Item 7. Management’s Discussion and Analysis
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, 2024 and December 31, 2023 and accompanying notes appearing elsewhere in this Annual Report. This discussion and analysis
contain 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.
21
Company Overview
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.
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 acquired 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.
On January 29, 2021, we, through Duke Israel, and Elbit, entered into
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.” While the agreement
was intended to facilitate commercialization and we are aware that Elbit is marketing drone-mounted remote weapon systems, including a
system in the name of “Bird of Prey”. We requested reports from Elbit regarding sales and royalties related to drone-mounted
remote weapon systems, as outlined in the Collaboration Agreement and it is in discussion with Elbit.
On August 15, 2022, Duke Israel
introduced the IC Drone, a drone technology for conducting routine maintenance of critical infrastructure and has signed an agreement
with IEC to provide drone-enabled systems for cleaning electric utility cable insulators. During October 2023, we successfully completed
our obligations under its agreement with the IEC. Following that successful pilot, in August 2024, we, through Duke Israel, entered into
an agreement with the IEC to provide high-voltage insulator washing services using IC Drone system.
On
October 28, 2024, a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State to change the Company’s
corporate name from UAS Drone Corp. to DUKE Robotics Corp. effective as of November 4, 2024.
In
connection with the Certificate of Amendment, we also filed an issuer notification form with FINRA reflecting our name change and requesting
a change in its trading symbol from “USDR” to “DUKR”. Effective as of market open on Monday, November 4, 2024,
the name changed to DUKE Robotics Corp. and the transition of its OTCQB ticker symbol from “USDR” to “DUKR” took
effect.
On February 18, 2025, we announced
that we established Duke Greece, a wholly owned subsidiary which is focused on expanding our innovative IC Drone technology in Greece.
Our innovative IC Drone technology provides utility companies with a safer, more efficient, and environmentally sustainable solution for
maintaining high-voltage electric infrastructure as well as potential other applications of our technologies and capabilities. The subsidiary
is expected to facilitate market expansion, strategic partnerships, and additional revenue streams in Greece. While we anticipate initial
setup and operational costs, we believe this investment will drive long-term growth.
22
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, 2024 and Duke’s audited consolidated financial statements for the year ended December 31, 2023. The data set forth below should
be read in conjunction with the financial statements and accompanying notes elsewhere in this annual report.
Year ended
December 31
USD in thousands
2024
2023
Revenues
108
300
Cost of revenues
(71 )
(273 )
Gross profit
37
27
Research and development expenses
(157 )
(3 )
General and administrative expenses
(905 )
(826 )
Operating loss
(1,025 )
(802 )
Financial income, net
40
76
Net loss
(985 )
(726 )
Comparison of the year ended December 31,
2024 to the year ended December 31, 2023
Revenues . We had $108,000
in revenues for the year ended December 31, 2024. During the year ended December 31, 2023, we had $300,000 in revenues. The
revenues for the year ended December 31, 2023 were derived from our earlier August 2022 collaboration and development agreement
with IEC to provide drone-enabled systems for high-voltage insulator washing , which we successfully
completed during October 2023. The revenues for the year ended December 31, 2024, were derived from our August 2024 commercial
agreement for high-voltage insulator washing services with the IEC. These services to IEC are seasonal in their nature (spring to fall
seasons) and revenues derived from the 2024 agreement commenced during the mid-season, in August 2024.
Cost of revenues . During the year ended December 31, 2024, we had $71,000 in cost of
revenues expenses, compared to $273,000 for the year ended December 31, 2023. The cost of revenues in 2024 mainly consists of professional
services associated with our agreements with the IEC as detailed above. The cost of revenues for
the year ended December 31, 2023 were derived from our earlier August 2022 collaboration and development agreement
with IEC to provide drone-enabled systems for high-voltage insulator washing , which we successfully
completed during October 2023. The cost of revenues for the year ended December 31, 2024, were derived from our August 2024 commercial
agreement for high-voltage insulator washing services with the IEC commenced during in August 2024.
Research and Development .
During the year ended December 31, 2024, we had $157,000 in research and development expenses, compared to $3,000 in research and development
expenses for the year ended December 31, 2023. The increase in our research and development are mainly due to professional services and
other field tests associated with our continued development of additional capabilities of our IC Drone system.
General and Administrative
Expenses . For the year ended December 31, 2024, our general and administrative expenses amounted to $905,000, of which $685,000 were
related to professional services, such as accounting, auditing, insurance costs, consulting and legal services, and $28,000 were related
to stock-based compensation expenses, and were $826,000 for the year ended December 31, 2023, of which $575,000 were related to professional
services and $108,000 related to stock-based compensation expenses. This increase in general and administrative expenses for the year
ended December 31, 2024, was mainly due to an increase in professional services partially offset by a decrease in stock-based compensation
expenses.
Financial Income, net .
For the year ended December 31, 2024, our financial income amounted to $40,000 as compared to $76,000 for the year ended December 31,
2023. The reason for the decrease in financial income for the year ended December 31, 2024, was mainly due to the decrease in our available
cash which resulted in a decrease in interest income on our bank deposits.
Net Loss . For the year
ended December 31, 2024 and 2023, we recorded a net loss of $985,000 and $726,000, respectively, which represented an increase compared
to the year ended December 31, 2024, of $259,000.
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Critical Accounting Policies
This Management Discussion
and Analysis 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.
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.
Liquidity and Capital Resources
Since inception, we have devoted
substantially all our efforts to research and development and have incurred accumulated losses of $11,162,000.
During the year ended December 31, 2024, our loss of $985,000 included
non-cash stock-based compensation of $28,000. As of December 31, 2024, we had a working capital of $1,010,000 as compared to a working
capital of $2,011,000 as of December 31, 2023.
As of December 31, 2024, we had a cash balance
of $1,256,000 compared to a cash balance of $2,281,000 as of December 31, 2023. The reason for the decrease in our cash balance was mainly
due to the operating expenses describe above .
Cash used in operations for
the year ended December 31, 2024, was $918,000 as compared to cash used in operations of $548,000 for the year ended December 31, 2023.
The reason for the increase in cash used in operations is mainly related to the increase in our
operating expenses .
Since our inception we and
Duke have funded our operations through equity and debt financing, bank loans, loans provided by shareholders and demonstration projects
of its technology to potential customers.
Since Duke’s inception
and until 2017, certain Duke affiliates provided loans to Duke from time to time, as needed. 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 later of the following: (i) three years after the Effective Date (March 9, 2020); 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, 2024, and
December 31, 2023, the outstanding balances of such stockholders’ loans were $322,000 and $314,000, respectively.
24
On May 11, 2021, we entered
into securities purchase agreements with eight (8) non-U.S. Investors, pursuant to which we, in a private placement offering, agreed to
issue and sell to investors an aggregate of: (i) 12,500,000 shares of our Common Stock at a price of $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 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, to
expire on November 11, 2023. On November 1, 2023, we and the Investors executed a second extension agreement, such that the term of the
warrants was extended to expire on November 11, 2024. On June 20, 2024, we entered into a Warrant Amendment Agreement with the Investors
to amend the terms of the warrants issued in connection with the May 11, 2021 securities purchase agreements. Under the Warrant Amendment
Agreement, we and the Investors agreed to: (i) extend the warrant exercise term to May 11, 2026; (ii) amend the warrant exercise price,
increasing 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 the exercise would result in the holder beneficially owning more than 19.99% of the Company’s common stock immediately
following the exercise.
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.
Item 7A. Quantitative and Qualitative
Disclosure about Market Risk
Not applicable to smaller
reporting companies.