock-up and registration rights agreements, forms of restrictive covenant agreements and forms of employment agreements;

 

Certain information provided by Ondas’ management and American Robotics’ management concerning each of Ondas’ and American Robotics’ respective business, financial condition and operations;

 

Publicly available financial information and other data with respect to Ondas, including its Annual Reports on Form 10-K for the fiscal years ended December 31, 2020 and 2019 including all amendments thereto;

 

Certain publicly available financial data, stock market performance data and trading multiples of Ondas and certain companies with publicly-traded securities that National Securities deemed appropriate and relevant to the Mergers;

 

Certain publicly-available financial data relating to certain precedent business combinations that National Securities deemed appropriate and relevant to the Mergers;

 

Certain financial forecasts of Ondas provided to NSC by Ondas’ management;

 

Certain financial forecasts provided by American Robotics’ management for fiscal years 2021 to 2025;

 

Historical and projected financial results provided to NSC by American Robotics’ management, as adjusted by NSC, with Ondas’ management’s approval (“American Robotics Projections”);

 

Discounted cash flow analyses of Ondas and of American Robotics utilizing financial information prepared and furnished to National Securities by Ondas’ management; and

 

Performed such other financial studies, analyses and investigations, and considered other such matters, as National Securities deemed necessary or appropriate for purposes of rendering its opinion.

 

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For purposes of its analysis and opinion, National Securities relied, without assuming responsibility or liability for independent verification, upon the accuracy and completeness of all financial and other information available from public sources and provided to and reviewed by National Securities and all other information provided to National Securities or otherwise discussed with or reviewed by National Securities. National Securities assumed, at the direction and with the consent of the Board, that the financial and other projections prepared by Ondas and American Robotics’ managements, and the assumptions underlying those projections, including the amounts and the timing of all financial and other performance data, were reasonably prepared in accordance with industry practice and represented the best estimates and judgments of the managements of Ondas and of American Robotics as of the date of their preparation. At the direction of the Board, National Securities did not assume any responsibility for and did not express an opinion as to such analyses or forecasts or the assumptions on which they were based. National Securities also assumed that there were not any material changes in the assets, liabilities, financial condition, results of operations, business or prospects of American Robotics since the dates of the last financial statements made available to National Securities. National Securities further relied, with the Board’s consent, upon the assurances of the management of American Robotics that they were not aware of any facts that would have made the information and projections provided by them inaccurate, incomplete or misleading in any material respect.

 

In connection with rendering its Opinion, National Securities performed financial analyses utilizing several methodologies that National Securities considered appropriate and relevant to the Mergers and that National Securities believed are customary for similar transactions. The preparation of a fairness opinion involves significant judgment as to the most appropriate and relevant methods of financial analysis, data used in establishing fair value and the application of these methods to the particular circumstances and data and, therefore, such an opinion is not readily susceptible to a partial analysis or summary description. Accordingly, notwithstanding the analyses summarized herein, National Securities believes that its analyses must be considered as a whole and that selecting portions of the analyses, without considering all such analyses and factors, or attempting to ascribe relative weights to some or all such analyses and factors, could create an incomplete view of the evaluation process underlying National Securities Opinion.

 

In arriving at its Opinion, National Securities considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. National Securities made its determination on the basis of its experience and professional judgment after considering the results of all of its analyses. National Securities only considered weighting of various analyses to test its assumptions and conclusions, which confirmed its results. No company or precedent transaction used in the analyses as a comparison is directly comparable to Ondas or to American Robotics, or the Mergers. National Securities prepared these analyses for purposes of providing its Opinion to the Board (in its capacity as such) as to the fairness, from a financial point of view, to Ondas of the Merger Consideration to be paid pursuant to the Merger Agreement. These analyses do not purport to be appraisals, nor do they necessarily reflect the prices at which businesses or securities may actually be bought or sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly different than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Ondas, National Securities, or any other person assumes responsibility if future results are materially different from those forecasts.

 

The Merger Consideration was determined through arm’s-length negotiations between American Robotics and Ondas. National Securities did not recommend any specific amount of Merger Consideration to the Board or that any specific amount of consideration constituted the appropriate consideration for the Mergers. National Securities’ Opinion to the Board (in its capacity as such) was one of many factors taken into consideration by the Board in making its determination to approve the Mergers.

 

National Securities was not asked to undertake, and did not undertake, an independent verification of any information provided to National Securities or reviewed by National Securities, nor was National Securities furnished with any such verification and National Securities did not assume any responsibility or liability for the accuracy or completeness of such information. National Securities did not make an independent evaluation or appraisal of the assets or the liabilities (contingent or otherwise) of American Robotics including those which may arise from the Mergers, nor did National Securities evaluate the solvency of American Robotics under any state or federal laws. National Securities did not undertake an independent analysis of any pending or threatened litigation, possible unasserted claims or other contingent liabilities to which American Robotics is or may be a party or subject to and its Opinion did not make an assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.

 

National Securities also assumed, with the Board’s consent, that the final executed form of the Merger Agreement would not differ in any material respects from the last draft provided to National Securities, that the consummation of the Mergers would be effected in accordance with the terms and conditions of the Merger Agreement, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary regulatory or third party consents and approval for the Mergers, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on American Robotics or the contemplated benefits of the Mergers. In addition, events occurring after the date of the Opinion could materially affect the assumptions used in rendering the Opinion; however, National Securities does not have any obligation to reaffirm, update or revise its Opinion. National Securities is not a legal, tax or regulatory advisor and National Securities relied upon, without independent verification, the assessments of Ondas and of American Robotics, and their respective legal, tax and regulatory advisors with respect to such matters.

 

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The Opinion was limited to the fairness, from a financial point of view, as of the date of the Opinion, to Ondas of the Merger Consideration to be paid pursuant to the Merger Agreement, and did not an opinion as to the fairness of the Mergers to the holders of any class of securities, creditors or other constituencies of Ondas or as to the underlying decision by Ondas to engage in the Mergers. The Opinion did not address any other aspect or implication of the Mergers, the Merger Agreement, or any agreement or understanding entered into in connection with the Mergers or otherwise. National Securities did not express any opinion as to the fairness of the amount or nature of the compensation to any of Ondas’ officers, directors, or employees, or any class of such persons, relative to the Merger Consideration or otherwise. National Securities assumed that the exercise price of the Parent Warrants will be the trading price of the Parent Common Stock (as defined in the Merger Agreement) on the trading day immediately preceding the closing of the Mergers and, for purposes of the Opinion, that the exercise price of the Parent Warrants was equal to the 10-day volume-weighted average price of the Parent Common Stock as of May 12, 2021, and did not express any opinion as to the prices or trading ranges at which shares of Ondas’ common stock will trade at any time before or after the announcement or consummation of the Mergers. Furthermore, National Securities did not express an opinion regarding the impact of the Mergers on the solvency or viability of Ondas, or the ability of Ondas to pay its obligations when they become due before consummation of the Mergers.

 

National Securities’ Opinion was necessarily based upon economic, market, monetary, regulatory and other conditions as they existed and could be evaluated, and the information made available to it, on the date of its Opinion. National Securities’ Opinion did not address the relative merits of the transaction as compared to alternative transactions or strategies that may have been available to Ondas.

 

National Securities’ Opinion was provided to the Board solely in connection with and for the purposes of its evaluation of the Mergers. The Opinion did not address Ondas’ underlying business decision to effect the Mergers and was not a recommendation to the Board or any holder of Ondas’ common stock as to how to vote or act on any matter with respect to the transaction.

 

Financial Analyses

 

The following is a summary of the material financial analyses presented by National Securities to the Board on May 14, 2021 in connection with its consideration of the proposed Mergers contemplated by the Merger Agreement. The summary does not contain all of the financial data security holders of Ondas may want or need for purposes of making an independent determination of fair value. Holders of Ondas’ securities are encouraged to consult their own financial and other advisors before making any investment decision in connection with the proposed Mergers. The following summary does not purport to be a complete description of the financial analyses performed by National Securities. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by National Securities. The following summary of financial analyses includes information presented in tabular format. The tables must be read together with the full text of each summary to understand the financial analyses discussed.

 

For purposes of its analyses, National Securities utilized three valuation approaches for both companies. While National Securities utilized these approaches for both Ondas and American Robotics, its analysis of Ondas was solely to perform a comparison to the market price of Ondas common stock to be used as a portion of the consideration in the Mergers. National Securities concluded in its professional judgment that the results of such analyses were sufficiently close to Ondas’ market price that no further valuation analysis of Ondas was required.

 

The following describes the valuation approaches that National Securities used for American Robotics:

 

Trading Comparable Companies Analysis —generally, the value as of the Opinion date of American Robotics’ outstanding equity securities using valuation multiples, as adjusted, of certain other companies’ traded securities National Securities deemed appropriate and relevant;

 

Precedent Transactions Analysis—generally, the value of American Robotics’ outstanding equity securities using valuation multiples, as adjusted, of certain precedent business combinations National Securities deemed appropriate and relevant; and

 

Discounted Cash Flow Analysis—generally, the value of American Robotics’ outstanding equity securities based on the present value of the American Robotics Projections, as adjusted, for a specified period.

 

Selected Public Company Analysis

 

National Securities applied valuation multiples of selected companies with publicly-traded equity securities National Securities deemed relevant to certain financial data for American Robotics. The publicly-traded companies were selected by National Securities in its professional judgment and experience because they were deemed to be similar to American Robotics in one or more respects. For purposes of these analyses, (i) except as otherwise noted, share prices for the selected companies reflect closing prices as of May 12, 2021 and (ii) estimates of future financial performance for the selected companies for the years ending December 31, 2021 and 2022 were based on publicly available research analyst estimates for those companies. In its professional judgment, National Securities did not analyze periods after December 31, 2022, because analyst estimates were not generally available for such periods.

 

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The financial data reviewed included:

 

Enterprise value as a multiple of revenue for the year ended December 31, 2021; and

 

Enterprise value as a multiple of revenue for the year ended December 31, 2022.

 

Although none of the selected public companies is directly comparable to American Robotics, the companies selected were chosen because they are publicly-traded companies with operations that, for purposes of analysis, may be considered similar in certain respects to American Robotics’ business. The selected companies considered by National Securities were:

 

Company Name

 

Elbit Systems Ltd.

 

FLIR Systems, Inc.

 

Ambarella, Inc.

 

AeroVironment, Inc.

 

Alpine 4 Holdings, Inc.

 

AgEagle Aerial Systems, Inc.

 

Drone Delivery Canada Corp.

 

Draganfly Inc.

 

Parrot S.A.

 

Red Cat Holdings, Inc.

 

Drone Volt SA

 

The mean, strip mean (which excluded the highest and lowest values), and median multiples of the financial data reviewed for the selected companies, based on publicly available research analyst estimates for the years ended December 31, 2021 and December 31, 2022, were:

 

Metric  Mean   Strip Mean   Median 
Enterprise Value / 2021E Revenue   15.14x   7.13x   5.23x
                
Enterprise Value / 2022E Revenue   6.26x   5.75x   3.98x

 

Following its review of the results of the selected public companies analysis and taking into account several factors, including, among other things, the sizes, geographic presence and revenue mixes of American Robotics and the selected companies, as well as other operational and financial characteristics of American Robotics compared with the selected companies, National Securities applied, based on its professional judgment and experience, multiple ranges of 4.12x to 50.18x to estimates American Robotics’ 2021 revenue based on the American Robotics Projections and 3.70x to 10.32x to estimates of American Robotics’ 2022 revenue based on the American Robotics Projections.

 

This analysis indicated implied enterprise value reference ranges for American Robotics of approximately $6.8M to $83.1M (based on 2021E revenue) and $37.4M to $104.2M (based on 2022E revenue), as compared to the Merger Consideration of approximately $70.6M as provided in the Merger Agreement.

 

Selected Precedent Transactions Analysis

 

National Securities considered the financial terms of certain business combinations and other transactions that National Securities deemed relevant. The precedent transactions were selected because the target companies or assets were deemed by National Securities to be similar to American Robotics in one or more respects. Financial data for the selected transactions were based on public filings, publicly available research analyst estimates and other publicly available information.

 

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The financial data reviewed for the selected transactions included the enterprise value implied by the consideration paid in the selected transaction as a multiple of the target companies’ then latest 12 months’ revenue as of the date of announcement of the transaction.

 

Date

Announced

  Target   Acquirer
01/2021   Arcturus UAV, Inc   Aerovironment, Inc.
01/2021   MicaSense, Inc   AgEagle Sensor Systems, Inc.
11/2020   Impossible Aerospace Corp   Alpine 4 Technologies, Ltd. (n/k/a Alpine 4 Holdings, Inc.)
12/2020   Altavian, Inc.   FLIR Systems, Inc.
08/2019   Corindus Vascular Robotics, Inc.   Siemens Medical Solutions USA, Inc.
01/2019   Aeryon Labs, Inc.   FLIR Systems, Inc.
09/2017   Blue River Technology Inc.   Deere & Company

 

The observed high, median, low, and average multiples of the financial data reviewed for the selected transactions were 71.21x, 8.71x, 3.57x, and 18.39x, respectively. Taking into account the results of the selected transactions analysis, National Securities applied, based on its professional judgment and experience, a multiple range of 3.57x to 71.21x to American Robotics’ projected 2021 revenue (as provided to National Securities).

 

The selected transactions analysis indicated an implied enterprise value reference range for American Robotics of approximately $5.9M to $117.9M, as compared to the Merger Consideration of approximately $70.6M as provided in the Merger Agreement.

 

Discounted Cash Flow Analysis

 

National Securities performed a discounted cash flow analysis to derive the equity value reference range for American Robotics. The reference range was determined by adding (i) the net present value of the unlevered free cash flows for the fiscal years ending December 31, 2018 through December 31, 2024, based on the American Robotics Projections and (ii) the present value of an estimated terminal value for American Robotics. In addition, National Securities performed an additional discounted cash flow analysis scenario whereby the American Robotics Projections adjusted downward by 50%. National Securities determined to perform this additional adjusted analysis in its professional judgment in order to analyze American Robotics’ discounted cash flows in the event of potential adverse circumstances to American Robotics. National Securities applied a range of terminal value multiples, based on its professional judgment and experience, of 10.0x to 14.0x to estimates of American Robotics’ unlevered free cash flow in both scenarios for the fiscal year ended December 31, 2025 based on the American Robotics Projections and discount rates ranging from 32.2% to 42.2%. National Securities derived the discount rates referenced above, reflecting estimates of weighted average cost of capital for American Robotics, by application of the capital asset pricing model. The discounted cash flow analysis indicated an implied equity value reference range for American Robotics of $168.5M to $413.2M based on the American Robotics Projections and an implied equity value reference range of $82.0M to $203.9M based on the American Robotics Projections as adjusted by National Securities.

 

Other Matters

 

Pursuant to the engagement letter between Ondas and National Securities, Ondas agreed to pay National Securities an initial retainer fee of $50,000 upon commencement of its engagement and a fee of $75,000 which was paid upon the rendering of its Opinion to the Board. In addition, should the Board request that National bring down its opinion in connection with the transaction, an additional fee of $25,000 would be due and payable. Ondas has agreed to reimburse certain of National Securities’ expenses and to indemnify National Securities and certain related persons and entities for certain liabilities and other items arising out of or related to its engagement. In the past two years, National Securities has acted (1) in an advisory capacity to, (2) as a placement agent in three private placements for and (3) as an underwriter in one public offering for Ondas.

 

At the time of issuing the Opinion, the banking team of National Securities was employed by National Securities. As of May 17, 2021, the banking team of National Securities is employed by B. Riley Financial, Inc. (“B. Riley”). B. Riley acted as an underwriter in the Public Offering, which closed on June 11, 2021.

 

National Securities and its affiliates are engaged in a broad range of securities activities and financial advisory services. National Securities and its affiliates may in the future provide investment banking and other financial advice and services to American Robotics, Ondas and their respective affiliates for which advice and services National Securities and its affiliates would expect to receive compensation. In the ordinary course of business, National Securities and its affiliates may actively trade or hold the securities of Ondas and its affiliates for their own accounts or for the accounts of others, and, accordingly, may at any time hold long or short positions in such securities.

 

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Certain Projected Financial Information

 

American Robotics and the Company do not as a practice make public projections as to future revenues, earnings or other results. However, in connection with the Board’s consideration of the Transaction and NSC’s financial analysis of American Robotics described under “– Opinion of Financial Advisor,” American Robotics’ management confidentially provided to the Company its non-public, internal financial forecast regarding American Robotics’ anticipated future operations for the years ending December 31, 2021 through December 31, 2025, which the Company subsequently provided to NSC. NSC made certain adjustments to the data it received from the Company, which adjustments were based on NSC’s experience and judgment. The Company has included from American Robotics’ financial forecasts the summary information set forth below to give its stockholders access to certain previously non-public information because such information was considered by the Company’s Board for purposes of evaluating the Transaction and by our financial advisor, NSC, for purposes of rendering its fairness opinion.

 

The unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward complying with the published guidelines of the SEC and the guidelines established by the American Institute of Certified Public Accountants with respect to the preparation and presentation of prospective financial information, but, in the view of the Company’s management, was prepared on a reasonable basis, and presents, as of the date prepared, American Robotics’ expectation of its estimated future financial performance for the periods indicated. Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared. The prospective financial information was prepared treating American Robotics on a stand-alone basis, without giving effect to the Transaction or any other potential acquisitions. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information.

 

The accompanying prospective financial information includes financial measures that were not calculated in accordance with GAAP, namely EBITDA and Adjusted EBITDA (as defined above). EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as measures of operating performance or cash flows or as measures of liquidity. Non-GAAP measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP results.

 

American Robotics’ assumptions and estimates underlying the prospective financial information are inherently uncertain and are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information, including, among others, risks and uncertainties set forth under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” contained elsewhere in this proxy statement. Accordingly, there can be no assurance that the prospective results are indicative of the future performance of American Robotics, or that actual results will not differ materially from those presented in the prospective financial information. Inclusion of the prospective financial information in this proxy statement should not be regarded as a representation by any person that the results contained in the prospective financial information will be achieved.

 

The Company and American Robotics have not updated, and do not intend to update or otherwise revise, the prospective financial information to reflect circumstances existing since its preparation, including any changes in general economic or industry conditions, or to reflect the occurrence of subsequent events. None of the Company, American Robotics or any of their respective representatives or advisors makes any representation to any person with regard to the ultimate performance of the Company or American Robotics.

 

Certain Actual & Projected Financial Information – AR (in thousands)

                                 
   2018A   2019A   2020A   2021E   2022E   2023E   2024E   2025E 
Revenue  $11.4   $14.7   $265.2   $1,656.2   $10,095.3   $51,177.6   $178,179.8   $443,807.7 
EBITDA  $(2,116.8)  $(3,868.3)  $(1,035.6)  $(4,743.2)  $(6,018.8)  $11,300.5   $89,132.1   $272,873.3 
EBIT  $(2,123.2)  $(3,881.1)  $(2,447.7)  $(4,991.1)  $(7,430.9)  $3,525.8   $68,959.7   $227,950.9 
Less: Prov. for Taxes   0.0    0.0    0.0    0.0    0.0    148.1    11,888.9    47,869.7 
Unlevered Net Inc.  $(2,123.2)  $(3,881.1)  $(2,447.7)  $(4,991.1)  $(7,430.9)  $3,377.7   $57,070.8   $180,081.2 
Plus: D&A   6.4    12.8    1,412.1    247.8    1,412.1    7,774.7    20,172.3    44,922.4 
Less: Capex   0.0    0.0    159.1    (3,290.2)   (8,920.9)   (26,441.7)   (62,084.5)   (123,874.4)
Less: Incr. in Net W/C   0.0    0.0    227.4    1,707.8    1,299.9    31,548.0    70,757.3    153,062.6 
Unlevered Free CF  $(2,116.8)  $(3,868.3)  $(649.1)  $(6,325.7)  $(13,639.8)  $16,258.7   $85,915.9   $254,191.8 

 

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Interests of Ondas Executive Officers and Directors in the Transaction

 

In considering the recommendation of the Board with respect to the Transaction, stockholders should be aware that executive officers of Ondas and members of the Ondas board of directors may have interests in the Transaction that may be different from, or in addition to, the interests of Ondas stockholders generally. The Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement and in making its recommendations regarding the proposals to be presented at the special meeting. These interests are as follows: directors and officers of Ondas have rights to indemnification and directors’ and officers’ liability insurance that will survive completion of the Transaction.

 

Accounting Treatment

 

Ondas will account for the Transaction as an acquisition of American Robotics by Ondas using the acquisition method of accounting in accordance with United States generally accepted accounting principles (“GAAP”). Ondas expects that, upon completion of the Transaction, holders of interests in American Robotics will receive approximately 16.6% of the outstanding common stock and voting power of the combined company, and Ondas stockholders will retain 83.4% of the outstanding common stock and voting power of the combined company. In addition to considering these relative voting powers, Ondas also considered the proposed composition of the combined company’s board of directors and the board committees, and the proposed members of the executive management team of the combined company, in determining the acquirer for accounting purposes. Based on the weighting of these factors, Ondas has concluded that it is the accounting acquirer.

 

Under the acquisition method of accounting, the assets, including identifiable intangible assets, and liabilities of American Robotics as of the effective time of the Mergers will be recorded at their respective fair values and added to those of Ondas. Any excess of the purchase price for the Mergers over the net fair value of American Robotics’ assets and liabilities will be recorded as goodwill. The results of operations of American Robotics will be combined with the results of operations of Ondas beginning at the closing of the Transaction. The consolidated financial statements of Ondas after closing will not be restated retroactively to reflect the historical financial position or results of operations of American Robotics. Following the Transaction, and subject to the finalization of the purchase price allocation, the earnings of Ondas will reflect the effect of any purchase accounting adjustments, including any increased depreciation and amortization associated with fair value adjustments to the assets acquired and liabilities assumed.

 

The allocation of the purchase price used in the unaudited pro forma financial statements included in this proxy statement is based upon a preliminary valuation by management. The final estimate of the fair values of the assets and liabilities will be determined with the assistance of a third-party valuation firm. Ondas’ preliminary estimates and assumptions are subject to materially change upon the finalization of internal studies and third-party valuations of assets, including investments, property and equipment, intangible assets including goodwill, and certain liabilities.

 

Ownership of Ondas after the Transaction

 

As of [●], 2021, Ondas has [34,032,040] shares of common stock outstanding.

 

Under the terms of the Merger Agreement, on the closing date of the Transaction, Ondas will issue to American Robotics’ stockholders an aggregate of 6,750,000 shares of common stock . Based on the foregoing, immediately after the closing of the Transaction, [40,782,040] shares of common stock will be issued and outstanding and the shares issued to American Robotics stockholders in the Transaction will represent approximately 16.6% of the outstanding common stock and voting power of the Company. Shares of common stock held by Ondas stockholders immediately before the closing of the Transaction will represent approximately 83.4% of the outstanding common stock and voting power of the Company after the closing of the Transaction. The foregoing are estimates of post-Transaction shares of common stock and to whether any adjustment is made.

 

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Security Ownership of Certain Beneficial Owners and Management before the Transaction

 

As of [●], 2021, the record date for the special meeting, the following table sets forth certain information with respect to the beneficial ownership of our common stock by (i) each stockholder known by us to be the beneficial owner of more than five percent (5%) of our common stock, (ii) by each of our current directors and executive officers as identified herein, and (iii) all of our directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock, stock options, restricted stock units (“RSUs”) and common stock purchase warrants that are currently exercisable or convertible into shares of our common stock within sixty (60) days of the date of this document, are deemed to be outstanding and to be beneficially owned by the person holding the options, RSUs, or warrants for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise noted, the address for all officers and directors listed below is 61 Old South Road, #495, Nantucket, MA 02554.

 

Name and Address of Officer and Directors  Amount and Nature of Beneficial Ownership (1)   Percent of
Class
 
Eric A. Brock (Chairman of the Board and Chief Executive Officer) (2)   1,957,873    [●]  %
Stewart W. Kantor (Director, President, Chief Financial Officer, Treas. and Sec.) (3)   908,445    [●] %
Thomas V. Bushey (Director) (4)   -    * 
Richard M. Cohen (Director) (5)   55,564    * 
Derek Reisfield (Director) (6)   60,564    * 
Randall P. Seidl (Director) (7)   2,500    * 
Richard H. Silverman (Director) (8)   55,564    * 
Jaspreet Sood (Director) (9)   2,500    * 
All Officers & Directors as a Group (8 persons) (10)   3,038,010    [●] %
Name and Address of Stockholders          
Energy Capital, LLC(11)   5,796,455    [●] %

 

* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, we believe that all shares are beneficially owned and that all persons named in the table have sole voting and investment power with respect to all shares of common stock owned by them. Applicable percentage of ownership is based on [34,032,040] shares of common stock currently outstanding, as adjusted for each stockholder.
(2) Mr. Brock exercises sole voting and dispositive power over the 1,891,206 shares of common stock and 66,667 shares of common stock issuable upon exercise of Warrants. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Brock exercised the Warrants within sixty days of [●].
(3) Mr. Kantor exercises sole voting and dispositive over the 908,445 shares of common stock. The percentage beneficially owned is based on [●] shares.
(4) Mr. Bushey was granted the right to receive 1,000,000 RSUs. At the time of Mr. Bushey’s resignation as President, Mr. Bushey had the right to receive 500,000 RSUs (375,000 vested as of December 31, 2020 and 125,000 of which the Compensation Committee accelerated vesting), which will be issued on June 3, 2022 pursuant to Mr. Bushey’s deferral election.
(5) Mr. Cohen exercises sole voting and dispositive power over 24,314 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option and 1,250 shares of common stock issuable upon the vesting ofRSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Cohen exercised the option and RSUs were issued within sixty days of [●], 2021.
(6) Mr. Reisfield exercises sole voting and dispositive power over 29,314 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option and 1,250 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Reisfield exercised the option and the vested RSUs were issued within sixty days of [●], 2021.
(7) Mr. Seidl exercises sole voting and dispositive power over 2,500 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if the vested RSUs were issued within sixty days of [●], 2021.
(8) Mr. Silverman exercises sole voting and dispositive power over 24,314 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option and 1,250 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Silverman exercised the option and the vested RSUs were issued within sixty days of [●], 2021.
(9) Ms. Sood exercises sole voting and dispositive power over 2,500 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if the vested RSUs were issued within sixty days of [●], 2021.
(10) The percentage beneficially owned is based on [●] shares which would be outstanding if all of the above described options and warrants were exercised and the vested RSUs were issued within sixty days of [●], 2021.
(11) The address for Energy Capital, LLC (“Energy Capital”) is 13650 Fiddlesticks Blvd., Suite 202-324, Ft. Myers, FL 33912. Robert J. Smith is the sole owner of Energy Capital and exercises sole voting and dispositive power over the 5,092,248 shares of common stock and 704,207 shares of common stock issuable upon exercise of Warrants. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Smith exercised the Warrants owned by Energy Capital within sixty days of [●], 2021.

 

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Security Ownership of the Company after the Transaction

 

The following table sets forth information with respect to the beneficial ownership of our common stock after consummating the Transaction by each person expected to serve as an executive officer or director of the combined company, all such executive officers and directors as a group, and each person expected to own more than 5% of our common stock. For this table, we assume 6,750,000 shares of common stock will be issued in connection with the Transaction.

 

Name and Address of Officer and Directors  Amount and Nature of Beneficial Ownership (1)   Percent of
Class
 
Eric A. Brock (Chairman of the Board and Chief Executive Officer) (2)   1,957,873    [●]%  
Stewart W. Kantor (Director, President, Chief Financial Officer, Treas. and Sec.) (3)   908,445    [●]%
Thomas V. Bushey (Director) (4)   -    * 
Richard M. Cohen (Director) (5)   55,564    * 
Derek Reisfield (Director) (6)   60,564    * 
Randall P. Seidl (Director) (7)   2,500    * 
Richard H. Silverman (Director) (8)   55,564    * 
Jaspreet Sood (Director) (9)   2,500    * 
All Officers & Directors as a Group (8 persons) (10)   3,038,010    [●]%
Name and Address of Stockholders          
Energy Capital, LLC(11)   5,796,455    [●]%

 

* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted, we believe that all shares are beneficially owned and that all persons named in the table have sole voting and investment power with respect to all shares of common stock owned by them. Applicable percentage of ownership is based on [40,782,040] shares of common stock currently outstanding, as adjusted for each stockholder.
(2) Mr. Brock exercises sole voting and dispositive power over the 1,891,206 shares of common stock and 66,667 shares of common stock issuable upon exercise of Warrants. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Brock exercised the Warrants within sixty days of [●], 2021.
(3) Mr. Kantor exercises sole voting and dispositive over the 908,445 shares of common stock. The percentage beneficially owned is based on [●] shares.
(4) Mr. Bushey was granted the right to receive 1,000,000 RSUs. At the time of Mr. Bushey’s resignation as President, Mr. Bushey had the right to receive 500,000 RSUs (375,000 vested as of December 31, 2020 and 125,000 of which the Compensation Committee accelerated vesting), which will be issued on June 3, 2022 pursuant to Mr. Bushey’s deferral election.
(5) Mr. Cohen exercises sole voting and dispositive power over 24,314 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option and 1,250 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Cohen exercised the option and RSUs were issued within sixty days of [●], 2021.
(6) Mr. Reisfield exercises sole voting and dispositive power over 29,314 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option and 1,250 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Reisfield exercised the option and the vested RSUs were issued within sixty days of [●].
(7) Mr. Seidl exercises sole voting and dispositive power over 2,500 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if the vested RSUs were issued within sixty days of [●], 2021.
(8) Mr. Silverman exercises sole voting and dispositive power over 24,314 shares of common stock, 30,000 shares of common stock issuable upon exercise of an option and 1,250 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Silverman exercised the option and the vested RSUs were issued within sixty days of [●], 2021.
(9) Ms. Sood exercises sole voting and dispositive power over 2,500 shares of common stock issuable upon the vesting of RSUs. The percentage beneficially owned is based on [●] shares which would be outstanding if the vested RSUs were issued within sixty days of [●], 2021.
(10) The percentage beneficially owned is based on [●] shares which would be outstanding if all of the above described options and warrants were exercised and the vested RSUs were issued within sixty days of [●], 2021.
(11) The address for Energy Capital is 13650 Fiddlesticks Blvd., Suite 202-324, Ft. Myers, FL 33912. Robert J. Smith is the sole owner of Energy Capital and exercises sole voting and dispositive power over the 5,092,248 shares of common stock and 704,207 shares of common stock issuable upon exercise of Warrants. The percentage beneficially owned is based on [●] shares which would be outstanding if Mr. Smith exercised the Warrants owned by Energy Capital within sixty days of [●], 2021.

 

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Executive Officers and Board of Directors Before and After the Transaction

 

The following table sets forth information on our executive officers and directors before and after the Transaction.

 

Name   Age   Position
Eric A. Brock   51   Chairman and Chief Executive Officer
Stewart W. Kantor   58   Director, President, Chief Financial Officer, Treasurer and Secretary
Thomas V. Bushey   41   Director
Richard M. Cohen   70   Director
Derek Reisfield   58   Director
Randall P. Seidl   57   Director
Richard H. Silverman   81   Director
Jaspreet Sood   48   Director

 

Federal Securities Laws Consequences; Stock Transfer Restriction Agreements

 

All shares of Ondas common stock that holders of interests in American Robotics receive in the Transaction will be issued pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the “Securities Act”) and as such will be deemed restricted securities as that term is understood under the Securities Act. Moreover, certain American Robotics equity holders will be subject to a 180-day contractual lock-up to be entered into in connection with consummating the Mergers. Ondas has agreed to file a registration statement on Form S-3 providing for the resale of shares issued in the transaction, including the shares of Ondas common stock underlying the Warrants, which registration statement is required to be effective within 90 days after the Closing Date, subject to SEC comment.

 

Dissenters’ Rights for Ondas Stockholders

 

Ondas stockholders have no dissenters’ rights in the Transaction.

 

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS

 

There will be no U.S. federal income tax consequences to holders of Ondas common stock as a result of the Mergers.

 

REGULATORY MATTERS

  

Pursuant to the Merger Agreement, in the event Ondas does not qualify as a Citizen of the U.S. as defined in 49 U.S.C. 40102 (a)(15) (as determined after the Mergers), Ondas will be required to apply for and receive a U.S. Department of Transportation Foreign Civil Aircraft Permit or Special Authorization under Title 14 C.F.R. Part 375 related to American Robotics’ UAS operations.  Ondas believes it currently qualifies and will qualify as of the closing of the Transaction as a Citizen of the U.S. as defined in 49 U.S.C. 40102 (a)(15) and, as a result, Ondas believes the Requisite Regulatory Approval is not required in connection with the Mergers. 

 

AMERICAN ROBOTICS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

The following discussion and analysis provide information which management believes to be relevant to an assessment and understanding of the results of operations and financial condition of American Robotics for fiscal year 2020 compared to fiscal year 2019 and for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

 

Overview

 

American Robotics is a commercial developer of highly automated drone systems, providing ultra-high resolution aerial data to enterprise customers. Through innovations in robot autonomy, machine vision, edge computing and AI, American Robotics has created the next generation of drone technology: a highly automated robotic data platform capable of continuous, unattended operation. As a result, American Robotics provides enterprise customers with the ability to continuously digitize, monitor and analyze their assets in near real-time.

 

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The American Robotics Scout System™ has been designed from the ground up as an end-to-end product capable of continuous attended operations in the real world. Powered by innovations in robotics automation, machine vision, edge computing, and AI, the Scout system provides unprecedented efficiencies as a drone solution for commercial use. The Scout System™ consists of (1) a highly automated drone with advanced imaging payloads, Scout (2) a ruggedized base station for housing, charging, data processing, and cloud transfer, ScoutBase, and (3) American Robotics’ analytics and user interface software package, ScoutView, as well as a host of supporting technologies that connect these major subsystems. Once installed in the field at customer locations, a fleet of connected, weatherproof Scouts remain indefinitely in an area of operation, automatically collecting data each day, self-charging, and seamlessly delivering data analysis regularly and reliably.

 

With no human intervention required to operate the Scout System™in the field and the incorporation of power edge computing into the Scout System™, the result is a 10x+ reduction in data acquisition costs for American Robotics’ customers. Unlike traditional drone technology, Scout System™live in the field for many years, performing multiple missions per day without physical human interaction. The result of this automation, as well as the edge computing power that lives within each base station, is the ability to capture data at resolutions, frequencies, and speeds never before feasible. This ability, in turn, allows users to extract actionable information in a manner that is reliable, repeatable, and scalable.

 

The advanced and high automation incorporated into the Scout drone technology enables the implementation of a Robot-as-a-Service (RaaS) business model wherein American Robotics’ customer are not required to make expensive capital investments in robotics or drone hardware, and instead can obtain the data collected by the Scout drone systems via a subscription service. This enables American Robotics to realize high profitability margins on the drone hardware that the company retains ownership of, and operates on behalf of these customers. Customers are also guaranteed access to the latest hardware and software features as American Robotics develops and rolls these features out.

 

American Robotics sells its products and services nationally through a direct sales force to large enterprises that operate in the agriculture, industrial and critical infrastructure verticals that include major rail operators, electric and gas utilities, oil and gas producers, large agricultural input manufacturers, large agricultural coops, and for other critical infrastructure applications in areas such as homeland security and defense, and transportation. American Robotics’ business consists of a single segment of services, all of which are sold and provided in the United States.

 

American Robotics has incurred significant net losses since inception, and expects to continue incurring substantial losses for the next several years as the company continues to develop, manufacture and market their technologies. American Robotics’ operating expenses are comprised of research and development expenses, general and administrative expenses, and sales and marketing expenses.

 

American Robotics’ future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing of the company’s technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, the company’s ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes and overall economic conditions in target markets.

 

Regulatory Approvals

 

During 2019, American Robotics filed several applications for regulatory approvals of the Scout System™. These included applications for Certifications, and waivers from several regulations in Title 14 C.F.R. Part 107 to allow the operational, research and development, and commercial use of American Robotics’ technology.

 

In January 2020, several American Robotics staff members along with multiple Scout System™ spent three weeks at a partner’s test facility in Southern Nevada to test, document, and demonstrate the capabilities of American Robotics’ technology to observers including those from the FAA. This test campaign culminated in the FAA issuing a Special Airworthiness Certificate, in February 2020, to the Scout System™ that allowed for operation of up to three systems simultaneously by a single pilot located in Boston. The scout drones would be monitored by visual observers while in flight.

 

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In parallel to this effort, the FAA also granted American Robotics a waiver to Title 14 C.F.R. §107.31 that allowed for the use of American Robotics’ unique acoustics-based aircraft detect and avoid sensor in conjunction with the Scout System™ to allow BVLOS UAS flight operations. In this operational modality approved by the FAA, the UAS pilot, who is co-located with the Scout base station is allowed to operate the Scout System™ to a distance of 2 miles which would be beyond the line of sight of the pilot in any direction.

 

In January 2021, the FAA granted American Robotics the first and currently one of its kind approval to allow operations of the Scout System™ remotely, with no humans present at the operational locations. The approval consists of a unique combination of waivers and exemptions to certain Federal Aviation Regulations governing the operation of UAS in the National Airspace System (NAS). This approval is not only a validation of American Robotics’ technology and regulatory approach to the safe integration of UAS, but also provides the company with a strong and durable first-mover advantage to operate automated drone systems in the commercial markets, which the company believes is a requirement for over 90% of all commercial drone applications. This gives American Robotics a competitive advantage over other players in the commercial drone industry and allows the company to start engaging with large industrial enterprises to establish a beachhead as a trusted service provider to these enterprises.

 

American Robotics expects an increase in sales as a result of the grant of approval by the FAA, and the subsequent heightened interest from enterprise customers.

 

Financing Activity

 

In 2020, American Robotics issued convertible notes and sold common stock to existing investors and a small group of new investors to raise additional capital in the aggregate amount of $2.35 million, of which the convertible notes in the aggregate amount of $850,000 bear interest at 6% per annum. The capital raised will be used to fund American Robotics’ operations including research and development, additional support for regulatory matters, increased sales and marketing efforts, and to support the continued growth and expansion of American Robotics’ business and operations. Unless converted, these notes will automatically mature and be fully payable, including accrued interest, on dates ranging from January 31, 2023 to December 18, 2023.

 

During the three months ended March 31, 2021, American Robotics issued additional convertible notes in the aggregate amount of $250,000 bearing interest at 6% per annum and which mature on the same terms as described in the preceding paragraph. As of March 31, 2021, the convertible notes payable balance, inclusive of all convertible notes issued in 2021 and previous periods, consisted of principal outstanding of $2,725,000 and accrued interest of $212,999.

 

COVID-19

 

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified in Wuhan, China, and has subsequently spread to other regions of the world, and has resulted in increased travel restrictions, business disruptions and emergency quarantine measures across the world including the United States.

 

American Robotics’ business, financial condition and results of operations were impacted from the COVID-19 pandemic significantly in 2020 and during the three months ended March 31, 2021:

 

Sales and marketing efforts were disrupted as American Robotics’ business development and sales team was unable to travel to visit customers and customers were unable to receive visitors for on-location meetings.
Field activity for testing and deploying American Robotics’ drone systems was delayed due to the inability of American Robotics’ staff to install and test equipment for customers.
Hiring of required staff was affected because of laws, regulations and public health measures relating to COVID-19.

 

In the first quarter of 2020, American Robotics reduced its business activity to critical operations only, and all employees were asked to work from home until the public health situation improves. Per orders issued by the Commonwealth of Massachusetts, American Robotics’ corporate offices and facilities were closed, except for functions related to the support of remote workers. All sales activities were curtailed, and customer engagements, where possible, were deferred. As most of the customers American Robotics was engaged with in 2020 were in the agriculture vertical, this meant that these customer engagements would be deferred to 2021 because of the seasonality of agriculture.

 

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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other things contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. American Robotics applied for, and received, funds under the Economic Injury Disaster Loan and Paycheck Protection Program (PPP) in the amount of $257,029. The application for these funds requires American Robotics to, in good faith, certify that the current economic uncertainty made the loan request necessary to support operations of the company. This certification further requires American Robotics to consider its current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business.

 

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) was enacted which included provisions for a second round of the PPP. In January 2021, American Robotics applied for, and in February 2021 received, funds under the second round of the PPP in the amount of $235,846.37. The application for these funds requires American Robotics to, in good faith, certify that the current economic uncertainty made the loan request necessary to support operations of the company. This certification further requires the company to consider its current business activity and ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan related to these funds, is dependent on the company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria. American Robotics is in discussion with the lender regarding the forgiveness of this second round PPP loan. However, no determination related to the forgiveness of this loan has been made as of the date of this proxy statement.

 

During 2020, in response to COVID-19, and the associated restrictions on personnel, management decided to continue the furlough and reduction in hours of certain employees who were expected to be brought back to full employment in April 2020. This continuation of reduced hours and furlough extended through 2020 and into the first quarter of 2021. Management also decided to freeze all plans for additional hiring, and expansion of manufacturing additional Scout systems. Engineering resources were diverted towards increasing manufacturability of American Robotics’ technology, and in support of obtaining regulatory approvals. It was also decided that only one customer engagement, local to Boston, would be executed, and manned by American Robotics staff with appropriate health precautions and in full-compliance of all public health orders. Sales and business development resources were diverted towards expanding American Robotics’ engagement with enterprises in the industrial sector, as it is expected that this vertical would be a revenue and sales driver once the regulatory approvals for American Robotics’ technology materialize. Limited engagements with large electric utilities, oil and gas majors, and chemical industry majors have been highly encouraging, and it is expected that these would turn into revenue-generating engagements as soon as the regulatory approvals sought by American Robotics are granted.

 

In May 2021, subsequent to the three months ended March 31, 2021, one of American Robotics’ two PPP loans outstanding as of such time had been forgiven, representing an aggregate amount of $249,732.60 in principal and interest.

 

American Robotics expects its business, financial condition and results of operations will be impacted from the COVID-19 pandemic during 2021, primarily due to the slowdown of customer activity during 2020 and 2021. Further, the COVID-19 pandemic is ongoing and remains an unknown risk for the foreseeable future. The extent to which the coronavirus may impact American Robotics’ business will depend on future developments, which are highly uncertain and cannot be predicted. As a result, the company is unable to reasonably estimate the full extent of the impact from the COVID-19 pandemic on its future business, financial condition and results of operations. In addition, if the company were to experience any new impact to its operations or incur additional unanticipated costs and expenses as a result of the COVID-19 pandemic, such operational delays and unanticipated costs and expenses there could be a further adverse impact on the company’s business, financial condition and results of operations during 2020 and 2021.

 

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Key Components of American Robotics’ Results of Operations and Financial Condition

 

Revenues

 

American Robotics’ revenues are derived principally from the sale of services using the American Robotics Scout System™. Due to the ongoing development and commercialization process, as well as the ongoing regulatory approval processes for the Scout System™, the company’s revenues have historically been generated by pilot programs, short-term proof of concept tests, and related services. American Robotics, historically, had limited sales and customer service resources to support higher sales volumes. In 2020 and 2019, the company expanded its sales and business development effort into the industrial verticals which dramatically increased American Robotics’ sales pipeline and the number of customers and projects being targeted. American Robotics expects this increased customer engagement to lead to a larger number of sales opportunities and revenue in 2021 and beyond, following regulatory approvals of American Robotics’ technology.

 

Cost of Sales

 

American Robotics’ cost of sales consists primarily of the cost of components included in the American Robotics Scout System™ and other costs associated with the delivery, installation and deployment thereof. American Robotics expects its investment in expanding customer sales and service efforts to lead to increased volume of Scout System™ sales in future periods, which will lead to higher costs of sales. Higher unit sales volume will, in turn, provide scale manufacturing opportunities which could lead to a decline in the cost of sales as a percentage of revenue in future periods.

 

General and Administration

 

General and administration expenses primarily include salary and benefit expenses, legal and accounting services, professional services, rent and facilities costs, general liability insurances, and travel expenses. American Robotics expects these expenses to increase as a result of continued growth in headcount and support of its business and operations in 2021 and beyond.

 

Sales and Marketing

 

Sales and marketing expenses primarily include salary and benefit expenses, trade shows, marketing programs and promotional material, travel expenses, and the allocation of certain facility costs. American Robotics expects these expenses to increase as a result of continued growth in headcount and support of the company’s business and operations.

 

Research and Development

 

Research and development expenses primarily include salary and benefit expenses and costs for contractors engaged in research, design and development activities including intellectual property, travel expenses, and the allocation of certain facility costs. American Robotics expects its research and development costs to increase as the company continues to invest in developing its products in addition to new software and analytics features that may be customer- and industry- dependent.

 

Other Income (Expense)

 

Other income (expense) primarily includes interest expense and grant income.

 

Results of Operations

 

Three months ended March 31, 2021 compared to three months ended March 31, 2020

 

   Three months ended     
   March 31, 2021   March 31, 2020   Increase / (Decrease) 
Revenue   50,000    -    50,000 
Cost of Sales   -    -    - 
Gross Profit   50,000    -    50,000 
Operating expenses:               
General and administrative   617,291    582,539    34,752 
Sales and marketing   10,659    119,585    (108,926)
Research and development   145,114    2,816    142,298 
Total operating expense   773,064    704,940    68,124 
Operating loss   (723,064)   (704,940)   (18,124)
Other income (expense)   195,264    (29,234)   224,498 
Net loss   (527,800)   (734,174)   206,374 

 

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Revenues and Gross Profit

 

The revenue realized and the gross profit for the three months ended March 31, 2021 increased by $50,000 compared to the same period in 2020 as a result of an increase in customer sales activity.

 

Operating expenses

 

American Robotics’ principal operating costs include the following items as a percentage of total expense.

 

Operating Expenses  Three months ended 
   March 31, 2021   March 31, 2020 
Human resource costs, including benefits   36.6%   46.5%
Travel and entertainment   0.4%   1.9%
Other general and administration costs:          
Professional fees and consulting expenses   11.5%   9.9%
Other expense   30.8%   23.9%
Depreciation and amortization   0.5%   0.5%
Other research and deployment costs, excluding human resources and travel and entertainment   18.8%   0.4%
Other sales and marketing costs, excluding human resources and travel and entertainment   1.4%   17.0%

 

Operating expenses increased by $68,124 as a result of the following items:

 

Operating expense increase    
     
Human resource costs, including benefits   (44,416)
Travel and entertainment   (9,776)
Other general and administration costs:     
Professional fees and consulting expenses   19,449 
Other expense   69,494 
Depreciation and amortization   - 
Other research and development costs, excluding human resources and travel and entertainment   142,298 
Other sales and marketing costs, excluding human resources and travel and entertainment   (108,926)
    68,124 

 

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The increase in operating expense was primarily a result of the higher expense under the Other research and development costs that includes payments to technology partners and vendors of technology used in the company’s products and services.

 

Operating Loss

 

Primarily as a result of the foregoing increase in operating expense, American Robotics’ operating loss increased by $18,124, to $723,064 for the three months ended March 31, 2021 compared to $704,940 for the three months ended March 31, 2020.

 

Other Income (Expense), net

 

Other income (expense), net increased by $224,498, to $195,264 for the three months ended March 31, 2021, compared with $(29,234) for the three months ended March 31, 2020. During the three months ended March 31, 2021, compared to the same period in 2020, American Robotics recognized additional grant income that is reflected in Other Income (Expense), net.

 

Net Loss

 

As a result of the net effects of the foregoing items, net loss decreased by $206,374, to $527,800 for the three months ended March 31, 2021, compared with $734,174 for the three months ended March 31, 2020.

 

Liquidity and Capital Resources

 

As of March 31, 2021, American Robotics believes that its cash and cash equivalents together with its accounts receivable would not provide the company sufficient liquidity, as a stand-alone business, to satisfy its obligations for the following 12 months or subsequent periods, but expects to meet its liquidity needs through the consummation of the Transaction or, in the event the Transaction is not consummated, by increasing sales as well as reducing costs as needed, and through alternative strategic or financing transactions. Subject to the consummation of the Transaction, American Robotics’ future capital requirements will depend on many factors, including its rate of revenue growth, the rate of expansion of its workforce, the timing and extent of its expansion into new markets, the timing of introductions of new functionality and enhancements to its solutions, potential acquisitions of complementary businesses and technologies, continuing market acceptance of its solutions, and general economic and market conditions.

 

American Robotics’ principal sources of liquidity consisted of cash and cash equivalents of $725,483 as of March  31, 2021, as compared to $938,227 as of March  31, 2020, and net cash provided by financing activities of $250,000 during the three months ended March 31, 2021, as compared to $800,000 during the three months ended March  31, 2020. Additional information regarding American Robotics’ sources of liquidity and capital commitments for the period ended March 31, 2021 and the year ended December 31, 2020 is set forth under “—Sources and (Uses) of Cash” and “—Year ended December 31, 2020 compared to year ended December 31, 2019—Sources and (Uses) of Cash,” respectively.

 

Sources and (Uses) of Cash

 

   Three months ended 
   March 31, 2021   March 31, 2020 
Net cash used in operating activities   (490,807)   (709,367)
Net cash used in investing activities   (90,000)   (6,770)
Net cash provided by financing activities   250,000    800,000 
Increase in cash   (330,807)   83,863 
Cash and cash equivalents, beginning of period   1,056,290    854,364 
Cash and cash equivalents, end of period   725,483    938,227 

 

The principal use of cash in operating activities for the three months ended March 31, 2021 was to fund American Robotics’ current expenses primarily related to both sales and marketing and research and development activities necessary to allow the company to leverage its FAA approval to service and support customers. The net cash provided by financing activities of $250,000 was due to the issuance of the convertible notes in the three months ended March 31, 2021.

 

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Year ended December 31, 2020 compared to year ended December 31, 2019

 

   Year ended 
   December 31, 2020   December 31, 2019   Increase / (Decrease) 
Revenue   8,100    -    8,100 
Cost of Sales   -    -    - 
Gross Profit   8,100    -    8,100 
Operating expenses:               
General and administrative   1,916,171    2,027,530    (111,359)
Sales and marketing   126,862    210,536    (83,674)
Research and development   544,537    1,657,762    (1,113,225)
Total operating expense   2,587,570    3,895,828    (1,308,258)
Operating loss   (2,579,470)   (3,895,828)   1,316,358 
Other income (expense)   131,818    (23,759)   155,577 
Net loss   (2,447,652)   (3,919,587)   1,471,935 

 

Operating expenses

 

American Robotics’ principal operating costs include the following items as a percentage of total expense.

 

Operating Expenses  Year ended 
   December 31, 2020   December 31, 2019 
Human resource costs, including benefits   42%   34%
Travel and entertainment   1%   5%
Other general and administration costs:          
Professional fees and consulting expenses   7%   0%
Other expense   24%   13%
Depreciation and amortization   1%   0%
Other research and deployment costs, excluding human resources and travel and entertainment   21%   43%
Other sales and marketing costs, excluding human resources and travel and entertainment   5%   5%

 

Operating expenses in 2020 decreased by $1,308,258 compared to 2019 as a result of the following items:

 

Operating expense decrease    
     
   Numbers in thousands 
Human resource costs, including benefits   (255,035)
Travel and entertainment   (153,840)
Other general and administration costs:   - 
Professional fees and consulting expenses   174,322 
Other expense   121,855 
Depreciation and amortization   1,339 
Other research and development costs, excluding human resources and travel and entertainment   (1,113,225)
Other sales and marketing costs, excluding human resources and travel and entertainment   (83,674)
    (1,308,258)

 

52

 

 

The decrease in operating expense was primarily a result of the lower expense under the Other research and development costs that includes funds spent on prototyping, field testing of systems and subsystems, payments to technology partners and vendors of technology used in the company’s products and services. Additionally, human resource costs were also lower because of extended furloughs, and a freeze in hiring in 2020. Similarly, sales and marketing costs were also lower in 2020 as a result of COVID-19-related restrictions.

 

Operating Loss

 

Primarily as a result of the decrease in operating expenses, American Robotics’ operating loss decreased by $1,316,358, to $2,579,470 for the year ended December 31, 2020, compared with $3,895,828 for the year ended December 31, 2019.

 

Other Income (Expense), net

 

   Year ended     
   December 31, 2020   December 31, 2019   Increase / (Decrease) 
Interest Expense   (125,236)   (47,338)   (77,898)
Grant Income   257,029    -    257,029 
Interest and other income   25    23,579    (23,554)
    131,818    (23,759)   155,577 

 

Other income (expense), net increased by $155,577, to $131,818 for the year ended December 31, 2020, compared with $(23,759) for the year ended December 31, 2020. In 2020, American Robotics recognized additional grant income that is reflected in Other Income (Expense), net.

 

Net Loss

 

As a result of the net effects of the foregoing items, net loss decreased by $1,471,935 to $2,447,652 for the year ended December 31, 2020 compared to $3,919,587 for the year ended December 31, 2019.

 

53

 

 

Sources and (Uses) of Cash

 

   Year ended 
   December 31, 2020   December 31, 2019 
Net cash used in operating activities   (2,162,222)   (3,504,243)
Net cash used in investing activities   14,148    12,809 
Net cash provided by financing activities   2,350,000    4,225,020 
Increase in cash   201,926    733,586 
Cash and cash equivalents, beginning of year   854,364    120,778 
Cash and cash equivalents, end of year   1,056,290    854,364 

 

The principal use of cash in operating activities for the year ended December 31, 2020 was to fund American Robotics’ current expenses primarily related to research and development and sales and marketing activities necessary to allow the company to service and support a higher level of business as it expanded into new industry segments. The decrease in cash flow used in operation activities is primarily a result of reduction of personnel, both employees and third-party consulting services, and a reduction in research and development activities. The decrease in net cash provided by financing activities in 2020 compared to 2019 was due to a reduction in the issuance of convertible notes and common stock in 2020 compared to 2019.

 

Vote Required

 

The affirmative vote of a majority of the votes cast at the special meeting is required to approve the Stock Issuance Proposal.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE STOCK ISSUANCE PROPOSAL

 

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PROPOSAL 2: THE ADJOURNMENT PROPOSAL

 

The Adjournment Proposal allows the Board to submit a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event, based on the tabulated votes, there are not sufficient votes at the time of the special meeting to approve the Stock Issuance Proposal. In no event will Ondas solicit proxies to adjourn the special meeting or consummate the Transaction beyond the date by which it may properly do so under Nevada law. The purpose of the Adjournment Proposal is to provide more time for Ondas to solicit proxies in favor of the Stock Issuance Proposal.

 

In addition to an adjournment of the special meeting upon approval of an Adjournment Proposal, the Board is empowered under Nevada law to postpone the meeting at any time before the special meeting is called to order. In such event, Ondas will issue a press release and take such other steps as it believes are necessary and practical in the circumstances to inform its stockholders of the postponement.

 

Consequences if the Adjournment Proposal is not Approved

 

If the Adjournment Proposal is presented at the special meeting and such proposal is not approved by stockholders, the Board may not be able to adjourn the special meeting to a later date in the event, based on the tabulated votes, there are not sufficient votes at the time of the special meeting to approve the consummation of the Mergers and the proposal relating thereto.

 

Vote Required

 

The affirmative vote of a majority of the votes cast at the special meeting by the holders of our common stock is required to approve the Adjournment Proposal.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THE ADJOURNMENT PROPOSAL

 

55

 

 

THE SPECIAL MEETING

 

The Board is using this proxy statement to solicit proxies from stockholders of Ondas who hold shares of Ondas common stock on the Record Date for use at the Ondas special meeting. Ondas is first mailing this proxy statement and accompanying form of proxy to Ondas stockholders on or about [●], 2021.

 

Date, Time, and Place

 

The Ondas special meeting will be held on [●] at [●] Eastern time, at [●].

 

Purpose of the Ondas Special Meeting

 

At the Ondas special meeting, Ondas stockholders will be asked to consider and vote upon the following proposals:

 

1.Approval of Stock Issuance Proposal – a proposal to approve the issuance of shares of Ondas common stock, including shares of common stock underlying the Warrants, in connection with the Mergers; and

 

2.Adjournment Proposal – a proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposal.

 

Board Recommendations

 

The Board has approved the Mergers and related transactions, the Merger Agreement and the other agreements relating to the Mergers and related transactions, and determined that the Mergers and related transactions, the Merger Agreement and the other agreements relating to the Mergers and related transactions, are advisable and in the best interests of Ondas and its stockholders. The Board unanimously recommends that Ondas stockholders vote:

 

“FOR” the Stock Issuance Proposal; and

 

“FOR” the Adjournment Proposal.

 

Record Date; Shares Entitled to Vote

 

Ondas has fixed the close of business on [●], 2021 as the record date for determining the Ondas stockholders entitled to receive notice of and to vote at the Ondas special meeting. Only holders of record of Ondas common stock on the Record Date are entitled to receive notice of and vote at the Ondas special meeting, and any adjournment or postponement thereof.

 

Each share of Ondas common stock is entitled to one vote on each matter brought before the meeting. On the Record Date, there were approximately [34,032,040] shares of common stock issued and outstanding.

 

Quorum Requirement

 

Under Nevada law and the Ondas bylaws, a quorum of Ondas stockholders at the special meeting is necessary to transact business at the special meeting of the Ondas stockholders. The presence of holders representing a majority of the shares of stock, issued and outstanding and entitled to vote at the special meeting, in person or represented by proxy, will constitute a quorum for the transaction of business at the Ondas special meeting.

 

All shares of Ondas common stock represented in person or by proxy at the Ondas special meeting, including abstentions, will be treated as present for purposes of determining the presence or absence of a quorum at the Ondas special meeting.

 

Abstentions

 

Any of your shares that are not voted or as to which you abstain are not “votes cast” and will have no effect on the vote for the Stock Issuance Proposal or the Adjournment Proposal.

 

Broker Non-Votes

 

Your broker is not permitted to vote on the Stock Issuance Proposal and the Adjournment Proposal unless you provide your broker with voting instructions on such proposal. You should instruct your broker to vote your shares by following the directions your broker provides you. Please review the voting information form used by your broker to see if you can submit your voting instructions by telephone or Internet.

 

56

 

 

A broker non-vote will have no effect on the Stock Issuance Proposal and the Adjournment Proposal.

 

Stock Ownership of Ondas Directors and Executive Officers

 

On the Record Date, directors and executive officers of Ondas and their respective affiliates beneficially owned and were entitled to vote approximately [●] shares of Ondas common stock. These shares represent approximately [●]% of the shares of Ondas common stock outstanding on the Record Date.

 

Votes Required to Approve Proposals

 

Approval of the proposals to be considered at the Ondas special meeting requires the vote thresholds described below. You may vote for or against either or both of the proposals submitted at the Ondas special meeting or you may abstain from voting.

 

Required Vote for Approval of the Stock Issuance Proposal (Proposal 1)

 

Approval of the Stock Issuance Proposal requires the affirmative vote of a majority of the votes cast at the special meeting. Consequently, an abstention from voting or a broker non-vote will have no effect on the outcome of the vote for Proposal 1.

 

Required Vote for Adjournment Proposal (Proposal 2)

 

Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast at the special meeting. An abstention from voting or a broker non-vote will have no effect on the outcome of the vote for Proposal 2.

 

Approval of the Stock Issuance Proposal by the requisite vote of the Ondas stockholders is required to complete the Transaction.

 

Submission of Proxies

 

By Mail

 

A proxy card is enclosed for your use. To submit your proxy by mail, Ondas asks that you sign and date the accompanying proxy and, if you are a stockholder of record, return it as soon as possible in the enclosed postage-paid envelope or pursuant to the instructions set out in the proxy card. If you are a beneficial owner, please refer to your proxy card or the information provided to you by your bank, broker, custodian or record holder. When the accompanying proxy is returned properly executed, the shares of Ondas common stock represented by it will be voted at the special meeting in accordance with the instructions contained in the proxy.

 

If proxies are returned properly executed without indication as to how to vote, the Ondas common stock represented by each such proxy will be voted as follows: (1) “FOR” the Stock Issuance Proposal and (2) “FOR” the Adjournment Proposal.

 

Your vote is important. Accordingly, please sign, date and return the enclosed proxy card whether or not you plan to attend the Ondas special meeting in person.

 

57

 

 

By Telephone

 

If you are a stockholder of record, you may also submit your proxy by telephone by dialing the toll-free telephone number on your proxy card and providing the unique control number indicated on the enclosed proxy card. Telephone proxy submission is available 24 hours a day and will be accessible until [●] Eastern time on [●], 2021. Easy-to-follow voice prompts allow you to submit your proxy and confirm that your instructions have been properly recorded. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian or record holder for information on telephone proxy submission. If you are located outside the United States, Canada and Puerto Rico, see your proxy card or other materials for additional instructions. If you submit your proxy by telephone, you do not need to return your proxy card. If you hold shares through a broker or other custodian, please check the voting form used by that firm to see if it offers telephone proxy submission.

 

By Internet

 

If you are a stockholder of record, you may also choose to submit your proxy on the Internet. The website for Internet proxy submission and the unique control number you will be required to provide are on the proxy card. Internet proxy submission is available 24 hours a day and will be accessible until [●] Eastern time on [●], 2021. If you are a beneficial owner, please refer to your proxy card or the information provided by your bank, broker, custodian or record holder for information on Internet proxy submission. As with telephone proxy submission, you will be given the opportunity to confirm that your instructions have been properly recorded. If you submit your proxy on the Internet, you do not need to return your proxy card. If you hold shares through a broker or other custodian, please check the voting form used by that firm to see if it offers Internet proxy submission.

 

Voting In Person

 

If you wish to vote in person at the special meeting, a ballot will be provided at the special meeting. However, if your shares are held in the name of your bank, broker, custodian or other record holder, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the meeting.

 

Revocation of Proxies

 

You have the power to revoke your proxy at any time before your shares are voted at the special meeting. If you grant a proxy in respect of your Ondas shares and then attend the special meeting in person, your attendance at the special meeting or at any adjournment or postponement of the special meeting will not automatically revoke your proxy. Your proxy can be revoked in one of four ways:

 

you can send a signed notice of revocation of proxy;

 

you can grant a new, valid proxy bearing a later date (including, if applicable, a proxy by telephone or through the Internet);

 

you can revoke the proxy in accordance with the telephone or Internet proxy submission procedures described in the proxy voting instructions attached to the proxy card; or

 

if you are a holder of record, you can attend the special meeting (or, if the special meeting is adjourned or postponed attend the adjourned or postponed meeting) and vote in person, which will

 

automatically cancel any proxy previously given, but your attendance alone will not revoke any proxy that you have previously given.

 

If you choose either of the first two methods to revoke your proxy, you must submit your notice of revocation or new proxy to Ondas’s Corporate Secretary so that it is received no later than the beginning of the special meeting or, if the special meeting is adjourned or postponed, before the adjourned or postponed meeting is actually held.

 

If your shares are held in the name of a broker or nominee, you may change your vote by submitting new voting instructions to your broker or nominee. If you need assistance in changing or revoking your proxy, please contact your broker or nominee.

 

Solicitation of Proxies

 

This solicitation is made on behalf of the Board and Ondas will pay the costs of soliciting and obtaining proxies, including the cost of reimbursing banks and brokers for forwarding proxy materials to their principals. Proxies may be solicited, without extra compensation, by Ondas’ officers and employees by mail, telephone, fax, personal interviews or other methods of communication. [Ondas has engaged [●] to assist it in the distribution and solicitation of proxies at a fee of $[●], plus expenses. Ondas will also reimburse brokers and other custodians, nominees and fiduciaries for their expenses in sending these materials to you and getting your voting instructions.]

 

58

 

 

AUDITORS, TRANSFER AGENT AND REGISTRAR

 

The independent registered public accounting firm that audits the Company’s financial statements is Rosenberg Rich Baker Berman, P.A., whose offices are located at 265 Davidson Avenue, suite 210, Somerset, New Jersey 08873. Representatives of Rosenberg Rich Baker Berman, P.A. are not expected to be present at the special meeting. As a result, there will be no statements made by Rosenberg Rich Baker Berman, P.A. and no opportunity to ask questions of Rosenberg Rich Baker Berman, P.A.

 

Also, the independent public accounting firm that audits American Robotics’ financial statements is Turner Stone & Company, L.L.P., whose offices are located at 12700 Park Central Drive, Suite 1400, Dallas, Texas 75251. Representatives of Turner Stone & Company, L.L.P. are not expected to be present at the special meeting. As a result, there will be no statements made by Turner Stone & Company, L.L.P. and no opportunity to ask questions of Turner Stone & Company, L.L.P.

 

The transfer agent and registrar for the Company’s common stock is Globex Transfer, LLC, whose offices are located at 780 Deltona Blvd., Suite 202, Deltona, Florida 32725.

 

FUTURE STOCKHOLDER PROPOSALS

 

We did not hold a 2020 Annual Meeting of Stockholders. We plan to hold a 2021 Annual Meeting of Stockholders by December 31, 2021. As a result, under Rule 14a-8 promulgated under the Exchange Act (“Rule 14a-8”), a stockholder may submit proposals before the Company’s 2021 Annual Meeting of Stockholders if all applicable requirements of Rule 14a-8 are satisfied and such proposals are received by the Company’s Secretary within a reasonable time before the Company prints and mails materials for its 2021 Annual Meeting of Stockholders. If we hold a 2021 Annual Meeting of Stockholders, we anticipate that we will disclose the deadline for stockholders to submit proposals for the 2021 Annual Meeting of Stockholders under Rule 14a-8 on a Current Report on Form 8-K, Quarterly Report on Form 10-Q or Annual Report on Form 10-K once such deadline is known.

 

Also, pursuant to the Company’s bylaws, for business to be properly brought before an Annual Meeting of Stockholders by a stockholder, the stockholder shall give timely notice in writing to the Secretary of the Company. To be timely, a stockholder’s notice shall be delivered to or mailed and received by the Secretary at the principal executive office of the Company no later than the 90th day nor earlier than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days before or delayed by more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Notwithstanding anything to the contrary provided herein, for the first annual meeting following the listing on a national securities exchange of common stock of the Company, which we expect will be the 2021 Annual Meeting of Stockholders, a stockholder’s notice shall be timely if delivered to the Secretary at the principal executive offices of the Company not later than the close of business on the later of the 90th day prior to the scheduled date of such annual meeting or the 10th day following the day on which public announcement of the date of such annual meeting is first made or sent by the Company.

 

59

 

 

WHERE YOU CAN FIND MORE INFORMATION

 

Ondas files annual, quarterly and periodic reports, proxy statements and other information with the SEC. These SEC filings are available to the public from commercial document retrieval services and at the website maintained by the SEC at http://www.sec.gov.

 

The SEC allows Ondas to incorporate by reference information into this proxy statement, which means that the companies can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is considered part of this proxy statement, except for any information superseded by information contained directly in this proxy statement or in later filed documents incorporated by reference into this proxy statement.

 

This document incorporates by reference the documents listed below that Ondas has previously filed with the SEC other than portions of these documents that are furnished under Item 2.02 or Item 7.01 of a Current Report on Form 8–K. These documents contain important business and financial information about Ondas that is not included in or delivered with this proxy statement.

 

The Annual Report on Form 10–K for the fiscal year ended December 31, 2020, filed on March 8, 2021;

 

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed on May 17, 2021;

 

The Current Reports on Form 8–K filed on January 20, 2021, January 29, 2021, April 20, 2021, May 17, 2021, May 26, 2021, May 27, 2021, June 8, 2021 and June 11, 2021; and

 

The description of the Company’s Common Stock contained in the Company’s Registration Statement on Form 8-A, filed with the SEC on December 3, 2020, as updated by the description of capital stock contained in Exhibit 4.5 to the Annual Report on Form 10-K for the year ended December 31, 2020, filed on March 8, 2021.

 

Ondas is also incorporating by reference additional documents that it files with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this proxy statement and the date of the special meeting.

 

Documents incorporated by reference are available without charge from Ondas, as applicable, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference in this proxy statement. You can obtain documents incorporated by reference into this proxy statement by requesting them in writing or by telephone from the Company at the following address:

 

Ondas Holdings Inc.
61 Old South Road, #495
Nantucket, Massachusetts 02554
Attn: Secretary
Telephone: (888) 350-9994
website: www.ondas.com

 

If you wish to request documents, the Company must receive your request by [●], 2021 in order to receive them before the special meeting.

 

Ondas has not authorized anyone to give any information or make any representation about the Transaction that is different from, or in addition to, that contained in this proxy statement or in any of the materials that have been incorporated by reference into this proxy statement. Therefore, if anyone gives you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement does not extend to you. The information contained in this proxy statement speaks only as of the date of this proxy statement unless the information specifically indicates that another date applies.

 

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AMERICAN ROBOTICS, INC. PRO FORMA FINANCIAL STATEMENTS

 

FINANCIAL STATEMENTS OF AMERICAN ROBOTICS, INC.

 

Audited Financial Statements

Years ended December 31, 2020 and December 31, 2019

Independent Auditors’ Report F-4
Balance Sheets F-6
Statements of Operations F-7
Statements of Changes in Stockholders’ Deficit F-8
Statements of Cash Flows F-9
Notes to Financial Statements F-10

 

Unaudited Financial Statements

Three months ended March 31, 2021 and March 31, 2020

Balance Sheets F-23
Statements of Operations F-24
Statements of Changes in Stockholders’ Deficit F-25
Statements of Cash Flows F-26
Notes to Financial Statements F-27

 

Unaudited Pro Forma Condensed Combined Financial Statements

As of March 31, 2021 and for the three months ended March 31, 2021 and year ended December 31, 2020

Summary F-36
Balance Sheets F-38
Statements of Operations F-39
Notes to Unaudited Pro Forma Condensed Combined Financial Statements F-41

 

F-1

 

   

 

AMERICAN ROBOTICS, INC.
Financial Statements
December 31, 2020 and 2019

 

F-2

 

 

American Robotics, Inc.

Table of Contents

December 31, 2020 and 2019

 

 

Independent Auditors’ Report   F-4 - F-5
Financial Statements    
Balance Sheets   F-6
Statements of Operations   F-7
Statements of Changes in Stockholders’ Deficit   F-8
Statements of Cash Flows   F-9
Notes to Financial Statements F-10 - F-20

 

F-3

 

 

 

Independent Auditors’ Report

 

The Board of Directors and Stockholders of

American Robotics, Inc.

Marlborough, Massachusetts

 

We have audited the accompanying financial statements of American Robotics, Inc. (the “Company”), which comprise the balance sheets as of December 31, 2020 and 2019, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes to the financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

 

F-4

 

 

Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company generated a net loss, has net stockholders’ deficit, and used significant cash for operating activities, all of which raise substantial doubt about its ability to continue as a going concern. Management’s plan in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Turner Stone & Company L.L.P.

 

Certified Public Accountants

May 10, 2021

 

F-5

 

 

American Robotics, Inc.

Balance Sheets

December 31, 2020 and 2019

 

 

   2020   2019 
Assets        
         
Current assets        
Cash and cash equivalents  $1,056,290   $854,364 
Accounts receivable   5,643    5,643 
Total current assets   1,061,933    860,007 
           
Property and equipment, net   69,683    77,061 
Security deposit   24,166    24,166 
Right-of-Use Asset   543,804    709,629 
Total assets  $1,699,586   $1,670,863 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities          
Accounts payable  $330,004   $315,651 
Deferred revenue   77,500    - 
Accrued interest   172,574    47,338 
Current portion of operating lease liability   170,361    160,043 
Total current liabilities   750,439    523,032 
           
Long-term liabilities          
Operating lease liability, net of current portion   390,215    560,576 
Convertible notes   1,950,000    1,450,000 
Convertible notes, related party   525,000    275,000 
Total long-term liabilities   2,865,215    2,285,576 
           
Commitments & contingencies (Note 4)   -    - 
           
Stockholders’ deficit          
Common stock, $0.0001 par value, 10,000,000 shares authorized, 2,155,965 and 1,962,632 shares issued and outstanding as of December 31, 2020 and 2019, respectively   215    196 
Additional paid-in capital   7,444,426    5,775,116 
Subscription receivable   (2,541)   (2,541)
Accumulated deficit   (9,358,168)   (6,910,516)
Total stockholders’ deficit   (1,916,068)   (1,137,745)
Total liabilities and stockholders’ deficit  $1,699,586   $1,670,863 

 

The Notes to Financial Statements are an integral part of these statements.

 

F-6

 

 

American Robotics, Inc.

Statements of Operations

Years Ended December 31, 2020 and 2019

 

 

   2020   2019 
Revenue   $8,100   $- 
           
Operating expenses          
General and administrative expenses   1,916,171    2,027,530 
Research and development   544,537    1,657,762 
Selling and marketing   126,862    210,536 
    2,587,570    3,895,828 
Loss from operations   (2,579,470)   (3,895,828)
           
Other income (expense)          
Other income   -    14,506 
Grant income   257,029    - 
Interest expense   (125,236)   (47,338)
Interest income   25    9,073 
    131,818    (23,759)
Net loss  $(2,447,652)  $(3,919,587)

 

The Notes to Financial Statements are an integral part of these statements.

 

F-7

 

 

American Robotics, Inc.

Statements of Changes in Stockholders’ Deficit

Years Ended December 31, 2020 and 2019

 

 

   Common Stock   Additional
Paid-in
   Accumulated   Subscription   Total
Stockholders’
 
   Shares   Amount   Capital   Deficit   Receivable   Deficit 
Balance, January 1, 2019   1,628,570   $163   $3,173,896   $(2,990,929)  $-   $183,130 
Stock-based compensation   -    -    98,692    -    -    98,692 
Exercise of stock options   726    -    2,541    -    (2,541)   - 
Issuance of common stock   333,336    33    2,499,987    -    -    2,500,020 
Net loss   -    -    -    (3,919,587)   -    (3,919,587)
Balance, December 31, 2019   1,962,632    196    5,775,116    (6,910,516)   (2,541)   (1,137,745)
Stock-based compensation   -    -    69,329    -    -    69,329 
Issuance of common stock   193,333    19    1,599,981    -    -    1,600,000 
Net loss   -    -    -    (2,447,652)   -    (2,447,652)
Balance, December 31, 2020   2,155,965   $215   $7,444,426   $(9,358,168)  $(2,541)  $(1,916,068)

 

The Notes to Financial Statements are an integral part of these statements.

 

F-8

 

 

American Robotics, Inc.

Statements of Cash Flows

Years Ended December 31, 2020 and 2019

 

 

  2020   2019 
Operating activities        
Net loss  $(2,447,652)  $(3,919,587)
Adjustments to net loss:          
Depreciation expense   (6,770)   (14,083)
Stock-based compensation   69,329    98,692 
Difference in ROU and lease liability change   5,782    10,990 
Changes in operating assets/liabilities:          
Accounts receivable, net       (93)
Security deposits       (24,166)
Accounts payable   14,353    296,666 
Accrued expenses and interest   125,236    47,338 
Deferred revenue   77,500     
Net cash used in operating activities   (2,162,222)   (3,504,243)
Investing activities          
Purchase of property and equipment   14,148    12,809 
Net cash provided by investing activities   14,148    12,809 
Financing activities          
Proceeds from issuance of common stock   750,000    1,725,000 
Proceeds from issuance of convertible notes   1,600,000    2,500,000 
Net cash provided by financing activities   2,350,000    4,225,020 
Net change in cash and cash equivalents   201,926    733,586 
Cash and cash equivalents          
Beginning of year   854,364    120,778 
End of year  $1,056,290   $854,364 
           
Supplemental Information:          
Interest paid  $-   $- 
Income Taxes  $-   $- 
Supplemental Non-Cash Activities:          
Day one recognition of ROU asset and related  operating lease liability  $   $872,991 
Supplemental disclosure of non-cash financing activity          
In 2019, the Company issued 726 shares of common stock in exchange for stock subscription notes receivable totaling $2,541.          

 

 

F-9

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

1.ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Nature of Business

 

American Robotics, Inc. (the “Company”) was incorporated on October 13, 2016 in Delaware, and is a developer of specialized drone technology. The Company manufactures an autonomous remote sensing drone solution consisting of a custom-designed drone and proprietary base station, the American Robotics Scout system, for use primarily in the agriculture industry. The Company was principally in the research and development phase and has commenced sales as it continues to build and enhance its product as it brings it to market.

 

Going Concern Uncertainty

 

The Company’s financial statements have been prepared assuming the Company will continue as a going concern. The Company has stockholders’ deficit of approximately $1.9 million as of December 31, 2020 and incurred a loss from operations of approximately $2.6 million and used approximately $2.1 million in cash for operating activities during the year ended December 31, 2020 raising substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in response to this are to start commercial drone sales as well as reducing costs as needed and working towards raising additional capital through issuance of common stock or other financing to obtain the necessary funding and sustain operations.

 

The Company’s ability to fund operations and capital expenditures in the future will be dependent on its ability to achieve its plan objectives. However, there can be no assurance that the Company will be able to achieve its strategic initiatives or obtain additional funding in the future. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. These accounting policies have been consistently applied in the preparation of the financial statements.

 

Basis of Presentation

 

The accompanying financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

The Notes to Financial Statements are an integral part of these statements.

 

F-10

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Cash and Cash Equivalents

 

The Company considers cash equivalents to be only those investments which are highly liquid, readily convertible to cash, and have a maturity date of ninety days or less from the date of purchase. The Company considers balances held in money market accounts to be cash equivalents. The Company maintains its cash in bank deposit accounts which at times, may exceed federally insured limits. The Company has not experienced any losses in these accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of certain assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include depreciation and stock-based compensation. Actual results could differ from those amounts.

 

Property and Equipment

 

Property and equipment are recorded at cost less accumulated depreciation. Maintenance and repairs are charged to expenses as incurred; major renewals and betterments are capitalized. Depreciation expense is computed on the straight-line method based on the assets’ estimated useful lives as follows:

 

Description  Estimated  Life (Years) 
Leasehold improvements   6-15 
Furniture and fixtures   7 
Computer equipment   5 

 

Income Taxes

 

Income taxes are accounted for in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. The differences are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-11

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

The pronouncement dealing with uncertain tax positions clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure and transition. The Company had no uncertain tax positions for the years ended December 31, 2020 and 2019, respectively. Further, there were no tax related interest or penalties included in the financial statements.

 

Revenue Recognition

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard replaces all previous accounting guidance on this topic and eliminates all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine how revenue is recognized. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In doing so, companies need to use more judgment and make more estimates than under prior guidance. Judgments include identifying performance obligations in the contract, estimating the amount of consideration to include in the transaction price, and allocating the transaction price to each performance obligation.

 

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identify contracts with customers; (ii) identify performance obligations; (iii) determine the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. The Company’s performance obligations include deployment of its Scout aerial drone system to the customer and recurring subscription license to the Company’s ScoutBase and ScoutView drone support products.

 

The Company will begin recognizing revenue upon deployment and delivery of its Scout aerial drone system as the customer then has access to the product. Upon delivery, the Company has an ongoing performance obligation to provide a subscription license to the customer during the life of the contract. Subscription license revenue is recognized ratably over the term of the applicable contract once the product has been delivered.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-12

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Subscription Revenue

 

The Company leases the use of its Scout aerial drone system which includes access to its ScoutBase and ScoutView drone support products, pursuant to contractual obligations. The Company recognizes revenue ratably over the life of the contract as the services are transferred to the customer. Subscription revenue amounted to $8,100 and $0 for the years ended December 31, 2020 and 2019, respectively.

 

Deferred Revenue

 

If a customer pays consideration before the Company transfers goods or services, the amount of consideration is presented as deferred revenue. The amount of deferred revenue will increase or decrease based upon the timing of invoices and collections and recognition of revenues. As of December 31, 2020 and 2019, deferred revenue amounted to $77,500 and $0, respectively.

 

General and Administrative

 

General and administrative expenses primarily include salaries and wages, professional services, travel, meals and entertainment, and rent expense.

 

Selling and Marketing

 

Selling and marketing expense is primarily made up of trade show fees, advertising costs, and promotional fees. The Company expenses advertising costs as incurred. For the years ended December 31, 2020 and 2019, advertising expense charged to operations totaled $12,970 and $12,670, respectively, and is included in selling and marketing expense in the statements of operations.

 

Research and Development

 

Costs incurred for research and product development are expensed as incurred. Research and development costs consist primarily of engineering services and parts and materials during the product development phase. The Company recognizes research and development expenses in the period in which it becomes obligated to incur such costs.

 

Stock-Based Compensation

 

Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense, ratably over the vesting period of the award. In addition, the pronouncement dealing with stock-based compensation requires additional accounting related to the income tax effects and disclosures regarding the cash flow effects resulting from stock-based payment arrangements. Calculating stock-based compensation expense requires the input of highly subjective assumptions. including the expected term of the stock-based awards, volatility, dividend yield, and risk-free rates.

 

The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgement. As a result, if factors change and the Company uses different assumptions, its stock-based compensation could be materially different in the future.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-13

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

Pending Accounting Pronouncement

 

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 “Leases” (ASU 2016-02) and subsequently issued supplemental adoption guidance and clarification (collectively, Topic 842). Topic 842 amends a number of aspects of lease accounting, including requiring lessees to recognize right-of-use assets and lease liabilities for operating leases with a lease term greater than one year. Topic 842 supersedes Topic 840 “Leases”. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 840. The Company elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed it to carry forward the historical lease classification, retain the initial direct costs for any leases that existed prior to the adoption of the standard and not reassess whether any contracts entered into prior to the adoption are leases. The Company also elected to account for lease and non-lease components in its lease agreements as a single lease component in determining lease assets and liabilities. Upon adoption of Topic 842, the Company recorded $872,991 of right-of-use assets and operating lease liabilities as of January 1, 2019. The adoption did not have a material impact on its Statements of Operations or Statements of Cash Flows.

 

3.PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following as of December 31:

 

  2020   2019 
Computer equipment  $20,347   $20,347 
Leasehold improvements   7,522    7,522 
Furniture and fixtures   75,898    69,128 
    103,767    96,997 
Accumulated depreciation   (34,084)   (19,936)
   $69,683   $77,061 

 

Depreciation expense charged to operations for the years ended December 31, 2020 and 2019 amounted to $14,148 and $12,809, respectively.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-14

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

4.COMMITMENTS

 

In March 2018, the Company entered into a 70-month lease for 62,621 square feet of office space for the Company’s corporate office in Marlborough, Massachusetts. Subsequently, in June 2018 this lease was amended to include an additional 10,450 square feet of office space. A right-of-use asset and operating lease liability has been recorded with the adoption of Topic 842, pertaining to this office lease. As this lease does not provide an implicit interest rate, the Company calculated a 3% interest rate based on the annual increase in rent to determine the lease liability. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $163,825 and $165,362 for the years ended December 31, 2020 and 2019.

 

The future minimum lease payments relating to these commitments are as follows:

 

2021  $184,857 
2022   190,401 
2023   196,117 
2024   16,624 
   $588,000 

 

Rent expense for the years ended December 31, 2020 and 2019 was $225,683 and $184,906, respectively.

 

The Company has entered into an agreement with an unrelated third party to assist in the development of its product. In connection with this agreement, the Company has agreed to pay $1,000,000 for the development assistance, of which $800,000 was incurred and paid in 2019, with the remaining $200,000 incurred and paid in 2020. Such amounts are included in research and development expenses on the statements of operations.

 

Additionally, the Company has agreed to make royalty installment payments to such party totaling $1,000,000 commencing upon the first sale of the product and continuing over a period of 3 1/2 years. The installment payments are to be made in 5 equal amounts of $200,000 at certain defined intervals as follows: date of the first sale, 6 months, 18 months, 30 months, 42 months. As of December 31, 2020, no sales of this product have occurred.

 

5.CONVERTIBLE NOTES

 

During 2020 and 2019, the Company issued convertible notes totaling $750,000 and $1,725,000, respectively, bearing interest at 6% per annum. As of December 31, 2020 and 2019, the convertible notes payable balance consisted of principal outstanding of $2,475,000 and $1,725,000 and accrued interest of $172,574 and $47,338, respectively. Unless converted, these notes will automatically mature and be fully payable, including accrued interest, on dates ranging from January 31,2023 to December 18, 2023.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-15

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

In the event of a qualified financing, the outstanding principal and accrued interest will convert into Qualified Financing securities at a conversion price equal to 80% of the price per share of Qualified Financing Shares paid by other investors or in some cases the lesser of (i) the aforementioned conversion price or (ii) the price per share equal to the Target Valuation at the time of conversion as defined in the underlying agreement divided by the aggregate number of outstanding shares of the Company’s common stock immediately prior to the initial close of the Qualified Financing. Qualified Financing securities consist of shares of the same class and series of stock issued to other investors in the Qualified Financing. A Qualified Financing is defined as an issuance of shares with immediately available proceeds of not less than $5 million, of which not less than 50% is funded by a professional venture capital firm or strategic advisor.

 

In the event of a Significant Transaction as defined by the underlying agreements, all convertible notes shall be surrendered for shares of common stock of the Company for a conversion price per share equal to the Company’s Target Valuation at the time of conversion as defined in the underlying agreement divided by the aggregate number of outstanding shares of the Company’s common stock. A significant transaction is defined as the sale or disposition of all or substantially all of the Company’s property or business or a merger or consolidation with another entity; whereby the stockholders of the Company prior to the merger or consolidation do not retain a 50% or greater ownership interest.

 

If the notes are not converted into equity pursuant to a qualified financing or significant transaction defined above, the notes, at the option of the holder, may be converted into shares of common stock of the Company at maturity. The conversion price shall be equal to the Target Valuation at the time of conversion as defined in the underlying agreement divided by the aggregate number of outstanding shares of the Company’s common stock immediately prior to conversion.

 

Convertible notes, as disclosed above, issued to related parties totaled $525,000 and $275,000 during the years ended December 31, 2020 and 2019, respectively.

 

6.STOCKHOLDERS’ EQUITY

 

During 2020, 193,333 shares of common stock were issued for cash totaling $1,600,000. During 2019, 333,336 shares of common stock were issued for cash totaling $2,500,020 and 726 shares of common stock were issued in conjunction with the exercise of stock options for $2,541. The Company has recorded a stock subscription receivable for the common stock issued for the exercised stock options.

 

Of the 193,333 and 333,336 shares of common stock issued during 2020 and 2019, respectively, 183,333 and 300,002 shares were issued to related parties for total consideration of $1,500,000 and $2,250,015 during 2020 and 2019, respectively

 

7.STOCK-BASED COMPENSATION

 

The Company has a stock-based compensation plan (the “Plan”) for certain employees and officers.

 

Option terms are expected to be 7.5 years, and the vesting terms vary depending on the option holder. As of December 31, 2020, the maximum number of shares available for issuance to participants under the Plan was 250,000.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-16

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

The fair value of each option is estimated on the date of grant using the Black-Scholes option valuation model based on the assumptions noted in the table below. The expected terms of options represent the period that the Company’s stock-based awards are expected to be outstanding.

 

The risk-free interest rate for periods related to the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility is based on volatilities noted by similar public companies. The expected dividend yield is zero, as the Company does not anticipate paying dividends in the near future.

 

Stock-based compensation expense recognized during the years ended December 31, 2020 and 2019 was $98,692 and $69,329, respectively. As of December 31, 2020 and 2019, the total unrecognized stock-based compensation balance for unvested options was $266,631 and $258,810, respectively, which is expected to be recognized ratably through October 2025.

 

The following valuation assumptions were used to determine stock-based compensation for the years ended December 31:

 

   2020   2019 
Expected term   7.5    7.5 
Volatility   96%   77% - 82%
Risk-free interest rate   0.87%   1.72% - 1.85%
Dividend yield   -0-%   -0-%

 

The following table summarizes stock option activity for the years ended December 31, 2020 and 2019:

 

   Number of Options Outstanding   Weighted Average Exercise Price per Share   Aggregate
Intrinsic
Value
 
Balance at January 1, 2019   136,349   $2.79   $            - 
Options granted   48,500   $4.13   $- 
Options forfeited   (11,774)  $(3.50)  $- 
Options exercised   (726)  $(3.50)  $- 
Balance at December 31, 2019   172,349   $3.62   $- 
Options granted   15,000   $6.31   $- 
Options forfeited   (12,546)  $3.56  $- 
Balance at December 31, 2020   174,803   $4.37   $- 
Exercisable at December 31, 2020   91,449   $4.37   $- 

 

The Notes to Financial Statements are an integral part of these statements.

 

F-17

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

8.INCOME TAXES

 

The Company’s deferred income tax assets as of December 31, 2020 and 2019 are as follows:

 

   2020   2019 
Deferred tax assets        
Net operating loss carryforwards  $1,956,545   $1,367,019 
Temporary differences   (4,602)   (3,792)
Stock based compensation   1,951,942    1,363,227 
Valuation allowance   (1,951,942)   (1,363,227)
Total net deferred tax assets  $-   $- 

 

Deferred tax assets result primarily from unutilized net operating losses, stock- based compensation, and fixed assets. As of December 31,2020, the Company has approximately $876,000 in federal net operating loss carryforwards available to offset future taxable income that will begin to expire in 2037 and approximately $8,441,000 in federal net operating loss carryforwards available to offset future taxable income that have an indefinite life. In addition, the company has approximately $8,851,000 in state loss carryforwards available to offset future income.

 

In assessing the realizability of the Company’s deferred tax assets, management considers whether or not it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management’s assessment is based upon the weight of available evidence, including cumulative losses since inception and expected future losses and as such, management does not believe it is more likely than not that the deferred tax assets will be realized. Accordingly, a full valuation allowance has been established and no deferred tax assets and related tax benefits have been recognized in the accompanying financial statements.

 

9.PAYMENT PROTECTION PROGRAM (“PPP”) AND ECONOMIC INJURY DISASTER LOAN (“EIDL”)

 

On April 21, 2020, the Company executed an unsecured promissory note (the “PPP loan”) for $247,029 through the PPP established under the Coronavirus Aid, Relief, and Economic Security Act, and administered by the United States Small Business Administration (“SBA”). The PPP loan is guaranteed by the SBA. The PPP loan may be forgiven, in whole or in part, if the Company was eligible for the PPP loan at the time of application, used the loan proceeds for eligible expenses within the defined 8 or 24-week period after the PPP loan was disbursed (“covered period”), and otherwise satisfied PPP requirements. The PPP loan was made through Silicon Valley Bank (the “Lender”), has a two-year term, bears interest at 1.00% per annum, and matures on April 21, 2022. If the PPP loan is not forgiven, monthly principal and interest payments are deferred until the end of the covered period.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-18

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

When it applied for the loan, the Company believed it would qualify to have the loan forgiven under the terms of PPP, and therefore considered the loan to be a conditional government grant. The Company has performed initial calculations for PPP loan forgiveness, and expects that the PPP loan will be forgiven in full because 1) the Company has, prior to December 31, 2020, utilized all of the proceeds for payroll and other qualified expenses and 2) the Company believes it will continue to comply with other terms and conditions necessary for forgiveness. Accordingly, the Company has recognized the $247,029 of PPP funding as grant income in 2020.

 

The Company submitted the PPP loan forgiveness application on April 30, 2021. Although the Company believes it is probable that the PPP loan will be forgiven, the Company’s application must be evaluated by the lender and SBA before forgiveness is formally granted. Therefore, there is no guarantee that any portion of the PPP loan proceeds will be forgiven, and the Company is legally obligated to repay the PPP loan until such time as legal release is received.

 

The Company also received an economic injury disaster loan (“EIDL” ) grant of $10,000 in May 2020. This grant is grouped as part of grant income on the statement of operations.

 

10.RISK AND UNCERTAINTIES

 

Management is currently evaluating the impact of the COVID-19 virus on its business operations. While it is reasonably possible that the virus could have a negative impact on the financial condition and results of operations, the specific impact is not readily determinable as of the date of these financial statements.

 

11.RELATED PARTY TRANSACTIONS

 

As of December 31, 2020 and 2019, $200,000 and $175,000, respectively, of convertible notes were issued to immediate family members of the Company’s CEO. These notes have the same terms as outlined in Note 5 to the financial statements.

 

As of December 31, 2020 and 2019, $50,000 and $100,000, respectively, of convertible notes were issued to Charles Parkhurst, Director at the Company. These notes have the same terms as outlined in Note 5 to the financial statements.

 

During the year ended December 31, 2019, certain immediate members of the Company’s CEO purchased 26,688 shares of common stock for total consideration of $200,010.

 

The Notes to Financial Statements are an integral part of these statements.

 

F-19

 

 

American Robotics, Inc.

Notes to Financial Statements

December 31, 2020 and 2019

 

 

During the year ended December 31, 2019, Charles Parkhurst, Director at the Company, purchased 6,667 shares of common stock for total consideration of $50,003.

 

During the years ended December 31, 2020 and 2019, David Morgan, a significant shareholder purchased 266,667 and 183,333 shares of common stock for total consideration of $1,500,000 and $2,000,003, respectively.

 

12.SUBSEQUENT EVENTS

 

On January 15, 2021, the Company received approval from the Federal Aviation Administration (“FAA”) permitting the Company to sell its product commercially.

 

In February 2021, $250,000 of convertible notes were issued bearing interest at 6% per annum. Unless converted, these notes will automatically mature and be fully payable, including accrued interest, on dates ranging from February 2, 2024 to February 4, 2024. These notes have the same conversion terms as outlined in Note 5 to the financial statements.

 

Company is pending a sale of business where the transaction is expected to close during the second quarter of 2021. In anticipation of the sale, the Company was issued a loan for $2,000,000 in exchange for negotiation exclusivity. Loan proceeds are to be used for the production of units and increasing headcount for the duration of the negotiations. Any remaining proceeds at the time of sale, if any, will revert to the new combined entity.

 

The Company has evaluated subsequent events through May 10, 2021, the date the financial statements were available to be issued and has determined that, with the exception of the matter noted above, there were no other events which occurred requiring disclosure in or adjustments to the financial statements.

 

The Notes to Financial Statements are an integral part of these statements.

  

F-20

 

  

 

 

 

 

 

 

 

 

 

 

 

AMERICAN ROBOTICS, INC.
Financial Statements
March 31, 2021 and 2020

 

 

 

 

 

 

 

 

 

 

 

F-21

 

 

American Robotics, Inc.
Table of Contents
March 31, 2021 and 2020

 

 

Financial Statements

 
   
Balance Sheets F-23
   
Statements of Operations F-24
   
Statements of Changes in Stockholders’ Deficit F-25
   
Statements of Cash Flows F-26
   
Notes to Financial Statements F-27 - F-35

 

F-22

 

 

American Robotics, Inc.

Balance Sheets

 

 

  March 31,
2021
(Unaudited)
   December 31,
2020
(Unaudited)
 
Assets        
Current assets    
Cash and cash equivalents  $725,483   $1,056,290 
Accounts receivable   5,643    5,643 
Total current assets   731,126    1,061,933 
           
Property and equipment, net   156,146    69,683 
Security deposit   24,166    24,166 
Right-of-Use Asset   501,589    543,804 
           
Total assets  $1,413,027   $1,699,586 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities          

Accounts payable

  $305,268   $330,004 
Deferred revenue   77,500    77,500 
Accrued interest   212,999    172,574 
Current portion of operating lease liability   173,014    170,361 
Total current liabilities   768,781    750,439 
           
Long-term liabilities          
Operating lease liability, net of current portion   346,025    390,215 
Convertible notes   2,200,000    1,950,000 
Convertible notes, related party   525,000    525,000 
Total long-term liabilities   3,071,025    2,865,215 
           
Commitments & contingencies (Note 4)   -    - 
           
Stockholders’ deficit          
Common stock, $0.0001 par value, 10,000,000 shares authorized,          
2,155,965 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively   215    215 
Additional paid-in capital   7,461,515    7,444,426 
Subscription receivable   (2,541)   (2,541)
Accumulated deficit   (9,885,968)   (9,358,168)
Total stockholders’ deficit   (2,426,779)   (1,916,068)