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.
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.
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 3B) entered into at the Effective Time, unless such repayment is otherwise
waived by the parties to the Investors’ Loan; (ii) A 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).
UAS
DRONE CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(USD
in thousands, except share and per share data)
NOTE
1 – GENERAL (continue)
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. The investors will have the option to convert the respective unpaid balance of their Investor’s 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.
|
|
|
(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 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 $0.3740 (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.
|
|
|
(iv)
|
Several
Securities Exchange Agreements, on the same terms, to exchange a Promissory Note having
a total principal amount of $35 bearing interest if 6% per annum, for 9,623,621 shares
of Company’s common stock.
|
|
|
(v)
|
A
Registration Rights Agreement with GBC, Alpha, the Primary Lenders (as defined below)
and certain Duke shareholders. 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
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 (continue)
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) shall be issued but remain in escrow until the Company completes the Short-Form
Merger (as defined hereunder), pursuant to which, such shares will be issued to their respective holders. These Duke stockholders
not receiving shares of the Company’s common stock in exchange for their shares of Duke common stock at the Effective Time
are referred to as the Non-Participating Duke Holders.
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.
In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus
continues to spread globally and, as of May 2020, has spread to over 180 countries, including the United States and Israel. The
spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19
as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed
quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. On March 10, 2020, the Government
of Israel announced that effective Thursday, March 12, 2020, at 20:00 (Israel time) foreign travelers arriving from any country
will be required to remain in home quarantine until 14 days have passed since the date of entry into Israel; non-Israeli residents
will be required to prove they have the means to self-quarantine before being allowed entry into Israel and, in addition, non-Israeli
residents or citizens traveling from certain countries may be denied entry into Israel. In addition, the Ministry of Health in
the State of Israel issued guidelines on March 11, 2020 recommending people avoid gatherings in one space and providing that no
gathering of more than 100 people should be held under any circumstances. Employers (including us) are also required to prepare
and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, on March 11, 2020,
the President of the United States issued a proclamation to restrict travel to the United States from foreign nationals who have
recently been in certain European countries. The spread of an infectious disease, including COVID-19, may also result in the inability
of Company’s manufacturers to deliver components or finished products on a timely basis and may also result in the inability
of Company’s suppliers to deliver the parts required by Company’s 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 an infectious disease, such as 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 Company’s business, financial condition and results
of operations. The extent to which COVID-19 impacts the Company’s business will depend on future developments, which are
highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the
actions to contain COVID-19 or treat its impact, among others.
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 March 31, 2020, the Group had $625 in cash and cash equivalents, net losses of $691, accumulated deficit of $4,454, and a negative
working capital of $575.
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 Company’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.
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
Unaudited Interim Financial
Statements
The accompanying unaudited condensed
consolidated financial statements include the accounts of the Company and its subsidiary, prepared in accordance with accounting
principles generally accepted in the 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 for three-months ended March 31, 2020. However, these
results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2020. 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 U.S. Securities and Exchange Commission (“SEC”). These financial statements should be
read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report published on
the SEC’s website, for the year ended December 31, 2019.
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 (continue)
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,
“Derivatives and Hedging”.
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 (continue)
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 March 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of convertible component in convertible loan
|
|
|
-
|
|
|
|
-
|
|
|
|
267
|
|
|
|
267
|
|
|
Total liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
267
|
|
|
|
267
|
|
The following table presents
the changes in fair value of the level 3 liabilities for the three months ended March 31, 2020:
|
|
|
Fair value of Convertible
component
|
|
|
Outstanding at January 1, 2020
|
|
|
-
|
|
|
Fair value of issued level 3 liability
|
|
|
276
|
|
|
Changes in fair value
|
|
|
(9
|
)
|
|
Outstanding at March 31,
2020
|
|
|
267
|
|
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 (continue)
Recent Accounting Pronouncements
In June 2016, the Financial
Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. In November 2018, FASB
issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which amends
the scope and transition requirements of ASU 2016-13. Topic 326 requires a financial asset (or a group of financial assets) measured
at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses
is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable
forecasts that affect the collectability of the reported amount. Topic 326 will originally become effective for the Company beginning
January 1, 2020, with early adoption permitted, on a modified retrospective approach. As a smaller reporting company, the effective
date for the Company has been delayed until fiscal years beginning after December 15, 2022, in accordance with ASU 2019-10, although
early adoption is still permitted. This standard is not expected to have a material impact to the Company’s consolidated
financial statements after evaluation.
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.
The Company has implemented all
new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe
that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material
impact on the consolidated financial statements of the Company.
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 1 A above, 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 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.
|
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 $132 at the date of issuance and at a value of $129 as pf March 31, 2020. The following
are the data and assumptions used as of the balance sheet date:
|
|
|
March 31,
2020
|
|
|
March 10,
2020
|
|
|
Common stock price
|
|
|
0.374
|
|
|
|
0.374
|
|
|
Expected volatility
|
|
|
37
|
%
|
|
|
37
|
%
|
|
Expected term
|
|
|
2.94 years
|
|
|
|
3 years
|
|
|
Risk free rate
|
|
|
0.29
|
%
|
|
|
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 $64, and was recorded as interest expenses.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
(USD in thousands, except share and per
share data)
NOTE
3 – CONVERTIBLE NOTES (continue)
|
|
B.
|
In connection with the Share Exchange, immediately prior to the Effective Time, the Company entered into several Convertible Loan Agreement, 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 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 provide 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 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.
|
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.
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.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
(USD in thousands, except share and per
share data)
NOTE 3 – 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 $143 at the date of issuance and at a value of $138 as of March 31, 2020. The following
are the data and assumptions used as of the balance sheet date:
|
|
|
March 31,
2020
|
|
|
March 10,
2020
|
|
|
Common stock price
|
|
|
0.374
|
|
|
|
0.374
|
|
|
Expected volatility
|
|
|
37
|
%
|
|
|
37
|
%
|
|
Expected term
|
|
|
0.94 years
|
|
|
|
1 year
|
|
|
Risk free rate
|
|
|
0.17
|
%
|
|
|
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
4 - STOCK OPTIONS
The following table presents
the Company’s stock option activity the three months ended March 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 March 31, 2020
|
|
|
995,000
|
|
|
|
2.70
|
|
|
Number of options exercisable at March 31, 2020
|
|
|
795,000
|
|
|
|
2.81
|
|
The aggregate intrinsic value
of the awards outstanding as of March 31, 2020 is $0. These amounts represent the total intrinsic value, based on the Company’s
stock price of $ 0.374 as of March 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.
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
(USD in thousands, except share and per
share data)
NOTE
4 - STOCK OPTIONS (continue)
The stock options outstanding
as of March 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 March 31, 2020
|
|
|
$2.25
|
|
|
400,000
|
|
|
|
2.45
|
|
|
|
200,000
|
|
|
$3.00
|
|
|
595,000
|
|
|
|
2.05
|
|
|
|
595,000
|
|
|
|
|
|
995,000
|
|
|
|
|
|
|
|
795,000
|
|
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 March 31, 2020
|
|
|
$2.25
|
|
|
400,000
|
|
|
|
2.70
|
|
|
|
200,000
|
|
|
$3.00
|
|
|
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 March 31, 2020 was $82 and are included in
General and Administrative expenses in the Statements of Operations
NOTE 5
– RELATED PARTIES
|
|
A.
|
Transactions and balances with related parties
|
|
|
|
Three months ended
March 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
Directors compensation
|
|
|
17
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing:
|
|
|
|
|
|
|
|
|
|
Financing expense
|
|
|
8
|
|
|
|
7
|
|
|
Financing income
|
|
|
80
|
|
|
|
-
|
|
UAS DRONE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
(USD in thousands, except share and per
share data)
NOTE 5 – RELATED
PARTIES (continue)
|
|
B.
|
Balances with related parties:
|
|
|
|
As of March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
-
|
|
|
|
23
|
|
|
Stockholders loans
|
|
|
262
|
|
|
|
915
|
|
|
Convertible loans
|
|
|
415
|
|
|
|
-
|
|
NOTE 6
– SUBSEQUENT EVENTS
On April 12, 2020, effective
as of March 1, 2020, the Board of Directors approved the payment of certain fees to its directors in the amounts of $4,980, $4,980
and $6,950 per month to directors, 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 $1,500 for each calendar quarter and $400 for attendance of each meeting of the board of directors. These amounts are exclusive
of Israeli VAT if applicable.
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 will merge, upon the
satisfaction of customary closing conditions, with and into Duke, with Duke surviving as a wholly-owned subsidiary of the Company
(the “Short-Form Merger”). Pursuant to the Merger Agreement, the Company will acquire the remaining outstanding shares
of Duke held by those certain Duke shareholders that did not participate in the Share Exchange.
On April 30, 2020 the Company filed a Registration Statement
on Form S-1 (the “Registration Statement”) to register: (i) 63,856 shares of common stock of the Company to be issued
to certain stockholders of Duke Inc. upon the consummation of the Short-Form Merger; and (ii) 18,200,592 shares of common stock
of the Company to be sold, from time to time, by the selling stockholders identified in the Registration Statement.