DUKE Robotics Corp. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is quoted on the OTCQB under the symbol “USDR.” As of March 30, 2021, there were 143 holders of record of our common stock. This figure includes an indeterminate number of stockholders who hold their shares in “street name.” We have not declared any cash dividends on our common stock, and do not intend to declare dividends in the foreseeable future. Management intends to use all available funds for the development of our plan of operation. Item 6. Selected Financial Data Not applicable to smaller reporting companies. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our audited annual consolidated financial statements as of December 31, 2020 and December 31, 2019 and accompanying notes appearing elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report. All amounts are in U.S. dollars and rounded. Company Overview On March 9, 2020, Duke and certain shareholders of Duke entered into the Share Exchange with the Company, pursuant to which approximately 99% of the issued and outstanding shares of common stock of Duke were purchased by the Company in exchange for shares of the Company’s common stock, resulting in Duke becoming a subsidiary of the Company. Following the Share Exchange, the Company has adopted the business plan of Duke. On April 29, 2020, the Company, Duke, and UAS Sub, entered into the Merger Agreement, pursuant to which UAS Sub was to merge, upon the satisfaction of customary closing conditions, with and into Duke. Upon closing of the Short-Form Merger, each outstanding share of UAS Sub’s common stock, par value $0.0001 per share, was to be converted into and become one share of common stock of Duke, with Duke surviving as a wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the Company intended to acquire the remaining outstanding shares of Duke held by certain stockholders of Duke that did not participate in the Share Exchange Agreement. At the closing of the transaction contemplated by the Merger Agreement, the Company was to issue 63,856 shares to certain Duke stockholders, and Duke will become a wholly owned subsidiary of the Company. On June 25, 2020, Duke filed a Certificate of Merger with the State of Delaware, and consequently, Duke became a wholly-owned subsidiary of the Company and the Short-Form Merger was consummated. As the result of the Share Exchange and the change in business and operations of the Company, a discussion of the past financial results of the Company is not pertinent, and under applicable accounting principles the historical financial results of Duke, the accounting acquirer, prior to the Share Exchange are considered the historical financial results of the Company. Operating Results The selected historical financial information presented below is derived from the Company’s audited consolidated financial statements for the year ended December 31, 2020 and Duke’s audited consolidated financial statements for the year ended December 31, 2019. The data set forth below should be read in conjunction with the financial statements and accompanying notes elsewhere in this prospectus. 21 Comparison of the year ended December 31, 2020 to the year ended December 31, 2019 Revenues . We had no revenues for the year ended December 31, 2020. During the year ended December 31, 2019, we derived revenues from demonstrations of our technology to a potential customer of $112,000. Cost of Revenues. During the year ended December 31, 2020, we had no cost of revenues expenses, compared to $105,000 for the year ended December 31, 2019, which consisted primarily of direct costs relating to the demonstration projects including components and equipment purchased from suppliers, sub-contractors and labor costs. The decrease in our cost of revenues expenses for the year ended December 31, 2020, compared to the year ended December 31, 2019, is mainly as a result of the Company’s efforts towards the consummation of the Share Exchange, the filing of a Registration Statement on Form S-1 and the consummation of the Short-Form Merger pursuant to which Duke became our wholly-owned subsidiary, resulting in a temporary freeze of our operations. Research and Development . During the year ended December 31, 2020, we had no research and development expenses, compare to $75,000 in research and development expenses for the year ended December 31, 2019. Our research and development expenses, for the year ended December 31, 2019, consisted primarily of salaries and related expenses and professional services. The decrease in our research and development expenses for the year ended December 31, 2020, compared to the year ended December 31, 2019, is mainly as a result of the Company’s efforts towards the consummation of the Share Exchange, the filing of a Registration Statement on Form S-1 and the consummation of the Short-Form Merger pursuant to which Duke became our wholly-owned subsidiary, resulting in a temporary freeze of our research and development operations. General and Administrative Expenses . For the year ended December 31, 2020, our general and administrative expenses amounted to $1,305,000, of which $645,000 were related to stock-based compensation expenses, and were $961,000 for the year ended December 31, 2019, of which $540,000 related to stock-based compensation expenses. This increase in general and administrative expenses for the year ended December 31, 2020 was mainly due to an increase in stock-based compensation of $105,000 and of legal and other professional expenses of $309,000, and offset by a decrease in rent and office maintenance of $82,000. Financial Expenses . For the year ended December 31, 2020 and 2019, our financial expense amounted to $63,000 and $82,000, respectively. Net Loss . For the year ended December 31, 2020 and 2019, we recorded a net loss of $1,368,000 and $1,111,000, respectively, which represented an increase compared to the year ended December 31, 2019, of $257,000. Critical Accounting Policies This MD&A of Financial Condition and Results of Operations discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 the 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. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. 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. As applicable to the consolidated financial statements included elsewhere in this prospectus, the most significant estimates and assumptions relate to the going concern assumptions, convertible loans Derivative Liabilities and Fair Value of Financial Instruments and Instruments with Down Round Features. Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” of the notes to consolidated financial statement, which are incorporated by reference into this prospectus. Our management believes that, as for the financial statements for the periods included in this prospectus, the “going concern” assessment and accounting for Derivative Liabilities and Fair Value of Financial Instruments are critical accounting policies. However, due to the early stage of operations of our Company, there are no other accounting policies that are considered to be critical accounting policies by management. 22 Going Concern Uncertainty The development and commercialization of our product will require substantial expenditures. We have not yet generated any material revenues and have incurred substantial accumulated deficit and negative operating cash flows. We currently have no sources of recurring revenue and are therefore dependent upon external sources for financing its operations. There can be no assurance that we will succeed in obtaining the necessary financing to continue our operations. As a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Liquidity and Capital Resources Since inception, we have devoted substantially all our efforts to research and development and is still in the development stage. We have incurred accumulated losses since inception of $5,131,000 and the extent of its future operating losses and the timing of becoming profitable are uncertain. These conditions raise substantial doubt about our ability to continue to operate as a going concern. Our ability to continue operating as a “going concern” is dependent on several factors, among them is the ability to raise sufficient additional funding. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. During the year ended December 31, 2020, our loss of $1,368,000 included non-cash stock-based compensation of $645,000. As of December 31, 2020, we had a negative working capital of $1,176,000, as compared to a negative working capital of $1,491,000 as of December 31, 2019. As of December 31, 2020, we had a cash balance of $105,000 compared to the cash balance of $23,000 as of December 31, 2020. We have no cash equivalents. Since our inception we and Duke have funded our operations through bank loans, loans provided by its shareholders and demonstration projects of its technology to potential customers. On August 5, 2015, Duke obtained a loan from an Israeli bank pursuant to which NIS 250,000 ($65,000) was provided at a variable annual rate of 3.6%. The loan was repaid in August 2020. On February 29, 2016, Duke signed a loan agreement with an Israeli bank pursuant to which NIS 500,000 ($128,000) was provided at a variable annual rate of 4.25%. The loan was repaid in full in February 2021. As of December 31, 2020, the outstanding balance of the bank loans stood at $6,000 and as of December 31, 2019 at $37,000. Since Duke’s inception until 2017, certain Duke stockholders provided loans (“Stockholders’ Loans”) on an as needed basis. Loans in the amount of $685,000 bear an annual fixed interest of 3% and loans in the amount of $313,000 bear an annual interest rate as defined in Section 3(j) of the Israeli tax ordinance, which is currently at 2.62%. Before entering into the Share Exchange, Duke entered into debt cancellation letters (the “Debt Cancellation Letters”) with regard to the Stockholders Loans. Pursuant to the Debt Cancellation Letters the accumulated interest on the Stockholders’ Loans was waived and 842,135 shares of Duke’s common stock were issued in exchange for the cancellation of $623,180 in debt, leaving $280,000 of outstanding Stockholders Loans (the “Outstanding Stockholders’ Loans”). The Outstanding Stockholders’ Loans, including the accumulated interest amount, shall be repaid on the earlier of the following: (i) three years after the Effective Date; or (ii) Duke raised capital amounting to at least $15 million following the Effective Date and the Earnings before interest, tax, depreciation and amortization of Duke has reached an amount of $3 million. As of December 31, 2020, and December 31, 2019, the outstanding balances of such stockholders’ loans were $288,000 and $1,006,000, respectively. 23 In connection with the Share Exchange, immediately prior to the Effective Time, we entered into the Convertible Loan Agreements. The terms of the Convertible Loan Agreements require repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at our discretion, and subject to our 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 we provide 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 our common stock. The Convertible Loan Agreements bear 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. The lenders will have the option to convert the unpaid balance of their respective Convertible Loans into shares of our common stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by our during the six (6) months following the Effective Time. “Effective price” per share means (i) if only shares of our common stock are sold in a transaction, the amount actually received in cash by our and (ii) if shares of our common stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by us, for the shares of our common stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by us in good faith), in each case divided by the number of shares of our common stock issued in such transaction; (B) 80% of the lowest effective price per share set in connection with any funds raise by USDR at any time subsequent to six (6) months following the Effective Time until such time as the loans outstanding under all of the Convertible Loan Agreements are fully repaid or otherwise converted provided, however, that such price per share shall not be available in the event of an issuance of Alternative Securities to the lender); (C) a price per share reflecting our post-money valuation of $15,000,000 following the next investment in us following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. The conversion price is currently $0.374. As of March 30, 2021, the Convertible Loan Agreements have an aggregate outstanding principal balance of $835,000. Also, in connection with the Share Exchange, we entered into the Alpha Agreement and GBC Agreement, pursuant to which it issued to each party shares of common stock and the New Debentures in the aggregate amount of $400,000, which mature three years from the Effective Time and have an interest rate of 8% per year. The New Debentures have an Original Conversion Price but may be adjusted in the event of a Dilutive Event. As of March 30, 2021, the New Debentures have an aggregate outstanding principal balance of $200,000. The spread of COVID-19 throughout the world may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations especially regarding its ability to obtain the necessary finance to continue Duke’s operations. The extent to which COVID-19 impacts the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. We intend to continue to undertake efforts to raise additional funding; provided, however, that there can be no assurance that we will be able to raise capital, or that any capital raise will be on favorable terms or on terms that do not create further dilution to our stockholders. In addition, we do not know if the COVID-19 pandemic will have a material effect on our ability to raise capital or if this will require us to raise capital on terms less favorable to us as a result of global market conditions or as a result of the direct effect, if any, of COVID-19 on our business. Off-balance Sheet Arrangements We have no off-balance sheet arrangements. Item 7A. Quantitative and Qualitative Disclosure about Market Risk Not applicable to smaller reporting companies.