Readers are advised to review the following discussion and analysis of our
financial condition and results of operations together with our consolidated
financial statements and related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and the consolidated financial statements and
related notes thereto in our Annual Report on Form 10-K for the year ended
December 31, 2021. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Quarterly Report, including information
with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties. See "Cautionary
Note Regarding Forward-Looking Statements". You should review the "Risk Factors"
section of our Annual Report for the fiscal year ended December 31, 2021 for a
discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
We are a robotics company dedicated to the development of an advanced robotics
system that enables remote, real-time, pinpoint accurate firing of small arms
and light weapons. Our advanced robotics system is able to achieve pinpoint
accuracy regardless of the movement of the weapons platform or the target.
We were founded in 2014 as Unlimited Aerial Systems, LLP ("UAS LLP"), and until
the consummation of the Share Exchange Agreement (as hereinafter defined), we
were a developer and manufacturer of commercial unmanned aerial systems, or
drones, with the goal of providing a superior Quadrotor aerial platform at an
affordable price point in the law enforcement and first responder markets.
On March 9, 2020, we closed on the Share Exchange Agreement (the "Share Exchange
Agreement"), pursuant to which Duke Robotics, Inc., a Delaware corporation
("Duke") became our majority-owned subsidiary (the "Share Exchange"). Such
closing date is referred to as the "Effective Time." As a result of the Share
Exchange, the Company adopted the business plan of Duke.
On April 29, 2020, we, Duke, and UAS Acquisition Corp., a Delaware corporation
and our wholly-owned subsidiary ("UAS Sub"), executed an Agreement and Plan of
Merger (the "Merger Agreement"), pursuant to which UAS Sub was to merge, upon
the satisfaction of customary closing conditions, with and into Duke, with Duke
surviving as our wholly-owned subsidiary (the "Short-Form Merger"). Pursuant to
the Merger Agreement, we intended to acquire the remaining outstanding shares of
Duke held by those certain Duke shareholders that did not participate in the
Share Exchange. On June 25, 2020, Duke filed a Certificate of Merger with the
State of Delaware, and consequently, Duke became our wholly-owned subsidiary and
the Short-Form Merger was consummated.
Duke has a wholly-owned subsidiary, Duke Airborne Systems Ltd. ("Duke Israel"),
which was formed under the laws of the State of Israel in March 2014 and became
the sole subsidiary of Duke after its incorporation. Our mailing address is 1
Etgar Street (1st Floor), Tirat-Carmel, Israel 3903212, and our telephone number
is 011-972-4-8124101.
Readers are cautioned that to date, we have generated limited revenues and have
not yet begun meaningful commercialization efforts with respect to our products.
We intend in the long-term to derive substantial revenues from the sales of our
products as well as future models of other robots and our unmanned aerial system
("UAS") platforms for both military and civilian use, but there can be no
assurance that we will be able to do so.
On January 29, 2021, we, through Duke Israel, and Elbit Systems Land Ltd., an
Israeli corporation ("Elbit"), entered into a collaboration agreement (the
"Collaboration Agreement") for the global marketing and sales, and the
production and further development of our developed advanced robotic system
mounted on an UAS, armed with lightweight firearms, which we market under the
commercial name "TIKAD."
As of the date of this quarterly report, to date, we have not experienced any
material impact on our financial condition and results of operations due to
COVID-19, and we do not expect to experience any material impact on our overall
liquidity positions and outlook as a result of the outbreak. Nevertheless, given
that COVID-19 is still an ongoing event in different parts of the world, it is
still not possible at this time to estimate the full impact that the COVID-19
pandemic, the continued spread of COVID-19, and any additional measures taken by
governments, health officials or by us in response to such spread, could have on
our business results of operations and financial condition.
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Critical Accounting Policies
Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for
the summary of significant accounting policies. In addition, reference is made
to Part I, Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation of our Annual Report on Form 10-K for the year ended
December 31, 2021 (filed on March 7, 2022) with respect to our Critical
Accounting Policies and Estimates. The main changes to our critical accounting
policies and estimates since our Annual Report on Form 10-K for the year ended
December 31, 2021, relates to convertible loans Derivative Liabilities and Fair
Value of Financial Instruments.
Results of Operations
Comparison of the three months ended March 31, 2022 and 2021
Revenues. During the three months ended March 31, 2022, we had no revenues. We
had revenues of $500,000 for the three months ended March 31, 2021.
Research and Development. Our research and development expenses for the three
months ended March 31, 2022, amounted to $5,700, compare to $0 for the three
months ended March 31, 2021. Our research and development expenses, for the
three months ended March 31, 2022, consisted primarily of professional services.
General and Administrative. Our general and administrative expenses for the
three months ended March 31, 2022, which consisted primarily of professional
services, stock-based compensation expenses and legal expenses, amounted to
$331,000, compared to $161,000 for the three months ended March 31, 2021. The
increase in general and administrative expenses for the three months ended March
31, 2022 was mainly due to an increase in stock-based compensation of $131,000.
Our ongoing research and development activity is currently pending our
evaluation of additional different applications for use for our technology and
know-how, including potential usage in the civilian market, while the research
and development activities of the TIKAD product is carried out by Elbit pursuant
to the Collaboration Agreement.
Financial Expense. For the three months ended March 31, 2022, we had financial
expense of $32,000 compared to financial expense of $220,000 for the three
months ended March 31, 2021. The reason for the decrease in financial expense
for the three months ended March 31, 2022, was mainly due to the decrease in
interest expense related to our previously outstanding convertible loans which
have been repaid or converted in full.
Net Profit (Loss). We incurred a net loss of $369,000 for the three months ended
March 31, 2022 as compared to a net profit of $251,000 for the three months
ended March 31, 2021, for the reasons set forth above.
Liquidity and Capital Resources
We had $3,415,000 in cash on March 31, 2022 versus $452,000 in cash at March 31,
2021. The reason for the increase in our cash balance was due to the gross
proceeds of approximately $5,000,000 from a private placement transaction we
completed in May 2021. Cash used in operations for the three months ended March
31, 2022 was $133,000 as compared to cash provided by operations of $353,000 for
the three months ended March 31, 2021. The reason for the increase in cash used
in operations is mainly related to the increase in the net loss partially offset
by an increase in stock-based compensation.
Net cash used in investing activities was $12 for the three months ended March
31, 2022, as compared to net cash used in financing activities of $0 for the
three months ended March 31, 2021. The increase is mainly related to investments
in office improvements.
Net cash used in financing activities was $0 for the three months ended March
31, 2022, as compared to net cash used in financing activities of $6,000 for the
three months ended March 31, 2021. The decrease is a result of the fully
repayment of a bank loan in 2021.
On September 2, 2019, we executed a promissory note having a total principal
amount of $35,000 bearing interest at a 6% per annum and maturing on September
2, 2021 (the "Promissory Note"). The Promissory Note was a non-recourse and
carried no personal guarantees. In conjunction with the consummation of the
Share Exchange, and as a condition thereof, on March 6, 2020, we entered into
several Securities Exchange Agreements, on the same terms, to exchange the
Promissory Note for 9,623,621 shares of our common stock, par value $0.0001 per
share (the "Common Stock"). On May 18, 2021, we issued 54,019 shares of Common
Stock of the Company, to several holders pursuant to the terms of the Security
Exchange Agreements pursuant to which, such holders were entitled to an
anti-dilution clause in the event that the Convertible Debentures were converted
into shares of our Common Stock.
16
In connection with the Share Exchange, immediately prior to the Effective Time,
we entered into several convertible loan agreements, on the same terms, in the
aggregate amount of $965,000 (each, a "Convertible Loan Agreement"). The terms
of the Convertible Loan Agreements required repayment of the borrowed amount by
the one-year anniversary of the Effective Time, unless, at our discretion, and
subject to its compliance with any and all terms of the material terms of the
Convertible Loan Agreements, the term of such loans is extended for an
additional twelve (12) month period. The terms of the Convertible Loan
Agreements also provide that we may repay any portion of the remaining
outstanding loan amount, without penalty, provided, however, that the Company
provides the specific lender with three business days' written notice prior to
such repayment, during which time the lender may elect to convert any or all of
the outstanding loan amount into shares of common stock of the Company. The
Convertible Loan Agreements bore simple interest at a rate equal to 15% per
annum, payable on the 15th day of each calendar month. On December 9, 2020, we
utilized our rights under the Convertible Loan Agreements and extended the terms
of the loans for an additional twelve months. As of March 31, 2021, the
Convertible Loan Agreements had an aggregate outstanding principal balance of
$835,000. During May 2021, we repaid the full balance of the principal of the
Convertible Loans in the amount of $835,000.
Also, in connection with the Share Exchange, we entered into securities exchange
agreements (each, an "Exchange Agreement") with our outstanding debt, Alpha
Capital Anstalt ("Alpha") and GreenBlock Capital LLC ("GBC") to respectively
cancel existing debentures or debt in the total amount of $658,323 and in
exchange issue new debentures in the aggregate amount of $400,000 and issue
698,755 and 65,198 shares of common stock to each of Alpha and GBC,
respectively. The New Debentures matured three years from the Effective Date,
bore interest at a rate of 8% per year and were only convertible into shares of
the Company's common stock, at an original conversion price of $0.3740 (the
"Original Conversion Price"); provided, however, that such Original Conversion
Price shall be adjusted downward in the event that the Company, as applicable,
sells or grants any options to purchase or sells or grants any right to reprice,
or otherwise dispose or issues any common stock or common stock equivalents
entitling any purchaser to acquire shares of the Company's common stock at an
effective price per share that is lower than the Original Conversion Price (such
issuance, a "Dilutive Event"). In the event of a Dilutive Event at any time from
the Effective Time through the six (6) month anniversary of the Effective Time,
any such adjustment shall occur immediately after the completion of such
period. As of March 31, 2021, the Convertible Debentures had an aggregate
outstanding principal balance of $200,000. Subsequent to March 31, 2021, a
portion of the Convertible Debentures, representing an aggregate amount of
$110,614 (including interest) was converted into 295,759 shares of Common Stock.
During May 2021, we prepaid the full balance of the principal and interest
amount of the Convertible Debentures in the amount of $108,541.
On May 11, 2021, we entered into Securities Purchase Agreements (the "Securities
Purchase Agreements") with eight (8) non-U.S. investors (the "Investors"),
pursuant to which we, in a private placement offering (the "Offering"), agreed
to issue and sell to the Investors an aggregate of: (i) 12,500,000 shares of our
Common Stock at a price of $0.40 per share; and (ii) warrants (the "Warrants")
to purchase 12,500,000 of our Common Stock. The Warrants are exercisable
immediately and for a term of 18 months and have an exercise price of $0.40 per
share. The aggregate gross proceeds from the Offering were approximately
$5,000,000 and the Offering closed on May 11, 2021. On April 5, 2022, we entered
into an agreement with the Investors pursuant to which we extended the term of
the Warrants, which now expire on November 11, 2023.
In view of our cash balance following the above transactions, we anticipate that
our cash balances will be sufficient to permit us to conduct our operations up
to the end of 2023. We may also satisfy its liquidity through the sale of its
securities, either in public or private transactions.
If we are unable to obtain sufficient amounts of additional capital, we may be
required to reduce the scope of our planned development, which could harm our
business, financial condition and operating results. If we obtain additional
funds by selling any of our equity securities or by issuing common stock to pay
current or future obligations, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution, or the equity
securities may have rights preferences or privileges senior to the Common Stock.
If adequate funds are not available to us when needed on satisfactory terms, we
may be required to cease operating or otherwise modify our business strategy.
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Off-Balance Sheet Arrangements
As of March 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4) of Regulation S-K.
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