DUKE Robotics Corp.: Form 10-Q for the period ended Jun 30, 2024

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, 2023. 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, 2023 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 developing an advanced robotics system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. Our advanced robotics system can achieve pinpoint accuracy regardless of the movement of the weapons platform or the target. We also introduced an insulator cleaning drone, which is a drone technology for conducting routine maintenance of critical infrastructure for cleaning electric utility cable insulators.

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, intending to provide 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”), under 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”), under 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”). Under the Merger Agreement, we intended to acquire the remaining outstanding shares of Duke held by those certain Duke shareholders who 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.

On January 29, 2021, we, through Duke Airborne Systems Ltd. (“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 a UAS, armed with lightweight firearms, which we market under the commercial name “TIKAD.”

On August 15, 2022, Duke Israel introduced the Insulator Cleaning (“IC”) Drone, a drone technology for conducting routine maintenance of critical infrastructure, and has signed an agreement with Israel Electric Corporation (the “IEC”) to provide drone-enabled systems for cleaning electric utility cable insulators. During October 2023, we completed our obligations under the agreement with the IEC.

Duke has a wholly-owned subsidiary, 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 Carmel Science and Industrial Park, Israel 2069203, and our telephone number is 011-972-4-8124101. Our website address is https://dukeroboticsys.com/.

Effective as of October 22, 2020, the Company’s common stock began to be quoted on the OTCQB tier Venture Market, under the symbol “USDR”.

Critical Accounting Policies

In connection with the preparation of our financial statements, we were required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Regularly, management reviews the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and by accounting principles generally accepted in the United States of America. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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, 2023 (filed on March 15, 2024) concerning our Critical Accounting Policies and Estimates.

Results of Operations

Comparison of the three months ended June 30, 2024 and 2023

Revenues. During the three months ended June 30, 2024 and 2023, we had no revenues.

Research and Development. Our research and development expenses for the three months ended June 30, 2024, amounted to $78,000, compared to $0 for the three months ended June 30, 2023. The increase in research and development expenses was mainly due to our continuing with research and development activities in 2024 following the completion of the agreement with the IEC towards the end of 2023.

General and Administrative. Our general and administrative expenses for the three months ended June 30, 2024, which consisted primarily of professional services, stock-based compensation expenses and legal expenses, amounted to $215,000, compared to $206,000 for the three months ended June 30, 2023. The increase in general and administrative expenses for the three months ended June 30, 2024 was mainly due to an increase in professional services and in rent and office expenses partially offset by a decrease in share-based compensation expenses.

Financial Income, net. For the three months ended June 30, 2024, we had financial income of $15,000 compared to financial income of $23,000 for the three months ended June 30, 2023.

Net Loss. We incurred a net loss of $278,000 for the three months ended June 30, 2024 as compared to a net loss of $183,000 for the three months ended June 30, 2023, for the reasons set forth above.

Comparison of the six months ended June 30, 2024 and 2023

Revenues. We did not generate any revenues during the six months ended June 30, 2024 and 2023.

Research and Development. Our research and development expenses for the six months ended June 30, 2024, amounted to $117,000, compared to $0 for the six months ended June 30, 2023. The increase in research and development expenses was mainly due to our continuing with research and development activities in 2024 following the completion of the agreement with IEC towards the end of 2023.

General and Administrative. Our general and administrative expenses for the six months ended June 30, 2024, which consisted primarily of professional services, stock-based compensation expenses and legal expenses, amounted to $406,000, compared to $408,000 for the six months ended June 30, 2023. The decrease in general and administrative expenses for the six months ended June 30, 2024 was mainly due to decrease in share-based compensation expenses partially offset by an increase in professional services and in rent and office expenses.

Financial Income, net. For the six months ended June 30, 2024, we had financial income of $36,000 compared to financial income of $46,000 for the six months ended June 30, 2023.

Net Loss. We incurred a net loss of $487,000 for the six months ended June 30, 2024 as compared to a net loss of $362,000 for the six months ended June 30, 2023, for the reasons set forth above.

Liquidity and Capital Resources

We had $1,766,000 in cash on June 30, 2024 versus $2,419,000 in cash on June 30, 2023. The reason for the decrease in our cash balance was due to our development efforts and operating expenses describe above. Cash used in operations for the six months ended June 30, 2024 was $514,000 as compared to cash used in operations of $410,000 for the six months ended June 30, 2023. The reason for the increase in cash used in operations is mainly related to our net loss, an increase in other current assets and a decrease in other liabilities.

Net cash used in investing activities was $0 for the six months ended June 30, 2024, as compared to net cash used in investing activities of $16,000 for the six months ended June 30, 2023.

On May 11, 2021, we entered into securities purchase agreements with eight (8) non-U.S. investors, (the “Holders”), according to which we, in a private placement offering, agreed to issue and sell to the Holders an aggregate of: (i) 12,500,000 shares of our common stock at $0.40 per share; and (ii) warrants to purchase 12,500,000 of our common stock. The warrants were exercisable immediately and for a term of 18 months and had 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 Holders pursuant to which we extended the term of the warrants, to expire on November 11, 2023. On November 1, 2023, we and the Holders executed a second extension agreement, such that the term of the warrants was extended so that they now expire on November 11, 2024. On June 20, 2024, we entered into a warrant amendment agreement with the Holders in which the its was agreed to (i) extend the warrant exercise term to May 11, 2026; (ii) amend the warrant exercise price and increase it from $0.40 per share to $0.65 per share; and (iii) include a beneficial ownership blocker that limits the exercise of such warrants if such exercise would result in the holder beneficially owning in excess of 19.99% of the number of our common stock immediately after giving effect to the issuance of shares of common stock issuable upon exercise of the warrant.

We believe that we have sufficient cash to fund our operations for at least the next 12 months. Readers are advised that available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding sooner than expected. Should this occur, we will need to seek additional capital earlier than anticipated in order to fund (1) further development and, if needed (2) expenses which will be required in order to expand manufacturing of our products, (3) sales and marketing efforts and (4) general working capital. Such funding may be unavailable to us on acceptable terms, or at all. Our failure to obtain such funding when needed could create a negative impact on our stock price or could potentially lead to the failure of our company. This would particularly be the case if we are unable to commercially distribute our products and services in the jurisdictions and in the timeframes we expect.

Off-Balance Sheet Arrangements

As of June 30, 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

We are a smaller reporting company and therefore are not required to provide the information for this item of Form 10-Q.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (“the Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

Based on their evaluation, the Certifying Officers concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective, at the above-described reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.