NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD in thousands)
NOTE
1 – GENERAL
UAS Drone Corp. (“the
Company” or “USDR”) was incorporated under the laws of the State of Nevada on February 4, 2015. Prior to the
Company’s formation, the operations were functioning under Unlimited Aerial Systems, LLP (“UAS LLP”). UAS LLP
was formed under the laws of the State of Louisiana on August 22, 2014. Effective March 31, 2015, the Company completed a reverse
merger with UAS LLP. The reverse merger was accounted for as a reverse capitalization.
On March 9, 2020, the Company
closed on the Share Exchange Agreement (as defined hereunder), pursuant to which, Duke Robotics, Inc. (“Duke Inc.”)
a corporation incorporated under the laws of the state of Delaware, became a majority-owned subsidiary of the Company. Duke Inc.
has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel,” and collectively with Duke Inc., “Duke”),
which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation.
On April 29, 2020, the Company,
Duke Inc., and UAS Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“UAS Sub”),
executed an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub merged with and into Duke
Inc. Upon closing of the Short-Form Merger (as defined hereunder), each outstanding share of UAS Sub’s common stock, par
value $0.0001 per share, was converted into and became one share of common stock of Duke Inc., with Duke Inc. 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 Inc. held by certain stockholders of Duke Inc. that did not participate in the Share Exchange Agreement (as defined hereunder).
On April 30, 2020, the Company
filed a Registration Statement on Form S-1, which was declared effective by the U.S. Securities and Exchange Commission (“SEC”)
on June 19, 2020, to register: (i) 63,856 shares of common stock of the Company that were issued to certain stockholders of Duke
Inc. upon the consummation of the Short-Form Merger; (ii) 14,614,751 shares of common stock of the Company of certain selling stockholders
named in the S-1 Registration Statement; and (iii) 3,649,733 shares of common stock of the Company issuable upon conversion of
Convertible Notes (see Note 6 below).
On June 25, 2020, at the closing
of the transaction contemplated by the Merger Agreement, the Company issued 63,856 shares to certain Duke Inc. stockholders, and
Duke Inc. became a wholly owned subsidiary of the Company.
The Company (collectively with
Duke, the “Group”) is a robotics company dedicated to the development of an advanced robotics stabilization system
that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. The Company’s advanced robotics
system is able to achieve pinpoint accuracy regardless of the movement of the weapons platform or the target.
On January 29, 2021, the Company,
through Duke Israel, and Elbit Systems Land Ltd., an Israeli corporation, entered into a 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.”
Effective October 22, 2020,
Company’s common stock in quoted on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market, under the symbol
“USDR”.
Merger
Transaction
On March 4, 2020, USDR entered
into a Share Exchange Agreement with Duke Inc., and certain shareholders of Duke Inc. who executed and delivered the Share Exchange
Agreement (the “Share Exchange Agreement”), pursuant to which Duke Inc. became a majority-owned subsidiary of USDR
(the “Share Exchange”). The Share Exchange closed on March 9, 2020. Such closing date is referred to as the “Effective
Time.”
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
1 – GENERAL (continue)
Before
entering into the Share Exchange Agreement: (i) Duke entered into debt cancellation letters (the “Debt Cancellation Letters”)
with each of its Stockholders with regard to the Stockholders Loans.
Pursuant to the Debt Cancellation
Letters, 842,135 shares of the Duke Inc. common stock (1,046,016 shares post Exchange Ratio) were issued in exchange for the cancellation
of $623 in debt, leaving $280 of outstanding Stockholders Loans. These Stockholders Loans, including interest (which shall bear
an annual fixed interest rate of 3% as of January 1, 2020), shall be repaid at the date upon which the Company raises at least
$15 million and has achieved earnings before interest, tax, depreciation and amortization of $3 million, but not before the three
year anniversary of the Effective Time and the full repayment of the amounts outstanding under certain convertible loan agreements
in the aggregate amount of $965 (each, a “Convertible Loan Agreement”) (see Note 6B) entered into at the Effective
Time, unless such repayment is otherwise waived by the parties to the Investors’ Loan; (ii) Loans made from Duke to an executive
officer and a former executive officer, who are also stockholders were extinguished in connection with the Debt Cancellation Letters;
(iii) Duke issued a consultant 1,146,005 shares of the Duke Inc. common stock (1,423,453 shares post Exchange Ratio), at par value,
regarding services rendered to Duke Inc. The fair value of the shares issued was estimated at $429 and were recorded to share based
compensation expenses.; and (iv) a convertible loan agreement in amount of $400 bearing an annual interest rate of 6%, including
accumulated interest in amount of $48, was converted into 700,000 shares of Duke Inc. common stock (869,470 shares post Exchange
Ratio).
In
conjunction with the consummation of the Share Exchange, and as a condition thereof, the USDR entered into the agreements listed
below:
|
(i)
|
Convertible Loan Agreements, on the same terms, in the aggregated amount of $965 with several investors.
The term of each investor’s loan is for 12 month and each such agreement bears annual interest of 15%, and at the discretion
of USDR, the term of the investors’ loans can be extended for an additional 12 month period, which the Company did elect
to extend (see also note 6 below). The investors have the option to convert the respective unpaid balance of their loan into shares
of USDR’s common stock based on the lower of the following valuations: (i) the lowest effective price per share set in connection
with any funds raised by USDR during the six months following the Share Exchange; (ii) 80% of the lowest effective price per share
set in connection with any funds raise by USDR at any time subsequent to six months following the Share Exchange until such time
as the Investors’ Loans are fully repaid; (iii) a price per share reflecting a post-money valuation of USDR of $15 million
following the next investment in USDR following closing; or (iv) if at any time following the 6 month anniversary of the closing
of the Share Exchange and until such time as the Investors’ Loans are fully repaid, USDR sells or grants any option to purchase
or sells or grants any right to reprice, or otherwise disposes of or issues any common stock entitling any person to acquire shares
of common stock at an effective price per share that is lower than $0.374. The conversion price is currently $0.374. As of March
30, 2021, the Convertible Loan Agreements have an aggregate outstanding principal balance of $835 as a result of the conversions
of certain Convertible Loan Agreements (see note 15 below).
|
|
(ii)
|
In addition, before entering into the Share Exchange the parties to certain consulting agreements
agreed to exchange their contractual right to receive options in Duke for options to be granted by USDR following the Effective
Time, subject to the terms and conditions of a stock incentive plan, to be adopted by the Board of Directors of USDR.
|
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE 1 –
GENERAL (continue)
|
(iii)
|
Securities exchange agreements with outstanding debt holders of USDR, Alpha Capital Anstalt (“Alpha”)
and GreenBlock Capital LLC (“GBC”) to respectively cancel existing debentures or debt in the total amount of $658 and
in exchange issue new debentures in the aggregate amount of $400 and issue 698,755 and 65,198 shares of common stock to each of
Alpha and GBC, respectively (the “New Debentures”). The New Debentures mature three years from the Effective Date,
bear interest at a rate of 8% per year and are only convertible into shares of the Company’s common stock, at an original
conversion price of $0.374 (the “Original Conversion Price”); provided, however, that such Original Conversion Price
shall be adjusted downward in the event that USDR, 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 30, 2021, the New Debentures have an aggregate outstanding principal balance of $200 as a result of conversions of
the New Debentures (see note 15 below).
|
|
(iv)
|
Several Securities Exchange Agreements, with similar terms, to exchange certain promissory notes
having a total principal amount of $35 bearing interest of 6% per annum, for 9,623,621 shares of Company’s common stock.
Signatories to the Securities Exchange Agreements are entitled to an anti-dilution clause in the event that the Convertible Loans
detailed in Note 1(iii) above are converted such that such the number of shares held by such investors would not be lower than
original holding on a fully diluted basis prior to such conversions. Per Accounting Standards Update (“ASU”) 2017-11,
the Company classified the anti-dilution to shareholders equity.
|
|
(v)
|
A Registration Rights Agreement with GBC, Alpha, the Primary Lenders (as defined below) and certain
Duke shareholders. The Company filed a Registration Statement on Form S-1 with the SEC, which was declared effective on June 19,
2020, in compliance with the requirements of the Registration Rights Agreement. The deemed beneficial owners of the common stock,
or other securities, issuable under parties to the Convertible Loan Agreements and the Note Conversion are identical and, as such,
the Company refer to these parties as the “Primary Lenders.”
|
|
(vi)
|
The Company’s former CEO’s outstanding accrued pay of $32 as well as the 25,000
options he held at the end of 2019, were converted into 45,968 shares of the post-transaction Company.
|
Pursuant to the terms of the
Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of its common stock to the
Duke Inc. stockholders in exchange for 22,920,107 shares of Duke’s Inc. issued and outstanding shares of common stock, representing
approximately 99% of Duke’s Inc. issued and outstanding shares of common stock. Accordingly, each outstanding share of Duke
Inc. common stock was exchanged for the right to receive 1.2421 shares of the Company’s common stock (the “Exchange
Ratio”). Of the shares of Duke Inc. common stock that were exchanged for shares of the Company’s common stock, 51,410
(representing 63,856 shares of the Company’s common stock post-Share Exchange) were issued but remained in escrow until the
Company completed the Short-Form Merger (as defined hereunder). On June 25, 2020, at the closing of the transaction contemplated
by the Merger Agreement, the Company released the shares in escrow.
As such, at the Effective Time,
the Duke stockholders owned an equivalent of approximately 71% of the Company’s common stock. After giving effect to the
Share Exchange, Duke became a subsidiary of the Company. Following the Share Exchange, the Company adopted the business plan of
Duke.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
1 – GENERAL (continue)
The transaction was accounted
for as a reverse asset acquisition in accordance with generally accepted accounting principles in the United States of America
(“GAAP”). Under this method of accounting, Duke was deemed to be the accounting acquirer for financial reporting purposes.
This determination was primarily based on the facts that, immediately following the Merger: (i) Duke’s stockholders
owned a substantial majority of the voting rights in the combined company, (ii) Duke designated a majority of the members
of the initial board of directors of the combined company, and (iii) Duke’s senior management holds all key positions
in the senior management of the combined company. As a result of the Recapitalization Transaction, the shareholders of Duke received
the largest ownership interest in the Company, and Duke was determined to be the “accounting acquirer” in the Recapitalization
Transaction. As a result, the historical financial statements of the Company were replaced with the historical financial statements
of Duke. The number of shares prior to the reverse capitalization have been retroactively adjusted based on the equivalent number
of shares received by the accounting acquirer in the Recapitalization Transaction.
On April 29, 2020, the Company,
Duke Inc. and UAS Sub, executed the Merger Agreement, pursuant to which UAS Sub merged with and into Duke, with Duke surviving
as a wholly-owned subsidiary of the Company (the “Short-Form Merger”). Pursuant to the Merger Agreement, on June 25,
2020, the Company acquired the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate
in the Share Exchange.
The COVID-19 pandemic has caused
states of emergency to be declared in various countries, travel restrictions imposed globally, quarantines established in certain
jurisdictions and various institutions and companies being closed. COVID-19 has also adversely affect the Group’s ability
to conduct its business effectively due to disruptions to its capabilities, availability and productivity of personnel, while the
Group simultaneously attempts to comply with rapidly changing restrictions, such as travel restrictions, curfews and others. In
particular, on January 24, 2021, the Government of Israel announced that effective January 26, 2021, non-Israeli residents or citizens,
except for non-nationals whose lives are based in Israel, are not allowed to enter Israel, and the number of Israeli citizens permitted
to enter the country per day will be capped at 3,000. In addition, the Ministry of Health in the State of Israel issued guidelines
on March 11, 2020, which were most recently updated in March 2021, recommending people avoid gatherings in one space and providing
that no gathering of more than 20 people should be held under any circumstances. Employers (including the Group) are also required
to prepare and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, on January
25, 2021, the President of the United States issued a proclamation to restrict travel to the United States from foreign nationals
who have recently been in China, Iran, South Africa, and certain European and Latin America countries. Although to date these restrictions
have not impacted the Group’s operations, the effect on its business, from the spread of COVID-19 and the actions implemented
by the governments of the State of Israel, the United States and elsewhere across the globe, may worsen over time. The spread of
COVID-19 may also result in the inability of the Group’s manufacturers to deliver components or finished products on a timely
basis and may also result in the inability of the Group’s suppliers to deliver the parts required by its manufacturers to
complete manufacturing of components or finished products. In addition, governments may divert spending from other budgeted resources
as they seek to reduce and/or stop the spread of COVID-19. Such events may result in a period of business and manufacturing disruption,
and in reduced operations, any of which could materially affect the Group’s business, financial condition and results of
operations. The extent to which COVID-19 impacts the Group’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. The Group is actively monitoring the pandemic and it is taking any necessary
measures to respond to the situation in cooperation with the various stakeholders.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
1 – GENERAL (continue)
Going Concern
Since inception, the Group has
devoted substantially all its efforts to research and development. The Group is still in its development stage and the extent of
the Group’s future operating losses and the timing of becoming profitable, if ever, are uncertain. As of December 31, 2020,
the Group had $105 in cash and cash equivalents, net losses of $1,368, an accumulated deficit of $5,131, and a negative working
capital of $1,176.
The Group will need to secure
additional capital in the future in order to meet its anticipated liquidity needs primarily through the sale of additional Common
Stock or other equity securities and/or debt financing. Funds from these sources may not be available to the Group on acceptable
terms, if at all, and the Group cannot give assurance that it will be successful in securing such additional capital.
These conditions raise substantial
doubt about the Group’s ability to continue to operate as a “going concern.” The Company’s ability to continue
operating as a going concern is dependent on several factors, among them is the ability to raise sufficient additional funding.
The financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
Risk factors
The Group faces a number of
risks, including uncertainties regarding finalization of the development process, demand and market acceptance of the Group’s
products, the effects of technological changes, competition and the development of products by competitors. Additionally, other
risk factors also exist, such as the ability to manage growth and the effect of planned expansion of operations on the Group’s
future results. In addition, the Group expects to continue incurring significant operating costs and losses in connection
with the development of its products and marketing efforts. The Group has not yet generated significant revenues from its
operations to fund its activities, and therefore the continuance of its activities as a going concern depends on the receipt of
additional funding from its current stockholders and investors or from third parties.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
2– SIGNIFICANT ACCOUNTING POLICIES
The financial statements were
prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
|
A.
|
Use of estimates in the preparation of financial statements
|
The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported
amounts of expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these financial
statements, the most significant estimates and assumptions relate to the going concern assumptions and convertible loans.
A majority of the Group’s
expected revenues is generated in dollars. In addition, most of the Group’s costs are denominated and determined in
dollars and in new Israeli shekels. Management believes that the dollar is the currency in the primary economic environment in
which the Group operates. Thus, the functional and reporting currency of the Group is the dollar.
Accordingly, monetary accounts
maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification
(“ASC”) 830, “Foreign Currency Matters.” All transaction gains and losses of the remeasured monetary balance
sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
|
C.
|
Principles of consolidation
|
The consolidated financial statements
include the accounts of the Company and its subsidiaries Duke Inc., UAS Sub and Duke Israel. All significant intercompany balances
and transactions have been eliminated on consolidation.
|
D.
|
Cash and cash equivalents, and Restricted cash
|
Cash equivalents are short-term
highly liquid investments which include short term bank deposits (up to three months from date of deposit), that are not restricted
as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.
|
E.
|
Property, plant and equipment, net
|
|
1.
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized
from disposition is reflected in the Statements of Operations and Comprehensive Loss.
|
|
2.
|
Rates of depreciation:
|
|
|
%
|
|
Furniture and office equipment
|
|
7-15
|
|
Computers
|
|
33
|
|
Office improvements
|
|
10
|
|
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
|
F.
|
Impairment of long-lived assets
|
The Group’s long-lived
assets are reviewed for impairment in accordance with ASC Topic 360, “Property, Plant and Equipment”, whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the asset exceeds its fair value. No impairment expenses were recorded during the years ended December
31, 2020 or 2019.
The Group accounts for income
taxes in accordance with ASC Topic 740, “Income Taxes” (“ASC Topic 740-10”). Accordingly, deferred income
taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between
the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed
using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances in respect of deferred
tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
The Group accounts for uncertain
tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC
Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to
classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such
items in its fiscal 2020 and 2019 financial statements and did not recognize any liability with respect to an unrecognized tax
position in its balance sheets.
|
H.
|
Research and development expenses
|
Research and development expenses
are charged to operations as incurred.
|
I.
|
Basic and diluted loss per share
|
Basic loss per share is computed
by dividing the loss for the period applicable to shareholders, by the weighted average number of shares of common stock outstanding
during the period. Securities that may participate in dividends with the shares of common stock (such as the convertible preferred)
are considered in the computation of basic loss per share under the two class method. However, in periods of net loss, only the
convertible preferred shares are considered, since such shares have a contractual obligation to share in the losses of the Company.
In computing diluted loss per
share, basic loss per share is adjusted to reflect the potential dilution that could occur upon the exercise of potential shares.
Accordingly, in periods of net loss, no potential shares are considered.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
|
J.
|
Stock-based compensation
|
The Company measures and recognizes
the compensation expense for all equity-based payments to employees based on their estimated fair values in accordance with ASC
718, “Compensation-Stock Compensation.” Share-based payments including grants of stock options are recognized in the
statement of comprehensive loss as an operating expense based on the fair value of the award at the date of grant. The fair value
of stock options granted is estimated using the Black-Scholes option-pricing model. The Company has expensed compensation costs,
net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period or over the implicit service
period when a performance condition affects the vesting, and it is considered probable that the performance condition will be achieved.
Share-based payments awarded
to consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, “Equity-Based Payments to Non-Employees.”
|
K.
|
Concentrations of credit risk
|
Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents as well as certain other current
assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily held in Dollars and New Israeli
Shekels, are deposited with major banks in Israel and the United States. Management believes that such financial institutions are
financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does not
have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other
foreign hedging arrangements.
The Company records accruals
for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred
and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information
becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
|
M.
|
Derivative Liabilities and Fair Value of Financial Instruments
|
Fair value accounting requires
bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement
of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible
debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement.
If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation
process of these instruments as derivative financial instruments under ASC 815.
Once determined, derivative
liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being
recorded in results of operations as an adjustment to fair value of derivatives.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
Fair value of certain of the
Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and
other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance
with ASC 820, “Fair Value Measurements and Disclosure” (“ASC 820”) defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC
820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants,
principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should
reflect the risk of non-performance, which includes, among other things, the Company’s credit risk.
Valuation techniques are generally
classified into three categories: the market approach; the income approach; and the cost approach. The selection and application
of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset
or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize
the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs
and resulting measurement as follows:
Level 1: Quoted prices (unadjusted)
in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Quoted prices for similar
assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active;
inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs
for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.
Fair value measurements are
required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall.
Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements
including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to
the following: total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings,
and a description of where those gains or losses included in earning are reported in the statement of income.
The Company records a debt discount
related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible
instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and
as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features. The debt
discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative
liabilities over the life of the convertible notes.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
The Company’s financial
assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows:
|
|
Balance as of December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of convertible component in convertible loan
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
48
|
|
Total liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
48
|
|
|
|
48
|
|
The following table presents
the changes in fair value of the level 3 liabilities for the Year ended December 31, 2020:
|
|
Fair value of Convertible
component
|
|
Outstanding at January 1, 2020
|
|
|
-
|
|
Fair value of issued level 3 liability
|
|
|
276
|
|
Changes in fair value
|
|
|
(228
|
)
|
Outstanding at December 31, 2020
|
|
|
48
|
|
|
N.
|
Certain Financial Instruments with Down Round Features
|
The Company accounts Certain
Financial Instruments with Down Round Features based on ASU 2017-11, “Earnings per share: I. Accounting for Certain Financial
Instruments with Down Round Features,” which allows companies to exclude a down round feature when determining whether a
financial instrument is considered indexed to the entity’s own stock. As a result, financial instruments with down round
features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round
feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial
instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and
a reduction of income available to common shareholders in computing basic earnings per share.
|
O.
|
Recent Accounting Pronouncements
|
Accounting Pronouncements
Adopted in 2020
In June 2016, the Financial
Accounting Standards Board (the “FASB”) issued an ASU that supersedes the existing impairment model for most financial
assets to a current expected credit loss model. The new guidance requires an entity to recognize an impairment allowance equal
to its current estimate of all contractual cash flows the entity does not expect to collect. The Group adopted this guidance effective
January 1, 2020, with no material impact on its consolidated financial statements
In June 2016, the FASB issued
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. This guidance
replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting
period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred
over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
2– SIGNIFICANT ACCOUNTING POLICIES (continue)
The guidance became effective
on January 1, 2020, including interim periods within that year and requires a modified retrospective transition approach through
a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Under the modified retrospective
method of adoption, prior year reported results are not restated. The Company has performed its analysis of the impact on its financial
instruments that are within the scope of this guidance and has concluded that there was no material impact to its consolidated
financial statements.
In August 2018, the FASB issued
ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure
Framework — Changes to
the Disclosure Requirements for Fair Value Measurement” (“ASU No. 2018-13”) as part of the FASB’s broader
disclosure framework project. ASU No. 2018-13 removes, modifies and adds certain disclosures, providing greater focus on requirements
that clearly communicate the most important information to the users of the financial statements with respect to fair value measurements.
The adoption of ASU No. 2018-13 as of January 1, 2020 did not have a material impact on the Company’s consolidated financial
statements.
Recently Issued Accounting
Pronouncements Not Yet Adopted
In December 2019, the FASB issued
ASU 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income
Taxes.” The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general
principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting
entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods
beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial
statements have not yet been issued. This standard is not expected to have a material impact to the Company’s consolidated
financial statements after evaluation.
In
August 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options”
(Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for
convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible
preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized
from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation
models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that
meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2)
convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital.
ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity
to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for
fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is
permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal
years. The Company is currently evaluating the impact that the adoption of ASU 2020-06 will have on the Company’s
consolidated financial statement presentation or disclosures.
Other new pronouncements issued
but not effective as of December 31, 2020 are not expected to have a material impact on the Company’s consolidated financial
statements.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
3 – OTHER CURRENT ASSTES
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Loans to executive officers (1)
|
|
|
-
|
|
|
|
21
|
|
Prepaid expenses
|
|
|
8
|
|
|
|
-
|
|
Government Institutions
|
|
|
8
|
|
|
|
2
|
|
Investment in subsidiary
|
|
|
3
|
|
|
|
-
|
|
|
|
|
19
|
|
|
|
23
|
|
|
(1)
|
On November 20, 2017, the Group made available to an
executive officer and a former executive officer, who are also stockholders, a loan in the amount of $10 each. The loans bear
interest at a rate of approximately 3% per year. The loans, including the accumulated interest amount, shall be repaid at the
earlier of the following dates: (i) December 31, 2019; or (ii) at the date of repayment of the loan made available by the stockholders
to the Company according to a loan agreement as stated in Note 5; or (iii) from any dividend or other distribution to be made
by the Company to its shareholders. The two stockholders are entitled to repay the outstanding amount of the loan at any time.
The loans to executive officers were extinguished in connection with and prior to the Share Exchange.
|
NOTE
4 – PROPERTY AND EQUIPMENT, NET
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Computers
|
|
|
10
|
|
|
|
10
|
|
Furniture and office equipment
|
|
|
12
|
|
|
|
12
|
|
Leasehold improvements
|
|
|
15
|
|
|
|
15
|
|
|
|
|
37
|
|
|
|
37
|
|
Less - accumulated depreciation
|
|
|
(25
|
)
|
|
|
(20
|
)
|
Total property and equipment, net
|
|
|
12
|
|
|
|
17
|
|
In the years
ended December 31, 2020 and 2019, depreciation was US$ 5 and US$ 2 respectively.
NOTE
5 –OTHER ACCOUNTS LIABILITIES
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued expenses
|
|
|
213
|
|
|
|
208
|
|
Other
|
|
|
-
|
|
|
|
1
|
|
|
|
|
213
|
|
|
|
209
|
|
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
6 – CONVERTIBLE LOANS
|
A.
|
As detailed in Note 1 above, the New Debentures in the amount of $400, mature three years from
the Effective Date, bear interest at a rate of 8% per year and are only convertible into shares of the Company’s common stock,
at 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 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 30, 2021, the New Debentures have an aggregate outstanding principal balance of $200 as a result of conversions of the New
Debentures (see note 15 below).
|
In accordance with ASC 815-15-25,
the conversion feature was considered an embedded derivative instrument, and is to be recorded at its fair value as its fair value
can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded
finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component
fair value over the face loan amount. The conversion liability is then marked to market each reporting period with the resulting
gains or losses shown in the statements of operations.
The
fair value of the convertible component was estimated by third party appraiser using the Black-Scholes option pricing model,
to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet
date. The Company has estimated the fair value of such derivative at a value of $132 at the date of issuance and at a value
of $26 as of December 31, 2020. The following are the data and assumptions used as of the balance sheet date:
|
|
December 31,
2020
|
|
|
March 10,
2020
|
|
Common stock price
|
|
0.25
|
|
|
0.374
|
|
Expected volatility
|
|
34.89%
|
|
|
37%
|
|
Expected term
|
|
2.19 years
|
|
|
3 years
|
|
Risk free rate
|
|
0.17%
|
|
|
0.58%
|
|
Forfeiture rate
|
|
0%
|
|
|
0%
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
The fair value allocated to
loans out of the New Debentures was estimated by third party appraiser based on the debentures’ and market interest’
rates and was estimated at a value of $332 at the issuance date. The access of the calculated fair values of the loan and the convertible
components over the loan face amounted to $67, and was recorded as interest expenses.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE 6 –
CONVERTIBLE NOTES (continue)
|
B.
|
In connection with the Share Exchange, immediately prior to the Effective Time, the Company entered
into several Convertible Loan Agreements, on the same terms, in the aggregate amount of $965. The terms of the Convertible Loan
Agreements require repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at Company’s
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 the Company 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 bear simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month. On December 9,
2020, the Company utilized its rights under the above agreement and extended the terms of the loans for additional twelve month.
|
The lenders will have the option
to convert the unpaid balance of their respective Convertible Loans into shares of Company’s common stock based on the lower
of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following
the Effective Time. “Effective price” per share means (i) if only shares of Company’s common stock are sold in
a transaction, the amount actually received in cash by the Company, and (ii) if shares of Company’s 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 the Company, for the shares of Company’s 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 the Company in good faith), in each case divided by the number of shares of Company’s common
stock issued in such transaction; (B) 80% of the lowest effective price per share set in connection with any funds raise by the
Company 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 a post-money
valuation of the Company of $15million following the next investment in the Company 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 as a result of the conversions of certain
Convertible Loan Agreements (see note 15 below).
In accordance with ASC 815-15-25,
the conversion feature was considered an embedded derivative instrument, and is to be recorded at its fair value as its fair value
can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded
finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component
fair value over the face loan amount. The conversion liability is then marked to market each reporting period with the resulting
gains or losses shown in the statements of operations.
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
6 – CONVERTIBLE NOTES (continue)
The fair value of the convertible
component was estimated by third party appraiser using the Black-Scholes option pricing model, to compute the fair value of the
derivative and to mark to market the fair value of the derivative at each balance sheet date. The Company has estimated the fair
value of such derivative at a value of $144 at the date of issuance and at a value of $22 as of December 31, 2020. The following
are the data and assumptions used as of the balance sheet date:
|
|
December 31,
2020
|
|
|
March 10,
2020
|
|
Common stock price
|
|
0.25
|
|
|
0.374
|
|
Expected volatility
|
|
34.89%
|
|
|
37%
|
|
Expected term
|
|
1.19 years
|
|
|
1 year
|
|
Risk free rate
|
|
0.36%
|
|
|
0.43%
|
|
Forfeiture rate
|
|
0%
|
|
|
0%
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
The fair value allocated to
loans net of the convertible component was estimated at a value of $822 at the issuance date.
NOTE
7 - STOCKHOLDERS LOANS
Since Duke’s inception and until 2017, certain Duke
affiliates provided loans to Duke from time to time, as needed. Some of the Stockholders Loans bear an annual fixed interest at
3.00% and some of the Stockholders Loans bear an annual interest rate as defined in section 3(j) of the Israeli tax ordinance (the
interest rate 2019 was set on 2.56% per annum). The Stockholders’ loans, including the accumulated interest amount, were
to be repaid in full within 7-15 days from any capital raised by the Company or related parties of the Company, whether by a stock
offering and / or loans in excess of NIS 10 million (approximately $2.5 million).
As detailed in note 1 above, before
entering into the Share Exchange Agreement: (i) Duke entered into Debt Cancellation Letters with each of its Stockholders with
regard to the Stockholders Loans noted above. Pursuant to the Debt Cancellation Letters, 842,135 shares of the Duke Inc. common
stock (1,046,016 shares post Exchange Ratio) were issued in exchange for the cancellation of $623 in debt, waiving $83 of accrued
interest and leaving $280 of outstanding Stockholders Loans. These Stockholders Loans, including interest (which shall bear an
annual fixed interest rate of 3% as of January 1, 2020), shall be repaid at the date upon which the Company raises at least $15
million and has achieved earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year
anniversary of the Effective Time and the full repayment of the amounts outstanding under certain convertible loan agreements in
the aggregate amount of $965 (see additional information in Note 6B).
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
8 – SHAREHOLDERS’ EQUITY
Description of the rights
attached to the Shares in the Company:
The holders of shares of Common
Stock vote together as one class on all matters as to which holders of Common Stock are entitled to vote. Except as otherwise required
by applicable law and subject to the preferential rights of any outstanding preferred stock, all voting rights are vested in and
exercised by the holders of Common Stock with each share of our Common Stock being entitled to one vote, including in all elections
of directors. The Company does not have a classified board of directors (the “Board”). Subject to preferences that
may be applicable to any outstanding preferred stock, the holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared from time to time by the Board out of legally available funds therefore. In the event of the Company’s
liquidation, dissolution or winding up, holders of the Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior liquidation rights of preferred stock, if any, then outstanding. The Common Stock has
no cumulative voting rights and no preemptive or other rights to subscribe for shares of the Company. There are no redemption or
sinking fund provisions applicable to the Common Stock. All shares of Common Stock currently outstanding are fully paid and non-assessable.
Transactions:
On June
1, 2018, the Company granted an aggregate of 200,000 shares of common stock to a consultant at a value of $3.00 per share of common
stock in exchange for consulting services. The stock will be issued to the consultant over a 3-year vesting period. On June 1,
2019 the Company issued to the consultant the first tranche of 66,667 shares of common stock. During the year ended December 31,
2020 the Company recorded compensation expenses in regard to such offering in the amount of $108.
Refer
to notes 1 above regarding shares issued during 2020.
NOTE
9 – STOCK OPTIONS
The following table presents
Duke Inc.’s stock option activity the year ended December 31, 2020:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at December 31,2019
|
|
|
995,000
|
|
|
|
2.70
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31,2020
|
|
|
995,000
|
|
|
|
2.70
|
|
Number of options exercisable at December 31, 2020
|
|
|
895,000
|
|
|
|
2.75
|
|
UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
9 – STOCK OPTIONS (continue)
The aggregate intrinsic value
of the awards outstanding as of December 31, 2020 is $0. These amounts represent the total intrinsic value, based on the Company’s
stock price of $0.374 as of December 31, 2020, less the weighted exercise price. This represents the potential amount received
by the option holders had all option holders exercised their options as of that date.
The stock options outstanding
as of December 31, 2020, have been separated into exercise prices, as follows:
Exercise price
|
|
Stock
options
outstanding
|
|
|
Weighted average
remaining contractual
life – years
|
|
|
Stock options vested
|
|
|
|
As
of December 31, 2020
|
|
2.25
|
|
|
400,000
|
|
|
|
1.7
|
|
|
|
300,000
|
|
3
|
|
|
595,000
|
|
|
|
1.30
|
|
|
|
595,000
|
|
|
|
|
995,000
|
|
|
|
|
|
|
|
895,000
|
|
The stock options outstanding
as of December 31, 2019, have been separated into exercise prices, as follows:
Exercise price
|
|
Stock
options
outstanding
|
|
|
Weighted average
remaining contractual
life – years
|
|
|
Stock options vested
|
|
|
|
As of December 31, 2019
|
|
2.25
|
|
|
400,000
|
|
|
|
2.70
|
|
|
|
200,000
|
|
3
|
|
|
595,000
|
|
|
|
2.30
|
|
|
|
595,000
|
|
|
|
|
995,000
|
|
|
|
|
|
|
|
795,000
|
|
Compensation expense recorded
by the Company in respect of its stock-based compensation awards for the period ended December 31, 2020 was $108 and are included
in General and Administrative expenses in the Statements of Operations
UAS DRONE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands , except share and per
share data)
NOTE
10 – GENERAL AND ADMINISTRATIVE EXPENSES
|
|
Year ended December 31
|
|
|
|
2020
|
|
|
2019
|
|
Professional services
|
|
|
538
|
|
|
|
310
|
|
Share base compensation
|
|
|
645
|
|
|
|
540
|
|
Insurance
|
|
|
47
|
|
|
|
-
|
|
Adverting and promotion
|
|
|
34
|
|
|
|
-
|
|
Rent and office maintenance
|
|
|
25
|
|
|
|
107
|
|
Levies and tolls
|
|
|
6
|
|
|
|
-
|
|
Depreciation
|
|
|
5
|
|
|
|
4
|
|
Other expenses
|
|
|
5
|
|
|
|
-
|
|
|
|
|
1,305
|
|
|
|
961
|
|
NOTE
11 – LITIGATION
On February 14, 2018, a complaint
was filed against the: (i) Duke Inc., (ii) Duke Israel, (iii) Aphek Trading Kadosh and Razi Ltd. (“Aphek”) an Israeli
corporation owned by Raziel Atuar and Amir Kadosh, and (iv) Mr. Aharon Sagiv, currently, the Chief Technology Officer and Director
of the Company, by Blackhawk Laboratories (the “Plaintiff”), a U.S. based company, in the Tel Aviv District of Israel
(Case No. 31727-02-18). The complaint asserts a claim for breach of contract, breach of duty, negligence and unjust enrichment
with regard to a services agreement dated June 13, 2014 between the Plaintiff and Duke. The complaint asserts that Duke Israel
agreed to pay for certain services alleged to have been performed by the Plaintiff and that the Plaintiff was entitled to receive
8% of the issued and outstanding shares of common stock of, over a 12 month period from June 2014 to June 2015. The Plaintiff’s
complaint seeks an order requiring either Duke Israel to issue to the Plaintiff 8% of its issued and outstanding shares of our
common stock; or alternatively for Duke Inc. to issue to the Plaintiff 4.8% of its issued and outstanding shares of our common
stock; or alternatively for Aphek and Mr. Aharon Sagiv to transfer 8% of their shareholdings in the Company to the Plaintiff.
The defendants believe the Plaintiff’s
complaint has no merit and they intend to vigorously defend the lawsuit. The Company and Duke Inc. do not believe the lawsuit will
have a material effect on the Company as all three co-founders of the Company (Raziel Atuar, Amir Kadosh and Sagiv Aharon) have
agreed to indemnify the Group for any losses resulting from the lawsuit, including taking responsibility for the issuance of any
shares of the Group’s common stock in the event the Plaintiff is successful in its lawsuit.
UAS
DRONE CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(USD
in thousands , except share and per share data)
NOTE
12 – INCOME TAX
U.S. resident companies are
taxed on their worldwide income for corporate income tax purposes at a statutory rate of 21% this reflect certain effects of the
Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes. No further taxes are payable
on this profit unless that profit is distributed. If certain conditions are met, income derived from foreign subsidiaries is tax
exempt in the US under applicable tax treaties to avoid double taxation.
Income of the Israeli company
is taxable from 2018 onwards, at corporate tax rate of 23%.
The Company and subsidiaries
have not received final tax assessments since its inception.
As of December 31, 2020, the
Company and subsidiaries had carry forward losses for tax purposes of approximately $1,225 and $2,813, respectively, which can
be offset against future taxable income, if any.
|
A.
|
The following is reconciliation between the theoretical tax on pre-tax income, at the tax rate
applicable to the Company (federal tax rate) and the tax expense reported in the financial statements:
|
|
|
Year ended December 31
|
|
|
|
2020
|
|
|
2019
|
|
|
|
US Dollars
|
|
Pretax loss
|
|
|
(1,368
|
)
|
|
|
(1,111
|
)
|
Federal tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax computed at the ordinary tax rate
|
|
|
287
|
|
|
|
233
|
|
Stock-based compensation
|
|
|
(135
|
)
|
|
|
(114
|
)
|
Tax in respect of differences in corporate tax rates
|
|
|
5
|
|
|
|
2
|
|
Losses and timing differences in respect of which no deferred taxes were generated
|
|
|
(157
|
)
|
|
|
(121
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
B.
|
Deferred taxes result primarily from temporary differences in the recognition of certain revenue
and expense items for financial and income tax reporting purposes. Significant components of the Company’s future tax assets
are as follows:
|
|
|
Year ended December 31
|
|
|
|
2020
|
|
|
2019
|
|
|
|
US Dollars
|
|
Composition of deferred tax assets:
|
|
|
|
|
|
|
|
|
Non capital loss carry forwards
|
|
|
872
|
|
|
|
378
|
|
Valuation allowance
|
|
|
(872
|
)
|
|
|
(378
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)
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|
|
|
-
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-
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UAS DRONE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(USD in thousands , except share and per
share data)
NOTE
13 – LOSS PER SHARE
Basic loss per share is computed
by dividing net loss by the weighted average number of shares outstanding during the year. The weighted average number of shares
of common stock used in computing basic and diluted loss per share for the years ended December 31, 2020 and 2019, are as follows:
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Year ended December 31
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2020
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|
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2019
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Number
of shares
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Weighted average number of shares of common stock outstanding attributable to shareholders
|
|
|
37,285,015
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|
|
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25,027,075
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Total weighted average number of shares of common stock related to outstanding options, excluded from the calculations of diluted loss per share (*)
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995,000
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995,000
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(*)
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The effect of the inclusion of option and convertible
loans in 2020 and 2019 is anti-dilutive.
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NOTE
14 – RELATED PARTIES
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A.
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Transactions and balances with related parties
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Year ended December 31
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2020
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2019
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General and administrative expenses:
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|
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|
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Directors compensation
|
|
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175
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|
|
|
-
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175
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|
|
-
|
|
|
|
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|
|
|
|
|
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Financing:
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|
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|
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Financing expense
|
|
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133
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|
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13
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Financing income
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|
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75
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|
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-
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B.
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Balances with related parties:
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As of December 31,
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2020
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|
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2019
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Other accounts liabilities
|
|
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19
|
|
|
|
-
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Stockholders loans
|
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268
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|
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925
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Convertible loans
|
|
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972
|
|
|
|
-
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|
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C.
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On April 12, 2020, effective as of March 1, 2020, the Board of Directors approved the payment of
certain fees to directors in the amounts of $4.98, $4.98 and $6.95 per month to Yariv Alroy, Sagiv Aharon and Erez Nachtomy (each,
an “Active Director”), respectively. On April 12, 2020, the Company also enacted a policy to pay each director (that
is not otherwise an Active Director) an amount of $1.5 for each calendar quarter and $0.40 for attendance of each meeting of the
board of directors. These amounts are exclusive of Israeli VAT if applicable.
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UAS
DRONE CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(USD
in thousands)
NOTE
15 – SUBSEQUENT EVENTS
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A.
|
On January 29, 2021, the Company, through its wholly owned subsidiary Duke Israel
and Elbit, entered into a collaboration agreement (the “Agreement”) for the global marketing and sales, and the production
and further development of Duke’s developed advanced robotic system mounted on an Unmanned Aerial Solution (“UAS”),
armed with lightweight firearms, which the Company markets under the commercial name “TIKAD.”
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Pursuant to the Agreement, Duke
has granted Elbit a worldwide exclusive license for the use of Duke’s know-how and intellectual property and the marketing,
sales, production, and further development of the TIKAD for military, defense, homeland security, and para-military uses. As consideration
for granting the worldwide exclusive license, Elbit will pay Duke royalties from revenues received from worldwide sales of TIKAD,
with royalty rates ranging from low to mid-double-figure percentages, depending on the tiers of the selling price of TIKAD, for
a period starting from the date of the Agreement until 15 years following receipt of $5,000 in cumulative revenues from sales of
TIKAD units. In addition, Duke agreed to pay Elbit similar rates of royalties for revenues received by Duke from sales of its advanced
robotic system for civil use, if such systems will include new know-how developed by Elbit.
Pursuant to the terms of the
Agreement, the parties also agreed to cooperate in continuing a project (the “Project”) that has already started with
a customer in the Asia Pacific region. Elbit has agreed to invest, at its discretion and pursuant to certain milestones, in the
further development and setting up of serial production lines of TIKAD, and may elect to increase such investment subject to the
satisfaction of certain criteria, including Elbit’s right to terminate the Agreement if, for example, the Project is cancelled
by the customer. Such investment amounts will be made into Elbit’s owned assets and production lines of TIKAD. Elbit will
recoup 50% of its investment amount, up to $6,000, by offsetting 50% of royalty payments that may be due to Duke.
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B.
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During February 2021, holder of Convertible Loan as detailed in note 6A above, converted $200 principal
amount ($215.066 including accrued interest) into 575,044 common stock of the Company.
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C.
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On February 12, 2021 and March 2, 2021, the Company issued 171,246 common stock of the Company,
to several holders Security Exchange Agreement signed at March 9, 2020 between the Company and several debt holders (see note 1(iii)
above), according to which, such holders are entitled to an anti-dilution clause in the event that the Convertible Loans detailed
in notes 6B and 1(iii) above are converted such that such the number of shares held by such investors would not be lower than original
holding on a fully diluted basis prior to such conversions.
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D.
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On March 5, 2021 holder of Convertible Loan as detailed in note 6B above, converted the principal
amount of $130 into 347,594 shares of the Company’s common stock.
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E.
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On March 25, 2021, the Board of Directors appointed Yossef Balucka
to serve as its Chief Executive Officer and President. In conjunction with the appointment of Mr. Balucka, the Company issued to
Mr. Balucka options to purchase 450,000 shares of the Company’s commons stock at an exercise price of $0.0001 per share,
subject to and in accordance with the terms and conditions of an Option Plan to be set up and approved by the Company at the discretion
of the board of directors. The options shall vest over a three year period, with 50% of the options to vest on the first anniversary
of the grant date, and the balance of 50% of the options to vest in equal parts on the second and third anniversary of the grant
date, respectively, subject to the Mr. Balucka providing continued services to the Company.
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