NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(USD
in thousands, except share and per share data)
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, which registered: (i) 63,856 shares of common stock of the Company, $0.0001 par value
per share (the “Common Stock”), 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 certain selling stockholders named in the Registration Statement on Form S-1; and (iii)
3,649,733 shares of Common Stock 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 is quoted on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market, under
the symbol “USDR”.
UAS
DRONE CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(USD
in thousands, except share and per share data)
NOTE
1 – GENERAL (cont.)
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.”
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 “Convertible Loans”). The term of each investor’s loan was for 12 month and each such agreement bore annual interest of 15%, and at the discretion of USDR, the term of the investors’ loans was able to be extended for an additional 12 month period, which the Company did elect to extend (see also note 6 below). The investors had 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. As of June 30, 2021, the Convertible Loans were fully repaid (see note 3B below).
|
UAS
DRONE CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(USD
in thousands, except share and per share data)
NOTE
1 – GENERAL (cont.)
|
(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.
|
|
(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 were to mature three years from the Effective Date, bore interest at a rate of 8% per year and were only convertible into shares of Common Stock, at an original conversion price of $0.374 (the “Original Conversion Price”); provided, however, that such Original Conversion Price was to 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 disposes 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 was 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 June 30, 2021, the New Debentures were fully repaid or converted (see note 3A 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 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.
|
UAS
DRONE CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(USD
in thousands, except share and per share data)
NOTE
1 – GENERAL (cont.)
Pursuant
to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of 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.
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.
We
have not experienced any material impact on our financial condition and results of operations due to COVID-19, and we do not expect to
experience any material impact on our overall liquidity positions and outlook as a result of the outbreak. Nevertheless, given that COVID-19
is still an ongoing event in different parts of the world, it is still not possible at this time to estimate the full impact that the
COVID-19 pandemic, the continued spread of COVID-19, and any additional measures taken by governments, health officials or by us in response
to such spread, could have on our business results of operations and financial condition.
UAS
DRONE CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(USD
in thousands, except share and per share data)
NOTE
1 – GENERAL (cont.)
Unaudited
Interim Financial Statements
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, prepared in
accordance with GAAP and with the instructions to Form 10-Q. In the opinion of management, the financial statements presented herein
have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of
operations and cash flows for the six-months ended June 30, 2021. However, these results are not necessarily indicative of results for
any other interim period or for the year ended December 31, 2021. The preparation of financial statements in conformity with GAAP requires
the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates
and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.
Certain
information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles
have been omitted pursuant to the rules of the SEC. These financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company’s Annual Report published with the SEC, for the year ended December 31, 2020.
Principles
of Consolidation
The
consolidated financial statements are prepared in accordance with GAAP. The consolidated financial statements of the Company include
the Company and its wholly-owned and majority-owned subsidiaries. All inter-company balances and transactions have been eliminated.
Use
of Estimates
The
preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain
revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results
could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate
to the share based compensation, going concern assumptions and convertible loans.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
(USD in thousands, except share and per share data)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
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 Accounting Standards Codification (“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.
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” 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.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
(USD in thousands, except share and per share data)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.)
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.
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 June 30, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of convertible component in convertible loan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
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 six months ended June 30, 2021:
|
|
Fair value of
Convertible
component
|
|
Outstanding at January 1,2021
|
|
|
48
|
|
Fair value of issued level 3 liability
|
|
|
-
|
|
Fair value of repaid level 3 liability
|
|
|
(181
|
)
|
Changes in fair value
|
|
|
133
|
|
Outstanding at June 30,2021
|
|
|
-
|
|
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
(USD in thousands, except share and per share data)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.)
Recent Accounting Pronouncements
In August 2020, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 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”). The guidance
in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately
present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic
815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order
to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted
for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted
method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments
that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning
after December 15, 2021. Early adoption is permitted. The guidance must be adopted as of the beginning of the fiscal year of adoption.
The Company is currently evaluating the impact of this new guidance, but does not expect it to have a material impact on its financial
statements.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(USD in thousands, except share and per share data)
NOTE
3 – CONVERTIBLE NOTES
|
A.
|
As detailed in Note 1A above, in conjunction with the consummation of the Share Exchange, USDR entered into Securities exchange agreements
with outstanding debt holders of USDR, Alpha and GBC to respectively cancel existing debentures or debt in the total amount of $658 and
in exchange issue the 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 mature three years from the Effective Date in amount of $400, bear interest at a rate of 8%
per year and are only convertible into shares of Common Stock, at an original conversion price of $0.3740; provided, however, that such
Original Conversion Price was to be adjusted downward in the event of 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 was to occur immediately after the
completion of such period.
|
During February 2021, Alpha converted
$200 of the principal amount ($215 including accrued interest) of the New Debentures into 575,044 shares of Common Stock.
On May 11, 2021, Alpha converted the
remaining $100 of its principal amount ($111 including accrued interest) of the New Debentures into 295,759 shares of Common Stock.
On May 14, 2021, the Company repaid
GBC the full principal balance and interest amount of the New Debentures detailed in Note 3A above, in the amount of $109.
As a result of the above repayments
and conversions, as of June 30, 2021, the balance of the New Debentures was zero.
In accordance with ASC 815-15-25, the
conversion feature was considered embedded derivative instruments, and is to be recorded at their 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 $26 as of December 31, 2020. The following are the data and assumptions used as of the balance sheet date:
|
|
December 31,
2020
|
|
Common stock price
|
|
|
0.25
|
|
Expected volatility
|
|
|
34.89
|
%
|
Expected term
|
|
|
2.19 years
|
|
Risk free rate
|
|
|
0.17
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(USD in thousands, except share and per share data)
NOTE
3 – CONVERTIBLE NOTES (cont.)
|
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
required repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at our 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 provided that we 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. The Convertible Loan Agreements bore simple interest at a rate equal to 15% per annum, payable on
the 15th day of each calendar month.
|
The lenders had the option to convert
the unpaid balance of their respective Convertible Loans into shares of 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 Common Stock are sold in a transaction, the amount actually received in cash by the
Company, and (ii) if shares of 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 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 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 $15 million 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.
On March 5, 2021, a holder of a Convertible
Loan converted the principal amount of $130 into 347,594 shares of Common Stock.
On May 17 and 18, 2021, the Company
repaid the remaining full principal balance of the Convertible Loans, in the principal amount of $835.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(USD in thousands, except share and per share data)
NOTE
3 – CONVERTIBLE NOTES (cont.)
In accordance with ASC 815-15-25 the
conversion feature was considered embedded derivative instruments, and is to be recorded at their 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 $22 at December 31, 2020. The following are the data and assumptions used
as of the balance sheet date:
|
|
December 31,
2020
|
|
Common stock price
|
|
|
0.374
|
|
Expected volatility
|
|
|
37
|
%
|
Expected term
|
|
|
1 year
|
|
Risk free rate
|
|
|
0.43
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
NOTE
4 – SHAREHOLDERS’ EQUITY
On February 12, 2021, March 2, 2021
and May 18, 2021, respectively, the Company issued an aggregate of 225,265 shares of Common Stock to several holders who were signatories
to the Securities Exchange according to which such holders are entitled to an anti-dilution clause in the event that the Convertible Loans
detailed in Note 3B 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.
On May 11, 2021, the Company entered
into Securities Purchase Agreements (the “Securities Purchase Agreements”) with eight (8) non-U.S. investors, pursuant to
which the Company, in a private placement offering (the “Offering”), agreed to issue and sell to the investors an aggregate
of: (i) 12,500,000 shares of the Company’s Common Stock, at a price of $0.40 per share; and (ii) warrants (the “Warrants”)
to purchase 12,500,000 Company’s Common Stock. The Warrants are 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.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(USD in thousands, except share and per share data)
NOTE 4 –
SHAREHOLDERS' EQUITY (cont.)
On May 11, 2021, the Company signed
a Service Agreement with a third party according to which the service provider agreed to provide the Company with financial and project
oversight services with respect to the Securities Purchase Agreements relating to the Offering. Pursuant to the agreement, the Company
agreed to pay the service provider (1) 6% of the investment amounts received which amounted to $351 and (2) options to receive a number
of units (each unit for a price of US$0.40 includes one share and one warrant with an exercise price of $0.40 per share) equal to 6% of
the investment amount received, divided by 0.40. In the event that the investors that participated in the Offering will exercise their
Warrants, the service provider shall be entitled to receive an additional payment of (1) 6% of the warrants exercised amounts received
and (2) options to receive a number of units equal to 6% of the warrants exercised amounts received, divided by $0.40.
The fair value of options was estimated
at the dates of grant and as of June 30, 2021 using the Black-Scholes option pricing model. The following are the data and assumptions
used:
|
|
June 30,
2021
|
|
|
May 11,
2021
|
|
Dividend yield
|
|
0
|
|
|
0
|
|
Expected volatility (%) (*)
|
|
|
34.89
|
%
|
|
|
34.89
|
%
|
Risk-free interest rate (%) (**)
|
|
|
0.11
|
%
|
|
|
0.16
|
%
|
Expected term of options (years) (***)
|
|
|
1.36
|
|
|
|
1.5
|
|
Exercise price (US dollars)
|
|
|
0.4
|
|
|
|
0.4
|
|
Share price (US dollars)
|
|
|
0.3775
|
|
|
|
0.32
|
|
Fair value (USD in thousands)
|
|
|
79
|
|
|
|
44
|
|
The fair value of the options as of
May 11, 2021 in the amount of $44 was classified as issuance expenses. Changes to the fair value of the options are recorded as interest
expenses in the statements of comprehensive income (loss).
NOTE 5 –
STOCK OPTIONS
The following table presents the Company’s
stock option activity during the six months ended June 30, 2021:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at December 31,2020
|
|
|
995,000
|
|
|
|
2.70
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30,2021
|
|
|
995,000
|
|
|
|
2.70
|
|
Number of options exercisable at June 30, 2021
|
|
|
895,000
|
|
|
|
2.81
|
|
The aggregate intrinsic value of the
awards outstanding as of June 30, 2021 is $0. These amounts represent the total intrinsic value, based on the Company’s stock
price of $0.38 as of June 30, 2021, 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.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(USD in thousands, except share and per share data)
NOTE 5
– STOCK OPTIONS (cont.)
The stock options outstanding as of
June 30, 2021, have been separated into exercise prices, as follows:
Exercise price
|
|
Stock
options
outstanding
|
|
|
Weighted average
remaining
contractual
life – years
|
|
|
Stock
options
vested
|
|
|
|
As of March 31, 2021
|
|
2.25
|
|
|
400,000
|
|
|
|
1.45
|
|
|
|
300,000
|
|
3
|
|
|
595,000
|
|
|
|
1.05
|
|
|
|
595,000
|
|
|
|
|
995,000
|
|
|
|
|
|
|
|
895,000
|
|
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
|
|
|
|
1.70
|
|
|
|
300,000
|
|
3
|
|
|
595,000
|
|
|
|
1.30
|
|
|
|
595,000
|
|
|
|
|
995,000
|
|
|
|
|
|
|
|
895,000
|
|
Compensation expense recorded by the
Company in respect of its stock-based compensation awards for the period ended June 30, 2021 was $38 and are included in General and Administrative
expenses in the Statements of Operations.
On May 27, 2021, the board of directors
of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”) pursuant to which the Company may issue awards, from
time to time, consisting of non-qualified stock options, restricted stock grants and restricted stock units. In addition, stock option
awards that qualify under Section 102 of the Israeli Tax Ordinance (New Version) 1961 (the “ITO”), and/or under Section 3(i)
of the ITO, may be granted.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(USD in thousands, except share and per share data)
NOTE
6 – COLLABORATION AGREEMENT
On January 29, 2021, the Company, through
its wholly owned subsidiary Duke Israel and Elbit Systems Land Ltd., an Israeli corporation (“Elbit”), entered into a collaboration
agreement (the “Agreement”) for the global marketing and sales, and the production and further development of Duke Israel’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.”
Pursuant to the Agreement, Duke Israel
granted Elbit a worldwide exclusive license for the use of Duke Israel’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 $50,000 in cumulative revenues from sales of TIKAD units. In addition, Duke Israel agreed
to pay Elbit similar rates of royalties for revenues received by Duke Israel 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. Per the agreement, Duke Israel shall be entitled to portion of the revenues generated in the Evaluation Phase of
the Project. In addition, 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 Israel.
In addition to the above Elbit paid
Duke Israel an upfront fee at the time of signing the Agreement for transfer of the engineering material and support for transferring
the required information to Elbit. The upfront fee was recorded as revenues as of June 30, 2021.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(USD in thousands, except share and per share data)
NOTE
7 – RELATED PARTIES
|
A.
|
Transactions and balances with related parties
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
General and administrative expenses:
|
|
|
|
|
|
|
Directors and Officers compensation (*)
|
|
|
106
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
(*) Share base compensation
|
|
|
84
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing:
|
|
|
|
|
|
|
|
|
Financing expense
|
|
|
4
|
|
|
|
63
|
|
Financing income
|
|
|
-
|
|
|
|
75
|
|
|
B.
|
Balances with related parties:
|
|
|
As
of
June 30,
|
|
|
As of
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Other accounts liabilities
|
|
|
17
|
|
|
|
19
|
|
Stockholders loans
|
|
|
272
|
|
|
|
268
|
|
Convertible loans
|
|
|
-
|
|
|
|
972
|
|
|
C.
|
On March 25, 2021, the Board of Directors appointed Yossi Balucka
to serve as its Chief Executive Officer. Mr. Balucka is entitled to a monthly fee of NIS30,000 (approximately $9,100), reimbursement
of expenses and discretionary performance bonus. 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 . 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.
|
|
|
The fair value of the options was determined using the Black-Scholes pricing model, assuming a risk free rate of 0.07%, a volatility factor of 34.89%, dividend yields of 0% and an expected life of 5 years. Total share based compensation expenses during the six months ended June 30, 2021 amounted to $84.
|
NOTE
8 – SUBSEQUENT EVENTS
On July 13, 2021, the Board of Directors of the Company approved the issuance of options to purchase 2,445,443 shares of the Company’s Common Stock to certain employees, directors and services providers, under the Company’s 2021 Plan. Options to purchase 1,629,443 shares of Common Stock shall vest as follows: 50% on the first anniversary of the grant date, 25% after the second anniversary of the grant and 25% after the third anniversary of the grant date, and shall be exercisable for an exercise price of $0.38 per share. Options to purchase 450,000 shares of Common Stock shall vest as follows: 50% on the first anniversary of the grant date, 25% after the second anniversary of the grant and 25% after the third anniversary of the grant date, and shall be exercisable for an exercise price of $0.0001 per share. Options to purchase 366,000 shares of Common Stock shall fully vest on the first anniversary of the grant date.