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 10
HaRimon Street, Mevo Science and Industrial Park, Israel, 2069203, 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.
14
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 June 30, 2022 and 2021
Revenues. We did not generate any revenues during the three months ended June
30, 2022 and June 30, 2021.
Research and Development. Our research and development expenses for the three
months ended June 30, 2022, amounted to $3,000, compared to $0 for the three
months ended June 30, 2021. Our research and development expenses, for the three
months ended June 30, 2022, consisted primarily of professional services.
General and Administrative. Our general and administrative expenses for the
three months ended June 30, 2022, which consisted primarily of professional
services, stock-based compensation expenses and legal expenses, amounted to
$327,000, compared to $271,000 for the three months ended June 30, 2021. The
increase in general and administrative expenses for the three months ended June
30, 2022 was mainly due to an increase in stock-based compensation of $51,000.
Financial Income (expense). For the three months ended June 30, 2022, we had
financial income of $43,000 compared to financial expense of $147,000 for the
three months ended June 30, 2021. The reason for the decrease in financial
expense for the three months ended June 30, 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 Loss. We incurred a net loss of $287,000 for the three months ended June 30,
2022 as compared to $418,000 for the three months ended June 30, 2021, for the
reasons set forth above.
Comparison of the six months ended June 30, 2022 and 2021
Revenues. We did not generate any revenues during the six months ended June 30,
2022 . We had revenues of $500,000 for the six months ended June 30, 2021, which
were derived from the Collaboration Agreement.
Research and Development. Our research and development expenses for the six
months ended June 30, 2022, amounted to $9,000, compare to none for the six
months ended June 30, 2021. Our research and development expenses, for the six
months ended June 30, 2022, consisted primarily of professional services.
General and Administrative. Our general and administrative expenses for the six
months ended June 30, 2022, which consisted primarily of professional services,
stock-based compensation expenses and legal expenses, amounted to $658,000,
compared to $433,000 for the six months ended June 30, 2021. The increase in
general and administrative expenses for the six months ended June 30, 2022 was
mainly due to an increase in stock-based compensation and professional services.
Other Income. For the six months ended June 30, 2021 we had other income of $132
resulting from waiver of consulting fees accrued by March 31, 2021.
Financial Income (expense). For the six months ended June 30, 2022, we had
financial income of $11,000 compared to financial expense of $366,000 for the
six months ended June 30, 2021. The reason for the decrease in financial expense
for the six months ended June 30, 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 Loss. We incurred a net loss of $656,000 for the six months ended June 30,
2022 as compared to a net loss of $167,000 for the six months ended June 30,
2021, for the reasons set forth above.
15
Liquidity and Capital Resources
We had $3,154,000 in cash on June 30, 2022 versus $3,946,000 in cash at June 30,
2021. The reason for the decrease in our cash balance was due to the operating
expenses describe above. Cash used in operations for the six months ended June
30, 2022 was $376,000 as compared to cash provided by operations of $152,000 for
the six months ended June 30, 2021. The reason for the increase in cash used in
operations is mainly related to the increase in the net loss and the decrease in
expenses with respect to convertible loans and debentures, partially offset by
an increase in stock-based compensation.
Net cash used in investing activities was $30,000 for the six months ended June
30, 2022, as compared to net cash used in financing activities of $0 for the six
months ended June 30, 2021. The increase is related to investments in office
improvements and lease deposit.
Net cash used in financing activities was $0 for the six months ended June 30,
2022, as compared to net cash used in financing activities of $3,689,000 for the
six months ended June 30, 2021. The decrease is a result of proceeds from a
private placement transaction we completed in May 2021 and the full repayment of
a convertible loans 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.
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. 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. 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.
16
On May 11, 2021, we entered into 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. The fair value of the expected additional cash
payments as of June 30, 2022 was estimated at $27.
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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