RADA Electronic Industries Ltd. Annual Report 2020

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FY2020 Annual Report · RADA Electronic Industries Ltd.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report.

Commission file number: 0-15375

RADA ELECTRONIC INDUSTRIES LTD.
(Exact name of Registrant as specified in its charter
and translation of Registrant’s name Into English)

Israel
(Jurisdiction of incorporation or organization)

7 Giborei Israel Street, Netanya 4250407, Israel
(Address of principal executive offices)

Avi Israel, CFO
+972 76 538 6200 (phone), + 972 9 885 5885 (fax)
7 Giborei Israel Street, Netanya 4250407, Israel
(Name, telephone, facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class
Ordinary Shares, NIS 0.03 Par Value

Trading Symbol(s)
RADA

Name of each exchange on which registered
Nasdaq Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 43,724,446 Ordinary Shares (As of
December 31, 2020).

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Yes ☒ No ☐

Large accelerated filer ☐
Emerging growth company ☐

Accelerated filer ☒
Non-accelerated filer ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of
the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☒

International Financial Reporting Standards
as issued by the International Accounting
Standards Board ☐

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Yes ☐ No ☒

Item 17 ☐ Item 18 ☐

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.

This annual report on Form 20-F is incorporated by reference into the registrant’s Registration Statements on Form F-3 File Nos. 333-252015, 333-216973, 333-226387 and 333-220304, and on Form S-8
File No. 333-212284, 333-231678 and 333-238502.

Yes ☐ No ☐

We are an Israel based global defense electronics company. We specialize in the development, manufacture, marketing and sales of tactical land radars for defense forces and for critical infrastructure
protection applications, and military avionics for manned and unmanned aircraft. Our shares are traded on the NASDAQ Capital Market and the Tel Aviv Stock Exchange under the symbol “RADA”.

Statements made in this annual report concerning the contents of any contract, agreement or other document are summaries of such contracts, agreements or documents and are not complete descriptions of
all of their terms. If we filed any of these documents as an exhibit to this annual report or to any previous filing with the Securities and Exchange Commission, or the SEC, you may read the document
itself for a complete recitation of its terms.

INTRODUCTION

Definitions

In this annual report, unless the context otherwise requires:

• References to “RADA,” the “Company,” the “Registrant,” “our company,” “us,” “we” and “our” refer to RADA Electronic Industries Ltd. and its consolidated subsidiaries;
• References to “our shares,” “Ordinary Shares” and similar expressions refer to RADA’s Ordinary Shares, NIS 0.03 par value per share;
• References to “dollars”, “U.S. dollars”, “U.S. $” and “$” are to United States Dollars;
• References to “shekels” and “NIS” are to New Israeli Shekels, the Israeli currency;
• References to the “Articles” are to our Amended Articles of Association, as currently in effect;
• References to the “Securities Act” are to the Securities Act of 1933, as amended;
• References to the “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
• References to “NASDAQ” are to the NASDAQ Stock Market;
• References to the “TASE” are to the Tel Aviv Stock Exchange; and
• References to the “SEC” are to the United States Securities and Exchange Commission.

Market and Industry Data

We operate in an industry in which it is difficult to obtain precise market and industry information. We have generally obtained the market data in this prospectus supplement from public filings, from
industry publications, from studies conducted by third party sources that we believe to be reliable, and based on our experience and our own investigation of market condition.

Cautionary Note Regarding Forward-Looking Statements

Except for the historical information contained in this annual report, the statements contained in this annual report are “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, as amended, with respect to
our business, financial condition and results of operations. Such forward-looking statements reflect our current view with respect to future events and financial results. We urge you to consider that
statements which use the terms “anticipate,” “believe,” “do not believe,” “expect,” “plan,” “intend,” “estimate,” and similar expressions are intended to identify forward-looking statements. We remind
readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results,
performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are also included in Item 4 – “Information on the Company” and Item 5 – “Operating and Financial Review and Prospects.” Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States,
we undertake no obligation to publicly release any update or revision to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. We
have attempted to identify significant uncertainties and other factors affecting forward-looking statements in the Risk Factors section that appears in Item 3D. “Key Information - Risk Factors.”

iii

TABLE OF CONTENTS

Page No.

PART I

ITEM 1.
ITEM 2.
ITEM 3.

ITEM 4.

Selected Financial Data
Capitalization and Indebtedness
Reasons for the Offer and Use of Proceeds
Risk Factors

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
A.
B.
C.
D.
INFORMATION ON THE COMPANY
A.
B.
C.
D.

History and Development of the Company
Business Overview
Organizational Structure
Property, Plants and Equipment

ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5.

Major Shareholders
Related Party Transactions
Interests of Experts and Counsel

Directors and Senior Management
Compensation
Board Practices
Employees
Beneficial Ownership of Executive Officers and Directors

Operating Results
Liquidity and Capital Resources
Research and Development, Patents and Licenses
Trend Information
Off-Balance Sheet Arrangements
Tabular Disclosure of Contractual Obligations

OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A.
B.
C.
D.
E.
F.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
B.
C.
D.
E.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
B.
C.
FINANCIAL INFORMATION
A.
B.
THE OFFER AND LISTING
A.
B.
C.
D.
E.
F.
ADDITIONAL INFORMATION
A.
B.
C.
D.
E.
F.
G.
H.
I.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Share Capital
Memorandum and Articles of Association
Material Contracts
Exchange Controls
Taxation
Dividend and Paying Agents
Statement by Experts
Documents on Display
Subsidiary Information

Offer and Listing Details
Plan of Distribution
Markets
Selling Shareholders
Dilution
Expense of the Issue

Consolidated Statements and Other Financial Information
Significant Changes

ITEM 6.

ITEM 7.

ITEM 8.

ITEM 9.

ITEM 10.

ITEM 11.
ITEM 12.

1
1
1
1
2
2
2
16
16
17
24
24
24
24
24
30
31
32
32
32
32
32
36
37
46
47
48
48
49
49
49
49
50
50
50
50
50
50
50
50
50
50
51
51
51
52
62
62
62
63
63
63

PART II

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

CONTROLS AND PROCEDURES
RESERVED

ITEM 13.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15.
ITEM 16.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE

PART III

ITEM 17.
ITEM 18.
ITEM 19.

FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS

63
63
63
64
64
64
64
65
65
65
65
66

66
66
67

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

PART I

Not applicable.

ITEM 3.

KEY INFORMATION

A. Selected Financial Data

We derived the following consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020 and the consolidated balance sheet data as of December 31, 2019 and 2020
from our audited consolidated financial statements, included elsewhere in this annual report. We derived the consolidated statements of operations data for the years ended December 31, 2016 and 2017,
and the consolidated balance sheet data as of December 31, 2016, 2017 and 2018 from our audited consolidated financial statements that are not included in this annual report. (See Item 4A. “Discontinued
Operations”).

Statement of Operations Data:

2016

2017

2018

2019

2020

Year Ended December 31,

Revenues
Cost of revenues
Gross profit
Research and development, net
Marketing and selling
General and administrative
Net loss from sale of fixed assets
Operating income (loss)
Financial (income) expense, net
Net income (loss) from continuing operations
Net income (loss) from discontinued operations
Net income (loss)
Net income (loss) attributable to non-controlling interest from discontinued
operations
Net income (loss) attributable to RADA Electronic Industries’ shareholders
Basic net income (loss) per Ordinary share attributable to RADA Electronic
Industries’ shareholders
Diluted net income (loss) per Ordinary share attributable to RADA
Electronic Industries’ shareholders
Weighted average number of shares used to compute basic net income (loss)
per share
Weighted average number of shares used to compute diluted net income
(loss) per share

12,821
11,379
1,442
758
2,269
1,814
-
(3,399)
1,521
(4,920)
13
(4,907)

(3)
(4,910)

(0.35)

14,029

(U.S. dollars in thousands)
28,032
17,817
10,215
3,189
2,860
4,001
103
62
(119)
181
(404)
(223)

26,182
17,841
8,341
1,653
2,137
2,568
-
1,983
156
1,827
515
2,342

103
2,239

0.07

0.06

24,957

28,127

(386)
163

0.02

33,185

33,717

44,331
28,394
15,937
6,912
4,044
7,084
-
(2,103)
(121)
(2,224)
(115)
(2,339)

(309)
(2,030)

(0.05)

38,149

38,841

76,217
47,882
28,335
8,846
5,017
8,972
27
22,862
(167)
5,640
-
5,640

-
5,640

0.13

43,321

44,565

Balance Sheet Data:

Working capital
Total assets
Short-term credits and current maturities of long-term loans
Convertible note - short term
Shareholders’ equity (Excluding Non-controlling interest)

11,106
20,987
-
3,175
10,516

25,641
36,030
-
-
28,526

37,840
53,502
-
-
42,213

31,805
64,915
-
-
41,420

56,775
106,906
454
-
72,033

2016

2017

As of December 31,
2018
(U.S. dollars in thousands)

2019

2020

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Investing in our Ordinary Shares involves a high degree of risk and uncertainty. You should carefully consider the risks and uncertainties described below before investing in our Ordinary Shares. Our
business, prospects, financial condition and results of operations could be adversely affected due to any of the following risks. In that case, the value of our Ordinary Shares could decline, and you could
lose all or part of your investment. These risks include, but are not limited to, the following:

Risks Related to Our Business and Our Industry

• While we have met with initial success in the introduction of our advanced radars for tactical applications such as defense forces protection and border protection, there can be no assurance that

we will succeed in obtaining general market acceptance.

• We have a history of operating losses and may not be able to sustain profitable operations in the future. To the extent that we incur operating losses in the future, we may not have sufficient

working capital to fund our operations.

• Reductions in defense budgets worldwide may cause a reduction in our revenues, which would adversely affect our business, operating results and financial condition.
• We may be required to obtain financing for strategic opportunities, which financing may not be available for us in a timely manner or on favorable terms, and which may dilute the holdings of

our shareholders and/or require us to incur additional debt.

• Competition in the market for defense electronics is intense. Our products may not achieve market acceptance, which could adversely affect our business, financial condition and results of

operations.

• We may not be able to implement our growth strategy which could adversely affect our business, financial condition and results of operations.
• Due to inaccurate forecasts, mistakes or business changes, we may be exposed to inventory-related losses on inventory we purchased in advance and part of our inventory may be written off,

which would increase our cost of revenues.

• Epidemics and pandemics, such as the COVID-19 pandemic, could materially disrupt the company’s business and have a negative impact on the company’s financial results and financial

condition.

• Other unfavorable national and global economic conditions could have a material adverse effect on our business, operating results and financial condition.

•

Sales of our products are subject to governmental procurement procedures and practices; termination, reduction or modification of contracts with our customers or a substantial decrease in our
customers’ budgets may adversely affect our business, operating results and financial condition.
If we do not receive the governmental approvals necessary for the export of our products, our revenues may decrease. Similarly, if our suppliers and partners do not receive government approvals
necessary to export their products or designs to us, our revenues may decrease, and we may fail to implement our growth strategy.

• We would be adversely affected if we are unable to attract and retain key personnel.
• We depend on sales to key customers and the loss of one or more of our key customers would result in a loss of a significant amount of our revenues, which would adversely affect our business,

financial condition and results of operations.

• We depend on suppliers of components for our products and if we are unable to obtain these components when needed, we could experience delays in the manufacturing of our products and our

financial results could be adversely affected.

• Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition and results of operations.
• We enter into fixed-price contracts that could expose us to losses in the event we fail to properly estimate our costs.
• Breaches of network or information technology security, natural disasters or terrorist attacks could have an adverse effect on our business.
• We are subject to risks associated with international operations; we generate a significant portion of our sales from customers located in countries that may be adversely affected by political or

economic instability and corruption.

• Many of our end users are U.S. government customers, which subject us to risks including early termination, audits, investigations, sanctions, or penalties.
• We may acquire or invest in companies which may divert our management’s attention and result in debt or dilution to our shareholders. We may be unable to integrate acquired businesses and

technologies successfully or achieve the expected benefits of such acquisitions.

• Currency exchange rate fluctuations in the world markets in which we conduct business could have a material adverse effect on our business, results of operations and financial condition.
• Claims that our products infringe upon the intellectual property of third parties may require us to incur significant costs, enter into licensing agreements or license substitute technology.
•
•

If we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties, our business could be adversely affected.
Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to our Environmental, Social and Governance, or ESG, policies may
impose additional costs on us or expose us to additional risks.

• Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our solutions.
• We may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which could have an adverse effect on our financial results and the market

price of our Ordinary Shares.

Risk Related to Our Ordinary Shares

• Our Ordinary Shares are traded on more than one market and this may result in price variations.
• Our share price has been volatile in the past and may decline in the future.
• We do not intend to pay dividends.
• We may be classified as a passive foreign investment company, or PFIC, which would subject our U.S. investors to adverse tax rules.

Risks Related to Our Location in Israel

Political, economic and military instability in Israel may disrupt our operations and negatively affect our business condition, harm our results of operations and adversely affect our share price.

•
• Our results of operations may be negatively affected by the obligation of our personnel to perform military service.
• We may not be able to enforce covenants not-to-compete under current Israeli law.
• We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
•

Service and enforcement of legal process on us and our directors and officers may be difficult to obtain.

• The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from those of a typical U.S. corporation.
•
• As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ

Israeli government programs and tax benefits may be terminated or reduced in the future, which could increase our tax expenses.

requirements.

Risks Related to Our Business and Our Industry

While we have met with initial success in the introduction of our advanced ground radars for tactical applications such as defense forces protection and border protection, there can be no assurance
that we will succeed in obtaining general market acceptance.

We have developed a number of radar hardware platforms for use in combat vehicles and tactical protection applications for defense forces and border protection. In December 2014, we announced the
first significant order for this product family and while we have been successful in marketing our ground radar products since then, we cannot assure you that our ground radars will achieve broad market
acceptance.

We have a history of operating losses and may not be able to sustain profitable operations in the future. To the extent that we incur operating losses in the future, we may not have sufficient working
capital to fund our operations.

We incurred operating losses in three of the five years ended December 31, 2020 and may not be able to achieve or sustain profitable operations in the future or generate positive cash flows from
operations. As of December 31, 2020, our accumulated deficit was $73 million. To the extent that we incur significant operating losses in the future or are unable to generate free cash flows from our
business, we may not have sufficient working capital to fund our operations and will be required to obtain additional financing. Such financing may not be available, or if available, may not be on terms
satisfactory to us. If adequate funds are not available to us, our business, and results of operations and financial condition will be adversely affected.

Reductions in defense budgets worldwide may cause a reduction in our revenues, which would adversely affect our business, operating results and financial condition.

Substantially all of our revenues are derived from the sale of products with military applications. While the U.S. defense budget was recently increased, there can be no assurance that this increase will be
maintained for the foreseeable future, particularly in light of the recent and expected future budget deficits arising from the effects of the COVID-19 pandemic and expenditures to combat the pandemic
and offset its economic effects. In addition, the defense budgets of a number of countries have declined and may be reduced in the future. Declines in defense budgets may result in reduced demand for our
products. This would result in reduction in our core business’ revenues and adversely affect our business, results of operations and financial condition.

We may be required to obtain financing for strategic opportunities, which financing may not be available for us in a timely manner or on favorable terms, and which may dilute the holdings of our
shareholders and/or require us to incur additional debt.

In order to invest in strategic opportunities in support of our growth plans and/or business development activities, we may be required to obtain funds from financing sources, including through debt
vehicles or re-financing, sale of new securities or other financing alternatives. There is no assurance that we will be able to obtain sufficient funding, if at all, from the financing sources detailed above or
other sources in a timely manner (or on commercially reasonable terms) in order to allow us to fund our growth plans and/or business development activities, which may adversely affect our financial
position and operations, may dilute the holdings of our shareholders or require us to incur additional debt.

Competition in the market for defense electronics is intense. Our products may not achieve market acceptance, which could adversely affect our business, financial condition and results of
operations.

The market for our products is highly competitive and we may not be able to compete effectively. Our principal competitors in the defense electronics market, include Israel Aerospace Industries Ltd., or
IAI, Raytheon Company, Northrop Grumman Corporation, Thales Group, and SRC Inc. We expect to continue to face competition from these and other competitors. Most of our competitors are larger and
have substantially greater resources than us, including financial, technological, marketing and distribution capabilities, and enjoy greater market recognition than we do. These competitors are able to
achieve greater economies of scale and may be less vulnerable to price competition than us. We may not be able to offer our products as part of integrated systems to the same extent as our competitors or
successfully develop or introduce new products that are more cost effective or offer better performance than those of our competitors. Failure to do so could adversely affect our business, financial
condition and results of operations.

Further, we derive a portion of our revenue from direct and indirect sales to governments and their agencies and our competitors are increasingly targeting such governmental agencies as potential clients.
Such government contracts are subject to various procurement, competition and other laws and regulations, as well as contractual provisions, and violations could result in the imposition of various civil
and criminal penalties, termination of contracts, forfeiture of profits, suspension of payments, or suspension of future government contracting. In addition, these entities may require license terms that we
are unwilling to agree to (e.g., open data rights). As such, we may lose government clients to our competitors, our government contracts may be terminated or not be renewed or we may be suspended from
government work or the ability to compete for new contracts.

We may not be able to implement our growth strategy which could adversely affect our business, financial condition and results of operations.

In line with our growth strategy, we entered into a number of strategic relationships with Lockheed Martin Corporation, or Lockheed Martin, Boeing Defense, Space & Security, or Boeing, Rafael
Advanced Defense Systems Ltd., or Rafael, Elbit Systems Ltd., or Elbit, Leonardo DRS, or DRS, Anduril Industries, or Anduril and Ascent Vision Technologies (a CACI subsidiary), or AVT, to increase
our penetration into the defense electronics market. We are currently investing and intend to continue to invest significant resources to develop these relationships and additional new relationships. Should
our relationships fail to materialize into significant agreements or should we fail to work efficiently with these companies, we may lose sales and marketing opportunities and our business, results of
operations and financial condition could be adversely affected.

Our growth is dependent in part on the development of new products, based on internal research and development, including the expansion of our radar offerings. We may not accurately identify market
needs before we invest in the development of a new product. We may also face difficulties or delays in the development process that will result in our inability to timely offer products that satisfy the
market and competing products may emerge during the development and certification process.

Due to inaccurate forecasts, mistakes or business changes, we may be exposed to inventory-related losses on inventory we purchased in advance and part of our inventory may be written off, which
would increase our cost of revenues.

We normally purchase more inventory than is immediately required in order to shorten our delivery time especially in the event of an increase in demand for our products. We have also increased our
inventory level in order to accommodate possible consequences of COVID-19. If the actual orders from our customers are lower than projected or if we decide to change our product line or our product
support strategy, we will have excess inventory of components or finished products. Our inventory levels may be too high, and inventory may become obsolete or over-stated on our balance sheet. Our
inventory of finished products may accumulate. The rate of accumulation may increase in a period of economic downturn. This would require us to write off inventory, which could adversely affect our
gross profit and results of operation.

Epidemics and pandemics, such as the COVID-19 pandemic, could materially disrupt the company’s business and have a negative impact on the company’s financial results and financial condition.

We are vulnerable to the general economic effects of epidemics, pandemics and other public health crises, such as the COVID-19 pandemic. Due to the recent outbreak of COVID-19, there has been a
substantial curtailment of travel and business activities, which is causing significant disruptions to the global economy. The extent to which COVID-19 impacts our results will depend primarily on future
developments, which are highly uncertain and cannot be predicted with confidence, including the severity and duration of the crisis, the speed and effectiveness of vaccine and treatment developments and
deployment, potential mutations of COVID-19, and the impact of actions taken and that will be taken to contain COVID-19 or treat its impact, among others. For example, if COVID-19 continues to
spread, we may need to limit operations or implement additional restrictions as a result of widespread government restrictions.

Our increased reliance on personnel working from home may negatively impact productivity or disrupt, delay or otherwise adversely impact its business. Israel and other countries have enforced
quarantines and shutdowns to slow the spread of COVID-19, and restricted international travel during this pandemic.

Our future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and operational
challenges faced by our customers. Continued outbreaks of COVID-19 could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries,
resulting in an economic downturn or a global recession that could cause significant volatility or decline in the trading price of our securities, affect our ability to execute strategic business activities, affect
demand for our products and likely impact our operating results. These may further limit or restrict our ability to access capital on favorable terms, or at all, lead to consolidation that negatively impacts
our business, weaken demand, increase competition, cause us to reduce our capital spend further, or otherwise disrupt our business.

Other unfavorable national and global economic conditions could have a material adverse effect on our business, operating results and financial condition.

During periods of slowing economic activity, our customers may reduce their demand for our products, technology and professional services, which would reduce our sales, and our business, operating
results and financial condition may be adversely affected. Significant portions of our operations are conducted outside the markets in which our products and solutions are manufactured or generally sold,
and accordingly, we often export a substantial number of products into such markets. We may, therefore, be denied access to potential customers or suppliers or denied the ability to ship products from any
of our subsidiaries into the countries in which we currently operate or wish to operate, as a result of economic, legislative, political and military conditions, including hostilities and acts of terrorism, in
such countries.

We could also be exposed to credit risk and payment delinquencies on our accounts receivable. In particular, there is currently significant uncertainty about the future relationship between the U.S. and
various other countries, with respect to trade policies, treaties, government regulations, and tariffs. Although we partially manufacture in the US, major developments in trade relations, including the
imposition of new or increased tariffs by the U.S. and/or other countries, and any emerging nationalist trends in specific countries could alter the trade environment and consumer purchasing behavior
which, in turn, could have a material effect on our financial condition and results of operations.

Any slowdown or instability in the global economy could impact income, purchasing power and consumption levels among other things, which could limit growth, increase delinquency rates and
ultimately have a material adverse effect on us. In addition, any global economic slowdown or uncertainty may result in volatile conditions in the global financial markets, which could have a material
adverse effect on us, including on our ability to access capital and liquidity on financial terms acceptable to us, if at all. Any such adverse effect on capital markets funding availability or costs or in deposit
rates could have a material adverse effect on our interest margins and liquidity.

We may also be required in the future to increase our reserves for doubtful accounts. In addition, the fair value of some of our assets may decrease as a result of an uncertain economy and as a result, we
may be required to record impairment charges in the future. If global economic and market conditions or economic conditions in key markets remain uncertain or weaken further, our financial condition
and operating results may be materially adversely affected.

Our products are primarily sold to governmental agencies, governmental authorities and government-owned companies, many of which have complex and time-consuming procurement procedures. A
substantial period of time often elapses from the time we begin marketing a product until we actually sell that product to a particular customer. In addition, our sales to governmental agencies, authorities
and companies are directly affected by these customers’ budgetary constraints and the priority given in their budgets to the procurement of our products. A decrease in governmental funding for our
customers’ budgets would adversely affect our results of operations. This risk is heightened during periods of global economic slowdown. Accordingly, governmental purchases of our systems, products
and services may decline in the future as the governmental purchasing agencies may terminate, reduce or modify contracts or subcontracts if:

•

their requirements or budgetary constraints change;

they cancel multi-year contracts and related orders if funds become unavailable;

they shift spending priorities into other areas or for other products; or

they adjust contract costs and fees on the basis of audits.

Any such event may have a material adverse effect on us.

Further, our business with the State of Israel and other governmental entities is, in general, subject to delays in funding and performance of contracts and the termination for convenience (among other
reasons) of contracts or subcontracts with governmental entities. The termination, reduction or modification of our contracts or subcontracts with the Government of Israel in the event of change in
requirements, policies or budgetary constraints would have an adverse effect on our business, operating results and financial condition.

If we do not receive the governmental approvals necessary for the export of our products, our revenues may decrease. Similarly, if our suppliers and partners do not receive government approvals
necessary to export their products or designs to us, our revenues may decrease, and we may fail to implement our growth strategy.

Israel’s defense export policy regulates the sale of our systems and products. Current Israeli policy encourages export to approved customers of defense systems and products, such as ours, as long as the
export is consistent with Israeli government policy. A license is required to initiate marketing activities. We are also required to obtain a specific export license for any hardware exported from Israel. We
may not be able to receive all the required permits and licenses for which we may apply in the future. If we do not receive the required permits for which we apply, our revenues may decrease.

We are subject to laws regulating export of “dual use” items (items that are typically sold in the commercial market, but that also may be used in the defense market) and defense export control legislation.
Additionally, our participation in governmental procurement processes in Israel and other countries is subject to specific regulations governing the conduct of the process of procuring defense contracts.
Furthermore, solicitations for procurements by governmental purchasing agencies in Israel and other countries are governed by laws, regulations and procedures relating to procurement integrity, including
avoiding conflicts of interest and corruption in the procurement process. We may not be able to respond quickly and effectively to changing laws and regulations and any failure to comply with such laws
and regulations may subject us to significant liability and penalties.

We would be adversely affected if we are unable to attract and retain key personnel

Our success depends in part on key management, sales, marketing and development personnel and our continuing ability to attract and retain highly qualified personnel, including with respect to our
recently formed subsidiaries. There is competition for the services of such personnel. The loss of the services of senior management and key personnel, or the failure to attract highly qualified personnel in
the future, may have a negative impact on our business. Moreover, our competitors may hire and gain access to the expertise of our former employees or our former employees may compete with us. There
is no assurance that we will be successful in attracting, integrating, motivating and retaining key personnel or that former employees will not compete with in the future. If we are unable to retain our key
personnel and attract additional qualified personnel as and when needed, our business may be adversely affected.

We depend on sales to key customers and the loss of one or more of our key customers would result in a loss of a significant amount of our revenues, which would adversely affect our business,
financial condition and results of operations.

A significant portion of our revenues is derived from a small number of customers. During the years ended December 31, 2020 and 2019, 63% and 61% of our revenues, respectively, were attributable to
nine customers. We anticipate that a significant portion of our future revenues will continue to be derived from sales to a small number of customers. No assurances can be given that our customers will
continue to purchase our products, that we will be successful in any bid for new contracts to provide such products, or that if we were granted subsequent orders, such orders would be of a scope
comparable to the sales that we have experienced to date. If our principal customers do not continue to purchase products from us at current levels or if we do not retain such customers and we are not able
to derive sufficient revenues from sales to new customers to compensate for their loss, our revenues would be reduced and adversely affect our business, cash flows, financial condition and results of
operations.

We depend on suppliers of components for our products and if we are unable to obtain these components when needed, we could experience delays in the manufacturing of our products and our
financial results could be adversely affected.

We acquire most of the components for the manufacturing of our products from suppliers and subcontractors, most of whom are located in Israel and the U.S. A number of these suppliers are currently the
sole source of one or more components upon which we are dependent. Suppliers of some of the components for manufacturing require us to place orders with significant lead-time to assure supply in
accordance with our manufacturing requirements. Delays in supply may significantly hurt our ability to fulfill our contractual obligations and may significantly hurt our business and result of operations. In
addition, we may not be able to continue to obtain such components from these suppliers on satisfactory commercial terms. Temporary disruptions of our manufacturing operations would ensue if we were
required to obtain components from alternative sources, which may have an adverse effect on our financial results.

Rapid technological changes may adversely affect the market acceptance of our products and could adversely affect our business, financial condition and results of operations.

The defense electronics market in which we compete is subject to technological changes, introduction of new products, change in customer demands and evolving industry standards. Our future success
will depend upon our ability to keep pace with technological developments and to timely address the increasingly sophisticated needs of our customers by supporting existing and new technologies and by
developing and introducing enhancements to our current products and new products. We may not be successful in developing and marketing enhancements to our products that will respond to
technological change, evolving industry standards or customer requirements. In addition, we may experience difficulties that could delay or prevent the successful development, introduction and sale of
such enhancements and such enhancements may not adequately meet the requirements of the market and may not achieve any significant degrees of market acceptance. If release dates of our new products
or enhancements are delayed or, if when released, they fail to achieve market acceptance, our business, operating results and financial condition may be adversely affected.

We enter into fixed-price contracts that could expose us to losses in the event we fail to properly estimate our costs.

We enter into firm fixed-price contracts. If our initial cost estimates are incorrect, we can lose money on these contracts. To the extent we underestimate the costs to be incurred in any fixed-price contract,
we could experience a loss on the contract, which could have a negative effect on our results of operations, financial position and cash flow.

Breaches of network or information technology security, natural disasters or terrorist attacks could have an adverse effect on our business.

Cyber-attacks or other breaches of network or IT security, natural disasters, terrorist acts or acts of war may cause equipment failures or disrupt our systems and operations. We may be subject to attempts
to breach the security of our networks and IT infrastructure through cyber-attack, malware, computer viruses and other means of unauthorized access, which could also impact the operation of our products
and services. The potential liabilities associated with these events could exceed the insurance coverage we maintain. Our inability to operate our facilities as a result of such events, even for a limited
period of time, may result in significant expenses or loss of market share to other competitors in the defense electronics market. In addition, a failure to protect the privacy of customer and employee
confidential data against breaches of network or IT security could result in damage to our reputation. We have experienced and defended against certain threats to our systems and security (such as fishing
and ransom attempts), none have had a material adverse effect on our business or operations to date. However, we could incur significant costs in order to investigate and respond to future attacks, to
respond to evolving regulatory oversight requirements, to upgrade our cybersecurity systems and controls, and to remediate security compromise or damage. In response to past threats and attacks, we
have implemented further controls and planned for other preventative actions to further strengthen our systems against future attacks. However, we cannot assure you that such measures will provide
absolute security, that we will be able to react in a timely manner, or that our remediation efforts following past or future attacks will be successful. Consequently, our financial performance and results of
operations would be materially adversely affected.

We are subject to risks associated with international operations; we generate a significant portion of our sales from customers located in countries that may be adversely affected by political or
economic instability and corruption.

We are a defense company with worldwide operations. Although 80% of our sales are in Israel and North America, we expect to derive an increasing portion of our sales and future growth from other
regions such as Latin America, India and Central and Eastern Europe, which may be more susceptible to political or economic instability and the economic impact of the spread of COVID-19. In addition,
in many less-developed markets, we rely heavily on third-party representatives, consultants and other agents for business development, marketing and distribution of our products. Many of these third
parties do not have internal compliance resources comparable to ours. Business activities in many of these markets have historically been more susceptible to corruption. If our efforts to screen third party
agents and detect cases of potential misconduct fail, we could be held responsible for the noncompliance of these third parties under applicable laws and regulations, which may adversely affect our
reputation and our business, financial condition or results of operations.

Exports (whether direct sales or sales through our Israeli customers and including the revenues of our U.S. subsidiaries - mainly RTL) accounted for 91% of our revenues in 2020, 71% of our revenues in
2019 and 63% of our revenues in 2018. Our reliance on export sales subjects us to many risks inherent in engaging in international business, including:

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Limitations and disruptions resulting from the imposition of government controls;

• Changes in regulatory requirements;

•

The global impact of the COVID-19 pandemic;

Export license requirements;

Economic or political instability;

Trade restrictions;

• Changes in tariffs;

• Currency fluctuations;

•

Longer receivable collection periods and greater difficulty in accounts receivable collection;

• Greater difficulty in safeguarding intellectual property;

• Difficulties in managing overseas subsidiaries and international operations; and

•

Potential adverse tax consequences.

We may not be able to sustain or increase revenues from international operations and may encounter significant difficulties, in connection with the sale of our products in international markets. Any of
those events may adversely affect our business, operating results and financial condition.

In addition, as a company registered with the SEC, we are subject to the regulations imposed by the Foreign Corrupt Practices Act, or FCPA, which generally prohibits registrants and their intermediaries
from making improper payments to foreign officials, for the purpose of obtaining or keeping business or obtaining an improper business benefit. We have adopted proactive procedures to promote
compliance with the FCPA, but we may be held liable for actions taken by our strategic or local partners or agents even though these partners may not themselves be subject to the FCPA. Any
determination that we have violated the FCPA could materially and adversely affect our business, results of operations, and cash flows.

Finally, our business also must be conducted in compliance with applicable economic and trade sanctions and export control laws and regulations, including those administered and enforced by the U.S.
Department of the Treasury’s Office of Foreign Assets Control, the U.S. State Department of State, the U.S. Department of Commerce, the United Nations Security Council, and other relevant authorities.
Our global operations expose us to the risk of violating, or being accused of violating, such laws and regulations. Our failure to comply with these trade-related laws and regulations may expose us to
reputational harm as well as significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, injunctions and debarment from government contracts, as well as other
remedial measures. Investigations of alleged violations can be expensive and disruptive. Despite our compliance efforts and activities, we cannot assure compliance by our employees or representatives for
which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.

Many of our end users are U.S. government customers, which subject us to risks including early termination, audits, investigations, sanctions, or penalties.

We derive a substantial portion of our revenue from contracts with U.S. defense contractors and systems integrators that ultimately provide our products to the U.S. government, including the U.S.
Department of Defense. We also occasionally enter into contracts directly with the U.S. government. We may enter into further contracts with U.S. defense contractors and systems integrators as well as
directly with the U.S. government. These contracts subject us to statutes and regulations applicable to companies doing business with the U.S. government. These types of contracts customarily contain
provisions that give the government substantial rights and remedies, many of which are not typically found in commercial contracts and which are unfavorable to contractors, including provisions that
allow the government to unilaterally terminate or modify contracts, in whole or in part, at the government’s convenience or in the government’s best interest, including if funds become unavailable to the
applicable government agency.

In addition, government contracts and subcontracts normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to
comply with these terms and conditions. These requirements include, for example:

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compliance with complex regulations for procurement, formation, administration, and performance of government contracts and subcontracts under the Federal Acquisition Regulations, or
FAR, and agency-specific regulations supplemental to the FAR;
specialized disclosure and accounting requirements unique to government contracts and subcontracts;

•
• mandatory financial and compliance audits that may result in potential liability for price or cost adjustments, recoupment of government funds after such funds have been spent, civil and

criminal penalties, or administrative sanctions such as suspension or debarment from doing business with the U.S. government;
public disclosures of certain contract and company information; and

•
• mandatory socioeconomic compliance requirements, including labor requirements, non-discrimination and affirmative action programs and environmental compliance requirements.

Government contracts and subcontracts are also generally subject to greater scrutiny by the government, which can unilaterally initiate reviews, audits and investigations regarding our compliance with
government contract requirements. In addition, if we fail to comply with government contract laws, regulations and contract requirements, our contracts and subcontracts may be subject to termination or
suspension, and we may be subject to financial or other liability under our contracts or under the Federal Civil False Claims Act. The False Claims Act’s “whistleblower” provisions allow private
individuals, including present and former employees, to sue on behalf of the U.S. government. The False Claims Act statute provides for treble damages and other penalties and, if our operations are found
to be in violation of the False Claims Act, we could face other adverse action, including suspension or prohibition from doing business with the United States government. Any penalties, damages, fines,
suspension, or damages could adversely affect our ability to operate our business and our financial results. Further, the negative publicity that could arise from any such penalties, sanctions or findings
could have an adverse effect on our reputation and reduce our ability to compete for new contracts with both government and commercial clients. Moreover, government entities typically finance projects
through appropriated funds. While these projects are often planned and executed as multi-year projects, government entities usually reserve the right to change the scope of or terminate these projects for
lack of approved funding or at their convenience. Changes in government or political developments, including legislative or regulatory changes, budget deficits, shortfalls or uncertainties, government
spending reductions or other debt or funding constraints, could result in lower governmental sales and our projects being reduced in price or scope or terminated altogether, which also could limit our
recovery of incurred costs, reimbursable expenses and profits on work completed prior to the termination.

We may acquire or invest in companies which may divert our management’s attention and result in debt or dilution to our shareholders. We may be unable to integrate acquired businesses and
technologies successfully or achieve the expected benefits of such acquisitions.

We intend to evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products and other assets in the future. For example, in
February 2021, we announced the signing of a Term Sheet to invest $3 million in consideration for a 12% interest in RadSee Technologies Ltd., an early-stage advanced radar technology company. We also
may enter into relationships with other businesses to expand our products which could involve investments in or acquisitions of other companies.

Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties or delays in assimilating or integrating the
businesses, technologies, products, employees or operations of the acquired companies, particularly if the key employees of the acquired company choose not to work for us, their products or services are
not easily adapted to work with our products, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. In addition, we may discover
liabilities or deficiencies associated with the assets or companies we acquire or ineffective or inadequate controls, procedures or policies at an acquired business that were not identified in advance, any of
which could result in significant unanticipated costs. Acquisitions also may disrupt our business, divert our resources or require significant management attention that would otherwise be available for
development of our existing business. Moreover, the anticipated benefits of any acquisition, investment or business relationship may not be realized or we may be exposed to unknown risks or liabilities.

Negotiating these transactions can be time consuming, difficult and expensive, and our ability to complete these transactions may often be subject to approvals that are beyond our control. Consequently,
these transactions, even if announced, may not be completed. For one or more of those transactions, we may:

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issue additional equity securities that would dilute our existing shareholders;

use cash that we may need in the future to operate our business;

incur large charges or substantial liabilities;

incur debt on terms unfavorable to us or that we are unable to repay;

encounter difficulties retaining key employees of the acquired company or integrating business cultures;

encounter difficulties retaining the acquired company’s customers; or

become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges.

The occurrence of any of these foregoing could adversely affect our business, results of operations and financial condition.

Currency exchange rate fluctuations in the world markets in which we conduct business could have a material adverse effect on our business, results of operations and financial condition.

Most of our revenues are in dollars or are linked to the dollar, while a portion of our expenses, principally salaries and related personnel expenses, are incurred in other currencies, particularly in NIS.
Therefore, our costs in such other currencies, as expressed in dollars, are influenced by the exchange rate between the dollar and the relevant currency. We are also exposed to the risk that the rate of
inflation in Israel will exceed the rate of depreciation of the NIS in relation to the dollar or that the timing of this depreciation lags behind inflation in Israel. This would have the effect of increasing the
dollar cost of our operations. In the past, the NIS exchange rate with the dollar and other foreign currencies has fluctuated, generally reflecting inflation rate differentials. We cannot predict any future
trends in the rate of inflation in Israel or the rate of depreciation or appreciation of the NIS against the dollar. If the dollar cost of our operations in Israel increases, our dollar-measured results of operations
will be adversely affected. We engage in currency hedging transactions intended to partly reduce the effect of fluctuations in foreign currency exchange rates on our results of operations. However, such
transactions may not materially reduce the effect of fluctuations in foreign currency exchange rates on our results of operations.

Claims that our products infringe upon the intellectual property of third parties may require us to incur significant costs, enter into licensing agreements or license substitute technology.

Third parties may assert that we have infringed, misappropriated or otherwise violated a patent, copyright, trademark or other proprietary or intellectual property right belonging to them. Any infringement
claim, even one without merit, could result in the expenditure of significant financial and managerial resources to defend against the claim. Moreover, a successful claim of product infringement against us
or a settlement could require us to pay substantial amounts or obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology.
We might not be able to obtain a license from the third party asserting the claim on commercially reasonable terms, if at all. We also may not be able to obtain a license from another provider of suitable
alternative technology to permit us to continue offering the product. Infringement claims asserted against us could have a material adverse effect on our business, operating results and financial condition.

If we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties, our business could be adversely affected.

Our success depends, in part, upon our ability to protect our intellectual property. Although we take steps to protect our intellectual property such as requiring employees and consultants to execute
confidentiality agreements, such individuals may breach the terms of such agreements. Further, competitors may develop products and services similar to or superior to ours. Further, we might not be able
to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property rights. Enforcing our rights might require considerable time, money and oversight, and we may not be
successful in enforcing our rights.

Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to our Environmental, Social and Governance, or ESG, policies may
impose additional costs on us or expose us to additional risks.

Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investors, lenders and other market participants are increasingly focused on ESG practices and in recent years
have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG may hinder our access to capital, as investors and lenders may
reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and
standards, which are evolving, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer
from reputational damage and the business, financial condition and the price of our company’s shares could be materially and adversely affected.

Regulations related to conflict minerals may cause us to incur additional expenses and could limit the supply and increase the costs of certain metals used in the manufacturing of our solutions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use in components of our products of “conflict minerals” mined from the Democratic
Republic of Congo and adjoining countries, whether the components of our products are manufactured by us or third parties. These requirements could affect the pricing, sourcing and availability of
minerals used in the manufacture of components we use in our products. Although the U.S. Securities and Exchange Commission, or the SEC, has provided guidance with respect to a portion of the
conflict mineral filing requirements that may somewhat reduce our reporting practices, there are costs associated with complying with the disclosure requirements and customer requests, such as costs
related to our due diligence to determine the source of any conflict minerals used in our products. Because of the complexity of our supply chain, we may face reputational challenges if we are unable to
sufficiently verify the origins of the subject minerals. Moreover, we are likely to encounter challenges to satisfy those customers who require that all of the components of our products are certified as
“conflict free.” If we cannot satisfy these customers, they may choose a competitor’s products.

We may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, which could have an adverse effect on our financial results and the market price
of our Ordinary Shares.

The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002 governing
internal controls and procedures for financial reporting, which started, in connection with our 2007 Annual Report on form 20-F, have resulted in increased general and administrative expense and a
diversion of management time and attention, and we expect these efforts to require the continued commitment of significant resources. We may identify material weaknesses or significant deficiencies in
our assessments of our internal controls over financial reporting. Failure to maintain effective internal controls over financial reporting could result in investigation or sanctions by regulatory authorities
and could have a material adverse effect on our operating results, investor confidence in our reported financial information and the market price of our Ordinary Shares.

Risks Related to Our Ordinary Shares

Our Ordinary Shares are traded on more than one market and this may result in price variations.

Our ordinary shares have recently been admitted for trading on the Tel Aviv Stock Exchange (“TASE”) in addition to the NASDAQ Capital Market. Trading in our ordinary shares on these markets is
made in different currencies (U.S. dollars on the NASDAQ Capital Market, and NIS on the TASE), and at different times (resulting from different time zones, different trading days and different public
holidays in the U.S. and Israel). Consequently, the trading prices of our ordinary shares on these two markets often differ. Any decrease in the trading price of our ordinary shares on one of these markets
could cause a decrease in the trading price of our ordinary shares on the other market.

Our share price has been volatile in the past and may decline in the future.

Our Ordinary Shares have experienced significant market price and volume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors
such as the following, some of which are beyond our control:

• Quarterly variations in our operating results;

• Operating results that vary from the expectations of securities analysts and investors;

• Changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

• Announcements of technological innovations or new products by us or our competitors;

• Announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;

• Changes in the status of our intellectual property rights;

• Announcements by third parties of significant claims or proceedings against us;

• Additions or departures of key personnel;

•

Future sales of our Ordinary Shares;

• Delisting of our shares from the NASDAQ Capital Market; and

•

Stock market price and volume fluctuations.

Domestic and international stock markets often experience extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recessions,
pandemics, interest and currency rate fluctuations, and political events or hostilities in or surrounding Israel, could adversely affect the market price of our Ordinary Shares.

In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of its securities. We may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and divert management’s attention and resources both of which could have a material adverse effect on our business and results of operations.

We do not intend to pay dividends.

We have never declared or paid cash dividends on our Ordinary Shares and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our board of directors
and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an
investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market
price of our Ordinary Shares, which is uncertain and unpredictable. There is no guarantee that our Ordinary Shares will appreciate in value or even maintain the price at which you purchased your Ordinary
Shares.

We may be classified as a passive foreign investment company, or PFIC, which would subject our U.S. investors to adverse tax rules.

U.S. holders of our Ordinary Shares may face income tax risks. Based on the composition of our income, assets (including the value of our goodwill, going-concern value or any other unbooked
intangibles, which may be determined based on the price of the ordinary shares), and operations, we believe we will not be classified as a “passive foreign investment company”, or PFIC, for the 2020
taxable year. However, because PFIC status is based on our income, assets and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for our current
taxable year or future taxable years until after the close of the applicable taxable year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in the
current year and future years will depend on our income, assets and activities in each of those years and, as a result, cannot be predicted with certainty as of the date hereof. Furthermore, fluctuations in the
market price of our ordinary shares may cause our classification as a PFIC for the current or future taxable years to change because the aggregate value of our assets for purposes of the asset test, including
the value of our goodwill and unbooked intangibles, generally will be determined by reference to the market price of our shares from time to time (which may be volatile). The IRS or a court may disagree
with our determinations, including the manner in which we determine the value of our assets and the percentage of our assets that are passive assets under the PFIC rules. Therefore, there can be no
assurance that we will not be a PFIC for the current taxable year or for any future taxable year. Our treatment as a PFIC could result in a reduction in the after-tax return to U.S. Holders (as defined below
under Item 10E. “Additional Information – Taxation”) of our Ordinary Shares and would likely cause a reduction in the value of such shares. A foreign corporation will be treated as a PFIC for U.S.
federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income,” or (2) at least 50% of the average value of the corporation’s
gross assets produce, or are held for the production of, such “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment
property and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. If we are treated as a PFIC, U.S. Holders
of Ordinary Shares would be subject to a special adverse U.S. federal income tax regime with respect to the income derived by us, the distributions they receive from us, and the gain, if any, they derive
from the sale or other disposition of their Ordinary Shares. U.S. Holders should carefully read Item 10E. “Additional Information – Taxation” for a more complete discussion of the U.S. federal income tax
risks related to owning and disposing of our Ordinary Shares.

Risks Related to Our Location in Israel

Political, economic and military instability in Israel may disrupt our operations and negatively affect our business condition, harm our results of operations and adversely affect our share price.

We are incorporated under the laws of, and our principal executive offices and manufacturing and research and development facilities are located in the State of Israel. As a result, political, economic and
military conditions affecting Israel directly influence us. Any major hostilities involving Israel, a full or partial mobilization of the reserve forces of the Israeli army, the interruption or curtailment of trade
between Israel and its present trading partners, or a significant downturn in the economic or financial condition of Israel could adversely affect our business, financial condition and results of operations.

Conflicts in North Africa and the Middle East, including in Egypt and Syria which border Israel, have resulted in continued political uncertainty and violence in the region. Efforts to improve Israel’s
relationship with the Palestinian Authority have failed to result in a permanent solution, and there have been numerous periods of hostility in recent years. In addition, relations between Israel and Iran
continue to be seriously strained, especially with regard to Iran’s nuclear program. Such instability may affect the local and global economy, could negatively affect business conditions and, therefore,
could adversely affect our operations. To date, these matters have not had any material effect on our business and results of operations; however, the regional security situation and worldwide perceptions
of it are outside our control and there can be no assurance that these matters will not negatively affect our business, financial condition and results of operations in the future.

Furthermore, we could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. Some countries, companies and organizations continue to participate in a
boycott of Israeli companies and others doing business with Israel or with Israeli companies. As a result, we are precluded from marketing our products to these countries, companies and organizations.
Foreign government defense export policies towards Israel could also make it more difficult for us to obtain the export authorizations necessary for our activities. Also, over the past several years there
have been calls in Europe and elsewhere to reduce trade with Israel. Restrictive laws, policies or practices directed towards Israel or Israeli businesses may have an adverse impact on our operations, our
financial results or the expansion of our business. Israel has also been aggressive in mandating quarantines and restricting local and international travel during the COVID-19 pandemic.

Our results of operations may be negatively affected by the obligation of our personnel to perform military service.

Some of our employees in Israel are obligated to perform annual military reserve duty and are subject to being called for active duty under emergency circumstances. If a military conflict or war arises,
these individuals could be required to serve in the military for extended periods of time. Our operations could be disrupted by the absence for a significant period of one or more of our executive officers or
key employees or a significant number of other employees due to military service. Any disruption in our operations could adversely affect our business.

We may not be able to enforce covenants not-to-compete under current Israeli law.

We have non-competition agreements with most of our employees, many of which are governed by Israeli law. These agreements generally prohibit our employees from competing with us or working for
our competitors for a specified period following termination of their employment. However, Israeli courts are reluctant to enforce non-compete undertakings of former employees and tend, if at all, to
enforce those provisions for relatively brief periods of time in restricted geographical areas and only when the employee has unique value specific to that employer’s business and not just regarding the
professional development of the employee. Any such inability to enforce non-compete covenants may cause us to lose any competitive advantage resulting from advantages provided to us by such
confidential information.

We may become subject to claims for remuneration or royalties for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.

A significant portion of our intellectual property has been developed by our Israeli employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or Israeli Patent Law,
inventions conceived by an employee during the term and as part of the scope of his or her employment with a company are regarded as “service inventions,” which belong to the employer, absent a
specific agreement between the employee and employer giving the employee service invention rights. The Israeli Patent Law also provides that if there is no such agreement between an employer and an
employee, the Israeli Compensation and Royalties Committee, or C&R Committee, a body constituted under the Israeli Patent Law, shall determine whether the employee is entitled to remuneration for his
inventions. The C&R Committee (decisions of which have been upheld by the Israeli Supreme Court) has held that employees may be entitled to remuneration for their service inventions despite having
specifically waived any such rights. Further, the C&R Committee has not yet set specific guidelines regarding the method for calculating this remuneration or the criteria or circumstances under which an
employee’s waiver of his right to remuneration will be disregarded. We generally enter into intellectual property assignment agreements with our employees pursuant to which such employees assign to us
all rights to any inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their
right to receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. As a
consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our
business.

Service and enforcement of legal process on us and our directors and officers may be difficult to obtain.

Service of process upon our directors and officers and the Israeli experts named in this annual report, most of who reside outside the U.S., may be difficult to obtain within the U.S. Furthermore, since
substantially most of our assets, our directors and officers and the Israeli experts named in this annual report are located outside the U.S., any judgment obtained in the U.S. against us or these individuals
or entities may not be collectible within the U.S.

There is doubt as to the enforceability of civil liabilities under the Securities Act and the Securities Exchange Act in original actions instituted in Israel. However, subject to certain time limitations and
other conditions, Israeli courts may enforce final judgments of U.S. courts for liquidated amounts in civil matters, including judgments based upon the civil liability provisions of those Acts.

The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from those of a typical U.S. corporation.

We are incorporated under Israeli law and the rights and responsibilities of holders of our Ordinary Shares are governed by our articles of association and by Israeli law. These rights and responsibilities
differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith in exercising his or
her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his power in the company, including, among other things, in voting at the general
meeting of shareholders on certain matters. Israeli law provides that these duties are applicable to shareholder votes at the general meeting with respect to, among other things, amendments to a company’s
articles of association, increases in a company’s authorized share capital, mergers and actions and transactions involving interests of officers, directors or other interested parties which require the
shareholders’ approval. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that he or she possesses the power to determine the outcome of a vote at a meeting of our
shareholders, or who has, by virtue of the company’s articles of association, the power to appoint or prevent the appointment of an office holder in the company, or any other power with respect to the
company, has a duty of fairness toward the company. However, Israeli law does not define the substance of this duty of fairness. There is little case law available to assist in understanding the implications
of these provisions that govern shareholder behavior.

Israeli government programs and tax benefits may be terminated or reduced in the future, which could increase our tax expenses.

We participate from time to time in programs of the Israeli Innovation Authority (formerly the Office of the Chief Scientist) of the Israeli Ministry of Economy, or Innovation Authority, for which we
receive funding for the development of technologies and products. We may benefit from certain Israeli government programs and tax benefits, particularly from tax exemptions and cash incentives,
including “Approved Enterprise” status due to our manufacturing facilities in Israel. To be eligible for these programs and tax benefits or similar programs in the future, we must meet certain conditions,
including making specified investments in fixed assets and equipment. For more information about these programs, see Item 5. “Operating and financial review and prospects – Research & Developments
– Israeli Innovation Authority.” If we fail to comply with these conditions, we may be required to pay additional penalties, make refunds and may be denied future benefits. From time to time, the
Government of Israel has discussed reducing or eliminating the benefits available under these programs, and therefore these benefits may not be available to us in the future at their current levels or at all.

As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we may follow certain home country corporate governance practices instead of certain NASDAQ requirements.

As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of The
NASDAQ Stock Market Rules. Among other things, as a foreign private issuer we may follow home country practice with regard to the composition of the board of directors, director nomination
procedure, and quorum at shareholders’ meetings. In addition, we may follow our home country law, instead of the NASDAQ Stock Market Rules, which require that we obtain shareholder approval for
certain dilutive events such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other
than a public offering involving issuances of a 20% or more interest in the company, and certain acquisitions of the stock or assets of another company. A foreign private issuer that elects to follow a home
country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s
practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe
the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate
governance rules.

ITEM 4.

INFORMATION ON THE COMPANY

A. History and Development of the Company

We were incorporated under the laws of the State of Israel on December 8, 1970. We are a public limited company under the Israeli Companies Law 1999-5759, or the Israeli Companies Law, and operate
under this law and associated legislation. Our registered offices and principal place of business are located at 7 Giborei Israel Street, Netanya 4250407, Israel, and our telephone number is:
+972-76-538-6200. Our website address is www.rada.com. The information on our website is not incorporated by reference into this annual report.

We develop, manufacture and sell defense electronics, including tactical land-based radars for defense forces and for critical infrastructure protection solutions, avionics solutions for unmanned aerial
vehicles and airborne data/video recording and management systems. In 2019 we completed the sale of our legacy commercial products subsidiary, Beijing Hua Rui Aircraft Maintenance and Service, Co.,
Ltd., known as CACS. The financial results presented in this annual report were adjusted to present CACS’ results in a separate line as “Discontinued Operations.”

In March 2018, we announced the formation of a joint venture company with SAZE Technologies LLC. The new company, RADA Technologies LLC, or RTL is based in Germantown, Maryland. In July
2019, we acquired full ownership of RTL. RTL is focused on the adaptation of our tactical radar technology for the U.S. market, certifying the radars to U.S. standards, producing our radars for the US
market needs, and providing infrastructure for maintenance and support. In the first quarter of 2020 RTL commenced the manufacture of radars. In July 2020, we formed a new company, RADA
Innovations LLC, or RIL to perform certain classified work on our radars for the U.S. market.

B. Business Overview

Industry Overview

We are a product-oriented company focused on the defense electronics market. This is a growing market and is currently a large part of the defense industry. The defense electronics market reflects two
contradictory trends, the proliferation of defense electronics, which has been offset by the significant reduction in the price of electronic systems which is reducing the dollar value of the market. Today,
new military vehicles of all kinds are equipped with significantly more electronic systems than they used to carry in the past. The increasing usage of advanced electronics in modern vehicles, including
upgrades of existing technology and the growing use of unmanned vehicles of all kinds, have provided significant growth to the market.

Today’s advanced defense electronics systems typically incorporate components that are derived from the industrial or the consumer electronics markets, especially from the telecom and automotive
markets. Most of the defense electronics systems are built with commercial components and even with sub-systems, which reduce the overall price, and at the same time generate complex obsolescence
issues.

Purchasers of defense electronics products are either governments or major integrators. Engagement in business relationships with these customers is complex, have a long sales cycle and requires long-
term commitments for future support of delivered hardware. Production batches of such products are usually small.

Suppliers of defense electronic systems are either providers of products and sub-systems to major integrators and platform manufacturers or are providers of integrated systems to the industry or to the
armed forces. These companies are typically very large and have diversified product offerings.

New products in the defense electronic market are usually developed utilizing customer sponsored research and development funds and are typically tailored to specific customer needs. In many cases, the
customer who pays for the design and adaptation, limits the use of intellectual property that was funded by it for other applications, due to either commercial or security reasons. We are developing our
products utilizing our internal resources, and as a result we own the proprietary rights and are able to address a wide range of customers and integrators.

Products and Services

We primarily sell state-of-the-art defense electronics products. We may also provide end-to-end solutions for one or more systems or sub-systems. Our current product lines are:

•

Tactical radars, land-based, for defense forces and critical infrastructure protection solutions; and

• Military Avionics (data/video recorders, and core avionics for aircraft and UAVs).

Land-Based Tactical Radars for Defense Forces and Critical Infrastructure Protection Solutions.

We develop advanced land-based radars for tactical applications such as defense forces protection and critical infrastructure protection. Our pulse Doppler, software-defined radars are solid-state, fully
digital, incorporate active electronically scanned array, or AESA antenna, are compact, mobile and highly reliable, provide hemispheric spatial coverage and multi-mission capabilities and can operate on-
the-move, or OTM.

The conflicts in which modern armies have been engaged in recent years dictate the needs for instantaneous and real-time intelligence, minimal cycle time for target acquisition, highly accurate weapons
with minimal collateral damage and discrimination between hostiles and civilians. Our tactical radars, which move with the maneuvering combat units in the field and operate OTM, provide the real-time
knowledge of whether and from where they are threatened, detect all relevant threats, whether unfriendly fire or drones/UAVs/fighters/helicopters from any angle (including very high angles), discriminate
among threats and provide the needed intelligence for any course of action, whether counter-fire or avoidance. We believe that the performance-over-price ratio of our radars makes them ideal solutions for
the current needs and requirements of the maneuver forces, and for the protection of critical infrastructure against a variety of threats that can be applied on it.

We have developed various radar hardware platforms: the compact hemispheric radar, or CHR, and its advanced variants, eCHR and aCHR, which are tailored for use on combat vehicles and short-range
protection applications; and a family of multi-mission hemispheric radars, or MHRs, and its advanced variant, ieMHR, which are tailored for use in force and critical infrastructure protection applications.
All of our radar platforms share basic characteristics, but differ in range, size, weight, and price. We implement several operational missions for our platforms by soft-changing the radar operational
parameters.

The current operational missions of the CHR family of radar platforms are:

• Radar sensors for active protection systems, or APS, detecting all relevant threats that may be fired at combat vehicles, including RPGs, anti-tank guided missiles (ATGMs) and projectiles and

provide 360° hemispheric coverage. The system delivers threat data to the APS, enabling it to neutralize threats.

• Very-short-range hemispheric air surveillance radar system which can detect, classify and track aerial vehicles, with emphasis on small UAVs. Mobile or stationary, the system can be integrated

with any C4I system and other radars and sensors, and can operate either as a stand-alone, or as part of a large-scale surveillance system.

•

Perimeter and border protection, detecting, identifying, and tracking aerial and surface intruders including slow and small aircraft, vehicles, vessels, and pedestrians at tactical ranges. Our radars
can operate either on a stand-alone basis, or as part of a large-scale surveillance system.

The current operational missions of the MHR family of radar platforms are the following:

• Hostile fire detection radar systems which detect, track, classify and locate direct and elevated threats fired at stationary or mobile forces. They compute the Point-of-Origin (POO) and Point-of-
Impact (POI) of the threats, which may be rockets, artillery, mortars, ATGMs, RPGs, and more other threats. The systems can be integrated with any protection and Command, Control,
Communications, Computers and Intelligence (C4I) system and be installed at stationary bases and posts, or onboard fighting vehicles.

•

Tactical hemispheric air surveillance radar systems which detect, classify and track all types of aerial vehicles, including fighters, helicopters, UAVs, transport aircraft, etc. at tactical ranges.
Mobile or stationary, the systems can be integrated with any C4I system and other radars and sensors, and can operate either as a stand-alone, or as part of a large-scale surveillance system.

Three-dimensional perimeter surveillance radar systems for critical infrastructure protection can detect, identify, and track aerial and surface intruders including slow and small aircraft, air
breathing targets, vehicles, vessels, and pedestrians at tactical ranges. The systems can operate either as a stand-alone, or as part of a large-scale surveillance system.

Among our customers and users of our radar systems are leading defense forces and defense contractors worldwide, including the Israeli MOD, IMI (an Elbit Systems subsidiary), Elbit, Rafael, MER
Group, Lockheed Martin, Boeing, Leonardo DRS, Anduril, CACI, General Atomics, Elettronica, the U.S. Marine Corps and Navy, the U.S. Air Force, Indian Security Forces, Rheinmetall, and many
additional integrators and end-users. Some of our customers have purchased a small number of radars for evaluation and integration in their air defense and/or other systems. These initial purchases may
turn into larger production orders upon evaluation.

Military Avionics

We are active in the field of mission data and video recording, management, and post-mission analysis and debriefing for fighter and trainer aircrafts. Over the past 25 years we have developed, fielded and
supported a wide range of solid-state digital recorders, cameras and debriefing systems for aerospace and military applications, including:

Flight data recorders, or FDR, for fighter aircraft;

•
• Digital video/audio/data recorders, or DVDR (with data transfer functions);
• HD-DVDR, high definition digital video/audio/data recording for fighter and trainer aircraft;
• A wide range of head-up-displays color video cameras, or HCVC, for fighter aircraft; and
• A variety of ground debriefing solutions, or GDS.

These digital recorders feature state-of-the-art technologies and are designed for military applications. Our high-performance recorders provide simultaneous, high-capacity video (both analog and
digital/HD), audio and data recording, high throughput and mass storage handling capabilities, supporting rapid dissemination and real-time playback. Our video recorders implement MPEG-2 and/or
MPEG-4 (H.264) compression formats, supporting up to 128GB of solid-state memory, facilitating continuous recording over extended mission durations. Recent upgrades to our recorders provide the
ability to record high-definition video formats such as HD-SDI. Our GDS synchronized video, audio, data, and air combat maneuvering debriefing. GDS vary from personal, laptop-size debriefing units,
through robust desktop multi-channel systems supporting the mission debriefing of four-aircraft formations up to large-scale simultaneous debriefing systems. These network-based systems support large
numbers of participants operating from different locations, and provide advanced data management features.

We have been a developer and manufacturer of core avionics systems for over 35 years. We currently offer a wide spectrum of military avionics systems designed for integration in new and upgraded
military aircraft and UAVs worldwide. Our core avionics products are easily adapted to western, eastern, and indigenous-origin platforms of all kinds. In particular, our avionics for UAVs are extremely
compact through modern board connectivity solutions, use of innovative passive/conductive cooling techniques, withstand extreme environmental conditions and are very reliable and affordable.

We offer the following avionics solutions:

• Mission data recorders and debriefing solutions and HUD video cameras (as described above); and

• Avionics for UAVs (Interface control processors, engine control computers, Payload management computers and others).

Our airborne products and system solutions are fully qualified and operated by leading air forces and prime integrators worldwide, such as the Israeli Air Force, Lockheed Martin, Boeing Company, HAL,
Embraer, IAI, Rafael, the Chilean Air Force, and many others. Our units are installed onboard F-16, F-15, T-6, A-4, Jaguar, MiG-27, Su-30MKI, Dhruv Helicopter, MiG-29, Super-Tucano and other
aircraft, and onboard a large number of UAVs.

Business Development, Sales and Marketing

Strategy

Our business development strategy is based on the following principles:

• Becoming a reliable and trusted supplier of sensors and avionics sub-systems to defense system integrators and major platforms manufacturers with global sales, such as Lockheed Martin,

Boeing, Elbit, IAI, Anduril, Rafael, Leonardo DRS, Embraer, HAL, Elettronica, CACI and others.

•

Establishing operations in our primary target markets (i.e. U.S.), either through subsidiaries or through joint ventures, for local presence, direct market development, localization of the
technology, production and customer support.

•

Expanding our global business development efforts and potential customer base, by engaging business development consultants and service providers in the countries and territories in which our
products may be used, and actively managing this global network; and

Establishing strategic relationships with leading integrators in the prime target markets for tactical radars, i.e. U.S., Europe, India; such relationships may involve indigenization and localization
of our technologies to enable sales in significant quantities in these markets.

Strategic Relationships and Customers

As part of our strategy, we have established a number of strategic relationships with leading global defense contractors and several air forces. We have focused our marketing and sales efforts to support
these relationships.

Lockheed Martin. Lockheed Martin is the manufacturer of the F-16 aircraft, one of the most popular fighter aircraft in the western world today. We are supplying the DVDR, HD-DVDR and GDS for new
F-16 aircraft production and for F-16 upgrade programs led by Lockheed Martin. In 2015, Lockheed Martin ordered a single radar system for integration in their internally funded high energy laser
research and development program and recently acquired a second radar for the same purpose.

IMI Systems. IMI (a subsidiary of Elbit Systems) is a world leader in the field of APS for land platforms and is the developer and manufacturer of the “Iron Fist” APS. We teamed with IMI on the
integration and production of our CHR family of radars as part of their “Iron Fist” APS solution for local and global customers. During 2016, there was a global increase in the interest of major forces in
APS. As a result, since then, we are engaged in extensive efforts with IMI to integrate, test and provide its “Iron Fist” APS to customers in Europe and North America, along with our on-going support. We
have sold dozens of radars to IMI to support these activities. We anticipate that these testing efforts will mature into acquisition programs. The first acquisition program was purchased by the IMOD in the
end of 2019 to equip the Eitan fighting vehicle with the Iron Fist APS.

Boeing Defense, Space and Security. Boeing, a provider of air defense and high-energy laser systems, acquired our MHR in 2013 for evaluation of its use as part its directed energy tactical systems and in
2017 acquired our MHR for integration into critical infrastructure surveillance solutions. We also provide Boeing with recorders and debriefing stations for the T-45 VMTS and have received follow-on
orders from Boeing.

Leonardo DRS. DRS is a major player in the defense electronics market in North America, with a focus on tactical systems and radars. In 2017, we signed a cooperation agreement with DRS to market and
sell our tactical radars in the North American market for counter-UAV, short-range air defense, and other solutions. DRS has acquired a few MHR radars and is actively promoting our radars as part of
their system solutions. In 2018, DRS was selected by the US Army as the mission equipment package provider for the Army’s IM-SHORAD program, which includes our MHR radars as onboard search
sensors. This program has the potential for sale of 144 vehicles, each with 4 MHR radars on board. To date, we have delivered radars for nine prototype units and spares, and a production purchase order
for 28 vehicles incorporating 112 radar units.

Anduril Industries Inc. Anduril is a fast-growing player in the defense electronics market in North America. Anduril provides base defense and force protection applications, critical infrastructure
protection solutions, border security and counter drone systems. Our radars are integrated within such solutions. In 2020, we delivered more than 100 radars of the MHR family to be integrated with
Anduril’s systems.

European Air Defense Integrators. Two major European air defense integrators have purchased radars for integration and testing. We have signed a value-added representation agreement with one of the
integrators for certain countries where it has a dominant position in sales of air defense and other solutions.

Rafael Advanced Defense Systems Ltd. Rafael is a world leader in the development and supply of missiles, smart weapons and pods of various types. Rafael has become a strategic customer of ours as a
result of our development and production of a few advanced built-to-specification products in recent years. Recently, Rafael selected the MHR as the radar for the “Drone Dome” system that is designed to
counter UAVs and drones and is purchasing radars from us for their customers.

Military Forces. We are a provider of digital recorders and debriefing solutions to the Chilean Air Force and to the Indian Air Force, through HAL. Two other Asian military forces have purchased radars
for air surveillance and counter-mortar applications. Our tactical radars are used by all the U.S. defense forces for ground-based air defense, point defense, counter rocket, artillery and mortar solutions, and
counter unmanned aerial systems. We believe that these strategic relationships with military forces provide us with the potential for prolonged cooperation.

Israel Aerospace Industries. We actively supply avionics and test equipment to four different divisions of IAI, and in particular to the MALAT division, who is a major UAS global provider and utilizes
our products and services for repeated follow-on orders.

Hindustan Aeronautics Ltd. HAL is the major aerospace integrator in India. We are currently cooperating with four divisions of HAL and supply DVDRs, HCVCs, GDS, support equipment and other
services.

Embraer S.A. The Military Aircraft Division of the Brazilian aircraft manufacturer is a strategic customer. In addition to supplying avionics such as DVDR, INS and HCVC to Embraer, we are
participating in Embraer’s programs through the development and supply of avionic units per their specifications and their training and support activities.

Business Development and Marketing

Our Chief Executive Officer, Mr. Dov Sella, together with Mr. Gil Schwartz, our VP Business Development & Marketing, lead our business development and marketing efforts from Israel. Mr. Bill
Watson, Ms. Charlene Caputo and Mr. Max Cohen are responsible for our business development and marketing efforts in North America. We currently employ fifteen additional professionals (seven of
whom are part-time consultants) in business development and the sales of our products. Our program managers, Chief Technology Officer, Chief Operating Officer, VP Product Development and our
product managers and engineering departments support our marketing and sales efforts with respect to proposal preparations and product demonstrations. In addition, we have engaged business
development consultants in Europe, South America and Asia who receive success fees for sales generated by them. Our RTL subsidiary is responsible for business development in the North American
market and works directly with and in cooperation with our U.S. partners on the exploitation of large opportunities in the U.S. Four of our seven part-time consultants are supporting this activity.

The Israeli Ministry of Defense has historically supported and continues to support our marketing efforts through its defense export assistance branch and through various projects for the IDF and its
related divisions. There is no guarantee that this type of assistance will be available to us in the future.

We take part and present our tactical radars at the major land systems exhibitions on a regular basis, such as the AUSA Annual Meetings, Eurosatory in Paris, DSEI in London, and in regional or focused
exhibitions such as DefExpo in India and SOFIC, MDM and many others in the USA.

Fixed Price Contracts

Some of our contracts are fixed-price contracts, under which the price is not subject to adjustment due to the costs incurred in the performance of the contracts, as long as the costs incurred, and work
performed, fall within governmental guidelines. Under our fixed-price contracts, we assume the risk of increased or unexpected costs that may reduce our profits or even generate losses. This risk can be
particularly significant under fixed-price contracts for research and development involving new technologies.

Our books and records may be subject to audits by the Israeli Ministry of Defense and other governmental agencies, including the U.S. Department of Defense. These audits may result in adjustments to
contract costs and profits.

Principal Customers

We generally complete a few major transactions each year, each accounting for than 10% of our revenues for such year. As a result, each year a significant portion of our revenues is derived from a small
number of customers. The following table sets forth our principal customers in 2018, 2019 and 2020:

Customer A
Customer B
Customer C
Customer D
Customer E
Customer F
Customer G
Customer H

2018

Percentage of Revenues
2019

2020

-%
-%
-%
11%
12%
7%
11%
12%

-%
7%
-%
8%
4%
12%
3%
4%

21%
14%
10%
6%
5%
4%
1%
-%

Although we continually strive to increase the number of our customers, we anticipate that a significant portion of our future revenues will continue to be derived from a small number of customers.
Because of our dependency on a small number of customers and on government contracts, we are subject to business risks, including changes in governmental appropriations and changes in national
defense policies and priorities. Although many of the programs in which we participate as a contractor or subcontractor may extend for several years, our business is dependent upon annual appropriations
and funding of new and existing contracts. Most of the contracts are subject to termination for the convenience of the customer, pursuant to which the customer pays only for reimbursement of costs
incurred and the applicable profit on work performed. The Israeli Government or any other government may discontinue funding purchases of our products.

Geographical Markets

We sell our products to various air forces and companies worldwide. The following table presents our revenues by geographical markets for the periods indicated:

Israel
South and Latin America
Asia
North America
Europe
Australia

Competition

2018

2019

2020

37%
4%
11%
42%
6%
-%

28%
2%
6%
50%
14%
-%

20%
1%
2%
60%
16%
1%

The markets for our products are highly competitive. Our principal competitors in the avionics and recorder markets include Elbit Systems Ltd., Honeywell International Inc., IAI, Northrop Grumman
Corporation, Sagem Avionics LLC., Thales Group and Zodiac Aerospace Group. Our principal competitors on tactical radars are IAI (through its subsidiary, Elta), SRC Inc., Raytheon, Northrop
Grumman, Dynetics (Leidos), SAAB, Thales, Hensoldt and Leonardo Selex. We expect to continue to face competition from these and other competitors. All of our competitors are larger and have
substantially greater resources than us, including financial, technological, marketing and distribution capabilities, and enjoy greater market recognition than we do. These competitors may be able to
achieve greater economies of scale and may be less vulnerable to price competition than us. We may not be able to offer our products as part of integrated systems to the same extent as our competitors or
successfully develop or introduce new products that are more cost effective or offer better performance than those of our competitors. Failure to do so could adversely affect our business, financial
condition and results of operations.

Government Regulations

Israel’s defense export policy regulates the sales of our systems and products. Current Israeli policy encourages export to approved customers of defense systems and products, such as ours, as long as the
export is consistent with Israeli government policy.

A license is required to initiate marketing activities. We are also required to obtain a specific export license for any hardware exported from Israel. We are regulated by an Israeli law regulating export of
“dual use” items (items that are typically sold in the commercial market, but that also may be used in the defense market) and the Defense Export Control Law and its supplemental regulations. Those laws
and regulations govern the enforcement of export control and defined certain new areas of licensing, particularly with respect to transfer of technology. It is not certain that we will receive all the required
permits and licenses for which we may apply in the future. Our participation in governmental procurement processes in Israel and other countries is subject to specific regulations governing the process of
procuring defense contracts. Furthermore, solicitations for procurements by governmental purchasing agencies in Israel and other countries are governed by laws, regulations and procedures relating to
procurement integrity, including avoiding conflicts of interest and corruption in the procurement process.

In addition, antitrust laws and regulations in Israel and other countries often require governmental approvals for transactions that are considered to limit competition. Such transactions may include
cooperative agreements for specific programs or areas, as well as mergers and acquisitions.

Intellectual Property

We generally do not rely on patent protection to protect our products and instead choose to rely upon a combination of trade secret laws’ logical and physical security measures and contractual restrictions
to protect such rights. These measures may not be adequate to protect our technology from third-party infringement, and our competitors might independently develop technologies that are substantially
equivalent or superior to ours. Additionally, our products may be sold in foreign countries that provide less protection for intellectual property rights than that provided under U.S. or Israeli laws.

We also rely on our trademarks and trade names to distinguish our products from the products of our competitors and other third parties. Third parties may oppose our trademark applications, or otherwise
challenge our use of our trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could
require us to devote significant resources to rebranding.

The Israeli government usually retains certain rights in technologies and inventions resulting from our performance as a prime contractor or subcontractor under Israeli government contracts and may
generally disclose such information to third parties, including other defense contractors. When the Israeli government funds research and development, it may acquire rights to proprietary data and title to
inventions; we may retain a non-exclusive, royalty-free license for such inventions. However, if the Israeli government purchases only the end product, we may retain the principal rights and the
government may use the data and take an irrevocable, non-exclusive, royalty-free license.

Manufacturing and Quality Control

Our Israeli production plant is located in Beit She’an, Israel. The plant is equipped to handle most of our manufacturing processes and testing requirements. For some processes we utilize outsourced
resources. This structure allows us flexibility and versatility. To support the growth in radar production, we have established a supply chain of board assembly providers and chassis/casting providers, while
final assembly, calibration and testing is accomplished internally. We duplicated our Israeli assembly facilities in our facility in Maryland that is now supplying our radars to the U.S. market.

We place great emphasis on quality control in our production processes. Commencing with customer requirements and expectations, via raw material inspection through completion, specifications are
repeatedly checked. We maintain a quality assurance team that participates in every stage of the design and manufacturing of the products. Our quality management system is certified by the Standards
Institute of Israel, or SII, pursuant to ISO 9001:2015 for hardware design and production and ISO 90003:2018 for software design. SII performs quality system audits twice a year and various customers
perform audits four to six times a year. Our environmental management system is certified by SII to ISO 14001:2015. Our quality management system is also certified according to AS-9100D (2016), a
quality management system for aerospace requirements (both in Israel and in the U.S.).

According to the standard warranty incorporated in most of our sales contracts, we warrant that our products will be free from defects in design, materials or workmanship, and guarantee repair or
replacement of defective parts typically for periods between one to two years following delivery of a product to a customer. We also provide maintenance services to customers who sign maintenance
contracts.

Source and Availability of Raw Materials

We acquire most of the components for the manufacturing of our products from suppliers and subcontractors, most of whom are located in Israel and the U.S. Some of these suppliers are currently the sole
source of one or more components upon which we are dependent. Since many of our purchases require long lead-times, a delay in supply of an item can significantly delay the delivery of a product. To
date, we have not experienced any specific difficulties in obtaining timely deliveries of necessary components. We depend on a limited number of suppliers of components for our products and if we are
unable to obtain these components when needed, we would experience delays in manufacturing our products and our financial results could be adversely affected.

C. Organizational Structure

RADA Technologies LLC and RADA Innovations LLC, are our Germantown, Maryland based subsidiaries in the U.S.

D. Property, Plants and Equipment

We own a 30,000 square feet industrial building in Beit She’an, Israel. The building, which includes manufacturing facilities and warehouse space, is situated on land leased from the Israel Land Authority
for a period of 49 years ending in 2034. The plant has sufficient capacity to meet our current requirements.

Our executive offices, sales and marketing and research and development facilities are located in a 22,600 square feet office facility in Netanya, Israel and well as 1,450 square feet R&D facility in Beer
Sheva, Israel. The Netanya lease expires in March 2026 and the Beer Sheva lease expires in December 2023. We also signed a lease for a 6,000 square feet warehouse in Beit She’an, Israel, that expires on
June 2026. The aggregate annual rent for our offices in Israel was approximately $578,000 in 2020.

As of December 31, 2020, RTL is occupying approximately 25,000 square feet of office and production facilities in Germantown, Maryland. The lease for this facility, whose current monthly rental cost is
approximately $57,000, expires in June 2030.

ITEM 4A.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. Operating Results

The following discussion of our results of operations should be read together with our consolidated financial statements and the related notes, which appear elsewhere in this annual report. The following
discussion contains forward-looking statements that reflect our current plans, estimates and beliefs and involve risks and uncertainties. Our actual results may differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.

Overview

We develop, manufacture and sell defense electronics including tactical land radars for force and critical infrastructure protection applications, and military avionics systems for manned and unmanned
aircraft. Our U.S. wholly owned subsidiary, RTL, is focused on adapting our tactical radar technology for the U.S. market by altering our technology to meet U.S. customer requirements, certifying the
radars to U.S. standards, manufacturing radars and providing local maintenance and support services.

General

Our consolidated financial statements appearing in this annual report are prepared in dollars and in accordance with U.S. GAAP. Transactions and balances originally denominated in dollars are presented
at their original amounts. Transactions and balances in other currencies are re-measured into dollars in accordance with the principles set forth in the Financial Accounting Standards Board, or FASB,
Accounting Standards Codification, or ASC 830. The majority of our sales are made outside of Israel and a substantial part of them are in dollars. In addition, a substantial portion of our costs are incurred
in dollars. Since the dollar is the primary currency of the economic environment in which we operate, the dollar is our functional and reporting currency and, accordingly, monetary accounts maintained in
currencies other than the dollar are re-measured using the foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the
exchange rate in effect at the date of the transaction. All monetary balance sheet accounts have been re-measured using the exchange rates in effect at the balance sheet date. Statement of operations
amounts have been re-measured using the average exchange rate for the period. The financial statements of our foreign subsidiary, whose functional currency is not the dollar, have been translated into
dollars. All balance sheet amounts have been translated using the exchange rates in effect at balance sheet date. Statement of operation amounts have been translated using the average exchange rate
prevailing during the year. Such translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity.

Discussion of Critical Accounting Policies and Estimations

Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the notes to our consolidated financial statements. These policies have been consistently applied
in all material respects. While the estimates and judgments associated with the application of these policies may be affected by different assumptions or conditions, we believe the estimates and judgments
associated with the reported amounts are appropriate under the circumstances. We believe the following accounting policies are the most critical in fully understanding and evaluating our financial
condition and results of our operations under U.S. GAAP.

Revenue Recognition. We account for revenue recognition when (or as) it satisfies performance obligations by transferring promised goods or services to its customers in an amount that reflects the
consideration the Company expects to receive. In order to achieve that core principle, we apply the following five-step approach: (1) identify the contract with a customer, (2) identify the performance
obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is
satisfied.

The Company generally satisfies performance obligations at a point in time, once the customer has obtained the legal title to the items purchased or service provided. Revenues from long-term and short-
term fixed price contracts are usually recognized over time based on the cost-to-cost input method that best depicts the transfer of control over the performance obligation to the customer. Provisions for
estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Impairment of Long-Lived Assets. We are required to assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We
assess the impairment of our assets based on a number of factors, including any significant changes in the manner of our use of the respective assets or the strategy of our overall business and significant
negative industry or economic trends. Upon determination that the carrying value of a long-lived asset may not be recoverable, based upon a comparison of expected undiscounted future cash flows to the
carrying amount of the asset, an impairment charge is recorded in the amount of the carrying value of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. As of December 31, 2020, 2019 and 2018, no impairment losses were identified.

Accounting for income taxes. On January 1, 2007, we adopted FASB ASC 740-10 “Income Taxes,” which contains a two-step approach to recognizing and measuring uncertain tax positions accounted for
in accordance with ASC 740-10. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely
than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax
benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement ASC 740-10. We provided a valuation allowance in respect to the deferred tax assets resulting from
operating loss carry forwards and other temporary differences. Our management currently believes that since our company has a history of losses, it is more likely than not that the deferred tax regarding
the loss carry forwards and other temporary differences will not be realized in the foreseeable future.

Inventory valuation. The majority of our inventory consists of work in progress, raw materials and components. Inventories are valued at the lower of cost or market. Cost of finished goods is determined
on the basis of direct manufacturing costs plus allocable indirect costs representing allocable operating overhead expenses and manufacturing costs. Raw material is valued using the “FIFO” method. We
assess the valuation of our inventory on a quarterly basis and periodically write down the value for different finished goods and raw material items based on their potential utilization. If we consider
specific inventory to be damaged, we write such inventory down to zero. Inventory write-offs are provided to cover risks arising from slow-moving items, discontinued products, and excess inventories.
The process for evaluating these write-offs often requires us to make subjective judgments and estimates concerning the future utilization of the inventory items. Write-offs of inventories for the years
ended December 31, 2020, 2019 and 2018 amounted to $132,000, $230,000 and $39,000, respectively. The write-offs were due to slow-moving items and excess inventories and were recorded in cost of
revenues.

Allowance for doubtful accounts. Our trade receivables are derived from sales to customers all over the world. We perform ongoing credit evaluations of our customers. In certain circumstances, we may
require letters of credit or prepayments. We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments that we have determined to be
doubtful of collection. We determine the adequacy of this allowance by regularly reviewing our accounts receivable and evaluating individual customers’ receivables, considering customers’ financial
condition, credit history and other current economic conditions. If a customer’s financial condition were to deteriorate which might impact its ability to make payment, then additional allowances may be
required. Provisions for doubtful accounts are recorded in general and administrative expenses. Our allowance for doubtful accounts was $2,000 for each of the years ended December 31, 2020, 2019 and
2018.

Stock-based compensation. We account for stock-based compensation in accordance with the provisions of ASC 718, “Compensation - Stock Compensation.” Under the fair value recognition provisions of
ASC 718, 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 requisite service period of the award. We estimate
the fair value of stock options granted using the Black-Scholes-Merton option-pricing model. Effective as of January 1, 2017, we adopted a change in accounting policy in accordance with ASU 2016-09,
“Compensation Stock Compensation (Topic 718)” (“ASU 2016-09”) to account for forfeitures as they occur.

The fair value of an award is affected by our stock price on the date of grant and other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period
of time that we expect employees to hold their stock options.

Discontinued Operations. Under ASC 205-20, “Presentation of Financial Statements - Discontinued Operation” when a component of an entity, as defined in ASC 205-20, has been disposed of or is
classified as held for sale, the results of its operations, including the gain or loss on its component are classified as discontinued operations and the assets and liabilities of such component are classified as
assets and liabilities attributed to discontinued operations; that is, provided that the operations, assets and liabilities and cash flows of the component have been eliminated from the company’s consolidated
operations and the company will have no significant continuing involvement in the operations of the component. Subsequent to our determination to sell our interest in CACS, CACS’ results are accounted
as a discontinued operation and appear in this annual report in a separate line item as “Discontinued Operations.”

Explanation of Key Income Statement Items

Revenues. Our revenues are mainly derived from sales of defense electronics and their supporting ground systems.

Cost of Revenues. Cost of revenues consists primarily of salaries, raw materials, subcontractor expenses, related depreciation costs, inventories write-downs and overhead allocated to cost of revenues
activities.

Research and Development Expenses, net. Research and development expenses consist primarily of salaries for research and development personnel, use of subcontractors and other costs incurred in the
process of developing product prototypes.

Marketing and Selling Expenses. Marketing and selling expenses consist primarily of salaries for marketing and business development personnel, marketing activities, public relations, promotional
materials, travel expenses, trade show exhibit expenses, and success fees to business development consultants.

General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related expenses for executive, accounting, legal, administrative personnel, professional fees,
provisions for doubtful accounts and other general corporate expenses.

Financial Expenses, Net. Financial expenses consist of interest and bank expenses, interest on convertible note and loans, amortization expenses of discount on convertible note, deferred charges and
currency re-measurement losses. Financial income consists of interest on cash and cash equivalent balances and currency re-measurement gains.

Impact of the COVID-19 Pandemic on our Operations

The impact of the COVID-19 pandemic has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. In an
effort to halt the outbreak of COVID-19, a number of countries, including the United States and Israel where we have key operations, placed significant restrictions on travel, and many businesses
announced extended closures. It is unclear how long total or partial shutdowns may last and whether additional shutdowns will be necessary to the extent future outbreaks occur.

Sales. We have taken various steps to safeguard employees that have had the effect of curtailing direct sales activities. It may take an extended period after current restrictions end for us to engage potential
new customers. We continue to monitor our sales pipeline on a day-to-day basis in order to assess the effect of these limitations on our current sales and our future pipeline development.

Production and Supply Chain. We encountered several delays in receiving parts shipments and our freight costs increased during 2020. These delays have not affected our product availability as we have
increased our inventory levels, but our manufacturing may be impacted in the future due to supply chain delays or adverse impacts on our production capacity due to government directives or health
protocols that might impact our production facilities. In addition, given the current limitations on our sales activities, it has become difficult for us to effectively forecast future requirements for our
products. Accordingly, there is a greater risk that we may overproduce or underproduce compared to actual sales.

Negative impacts on our suppliers and employees. COVID-19 may impact the health of our employees, management, or customers, reduce the availability of our workforce or those of companies with
which we do business, or create disruptions in our supply networks. The adverse effects of such events on us may include disruption to our operations, or demand for our products in the short and/or long
term.

Results of Operations

The following table presents certain financial data expressed as a percentage of total revenues for the periods indicated:

Revenues
Cost of revenues
Gross profit
Research and development
Marketing and selling
General and administrative
Net loss from sale of fixed assets
Operating income (loss)
Financial (expenses) income, net
Net income (loss) from continuing operations
Net income (loss) from discontinued operations
Net income (loss)
Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to RADA Electronic Industries’ shareholders

2018

Year Ended December 31,
2019

2020

100%
63.6%
36.4%
11.3%
10.2%
14.3%
0.4%
0.2%
0.4%
0.6%
(1.4)%
(0.8)%
(1.4)%
0.6%

100%
64.0%
36.0%
15.6%
9.1%
16.0%
0%
(4.7)%
(0.3)%
(5.0)%
(0.3)%
(5.3)%
(0.7)%
(4.6)%

100%
62.8%
37.2%
11.6%
6.6%
11.8%
0%
7.2%
0.2%
7.4%
0%
7.4%
0%
7.4%

Year Ended December 31, 2020 Compared with Year Ended December 31, 2019

Revenues. Our revenues increased by 72% to $76.2 million in 2020 from $44.3 million in 2019, mainly due to the increase in sales of our radars in the U.S.

Cost of Revenues. Cost of revenues were $47.9 million in 2020 and $28.4 million in 2019, reflecting the increase in revenues.

Gross Profit. Our gross profit increased by 78% to $28.3 million in 2020 from $15.9 million in 2019. Our gross profit margin was approximately 37.2% in 2020 and 36.0% in 2019. The increase in our
gross profit in 2020 was mainly attributable to the increase in revenues generated from the sale of radars and as a result of improved production efficiencies.

Research and Development Expenses. Our research and development expenses increased by 28% to $8.8 million in 2020 from $6.9 million in 2019. The increase is a result of our strategy to achieve and
maintain a technological edge for our products, including the development of our next generation of radars.

Marketing and Selling Expenses. Marketing and selling expenses increased by 24% to approximately $5.0 million in 2020 from $4.0 million in 2019. We increased our level of marketing and selling
expenses primarily due to our efforts to sell our radar products, mainly reflected in the costs incurred as part of our participation in field demonstrations requested by our potential customers as well as the
costs associated with developing our RTL subsidiary in the U.S.

General and Administrative Expenses. General and administrative expenses increased by 27% to approximately $9.0 million in 2020 from $7.1 million in 2019. The increase is primarily attributable to the
development of RTL in the U.S. as well as to the increase in the non-cash expense associated with employee stock-based compensation.

Financial Income, Net. We had net financial income of $0.2 million in 2020 compared to $0.1 million of net financial expense in 2019, reflecting our improved financial condition and increased bank
balances.

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

Please see Item 5A of our Form 20-F for the year ended December 31, 2019 filed on April 7, 2020 for this comparison.

Our Location in Israel

We are incorporated under the laws of the State of Israel, and our principal executive offices and principal manufacture, research and development facilities are located in Israel. See Item 3D “Key
Information – Risk Factors – Risks Relating to Our Location in Israel” for a description of governmental, economic, fiscal, monetary or political polices or factors that have materially affected or could
materially affect our operations.

Corporate Tax Rate

Israeli companies were generally subject to corporate tax at a rate of 23% in 2020 and are subject to the same corporate tax rate in 2021.

As of December 31, 2020, our net operating loss carry forward for Israeli tax purposes was approximately $64 million and capital loss carry forwards of approximately $4.1 million. As of December 31,
2020, our U.S. subsidiaries have U.S. federal carry forward tax losses of approximately $3.7 million.

Trade Relations

Israel is a member of the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development, and the International Finance Corporation. Israel is a member of
the World Trade Organization and is a signatory to the General Agreement on Tariffs and Trade. Israel is a member of the Organization for Economic Co-operation and Development, or the OECD, an
international organization whose members are governments of mostly developed economies. The OECD’s main goal is to promote policies that will improve the economic and social well-being of people
around the world. In addition, Israel has been granted preferences under the Generalized System of Preferences from the U.S., Australia, Canada and Japan. These preferences allow Israel to export the
products covered by such programs either duty-free or at reduced duties.

Israel and the E.U. concluded a Free Trade Agreement in July 1975 that confers some advantages with respect to Israeli exports to most European countries and obligates Israel to lower its tariffs with
respect to imports from these countries over a number of years. In 1985, Israel and the U.S. entered into an agreement to establish a Free Trade Area. The Free Trade Area has eliminated all tariff and some
non-tariff barriers on most trade between the two countries. On January 1, 1993, an agreement between Israel and the European Free Trade Association, known as the “EFTA,” established a free-trade zone
between Israel and the EFTA nations. In November 1995, Israel entered into a new agreement with the E.U., which includes a redefinition of rules of origin and other improvements, such as allowing Israel
to become a member of the Research and Technology programs of the E.U.

Impact of Currency Fluctuation and of Inflation

A significant portion of the cost of our Israeli operations, primarily personnel and facility-related, is incurred in NIS. Therefore, our NIS related costs, as expressed in dollars, are influenced by the
exchange rate between the dollar and the NIS. In addition, if the rate of inflation in Israel will exceed the rate of devaluation of the NIS in relation to the dollar, or if the timing of such devaluations were to
lag considerably behind inflation, our cost as expressed in dollars may increase. NIS linked balance sheet items, may also create foreign exchange gains or losses, depending upon the relative dollar values
of the NIS at the beginning and end of the reporting period, affecting our net income and earnings per share. Although we may use hedging techniques, we may not be able to eliminate the effects of
currency fluctuations. Therefore, exchange rate fluctuations could have a material adverse impact on our operating results. The caption “Financial expenses, net” in our consolidated financial statements
includes the impact of these factors as well as traditional interest income or expense.

The following table sets forth, for the periods indicated, (i) depreciation or appreciation of the NIS against the most important currency for our business, the dollar, until December 31 of each year and the
year before, and (ii) inflation as reflected in changes in the Israeli consumer price index.

NIS vs. U.S. Dollar
Israeli Consumer Price Index

2016

2017

Year Ended December 31,
2018

2019

2020

(1.0)%
(0.2)%

(9.8)%
(1.5)%

3.2%
0.8%

(7.8)%
0.6%

(7.0)%
(0.7)%

Since exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations, particularly larger periodic devaluations, may have an impact on our profitability and period-to-
period comparisons of our results. We cannot assure you that in the future our results of operations may not be materially adversely affected by currency fluctuations.

Recently Issued Accounting Standards

New accounting pronouncements not yet effective:

In January 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and
Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity
method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be effective for fiscal years beginning after December 15, 2020,
and interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial statements.

Recently Adopted Accounting Pronouncements:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to
utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The new accounting standard was effective for the
fiscal year beginning on January 1, 2020, including interim periods within that year. Adoption of this standard did not have a material impact on our consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and
restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted the new
standard effective January 1, 2018 using the retrospectively method. The adoption of this new guidance had an immaterial impact on the Company’s consolidated financial statements. Restricted cash is
invested in short-term bank deposits (for three months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with banks.

B. Liquidity and Capital Resources

We have historically met our financial requirements primarily through cash generated by operations, funds generated by our public offerings, private placements of our Ordinary Shares and debt securities,
loans from our principal shareholders, short-term loans and credit facilities from banks, research and development grants from the Government of Israel and the Israel-U.S. Binational Industrial Research
and Development Foundation, investment grants for approved enterprise programs and marketing grants from the Government of Israel.

In December 2018, we completed a $12.5 million registered direct offering of 4,545,454 Ordinary Shares at a price per share of $2.75, of which $10 million was invested by Psagot and $2.5 million by
Phoenix, two Israeli institutional investors. In addition, on January 16, 2019 we issued 545,454 Ordinary Shares to DBSI in a shareholder-approved private placement for approximately $1.5 million,
reflecting a price per share of $2.75.

In January 2020, we raised $25,300,000 in an underwritten public offering of 4,819,052 Ordinary Shares at a price of $5.25 per share. Offering costs amounted to approximately $1,800,000.

We had working capital of $56.8 million as of December 31, 2020 compared with working capital of $31.8 million at December 31, 2019. Cash and cash equivalents were $36.3 million as of December
31, 2020 compared to $13.8 million as of December 31, 2019. The increase in working capital and cash and cash equivalents is due to the proceeds from our January 2020 public offering.

As of December 31, 2020, our banks provided $0.46 million of guarantees on our behalf, mainly to our customers and suppliers in the ordinary course of business. The guarantees are secured by a first
priority charge on our restricted cash total $0.57 million as of December 31, 2020.

We made capital expenditures of $ 4.9 million in the year ended December 31, 2020, primarily for machinery and equipment for use by RTL and our manufacturing facility in Israel. In 2020, we also
increased our inventories by $12.82 million to support our increased level of sales. We currently do not have any significant capital spending or purchase commitments.

Cash Flows

The following table summarizes our cash flows for the periods presented:

Net cash used in operating activities from continuing operations
Net cash used in investing activities from continuing operations
Net cash provided by financing activities from continuing operations
Net cash provided by operating activities from discontinued operations
Net cash used in investing activities from discontinued operations
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of the year
Cash and cash equivalents and restricted cash at end of the year
Less cash and cash equivalents of discontinued operation at the end of the year

2018

Year ended December 31,
2019
(U.S. dollars in thousands)

2020

(3,858)
(948)
12,798
1,186
(2)
(420)
8,756
13,006
21,762
526
21,236

(3,461)
(5,133)
966
-
-
-
(7,628)
21,762
14,134
-
14,134

(3,614)
(4,930)
24,038
-
-
-
22,722
14,134
36,856
-
36,856

Continuing Operations

Net cash provided by our operating activities was $3,614,000 in 2020. This was primarily due the net income for the year, an increase in trade payables of $1,872,000 and an increase in other accounts
payable of $5,042,000, offset by an increase in inventories of $12,820,000, depreciation and amortization expenses of $2,289,000, share based non-cash compensation to employees of $1,436,000. Net
cash provided by operating activities was $3,461,000 in 2019. This was primarily due to an increase in inventories of $6,613,000. This was offset by depreciation and amortization of $1,223,000, share
based non-cash compensation to employees of $1,148,000, an increase in trade payables of $ 1,439,000 and an increase in other accounts payables of $2,729,000. Further details concerning comparative
financial data for 2018, are available in our Form 20-F for the fiscal year ended December 31, 2019.

Net cash used in investing activities was $4,930,000 in 2020, primarily due to the investment of $4,853,000 in property, plant and equipment. Net cash used in investing activities was $5,133,000 in 2019,
primarily due to the investment of $4,092,000 in property, plant and equipment and construction-in-process of production infrastructure of $459,000. Further details concerning comparative financial data
for 2018, are available in our Form 20-F for the fiscal year ended December 31, 2019.

Net cash provided by financing activities was $24,038,000 in 2020, reflecting the proceeds from our January 2020 public offering. Net cash provided by financing activities was $966,000 in 2019
reflecting mainly the issuance of Ordinary Shares in a registered direct offering. Further details concerning comparative financial data for 2018, are available in our Form 20-F for the fiscal year ended
December 31, 2019.

As a result of the foregoing, at December 31, 2020, we had working capital of $56,775,000 and cash and cash equivalents of $36,289,000 as compared to working capital of $31,805,000 and cash and cash
equivalents of $13,754,000, at December 31, 2019.

We expect to fund our short-term liquidity needs in 2021, including our obligations under, contractual agreements and any other working capital requirements, from our cash and cash equivalents, and
operating cash flow. We project that our current cash and cash equivalents and our expected cash flow from operations, will be sufficient to meet our cash requirements in 2021.

C. Research and Development, Patents and Licenses

Research and Development

Our research and development activities focus on improvements to our existing products, the development of complementary products that provide continued support for our current customers and
improve our capability to market our products to new customers and to keep a competitive edge over our competitors. In 2020, 2019 and 2018, we incurred $8.8 million, $6.9 million and $3.1 million,
respectively, of research and development expenses, net. The majority of these expenses are attributable to the development of our radars. In 2021, we intend to continue our investment in the research and
development of new products. As of December 31, 2020, we employed 88 engineers (including 2 sub-contractors) who principally concentrate on research and development activities.

The Israel Innovation Authority, or the IIA, encourages research and development by providing grants to Israeli companies, pursuant to the Law for the Encouragement of Industrial Research and
Development, 1984, as amended. The terms of such grants prohibit the manufacture of the developed products outside of Israel and the transfer of technologies developed using the grants to any person
without the prior written consent of the IIA. During recent years, we developed a new radar sensor for APS, partly financed by the IIA. We received royalty bearing grants of $1.138 million from the IIA.
Pursuant to applicable Israeli law, we are currently required to pay royalties at the rate of 3% of sales of products developed with certain grants received from the IIA, up to 100% of the amount of such
grants, adjusted by the exchange rate with the dollar. As of December 31, 2020, our remaining obligation for royalty payments to the IIA were fully paid or accrued in our December 31, 2020 financial
statements.

D. Trend Information

In 2020, our revenues increased by approximately 72% compared to our revenues in 2019. Our future revenues will, in great measure, be dependent upon the success of our sales and marketing strategy.
We are currently focusing our sales efforts on tactical radar systems for force and critical infrastructure protection solutions; and military avionics.

We cannot provide any assurances that we will be successful in meeting our targets in the future. As a result of the unpredictable business environment in which we operate and the potential effects of the
spread of COVID-19, we are unable to provide any specific guidance as to sales and profitability trends. However, on December 21, 2020 we provided revenues guidance for 2021 of over $120 million,
which guidance is subject to change. If we are unsuccessful in our sales efforts, it is unlikely that we will be able to achieve profitability in the future and we will require additional capital.

E. Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements. In addition, we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent
obligations.

F. Tabular Disclosure of Contractual Obligations

The following table summarizes our minimum contractual obligations and commercial commitments, as of December 31, 2020 and the effect we expect them to have on our liquidity and cash flow in
future periods:

Contractual Obligations

Long-term debt obligations
Operating lease obligations
Total

Total

1st year

50
10,989
11,039

-
1,806
1,806

Payments due by Period
(U.S. dollars in thousands)
2nd-3rd year

-
3,131
3,131

4th-5th year

After 5th year

-
2,621
2,621

50
3,431
3,481

We have long-term liabilities for severance pay for certain employees that are calculated pursuant to Israeli law generally based on the most recent salary of the employees multiplied by the number of
years of employment, as of the balance sheet date. Under Israeli law, employees are entitled to one month’s salary for each year of employment or a portion thereof upon termination of employment in
certain circumstances, including the retirement or death of an employee or the termination of employment of an employee without due cause. As of December 31, 2020, our severance pay liability was
$0.8 million.

We also received a $0.05 million incentive loan from Germantown County, Maryland based on the recent capital investments by RTL.

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

Set forth below are the name, age, principal position and a biographical description of each of our directors and executive officers:

Name
Yossi Ben Shalom (2)
Nir Cohen
Prof. Alon Dumanis (1)(2)
Haim Regev
Joseph Weiss
Tal Misch Vered (1)
Elan Sigal (1)
Kineret Yaari
Guy Zur (2)
Dov Sella
Avi Israel
Oleg Kiperman
Yaniv Dorani
Max Cohen
William Watson
Scott Wood

Age

Position

Executive Chairman of the Board of Directors
Director
Director
Director
Director
External Director
External Director
Director
Director
Chief Executive Officer
Chief Financial Officer
Chief Technology Officer
Chief Operating Officer
Chief Executive Officer of RADA Sensors Inc. (3)
Chief Executive Officer of RADA Technologies LLC
Chief Executive Officer of RADA Innovations LLC

64
48
70
54
69
53
53
36
59
65
56
67
45
47
57
49

(1) Member of the Audit and Compensation Committee
(2) Member of the Business Development Committee
(3) RADA Sensors Inc. is the sole shareholder of RADA Technologies LLC and of RADA Innovations LLC

Messrs. Yossi Ben Shalom, Nir Cohen, Haim Regev, Joseph Weiss, Guy Zur and Alon Dumanis and Ms. Kineret Yaari will serve as directors until our 2021 annual general meeting of shareholders. Ms.
Misch and Mr. Sigal serve as our external directors and each currently holds office for three-year terms until October 21, 2021, and August 30, 2022, respectively.

Yossi Ben Shalom was appointed as a director of RADA effective as of May 18, 2016 and has served as the Chairman of our Board of Directors since June 14, 2016. Mr. Ben-Shalom was Executive Vice
President and Chief Financial Officer of Koor Industries Ltd. from 1998 through to 2000. Before that, Mr. Ben-Shalom served as Chief Financial Officer of Tadiran Ltd. Mr. Ben-Shalom was an active
director on numerous boards of directors, including: NICE Systems Ltd. (NASDAQ: NICE) (computer telephony); Machteshim Agan (chemistry); and Investec Bank. He also participated in the creation
of TDA VC fund (a joint venture between Templeton and Tadiran) and was an active Chairman of Scopus – a technology company with sales of over $30 million. Yossi is a co-founder of DBSI
Investments Ltd. As such, he served as a director of Taldor Computer Systems (1986) Ltd. (TASE: TALD) and Danel Ltd. (TASE: DANE). He currently serves as the Chairman of Shagrir Group Car
Services Ltd. (TASE: SHGR), a director of BrainsWay Ltd. (NASDAQ & TASE: BWAY) and several other privately held companies. Mr. Ben-Shalom holds a B.A. degree in Economics and an M.A.
degree in Business Management from Tel Aviv University.

Nir Cohen has served as a director of RADA since May 18, 2016. Mr. Cohen serves as Chief Financial Officer of DBSI Investments Ltd. and of its affiliate – Shiraz DS Investments Ltd. As the CFO of
both DBSI and Shiraz, Mr. Cohen serves as a director of Shagrir Group Vehicle Services Ltd. (TASE: SHGR). Before joining DBSI, Mr. Cohen served as partner and CFO of Argoquest Holdings, LLC, a
privately held U.S.-based investment company specializing in high-tech investments. Prior to joining Argoquest, Mr. Cohen served as a senior associate at Kesselman & Kesselman, an Israeli affiliate of
the global accounting firm PricewaterhouseCoopers (PwC). Before joining PwC, Mr. Cohen worked as an auditor for the accounting firm KPMG in Israel. Mr. Cohen holds a B.A. degree in Accounting
and Business Management from the College of Management and is a Certified Public Accountant in Israel.

Prof. Alon Dumanis has served as a director of RADA since September 16, 2015. He is the Chief Executive Officer of Dumanis Investments Ltd and its affiliates. He is currently chairman of Aposense,
Managing Partner of Augmentum Ltd., Co-Chairman and Founder of AIS Applied Industrial Scan Ltd. and a director of Lapidoth Capital (TASE:LAPD). Between 2001 and 2015, Prof. Dumanis served as
the Chief Executive Officer of Docor International Management Ltd. and the General Manager of Crecor B.V. and Docor International B.V., Dutch investment companies, subsidiaries of The Van-Leer
Group Foundation. Prof. Dumanis is a former director of El Al Israel Airlines (TASE:LY), Tadiran Communications (TASE:TDCM), Nova Measuring Instruments (NASDAQ:NVMI), Protalix
Biotherapeutics (NYSE:PLX), Spectronix (TASE:SPCT), Collplant (TASE:CLPT) and Inventech Investments Co. Ltd. (TASE:IVTC). Previously, Prof. Dumanis served as the Head of Material Command
for the Israeli Air Force, where he held the rank of Brigadier General. Prof. Dumanis holds a Doctorate of Philosophy degree in Aerospace Engineering from Purdue University.

Haim Regev has served as a director of RADA since May 21, 2019. Mr. Regev serves as a board member of the Israeli Ministry of Foreign Affairs since August 2016 and as the director for the Middle
East and Peace Process Division. From 2013 to 2016, Mr. Regev was Director of Coordination Department at the Ministry of Foreign Affairs. From 2008 to 2013, Mr. Regev directed the Department for
International Cooperation at the Israeli Missile Defense Organization (IMDO) at the rank of Lieutenant Colonel. Mr. Regev served as Israel’s Counselor for Congressional Affairs in Washington D.C
between 2004 to 2008. Mr. Regev has a B.A. degree in Political Science and Middle Eastern Studies and an M.A. degree in Business Management with honors, both from Tel Aviv University.

Joseph Weiss has served as director of RADA since December 25, 2019. Mr. Weiss served as the President and Chief Executive Officer of Israel Aerospace Industries Ltd (“IAI”), Israel's largest aerospace
corporation and the country's largest high-tech company from 2012 until August 31, 2018. Mr. Weiss joined IAI in 1998, after serving in Israel's navy for 25 years in various field and headquarter positions
and retired as a Captain (N). While at IAI Mr. Weiss held a number of managerial positions and was also appointed as Chairman of the Board of ELTA, IAI's subsidiary which provides design,
development, manufacture and support of radars and electronic intelligence & defense systems for military, paramilitary and law-enforcement markets. Mr. Weiss also serves as a member of the Board of
Governors of the Technion – Israel Institute of Technology in Haifa, as a Director of Bet Shemesh Engines Ltd., a jet engine parts manufacturer, as a director of UVision Air Ltd., UVision designs,
manufactures and delivers innovative, cost-effective, unmanned aerial loitering munition systems for customers worldwide, since January 1, 2019, serves as Chairman of the Board of Tubex NRG Ltd, a
bio-nanotechnology startup that is seeking to improve battery performance. Since January, 2021 Mr. Weiss has been serving as a director of Spacecom Ltd. (TASE:SCC) and as a director of Blade Ranger
Ltd. (TASE:BLRN). Mr. Weiss holds a BSc. degree (with honors) in Mechanical Engineering from the Technion and an MBA degree from Tel Aviv University. He also completed MSc studies at the
Technion.

Tal Misch Vered has served as an external director of RADA since October 2018. Ms. Misch serves as an external director of Telsys Ltd. (TASE:TLSY), the company for the Management of the Provident
Fund of Ovdei Hamedina, Mardechai Aviv Building Industries (1973) Ltd. (TASE:AVIV), Medi Power (Overseas) Ltd. (TASE:MDPR), Opal Balance Ltd. (TASE:OPAL). She has previously served as an
external of A.D.O. group (TASE:ADO) and Roots Sustainable Agricultural Technologies Ltd. (ASX:ROO). Between 2006 and 2014, Ms. Misch served as the co-CEO of Gmul Residential Real Estate Ltd.
Prior to that, from 2004 to 2007 Ms. Misch served as the CFO of Gmul Investment Ltd. Prior to that, Ms. Misch served in various managerial and professional positions, including as a certified public
accountant in Broyde KPMG & Co. Ms. Misch is a CPA and a member of the Israeli Accountants Council as well as a licensed real estate appraiser. Ms. Misch has a B.A. degree in Economics and
Accounting, and an M.A. degree in Philosophy, Science and Digital Culture, from Tel Aviv University and Microsoft’s MCSA certification.

Elan Sigal has served as an external director of RADA since August 2013. From October 2019 until May 2020, Mr. Sigal served as the Chief Financial Officer of Scodix, a capital equipment manufacturer
in the printing industry. From January 2013 to August 2017, Mr. Sigal served as the Chief Financial Officer of Landa Corporation (Israel), an Israeli company that develops printing systems with
proprietary nanography technology for the commercial market. Between January 2008 and December 2012, Mr. Sigal was the Chief Financial Officer of Objet Geometries Ltd., an Israeli company that is
engaged in the design, development and manufacture of 3D printers. Between 2004 and December 2007, Mr. Sigal served as the Chief Financial Officer of our company. From May 2000 to December
2003, Mr. Sigal worked as a management consultant in the London office of McKinsey & Co., a leading global management consulting firm. For ten years Mr. Sigal served as a fighter pilot in the Israeli
Air Force. Mr. Sigal holds a B.A. degree in Economics from Tel Aviv University.

Kineret Yaari has served as a director of RADA since May 18, 2016. Mrs. Yaari serves as Chief Investment Manager at DBSI Investments Ltd. Mrs. Yaari also serves as a director of Shagrir Group
Vehicle Services Ltd. (TASE: SHGR) and several other privately held companies. Before joining DBSI Investments, Mrs. Yaari served as a senior business analyst at Giza-Singer-Even, a financial
advisory and investment banking firm in Israel. Mrs. Yaari holds a B.A. degree in Economics and Management and an M.B.A. degree in Accounting and Finance from Tel Aviv University.

Guy Zur has served as a director of RADA since March 27, 2017. Mr. Zur joined the IDF in 1980 and served in the military until 2016 in a variety of positions retiring with the rank of Major General. Mr.
Zur served as the commander of the Ground Forces from 2013 until 2016. Between 2010 and 2013, Mr. Zur served as the Head of the IDF Planning Division. Between 2007 and 2010, Mr. Zur served as
the commander of the National Training Center for Ground Trainings (NTC). Mr. Zur is currently the CEO of some Taavura Group subsidiaries, one of the largest logistics and transportation
conglomerates in Israel, as well as a technology entrepreneur. Mr. Zur holds an M.B.A. degree from Be’er Sheva University, a Bc.S. degree in Mechanical Engineering from Tel Aviv University, and is an
alumnus of the Royal College of Defense Studies, London.

Dov Sella has served as our Chief Executive Officer since November 2016 and previously, since July 2007, served as our chief business development officer. Prior to that and from January 2003, Mr. Sella
served as our chief operating officer. Mr. Sella has over 20 years of senior management and product development experience. From 1982 until 1997, Mr. Sella worked for Elbit Systems Ltd., a leading
Israeli defense contractor. Among his positions at Elbit, he served as director of programs, director of avionics engineering and director of business development. Between 1997 and 2000, Mr. Sella served
as executive vice president and vice president of business development and vice president of research and development of UltraGuide Ltd., a medical devices start-up. During the three years prior to
joining our company, Mr. Sella was the president of NeuroVision Inc., a medical technology start-up. Mr. Sella has a B.Sc. degree (cum laude) in Computer Engineering from the Technion - Israeli
Institute of Technology. Mr. Sella served as a fighter aircraft navigator in the IAF.

Avi Israel has served as our Chief Financial Officer since November 2017. Prior to that and since 2014, Mr. Israel has served as the CEO of Logisticare Ltd., a leading Israeli private company providing
third-party logistics and supply chain services. Between 2010 and 2013, Mr. Israel served as the CEO of Brimag Communication Ltd., the Israeli importer and distributor of mobile phones and other
cellular products manufactured by LG Electronics. Prior to that and since 2004, Mr. Israel served in several positions (including Deputy CEO and Finance Director) of Telit Communications PLC., an IoT
(Internet of Things) company listed on AIM in London. Between 1996 and 2004, Mr. Israel served in several positions in the Formula Systems Group, as the VP M&A in charge of the international
operations of Matrix Ltd. (TASE: MTRX), one of Israel’s largest software solutions companies, as well as the CFO of New Applicom Ltd., an Israeli software company that merged with Matrix. Prior to
that and since 1992, Mr. Israel acted as the CFO of Burford International Application Ltd in the United Kingdom. Between 1989 and 1992, Mr. Israel was a certified public accountant with Almagor & Co,
(today Deloitte Israel). Mr. Israel also served between the years 2011-2017 as an external director of Analyst Portfolio Management Ltd. and between 2004 and 2010 as an external director of Semicom
Industries Ltd. Currently, Mr. Israel is also an external director of Or Shay Ltd., whose bonds are traded on the TASE. Mr. Israel has a B.A. degree in Economics and Accounting and an M.B.A. degree,
both from Bar-Ilan University in Israel. Mr. Israel is a CPA and a member of the Israeli Accountants Council.

Oleg Kiperman has served as our Chief Technology Officer since July 2007. Mr. Kiperman joined us in 1984 as project manager of several embedded avionics development programs and in 2000 was
named as our director of engineering. From 1982 until 1984, Mr. Kiperman served as a hardware development team leader at Tadiran Ltd. developing digital communication systems. From 1977 until
1982, Mr. Kiperman served as a senior engineer in the IAF Weapons Control Branch. Mr. Kiperman holds a B.Sc. degree in Electrical Engineering from the Technion - Israeli Institute of Technology.

Yaniv Dorani has served as our Chief Operating Officer since March 2020. Mr. Dorani served as the Chief Financial Officer of Pointer Telocation Ltd. (NASDAQ: PNTR) from April 2017 until Pointer’s
acquisition by PowerFleet Inc. (NASDAQ: PWFL) in October 2019. Mr. Dorani was employed in various capacities with Pointer starting in 2008. Prior to joining Pointer, Mr. Dorani served as Corporate
Controller at Medis Technologies and assistant controller at Delta Galil Industries. Before joining Delta Galil, Mr. Dorani was a senior auditor for the accounting firm KPMG in Israel. Mr. Dorani holds a
B.A. degree in Economics and Accounting and a M.B.A. degree from Bar Ilan University in Tel Aviv. Mr. Dorani is a Certified Public Accountant in Israel.

Max Cohen has served as the Chief Executive Officer of RADA Sensors Inc. since December 2019. Mr. Cohen joined RADA in May 2018 and served as our Executive Vice President for the U.S. market.
Mr. Cohen retired from the Israeli Defence Forces (IDF) in March 2018 after 26 years of service. Between 2013 to 2017, Mr. Cohen served as the head of the Sky Picture Department in the Israeli Air
Force, during which time he led the development of the air picture command and control systems (C2) and the air picture radars. Between 2016 to 2017 Mr. Cohen initiated and managed a comprehensive
national program to deal with the emerging use of commercial and military drones in the battlefield. Mr. Cohen retired with the rank of Lieutenant Colonel (LTC). After his retirement, Mr. Cohen founded
FLYON Aerosystems Ltd., a start-up company engaged in the development of a new commercial flying platform. Mr. Cohen has a BSc. degree in Electrical and Computer Engineering from Ben-Gurion
University.

William Watson has served as the Chief Executive Officer of RADA Technologies LLC (RTL) since March 2018. Mr. Watson has over 30 years of product and business development experience in the
defense market. Prior to joining RADA, Mr. Watson was responsible for worldwide sales and business development for L3 Technologies, GCS between July 2017 and January 2018. Mr. Watson also
developed a worldwide sales team for Safran Vectronix in March 2015 and December 2016. He previously spent 27 years with DRS Technologies, a major US defense contractor, in a variety of roles
including P&L responsibilities as VP, Radar & Communication Systems; and also VP Naval C4 Systems. During his tenure with DRS, Mr. Watson also held leadership positions in Program Management,
Engineering and Business Operations. Mr. Watson has an M.B.A. degree in Business Administration and Management from Long Island University (C.W. Post) and o a Bachelor of Engineering degree
(BEng) in Mechanical Engineering from the State University of New York (Stony Brook).

Scott Wood has served as the Chief Executive Officer of RADA Innovations LLC (RIL) since October 2020. Mr. Wood joined RTL in April of 2019, serving as Vice President and Chief Engineer for RTL.
Prior to joining RTL and from 2014, Mr. Wood worked for Raytheon Space and Airborne Systems, as Senior Director of Engineering. Previously he worked for Lockheed Martin and DRS Leonardo in
various senior technical and executive management roles and he is holding experience in the areas of avionics, naval combat and sonar systems, intelligence, weapon and radar systems, satellite and
tactical communications, software-defined radios and waveform integration, radio frequency, high-frequency direction finding systems, and electronic warfare/electronic attack systems. Prior to working in
the defense industry, Mr. Wood served in the U.S. Navy Submarine Force. He earned a bachelor’s degree in Mathematics and Computer Sciences from the State University of New York and a master’s
degree in Business Administration and Finance from Syracuse University.

B. Compensation

The following table includes information for the year ended December 31, 2020 concerning the five (5) most highly compensated executive officers of our company, (the figures below reflect the
applicable cost of employment on an annual basis):

Annual salary cost and other benefits ($)2
Non-cash employees’ options compensation cost for 2020 ($)3
Total ($)

Dov Sella1

Bill Watson

Max Cohen

Oleg Kiperman

Avi Israel

888,340
441,443
1,329,783

521,990
90,535
612,525

428,315
56,016
484,331

384,472
81,393
465,865

338,464
117,203
455,667

(1)

In January 2017, our shareholders approved a new employment agreement with our Chief Executive Officer, Mr. Dov Sella, who had previously served as our Chief Business Development Officer.
From January 2017 until December 31, 2018 Mr. Sella received a monthly gross base salary of NIS 75,000. In addition to the options to purchase 131,250 Ordinary Shares that were granted to him
on June 14, 2016, our shareholders approved an additional grant of options to Mr. Sella as follows: (i) options to purchase 68,750 Ordinary Shares at an exercise price of $1.16 per ordinary share that
vested ratably over a period of four (4) years and (ii) options to purchase 150,000 Ordinary Shares at an exercise price of $1.16 per ordinary share that will vest immediately instead of 99 vacation
days that had accrued and were redeemable by Mr. Sella. In November 2017, our shareholders approved the grant to Mr. Sella of options to purchase 500,000 Ordinary Shares at an exercise price of
$2.96 per shares that vest ratably over a period of four (4) years. In June 2018, our shareholders approved the grant to Mr. Sella of additional options to purchase 500,000 Ordinary Shares at an
exercise price of $2.32 per shares that vest over a period of four (4) years as follows: 25% will vest at the first anniversary of the grant date and the balance shall vest in 12 equal and consecutive
quarterly instalments. In addition, on January 16, 2019 our shareholder approved an increase of the monthly base-salary payable to Mr. Sella, effective as of January 1, 2019 to NIS100,000 as well an
additional bonus payment (not exceeding 6 months of base salary) that are conditioned upon our company and Mr. Sella satisfying certain measurable business and quantitative milestones. On June
4, 2020, our shareholders approved an amendment to Mr. Sella's employment agreement, according to which effective as of April 1, 2020 his monthly salary is NIS 125,000 (excluding benefits).

(2)

Includes the gross salary of the five (5) most highly compensated executive officers plus payments of (i) salary bonus; (ii) social benefits such as payments for savings funds, education funds,
pension, severance, insurances, social security; (iii) general benefits such as company car (including maintenance and gas) and cell phone; and (iv) option compensation and other benefits pursuant
to our company’s policy.

(3) Option compensation pursuant to our company’s policy. Our 2015 Share Option Plan provides the framework to issue certain awards, e.g., Non Trustee 102 Share Options, 102 Ordinary Income
Share Options and 3(9) Share Options, all as defined in our 2015 Share Option Plan. Apart from issuance under the applicable Israeli laws and regulations, the 2015 Share Option Plan enables
issuances to grantees in other jurisdictions with respect to which the plan’s administrator is empowered to make the requisite adjustments in the plan.

Mr. Yossi Ben Shalom has served as the Executive Chairman of our Board of Directors since May 18, 2016. In June 2020 our shareholders approved that effective as of January 1, 2020 we would pay
DBSI a monthly payment of NIS 35,000 (approximately $10,886) in consideration for the time devoted by Mr. Ben Shalom to such position.

Mr. Guy Zur has served as a member of our Board of Directors since March 27, 2017. Mr. Zur is entitled to receive, in addition to his directors' fees, a monthly retainer of NIS 10,000 payable as of January
1, 2018 for business development consulting services. Pursuant to the consultancy agreement with Mr. Zur, both Mr. Zur and our company may terminate the engagement with or without reason by giving
30 days’ prior notice. In 2020 Mr. Zur received $35,000 from us for his consulting services.

Mr. Weiss is entitled to receive, in addition to his directors' fees, a monthly retainer for business development and consulting services of NIS 15,000. In addition, Mr. Weiss is also entitled to receive a
commission of 2.5% of our net revenues with respect to specific transactions introduced to us by Mr. Weiss and pre-approved by our Audit Committee. Both Mr. Weiss and our company may terminate the
services agreement with or without reason by giving a 30 days’ prior written notice. The agreement is subject to the approval of our shareholders. In 2020, Mr. Weiss received $31,000 from us for these
services.

During the year ended December 31, 2020, the aggregate compensation paid to our above-mentioned executive officers and directors as a group was approximately $3,520,244. As of December 31, 2020,
the aggregate amount set aside or accrued for pension, retirement, recreation payments and vacation or similar benefits for our directors and executive officers was approximately $582,346.

During the year ended December 31, 2020, we paid each of our external directors a per-meeting attendance fee of NIS 1,108 (approximately $345) and an annual fee of NIS 43,363 (approximately
$12,617).

Pursuant to the Israeli Companies Law, we have adopted a compensation policy and are required to follow certain approval requirements with respect to the compensation of our directors and executive
officers. See below “Board of Directors – Compensation Committee” and Item 10. Additional Information – Office Holders.

We follow Israeli law and practice instead of the requirements of the NASDAQ Stock Market Rules regarding the compensation of our Chief Executive Officer and other executive officers. See Item 16G.
“Corporate Governance.”

C. Board Practices

Introduction

According to the Israeli Companies Law and our articles of association, the management of our business is vested in our board of directors. The board of directors may exercise all powers and may take all
actions that are not specifically granted to our shareholders. Our executive officers are responsible for our day-to-day management. The executive officers have individual responsibilities established by
our Chief Executive Officer and board of directors. Executive officers are appointed by and serve at the discretion of the board of directors, subject to any applicable agreements.

Election of Directors

Our Articles of Association provide for a board of directors consisting no less than four (4) and no more than twelve (12) members, or such other number as may be determined from time to time at a
general meeting of shareholders. All the directors in the company must be qualified to serve as a director and the time required for such position, taking into consideration the type and size of the company
and the scope and complexity of its operation. The directors must provide the electing general meeting with a detailed declaration as to the compliance with the above-listed requirements. Our board of
directors is currently composed of nine (9) directors.

Pursuant to our Articles of Association, our directors, except for the External Directors, are elected at the Annual General Meeting by the vote of the holders of a majority of the voting power represented
at such meeting in person or by proxy and voting on the election of directors, and each director generally serves until the Annual General Meeting next following the Annual General Meeting at which
such director was appointed, or his earlier vacation of office or removal. Except with respect to the removal of External Directors, the shareholders are entitled to remove any director(s) from office, by a
simple majority of the voting power of the company represented at the meeting in person or by proxy and voting thereon. All the members of our board of directors (except the external directors as detailed
below) may be reelected upon completion of their term of office. The majority of directors may appoint additional directors to fill any vacancies in the board of directors until the next annual general
meeting; provided, however that the total number of directors will not exceed the maximum number, if any, fixed by or in accordance with our Articles of Association. We do not follow the requirements
of the NASDAQ Marketplace Rules with regard to the nomination process of directors and instead follow Israeli law and practice. See Item 16G. “Corporate Governance.”

External and Independent Directors

External Directors. The Israeli Companies Law requires publicly held Israeli companies to appoint at least two external directors. However, pursuant to the Companies Regulations (Relief for Companies
whose Securities are listed for trading in Stock Exchange outside of Israel), 5760-2000, if a company whose securities are listed in certain foreign exchanges, such as the NASDAQ Capital Market, does
not have a controlling shareholder it may elect to not be required to appoint External Directors provided that (i) its Board of Directors’ composition includes the requisite number of independent directors
that satisfy the independence requirement of the foreign law that applies to its listing, (ii) that the composition of its audit and compensation committee comply with the requirements of such foreign law
and (iii) if at the time of appointment of any director all the directors are of the same gender, at least one of the directors must be of the other gender. We have not utilized this opt-out from the External
Directors requirement, but we may elect to do so in the future.

The Israeli Companies Law provides that a person may not be appointed as an external director if the person, or the person’s relative, partner, employer or an entity under that person’s control, has or had
during the two years preceding the date of appointment any affiliation with the company, or any entity controlling, controlled by or under common control with the company. The term “relative” means a
spouse, sibling, parent, grandparent, child or child of spouse or spouse of any of the above as well as a sibling, brother, sister or parent of the foregoing relatives. In general, the term “affiliation” includes
an employment relationship, a business or professional relationship maintained on a regular basis, control and service as an office holder. Furthermore, if the company does not have a controlling
shareholder or a shareholder holding at least 25% of the voting rights “affiliation” also includes a relationship, at the time of the appointment, with the chairman of the board, the Chief Executive Officer, a
substantial shareholder or the most senior financial officer of such company. Regulations promulgated under the Israeli Companies Law include certain additional relationships that would not be deemed
an “affiliation” with a company, for the purpose of service as an external director. In addition, no person may serve as an external director if the person’s position or other activities create, or may create, a
conflict of interest with the person’s responsibilities as director or may otherwise interfere with the person’s ability to serve as director. If, at the time an external director is appointed, all current members
of the board of directors are of the same gender, then that external director must be of the other gender. A director of one company may not be appointed as an external director of another company if a
director of the other company is acting as an external director of the first company at such time.

At least one of the elected external directors must have “accounting and financial expertise” and any other external director must have “accounting and financial expertise” or “professional qualification,”
as such terms are defined by regulations promulgated under the Israeli Companies Law. However, Israeli companies listed on certain stock exchanges outside Israel, including the NASDAQ Capital
Market, such as our company, are not required to appoint an external director with “accounting and financial expertise” if a director with accounting and financial expertise who qualifies as an independent
director for purposes of audit committee membership under the laws of the foreign exchange serves on its board of directors. All of the external directors of such a company must have “professional
qualification.”

The external directors are elected by shareholders at a general meeting. The shareholders voting in favor of their election must include at least a simple majority of the shares voted by shareholders other
than controlling shareholders or shareholders who have a personal interest in the election of the external director (unless such personal interest is not related to such person’s relationship with the
controlling shareholder). This majority requirement will not be required if the total number of shares of such non-controlling shareholders and disinterested shareholders who vote against the election of
the external director represent 2% or less of the voting rights in the company.

In general, under the Israeli Companies Law, external directors serve for a three-year term and may be reelected to two additional three-year terms, at the nomination of either the board of directors or any
shareholder(s) holding at least 1% of the voting rights in the company. If the board of directors proposed the nominee, the reelection must be approved by the shareholders in the same manner required to
appoint external directors for an initial term, as described above. If such reelection is proposed by shareholders, such reelection requires the approval of the majority of the shareholders voting on the
matter, excluding the votes of any controlling shareholder and other shareholders having a personal interest in the matter as a result of their relationship with the controlling shareholder(s), provided that,
the aggregate votes cast by shareholders who are not controlling shareholders and do not have a personal interest in the matter as a result of their relationship with the controlling shareholder(s) who voted
in favor of the nominee constitute more than 2% of the voting rights in the company and provided further that, at the time of the appointment, such reelected external director is not (i) a related or
competitor shareholder, or (ii) a relative of such related or competitor shareholder or otherwise affiliated with a related or competitor shareholder either at the time of appointment or at any time during the
two years period prior to such appointment. A related or competitor shareholder is defined by the Israeli Companies Law as the shareholder that proposed the reelection or a holder of 5% or more of the
outstanding share capital of the company, provided that at the time of appointment (i) such shareholders, their controlling shareholder or any entity controlled by either of them has business relations with
company, or (ii) such shareholders, their controlling shareholder or any entity controlled by either of them are competitors of the company. External directors can be removed from office only by the same
special percentage of shareholders that can elect them, or by a court order, and then only if the external directors cease to meet the statutory qualifications with respect to their appointment or if they violate
their fiduciary duty to the company.

Each committee of the board of directors that is authorized to exercise powers vested in the board of directors must include at least one external director and the audit committee and the Compensation
Committee must include all the external directors. An external director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from
receiving any other compensation, directly or indirectly, in connection with such service.

Independent Directors. In general, NASDAQ Stock Market Rules require that the board of directors of a NASDAQ-listed company have a majority of independent directors and its audit committee must
have at least three members and be comprised only of independent directors, each of whom satisfies the respective “independence” requirements of NASDAQ and the SEC. However, foreign private
issuers, such as our company, may follow certain home country corporate governance practices instead of certain requirements of the NASDAQ Stock Market Rules. We do not follow the requirement of
the NASDAQ Stock Market Rules to maintain a majority of independent directors on our board and instead follow Israeli law and practice (see Item 16G. “Corporate Governance”). However, we have the
mandated three independent directors on our audit committee, in accordance with the rules of the SEC and NASDAQ.

Pursuant to the Israeli Companies Law, a director may be qualified as an independent director if such director is either (i) an external director; or (ii) a director that serves as a board member for less than
nine years and the audit committee has approved that he or she meets the independence requirements of an external director. A majority of the members serving on the audit committee and the
compensation committee must be independent under the Israeli Companies Law.

Our board of directors has determined that Ms. Misch, Mr. Sigal and Prof. Dumanis qualify as independent directors under the SEC and NASDAQ requirements and that Ms. Misch, Mr. Sigal and Prof.
Dumanis qualify as independent directors under the Israeli Companies Law requirements.

We do not follow the requirements of the NASDAQ Stock Market Rules with regard to regularly scheduled meetings of independent directors. Under Israeli law, external directors are not required to hold
executive sessions. See Item 16G. “Corporate Governance.”

Committees of the Board of Directors

Audit Committee. Under the Israeli Companies Law, the board of directors of any public company must establish an audit committee. The audit committee must be comprised of at least three directors, the
majority of which must be independent directors. Such independent directors must meet all of the standards required of an external director and may not serve as a director for more than consecutive nine
years (a cessation of service as a director for up to two years during any nine years period will not be deemed to interrupt the nine years period). The audit committee may not include the chairman of the
board of directors; any director employed by the company or providing services to the company on an ongoing basis; a controlling shareholder or any of the controlling shareholder’s relatives; and any
director who rendered services to the controlling shareholder or an entity controlled by the controlling shareholder. Any person who is not permitted to be a member of the audit committee may not be
present in the meetings of the audit committee unless the chairman of the audit committee determines that such person’s presence is necessary in order to present a specific matter. However, an employee
who is not a controlling shareholder or relative of a controlling shareholder may participate in the audit committee’s discussions but not in any vote, and at the request of the audit committee, the secretary
of the company and its legal counsel may be present during the meeting. The chairman of the audit committee must be an external director.

Under Israeli law, an audit committee may not approve an action or a transaction with a controlling shareholder, or with an office holder, unless at the time of approval two external directors are serving as
members of the audit committee and at least one of the external directors was present at the meeting in which an approval was granted.

The role of the audit committee, pursuant to the Israeli Companies Law, includes:

• monitoring deficiencies in the management of the company, including in consultation with the independent auditors or the internal auditor, and to advise the board of directors on how to
correct such deficiencies. If the audit committee finds a material deficiency, it will hold at least one meeting regarding such material deficiency, with the presence of the internal auditor or the
independent auditors but without the presence of the senior management of the company. However, a member of the company’s senior management can participate in the meeting in order to
present an issue which is under his or her responsibility;

•

determining, on the basis of detailed arguments, whether to classify certain engagements or transactions as material or extraordinary, as applicable, and therefore as requiring special approval
under the Israeli Companies Law. The audit committee may make such determination according to principles and guidelines predetermined on an annual basis;

determining if transactions (excluding extraordinary transactions, that is, a transaction other than in the ordinary course of business, other than market terms, or likely to have a material
impact on our company’s profitability, assets or liabilities) with a controlling shareholder, or in which a controlling shareholder has a personal interest, are required to be rendered pursuant to
a competitive procedure;

deciding whether to approve engagements or transactions that require the audit committee approval under the Israeli Companies Law;

determining the approval procedure of non-extraordinary transactions, following classification as such by the audit committee, including whether such specific non-extraordinary transactions
require the approval of the audit committee;

examining and approving the annual and periodical working plan of the internal auditor;

overseeing the company’s internal auditing and the performance of the internal auditor; confirm that the internal auditor has sufficient tools and resources at his disposal, taking into account,
among other, the special requirements of the company and its size;

examining the scope of work of the independent auditor and its pay, and bringing such recommendations on these issue before the Board; determining the procedure of addressing complaints
of employees regarding shortcomings in the management of the company and ensure the protection of employees who have filed such complaints;

determining with respect to transactions with the controlling shareholder or in which such controlling shareholder has personal interest, whether such transactions are extraordinary or not, an
obligation to conduct competitive process under supervisions of the audit committee or determination that prior to entering into such transactions the company shall conduct other process as
the audit committee may deem fit, all taking into account the type of the company. The audit committee my set such qualifications for one year in advance; and

•

determining the manner of approval of transactions with the controlling shareholder or in which it has personal interest which (i) are not negligible transactions (pursuant to the committee’s
determination) and (ii) are not qualified by the committee as extraordinary transactions.

In addition, the NASDAQ Stock Market Rules require us to establish an audit committee comprised of at least three members, all of whom must be financially literate, satisfy the respective
“independence” requirements of the SEC and NASDAQ and one of whom must have an accounting or related financial management expertise at senior levels within a company.

Pursuant to the Israeli Companies Law, an audit committee that complies with the requirements of the Israeli Companies Law may act also as a compensation committee. Our board of directors has
determined that our audit committee complies with such requirements and therefore, it also serves as our compensation committee.

The current members of our audit and compensation committees are Ms. Tal Misch Vered, Mr. Elan Sigal and Prof. Alon Dumanis, each of whom satisfies the “independence” requirements of both the
SEC and NASDAQ. We also comply with Israeli law requirements for audit committee members. The audit committee meets at least once each quarter.

Compensation Committee. Our Board of Directors is required to appoint a compensation committee, whose role is to: (i) recommend to the board on a compensation policy for office holders and to
recommend to the board, once every three years, on the approval of the continued validity of the compensation policy that was determined for a period exceeding three years; (ii) recommend an update the
compensation policy from time to time and to examine its implementation; (iii) determine whether to approve the Terms of Service and Employment of Office Holders that require the committee’s
approval; and (iv) exempt a transaction from the requirement for shareholders’ approval. The compensation committee also has oversight authority over the actual terms of employment of directors and
officers and may make recommendations to the board of directors and the shareholders (where applicable) with respect to deviation from the compensation policy that was adopted by the company. Under
Israeli law, our compensation committee must consist of no less than three members, including all of our external directors (who must constitute a majority of its members of the committee), and the
remainder of the members of the compensation committee must be directors whose terms of service and employment were determined pursuant to the applicable regulations. The same restrictions on the
actions and membership in the audit committee apply to the compensation committee with respect to, among other things, the requirement that an external director serve as the chairman of the committee
and the list of persons who may not serve on the committee. As noted above, our board of directors established a compensation committee composed of Ms. Tal Misch Vered, Mr. Elan Sigal and Prof. Alon
Dumanis. In August 2019, our shareholders approved an updated compensation policy for an additional period of three years. In June 2020, our shareholders approved an amendment to the compensation
policy (related to the maximum premium payable in connection with our D&O insurance.)

Business Development Committee. In November 2016, our Board of Directors established a Business Development Committee whose role is to review and make recommendations to the Board of
Directors with respect to business development strategies, plans and targets. The Business Development Committee is composed of Messrs. Yossi Ben Shalom, Guy Zur, and Prof. Alon Dumanis.

Internal Audit

The Israeli Companies Law also requires the board of directors of a publicly held company to appoint an internal auditor nominated by the audit committee. An internal audit must satisfy the Israeli
Companies Law’s independence requirements. The role of the internal auditor is to examine, among other things, the compliance of the company’s conduct with applicable law and orderly business
practice. Under the Companies Law, the internal auditor may not be an interested party or an office holder, or a relative of any of the foregoing, nor may the internal auditor be the company’s independent
accountant or its representative. Our internal auditor complies with the requirements of the Israeli Companies Law.

Approval of Related Party Transactions under Israeli Law

Fiduciary Duties of Office Holders

The Israeli Companies Law codifies the fiduciary duties that “office holders,” including directors and executive officers, owe to a company. An “office holder” is defined in the Israeli Companies Law as a
director, general manager, chief business manager, deputy general manager, vice general manager, other manager directly subordinated to the general manager or any other person assuming the
responsibilities of any of the foregoing positions without regard to such person’s title. An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office
holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (i) information
regarding the appropriateness of a given action brought for his approval or performed by him by virtue of his position and (ii) all other information of importance pertaining to the foregoing actions. The
duty of loyalty includes (i) avoiding any conflict of interest between the office holder’s position in the company and any other position he holds or his personal affairs, (ii) avoiding any competition with
the company’s business, (iii) avoiding exploiting any business opportunity of the company in order to receive personal gain for the office holder or others, and (iv) disclosing to the company any
information or documents relating to the company’s affairs that the office holder has received due to his position as an office holder.

Disclosure of Personal Interests of an Office Holder; Approval of Transactions with Office Holders

The Israeli Companies Law requires that an office holder promptly and no later than the first board meeting at which such transaction is considered, disclose any personal interest that he or she may have,
including any personal interest held by the office holder’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of the forgoing, or by any corporation in which
the office holder or a relative is a 5% or greater shareholder, director or general manager, or in which he or she has the right to appoint at least one director or the general manager, and all related material
information known to him or her and any documents in their position, in connection with any existing or proposed transaction by us.

Some transactions, actions and arrangements involving an office holder (or a third party in which an office holder has an interest) must be approved by the board of directors or as otherwise provided for in
a company’s articles of association, however, a transaction that is adverse to the company’s interest may not be approved. In some cases, such a transaction must be approved by the audit committee and by
the board of directors itself, and under certain circumstances shareholder approval may also be required. A director who has a personal interest in a transaction that is considered at a meeting of the board
of directors or the audit committee may not be present during the board of directors or audit committee discussions and may not vote on the transaction, unless the transaction is not an extraordinary
transaction or the majority of the members of the board or the audit committee have a personal interest, as the case may be. In the event the majority of the members of the board of directors or the audit
committee have a personal interest, then the approval of the general meeting of shareholders is also required.

Approval of a Compensation Policy for Office Holders

The Israeli Companies Law and the regulations adopted thereunder require the compensation committee to adopt a policy for director and office holders.

The compensation policy needs to be re-approved every three years by the board of directors, following the recommendation of the compensation committee, and by the company’s shareholders, by a
Special Majority (as defined below). In the event that the compensation policy is not so approved by the shareholders, the board of directors may nonetheless approve it, provided that the compensation
committee and the board of directors, following further discussion of the matter and for specified reasons, determine that the approval of the compensation policy is in the best interests of the company.

Special Majority means: (a) a majority of the shareholders who are not controlling shareholders of the Company and do not have a “Personal Interest” in the approval of the respective resolution who
participate in the vote, in person, by proxy or by a voting instrument vote to approve it (abstentions will not be taken into account) or (b) the total number of votes of the shareholders referred to in (a)
above that are voted against the proposed resolution does not exceed two percent (2%) of the company’s total voting rights.

The compensation policy serves as the basis for decisions concerning the financial terms of employment or engagement of officer holders, including exculpation, insurance, indemnification or any
monetary payment or obligation of payment in respect of employment or engagement.

In addition, compensation of the directors and the Chief Executive Officer is also subject to the approval of the compensation /audit committee, the board of directors and the shareholders at a general
meeting. The approval of the compensation of the Chief Executive Officer is subject to the Special Majority requirements

Any deviations from the compensation policy in respect of the compensation of the office holders require the approval of the compensation/audit committee, the board of directors and the shareholders by
Special Majority.

Under the Israeli Companies Law, all arrangements as to compensation of office holders who are not directors require the approval of the compensation/audit committee prior and in addition to the
approval of the board of directors. However, if the company duly adopts a compensation plan for its office holders, the approval of the board of directors is not required if the new arrangement only
modifies an existing arrangement and the compensation committee determines that such modification is not material.

Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders

Pursuant to the Israeli Companies Law, the disclosure requirements regarding personal interests that apply to directors and executive officers also apply to a controlling shareholder of a public company. A
controlling shareholder is a shareholder who has the ability to direct the activities of a company, but excludes a shareholder whose power derives solely from its position on the board of directors or any
other position at the company. A person is presumed to be a “controlling shareholder” if it holds or controls, by itself or together with others, one half or more of any one of the “Means of Control” of the
company. “Means of Control” is defined as any one of the following: (i) the right to vote at a General Meeting of the company, or (ii) the right to appoint directors of the company or its Chief Executive
Officer. For the purpose of related party translations, under the Israeli Companies Law, a controlling shareholder is also a shareholder who holds 25% or more of the voting rights if no other shareholder
who holds more than 50% of the voting rights. For this purpose, the holdings of all shareholders who have a personal interest in the same transaction will be aggregated. As of Admission, the company
does not have a controlling shareholder.

An extraordinary transaction between a public company and a controlling shareholder, or in which a controlling shareholder has a personal interest, including a private placement in which the controlling
shareholder has a personal interest, and the terms of engagement of the company, directly or indirectly, with a controlling shareholder or a controlling shareholder’s relative (including through a
corporation controlled by a controlling shareholder), regarding the company’s receipt of services from the controlling shareholder, and if such controlling shareholder is also an office holder of the
company, regarding his or her terms of employment, require the approval of a company’s audit committee (or compensation committee with respect to compensation arrangements), board of directors and
shareholders, in that order. Such transaction must be elected by a majority vote of the Ordinary Shares present and voting at a shareholders’ meeting, provided that either: (i) such majority includes at least
a majority of votes held by all shareholders who do not have a personal interest in such transaction, present and voting at such meeting (excluding abstentions); or (ii) the total number of votes of
shareholders who do not have a personal interest in such transaction voting against the approval of the transaction, does not exceed 2% of the aggregate voting rights in the company.

Pursuant to the Israeli Companies Law, the audit committee of the company should determine in connection with such transaction if it requires rendering pursuant to a competitive procedure or pursuant to
other proceedings. See “Audit Committee” above.

To the extent that any such transaction with a controlling shareholder or his relative is for a period extending beyond three years, shareholder approval is required once every three years, unless, in respect
to certain transactions, the audit committee determines that the longer duration of the transaction is reasonable under the circumstances.

Pursuant to regulations promulgated pursuant to the Israeli Companies Law, a transaction with a controlling shareholder that would otherwise require approval of the shareholders is exempt from
shareholders’ approval if each of the audit committee and the board of directors determine that the transaction meets certain criteria that are set out in specific regulations promulgated under the Israeli
Companies Law. Under these regulations, a shareholder holding at least 1% of the issued share capital of the company may require, within 14 days of the publication of such determination, that despite
such determination by the audit committee and the board of directors, such transaction will require shareholder approval under the same majority requirements that otherwise apply to such transactions.

The Israeli Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or
greater shareholder of the company. This rule does not apply if there is already another 25% or greater shareholder of the company. Similarly, the Israeli Companies Law provides that an acquisition of
shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would hold greater than a 45% interest in the company, unless there is another shareholder
holding more than a 45% interest in the company. These requirements do not apply if, in general, (i) the acquisition was made in a private placement that received shareholder approval, (ii) was from a
25% or greater shareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, if there is not already a 25% or greater shareholder of the company, or
(iii) was from a shareholder holding a 45% interest in the company which resulted in the acquirer becoming a holder of a 45% interest in the company if there is not already a 45% or greater shareholder of
the company.

If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a public company’s outstanding shares or a class of shares, the acquisition must be made by means of a tender offer for all
of the outstanding shares or a class of shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the acquirer offered to purchase will be transferred to the
acquirer. If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquirer may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the
outstanding shares. The Israeli Companies Law provides for appraisal rights if any shareholder files a request in court within six months following the consummation of a full tender offer. However, in the
event of a full tender offer, the offeror may determine that any shareholder who accepts the offer will not be entitled to appraisal rights. Such determination will be effective only if the offeror or the
company has timely published all the information that is required to be published in connection with such full tender offer pursuant to all applicable laws.

Shareholder Duties

Pursuant to the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other shareholders and to refrain from abusing his or her power
with respect to the company, including, among other things, in voting at a general meeting and at shareholder class meetings with respect to the following matters:

•

an amendment to the company’s articles of association;

an increase of the company’s authorized share capital;

a merger; or

interested party transactions that require shareholder approval.

In addition, a shareholder has a general duty to refrain from discriminating against other shareholders.

Certain shareholders also have a duty of fairness toward the company. These shareholders include any controlling shareholder, together with any shareholder who knows that it has the power to determine
the outcome of a shareholder vote and any shareholder who has the power to appoint or to prevent the appointment of an office holder of the company or exercise any other rights available to it under the
company’s articles of association with respect to the company. The Israeli Companies Law does not define the substance of this duty of fairness, except to state that the remedies generally available upon a
breach of contract will also apply in the event of a breach of the duty of fairness.

Exculpation, Indemnification and Insurance of Directors and Officers

Exculpation of Office Holders

The Israeli Companies Law provides that an Israeli company cannot exculpate an office holder from liability with respect to a breach of his or her duty of loyalty. If permitted by its articles of association,
a company may exculpate in advance an office holder from his or her liability to the company, in whole or in part, with respect to a breach of his or her duty of care. However, a company may not
exculpate in advance a director from his or her liability to the company with respect to a breach of his duty of care in the event of distributions.

Insurance of Office Holders

The Israeli Companies Law provides that a company may, if permitted by its articles of association, enter into a contract to insure office holders in respect of liabilities incurred by the office holder with a
respect to an act performed in his or her capacity as an office holder, as a result of:

•

a breach of the office holder’s duty of care to the company or to another person;

a breach of the office holder’s duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice the
company’s interests; or

•

a financial liability imposed upon the office holder in favor of another person.

Indemnification of Office Holders

The Israeli Companies Law provides that a company may, if permitted by its articles of association, indemnify an office holder for acts or omissions performed by the office holder in such capacity for:

•

a monetary liability imposed on the office holder in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court;

reasonable litigation expenses, including attorney’s fees, actually incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent
authority, provided that such investigation or proceeding concluded without the filing of an indictment against the office holder or the imposition of any monetary liability in lieu of criminal
proceedings, or concluded without the filing of an indictment against the office holder and a monetary liability was imposed on the officer holder in lieu of criminal proceedings with respect
to a criminal offense that does not require proof of criminal intent; and

reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or which were imposed on him or her by a court, in an action instituted by the company or on the
company’s behalf or by another person, against the office holder, or in a criminal charge from which he was acquitted, or in a criminal proceeding in which the office holder was convicted of
a criminal offense which does not require proof of criminal intent.

In accordance with the Israeli Companies Law, a company’s articles of association may permit the company to:

•

prospectively undertake to indemnify an office holder, except that with respect to a monetary liability imposed on the office holder by any judgment, settlement or court-approved arbitration
award, the undertaking must be limited to types of events which the company’s board of directors deems foreseeable considering the company’s actual operations at the time of the
undertaking, and to an amount or standard that the board of directors has determined as reasonable under the circumstances.

retroactively indemnify an office holder of the company.

Limitations on Exculpation, Insurance and Indemnification

The Israeli Companies Law provides that neither a provision of the articles of association permitting the company to enter into a contract to insure the liability of an office holder, nor a provision in the
articles of association or a resolution of the board of directors permitting the indemnification of an office holder, nor a provision in the articles of association exculpating an office holder from duty to the
company shall be valid, where such insurance, indemnification or exculpation relates to any of the following:

•

a breach by the office holder of his duty of loyalty unless, with respect to insurance coverage or indemnification, the office holder acted in good faith and had a reasonable basis to believe that
the act would not prejudice the company;

a breach by the office holder of his duty of care if such breach was committed intentionally or recklessly, unless the breach was committed only negligently;

any act or omission done with the intent to unlawfully yield a personal benefit; or

any fine or forfeiture imposed on the office holder.

Under the Israeli Companies Law, exculpation, indemnification and insurance of office holders must be approved by the compensation committee and the board of directors (and, with respect to directors
and the chief executive officer, by the shareholders). However, under regulations promulgated under the Israeli Companies Law, the insurance of office holders does not require shareholder approval and
may be approved by only the compensation committee, if the engagement terms are determined in accordance with the company’s compensation policy, which was approved by the shareholders by the
same special majority required to approve a compensation policy, provided that the insurance policy is on market terms and the insurance policy is not likely to materially impact the company’s
profitability, assets or liabilities.

Our Articles of Association allow us to insure, indemnify and exempt our office holders to the fullest extent permitted by law, subject to the provisions of the Israeli Companies Law. Up until August 2017
we maintained directors and officers liability insurance policy with per claim and aggregate coverage limit of $7.5 million. On August 2017, our Compensation Committee and Board of Directors
approved an increase in the per claim coverage and aggregate coverage of up to $10 million under its directors and officers liability insurance policy. Pursuant to resolutions adopted by our shareholders on
May 15, 2016, we have also entered into agreements with our directors and officeholders providing for their indemnification and exemption from the duty of care.

D. Employees

We consider our employees the most valuable asset of our company. We offer competitive compensation and comprehensive benefits to attract and retain our employees. The remuneration and rewards
include retention through share-based compensation and performance-based bonuses.

We believe that an engaged workforce is key to maintaining our ability to innovate. We have steadily increased our workforce and have been successful in integrating our new employees and keeping our
employees engaged. Investing in our employees’ career growth and development is an important focus for us. We offer learning opportunities and training programs including workshops, guest speakers
and various conferences to enable our employees to advance in their chosen professional paths.

We are committed to providing a safe work environment for our employees. We have taken necessary precautions in response to the recent COVID-19 outbreak, including offering employees flexibility to
work from home, mandatory social distancing requirements in the workplace (such as adding more space between work spaces) and health monitoring for our employees, daily office disinfection and
sanitization, provision of hand sanitizer and face masks to all employees, and improvement and optimization of our telecommuting system to support remote work arrangements.

As of December 31, 2020, we employed 198 persons in Israel, of whom 86 persons were employed in research, development and engineering, 87 persons in manufacturing and logistics, 11 persons in sales
and marketing, and 14 persons in administration, management and finance. In addition, RTL and RSI employed 46 persons in the U.S., of whom 29 persons were employed in in manufacturing and
logistics, 6 persons in sales and marketing, and 10 persons in administration, management and finance.

As of December 31, 2019, we employed 167 persons in Israel, of whom 44 persons were employed in research, development and engineering, 101 persons in manufacturing and logistics, 11 persons in
sales and marketing, and 11 persons in administration, management and finance. In addition, RTL employed 25 persons in the U.S., of whom 8 persons were employed in research and development, 1
person in logistics and engineering, 5 persons in sales and marketing, and 11 persons in administration, management and finance.

As of December 31, 2018, we employed 117 persons in Israel, of whom 41 persons were employed in research, development and engineering, 57 persons in manufacturing and logistics, 8 persons in sales
and marketing, and 11 persons in administration, management and finance. In addition, RTL employed 9 persons in the U.S., of whom 3 persons were employed in research and development, 1 person in
logistics and engineering, 2 persons in sales and marketing, and 3 persons in administration, management and finance.

Our technical employees have signed nondisclosure agreements covering all proprietary information that they might possess or to which they might have access. Employees are not organized in any union,
although they are employed according to provisions established by the Israeli Ministry of Economy and Industry. Certain provisions of the collective bargaining agreements between the General Federation
of Labor in Israel (Histadrut) and the Coordination Bureau of Economic Organizations (including the Industrialists Association) are applicable to our Israeli employees by order of the Israeli Ministry of
Economy and Industry. These provisions primarily concern the length of the workday, minimum daily wages for professional workers, contributions to a pension fund, insurance for work-related accidents,
procedures for dismissing employees, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required
minimums.

Israeli law generally requires severance pay upon the retirement or death of an employee or termination of employment without due cause. Further, Israeli employees and employers are required to pay
predetermined sums to the National Insurance Institute; such amounts also include payments for national health insurance. Most of our ongoing severance obligations for our Israeli employees are
provided for by monthly payments made by us for insurance policies to cover these obligations.

E. Beneficial Ownership of Executive Officers and Directors

The following table sets forth certain information as of February 28, 2021 regarding the beneficial ownership by each of our directors and executive officers:

Name
Yossi Ben Shalom (3)
Nir Cohen
Alon Dumanis
Haim Regev
Joseph Weiss
Tal Misch Vered
Elan Sigal
Kineret Yaari
Guy Zur
Dov Sella
Avi Israel
Oleg Kiperman
Yaniv Dorani
Max Cohen
Bill Watson
Scott Wood
All directors and executive officers as a group (16 persons)

* Less than 1%

Number of Ordinary
Shares or Options
Beneficially
Owned (1)

Percentage of
Ownership (2)

2,673,205
-
-
-
-
-
-
-
-
437,500
125,000
54,688
50,000
72,500
156,250
3,125
3,572,268

6.09%
-
-
-
-
-
-
-
-
*
*
*
*
*
*
*
7.98%

Except as otherwise indicated, the business address of all directors and executive officers is c/o RADA Electronic Industries Ltd., 7 Giborei Israel Street, Netanya, 4250407, Israel.

(1)

(2)

(3)

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares relating to options and
warrants currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not
deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

The percentages shown are based on 43,860,041 Ordinary Shares issued and outstanding as of February 28, 2021.

Mr. Yossi Ben Shalom and Mr. Barak Dotan, by virtue of their relationship with and indirect interests in DBSI may be deemed to control DBSI and consequently share the beneficial ownership
of the 2,673,205 Ordinary Shares of the company beneficially owned by DBSI, including the right to jointly direct the voting of, and disposition of, such shares. Mr. Barak Dotan holds his shares
of DBSI through his ownership of B.R.Y.N. Investments Ltd. Mr. Yossi Ben Shalom holds his shares of DBSI through his control of White Condor Holdings Ltd. and Pulpit Rock Investments
Ltd. The address of DBSI is 85 Medinat Hayehudim Street, Herzliya 4676670, Israel.

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

The following table sets forth certain information as of February 28, 2021, regarding the beneficial ownership by all shareholders known to us to own beneficially 5% or more of our Ordinary Shares:

Name
DBSI Investments Ltd. (3) (4)

Number of Ordinary
Shares Beneficially
Owned (1)

Percentage
of
Ownership (2)

2,673,205

6.09%

(1)

(2)

(3)

(4)

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary Shares relating to options and
notes currently exercisable or convertible or exercisable or convertible within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such
securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.

The percentages shown are based on 43,860,041 Ordinary Shares issued and outstanding as of February 28, 2021.

As reported by DBSI to the Company on January 31, 2021, it is currently the beneficial owner of 2,673,205 Ordinary Shares, constituting 6.09% of our issued and outstanding Ordinary Shares.

Mr. Yossi Ben Shalom and Mr. Barak Dotan, by virtue of their relationship with and indirect interests in DBSI may be deemed to control DBSI and consequently share the beneficial ownership
of the 2,673,205 Ordinary Shares of the company beneficially owned by DBSI, including the right to jointly direct the voting of, and disposition of, such shares. Mr. Barak Dotan holds his shares
of DBSI through his ownership of B.R.Y.N. Investments Ltd., or BRYN. Mr. Yossi Ben Shalom holds his shares of DBSI through his control of White Condor Holdings Ltd. and Pulpit Rock
Investments Ltd. The address of DBSI is 85 Medinat Hayehudim Street, Herzliya 4676670, Israel.

Significant Changes in the Ownership of Major Shareholders

In 2016, DBSI purchased 8,510,638 newly issued Ordinary Shares as well as warrants to purchase up to 7,891,702 Ordinary Shares, as well as the right to acquire 1,322,917 Ordinary Shares pursuant to
the conversion of a $3,175,000 convertible loan. DBSI has since regularly reported on Form 13D/A sales of our Ordinary Shares and of exercises of the warrants. As of December 31, 2017, DBSI held
9,327,088 Ordinary Shares and as of December 31, 2018, DBSI held 9,001,634 Ordinary Shares. In January 2019, our shareholders approved the issuance of 545,454 Ordinary Shares in a private
placement to DBSI at a price per share of $2.75. On January 29, 2019 DBSI reported on Schedule 13D/A that it held 9,547,088 Ordinary Shares, constituting 25.1% of our issued and outstanding Ordinary
Shares. On September 16, 2019 DBSI reported on Schedule 13D/A that it held 6,821,309 Ordinary Shares, constituting 15.7% of our issued and outstanding Ordinary Shares. We reported on January 11,
2021, that DBSI notified us that it agreed to sell approximately 3.9 million shares to leading Israeli institutional investors. On January 6, 2021 DBSI reported on Schedule 13D/A that it held 2,818,182
Ordinary Shares constituting 6.45% of our issued and outstanding Ordinary Shares.

On February 8, 2017, Yelin Lapidot Holdings Management Ltd., jointly with Messrs. Dov Yelin and Yair Lapidot, filed a Schedule 13G/A with the SEC reflecting ownership of 1,790,284 Ordinary Shares,
or 4.04%, of our Ordinary Shares as of December 31, 2016. On September 5, 2017, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 1,620,000 Ordinary Shares, or 5.55%, of
our Ordinary Shares. On January 31, 2018, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 1,663,942 Ordinary Shares, or 5.55%, of our Ordinary Shares as of December 31,
2017. On February 11, 2019, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 3,113,873 Ordinary Shares, or 8.30%, of our Ordinary Shares as of December 31, 2018. On
February 10, 2020, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 2,235,362 Ordinary Shares, or 5.82%, of our Ordinary Shares as of December 31, 2019. On February 2,
2021, Yelin Lapidot filed a Schedule 13G/A with the SEC reflecting ownership of 1,305,201 Ordinary Shares, or 2.99%, of our Ordinary Shares as of December 31, 2020.

On August 23, 2017, The Phoenix Holding Ltd., Delek Group Ltd. and Itshak Sharon (Tshuva) (together the “Phoenix Group”) reported in a joint filing that they held 1,904,762 Ordinary Shares, or 8.97%,
of our Ordinary Shares as of December 31, 2016. On August 28, 2017, the Phoenix Group reported holdings of 2,601,418 Ordinary Shares, or 11.20%, of our Ordinary Shares. On December 27, 2017, the
Phoenix Group reported holdings of 1,455,870, or 4.86%, of our Ordinary Shares. On August 27, 2019, the Phoenix Group reported holdings of 2,144,282 Ordinary Shares or 5.63% of our Ordinary
Shares. On February 18, 2020, the Phoenix Group filed a Schedule 13G/A, reflecting holdings of 3,005,340 Ordinary Shares, or 7.89%, of our Ordinary Shares as of December 31, 2019. On December 28,
2020, the Phoenix Group filed a Schedule 13G/A, reflecting holdings of 2,177,407 Ordinary Shares or 4.99% of our ordinary shares. On January 19, 2021, the Phoenix Group filed a Schedule 13G/A,
reflecting holdings of 2,278,224 Ordinary Shares, or 5.22%, of our Ordinary Shares. On February 1, 2021, the Phoenix Group filed a Schedule 13G/A, reflecting holdings of 2,178,788 Ordinary Shares, or
4.99%, of our Ordinary Shares as of December 31, 2020.

On January 7, 2019, Psagot Investment House Ltd. jointly with Psagot Securities Ltd and Psagot Provident Funds and Pension Ltd. and Psagot Index Funds Ltd. (all are wholly owned subsidiaries of
Psagot Investment House Ltd.) filed a Schedule 13G with the SEC reflecting ownership of 2,423,326, or 6.46%, of our Ordinary Shares. On February 19, 2019, Psagot filed a Schedule 13G/A, reflecting
ownership of 2,424,883 Ordinary Shares, or 6.46%, of our Ordinary Shares as of December 31, 2018. On February 18, 2020, Psagot filed a Schedule 13G/A, reflecting ownership of 2,179,255 Ordinary
Shares, or 5.67%, of our Ordinary Shares as of December 31, 2019. On February 16, 2021, Psagot filed a Schedule 13G/A, reflecting ownership of 1,379,539, or 3.71%, of our Ordinary Shares as of
December 31, 2020.

Shareholders Voting Rights

Our major shareholders do not have different voting rights.

Record Holders

Based on a review of the information provided to us by American Stock Transfer & Trust Company, our transfer agent, as of February 25, 2021, there were 44 holders of record of our Ordinary Shares, of
which 37 record holders holding approximately 41,103,319 of our Ordinary Shares had registered addresses in the U.S., including banks, brokers and nominees. These numbers are not representative of the
number of beneficial holders of our shares nor are they representative of where such beneficial holders reside, since many of these Ordinary Shares were held of record by banks, brokers or other
nominees.

B. Related Party Transactions

On December 6, 2018 we completed a $12.5 million registered direct offering of 4,545,454 Ordinary Shares at a price per share of $2.75, of which $10 million was invested by Psagot and $2.5 million by
Phoenix, two Israeli institutional investors. In addition, on January 16, 2019 we sold 545,454 Ordinary Shares to DBSI in a shareholder approved private placement for approximately $1.5 million,
reflecting a price per share of $2.75.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8.

FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Export Sales

Export sales constitute a significant portion of our sales. In 2020, we had approximately $69.6 million of export sales, constituting approximately 91% of our total sales. For further information regarding
the allocation of our revenues by geographic region see Item 4 – “Information on the Company - Geographical Markets.”

Legal Proceedings

Currently, we are not a party to any material legal proceedings; however, from time to time we are involved in legal proceedings arising from the operation of our business. Based on the advice of our legal
counsel, management believes such current proceedings, if any, will not have a material adverse effect on our financial position or results of operations.

Dividend Distribution Policy

We have never paid cash dividends to our shareholders. We intend to retain future earnings for use in our business and do not anticipate paying cash dividends on our Ordinary Shares in the foreseeable
future. Any future dividend policy will be determined by the board of directors and will be based upon conditions then existing, including our results of operations, financial condition, current and
anticipated cash needs, contractual restrictions and other conditions as the board of directors may deem relevant.

According to the Israeli Companies Law, a company may distribute dividends out of its profits, so long as the company reasonably believes that such dividend distribution will not prevent the company
from paying all its current and future debts. Profits, for purposes of the Israeli Companies Law, means the greater of retained earnings or earnings accumulated during the preceding two years. In the event
cash dividends are declared, such dividends will be paid in NIS.

B. Significant Changes

Except as otherwise disclosed in this annual report, no significant change has occurred since December 31, 2020.

ITEM 9.

THE OFFER AND LISTING

A. Offer and Listing Details

Our capital consists of Ordinary Shares, which are traded on the NASDAQ Capital Market and the Tel Aviv Stock Exchange under the symbol “RADA”.

B. Plan of Distribution

Not applicable.

C. Markets

Our Ordinary Shares are traded on the NASDAQ Capital Market and the TASE under the symbol “RADA”.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expense of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Purposes and Objectives of the Company

We are registered with the Israeli Companies Registry and have been assigned company number 52-003532-0. Section 2 of our memorandum of association provides that we were established for the
purpose of engaging in the business of providing services of planning, development, consultation and instruction in the electronics field. In addition, the purpose of our company is to perform various
corporate activities permissible under Israeli law.

The Powers of the Directors

Under the provisions of the Israeli Companies Law, and our articles of association, a director cannot participate in a meeting nor vote on a proposal, arrangement or contract in which he or she is materially
interested. In addition, our directors cannot vote compensation to themselves or any members of their body without the approval of our audit committee and our shareholders at a general meeting. The
authority of our directors to enter into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us.

Under our articles of association, retirement of directors from office is not subject to any age limitation and our directors are not required to own shares in our company in order to qualify to serve as
directors.

Rights Attached to Shares

Annual and Extraordinary General Meetings

The board of directors must convene an annual meeting of shareholders at least once every calendar year, within 15 months of the last annual meeting. Depending on the matter to be voted upon, notice of
at least 21 days or 35 days prior to the date of the meeting is required. Our board of directors may, in its discretion, convene additional meetings as “Extraordinary General Meetings.” In addition, the board
of directors must convene an Extraordinary General Meeting upon the demand of two of the directors, 25% of the nominated directors, one or more shareholders having at least 5% of the outstanding share
capital and at least 1% of the voting power in the company, or one or more shareholders having at least 5% of the voting power in the company.

The quorum required for a General Meeting of shareholders consists of at least two shareholders present in person or represented by proxy who hold or represent, in the aggregate, at least 25% of the
voting rights of the issued share capital. A meeting adjourned for lack of a quorum is adjourned to the same day in the following week at the same time and place or any time and place as the directors
designate in a notice to the shareholders or to such day and at such time and place as the Chairman of the General Meeting shall determine. At the reconvened meeting, if the original meeting was
convened upon the demand of one or more shareholders having at least 5% of the outstanding share capital and at least 1% of the voting power in the company, or one or more shareholders having at least
5% of the voting power in the company, the quorum will be one or more Shareholders, present in person or by proxy, and holding the number of shares required for making such requisition. In any other
case the required quorum consists of any two members present in person or by proxy.

Please refer to Exhibit 2.2 for Items 10.B.3, B.4, B.6, B.7, B.8, B.9 and B.10.

C. Material Contracts

We do not deem any individual contract to be a material contract which is not already discussed and filed as an exhibit or in the ordinary course of our business.

D. Exchange Controls

Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our Ordinary Shares.

Non-residents of Israel who purchase our Ordinary Shares will be able to convert dividends, if any, thereon, and any amounts payable upon our dissolution, liquidation or winding up, as well as the
proceeds of any sale in Israel of our Ordinary Shares to an Israeli resident, into freely repairable dollars, at the exchange rate prevailing at the time of conversion, provided that the Israeli income tax has
been withheld (or paid) with respect to such amounts or an exemption certificate has been obtained from the Israel Tax Authority, or the ITA, prior to the payment.

E. Taxation

The following is a discussion of Israeli and U.S. tax consequences material to us and our shareholders. To the extent that the discussion is based on tax legislation which has not been subject to judicial or
administrative interpretation, the views expressed in the discussion might not be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or
professional tax advice and does not exhaust all possible tax considerations.

You are urged to consult your own tax advisors as to the U.S., Israeli or other tax consequences of the purchase, ownership and disposition of Ordinary Shares, including, in particular, the effect of any
foreign, state or local taxes.

Israeli Tax Considerations

The following is a summary of the current tax structure applicable to companies in Israel, with special reference to its effect on us. The following also contains a discussion of the material Israeli tax
consequences to purchasers of our Ordinary Shares and Israeli government programs benefiting us. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular
investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. Examples of this kind of investor include residents of Israel or
traders in securities who are subject to special tax regimes not covered in this discussion. Since some parts of this discussion are based on new tax legislation that has not yet been subject to judicial or
administrative interpretation, we cannot assure you that the appropriate tax authorities or the courts will accept the views expressed in this discussion.

General Corporate Tax Rate

Generally, Israeli companies are subject to corporate tax on taxable income and capital gains at the rate of 23% as of the 2018 tax year onwards. However, the effective tax rate payable by a company that
derives income from a Benefited Enterprise, a Preferred Enterprise, or a Preferred Technological Enterprise (as discussed below) may be considerably less.

Law for the Encouragement of Industry (Taxes), 1969

The Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for “Industrial Companies”. The Industry
Encouragement Law defines an “Industrial Company” as a company resident in Israel and which was incorporated in Israel, of which 90% or more of its income in any tax year, other than income from
defense loans, capital gains, interest and dividends, is derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area,” as such terms are defined in the Israeli Income Tax
Ordinance [New Version] 5721-1961, or the Ordinance. An “Industrial Enterprise” is defined as an enterprise which is held by an Industrial Company whose principal activity in a given tax year is
industrial production.

The following corporate tax benefits, among others, are available to Industrial Companies:

•

Amortization over an eight-year period of the cost of purchased know-how and patents and rights (other than goodwill) to use a patent and know-how which are used for the development or
advancement of the Industrial Enterprise, commencing from the tax year where the Industrial Enterprise began to use them;

Accelerated depreciation rates on equipment and buildings;

Under limited conditions, an election to file consolidated tax returns with related Israeli Industrial Companies; and

Expenses related to a public offering are deductible in equal amounts from income attributed to the Industrial Enterprise over three years commencing in the year of the offering.

Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. As of the date of this annual report, we have industrial
production activities. Therefore, we qualify as an Industrial Company and may be eligible for the benefits described above. However, we cannot assure that we will qualify as an Industrial Company in the
future or that the benefits described above will be available to us.

Tax Benefits and Grants for Research and Development

Israeli tax law allows, under certain conditions, a tax deduction for expenditures related to scientific research and development projects, including capital expenditures, for the year in which they are
incurred. Expenditures are deemed related to scientific research and development projects, if:

•

The expenditures are approved by the relevant Israeli government ministry, determined by the field of research; or

The research and development are for the promotion of the company and is carried out by or on behalf of the company seeking such tax deduction.

The amount of such deductible expenses is reduced by the sum of any funds received through government grants for the financing of such scientific research and development projects. No deduction under
these research and development deduction rules is allowed if such deduction is related to an expense invested in an asset depreciable under the general depreciation rules of the Ordinance. Expenditures not
so approved are deductible in equal amounts over three years.

From time to time, we may apply to the Israeli Innovation Authority, or the IIA, for approval to allow a tax deduction for research and development expenses during the year incurred. There can be no
assurance that such applications will be accepted. For more information about these programs, see “Item 5.C. Operating and Financial Review and Prospects – Research and Development, Patents and
Licenses” of our annual report on Form 20-F for the year ended December 31, 2020.

Law for the Encouragement of Capital Investments, 5719-1959

The Law for the Encouragement of Capital Investments, 5719-1959, or the Investment Law, provides certain incentives for capital investments in production facilities (or other eligible assets) by
“Industrial Enterprises” (as defined under the Investment Law). The benefits available under the Investment Law are subject to the fulfillment of conditions stipulated therein. If a company does not meet
these conditions, it may be required to refund the amount of tax benefits, as adjusted by the Israeli consumer price index, and interest, or other monetary penalties.

Tax Benefits Prior and Subsequent to the 2005 Amendment

Prior to April 1, 2005, the Investment Law provided that capital investments in an Industrial Enterprises (or other eligible assets) may, upon approval by the Investment Center of the Israel Ministry of
Economy and Industry, or the Investment Center, be designated as an “Approved Enterprise.” Each certificate of approval for an Approved Enterprise relates to a specific investment program, delineated
both by the financial scope of the investment and by the physical characteristics of the facility or the asset. The tax benefits from any certificate of approval relate only to taxable profits attributable to the
specific Approved Enterprise.

On April 1, 2005, a comprehensive amendment to the Investment Law came into effect, which we refer to as the 2005 Amendment. The 2005 Amendment included revisions to the criteria for investments
qualified to receive tax benefits. The 2005 Amendment does not retroactively apply to investment programs having an Approved Enterprise approval certificate issued by the Investment Center prior to
December 31, 2004, unless chosen otherwise. Approved Enterprises are subject to the provisions of the Investment Law prior to its revision, while new investments and tax benefits, if any, will be subject
to the provisions of the 2005 Amendment.

Pursuant to the 2005 Amendment, only Approved Enterprises receiving cash grants required the approval of the Investment Center. Approved Enterprises which do not receive benefits in the form of
governmental cash grants, such as benefits in the form of tax benefits, are no longer required to obtain this approval. An eligible investment program under the 2005 Amendment qualifies for benefits as a
“Benefited Enterprise.” However, a “Benefited Enterprise” is required to comply with certain requirements and make certain investments as specified in the 2005 Amendment.

In addition, the benefits available to an Approved Enterprise are conditioned upon terms stipulated in the Investment Law and the regulations thereunder and the criteria set forth in the applicable
certificate of approval. In March 2019, our investment program was approved as an Approved Enterprise under the Investment Law, which entitles us to an approximately NIS 1,095,000 cash grant. If we
do not fulfill the conditions set forth in the certificate of approval, in whole or in part, the benefits may be cancelled and we could be required to refund the amounts of the benefits, with the addition of the
Israeli consumer price index linkage differences and interest. We have not yet activated such investment plan and as a result we have not yet received the cash grant. There can be no assurance that we will
activate the investment plan or that the cash grant will be available to us if we do.

The extent of the tax benefits available under the 2005 Amendment to qualifying income of a Benefited Enterprise depend on, among other things, the geographic location of the Benefited Enterprise in
Israel. The location will also determine the period for which tax benefits are available. Such tax benefits include an exemption from corporate tax on undistributed income for a period of between two to 10
years, depending on the geographic location of the Benefited Enterprise in Israel, and a reduced corporate tax rate of between 10% and the applicable corporate tax rate for the remainder of the benefits
period, depending on the level of foreign investment in the company in each year during the benefits period.

A Benefited Enterprise may, at its discretion, in order to obtain greater certainty, elect to apply for a pre-ruling from the Israeli tax authorities confirming that it is in compliance with the provisions of the
amendments in the Investment Law and is therefore entitled to receive such benefits provided under the amendments to Investment Law as set below.

Tax Benefits Under the 2011 Amendment

The Investment Law was significantly amended as of January 1, 2011, or the 2011 Amendment. The 2011 Amendment introduced new benefits to replace those granted in accordance with the provisions
of the Investment Law in effect prior to the 2011 Amendment.

The 2011 Amendment introduced new tax benefits for income generated by a “Preferred Company” through its “Preferred Enterprise,” in accordance with the definition of such terms in the Investment
Law. The definition of a Preferred Company, includes, inter alia, a company incorporated in Israel that (1) is not wholly owned by a government entity, (2) owns a Preferred Enterprise and (3) is controlled
and managed from Israel and is subject to further conditions set forth in the Investment Law. Moreover, a Preferred Company needs to meet certain conditions stipulated in the Investment Law such as
being an industrial company (including a minimum threshold of 25% export).

A Preferred Company is entitled to a reduced corporate tax rate of 16% with respect to the income attributed to its Preferred Enterprise, unless the Preferred Enterprise is located in development area “A,”
in which case the rate will be 7.5%.

Dividends distributed from income which is attributed to a “Preferred Enterprise” will be subject to withholding tax at the following rates: (i) Israeli resident individuals — 20% (iii) non-Israeli residents
— 20%, subject to a reduced tax rate under the provisions of an applicable double tax treaty and subject to the receipt in advance of valid certificate from the ITA. If such dividends are paid to an Israeli
company, no tax is generally required to be withheld. However, if such dividends are subsequently distributed by such Israeli company to individuals or a non-Israeli company, withholding tax at a rate of
20% or such lower rate as may be provided in an applicable tax treaty will apply.

The provisions of the 2011 Amendment do not apply to existing “Benefited Enterprises” or “Approved Enterprises,” which will continue to be entitled to the tax benefits under the Investment Law, as in
effect prior to the 2011 Amendment, unless the company owning such enterprises had made an election to apply the provisions of the 2011 Amendment (such election cannot be later rescinded), which is
to be filed with the ITA, not later than the date prescribed for the filing of the company’s annual Israeli tax return for the respective year.

Tax Benefits Under the 2017 Amendment

Additional amendments to the Investment Law became effective in January 2017, or the 2017 Amendment. The 2017 Amendment provides new tax benefits for two types of “Technological Enterprises,”
as described below, and is in addition to the other existing tax benefit programs under the Investment Law.

The 2017 Amendment provides that a technological company satisfying certain conditions may qualify as a “Preferred Technological Enterprise” and thereby enjoy a reduced corporate tax rate of 12% on
income that qualifies as “Preferred Technological Income,” as defined in the Investment Law. The tax rate is further reduced to 7.5% for a Preferred Technological Enterprise located in development area
“A.” In addition, a Preferred Technological Company will enjoy a reduced corporate tax rate of 12% on capital gain derived from the sale of certain “Benefited Intangible Assets” (as defined in the
Investment Law) to a related foreign company if the Benefited Intangible Assets were acquired from a foreign company on or after January 1, 2017 for at least NIS 200 million, and the sale receives prior
approval from the IIA.

The 2017 Amendment further provides that a technological company satisfying certain conditions may qualify as a “Special Preferred Technological Enterprise” and thereby enjoy a reduced corporate tax
rate of 6% on “Preferred Technological Income” regardless of the company’s geographic location within Israel. In addition, a Special Preferred Technological Enterprise will enjoy a reduced corporate tax
rate of 6% on capital gain derived from the sale of certain “Benefited Intangible Assets” to a related foreign company if the Benefited Intangible Assets were either developed by an Israeli company or
acquired from a foreign company on or after January 1, 2017, and the sale received prior approval from the IIA. A Special Preferred Technological Enterprise that acquires Benefited Intangible Assets
from a foreign company for more than NIS 500 million may be eligible for these benefits for a period of at least 10 years, subject to certain approvals as specified in the Investment Law.

Dividends distributed by a Preferred Technological Enterprise or a Special Preferred Technological Enterprise, paid out of Preferred Technological Income or income attributed to production are generally
subject to withholding tax at the rate of 20% or such lower rate, as may be provided in an applicable tax treaty (subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced
tax rate). However, if such dividends are paid to an Israeli company, no tax is required to be withheld. However, if such dividends are subsequently distributed by such Israeli company to individuals or a
non-Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided in an applicable tax treaty will apply, subject to the receipt in advance of a valid certificate from the ITA
allowing for a reduced tax rate. If dividends paid out of Preferred Technological Income are distributed to a foreign company and other conditions are met, the withholding tax rate will be 4% (or a lower
rate under a tax treaty, if applicable, subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate).

Taxation of Our Shareholders

Capital Gains

Capital gain tax is imposed on the disposition of capital assets by an Israeli resident for tax purposes, and on the disposition of such assets by a non-Israeli resident for tax purposes if those assets are (i)
located in Israel; (ii) are shares or a right to a share in an Israeli resident corporation, or (iii) represent, directly or indirectly, rights to assets located in Israel, unless a specific exemption is available or
unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The Ordinance distinguishes between “Real Capital Gain” and the “Inflationary Surplus.” Real Capital
Gain is the excess of the total capital gain over Inflationary Surplus. Inflationary Surplus is a portion of the total capital gain which is equivalent to the increase in the relevant asset’s cost basis that is
attributable to the increase in the Israeli consumer price index or, in certain circumstances, a foreign currency exchange rate, between the date of purchase and the date of disposition. Inflationary Surplus is
not currently subject to tax in Israel.

Real Capital Gain accrued by individuals on the sale of our Ordinary Shares will be taxed at the rate of 25%. However, if the individual shareholder is a “Controlling Shareholder” (i.e., a person who holds,
directly or indirectly, alone or together with another, 10% or more of one of the Israeli resident company’s “means of control,” which includes, among other things, the right to receive profits of the
company, voting rights, the rights to receive proceeds upon the company’s liquidation and the right to appoint a director) at the time of sale or at any time during the preceding 12-month period, such
capital gain will be taxed at the rate of 30%. Furthermore, where an individual claimed real interest expenses and linkage differentials on securities, the capital gain on the sale of the securities will taxed at
a rate of 30%. Real Capital Gain derived by corporations will be generally subject to the corporate tax rate (23% in 2018 and thereafter).

Individual and corporate shareholder dealing in securities in Israel are taxed at the tax rates applicable to business income - 23% for corporations in 2018 and thereafter and a marginal tax rate of up to 47%
in 2020 and 2021 for individuals, not including excess tax (described below). Notwithstanding the foregoing, Real Capital Gain derived from the sale of our Ordinary Shares by a non-Israeli shareholder
may be exempt under the Ordinance from Israeli taxation provided that the following cumulative conditions are met: (i) the shares were purchased upon or after the registration of the shares on the stock
exchange, (ii) the seller does not have a permanent establishment in Israel to which the derived capital gain is attributable, and (iii) if the seller is an entity (including a corporation), no more than 25% of
its means of control are held, directly and indirectly, by Israeli residents, and there is no Israeli resident that is entitled to 25% or more of the revenues or profits of the entity, directly or indirectly. In
addition, such exemption would not be available to a person whose capital gains from selling or otherwise disposing of the securities are deemed to be business income.

In addition, the sale of Ordinary Shares may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty. For example, the Convention Between the Government of the United
States and the Government of Israel with respect to Taxes of Income, as amended, or the U.S.-Israel Double Tax Treaty, exempts U.S. residents for the purposes of the treaty from Israeli capital gain tax in
connection with such sale, provided (i) the U.S. resident owned, directly or indirectly, less than 10% of the Israeli resident company’s voting power at any time within the 12-month period preceding such
sale; (ii) the seller, being an individual, is present in Israel for a period or periods of less than 183 days during the taxable year; and (iii) the capital gain from the sale was not derived through a permanent
establishment of the U.S. resident in Israel; (iv) the capital gain arising from such sale, exchange or disposition is not attributed to real estate located in Israel; and (v) the capital gain arising from such sale,
exchange or disposition is not attributed to royalties. Eligibility to benefit from tax treaties is conditioned upon the shareholder presenting a withholding certificate issued by the ITA prior to the applicable
payment.

Shareholders may be liable for Israeli tax on the sale of their Ordinary Shares and the payment of the consideration may be subject to withholding of Israeli tax. Shareholders may be required to
demonstrate that they are exempt from Israeli tax on their capital gains in order to avoid withholding at the time of sale. For example, in transactions involving a sale of all of the shares of an Israeli
resident company, in the form of a merger or otherwise, the ITA may require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific
exemption from the ITA to confirm their status as a non-Israeli resident for tax purposes, and, in the absence of such declarations or exemptions, may require the purchaser of the shares to withhold taxes.

Either the purchaser, the Israeli stockbrokers or financial institutions through which the shares are held is obligated to withhold tax on the amount of consideration paid upon the sale of the shares (or on
the Real Capital Gain on the sale, if known) at the rate of 25% in respect of an individual and 23% in respect of a corporation, unless a valid exemption certificate is issued by the ITA prior to the
applicable payment.

Upon the sale of securities traded on a stock exchange, a detailed return, including a computation of the tax due, must be filed and an advanced payment must be paid on January 31 and July 31 of every
calendar year in respect of sales of securities made within the previous six months. However, if all tax due was withheld according to applicable provisions of the Ordinance and regulations promulgated
thereunder the aforementioned return need not be filed and no advance payment must be paid. Capital gain is also reportable on the annual income tax return.

Dividends

We have never paid cash dividends to our shareholders. A distribution of dividend by our company from income attributed to a Preferred Enterprise to Israeli residents should generally be subject to
withholding tax in Israel at the following tax rates: Israeli resident individuals — 20%; Israeli resident companies — 0% (although, if such dividends are subsequently distributed to individuals or a non-
Israeli company, withholding tax at a rate of 20% or such lower rate as may be provided if an applicable tax treaty will apply (subject to the receipt in advance of a valid tax certificate from the ITA
allowing for a reduced tax rate)). A distribution of dividends from income, which is not attributed to a Preferred Enterprise to an Israeli resident individual, should generally be subject to tax at a rate of
25% or 30% if the dividend recipient is a “Controlling Shareholder” (as defined above) at the time of distribution or at any time during the preceding 12-month period. If the recipient of the dividend is an
Israeli resident corporation, such dividend should be exempt from income tax provided the income from which such dividend is distributed was derived or accrued within Israel (although, if such dividends
are subsequently distributed to individuals or a non-Israeli company, withholding tax at a rate of 25% or such lower rate as may be provided if an applicable tax treaty will apply (subject to the receipt in
advance of a valid tax certificate from the ITA allowing for a reduced tax rate)).

A non-Israeli resident (either individual or corporation) is generally subject to Israeli tax on the receipt of dividends at the rate of 25% (30% if the dividends recipient is a “Controlling Shareholder” (as
defined above), at the time of distribution or at any time during the preceding 12-month period); those rates are subject to a reduced tax rate under the provisions of an applicable double tax treaty (subject
to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate). Under the U.S.-Israel Double Tax Treaty, and subject to the eligibility to the benefits under such treaty, the
following withholding rates will apply in respect of dividends distributed by an Israeli resident company to a U.S. resident: (i) if the U.S. resident is a corporation which holds during that portion of the
taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10% of the outstanding voting shares of the Israeli resident paying
corporation and not more than 25% of the gross income of the Israeli resident paying corporation for such prior taxable year (if any) consists of certain type of interest or dividends — the withholding tax
rate is 12.5%, (ii) if both the conditions mentioned in (i) above are met and the dividend is paid from an Israeli resident company’s income which was entitled to a reduced tax rate applicable to an
Approved Enterprise, Benefited Enterprise or Preferred Enterprise — the withholding tax rate is 15% if a certificate for a reduced withholding tax rate would be provided in advance from the ITA and (iii)
in all other cases, the withholding tax rate is 25%. The aforementioned rates under the U.S.-Israel Double Tax Treaty will not apply if the dividend income was derived through a permanent establishment
of the U.S. resident in Israel.

A non-Israeli resident who receives dividends from which full tax was withheld is generally exempt from the obligation to file tax returns in Israel with respect to such income, provided that (i) such
income was not generated from business conducted in Israel by the taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be filed, and
(iii) the taxpayer is not subject to excess tax (described below).

We cannot assure you that we will designate the profits that we may distribute in a way that will reduce shareholders’ tax liability.

Excess Tax

Individuals who are subject to tax in Israel (whether such individual is an Israeli resident or non-Israeli resident) are also subject to an additional tax on annual income exceeding a certain threshold (NIS
651,600, for 2020 and NIS 647,640 for 2021), which amount is linked to the Israeli consumer price index, at a rate of 3%, including, but not limited to, income derived from dividends, interest and capital
gains.

Foreign Exchange Regulations

Non-residents for Israeli tax purposes who hold our Ordinary Shares are able to receive any dividends, and any amounts payable upon the dissolution, liquidation and winding up of our affairs, repayable
in non-Israeli currency at the rate of exchange prevailing at the time of conversion. However, Israeli income tax is generally required to have been paid or withheld on these amounts. In addition, the
statutory framework for the potential imposition of currency exchange control has not been eliminated, and may be restored at any time by administrative action.

Estate and Gift Tax

Israeli law presently does not impose estate or gift taxes.

United States Federal Income Taxation

The following is a general discussion of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our Ordinary Shares. This description addresses only the U.S.
federal income tax considerations that may be relevant to U.S. Holders (as defined below) who hold our Ordinary Shares as capital assets. This summary is based on the U.S. Internal Revenue Code of
1986, as amended, (the “Code”) Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof and the U.S.-Israel Tax Treaty (the “Treaty”), all as in effect on the date
hereof and all of which are subject to change either prospectively or retroactively or to differing interpretations. There can be no assurance that the U.S. Internal Revenue Service (“IRS”) will not take a
different position concerning the tax consequences of the acquisition, ownership or disposition of our Ordinary Shares or that such a position would not be sustained. This discussion does not address all
tax considerations that may be relevant to a U.S. Holder of Ordinary Shares. In addition, this description does not account for the specific circumstances of any particular investor, such as:

•

broker-dealers;

financial institutions or financial services entities;

certain insurance companies;

investors liable for alternative minimum tax;

•

regulated investment companies, real estate investment trusts, or grantor trusts;

dealers or traders in securities, commodities or currencies;

tax-exempt organizations;

retirement plans;

S corporations:

pension funds;

certain former citizens or long-term residents of the United States;

non-resident aliens of the United States or taxpayers whose functional currency is not the U.S. dollar;

persons who hold Ordinary Shares through partnerships or other pass-through entities;

persons who acquire their Ordinary Shares through the exercise or cancellation of employee stock options or otherwise as compensation for services;

direct, indirect or constructive owners of investors that actually or constructively own at least 10% of the total combined voting power of our shares or at least 10% of our shares by value; or

investors holding Ordinary Shares as part of a straddle, appreciated financial position, a hedging transaction or conversion transaction.

If a partnership or an entity treated as a partnership for U.S. federal income tax purposes owns our Ordinary Shares, the U.S. federal income tax treatment of a partner in such a partnership will generally
depend upon the status of the partner and the activities of the partnership. A partnership that owns our Ordinary Shares and the partners in such partnership should consult their tax advisors about the U.S.
federal income tax consequences of holding and disposing of Ordinary Shares.

This summary does not address the effect of any U.S. federal taxation (such as estate and gift tax) other than U.S. federal income taxation. In addition, this summary does not include any discussion of
state, local or non-U.S. taxation.

For purposes of this summary the term “U.S. Holder” means a person that is eligible for the benefits of the Treaty and is a beneficial owner of Ordinary Shares who is, for U.S. federal income tax
purposes:

•

an individual who is a citizen or a resident of the United States;

a corporation or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or any political subdivision
thereof;

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

a trust if the trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a court within the United States is able to exercise primary supervision over
the trust’s administration and (2) one or more U.S. persons have the authority to control all of the substantial decisions of the trust.

Unless otherwise indicated, it is assumed for the purposes of this discussion that the Company is not, and will not become, a “passive foreign investment company” (“PFIC”) for U.S. federal income tax
purposes. See “—Passive Foreign Investment Companies” below.

Taxation of Distributions

Subject to the discussion below under the heading “—Passive Foreign Investment Companies,” the gross amount of any distributions received with respect to our Ordinary Shares, including the amount of
any Israeli taxes withheld therefrom, will constitute dividends for U.S. federal income tax purposes when such distribution is actually or constructively received, to the extent such distribution is paid out
of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. Because we do not expect to maintain calculations of our earnings and profits under U.S. federal
income tax principles, you should expect that the entire amount of any distribution will be taxable to you as dividend income. Dividends are included in gross income at ordinary income rates, unless such
dividends constitute “qualified dividend income,” as set forth in more detail below. Distributions in excess of our current and accumulated earnings and profits would be treated as a non-taxable return of
capital to the extent of your adjusted tax basis in our Ordinary Shares and any amount in excess of your tax basis would be treated as gain from the sale of Ordinary Shares. See “—Sale, Exchange or Other
Disposition of Ordinary Shares” below for a discussion of the taxation of capital gains. Our dividends would not qualify for the dividends-received deduction generally available to corporations under
section 243 of the Code.

Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect
on the day such dividends are received, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an
exchange rate other than the rate in effect on such day may have a foreign currency exchange gain or loss that would generally be treated as U.S.-source ordinary income or loss. U.S. Holders should
consult their own tax advisors concerning the U.S. tax consequences of acquiring, holding and disposing of NIS.

Subject to complex limitations, some of which vary depending upon the U.S. Holder’s circumstances, any Israeli withholding tax imposed on dividends paid with respect to our Ordinary Shares, may be a
foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability (or, alternatively, for deduction against income in determining such tax liability). Israeli taxes withheld in
excess of the applicable rate allowed by the Treaty (if any) will not be eligible for credit against a U.S. Holder’s federal income tax liability. The limitation on foreign income taxes eligible for credit is
calculated separately with respect to specific classes of income. Dividends paid with respect to our common stock generally will be treated as foreign-source passive category income or, in the case of
certain U.S. Holders, general category income for U.S. foreign tax credit purposes. Further, there are special rules for computing the foreign tax credit limitation of a taxpayer who receives dividends
subject to a reduced tax rate. A U.S. Holder may be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on our Ordinary Shares if such U.S. Holder fails to
satisfy certain minimum holding period requirements or to the extent such U.S. Holder’s position in Ordinary Shares is hedged. An election to deduct foreign taxes instead of claiming a foreign tax credit
applies to all foreign taxes paid or accrued in the taxable year. The rules relating to the determination of the foreign tax credit are complex. You should consult with your own tax advisors to determine
whether and to what extent you would be entitled to this credit.

Subject to certain limitations (including the PFIC rules discussed below), “qualified dividend income” received by a non-corporate U.S. Holder may be subject to tax at the lower long-term capital gain
rates (currently, a maximum rate of 20%). Distributions taxable as dividends paid on our Ordinary Shares should qualify for a reduced rate if we are a “qualified foreign corporation,” as defined in Code
section 1(h)(11)(C). We will be a qualified foreign corporation if either: (i) we are entitled to benefits under the Treaty or (ii) our Ordinary Shares are readily tradable on an established securities market in
the United States and certain other requirements are met. We believe that we are entitled to benefits under the Treaty and that our Ordinary Shares currently are readily tradable on an established securities
market in the United States. However, no assurance can be given that our Ordinary Shares will remain readily tradable. The rate reduction does not apply unless certain holding period requirements are
satisfied, nor does it apply to dividends received from a PFIC (see discussion below), in respect of certain risk-reduction transactions, or in certain other situations. U.S. Holders of our Ordinary Shares
should consult their own tax advisors regarding the effect of these rules in their particular circumstances.

Sale, Exchange or Other Disposition of Ordinary Shares

Subject to the discussion of the PFIC rules below, if you sell or otherwise dispose of our Ordinary Shares (other than with respect to certain non-recognition transactions), you will generally recognize gain
or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in our Ordinary Shares, in each
case determined in U.S. dollars. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if you have held the Ordinary Shares for more than one year at the time of
the sale or other disposition. Long-term capital gain realized by a non-corporate U.S. Holder is generally eligible for a preferential tax rate (currently at a maximum of 20%). In general, any gain that you
recognize on the sale or other disposition of Ordinary Shares will be U.S.-source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S. source income. Deduction
of capital losses is subject to certain limitations under the Code.

In the case of a cash basis U.S. Holder who receives NIS in connection with the sale or disposition of our Ordinary Shares, the amount realized will be based on the U.S. dollar value of the NIS received
with respect to the Ordinary Shares as determined on the settlement date of such exchange. A cash basis U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at a conversion rate
other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss, based on any appreciation or depreciation in the value of NIS against the U.S. dollar, which would be
treated as ordinary income or loss.

An accrual basis U.S. Holder may elect the same treatment of currency exchange gain or loss required of cash basis taxpayers with respect to a sale or disposition of our Ordinary Shares that are traded on
an established securities market, provided that the election is applied consistently from year to year. Such election may not be changed without the consent of the IRS. In the event that an accrual basis U.S.
Holder does not elect to be treated as a cash basis taxpayer (pursuant to the Treasury regulations applicable to foreign currency transactions), such U.S. Holder is required to calculate the value of the
proceeds as of the “trade date” and may have a foreign currency gain or loss for U.S. federal income tax purposes in the event of any difference between the U.S. dollar value of NIS prevailing on the trade
date and on the settlement date. Any such currency gain or loss generally would be treated as U.S.- source ordinary income or loss and would be subject to tax in addition to the gain or loss, if any,
recognized by such U.S. Holder on the sale or disposition of such Ordinary Shares.

Passive Foreign Investment Company Considerations

Based on the composition of our income, assets (including the value of our goodwill, going-concern value or any other unbooked intangibles, which may be determined based on the price of the ordinary
shares), and operations, we believe we will not be classified as a “passive foreign investment company”, or PFIC, for the 2020 taxable year. However, because PFIC status is based on our income, assets
and activities for the entire taxable year, it is not possible to determine whether we will be characterized as a PFIC for our current taxable year or future taxable years until after the close of the applicable
taxable year. Moreover, we must determine our PFIC status annually based on tests that are factual in nature, and our status in the current year and future years will depend on our income, assets and
activities in each of those years and, as a result, cannot be predicted with certainty as of the date hereof.

If we were a PFIC for any taxable year during which a U.S. Holder owned Ordinary Shares, certain adverse consequences could apply to the U.S. Holder. Specifically, unless a U.S. Holder makes one of
the elections mentioned below, gain recognized by the U.S. Holder on a sale or other disposition of Ordinary Shares would be allocated ratably over the U.S. Holder’s holding period for the Ordinary
Shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable
year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability. Further,
any distribution in excess of 125% of the average of the annual distributions received by the U.S. Holder on our Ordinary Shares during the preceding three years or the U.S. Holder’s holding period,
whichever is shorter, would be subject to taxation as described immediately above. In addition, if we were a PFIC for a taxable year in which we pay a dividend or the immediately preceding taxable year,
the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. If we were a PFIC for any taxable year in which a U.S. Holder owned
our shares, the U.S. Holder would generally be required to file annual returns with the IRS on IRS Form 8621.

If we are treated as a PFIC with respect to you for any taxable year, you will be deemed to own shares in any entities in which we own equity that are also PFICs (“lower tier PFICs”), and you may be
subject to the tax consequences described above with respect to the shares of such lower tier PFIC you would be deemed to own.

i. Mark-to-market elections

If we are a PFIC for any taxable year during which you hold ordinary shares, then instead of being subject to the tax and interest charge rules discussed above, you may make an election to include gain on
the ordinary shares as ordinary income under a mark-to-market method, provided that such ordinary shares are “marketable.” The ordinary shares will be marketable if they are “regularly traded” on a
qualified exchange or other market, as defined in applicable U.S. Treasury regulations, such as the New York Stock Exchange (or on a foreign stock exchange that meets certain conditions). For these
purposes, the ordinary shares will be considered regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days during each calendar
quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded. However, because a mark-to-market election cannot be made for any lower tier PFICs that we may
own, you will generally continue to be subject to the PFIC rules discussed above with respect to your indirect interest in any investments we own that are treated as an equity interest in a PFIC for U.S.
federal income tax purposes. As a result, it is possible that any mark-to-market election with respect to the ordinary shares will be of limited benefit.

If you make an effective mark-to-market election, in each year that we are a PFIC, you will include in ordinary income the excess of the fair market value of your ordinary shares at the end of the year over
your adjusted tax basis in the ordinary shares. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the ordinary shares over their fair market value at
the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, in each year that we
are a PFIC, any gain that you recognize upon the sale or other disposition of your ordinary shares will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of
the net amount of previously included income as a result of the mark-to-market election.

Your adjusted tax basis in the ordinary shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules discussed above. If
you make an effective mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares are no longer regularly
traded on a qualified exchange or the IRS consents to the revocation of the election. You should consult your tax advisor about the availability of the mark-to-market election, and whether making the
election would be advisable in your particular circumstances.

ii. Qualified electing fund elections

In certain circumstances, a U.S. equity holder in a PFIC may avoid the adverse tax and interest charge regime described above by making a “qualified electing fund” election to include in income its share
of the corporation’s income on a current basis. However, you may make a qualified electing fund election with respect to the ordinary shares only if we agree to furnish you annually with a PFIC annual
information statement as specified in the applicable U.S. Treasury regulations. We do not intend to provide the information necessary for you to make a qualified electing fund election if we are classified
as a PFIC. Therefore, you should assume that you will not receive such information from us and would therefore be unable to make a qualified electing fund election with respect to any of our ordinary
shares were we to be or become a PFIC.

Additional Tax on Investment Income

In addition to the income taxes described above, U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds may be subject to a 3.8% Medicare contribution tax on net
investment income, which includes dividends and capital gains from the sale or exchange of our Ordinary Shares.

Backup Withholding and Information Reporting

Payments in respect of our Ordinary Shares may be subject to information reporting to the IRS and to U.S. backup withholding tax at the rate (currently) of 24%. Backup withholding will not apply,
however, if you (i) fall within certain exempt categories and demonstrate the fact when required or (ii) furnish a correct taxpayer identification number and make any other required certification.

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S. Holder’s U.S. tax liability. A U.S. Holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS.

U.S. citizens and individuals taxable as resident aliens of the United States that (i) own “specified foreign financial assets” (as defined in Section 6038D of the Code and the regulations thereunder) with an
aggregate value in a taxable year in excess of certain thresholds (as determined under rules in Treasury regulations) and (ii) are required to file U.S. federal income tax returns generally will be required to
file an information report with respect to those assets with their tax returns. IRS Form 8938 has been issued for that purpose. “Specified foreign financial assets” include any financial accounts maintained
by foreign financial institutions, foreign stocks held directly, and interests in foreign estates, foreign pension plans or foreign deferred compensation plans. Under those rules, our Ordinary Shares, whether
owned directly or through a financial institution, estate or pension or deferred compensation plan, would be “specified foreign financial assets.” Under Treasury regulations, the reporting obligation applies
to certain U.S. entities that hold, directly or indirectly, specified foreign financial assets. Penalties can apply if there is a failure to satisfy this reporting obligation. In addition, in the event a U.S. Holder
that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. Holder for the related tax year may not
close until three years after the date that the required information is filed. A U.S. Holder is urged to consult the U.S. Holder’s tax advisor regarding the reporting obligation.

Any U.S. Holder who acquires more than $100,000 of our Ordinary Shares or holds 10% or more of our Ordinary Shares by vote or value may be subject to certain additional U.S. information reporting
requirements.

The above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of our Ordinary Shares. You should consult
your tax advisor concerning the tax consequences of your particular situation.

F. Dividend and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We are subject to certain of the reporting requirements of the Exchange Act, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the Exchange Act. As a foreign private issuer, we are
exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act, and
transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we
are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However,
we file with the SEC an annual report on Form 20-F containing financial statements audited by an independent accounting firm. We also submit to the SEC reports on Form 6-K containing (among other
things) press releases and unaudited financial information. We post our annual report on Form 20-F on our website (www.rada.com) promptly following the filing of our annual report with the SEC. The
information on our website is not incorporated by reference into this annual report.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its
EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system.

The documents concerning our company that are referred to in this annual report may also be inspected at our offices located at: 7 Giborei Israel Street, Netanya 4250407, P.O. Box 8606, Israel.

I. Subsidiary Information

Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Interest Rate Risk

We currently do not invest in or otherwise hold, for trading or other purposes, any financial instruments subject to market risks. Generally, we pay interest on our credit facilities, convertible notes and
short-term loans based on Libor, for dollar-denominated loans, and Israeli prime or adjustment differences to the Israeli consumer price index, for some of our NIS-denominated loans. As a result, changes
in the general level of interest rates may affect the amount of interest payable by us under these facilities.

Foreign Currency Exchange Risk

The depreciation of the NIS against the dollar has the effect of reducing the dollar amount of any of our expenses or liabilities which are payable in NIS (unless such expenses or payables are linked to the
dollar). As of December 31, 2020, we had liabilities payable in NIS which are not linked to the dollar in the amount of $8.8 million and cash and receivables in the amount of $5.3 million denominated in
NIS. Accordingly, 1% appreciation of the NIS against the dollar would increase our financing expenses by approximately $35,000. A 1% depreciation of the NIS against the dollar would decrease our
financing expenses by the same amount. However, the amount of liabilities payable and/or cash and receivables in NIS is likely to change from time to time.

Because exchange rates between the NIS and the dollar fluctuate continuously, exchange rate fluctuations and especially larger periodic devaluations will have an impact on our profitability and period-to-
period comparisons of our results. The effects of foreign currency re-measurements are reported in our consolidated financial statements in continuing operations.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer, and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) of the Exchange Act) as of December 31, 2020. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer, have concluded that, as of December 31, 2020, our
company’s disclosure controls and procedures are effective.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our
management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
and criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as of the end of the period covered
by this report.

Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020. Notwithstanding the foregoing, there can be no assurance
that our internal control over financial reporting will detect or uncover all failures of persons within the Company to comply with our internal procedures, as all internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements.

Attestation Report of the Registered Public Accounting Firm

The attestation report of Kost Forer Gabbay & Kasierer, a member of EY Global, an independent registered public accounting firm in Israel, on our management’s assessment of our internal control over
financial reporting as of December 31, 2020 is provided on page F-4, as included under Item 18 of this annual report.

Changes in Internal Control over Financial Reporting

Based on the evaluation conducted by our Chief Executive Officer and our Chief Financial Officer pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act, our management has concluded that
there was no change in our internal control over financial reporting that occurred during the year ended December 31, 2020 that materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 16.

RESERVED

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Elan Sigal, one of our external directors, within the meaning of the Israeli Companies Law, and an independent director, as defined by the SEC and
NASDAQ, meets the definition of an audit committee financial expert, as defined by rules of the SEC. For a brief listing of Mr. Sigal’s relevant experience, see Item 6.A. “Directors, Senior Management
and Employees — Directors and Senior Management.”

ITEM 16B. CODE OF ETHICS

We have adopted a code of ethics that applies to our Chief Executive Officer and all senior financial officers of our company, including the Chief Financial Officer, Chief Accounting Officer or controller,
or persons performing similar functions. Written copies of our code of ethics are available upon request. If we make any substantive amendment to the code of ethics or grant any waivers, including any
implicit waiver, from a provision of the codes of ethics, we will disclose the nature of such amendment or waiver on our website.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Registered Public Accounting Firm Fees

The following table sets forth, for each of the years indicated, the fees billed by our principal independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a Member of Ernst & Young
Global (“EY Israel”). All of such fees were pre-approved by our Audit Committee.

Services Rendered:
Audit (1)
Audit-related (2)
Tax (3)
Total (2)

Year Ended December 31
2020
2019

$
$
$
$

150,000
5,091
39,065
194,156

$
$
$
$

145,214
7,861
86,983
240,059

(1) Audit fees are fees for audit services for each of the years shown in this table, including fees associated with the annual audit, services provided in connection with audit of our internal control over

financial reporting and audit services provided in connection with other statutory or regulatory filings.

(2) Audit-related fees relate to assurance and associated services that traditionally are performed by the independence auditor including SEC filings, comfort letters, consents and comment letters in

connection with regulatory filings.

(3)

Tax fees are the aggregate fees billed for professional services rendered for tax compliance and tax advice, other than in connection with the audit. Tax compliance involves preparation of original
and amended tax returns, tax planning and tax advice.

EY Israel and other EY affiliates did not bill our company for services other than the fees described above for fiscal year 2020 or fiscal year 2019.

Pre-Approval Policies and Procedures

Our Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm, Kost Forer Gabbay &
Kasierer, a Member of Ernst & Young Global (“EY Israel”). Pre-approval of an audit or non-audit service may be given as a general pre-approval, as part of the audit committee’s approval of the scope of
the engagement of our independent auditor, or on an individual basis. The policy prohibits retention of the independent public accountants to perform the prohibited non-audit functions defined in Section
201 of the Sarbanes-Oxley Act or the rules of the Securities and Exchange Committee, and also requires the Audit Committee to consider whether proposed services are compatible with the independence
of the public accountants.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Issuer Purchase of Equity Securities

Neither we, nor any “affiliated purchaser” of our company, has repurchased any of our securities during 2020.

ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

Under NASDAQ Stock Market Rule 5615(a) (3), foreign private issuers, such as our company, are permitted to follow certain home country corporate governance practices instead of certain provisions of
the NASDAQ Stock Market Rules. A foreign private issuer that elects to follow a home country practice instead of any of such NASDAQ rules must submit to NASDAQ, in advance, a written statement
from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws.

We have notified NASDAQ pursuant to Rule 5615(a) (3), that we do not comply with the following Rules and instead follow Israeli law and practice in respect of such Rules:

•

The Rule requiring maintaining a majority of independent directors, as defined under the NASDAQ Marketplace Rules. Instead, we will follow Israeli law and practice See above in Item 6C.
“Directors, Senior Management and Employees - Board Practices External and Independent Directors.”

•

The Rule requiring that our independent directors have regularly scheduled meetings at which only independent directors are present: instead, we follow Israeli law according to which
independent directors are not required to hold executive sessions.

The Rule regarding independent director oversight of director nominations process for directors. Instead, we follow Israeli law and practice according to which our board of directors
recommends directors for election by our shareholders. See above Item 6C. “Directors, Senior Management and Employees - Board Practices - Election of Directors.”

The requirement to obtain shareholder approval for the establishment or amendment of certain equity-based compensation plans, an issuance that will result in a change of control of the
company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company.
Under Israeli law and practice, the approval of the board of directors is required for the establishment or amendment of equity-based compensation plans and private placements. Under Israeli
regulations, Israeli companies whose shares have been publicly offered only outside of Israel, such as our company, are exempt from the Israeli law requirement to obtain shareholder
approval for certain private placements of a 20% or more interest in the company. For the approvals and procedures required under Israeli law and practice for an issuance that will result in a
change of control of the company and acquisitions of the stock or assets of another company, see Item 6C “Directors, Senior Management and Employee - Board Practices - Approval of
Related Party Transactions Under Israeli Law - Disclosure of Personal Interests of a Controlling Shareholder; Approval of Transactions with Controlling Shareholders”.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 17.

FINANCIAL STATEMENTS

Not applicable.

ITEM 18.

FINANCIAL STATEMENTS

Consolidated Financial Statements

Index to Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Other Comprehensive Income (Loss)
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

PART III

F-1
F-2 – F-4
F-5 – F-6
F-7
F-8
F-9
F-10 – F-11
F-12 – F-38

ITEM 19.

EXHIBITS

Index to Exhibits

Exhibit
1.1

Description
Memorandum of Association of the Registrant (1)

1.2

2.1

2.2

4.1

4.2

4.3

8.1

12.1

12.2

13.1

13.2

15.1

101.INS

101.SCH

101.CAL

101.LAB

101.PRE

101.DEF

104

(1)

(2)

(3)

(4)

(5)

(6)

Articles of Association of the Registrant (2)

Specimen of Share Certificate (3)

Description of the rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934 (4)

Updated Compensation Policy of Office Holders (June 4, 2020)

Form of Indemnification Agreement of the Registrant with its officers and directors (5)

2015 Share Option Plan (6)

List of Subsidiaries of the Registrant

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act, as amended

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act, as amended

Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Consent of Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global

Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL
document)

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Calculation Linkbase Document.

Inline XBRL Taxonomy Label Linkbase Document.

Inline XBRL Taxonomy Presentation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Filed as an Exhibit 1.1 to our Annual Report on Form 20-F for the year ended December 31, 2019 and incorporated herein by reference.

Filed as Annex A to our Proxy Statement on Form 6-K furnished on April 4, 2016 and incorporated herein by reference.

Filed as Exhibit 2.1 to our Annual Report on Form 20-F for the year ended December 31, 2016 and incorporated herein by reference.

Filed as Exhibit 2.2 to our Annual Report on Form 20-F for the year ended December 31, 2019 and incorporated herein by reference.

Filed as an Annex B to our Proxy Statement on Form 6-K furnished on April 4, 2016 and incorporated herein by reference.

Filed as Exhibit 4.3 to Registration Statement on Form S-8 filed on August 24, 2016 and incorporated herein by reference.

RADA ELECTRONIC INDUSTRIES LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2020

U.S. DOLLARS IN THOUSANDS

INDEX

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Other Comprehensive Income (Loss)

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

- - - - - - - - - - - - - - -

F - 1

Page

F-2 – F-4

F-5 – F-6

F-7

F-8

F-9

F-10 – F-11

F-12 – F-38

Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel

Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com

To the Shareholders and Board of Directors of RADA ELECTRONIC INDUSTRIES LTD.

Opinion on the Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of RADA Electronic Industries Ltd. and subsidiaries (the “Company”) as of December 31, 2020 and 2019 and the related
consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements 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 its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as
of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and
our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of
the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the account or disclosure to which it relates.

F - 2

Valuation of excess and obsolete inventory reserve

Description of the Matter

As described in Note 2 to the consolidated financial statements, the Company’s inventories balance was $28.8 million as of December 31, 2020. The
Company measures all inventories' value, including raw materials, finished goods, and spare parts, in each reporting period at the lower of cost or net
realizable value. Reserves for potentially excess and obsolete inventory are made based on management's analysis of inventory levels, future sales
forecasts, and market conditions.

Auditing the valuation of excess and obsolete inventory reserve involved subjective auditor judgment because management’s estimate relies on
significant assumptions and judgments about the future salability of the inventory. These assumptions include the assessment by inventory category
(finished goods, work-in-process and raw materials) of future usage and market demand for the Company's products. Additionally, management makes
qualitative judgments related to slow moving and obsolete inventories.

How We Addressed the Matter in Our
Audit

We evaluated and tested the design and operating effectiveness of internal controls over the valuation of inventories, including those related to the
Company's methodology for valuing specific inventory categories and controls over the significant assumptions and data.

Our substantive audit procedures included, among others, evaluating the reasonableness of the significant assumptions used by management, including
those related to forecasted inventory usage. We tested the completeness, accuracy, and relevance of the underlying data used in management's estimate.
We performed inquiries with appropriate non-financial personnel including operational employees, regarding slow moving or obsolete inventory items
and other factors to corroborate management's assertions regarding qualitative judgments about slow moving and obsolete inventories. We also assessed
the historical accuracy of management estimates by comparing the forecasted sales to actual utilization of inventory.

/s/ Kost Forer Gabbay & Kasierer
Kost Forer Gabbay & Kasierer,
A Member of Ernst & Young Global

We have served as the Company’s auditor since 2003.

Tel-Aviv, Israel
March 1, 2021

F - 3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

RADA ELECTRONIC INDUSTRIES LTD.

Opinion on Internal Control over Financial Reporting

We have audited RADA Electronic Industries Ltd. and subsidiaries internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Company and subsidiaries (the "Company")
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of
December 31, 2020, and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December
31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective

internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are

subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Kost Forer Gabbay & Kasierer
Kost Forer Gabbay & Kasierer,
A Member of Ernst & Young Global

Tel-Aviv, Israel
March 1, 2021

F - 4

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

ASSETS

CURRENT ASSETS:

Cash and cash equivalents
Restricted deposits
Trade receivables, net
Contract assets (Note 4)
Other accounts receivable and prepaid expenses (Note 5)
Inventories, net (Note 6)

Total current assets

LONG-TERM ASSETS:

Long-term receivables and other deposits
Property, plant and equipment, net (Note 7)
Operating lease right-of-use asset (Note 3)

Total long-term assets

Total assets

The accompanying notes are an integral part of the consolidated financial statements.

F - 5

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

December 31,

2020

2019

36,289
567
14,095
756
1,637
28,783

82,127

230
13,968
10,581

24,779

106,906

13,754
380
13,765
1,269
1,673
17,196

48,037

97
9,127
7,654

16,878

64,915

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands, except share and per share data

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Short term loan
Trade payables
Other accounts payable and accrued expenses (Note 8)
Advances from customers
Contract liabilities (Note 4)
Operating lease short term liabilities (Note 3)

Total current liabilities

LONG-TERM LIABILITIES:

Operating lease long-term liabilities (Note 3)
Accrued severance-pay and other long-term liability

Total long-term liabilities

COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)

EQUITY:

Share capital (Note 10) -

Ordinary shares of NIS 0.03 par value - Authorized: 100,000,000 shares at December 31, 2020 and 2019; Issued and outstanding: 43,724,446 and

38,456,693 at December 31, 2020 and at December 31, 2019 respectively.

Additional paid-in capital
Accumulated deficit

Total equity

Total liabilities and equity

The accompanying notes are an integral part of the consolidated financial statements.

F - 6

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

December 31,

2020

2019

454
10,603
9,855
2,323
232
1,885

25,352

8,732
789

9,521

440
144,944
(73,351)

72,033

106,906

-
7,661
5,572
1,563
196
1,240

16,232

6,499
764

7,263

394
120,017
(78,991)

41,420

64,915

CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except share and per share data

Revenues

Cost of revenues

Gross profit
Operating costs and expenses:

Research and development, net
Marketing and selling
General and administrative
Net loss from sale of fixed asset

Total operating costs and expenses

Operating income (loss)

Financial (expenses) income, net (Note 12)

Net income (loss) from continuing operations

Net income (loss) from discontinued operations

Net income (loss)
Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to RADA Electronic Industries’ shareholders

Basic net income (loss) from continuing operations per Ordinary share
Diluted net income (loss) from continuing operations per Ordinary share
Basic and diluted net income (loss) from discontinued operations per Ordinary share
Basic net income (loss) per Ordinary share
Diluted net income (loss) per Ordinary share
Weighted average number of Ordinary shares used for computing basic net income (loss) per share
Weighted average number of Ordinary shares used for computing diluted net income (loss) per share

The accompanying notes are an integral part of the consolidated financial statements.

F - 7

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

2020

Year ended December 31,
2019

2018

76,217

44,331

47,882

28,335

8,846
5,017
8,972
27

22,862

5,473

167

5,640

5,640
-
5,640

0.13
0.13
0.00
0.13
0.13
43,321,058
44,565,379

$
$
$
$
$

28,394

15,937

6,912
4,044
7,084
-

18,040

(2,103)

(121)

(2,224)

(115)

(2,339)
(309)
(2,030)

(0.05)
(0.05)
(0.00)
(0.05)
(0.05)
38,148,756
38,841,866

$
$
$
$
$

28,032

17,817

10,215

3,189
2,860
4,001
103

10,153

119

181

(404)

(223)
(386)
163

0.02
0.02
(0.01)
0.01
0.01
33,184,570
33,716,931

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

U.S. dollars in thousands

Net income (loss)

Other comprehensive income (loss):
Change in foreign currency translation adjustment

Total comprehensive income (loss)
Less: comprehensive income (loss) attributable to non-controlling interest
Comprehensive income (loss) attributable to RADA Electronic Industries’ shareholders

The accompanying notes are an integral part of the consolidated financial statements.

F - 8

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

2020

Year ended December 31,
2019

2018

5,640

(2,339)

5,640
-
5,640

(2,339)
-
(2,339)

(223)

(251)

(474)
(465)
(9)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

U.S. dollars in thousands, except share data

Number of
Ordinary
shares (*)

Share
capital

Additional
paid-in
capital

Accumulated
other
comprehensive
income

Accumulated
deficit

Non
controlling
Interest

Total
equity

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Balance at January 1, 2018

Share-based compensation to employees
Exercise of warrants
Issuance of shares
Exercise of Option
Net income
Transaction with non-controlling interest
Other comprehensive income
Balance at December 31, 2018

Share-based compensation to employees

Issuance of shares
Exercise of Option
Net Loss
Transaction with non-controlling interest
Other

Balance at December 31, 2019

Share-based compensation to employees
Issuance of shares, net
Exercise of Option
Net income

Balance at December 31, 2020

(*) See Note 10a.

31,392,040
-
1,454,546
4,545,454
124,851
-
-
-
37,516,891
-

545,455
394,347
-

-
38,456,693
-
4,819,052
448,701
-
43,724,466

The accompanying notes are an integral part of the consolidated financial statements.

335
-
13
37
1
-
-
-
386
-

4
4
-

-
394
-
41
5
-
440

F - 9

104,923
898
787
12,215
(1)
-
(254)
-
118,568
1,148

1,496
-
-

-
121,212
1,436
23,496
(5)
-
146,139

392
-
-
-
-
-
-
(172)
220
-

-
-
-
(1,195)
(220)
(1,195)
-
-
-
-
(1,195)

(77,124)
-
-
-
-
163
-
-
(76,961)
-

-
-
(2,030)

-
(78,991)
-
-
-
5,640
(73,351)

659
-
-
-
-
(386)
(546)
(79)
(352)
-

-
-
(309)
661
-
-
-
-
-
-
-

29,185
898
800
12,252
-
(223)
(800)
(251)
41,861
1,148

1,500
4
(2,339)
(534)
(220)
41,420
1,436
23,537
-
5,640
72,033

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Cash flows from operating activities:

Net income (loss)
Adjustments required to reconcile net income (loss) to net cash provided by (used in) operating activities:

Share based compensation to employees
Depreciation and amortization
Net loss from sale of fixed asset
Severance pay, net
Operating lease right-of-use asset
Increase in trade receivables, net
Operating lease long-term-liabilities
Increase in other accounts receivable, long term receivable and prepaid expenses
Decrease in costs and estimated earnings in excess of billings
Decrease (increase) in contract assets
Increase (Decrease) in contract liabilities
Increase in inventories
Increase in trade payables
Increase in other accounts payable, accrued expenses, long term liabilities and advances from customers

Net cash provided by (used in) operating activities from continuing operations

Cash flows from investing activities:

Purchase of property, plant and equipment
Construction-in-process
Consideration from fixed asset sale
Disposal of discontinued operations
Increase (decrease) in long-term receivables and deposits

Net cash used in investing activities from continuing operations

The accompanying notes are an integral part of the consolidated financial statements.

F - 10

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

2020

Year ended December 31,
2019

2018

5,640

(2,339)

1,436
2,289
27
(25)
1,076
(330)
(1,125)
(17)
-
513
36
(12,820)
1,872
5,042

3,614

(4,853)
(94)
-
-
17

(4,930)

1,148
1,223
-
74
551
(383)
(466)
(284)
-
(370)
(170)
(6,613)
1,439
2,729

(3,461)

(4,092)
(459)
-
(526)
(56)

(5,133)

(223)

898
799
103
(47)
-
(6,096)
-
(192)
995
(899)
366
(3,865)
2,610
1,693

(3,858)

(899)
(308)
254
-
5

(948)

CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

Cash flows from financing activities:

Issuance of Ordinary shares, net
Exercise of warrants
Short-term loan
Transaction with non-controlling interest

Net cash provided by financing activities from continuing operations

Net cash provided by operating activities from discontinued operations
Net cash used in investing activities from discontinued operations

Effect of exchange rate changes of discontinued operation on cash and cash equivalents

Increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at the beginning of the year

Cash and cash equivalents and restricted cash at the end of the year
Less cash and cash equivalents of discontinued operation at the end of the year

Cash and cash equivalents of continued operation at the end of the year

(a) Supplemental disclosures of cash flow activities:

Net cash paid during the year for:

Income taxes
Interest

(b) Non-cash transactions

Transfer of inventory to property, plant and equipment
Purchase of property, plant and equipment in credit

The accompanying notes are an integral part of the consolidated financial statements.

F - 11

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

2020

Year ended December 31,
2019

2018

23,534
-
504
-

24,038

-
-

22,722
14,134

36,856
-

1,500
-
-
(534)

966

-
-

(7,628)
21,762

14,134
-

$
$

36,856

14,134

2020

Year ended December 31,
2019

2018

27
-

1,194
1,068

$
$

17
-

595
572

$
$

12,252
800
-
(254)

12,798

1,186
(2)

(420)

8,756
13,006

21,762
526

21,236

17
18

530
136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-

GENERAL

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

a. RADA Electronic Industries Ltd. (the "Company") is a global defense technology company focused on proprietary radar solutions and legacy avionics systems. The Company is a
leader in mini-tactical radars, serving attractive, high-growth markets, including critical infrastructure protection, border surveillance, active military protection and counter-drone
applications. The Company also specializes in the design, development, production and sales of avionics systems (including inertial navigation systems) for fighter aircraft and
unmanned aerial vehicles (“UAVs”).

In January 2018, the Company incorporated RADA Sensors Inc. as a fully owned subsidiary of the Company. As of December 31, 2019, RADA Sensors Inc. is the holder of 100% of
the interests in RADA Technologies LLC, also organized in January 2018. At the time of its organization, RADA was the owner of 75% of RADA Technologies LLC. During July
2019, the Company acquired the remaining 25% interest in RADA Technologies LLC. Since 2020, RADA Sensors Inc. is the holder of 100% of the interests in RADA Innovations
LLC that began its operations in 2021.

The Company is organized and operates as one operating segment.

b. Discontinued operations

In December 2016, the Company committed to a plan to sell its test and repair services activity (provided through the Company’s then 80% owned subsidiary, CACS) in order to focus
in its core business. In October 2018, a transaction with a non-controlling interest occurred and as a result, as of December 31, 2018, the Company owned 100% of CACS, which
resulted in a $254 decrease in additional paid in capital.

In December 2018, the Company signed an agreement to sell its ownership interest in CACS for approximately $1,500. On March 14, 2019, the ownership was transferred to the buyer.
As of December 31, 2019, the Company received 100% of the consideration, which is currently held in a trust account in China. The net consideration of $730 is recorded under other
accounts receivable and prepaid expenses in the consolidated balance sheet as of December 31, 2018. In 2018, the Company recorded a provision of $159 for the expected loss resulting
from the sale, which amount was included in accrued expenses in the consolidated balance sheets and in the net loss from discontinued operations in the consolidated statements of
operations. In 2019, the company recorded an additional expected loss of $115, mainly due to exchange rate differences relating to the consideration held in a trust account in China,
which decreased the net consideration presented under other accounts receivable and prepaid expenses in the consolidated balance sheet and was included in the net loss from
discontinued operations in the consolidated statements of operations.

The results of the discontinued operations in prior periods’ comparable results, assets and liabilities have been retroactively included in discontinued operations as separate line items in
the statements of operations and balance sheets, are presented below:

F - 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 1:-

GENERAL (Cont.)

Revenues
Cost of sales
Operating expenses
Operating loss

Net loss

Loss from sale of subsidiary
Net loss from discontinued operations

Liquidity and Capital Resources:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

2020

Year ended
December 31,
2019

2018

-
-
-
-

-
-

-
-
-
-

(115)
(115)

750
(787)
(208)
(245)

(245)

(159)
(404)

Since incorporation, the Company has incurred an accumulated deficit of $73,351. As of December 31, 2020, the Company’s cash position (cash and cash equivalents) totalled
approximately $36,289. Management believes that its cash and cash equivalents, are sufficient for the Company to meet its obligations as they come due at least for a period of twelve
months from the sign off date of the consolidated financial statements.

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The significant accounting
policies followed in the preparation of the financial statements, applied on a consistent basis, are as follows:

a. Use of estimates:

The preparation of financial statements in conformity with (“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.

F - 13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they were made.

Financial statements in U.S. dollars:

The majority of the revenues of the Company are generated in U.S. dollars. In addition, financing activities are made in U.S. dollars.

The Company’s management believes that the dollar is the currency of the primary economic environment in which the Company operates. Thus, its functional and reporting currency
is the dollar.

Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. All
transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statement of operations as financial income or expenses, as appropriate, in the period in
which the currency exchange rate changes.

The financial statements of the Company’s former foreign subsidiary (CACS), whose functional currency is not the U.S. dollar, have been translated into dollars. All balance sheet
amounts have been translated using the exchange rates in effect at balance sheet date. Statement of operation amounts have been translated using the average exchange rate prevailing
during the year. Such translation adjustments are reported as a separate component of accumulated other comprehensive income (loss) in equity (see also note 1b).

c. Basis of consolidation:

The consolidated financial statements include the accounts of the Company and its subsidiaries. Inter-company transactions and balances have been eliminated upon consolidation.

d. Cash equivalents:

All highly liquid investments that are readily convertible to cash and are not restricted as to withdrawal or use and the period to maturity of which did not exceed three months at time
of deposit, are considered cash equivalents.

e. Restricted deposit:

Restricted cash is invested in short-term bank deposits (less than twelve months), which are mainly used as security for the Company’s guarantees to customers and lines of credits with
banks. The deposits are in U.S. dollars and bear a variable annual interest of up to 0.43%.

F - 14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Inventories:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow-moving items, excess inventories and for market prices
lower than cost (see also Note 6).

Cost is determined as follows:

Raw materials and components - using the FIFO cost method.

Work in progress and finished goods - represents the cost of manufacturing with the addition of allocable indirect manufacturing costs.

Costs incurred on long-term contracts in progress include direct labor, material, subcontractors, other direct costs and an allocation of overhead, which represent recoverable costs
incurred for production.

Property, plant and equipment:

Property plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets.
Annual rates of depreciation are as follows:

Factory and other buildings
Machinery and equipment
Office furniture and equipment

4
7 - 33
6 - 33

Leasehold improvements are depreciated over the shorter of the estimated useful life or the lease period.

Assets, in respect of which investment grants have been received, are presented at cost less the related grant amount. Depreciation is based on net cost.

Impairment of long-lived assets:

The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, plant and equipment”, whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the
assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. As of December 31, 2020, 2019 and 2018, no impairment losses have
been identified.

F - 15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

As required by ASC 820, “Fair Value Measurement”, the Company applies assumptions that market-place participations would consider in determines the fair value of long-lived assets
(or asset group).

Research and development costs:

Research and development costs, net of participation grants, include costs incurred for research and development, are charged to the statement of operations as incurred.

The Company received royalty-bearing grants from the Israeli Innovation Authority (“IIA”) for the purpose of partially funding research and development projects. The grants are
recognized as a deduction from research and development costs incurred (see also Note 9a).

Income taxes:

The Company accounts for income taxes in accordance with ASC 740, “Income taxes”. This statement prescribes the use of the liability method whereby deferred tax assets and
liability account balances are determined based on differences between financial reporting and tax based assets and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.

The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.

The Company implements a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740. The first step is to evaluate the tax
position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical
merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely to be realized upon ultimate settlement. The adoption of ASC 740-10 did not result in a change in the Company’s accumulated deficit. The Company did
not record any provision in connection with ASC 740-10 as of December 31, 2020 and 2019.

Severance pay:

The Company’s agreements with most of its Israeli employees are in accordance with section 14 of the Severance Pay Law - 1963, under which the Company’s contributions for
severance pay shall be instead of severance compensation. Upon release of the policy to the employee, no additional liability exists between the parties regarding the matter of
severance pay and no additional payments will be made by the Company to the employee.

F - 16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

The Company’s liability for severance pay for its Israeli employees that are not covered in section 14 is calculated pursuant to Israel’s Severance Pay Law - 1963, based on the most
recent salary of the employees as of the balance sheet date less monthly deposits for insurance policies and/or pension funds. Employees are entitled to one month’s salary for each year
of employment or a portion thereof.

The carrying value of deposited funds includes profits (losses) accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfilment of the
obligations pursuant to Israeli severance pay law or labor agreements.

Severance expense recorded in the statement of operations is net of interest and other income accumulated in the deposits. Severance expense for the years ended December 31, 2020,
2019 and 2018 amounted to $1,218, $951 and $33, respectively

Accounting for share-based compensation:

The Company accounts for share-based payment in accordance with ASC 718, “Compensation - Stock Compensation”, which requires the measurement and recognition of
compensation expense based on estimated fair values for all share-based payment awards made to employees on the date of grant using an option-pricing model. The value of the
portion of the award is recognized as an expense over the requisite service periods in the Company’s statement of operations. The Company recognizes compensation expenses for the
value of its awards granted based on the straight-line method over the requisite service period of each of the awards.

The fair value for the Company’s stock options granted to employees and directors was estimated using a Black-Scholes option-pricing model with the following weighted-average
assumptions:

Dividend yield
Risk-free interest rate
Expected term (in years)
Volatility

December 31,

2020

2019

0%
0.52%
4.22

55%

0%
1.81%
4.22

63%

The dividend yield assumption is based on the Company’s historical experience and expectation of future dividend payouts and may be subject to changes in the future.

The computation of expected volatility is based on realized historical share price volatility of the Company’s Ordinary shares.

F - 17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

The risk-free interest rate assumption is the implied yield currently available on the U.S treasury yield zero-coupon issues with a remaining term equal to the expected life term of the
Company’s options.

The expected term of the options represents the period of time that the options are expected to be outstanding and is based on the simplified method, as allowed under Staff Accounting
Bulletin No. 110, which is the mid-point between the vesting date and the end of the contractual of the option.

m. Fair value of financial instruments:

The Company measures its financial instruments at fair value. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would
use in pricing an asset or a liability.

A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

Level 1 -

Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments and block discounts are not
applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does
not entail a significant degree of judgment.

Level 2 -

Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 -

Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of
markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment and the investments are categorized as Level 3.

The carrying amount of cash and cash equivalents, restricted deposits, trade receivables, other accounts receivable, bank credit, trade payables and other accounts payable approximate
their fair value due to the short-term maturity of these instruments.

F - 18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. As of
December 31, 2020, and 2019 the fair value of foreign currencies derivatives assets were 159 and 35, respectively.

n. Concentrations of credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, trade receivables and long-
term receivables.

The Company’s cash and cash equivalents and restricted deposits are mainly held in U.S. dollars with major banks in Israel. Management believes that the financial institutions that
hold the Company’s investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.

The Company’s trade receivables are derived from sales to large and solid organizations located mainly in the United States, Asia, Latin America and Israel. The Company performs
ongoing credit evaluations of its customers and to date has not experienced any material losses. The Company is exposed to credit losses primarily through sales to customers. The
Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a
review of the current status of customers' trade accounts receivables.

o. Comprehensive income (loss):

The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of
comprehensive income and its components.

Comprehensive income generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders.
Accordingly, the Company presents a separate consolidated statement of comprehensive income (loss).

The following table summarizes the changes in accumulated balances of other comprehensive income, net of taxes for the years ended December 31, 2018 (no other comprehensive
income was recorded in 2019 and 2020):

Balance as of December 31, 2017
Net current period other comprehensive loss

Balance as of December 31, 2018

F - 19

Accumulated
foreign currency
translation
differences

392
(172)

220

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

p. Warranty:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

In connection with the sale of its products, the Company provides product warranties for periods between one to two years. Based on past experience and engineering estimates, the
estimated liability from these warranties are $212 and $35 as of December 31, 2020 and 2019, respectively.

q. Revenue recognition:

The Company generates revenues mainly from the sale of products and from long-term fixed price contracts of defense electronics as follows: data recording and management systems,
inertial navigation systems for air and land applications, avionics solutions, and avionics for UAVs, and land radar for critical infrastructure protection, border surveillance, active
military protection and counter-drone applications. In addition, the Company provides manufacturing, development and product support services.

The Company recognizes revenue when (or as) it satisfies performance obligations by transferring promised goods or services to its customers in an amount that reflects the
consideration the Company expects to receive.

The Company applies the following five-step approach:

Identify the contract with a customer

A contract with a customer exists when (i) the Company enters into a written agreement with a customer that defines each party’s rights regarding the products or services to be
transferred and identifies the payment terms related to these products or services, (ii) both parties to the contract are committed to perform their respective obligations, (iii) the contract
has commercial substance, and (iv) the Company determines that collection of substantially all consideration for products or services that are transferred is probable based on the
customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety
of factors including the customer’s payment history or, in the case of a new customer, published credit and financial information pertaining to the customer.

Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby
the customer can benefit from the product or service either on its own or together with other resources that are readily available from the Company, and are distinct in the context of the
contract, whereby the transfer of the products or services is separately identifiable from other promises in the contract.

F - 20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

The Company’s contracts contain a single performance obligation which includes the sale of product or development and manufacturing services and the sale of products that are not
separately identifiable and, therefore, not distinct. In situations where the Company’s contract includes distinct goods or services that are substantially the same and have the same
pattern of transfer to the customer over time, they are recognized as a series of distinct goods or services.

When contracts are modified to account for changes in contract specifications and requirements, the Company consider whether the modification either creates new or changes the
existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with
the original good or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and the Company’s
measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative
catch-up basis. When the modifications include additional performance obligations that are distinct and at a relative stand-alone selling price, they are accounted for as a new contract
and performance obligation, which are recognized prospectively.

c) Determine the transaction price

The transaction price is the amount of consideration to which the Company is entitled in exchange for transferring promised goods or services to a customer, excluding amounts
collected on behalf of third parties. The Company doesn’t usually grant its customers with a right to return the products sold. However, in some cases, the arrangements may include
penalties if the Company fails to deliver future goods on time. The above is accounted for as variable considerations, which may be considered as adjustments to the transaction price.

As the Company’s standard payment terms are less than one year, the Company elected the practical expedient and the contracts have no significant financing component.

d) Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Stand-alone selling price is the price at which the
Company would sell a promised good or service separately to a customer. Stand-alone selling prices are established at contract inception and subsequent changes in transaction price are
allocated on the same basis as at contract inception. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation
based on a relative stand-alone selling price basis unless a portion of the variable consideration related to the contract is allocated entirely to a performance obligation.

F - 21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

e) Recognize revenue when or as the Company satisfies a performance obligation

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Revenue is recognized based on the transaction price at the time the related performance obligation is satisfied by transferring a promised product or service to a customer.

The Company generally satisfies performance obligations once the customer has obtained the legal title to the items purchased or service provided.

Revenues from long-term and short-term fixed price contracts are usually recognized over time based on the cost-to-cost input method that best depicts the transfer of control over the
performance obligation to the customer. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

For contracts with an estimated amortization period of less than one year, the Company elected the practical expedient and expenses incremental costs immediately.

The cost estimation process is based upon the professional knowledge and experience of the Company’s engineers, program managers, and financial professionals. Factors considered
in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed,
the effect of change orders, the availability of materials, the effect of any performance delays, the availability and timing of funding from the customer, and the recoverability of any
claims included in the estimates to complete.

Changes in estimates of sales, costs, and profits on a performance obligation are recognized using the cumulative catch-up method of accounting, which recognizes in the current period
the cumulative effect of the changes in current and prior periods. When estimates of total costs to be incurred exceed estimates of total revenue to be earned on a performance obligation
related to a complex, construction-type contract, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

F - 22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Contract Assets - Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed as of the reporting date when the right to payment is not
just subject to the passage of time, including retention amounts. Contract assets are classified as current assets and, in accordance with industry practice, include amounts that may be
billed and collected beyond one year due to the long-term nature of many of the Company’s contracts. Contract assets are transferred to accounts receivable when the right to
consideration becomes unconditional.

Contract Liabilities - Contract liabilities primarily consist of advance payments and billings in excess of costs incurred. Advances represent deposits received from customers on an
order. Billings in excess of revenues represents milestone billing contracts where the billings of the contract exceed recognized revenues. Such billings are generally not considered a
significant financing component, because they are utilized to pay for contract costs within a one-year period. Contract liability amounts are recognized as revenue once the requisite
performance progress has occurred.

Basic and diluted net income (loss) per share:

Basic net income (loss) per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net income (loss) per share is computed
based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year in accordance
with ASC 260, “Earnings per share”.

s. Derivatives and hedging:

The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related Interpretations. ASC 815 requires the Company to
recognize all derivatives on the balance sheet at fair value. If a derivative meets the definition of a hedge and is so designated, depending on the nature of the hedge, changes in the fair
value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings (for fair value hedge transactions) or
recognized in other comprehensive income (loss) until the hedged item is recognized in earnings (for cash flow hedge transactions).

If a derivative does not meet the definition of a hedge, the changes in the fair value are included in earnings. Cash flows related to such hedges are classified as operating activities.

F - 23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

The Company enters into forward exchange contracts and option contracts in order to limit the exposure to exchange rate fluctuation associated with payroll expenses mainly incurred
in NIS. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is
recognized immediately as financial expenses, net.

As of December 31, 2020 and 2019, the fair value of the outstanding forward contracts was $159 and $35, which were recorded in other receivables against financial income,
respectively.

Reclassifications:

Certain financial statement data for prior years has been reclassified to conform to current year financial statement presentation.

u. New accounting pronouncements not yet effective:

In January 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments
—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01), which clarifies the interaction of the accounting for equity securities under
Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. This guidance will be
effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company do not expect the adoption of this guidance to have a material
impact on its consolidated financial statements.

v. Recently Adopted Accounting Pronouncements:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the
impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. The new
accounting standard was effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. Adoption of this standard did not have a material impact
on our consolidated financial statements.

F - 24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 2:-

SIGNIFICANT ACCOUNTING POLICIES (Cont.)

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as
restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
The Company adopted the new standard effective January 1, 2018 using the retrospectively method. The adoption of this new guidance had an immaterial impact on the Company’s
consolidated financial statements. Restricted cash is invested in short-term bank deposits (for three months), which are mainly used as security for the Company’s guarantees to
customers and lines of credits with banks.

The following table provides a reconciliation of cash and cash equivalents and restricted deposits reported within the consolidated balance sheets that sum to the total of such amounts
in the consolidated statements of cash flows:

Cash and cash equivalents
Restricted cash

Cash and cash equivalents and restricted cash

F - 25

2020

December 31,
2019

2018

36,289
567

36,856

13,754
380

14,134

20,814
422

21,236

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 3:

LEASES

The Company adopted ASC 842, as of January 1, 2019, using the modified retrospective approach. Consequently, prior period balances and disclosures have not been restated. The
Company has elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard which does not require it to reassess the prior
conclusions about lease identification, lease classification and initial direct costs. The Company elected the practical expedient to not separate lease and non-lease components for all its
leases. This results in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability being greater than if the policy election was not applied. The
Company also elected the short-term lease recognition exemption for all leases with a term shorter than 12 months.

Some leases include one or more options to renew. The exercise of lease renewal options is typically at the Company's sole discretion; therefore, the majority of renewals to extend the lease
terms are not included in our right of use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options, and, when it is
reasonably certain of exercise, it will include the renewal period in its lease term. New lease modifications result in remeasurement of the right of use asset and lease liability, which are not
accounted as separate lease contract.

The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be
readily determined, the Company's incremental borrowing rate based on the information available at the date of adoption in determining the present value of the lease payments. The
Company's incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.

Some of the real estate leases contain variable lease payments, including payments based on an index or rate (CPI). Variable lease payments based on an index or rate are initially measured
using the index or rate in effect at lease adoption. Additional payments based on the change in an index or rate are recorded as a period expense when incurred.

F - 26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 3:

LEASES (Cont.)

The Company has various operating leases for office space and vehicles that expire through 2021 and 2031. Its lease agreements do not contain any material residual value guarantees or
material restrictive covenants. Below is a summary of the Company's operating right-of-use assets and operating lease liabilities as of December 31, 2020:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Operating right-of-use assets

Operating lease liabilities, current
Operating lease liabilities long-term
Total operating lease liabilities

Weighted average remaining lease term (years)
Weighted average discount rate

December 31, 2020 December 31, 2019
7,654

10,581 $

1,885
8,732
10,617 $

8
3.27%

1,240
6,499
7,739

9
3.56%

Cash paid for lease expenses during the twelve months ended December 31, 2020 and 2019 were $1,508 and $1,302, respectively. Non-cash transactions recognize in operating assets and
liabilities for new leases were $3,044 and $8,205, as of December 31, 2020 and 2019, respectively.

Minimum lease payments for the Company's right of use assets over the remaining lease periods as of December 31, 2020, are as follows:

2021
2022
2023
2024
2025
Thereafter

Total undiscounted lease payments

Less: Interest

Present value of lease liabilities

Total lease expenses for the twelve months ended December 31, 2020, 2019 and 2018 were $1,862, $1,138 and $958 respectively.

F - 27

1,806
1,671
1,460
1,303
1,318
3,431

10,989

(372)

10,617

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 4:-

REVENUES

In accordance with the new standard, costs and estimated earnings in excess of billings on uncompleted contracts were reclassified as contract assets and contract liabilities from December
31, 2018. Contract liabilities include advances from customers, which were presented separately in the Company's consolidated balance sheets as of December 31, 2020 and 2019.

The following table presents the significant changes in the advances from customers balance during the twelve months ended December 31, 2020:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Balance, beginning of the period
New performance obligations
Reclassification to revenue as a result of satisfying performance obligation
Balance, end of the period

The following table summarizes our contract assets and liabilities balances:

Contract assets at January 1,
Contract assets at December 31,

Change in contract assets – increase (decrease)

Contract liabilities at January 1,
Contract liabilities at December 31,

Change in contract liabilities – increase (decrease)

Net change

Year ended
December 31,

2020

2019

2020

1,563
1,677
(917)
2,323

1,269
756

(513)

196
232

(477)

$
$

2019

727
893
(57)
1,563

899
1,269

370

366
196

(170)

200

$
$

For the twelve months ended December 31, 2020, 100% of the amount that was previously included in the beginning balance of contract liabilities was recognized.

The Company’s unsatisfied performance obligations as of December 31, 2020 and the estimated revenue expected to be recognized in the future related to long-term fixed price contracts
amounts to $366. The Company expects to recognize approximately 92% of this amount as revenues during the next 12 months. For information regarding disaggregated revenues, please
refer to Note 14.

F - 28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 5:-

OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

Prepaid expenses
Government authorities
Advance payments to vendors
Deposits
Fair value of the outstanding forward contracts
Other accounts receivable related to Discontinued operations (see also note 1b.)

NOTE 6:-

INVENTORIES

Raw materials
Work in progress, net
Finished goods

*) Reclassified

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

December 31,

2020

2019

953
216
302
7
159
-
1,637

781
78
9
40
35
730
1,673

December 31,

2020

2019

23,744
3,997
1,042
28,783

11,990 *)
3,884
1,322 *)
17,196

Write-offs of inventories for the years ended December 31, 2020, 2019 and 2018 amounted to $132, $230 and $39, respectively. The write-offs were due to slow-moving items and excess
inventories and were recorded in cost of revenues.

F - 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 7:-

PROPERTY, PLANT AND EQUIPMENT, NET

Cost:

Factory building
Machinery and equipment *) **)
Office furniture and equipment
Leasehold improvements

Accumulated depreciation:

Factory building
Machinery and equipment **)
Office furniture and equipment
Leasehold improvements

Depreciated cost

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

December 31,

2020

2019

1,722
16,603
1,098
2,959

22,382

1,812
6,170
236
196

8,414

13,968

2,081
14,641
1,089
2,004

19,815

2,058
8,043
389
198

10,688

9,127

*) As of December 31, 2020 and 2019, $94 and $459, respectively, relates to construction-in-process of production infrastructure.

**) Capital loss from sale of fixed asset amounted to $27, is due to machinery and equipment sales during 2020.

Depreciation expense amounted to $2,289, $1,223 and $799 (offset by depreciation write-offs of $4,519, $0 and $1,030 mainly due to assets disposals) for the years ended December
31, 2020, 2019 and 2018, respectively.

NOTE 8:-

OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Payroll and related accruals
Accrued expenses - agents’ commissions
Accrued expenses
Royalties to IIA

F - 30

December 31,

2020

2019

6,579
1,094
1,954
228

9,855

4,327
518
727
-

5,572

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 9:- COMMITMENTS AND CONTINGENT LIABILITIES

The Company’s research and development efforts have been partially financed through royalty-bearing programs sponsored by the IIA. In return for the IIA’s participation, the
Company is committed to pay royalties at a rate ranging from 3% to 5% of sales of the products whose research was supported by grants received from the IIA, up to 100% of the
amount of such participation received linked to the U.S. dollar. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no
payment is required. As of December 31, 2020, the Company received total grants from the IIA in the amount of $5,543.

The total amount of royalties charged to operations for the years ended December 31, 2020, 2019 and 2018, were approximately $228, $41 and $458, respectively. As of December 31,
2020, the Company’s contingent liability for royalties, net of royalties paid or accrued is zero.

The Company provides bank guarantees to some of its customers and others, in the ordinary course of business. The guarantees are to secure advances received at the commencement
of a project or to secure performance of operational milestones. The total amount of bank guarantees provided to customers and others as of December 31, 2020, is approximately $457.

F - 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 10:- SHAREHOLDERS’ EQUITY

Share capital:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Ordinary Shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.

In June 2018, the Company's shareholders approved an increase of the Company's authorized share capital by NIS 1,875,000 and as a result the authorized share capital is equal to NIS
3,000,000 divided into 100,000,000 Ordinary Shares, par value NIS 0.03 each.

In November 2018, the Company entered into agreements with several Israeli institutional investors to sell 4,545,454 Ordinary shares at price per share of $2.75, for a total
consideration of $12,500. Offering costs amounted to $248.

In January 2019, the Company’s shareholders approved the sale of 545,454 Ordinary shares to the controlling shareholder at a price per share of $2.75, approximately $1,500 in the
aggregate.

In January 2020, the Company completed an underwritten public offering of 4,819,052 Ordinary shares at a price of $5.25 per share, for a total consideration of $25,300. Offering costs
amounted to approximately $1,800.

Stock option plans:

In April 2015, the Company's Board of Directors adopted the "2015 Share Option Plan" (the "Plan"), which authorized the grant of options to purchase up to an aggregate of 1,500,000
Ordinary shares to officers, directors, consultants and key employees of the Company and its subsidiaries. Options granted under the Plan expire within a maximum of ten years from
adoption of the plan in 2018, the Company's Board of Directors had extended the plan to 10 additional years.

Generally, under the terms of the Plan, unless determined otherwise by the administrator of the Plans, 25% of the option granted becomes exercisable on the first anniversary of the date
of grant and 6.25% becomes exercisable once every quarter during the subsequent three years.

In addition, options granted under the plan are granted at the average closing price of our Shares as quoted on NASDAQ during the 30 business days prior to the date the Option is
granted.

For our US employees, the exercise price is Higher of (a) the average closing price of our Shares as quoted on NASDAQ during the 30 business days prior to the date the Option is
granted, and (b) the closing price as quoted on NASDAQ on the last trading day preceding the date the Option is granted.)

These options will be exercisable for 48 months following the date of vesting.

As of December 31, 2020, options to purchase 164,592 Ordinary shares are available for future grant under the Plan.

F - 32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 10:- SHAREHOLDERS’ EQUITY (Cont.)

A summary of the Company’s activity for options granted to employees and directors under the Plan is as follows:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Outstanding at the beginning of the period
Granted
Exercised
Forfeited

Outstanding at the end of the period

Exercisable

Twelve months ended December 31, 2020
Weighted average
remaining
contractual term

Weighted average
exercise price

Aggregate
Intrinsic Value
Price

Number of options

3,110,938
952,500
(626,871)
(146,405)

3,290,162

1,302,349

2.76
5.18
2.01
3.57

3.57

2.79

8.23
-
-
-

7.91

7,579
-
-
-

8,768

7.05

19,726

Aggregate intrinsic value of exercisable options (the difference between the closing share price of the Company’s Ordinary Shares on the last trading day in the period and the exercise
price, multiplied by the number of in-the-money options) represents the amount that would have been received by the employees and directors option holders had all option holders
exercised their options on December 31, 2020. This amount changes based on the fair market value of the Company’s Ordinary shares.

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $4,596, $1,192, and $173, respectively.

The weighted average grant date fair value of options granted to employees and directors during the years ended December 31, 2020, 2019, and 2018, was $2,340 $1,060 and $2,179,
respectively.

As of December 31, 2020, unrecognized compensation expenses related to employees and directors stock options to be recognized over an average time of approximately 4 years is
approximately $3,629.

During the twelve months period ended December 31, 2020, the Company recognized compensation expenses related to employees and service providers stock option in the amount of
$1,436, as follows:

Cost of revenues
Research and development
Marketing and selling
General and administrative

F - 33

Year ended December 31,
2019
2020

$
$
$
$
$

256
393
22
765
1,436

$
$
$
$
$

134
243
57
714
1,148

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:- TAXES ON INCOME

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

The Israeli corporate tax rate and real capital gains tax was 23% in 2020, 2019 and 2018.

The Company’s subsidiaries which were incorporated in the U.S. were subject to federal tax rate of 21% in 2020, 2019 and 2018.

In accordance with the Israeli tax laws, tax returns of the Company submitted up to and including the 2015 tax year can be regarded as final.

The Company’s subsidiaries did not receive final tax assessments since their incorporation.

Tax benefits under the Law for the Encouragement of Industry (Taxes), 1969:

The Company qualifies as an “Industrial Company” under the Law for the Encouragement of Industry (Taxes), 1969 (the “Industrial Encouragement Law”). The Industrial
Encouragement Law defines an “Industrial Company” as a company that is resident in Israel and that derives at least 90% of its income in any tax year, other than income from defense
loans, capital gains, interest and dividends, from an enterprise whose major activity in a given tax year is industrial production.

The principal benefit from the above law is the deduction of expenses in connection with a public offering. Also, under the industrial Encouragement Law an “Industrial Company” is
entitled to special rates of depreciation for industrial equipment and in addition to amortization of the cost of purchased know-how and patents over an eight-year period for tax
purposes and an accelerated depreciation rate on equipment.

Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.

d. As of December 31, 2020, the net operating tax loss carry-forward relating to the Company in Israel amounted to approximately $64,109, not including a carry-forward capital loss

amounting to approximately $4,090. Carry-forward losses in Israel may be carried forward indefinitely and may be offset against future taxable income.

F - 34

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 11:- TAXES ON INCOME (Cont.)

As of December 31, 2020, the U.S. subsidiaries have U.S. federal carry-forward tax losses of approximately $3,750.

As the Company believes that it is more likely than not that the deferred tax assets in respect of these carry-forward losses will not be utilized, the Company recorded a full valuation
allowance for the entire balance of the deferred tax asset relating to the carry-forward losses.

The main reconciling items between the statutory tax rate of the Company and the effective tax rate is the valuation allowance recorded in respect of the deferred tax assets relating to
net operating loss carry-forward and other temporary differences due to the uncertainty of the realization of such tax assets.

Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

Net operating loss carry-forward
Capital loss carry-forward
Allowances and reserve

Total deferred tax assets before valuation allowance
Valuation allowance

Net deferred tax assets

December 31,

2020

2019

14,745
941
455

16,141
(16,141)

15,373
883
401

16,657
(16,657)

As of December 31, 2020 and 2019, the Company has provided valuation allowances in respect of deferred tax assets resulting from the tax loss carry-forward and other temporary
differences, since it has a history of operating losses and the current uncertainty concerning its ability to realize these deferred tax assets in the future.

The Company accounts for its income tax uncertainties in accordance with ASC 740, which clarifies the accounting for uncertainties in income taxes recognized in a company’s
financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.

As of December 31, 2020 and 2019, there were no unrecognized tax benefits that if recognized would affect the annual effective tax rate.

F - 35

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 12:- FINANCIAL EXPENSES, NET

Income:

Foreign currency exchange differences
Interest on cash equivalents and restricted deposits
Operating lease income
Other

Expenses:

Bank commissions and others
Operating lease expenses
Foreign currency exchange differences

2020

Year ended December 31,
2019

2018

-
278
195
131

604

51
-
386

437

-
359
-
96

455

38
85
453

576

Total financial (expenses) Income, net

167

(121 ) $

NOTE 13:- RELATED PARTY BALANCE AND TRANSACTIONS

47
184
-
-

231

19
-
93

112

119

In January 2017, the Company’s shareholders approved that in addition to the directors’ fees to be paid to all of the Company’s directors, commencing as of January 1, 2017, the Company
will pay to its Executive Chairman of the Board of Directors additional monthly payment of approximately $4.6 (NIS 17,500) for time devoted to the Company. Such payment is subject to
increase in the event the Company achieved profitable operations. In 2017, the Company’s consolidated audited financial statements reflected net income (before taxes), so such additional
payment increased to approximately $9 (NIS 35,000). In 2020 and 2019, the total payments to the Executive Chairman of the Board of Directors were $123 and $119, respectively.

F - 36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 13:- RELATED PARTY BALANCE AND TRANSACTIONS (Cont.)

See also Note 10 for transactions with the Company’s shareholders.

Balances with related parties:

Accrued expenses

Related parties’ expenses:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

December 31,

2020

2019

2020

Year ended December 31,
2019

2018

Directors and management fees

167

169

156

NOTE 14:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

a. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance. The Company manages its business on the basis of one reportable segment, and derives revenues from develops,
manufactures and sells land radar for defense forces and border protection applications, avionics equipment and aviation data acquisition and debriefing systems (see Note 1 above for a
brief description of the Company’s business).

b. Revenues by geographic areas:

Revenues are attributed to geographic area based on the location of the end customers as follows:

North America
Israel
Europe
Asia
South America
Australia
Total

2020

Year ended December 31,
2019

2018

45,080
15,485
12,038
1,740
1,089
785
76,217

21,995
12,737
6,073
2,499
1,027
-
44,331

11,686
10,446
1,601
3,093
1,206
-
28,032

F - 37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands, except share and per share data

NOTE 14:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)

c. Major customers:

Revenues from single customers that exceed 10% of the total revenues in the reported years as a percentage of total revenues are as follows:

RADA ELECTRONIC INDUSTRIES LTD.
AND ITS SUBSIDIARIES

Customer A
Customer B
Customer C
Customer D
Customer E
Customer F
Customer G
Customer H

Long-lived assets (property, plant and equipment) by geographic areas:

Israel

USA

NOTE 15:-

SUBSEQUENT EVENTS

In February 2021, the Company’s shares began trading also on the Tel Aviv Stock Exchange.

F - 38

2020

Year ended December 31,
2019
%

2018

21
14
10
6
5
4
1
-

-
7
-
8
4
12
3
4

December 31,

2020

2019

10,108

3,860

13,968

-
-
-
11
12
7
11
12

6,062

3,065

9,127

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

SIGNATURES

Dated: March 1, 2021

RADA ELECTRONIC INDUSTRIES LTD.

By:
Name:
Title:

/s/ Dov Sella
Dov Sella
Chief Executive Officer

Exhibit 4.1

Background

RADA ELECTRONIC INDUSTRIES LTD.
("RADA" OR THE "COMPANY")
COMPENSATION POLICY OF OFFICE HOLDERS
2019

In accordance with recent amendments to the Israeli Companies Law 5759-1999 (the "Companies Law"), a public company, such as RADA, is required to adopt a compensation policy setting
forth the principles governing the terms of office and employment of the Office Holders of the company. All capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the
Companies Law.

Pursuant to the Companies Law, this Compensation Policy (the "Policy") will be brought to the approval of our shareholders and, once adopted, and unless determined otherwise by our Board of

Directors, shall serve as our Compensation Policy for the three years period commencing as of its adoption by our shareholders.

The employment terms of all new Office Holders, and to the extent possible, any amendments to existing employment terms, will be determined in accordance with this Policy. We intend, in the
framework of the periodic review of employment agreements that is required by law and under this Policy, to consider, amongst other considerations also the adjustment of the terms of employment to the
Policy, taking into account the contribution of such Office Holder to our performance, the growth of our business and the best interest of the Company.

Under the NASDAQ Listing Rules, we as a company listed on NASDAQ, may elect to follow certain corporate governance practices permitted under the Companies Law in lieu of compliance
with the applicable corporate governance requirements otherwise imposed by the NASDAQ Listing Rules for U.S. domestic issuers. As a result, our corporate governance practices with respect to Office
Holder compensation differ from those followed by U.S. domestic companies.

Compensation Philosophy and Objectives

We believe that the most effective executive compensation program is one that is designed to reward achievement and that aligns executives’ interests with those of the company and its
shareholders by rewarding performance, with the ultimate objective of improving shareholder value and building a sustainable company. We also seek to ensure that we maintain our ability to attract and
retain superior employees in key positions and that the compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of a selected group
of our peer companies and the broader marketplace from which we recruit and compete for talent.

In light of the above, we have established the following compensation objectives for the Company’s executives (the CEO, Senior VPs, and all other managers directly subordinated to the CEO in

Israel shall be referred to herein as the "Senior Executives") as indicators of our overall compensation philosophy:

Compensation should be related to performance. We believe that the compensation paid to the Senior Executives should be closely aligned with the performance of the Company on both a short-

term and long-term basis, with a material portion of a Senior Executive’s potential annual performance-based incentive compensation and long-term equity based compensation at risk if Company and
individual performance objectives are not achieved.

Compensation should serve to encourage Senior Executives to remain with the Company. The Company’s executive compensation program components are designed to retain talented
executives. We believe that continuity of employment is critical to achieving the Company’s strategic objectives and building shareholder value. A significant element of the Senior Executive
compensation program, therefore, is long-term equity based incentive compensation awards that vest on a rolling basis over periods of several years. As part of the retention objective, we believe that
compensation should include a meaningful stock component to further align the interests of senior management with the interests of our shareholders.

Compensation should be reasonable for our business, our financial results, our locations and our long-term, multi-year approach to achieving sustainable growth. We believe that an
appropriate compensation package will attract executives and motivate them to achieve the Company’s annual and long-term strategic objectives. At the same time, we believe that compensation should be
set at reasonable and fiscally responsible levels.

Compensation should be managed to encourage innovation and appropriate levels of risk. We believe incentive compensation should be structured to discourage assumption of excessive short-
term risk without constraining innovation and reasonable risk-taking. To achieve this objective, we believe that the success of the Company over time will be more effectively assured by connecting a
significant element of incentive compensation to longer-term Company performance.

General Process for Setting Compensation

In determining the total compensation the Compensation Committee shall take into account the following considerations (collectively, the "Compensation Considerations"): (i) the education,
professional experience and achievements of the applicable Senior Executive; (ii) the applicable Senior Executive's position in the Company, scope of responsibilities, his contribution to the Company, the
circumstances of his recruitment and the terms of prior employment agreements with the Company (if any); (iii) the financial conditions of the company, the global scope of its business, the complexity of
the Company’s business and the fact that the Company's shares are traded in a public Stock Exchange; (iv) comparison of the terms of employment of the applicable Senior Executive to the terms of
employment of other executives in the Company, as well as to terms of employment of senior executives in the same position in equivalent companies (similar industry, similar revenues, similar market
value); and (v) the ratio between the total compensation of the applicable Senior Executive and the Salary of all other employees of the Company (including, to the extent applicable, Employees of
Manpower Contractor engaged by the Company) and especially the ratio between the total compensation and the median and average Salary of all such employees.

As of December 31, 2018, the ratio between the average Salary of all Senior Executives and the median and average Salary of all other Israeli employees of the Company (including, to the extent
applicable, Employees of Manpower Contractor engaged by the Company) is between 1:3 to 1:4.

The total compensation of Senior Executives shall be reviewed annually, taking into account the Compensation Consideration and focusing mainly on the applicable Senior Executive's
functioning, performance, the Company's business and financial status, the Company's budget and other applicable market conditions. A change of up to 10% in the total compensation of any Executive
Officer (other than the CEO) shall be deemed immaterial and shall require the approval of the Compensation Committee only.

A change of up to 10% in the total compensation of any Senior Officer shall not be deemed a material change.

Notwithstanding the above, a change in employment conditions of the Senior Officers that are subordinated to the CEO, shall require only the CEO's approval if; (i) such change is not a material

change, and (ii) such change is within the limits set forth herein.

A change of up to 10% in the total compensation of the CEO shall require the approval of both the Compensation Committee and the Board of Directors. Any change in the total compensation

that is greater than 10% shall require the approvals required by applicable law.

Elements of Compensation

The compensation of Senior Executives may consist of any one or more of the following elements: (i) annual base cash compensation, (ii) annual performance-based cash incentive compensation,

(iii) other executive benefits and to the extent the Company duly adopts a share Incentive Plan, (iv) long - term equity-based (options or shares) compensation.

In addition the Board of Directors may, in its sole discretion, upon the recommendation of the Compensation Committee, resolve to pay or change the amount of the cash bonus (increase or
decrease), which resolution may need not be based on measurable criteria, taking into account inter alia, such Senior Executive contribution to the Company's performance as well as other events that
affected the Company's financial and operational performance (such as the effect of exchange rate). However, such payment or changes to the cash bonus shall be immaterial (up to 3 monthly base
salaries).

A discussion of each element follows:

Annual Base Cash Compensation

Base salary is a fixed, cash component of overall compensation, which is reviewed and may be adjusted periodically based on a variety of factors, including executive performance, Company
performance, general economic conditions and the subjective business judgment and general business experience of the members of the Compensation Committee, always taking into account the
Compensation Considerations. The annual base cash compensation (“base salary”) shall be at levels which will range from 50% to 100% of the Senior Executive’s potential total compensation. Base
salary ranges are designed to account for varying responsibilities, experience and performance levels. The base salary may be linked to the increase of the Israeli CPI but shall not be otherwise
automatically raised. Any other increase of the base salary shall be subject to the annual review process described herein.

Annual Performance-Based Incentive Cash Compensation

The Company's annual performance-based incentive cash compensation ("Bonus") program is designed to tie executive compensation to the company's performance and to encourage Senior

Executive's to remain with the Company. The Bonus program for certain executives is based on the achievement of financial and/or personal thresholds.

The financial criteria shall include at least two of the following criteria: EBITDA, Revenues, Gross Profit. Profit before Tax, Net Profit and Net Profit per Share. The criteria for measurement of
personal criteria shall be determined individually by the Compensation Committee upon the recommendation of the CEO (with respect to all Senior Executives other than the CEO and the Chairman of the
Board with respect to the CEO), and approved by the Board. A non-exhaustive list of personal criteria is attached as Exhibit I hereto.

The calculation of financial component of the Bonus shall be made once a year and shall be based on the Consolidated Audited Financial Statements of the Company (the "FS") for the applicable

year.

It is hereby clarified that the Board may in its sole discretion may reduce any annual Bonus payment by up to 30% even if the specific Senior Officer has met his/her applicable financial and/or

personal criteria.

If the Company restates any of the financial data that was used in calculating any Bonus, then the applicable Bonus shall be recalculated using such restated data (the "Restated Bonus"). The
balance between the original Bonus and the Restated Bonus, if any (the "Balance") will be repaid to the Company pursuant to the terms that shall be determined by the Board of Directors, based on
recommendation of the Compensation Committee. If as a result of such restatement the restated Bonus will be greater than the original Bonus that was paid to the Executive Officer, than the Company
shall promptly pay to the Executive Officer all amounts due and payable pursuant to such restatement.

The Bonus shall not be deemed as part of the salary for all purposes including social benefit and severance payments.

In the event of termination of employment during the calendar year, and provided that the Senior Executive was employed by the Company for a period of at least (i) 6 months for the first year of
employment or (ii) 3 months during any year thereafter, the amount of the Bonus shall be calculated and adjusted for the entire year in accordance with the provisions of this Policy, and thereafter shall be
prorated in accordance with the actual days of employment of the Senior Executive by the Company during the applicable year (calculated based on 365 days in a year) and paid to the Senior Executive in
full at the same time that the Company makes salary payments to the majority of its employees immediately following the approval by the Board of the FS of such applicable year. However, upon the
recommendation of the Compensation Committee, the Board may resolve to shorten the measurement period and in such event the calculation of the Bonus shall be prorated accordingly.

Non- recurrent events shall not be taken into account for the purposes of calculation of the financial criteria,

The ranges of the Bonus for the Senior Executives shall be as follows:

CEO: The CEO shall be entitled to Bonus that will be determined by the Compensation Committee and approved by the Board of Directors, provided that the ratio between the financial criteria
shall account for at least 70% of the Bonus. The Compensation Committee shall allocate appropriate weight (%) to each financial component, and if applicable, to each personal component. The Bonus
will be paid (in full or in part) only if the Company's, or the CEO, (as applicable) meets at least 80% of the target for the applicable component as set forth in the Company's budget approved by the Board
for each year. The maximum annual Bonus payable to the CEO shall not exceed 8 base salaries.

Notwithstanding the above a discretionary bonus of up to three (3) months' base salary, per year, may be awarded to the CEO, solely at the discretion of the Board, taking into account the CEO

contribution.

Other Executive Officers: The Bonus that will be paid to other Executive Officers (that are not the Chairman or director or the CEO) shall be determined by the CEO and approved by the

Compensation Committee. The maximum Bonus payable to such Executive Officers shall not exceed 6 base salaries.

Additional Executive Benefits

Each Senior Executive shall be entitled to receive from the Company an executive level car for work and personal use. The use of the car shall be subject to Company's polices, including with
respect to payment of the excess amount in the event of accidents and payment of traffic and parking fines. The Company shall reimburse the business expenses (that are properly documented and
approved in accordance with the Company's internal policies) of its Senior Executives. The Company will make available to the Senior Executive, at the Company’s cost, a cellular phone and a laptop
computer. Any and all taxes and expenses which may be incurred in relation to such benefits may be borne by the Company.

Each Executive Officer is entitled to receive paid vacation days for each 12 months of employment at least in accordance with the provisions of applicable law and not exceeding 26 working days.
Any unused vacation days will be accrued for the benefit of the Senior Executive for a period of up to 24 months. The Company may allow the Senior Executive to redeem such accrued vacation days.
However, any accrued vacation days not used or otherwise redeemed at the end of each 24 months period shall be forfeited.

The Company and the Senior Executive shall maintain a managers insurance program and/or pension programs with pension funds, all as shall be elected by the Senior Executive, and the
Company shall pay to such programs on its behalf and shall deduct and transfer to such programs from the gross base salary payable to such Senior Executive, the amounts allowed by law with respect to
allowances for severance payment, other social benefits (TAGMULIM) as well as Disability Insurance (OVDAN KOSHER AVODA).

The Company and the Executive may open (at the Senior Executive's elected approved fund management company) and maintain an Education Fund ("Keren Hishtalmut") (the “Fund”). The

Company and the Senior Executive shall transfer the applicable percentages of the base salary to such Fund.

At the request of the Senior Executive, the Company will pay the Senior Executive, amounts due and payable to the Fund, to any insurance company and or pension fund, or other social benefits
payable to any other institution or to the employee as part of his base salary, that are in excess of the maximum allowance for tax exemption purposes, as shall be determined from time to time (the
"Excess Payment"). Any and all tax liabilities that are due on account of the Company’s payment to the Senior Executive of the Excess Payment shall be borne solely by the Senior Executive.

It is hereby clarified that the benefits described above shall not constitute part of the compensation for all intents and purposes including with respect to payments of severance payments,

allocation to managers' insurance, education fund, redemption of vacation days, etc.

Long-Term Equity Based Incentive Compensation

The long-term equity-based incentive compensation shall be at the levels which will range from 0%-50% of the Senior Executive’s annual costs of the base salary (including social benefits).

The amounts of options that are granted shall be calculated in accordance with the ratio between the economic value (binomial/B&S) of such options and the total compensation of the applicable
Senior Executive in accordance with the ranges stated herein. The options shall vest during such period and in such installment as shall be determined by the Board but, in any event not less than over three
years period. The Option shall not vest during (i) an early notice period of termination of employment and (ii) use of vacation days in connection with termination of employment. The exercise price
thereof shall be determined by the Board but in any event shall not be lower than the average closing price of the Company's shares on NASDAQ for the last 30 trading days immediacy prior to the
allotment date.

Subject to the approval of the Israeli Tax authorities, the exercise price of the options may be proportionally reduced and adjusted in the event of payment of cash dividend and the exercise of the

options may be made by cashless mechanism.

Compensation of Directors

Directors that are employees of the Company or otherwise engaged by the Company will not be entitled to any directors' fees or other remuneration for their services as Directors, except for reimbursement
of certain business expenses associated with service as directors such as payment of travel and lodging expenses when attending meetings of the Board of Directors outside their country of usual residence.

In the event that the Chairman of the Board or any other director shall be engaged in executive position in the Company. Such Chairman or director shall be entitled to compensation in accordance with the
provisions of this Compensation Policy that shall be approved in accordance with the provisions of applicable law.

Other directors will be entitled to receive Directors' fees and expenses that will not exceed the maximum amount payable to Outside Directors of the Company pursuant to the Companies Law and the
regulations promulgated pursuant thereto.

D&O Insurance; Indemnification; Exculpation

All Directors and officers will be covered by D&O liability insurance ("D&O Insurance") in such scope and such terms as shall be determined from time to time pursuant to the requirements of the
Companies Law. The D&O Insurance may include "run-off" provisions, covering the Directors' and Senior Executives' liability for a period of seven (7) years after the termination of their services as
director.

Without derogating from the above, the Company may purchase D&O Insurance with respect to all of its directors and Senior Officers, as shall be in office from time to time, including directors and Senior
Officers that are, or may be affiliated with, the controlling shareholder of the Company, provided that the total aggregate claims will not exceed $15,000,000 (limit of liability) and provided further that the
premium shall not exceed US$500,000.

In addition, and subject to the requirements of the Companies Law, the Company may (I) exculpate its Directors and Officers from their liability to the Company for breach of their duty of care and (ii)
indemnify its Directors and Officers for their liability in certain cases, including for legal expenses incurred by them in connection with the defense against such liability. Such indemnification shall not
cover any amounts payable under the D&O Insurance and the aggregate amounts payable to all Directors and Senior Executives with respect to any indemnification event shall be limited to such
reasonable amounts as shall be determined by the Committee and the Board.

Retirement Bonus- Adjustment Payment

Except as detailed below, the Company shall not make any retirement payments. However, Senior Executives may be entitled to receive, upon the termination of his/her employment with the Company
(and unless the termination is in circumstances that negate the payment of severance payment pursuant to the applicable law) adjustment payment that will be based on the employment term of each such
Senior Executive with the Company.

The ranges of the adjustment payments of the Senior Executives are:

CEO: up to a maximum of six (6) monthly base salaries in the aggregate.

Other Executive Officers: up to a maximum of four (4) monthly base salaries in the aggregate.

Exhibit I (to the Compensation Policy)
Personal Qualitative Goals

Implementation or completion of specified projects or processes;
Customer satisfaction;
Productivity;
The formation of joint ventures;
Research or development collaborations, or the Completion of other transactions;
Market share;
Completion of acquisitions of assets;
Acquisitions of businesses or companies;
Completion of divestitures and asset sale;
Greater geographic and product diversification;
Enhancing the Company’s succession planning and performance-driven culture by adding new talent in key roles;
Defending pending litigation matters and protecting the Company’s intellectual property;
Launching research and development initiatives;
Effectively representing the Company in various Legislative and regulatory matters;
Expansion of customer and strategic partner base;
Production performance including system-improvements, deployments, quality and safety;
Creation and advancement of technology;
Development and management of the employee base;
Maintenance of worldwide regulatory compliance;
Improving technical achievements;
Adherence to ethical standards;
New orders;
New customers;
Significant cost savings.

LIST OF SIGNIFICANT SUBSIDIARIES

Exhibit 8.1

RADA Sensors Inc., a wholly-owned subsidiary incorporated in Delaware.

RADA Technologies LLC, an indirectly wholly-owned subsidiary in Maryland.

RADA Innovations LLC, an indirectly wholly-owned subsidiary in Maryland.

CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

Exhibit 12.1

I, Avi Israel, certify that:

1. I have reviewed this annual report on Form 20-F of RADA Electronic Industries Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under

which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash

flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and

internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the

company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,

as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is

reasonably likely to materially affect, the company’s internal control over financial reporting.

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the

company’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability

to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Dated: March 1, 2021

/s/Avi Israel *
Avi Israel
Chief Financial Officer
(Principal Financial Officer)

The originally executed copy of this Certification will be maintained at the Company’s offices and will be made available for inspection upon request.

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

Exhibit 12.2

I, Dov Sella, certify that: