The accompanying notes are an integral part of these unaudited condensed financial statements.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS
UAS Drone Corp. (the Company) was incorporated under the laws of the State of Nevada on February 4, 2015. The Company began limited operations on February 11, 2015. Prior to the Companys 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
These condensed financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States. The Companys financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 fiscal year end.
Interim Financial Statements
The accompanying unaudited condensed financial statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America (U.S.) as promulgated by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) and with the rules and regulations of the U.S Securities and Exchange Commission (SEC) for interim financial information. The unaudited condensed financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited condensed financial statements should be read in conjunction with Managements Discussion and Analysis and Results of Operations contained in this report and the audited financial statements and accompanying notes for the period ended December 31, 2018, as filed with the SEC on March 29, 2019.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include evaluation of obsolete inventory, valuation of stock options granted and valuation for awards of common stock.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity date of three months or less when purchased to be cash equivalents. At March 31, 2019 and December 31, 2018, the Company had no cash balance in excess of federally insured limits.
6
UAS DRONE CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued
Fair Value of Financial Instruments
The carrying value of the Companys financial instruments, consisting of accounts payable, notes payable and convertible notes payable approximate their fair value due to the short-term maturity of such instruments. Unless otherwise noted, it is managements opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements.
Revenue Recognition
On January 1, 2018, we adopted the Financial Accounting Standards Board's (FASB) new revenue recognition standard using the modified retrospective method applied to those contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new standard, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting.
The Company is in the business of selling unmanned aerial systems (Drones). The sale of drones is recognized upon shipment of the product which is the point in time the Companys performance obligation is complete.
Income Taxes
A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
When required, the Company records a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements. Tax positions are measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefits are recognized for positions that do not meet this threshold
We recognize interest and penalties related to unrecognized tax benefits on the interest expense line and other expense line, respectively, in the accompanying statement of operations. Accrued interest and penalties are included on the related liability lines in the unaudited condensed balance sheet.
Loss per Share
The basic loss per share is calculated by dividing our net loss by the weighted average number of common shares during the period. The diluted earnings (loss) per share is calculated by dividing our net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. As of March 31, 2019, 1,317,768 shares underlying the convertible debt and 35,000 shares underlying stock options have been excluded from the calculation of diluted loss per share because their impact was anti-dilutive. As of March 31, 2018, 1,237,298 shares underlying the convertible debt and 45,000 shares underlying stock options have been excluded from the calculation of diluted loss per share because their impact was anti-dilutive.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Companys present or future financial statements.
7
UAS DRONE CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 GOING CONCERN
The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern. The Company has net losses for the year ended December 31, 2018 and for the three months ended March 31, 2019, and a working capital deficit. This condition raises substantial doubt about the Companys ability to continue as a going concern. The Companys continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management is planning to raise additional funds through debt or equity offerings. There is no guarantee that the Company will be successful in these efforts.
NOTE 4 RELATED PARTY TRANSACTIONS
During 2018, a stockholder of the Company advanced $98,349 to the Company. During the first three months of 2019, a stockholder of the Company advanced $27,384 to the Company. The advances bear no interest or maturity. The balance due to the stockholder is $173,741 and $146,357, as of March 31, 2019 and December 31, 2018, respectively, and has been presented on the accompanying balance sheet as advances from stockholder.
During the first three months of 2019, the Company paid our Chief Executive Officer and Chairman of the Board $2,500 for his services on the Board. Further, our accounts payable include $27,500 and $25,000 due to this individual as of March 31, 2019 and December 31, 2018, respectively.
NOTE 5 NOTES PAYABLE
On April 1, 2015, the Company closed a Subscription Agreement by which one institutional investor purchased an 8% Convertible Debenture having a total principal amount of $300,000, convertible into common shares of the Company at $0.33 per share and maturing April 1, 2017. The maturity date of the note was extended to December 31, 2019. The Company determined that the embedded conversion option did not require bifurcation and liability treatment because the underlying shares were not readily convertible to cash. The Company estimated the fair value of the underlying common stock and determined that the convertible note did not include a beneficial conversion feature. As of March 31, 2019 and December 31, 2018, the balance of the convertible note payable was $300,000.
On April 1, 2016, the Company closed an Additional Advance Agreement by which one institutional investor purchased an 8% Convertible Debenture having a total principal amount of $100,010, convertible into common shares of the Company at $1.55 per share and maturing April 1, 2017. The maturity date of the note was extended to December 31, 2019. The Company determined that the embedded conversion option did not require bifurcation and liability treatment because the underlying shares were not readily convertible to cash. The Company estimated the fair value of the underlying common stock and determined that the convertible note did not include a beneficial conversion feature. As of March 31, 2019 and December 31, 2018, the balance of these convertible note payable was $100,010.
On January 27, 2017, the Company closed a convertible debenture by which one institutional investor purchased an 8% Convertible Debenture having a total principal amount of $50,005, convertible into common shares of the Company at $1.55 per share and maturing August 1, 2018. The maturity date of the note was extended to December 31, 2019. The Company determined that the embedded conversion option did not require bifurcation and liability treatment because the underlying shares were not readily convertible to cash. The Company estimated the fair value of the underlying common stock and determined that the convertible note did not include a beneficial conversion feature. As of March 31, 2019 and December 31, 2018, the balance of this convertible note payable was $50,005.
On October 1, 2018, the Company financed the premium for directors and officers insurance. The Company borrowed $30,610 at 5.68% interest, and the note will be repaid in 10 equal installments of $3,244. As of March 31, 2019 and December 31, 2018, the balance of the note payable was $12,824 and $25,407, respectively.
8
UAS DRONE CORP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 6 EQUITY
Common Stock
The Company has authorized 100,000,000 shares of common stock, $0.0001 par value. As of March 31, 2019 and December 31, 2018, 1,172,544 shares were issued and outstanding.
As of March 31, 2019 and December 31, 2018, the Company accrued liabilities of $3,300 for refunds that will be returned to prospective investors.
Stock Options
No options were granted during the three months ended March 31, 2019. A summary of the status of options granted as of March 31, 2019, and changes during the period then ended are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Three Months Ended March 31, 2019
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2019
|
|
|
35,000
|
|
|
$
|
1.50
|
|
|
1.25 years
|
|
|
$
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at March 31, 2019
|
|
|
35,000
|
|
|
$
|
1.50
|
|
|
1.00 years
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
35,000
|
|
|
$
|
1.50
|
|
|
1.00 years
|
|
|
|
|
|
The Company had 35,000 vested options at the beginning of the period. At March 31, 2019, the Company had 35,000 vested options with a weighted average exercise price of $1.50.
The total intrinsic value of options during the three months ended March 31, 2019 was $0. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at March 31, 2019 (for outstanding options), less the applicable exercise price.
NOTE 7 CONFLICTS OF INTEREST
The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such person(s) may face a conflict in selecting between the Company and his other business interests. The Company has not formulated a policy for the resolution of such conflicts.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
.
Safe Harbor Statement
.
Statements made in this Form 10-Q which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) our ability to gain a larger share of unmanned aerial systems industry, our ability to continue to develop products acceptable to our industry, our ability to retain our business relationships, and our ability to raise capital and the growth of the unmanned aerial systems industry, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets", "tend" or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in the Company's reports on file with the Securities and Exchange Commission (the SEC): general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the unmanned aerial systems, the development of products that may be superior to the products offered by the Company, competition, changes in the quality or composition of the Company's products, our ability to develop new products, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Companys operations, products and prices.
Accordingly, results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
Business Highlights
UAS Drone Corp. (the Company, UAS, we, us, or similar terms), headquartered in Palm Beach Florida, was founded in 2014 as Unlimited Aerial Systems, LLP (UAS LLP). We completed an Asset Purchase Agreement on March 31, 2015, purchasing all the assets and certain liabilities of UAS LLP in exchange for 600,000 shares of our common stock and our assumption of certain liabilities of UAS LLP.
We are a developer and manufacturer of commercial unmanned aerial systems, or drones, with the goal of providing a superior Quadrotor aerial platform at an affordable price point in the law enforcement and first responder markets.
In late 2016, we began working with a flight training company in the western U.S. We sent one of our inventory Quadrotors to them with the intention of: (1) allowing them to use our drone in their training courses, specifically with law enforcement and first responder professionals; (2) obtaining feedback on performance and operating characteristics of our drone with the intention of improving the product for future generations; and (3) seeking sales of additional Quadrotors to this company or its clients. During 2018 and the first quarter of 2019, the Company did not sell any drones.
In October 2015, we entered into two agreements with Havis Inc., of Warminster, Pennsylvania, to provide manufacturing and distribution services for our products. Havis is an 80 year-old privately held, ISO 9001:2008 certified company that manufactures in-vehicle mobile computer and workflow solutions for public safety, public works government agencies and mobile professionals. Havis products are distributed through a nationwide network of resellers and sales representatives in the United States.
Under the Manufacturing Agreement, Havis will manufacture the Companys commercial drone products for the law enforcement sector in the United States. The agreement has a five-year term with successive three-year renewal terms, and lays out a framework for engineering, fulfillment of purchase orders, warehousing and other material terms.
10
Under the Distribution Agreement, the Company has appointed Havis as its distributor to the law enforcement sector in the United States for the Companys commercial drones. The agreement has a five-year term with successive three-year renewal terms, and provides a framework for development of marketing materials, warranty and service programs, training and risk mitigation, among other material terms. The agreement also provides for sales quotas to be established after the first year of sales, and Havis to brand all drones with its corporate name and logo. No pricing or margins are specified in the agreement.
Our agreements with Havis are currently on hold and may be terminated, as there has been no manufacturing of the drones nor development of marketing or service programs.
Results of Operations
Three Months Ended March 31, 2019 versus March 31, 2018.
During the three months ended March 31, 2019 and 2018, the Company did not sell any drones and did not receive any revenue.
During the three months ended March 31, 2019, the Company incurred $27,685 of expenses compared to $28,950 for the three months ended March 31, 2018. The expenses for 2019 were primarily for director fees, legal fees, directors and officers insurance and audit fees. The decrease was the result of a decrease in OTC Market fees off-set by an increase in audit fees and directors and officer insurance.
UASs net loss was $37,077 for the three months ended March 31, 2019, versus $38,186 for the same period in 2018.
Liquidity and Capital Resources
.
Cash on hand was $582 at March 31, 2019. Cash used by operations for the three months ended March 31, 2019, was $14,280 versus $11,124 for the same period in 2018. The cash used was for legal and accounting fees, board fees and consulting fees.
The cash on hand is not sufficient to fund operations for the next twelve months. While there can be no guarantees, the Company plans to raise additional capital to fund its operations.
During first quarter of 2019, a Shareholder advanced $27,384 to the Company for operating purposes.
Item 4. Controls and Procedures
.
(a) Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the EC's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Acting Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
11
As of March 31, 2019, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that evaluation, the Chief Executive Officer and the Acting Chief Financial Officer concluded that, as of such date, the design and operation of these disclosure controls were not effective to accomplish their objectives at the reasonable assurance level.
Management identified the following weaknesses, which were deemed to be material weaknesses in internal controls:
1.
Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in a lack of segregation of duties.
2.
The Company does not have a full time Chief Executive Officer nor Chief Financial Officer that can oversee day to day operations and the financial reporting function.
3.
The Company does not have an Independent Audit Committee that can provide management oversight.
(b) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), occurred during the fiscal quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.