ONDAS HOLDINGS INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

General

The following discussion and analysis provide information which our management
believes to be relevant to an assessment and understanding of the results of
operations and financial condition of Ondas Holdings Inc. (“Ondas,” “we” or the
“Company”). This discussion should be read together with our condensed
consolidated financial statements and the notes included therein, which are
included in this Quarterly Report on Form 10-Q (the “Report”). This information
should also be read in conjunction with the information contained in our Annual
Report on Form 10-K for the year ended December 31, 2021, filed with the
Securities and Exchange Commission (the “SEC”) on March 22, 2022, including the
audited consolidated financial statements and notes included therein as of and
for the year ended December 31, 2021. This discussion contains forward-looking
statements that involve risks and uncertainties. For a description of factors
that may cause our actual results to differ materially from those anticipated in
these forward-looking statements, please refer to the below section of this
Report titled “Cautionary Note Regarding Forward-Looking Statements.” The
reported results will not necessarily reflect future results of operations or
financial condition.


Overview


Ondas Holdings is a leading provider of private wireless, drone, and automated
data solutions through its wholly owned subsidiaries Ondas Networks Inc. (“Ondas
Networks”) and American Robotics, Inc. (“American Robotics” or “AR”). Ondas
Networks
and American Robotics together provide users in rail, energy, mining,
agriculture, and critical infrastructure markets with improved connectivity, and
data collection capabilities and automated decision making to improve
operations. Ondas operates these two subsidiaries as separate business segments,
and the following is a discussion of each segment.


Ondas Networks Segment


Ondas Networks provides wireless connectivity solutions enabling
mission-critical Industrial Internet applications and services. We refer to
these applications as the Mission-Critical Internet of Things (“MC-IoT”). Our
wireless networking products are applicable to a wide range of MC-IoT
applications, which are most often located at the very edge of large industrial
networks. These applications require secure, real-time connectivity with the
ability to process large amounts of data at the edge of large industrial
networks. Such applications are required in all of the major critical
infrastructure markets, including rail, electric grids, drones, oil and gas, and
public safety, homeland security and government, where secure, reliable and fast
operational decisions are required in order to improve efficiency and ensure a
high degree of safety and security.

We design, develop, manufacture, sell and support FullMAX, our patented,
Software Defined Radio (“SDR”) platform for secure, licensed, private, wide-area
broadband networks. Our customers install FullMAX systems in order to upgrade
and expand their legacy wide-area network infrastructure. Our MC-IoT
intellectual property has been adopted by the Institute of Electrical and
Electronics Engineers
(“IEEE”), the leading worldwide standards body in data
networking protocols, and forms the core of the IEEE 802.16s standard. Because
standards-based communications solutions are preferred by our mission-critical
customers and ecosystem partners, we have taken a leadership position in IEEE as
it relates to wireless networking for industrial markets. As such, management
believes this standards-based approach supports the adoption of our technology
across a burgeoning ecosystem of global partners and end markets.

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


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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 (“Siemens”) for the development of new types
of wireless connectivity for the global rail markets. 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 Mobility
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.

The Global Rail Markets and our Siemens Mobility Partnership

The North American Rail Network is vast in scale, consisting of 140,000 miles of
track, 25,000 locomotives, and 1.6 million railcars. Within this large
footprint, we believe there are 200,000 highway crossings, with at least 65,000
of the crossings equipped with electronic systems today, a number which is
expected to increase in the coming years. We believe a significant portion of
the communications infrastructure has been in operation for more than 20 years
and now requires a technological upgrade to support new applications and
increased capacity requirements. Our MC-IoT platform offers an excellent
migration path for these applications. We believe the Class I Rails value the
ability of Ondas’ frequency-agnostic SDR architecture to enable a substantial
capacity increase utilizing the railroad’s existing wireless infrastructure and
dedicated Federal Communication Commission (“FCC“) licensed radio frequencies,
as well as the flexibility to adapt to and take advantage of future changes in
spectrum availability. The Class 1 Rails operate four separate nationwide
networks, all of which are addressable by our FullMAX platform. Ondas is
targeting the 900 MHz network for the initial adoption of its wireless platform
by the Class 1 Rails, who were awarded greenfield spectrum in the 900 MHz band
by the FCC in 2020.

Siemens Partnership, ATCS Development Program

In April 2020, we entered a strategic partnership with Siemens, to jointly
develop wireless communications products for the North American Rail Industry
based on Siemens’ Advanced Train Control System (“ATCS”) protocol and our MC-IoT
platform. At the same time, we entered into an agreement to allow Siemens to
sell Ondas’ 802.16 MC-IoT standardized products to the North American Rails
under the Siemens’ brand name “Airlink.” The dual-mode ATCS/MC-IoT radio system
was designed to support Siemens’ extensive installed base of ATCS radios as well
as offer Siemens’ customers the ability to support a host of new advanced rail
applications utilizing our MC-IoT wireless system. These new applications,
including Advanced Grade Crossing Activation and Monitoring, Wayside Inspection,
Railcar Monitoring, and support for next generation signaling and train control
systems, are designed to increase railroad productivity, reduce costs, and
improve safety. Siemens formally launched the dual mode ATCS/MC-IoT radio
products along with the Siemens branded Airlink radios in September 2021 at the
Railway Systems Suppliers (RSSI) conference in Indianapolis. In November 2021,
Siemens secured its first commercial 900 MHz rail order for a major Class I
Railroad
for delivery by year-end. Ondas delivered this initial order as
requested in December 2021.


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Multiple New Joint Development Programs

In January 2021, Ondas Networks and Siemens signed a Letter of Intent (“LOI”)
for the development of a next generation radio product for the global rail
markets including support for our first onboard locomotive radio. The formal
agreement, referred to as the Next Generation Radio Board, was signed by the
parties in July 2021 with a targeted completion date in first quarter 2022. Also
in July 2021, Ondas Networks received a purchase order from Siemens Mobility for
the development of a new industrial radio to support rail safety. This program
was completed as requested by September 2021. In October 2021, Siemens
substantially expanded the Next Generation Radio Board development program by
issuing to Ondas Networks four new purchase orders which included customized
hardware and software solutions for Head of Train (HOT) locomotive applications
for the North American market and for a major Asian Rail customer. The expanded
program reprioritized the July 2021 agreement deliverables with a second quarter
of 2022 delivery of completed products to the Asian Rail customer.


802.16 ("dot16") Rail Lab


In December 2021, we received an order from Siemens for the implementation of
the “dot16” North American Rail Lab (“Rail Lab“). The Rail Lab, hosted at Ondas
Networks
headquarters facility in Sunnyvale, CA, serves multiple purposes
including interoperability and coexistence testing of 802.16 compliant wireless
systems, customization and optimization of different network rail
configurations, and next generation rail application testing. Importantly, the
lab is focused on multiple frequency bands and networks beyond the 900 MHz that
Ondas is targeting for commercial deployment.

To summarize, since announcing our strategic partnership in April 2020, Ondas
and Siemens have completed our first major joint development program for
ATCS/MC-IoT 900 MHz radios for the North American market and have secured and
delivered on initial orders of these products to a Class I railroad. In July
2021
, we entered into our second major joint development program for a global
onboard locomotive radio and this program was significantly expanded in October
2021
to incorporate specific locomotive protocols with initial delivery of
completed products in the second quarter of 2022. In September 2021, Siemens
launched their Siemens-branded MC-IoT wireless systems under brand name
Airlink.’ In December 2021, Siemens together with Ondas secured the Rail Lab
order from the North American railroads which will allow the companies to
support the deployment of multiple North American rail communications networks
based on the 802.16 standard.

Ondas believes the Siemens strategic partnership validates our wireless
connectivity solutions and will serve as the foundation for the continued
adoption of our wireless technology in the global rail markets.


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UAS, Drones and AURA Network Systems

In December 2019, Ondas Networks received a purchase order for FullMAX base
stations and remote radios from AURA Networks Systems (“AURA”), a privately held
company deploying a nationwide network for the command and control of commercial
drones. AURA’s key differentiator is its exclusive ownership of dedicated,
licensed Air-to-Ground frequencies. We believe that operators of large,
fast-moving, and high-flying drones, including those used for inspection and
security applications as well as those for the Urban Air Mobility market (also
known as “flying cars”), will require a secure command and control network like
that planned by AURA. This command and control (C2) network will be designed to
meet Federal Aviation Administration (“FAA”) requirements in order to fly long
distances beyond visual line of site (BVLOS) of a drone operator.

In July 2020, we completed delivery of AURA’s first purchase order for the
ground infrastructure. AURA has now installed its initial nationwide
infrastructure based on our FullMAX technology in order to satisfy their FCC
license requirements. In January 2021, AURA achieved another major milestone
with approval from the FCC to use their frequencies for Unmanned Ariel Systems
(“UAS”)/Drone operation. Based on this approval and other advances in the
network, AURA placed a new purchase order in the first quarter of 2021 for
continued system development related to the optimization of FullMAX base station
and remote radio equipment for customer testing and demonstration networks. We
have completed this project as of December 2021.


Additional Critical Markets


In the coming quarters we expect to launch additional initiatives to take our
MC-IoT connectivity and ecosystem partnering strategy into other critical
infrastructure markets. As evidence of this, in February 2021, we announced a
new partnership with Rogue Industries (“Rogue”) to target opportunities in US
Government
and DoD markets. Rogue is an agile, focused marketing organization
with significant expertise in bringing new technologies to these critical
markets along with significant governmental procurement expertise. This
expertise would otherwise require significant expense and time for Ondas to
develop internally. Our agreement with Rogue is another example of Ondas
leveraging what we refer to our “Ecosystem Flywheel” with our capital-light
business model.



American Robotics Segment



American Robotics designs, develops and manufactures autonomous drone systems,
providing high-fidelity, ultra-high-resolution aerial data to enterprise
customers. We provide our customers turnkey data solutions designed to meet
their unique requirements in the field. We do this via our internally developed
Scout System™, an industrial drone platform which provides commercial and
government customers with the ability to continuously digitize, analyze, and
monitor their assets and field operations in near real-time.

The Scout System™ has been designed from the ground up as an end-to-end product
capable of continuous unattended operations in the real world. Powered by
innovations in robotics automation, machine vision, edge computing, and AI, the
Scout System™ provides efficiencies as a drone solution for commercial use. Once
installed in the field at customer locations, a fleet of connected Scout Systems
remain indefinitely in an area of operation, automatically collecting data each
day, self-charging, and seamlessly delivering data analysis regularly and
reliably. AR markets the Scout System™ under a Robot-as-a-Service (“RaaS”)
business model, whereby our drone platform aggregates customer data and provides
the data analytics meeting customer requirements in return for an annual
subscription fee.

The Scout System™ consists of (i) Scout™, a highly automated, AI-powered drone
with advanced imaging payloads (ii) the ScoutBaseTM, a ruggedized weatherproof
base station for housing, charging, data processing, and cloud transfer, and
(iii) ScoutViewTM, a secure web portal and API which enables remote interaction
with the system, data, and resulting analytics anywhere in the world. These
major subsystems are connected via a host of supporting technologies. Using a
suite of proprietary technologies, including Detect-and-Avoid (“DAA”) and other
proprietary intelligent safety systems, we achieved the first and only FAA
approval for automated operations without a human on-site in the United States
on January 15, 2021. As a result, American Robotics currently has the unique
ability to serve markets which require automated drone technology to enable
scalable drone operations, which the Company estimates to be 90% of all
commercial drone applications.


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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.

As of March 31, 2022, American Robotics had signed subscription agreements of
varying contract lengths with customers in multiple industries including
agriculture, oil and gas and materials management.


COVID-19


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

The Company’s business, financial condition and results of operations were
impacted from the COVID-19 pandemic for the three months ended March 31, 2022
and 2021 as follows:


  ? sales and marketing efforts were disrupted as our business development 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 our wireless systems was delayed due
    to the inability for our field service team to install and test equipment for
    our customers; and




  ? manufacturing and sales were disrupted due to ongoing supply chain constraints
    for certain critical parts.



The Company expects its business, financial condition and results of operations
will be impacted from the COVID-19 pandemic during 2022, primarily due to the
slowdown of customer activity during 2020 and 2021, ongoing supply chain
constraints for certain critical parts, and difficulties in attracting
employees. The extent to which the coronavirus may impact our business will
depend on future developments, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning the severity of
COVID-19 and its variants. 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 conditions, 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 could further adversely
impact the Company’s business, financial condition and results of operations
during 2022.


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Recent Developments



Ardenna Acquisition



As described above, on March 20, 2022, the Company entered into a Purchase
Agreement to acquire the assets of Ardenna, Inc. The consideration for the
acquisition is $900,000 in cash and 780,000 shares of the Company’s common
stock. On April 6, 2022, the Company completed the previously announced
acquisition of the assets of Ardenna Inc., a leading provider of image
processing and machine learning software solutions for rail infrastructure
monitoring and inspections.


Results of Operations


Three months ended March 31, 2022 compared to three months ended March 31, 2021


                                      Three Months Ended March 31,
                                                                  Increase
                                 2022              2021          (Decrease)
Revenue, net                 $     410,198     $  1,164,764     $   (754,566 )
Cost of goods sold                 287,932          555,350         (267,418 )
Gross profit                       122,266          609,414         (487,148 )
Operating expenses:                                                        -
General and administrative       5,524,717        2,408,854        3,115,863
Sales and marketing                681,663          187,372          494,291
Research and development         3,907,219          894,576        3,012,643
Total operating expense         10,113,599        3,490,802        6,622,797
Operating loss                  (9,991,333 )     (2,881,388 )     (7,109,945 )
Other income (expense)             (19,066 )       (256,731 )        237,665
Net loss                       (10,010,399 )     (3,138,119 )     (6,872,280 )




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Revenues



                          Three Months Ended March 31,
                                                   Increase
                      2022           2021         (Decrease)
Revenue, net
Ondas Networks        350,081       1,164,764        (814,683 )
American Robotics      60,117               -          60,117
Total                 410,198       1,164,764        (754,566 )



Our revenues decreased by $754,566 to $410,198 for the three months ended March
31, 2022
compared to $1,164,764 for the three months ended March 31, 2021.
Revenues during the three months ended March 31, 2022 included $149,270 for
products, $60,117 for maintenance, service, support, and subscriptions, and
$200,811 for development agreements with Siemens and AURA. Revenues during the
three months ended March 31, 2021 included $17,600 for product, $8,210 for
maintenance, service and support and $1,138,140 for development agreements with
Siemens and AURA. The decrease in our development revenues were the result of
substantial completion of our development contracts in 2021.


Cost of goods sold


Our cost of goods sold was $287,932 for the three months ended March 31, 2022
compared to $555,350 for the three months ended March 31, 2021. The decrease in
cost of goods sold was primarily a result of a decline in costs related to the
development agreements.


Gross profit


Our gross profit decreased by $487,148 for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 based on the changes in
revenues and costs of goods sold as discussed above. Gross margin for the three
months ended March 31, 2022 and 2021 was 30% and 52%, respectively. This
decrease in gross margin is a direct result of a decline in the development
revenues.



Operating Expenses



                                     Three Months Ended March 31,
                                                               Increase
                                 2022            2021         (Decrease)
Operating expenses:
General and administrative      5,524,717       2,408,854       3,115,863
Sales and marketing               681,663         187,372         494,291
Research and development        3,907,219         894,576       3,012,643
Total                          10,113,599       3,490,802       6,622,797




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Our principal operating costs include the following items as a percentage of
total expense.



                                                                    Three Months Ended
                                                                         March 31,
                                                                   2022            2021
Human resource costs, including benefits                              42.9 %          44.0 %
Travel and entertainment                                               2.0 %           0.1 %
Other general and administration costs:
Professional fees and consulting expenses                             14.7 %          35.6 %
Other expense                                                         15.7 %          15.2 %
Depreciation and amortization                                          8.7 %           1.1 %

Other research and deployment costs, excluding human resources 15.4
and travel and entertainment

                                               %           3.9 %

Other sales and marketing costs, excluding human resources and 0.6
travel and entertainment

                                                   %           0.1 %




Operating expenses increased by $6,622,797, or 190% as a result of the following
items:



                                                                             (000s )
Human resource costs, including benefits                                 $   2,803
Travel and entertainment                                                       199
Other general and administration costs:
Professional fees and consulting costs                                         244
Other expense                                                                1,057
Depreciation and amortization                                                  841

Other research and deployment costs, excluding human resources and
travel and entertainment

                                                     1,422
Other sales and marketing costs, excluding human resources and travel
and entertainment                                                               57
                                                                         $   6,623



The increase in operating expenses was primarily as the result of the
acquisition of American Robotics which accounted for $6,053,000 of the increase,
specifically in compensation expense, depreciation and amortization and research
and development expenses. The rest of the increase was primarily in legal,
accounting and other services and insurance.


Operating Loss


As a result of the foregoing, our operating loss increased by $7,109,945, or
247%, to $9,991,333 for the three months ended March 31, 2022, compared with
$2,881,388 for the three months ended March 31, 2021. Operating loss increased
primarily as a result of higher general and administration expenses and research
and development expenses for the three months ended March 31, 2022.


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Other Income (Expense), net


Other expense, net decreased by $237,665, or 93%, to $19,066 for the three
months ended March 31, 2022, compared with $256,731 for the three months ended
March 31, 2021. During the three months ended March 31, 2022, compared to the
same period in 2021, we reported a decrease in interest expense of approximately
$207,913. as a result of paying off the promissory note from Steward Capital
Holdings LP
on June 25, 2021.


Net Loss


As a result of the net effects of the foregoing, net loss increased by
$6,872,280, or 219%, to $10,010,399 for the three months ended March 31, 2022,
compared with $3,138,119 for the three months ended March 31, 2021. Net loss per
share of common stock, basic and diluted, was $(0.12) for the three months ended
March 31, 2021, compared with $(0.24) for the three months ended March 31, 2022.

Summary of (Uses) and Sources of Cash


                                                      Three Months Ended
                                                           March 31,
                                                     2022             2021
Net cash used in operating activities            $ (7,101,930 )   $ (3,066,199 )
Net cash used in investing activities              (1,562,295 )       (148,281 )
Net cash provided by financing activities             (90,237 )      1,179,934
Decrease in cash and cash equivalents              (8,754,462 )     (2,034,546 )

Cash and cash equivalents, beginning of period 40,815,123 26,060,733
Cash and cash equivalents, end of period $ 32,060,661 $ 24,026,187

The principal use of cash in operating activities for the three months ended
March 31, 2022 was to fund the Company’s current expenses primarily related to
operating activities necessary to allow us to service and support customers. The
increase in cash flows used in operating activities of $4,035,731 was primarily
due to the increase in operating expenses. Cash flows used in investing
activities increased by $1,414,014 due to purchase of equipment and patent
costs.

For a summary of our outstanding Secured Promissory Notes and Long-Term Notes
Payable and, see NOTES 9 and 10 in the accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.

Liquidity and Capital Resources

We have incurred losses since inception and have funded our operations primarily
through debt and the sale of capital stock. As of March 31, 2022, we had a
stockholders’ equity of approximately $103,551,000. At March 31, 2022, we had
short-term and long-term borrowings outstanding of approximately $0 and
$300,000, respectively. As of March 31, 2022, we had cash of approximately
$32,061,000 and working capital of approximately $30,375,000.

We believe available cash on hand, in addition to growth in revenue and
profitability expected as the Company executes its business plan, will fund its
operations for at least the next twelve months from the filing date of this Form
10-Q.



ATM Offering



On March 22, 2022, the Company, entered into an Equity Distribution Agreement
(the “ATM Agreement”) with Oppenheimer & Co. Inc. (the “Sales Agent”). Pursuant
to the terms of the ATM Agreement, the Company may offer and sell (the “ATM
Offering”) from time to time through the Sales Agent, as the Company’s sales
agent, up to $50 million of shares of the Company’s common stock, par value
$0.0001 per share (the “ATM Shares”). Sales of the ATM Shares, if any, may be
made in sales deemed to be “at the market offerings” as defined in Rule 415
promulgated under the Securities Act. The Sales Agent is not required to sell
any specific number or dollar amount of ATM Shares, but will act as a sales
agent using commercially reasonable efforts consistent with its normal trading
and sales practices and applicable state and federal laws, rules, and
regulations and the rules of the Nasdaq Stock Market, on mutually agreed terms
between the Sales Agent and the Company. The Sales Agent will receive from the
Company a commission of 3.0% of the gross proceeds from the sales of ATM Shares
by the Sales Agent pursuant to the terms of the Agreement. Net proceeds from the
sale of the ATM Shares will be used for general corporate purposes.

The offering of ATM Shares pursuant to the ATM Agreement will terminate upon the
earliest of (i) the sale of all ATM Shares subject to the ATM Agreement, and
(ii) the termination of the ATM Agreement pursuant to its terms.

The ATM Shares are issued pursuant to the Company’s shelf registration statement
(the “Registration Statement”) on Form S-3 (File No. 333-252571) filed on
January 29, 2021, which became effective on February 5, 2021, and the prospectus
supplement thereto dated March 22, 2022.

In April 2022 the Company sold 343,045 ATM Shares through the Sales Agent at an
average price of $7.72 with the net proceeds of $2.5 million. In connection with
the sale of these ATM Shares, the compensation paid by the Company to the Sales
Agent was $77,421.


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Our future capital requirements will depend upon many factors, including
progress with developing, manufacturing and marketing our technologies, the time
and costs involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims and other proprietary rights, our ability to establish
collaborative arrangements, marketing activities and competing technological and
market developments, including regulatory changes and overall economic
conditions in our target markets. Our ability to generate revenue and achieve
profitability requires us to successfully market and secure purchase orders for
our products from customers currently identified in our sales pipeline as well
as new customers. We also will be required to efficiently manufacturer and
deliver equipment on those purchase orders. These activities, including our
planned research and development efforts, will require significant uses of
working capital. There can be no assurances that we will generate revenue and
cash flow as expected in our current business plan. We may seek additional
funds through equity or debt offerings and/or borrowings under additional notes
payable, lines of credit or other sources. We do not know whether additional
financing will be available on commercially acceptable terms or at all, when
needed. If adequate funds are not available or are not available on commercially
acceptable terms, our ability to fund our operations, support the growth of our
business or otherwise respond to competitive pressures could be significantly
delayed or limited, which could materially adversely affect our business,
financial condition or results of operations.

Off-Balance Sheet Arrangements

As of March 31, 2022, we had no off-balance sheet arrangements.


Contractual Obligations


We are a smaller reporting company as defined by Rule 229.10(f)(1) and are not
required to provide information under this item.


Critical Accounting Estimates


Management’s discussion and analysis of financial condition and results of
operations is based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities and expenses, as well as related disclosures. We
base our estimates and judgments on historical experience and other assumptions
that we believe to be reasonable at the time and under the circumstances, and we
evaluate these estimates and judgments on an ongoing basis. Information
concerning our critical accounting policies with respect to these items is
available in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2021 filed with the SEC on March 22, 2022. There
have been no significant changes in our critical accounting polies since the
filing of the Form 10-K.

Recent Accounting Pronouncements

There have been no material changes to our significant accounting policies as
summarized in NOTE 2 of our Annual Report on Form 10-K for the year ended
December 31, 2021. We do not expect that the adoption of any recent accounting
pronouncements will have a material impact on our accompanying condensed
consolidated financial statements.


              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS




This Form 10-Q, 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 our current, reasonable expectations and assumptions,
which expectations and assumptions are subject to risks and uncertainties that
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 our Annual
Report on Form 10-K for the year ended December 31, 2021, which was filed with
the SEC on March 22, 2022, and the risks discussed under the caption “Risk
Factors” included in this Quarterly Report on Form 10-Q. Given these risks and
uncertainties, readers are cautioned not to place undue reliance on
forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, except as required by law.



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