UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File No. 000-55504

  

UAS Drone Corp.
(Exact name of registrant as specified in its charter)

 

Nevada   47-3052410
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

10 HaRimon Street    
Mevo Carmel Science and Industrial Park, Israel   2069203
(Address of Principal Executive Offices)   (Zip Code)

 

+972-4-8124101
(Registrant’s telephone number, including area code)

  

1 Etgar Street

Tirat-Carmel, Israel

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class registered   Trading Symbol(s)   Name of exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of August 5, 2022, the registrant had 54,218,813 shares of common stock, par value $0.0001, of the registrant issued and outstanding.

 

In this Quarterly Report, unless otherwise specified, all dollar amounts are expressed in United States dollars. Except as otherwise indicated by the context, references in this Quarterly Report to “Company”, “UAS,” “we,” “us” and “our” are references to UAS Drone Corp., a Nevada corporation, together with its consolidated subsidiaries.

 

 

 

 

 

 

UAS Drone Corp.

 

Quarterly Report on Form 10-Q

 

TABLE OF CONTENTS

 

  Page  
   
Cautionary Note Regarding Forward-Looking Statements ii
   
PART 1-FINANCIAL INFORMATION  
       
Item 1.   Consolidated Financial Statements (unaudited) 1
       
    Consolidated Balance Sheets 3
       
    Consolidated Statements of Comprehensive Loss 4
       
    Statements of Stockholders’ Equity 5
       
    Consolidated Statements of Cash Flows 6
       
    Notes to Consolidated Financial Statements 7
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
       
Item 4.   Control and Procedures 17
   
PART II-OTHER INFORMATION 18
     
Item 6.   Exhibits 18
   
SIGNATURES 19

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 

 

Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:

 

  sales of our products;

 

  the size and growth of our product market;

 

  our activity in the civilian market;

 

  our manufacturing capabilities;

 

  our entering into certain partnerships with third parties;

 

  obtaining required regulatory approvals for sales or exports of our products;

 

  our marketing plans;

 

  our expectations regarding our short- and long-term capital requirements;

 

  the effect of COVID-19 on our business;

 

  our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses; and

 

  information with respect to any other plans and strategies for our business.

 

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2021 (filed on March 7, 2022) entitled “Risk Factors” as well as in our other public filings.

 

In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

ii

 

 

UAS DRONE CORP.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 30, 2022

 

1

 

 

UAS DRONE CORP.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF JUNE 30, 2022

 

TABLE OF CONTENTS

 

  Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:  
Condensed Consolidated Balance sheets as of June 30, 2022 (unaudited), and December 31, 2021 3
Condensed Consolidated Statements of Comprehensive loss for six and three months ended June 30, 2022 and 2021 (unaudited) 4
Condensed Consolidated Statements of Stockholders’ Equity (deficit) for the period of six and three months ended June 30, 2022 (unaudited) and for the year ended December 31, 2021 5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) 6
Notes to unaudited condensed consolidated financial statements 7 - 13

 

2

 

 

UAS DRONE CORP.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(USD in thousands, except share and per share data)

 

   June 30,   December 31, 
   2022   2021 
Assets  (Unaudited)     
Current Assets        
Cash and cash equivalents   3,154    3,560 
Other current assets   52    40 
Total Current assets   3,206    3,600 
           
Lease deposit   15    
-
 
           
Property and equipment, net   23    9 
Total assets   3,244    3,609 
           
Liabilities and Shareholders’ Equity          
Current Liabilities          
Accounts payable   77    75 
Other accounts liabilities   98    136 
Total current liabilities   175    211 
           
Stockholder loans   301    297 
Total liabilities   476    508 
           
Stockholders’ Equity          
Common stock of US$ 0.0001 par value each (“Common Stock”):
100,000,000 shares authorized as of June 30, 2022 and December 31, 2021; issued and outstanding 54,118,813 and 54,018,813 shares as of June 30, 2022 and December 31, 2021, respectively.
   5    5 
Additional paid-in capital   9,438    9,115 
Accumulated deficit   (6,675)   (6,019)
Total stockholders’ equity   2,768    3,101 
Total liabilities and stockholders’ equity   3,244    3,609 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3

 

 

UAS DRONE CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(USD in thousands, except share and per share data)

 

   Six months ended   Three months ended 
   June 30   June 30 
   2022   2021   2022   2021 
   (Unaudited)   (Unaudited) 
                 
Revenues   
-
    500    
-
    
-
 
Cost of revenues   
-
    
-
    
-
    
-
 
Gross profit   
-
    500    
-
    
-
 
                     
Research and development expenses   (9)   
-
    (3)   
-
 
General and administrative expenses   (658)   (433)   (327)   (271)
Other income   
-
    132    
-
    
-
 
Operating income (loss)   (667)   199    (330)   (271)
Financing income (expense), net   11    (366)   43    (147)
Comprehensive loss   (656)   (167)   (287)   (418)
                     
Loss per share (basic and diluted)   (0.01)   (0.00)   (0.01)   (0.00)
                     
Basic and diluted weighted average number of shares of common stock outstanding   54,076,824    44,325,572    54,118,813    48,091,085 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4

 

 

UAS DRONE CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(USD in thousands, except share and per share data)

 

   Number of
Shares
  

 

 

Amount

   Additional
paid-in
capital
   Accumulated
deficit
   Total
stockholders’
deficit
 
                     
BALANCE AT DECEMBER 31, 2021   54,018,813    5    9,115    (6,019)   3,101 
Share based compensation for services   100,000    *    180    
-
    180 
Comprehensive loss for three month ended March 31, 2022   -    
-
    
-
    (369)   (369)
BALANCE AT MARCH 31, 2022 (Unaudited)   54,118,813    5    9,295    (6,388)   2,912 
Share based compensation for services   -    
-
    143    
-
    143 
Comprehensive loss for three months ended June 30, 2022   -    
-
    
-
    (287)   (287)
BALANCE AT JUNE 30, 2022 (Unaudited)   54,118,813    5    9,438    (6,675)   2,768 

 

   Number of
Shares
  

 

 

Amount

   Additional
paid-in
capital
   Accumulated
deficit
   Total
stockholders’
deficit
 
                     
BALANCE AT DECEMBER 31, 2020   40,075,151    4    3,278    (5,131)   (1,849)
Issuance of shares in exchange for convertible loans   1,093,884    *    345    
-
    345 
Share based compensation for services   -    
-
    38    
-
    38 
Comprehensive profit for three month ended March 31, 2021   -    
-
    
-
    251    251 
BALANCE AT MARCH 31, 2021 (Unaudited)   41,169,035    4    3,661    (4,880)   (1,215)
Issuance of shares in exchange for convertible loans   349,778    *    361    
-
    361 
Issuance of shares for cash (net of issuance expenses)   12,500,000    1    4,604    
-
    4,605 
Share based compensation for services   -    
-
    103    
-
    103 
Comprehensive loss for three month ended June 30, 2021   -    
-
    
-
    (418)   (418)
BALANCE AT JUNE 30, 2021 (Unaudited)   54,018,813    5    8,729    (5,298)   3,436 

 

(*)represents amount less than $1 thousand.

 

5

 

 

UAS DRONE CORP.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(USD in thousands)

 

   Six months ended 
   June 30, 
   2022   2021 
   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss for the period  $(656)  $(167)
Adjustments required to reconcile net loss for the period to net cash used in operating activities:          
Depreciation and amortization   1    1 
Stock based compensation   323    141 
Interest on loans   4    5 
Expenses with respect to convertible loans and debentures   
-
    326 
Increase in other current assets   (12)   (37)
Increase in accounts payable   2    16 
Decrease in other accounts payable   (38)   (133)
Net cash provided by (used in) operating activities   (376)   152 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Lease deposit   (15)     
Purchase of property and equipment   (15)   
-
 
Net cash used in investing activities   (30)   
-
 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of shares   
-
    4,649 
Repayments of convertible loans   
-
    (954)
Repayments of long term banking institute   
-
    (6)
Net cash provided by financing activities   
-
    3,689 
           
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (406)   3,841 
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   3,560    105 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD   3,154    3,946 
Supplemental disclosure of cash flow information:          
Cash paid during the year for:          
Interest   
-
    59 
Non-cash transactions:          
Issuance of shares in exchange for convertible loans   
-
    706 
Value of option recorded as issuance expenses   
-
    44 

 

The accompanying notes are an integral part of the condensed consolidated financial statement

 

6

 

 

UAS DRONE CORP.

 

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., with Duke Inc. surviving as our wholly-owned subsidiary (the “Short-Form Merger”). Upon closing of the Short-Form Merger, 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.

 

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.

 

Effective October 22, 2020, Company’s common stock in quoted on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market, under the symbol “USDR”.

 

The COVID-19 pandemic has caused states of emergency to be declared in various countries, travel restrictions imposed globally, quarantines established in certain jurisdictions and various institutions and companies being closed. COVID-19 has also adversely impacted the Group’s ability to conduct its business effectively due to disruptions to its capabilities, availability and productivity of personnel, while the Group simultaneously attempts to comply with rapidly changing restrictions, such as travel restrictions, curfews and others. Although to date these restrictions have not impacted the Group’s operations, the effect on its business, from the spread of COVID-19 and the actions implemented by the governments of the State of Israel, the United States and elsewhere across the globe, may worsen over time.

 

7

 

 

UAS DRONE CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

 

NOTE 1 - GENERAL (continue)

 

The spread of COVID-19 may also result in the inability of the Group’s manufacturers to deliver components or finished products on a timely basis and may also result in the inability of the Group’s suppliers to deliver the parts required by its manufacturers to complete manufacturing of components or finished products. In addition, governments may divert spending from other budgeted resources as they seek to reduce and/or stop the spread of COVID-19. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect the Group’s business, financial condition and results of operations. The extent to which COVID-19 impacts the Group’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The Group is actively monitoring the pandemic and it is taking any necessary measures to respond to the situation in cooperation with the various stakeholders.

 

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 United States of America (“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, 2022. 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 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 with the SEC, for the year ended December 31, 2021.

 

8

 

 

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

 

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 share based compensation.

 

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.

 

9

 

 

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)

 

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values.

 

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.

 

Recent Accounting Pronouncements

 

On October 1, 2021, the Company early adopted Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The new standard was effective for us beginning January 1, 2022, with early adoption permitted. The adoption of this new standard did not have a material impact on our consolidated financial statements. 

 

In June 2022, the Financial Accounting Standards Board issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for the Company for the year ending March 31, 2025 and interim reporting periods during the year ending March 31, 2025. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a material impact on the financial position, results of operations and cash flows.

 

Other new pronouncements issued but not effective as of June 30, 2022 are not expected to have a material impact on the Company’s consolidated financial statements.

 

10

 

 

UAS DRONE CORP.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

 

NOTE 3 - SHAREHOLDERS’ EQUITY

 

Transactions:

 

On March 1, 2022, the Company signed an investor relations service agreement with a consultant pursuant to which the Company agreed to pay the consultant a monthly retainer and in addition, to issue the consultant 300,000 restricted shares of common stock, to be issued in three tranches. In the event that the agreement is terminated prior to the issuance date, the remaining share obligation shall be void. On March 17, 2022, the Company issued 100,000 restricted shares of common stock pursuant to the agreement. The Company determined the value of the shares issued based on the agreement date, at $15 which were recorded as share based compensation expenses in the six months ended June 30, 2022.

 

As detailed in Note 8 to the financial statement as of December 31, 2021, on May 11, 2021, the Company issued certain warrants (the “Warrants”) to purchase up to 12,500,000 shares of the Company’s common stock to eight (8) non-U.S. investors (the “Investors”). The Warrants were exercisable immediately, have had a term of 18 months and have an exercise price of $0.40 per share. On April 5, 2022, the Company and the Investors executed an extension agreement (the “Extension”), such that the term of the Warrants was extended so that they now expire on November 11, 2023. The fair value of the expected additional cash payments as of June 30, 2022 was estimated at $27.

 

NOTE 4 - STOCK OPTIONS

 

The following table presents the Company’s stock option activity the six months ended June 30, 2022:

 

   Number of
Options
   Weighted
Average
Exercise
Price
 
Outstanding at December 31,2021   2,426,812    0.81 
Granted   
-
    
-
 
Exercised   
-
    
-
 
Forfeited or expired   
-
    
-
 
Outstanding on June 30, 2022   2,426,812    0.81 
Number of options exercisable on June 30, 2022   758,680    0.81 

 

The aggregate intrinsic value of the awards outstanding as of June 30, 2022 is $84. These amounts represent the total intrinsic value, based on the Company’s stock price of $0.19 as of June 30, 2022, less the weighted exercise price. This represents the potential amount received by the option holders had all option holders exercised their options as of that date.

 

The stock options outstanding as of June 30, 2022, have been separated into exercise prices, as follows:

 

Exercise price  Stock options outstanding   Weighted average
remaining contractual
life – years
   Stock options vested 
   As of June 30, 2022 
0.0001   450,000    3.73    225,000 
0.38   1,256,822    5.04    0 
1.00   99,369    5.00    99,369 
2.25   620,621    5.00    434,311 
    2,426,812    4.69    758,680 

 

11

 

 

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 December 31, 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 December 31, 2021 
0.0001   450,000    4.23    
-
 
0.38   1,256,822    5.53    
-
 
1.00   99,369    5.5    
-
 
2.25   620,621    5.5    
-
 
 
   2,426,812    4.78    
-
 

 

Compensation expense recorded by the Company in respect of its stock-based compensation awards for the period ended June 30, 2022 was $308 and are included in General and Administrative expenses in the Statements of Operations. 

 

NOTE 5 - LEASE AGREEMENT

 

On April 4, 2022, the Company signed a lease agreement for an office space in Mevo Carmel Science and Industry Park, Israel for a term of 3 years, with an option to extend the term of the lease agreement for an additional 2 years. The monthly lease payments under the lease agreement, for the first two years are approximately $5,200 and for the third year approximately $5,400. The monthly lease payments for the option period will be agreed between the parties, with a minimum increase of 5% above the third years monthly payments. Per the agreement the Company expects that the asset will be available for Company’s use 5 months following the signature date, therefore commencement date of the lease agreement per ASC 842 as not yet been met. Based on the lease agreement terms, the Company made a deposit of $15 as a guarantee for its lease commitments.

 

NOTE 6 - RELATED PARTIES

 

A. Transactions and balances with related parties

 

  

Six months ended

June 30

  

Three months ended

June 30

 
   2022   2021   2022   2021 
                 
General and administrative expenses:                
Directors and Officers compensation (*)   282    106    130    52 
                     
(*)Share base compensation   104    84    41    84 
                     
Financing:                    
Financing expense   4    4    2    2 

 

12

 

 

UAS DRONE CORP. 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

 

NOTE 6 - RELATED PARTIES (continue)

 

B.Balances with related parties:

 

  

As of

June 30,

   As of
December 31,
 
   2022   2021 
         
Other accounts liabilities   25    30 
Stockholders loans   279    276 

 

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 $9,650), 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 were determined using the Black-Scholes pricing model, assuming a risk free rate of 0.07%, a volatility factor of 156.12%, dividend yields of 0% and an expected life of 5 years. The total value of share-based compensation was estimated in an amount of $189. Total share based compensation expenses during the six months ended June 30, 2022 amounted to $42.
   

In addition, in July 2021, the Board of Directors of the Company approved the issuance options to purchase 490,000 shares of the Company’s Common Stock to its Vice Chairman, directors and Chief Financial Officer. 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.

 

The fair value of the options were determined using the Black-Scholes pricing model, assuming a risk free rate of 0.07%, a volatility factor of 156.12%, dividend yields of 0% and an expected life of 6 years. The total value of share-based compensation was estimated in an amount of $176. Total share based compensation expenses during the six months ended June 30, 2022 amounted to $62

 

NOTE 7 - SUBSEQUENT EVENTS

 

On July 13, 2022 the Company issued 100,000 restricted shares of common stock pursuant to the agreement detailed in note 3 above.

 

13

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2021 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

  

We are a robotics company dedicated to the development of an advanced robotics system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. Our advanced robotics system is able to achieve pinpoint accuracy regardless of the movement of the weapons platform or the target.

 

We were founded in 2014 as Unlimited Aerial Systems, LLP (“UAS LLP”), and until the consummation of the Share Exchange Agreement (as hereinafter defined), we were 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.

 

On March 9, 2020, we closed on the Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which Duke Robotics, Inc., a Delaware corporation (“Duke”) became our majority-owned subsidiary (the “Share Exchange”). Such closing date is referred to as the “Effective Time.” As a result of the Share Exchange, the Company adopted the business plan of Duke.

 

On April 29, 2020, we, Duke, and UAS Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary (“UAS Sub”), executed an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub was to merge, upon the satisfaction of customary closing conditions, with and into Duke, with Duke surviving as our wholly-owned subsidiary (the “Short-Form Merger”). Pursuant to the Merger Agreement, we intended to acquire the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate in the Share Exchange. On June 25, 2020, Duke filed a Certificate of Merger with the State of Delaware, and consequently, Duke became our wholly-owned subsidiary and the Short-Form Merger was consummated.

 

Duke has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel”), which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation. Our mailing address is 10 HaRimon Street, Mevo Science and Industrial Park, Israel, 2069203, and our telephone number is 011-972-4-8124101.

 

Readers are cautioned that to date, we have generated limited revenues and have not yet begun meaningful commercialization efforts with respect to our products. We intend in the long-term to derive substantial revenues from the sales of our products as well as future models of other robots and our unmanned aerial system (“UAS”) platforms for both military and civilian use, but there can be no assurance that we will be able to do so. 

 

On January 29, 2021, we, through Duke Israel, and Elbit Systems Land Ltd., an Israeli corporation (“Elbit”), entered into a collaboration agreement (the “Collaboration Agreement”) for the global marketing and sales, and the production and further development of our developed advanced robotic system mounted on an UAS, armed with lightweight firearms, which we market under the commercial name “TIKAD.”

 

As of the date of this quarterly report, to date, 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.

 

14

 

 

Critical Accounting Policies

 

Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, reference is made to Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2021 (filed on March 7, 2022) with respect to our Critical Accounting Policies and Estimates. The main changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2021, relates to convertible loans Derivative Liabilities and Fair Value of Financial Instruments.

 

Results of Operations

 

Comparison of the three months ended June 30, 2022 and 2021

 

Revenues. We did not generate any revenues during the three months ended June 30, 2022 and June 30, 2021.

 

Research and Development. Our research and development expenses for the three months ended June 30, 2022, amounted to $3,000, compared to $0 for the three months ended June 30, 2021. Our research and development expenses, for the three months ended June 30, 2022, consisted primarily of professional services.

 

General and Administrative. Our general and administrative expenses for the three months ended June 30, 2022, which consisted primarily of professional services, stock-based compensation expenses and legal expenses, amounted to $327,000, compared to $271,000 for the three months ended June 30, 2021. The increase in general and administrative expenses for the three months ended June 30, 2022 was mainly due to an increase in stock-based compensation of $51,000.

 

Financial Income (expense). For the three months ended June 30, 2022, we had financial income of $43,000 compared to financial expense of $147,000 for the three months ended June 30, 2021. The reason for the decrease in financial expense for the three months ended June 30, 2022, was mainly due to the decrease in interest expense related to our previously outstanding convertible loans which have been repaid or converted in full.

 

Net Loss. We incurred a net loss of $287,000 for the three months ended June 30, 2022 as compared to $418,000 for the three months ended June 30, 2021, for the reasons set forth above.

 

Comparison of the six months ended June 30, 2022 and 2021

 

Revenues. We did not generate any revenues during the six months ended June 30, 2022 . We had revenues of $500,000 for the six months ended June 30, 2021, which were derived from the Collaboration Agreement.

 

Research and Development. Our research and development expenses for the six months ended June 30, 2022, amounted to $9,000, compare to none for the six months ended June 30, 2021. Our research and development expenses, for the six months ended June 30, 2022, consisted primarily of professional services.

 

General and Administrative. Our general and administrative expenses for the six months ended June 30, 2022, which consisted primarily of professional services, stock-based compensation expenses and legal expenses, amounted to $658,000, compared to $433,000 for the six months ended June 30, 2021. The increase in general and administrative expenses for the six months ended June 30, 2022 was mainly due to an increase in stock-based compensation and professional services.

 

Other Income. For the six months ended June 30, 2021 we had other income of $132 resulting from waiver of consulting fees accrued by March 31, 2021.

 

Financial Income (expense). For the six months ended June 30, 2022, we had financial income of $11,000 compared to financial expense of $366,000 for the six months ended June 30, 2021. The reason for the decrease in financial expense for the six months ended June 30, 2022, was mainly due to the decrease in interest expense related to our previously outstanding convertible loans which have been repaid or converted in full.

 

Net Loss. We incurred a net loss of $656,000 for the six months ended June 30, 2022 as compared to a net loss of $167,000 for the six months ended June 30, 2021, for the reasons set forth above.

 

15

 

 

Liquidity and Capital Resources

 

We had $3,154,000 in cash on June 30, 2022 versus $3,946,000 in cash at June 30, 2021. The reason for the decrease in our cash balance was due to the operating expenses describe above. Cash used in operations for the six months ended June 30, 2022 was $376,000 as compared to cash provided by operations of $152,000 for the six months ended June 30, 2021. The reason for the increase in cash used in operations is mainly related to the increase in the net loss and the decrease in expenses with respect to convertible loans and debentures, partially offset by an increase in stock-based compensation.

 

Net cash used in investing activities was $30,000 for the six months ended June 30, 2022, as compared to net cash used in financing activities of $0 for the six months ended June 30, 2021. The increase is related to investments in office improvements and lease deposit.

 

Net cash used in financing activities was $0 for the six months ended June 30, 2022, as compared to net cash used in financing activities of $3,689,000 for the six months ended June 30, 2021. The decrease is a result of proceeds from a private placement transaction we completed in May 2021 and the full repayment of a convertible loans in 2021.

 

On September 2, 2019, we executed a promissory note having a total principal amount of $35,000 bearing interest at a 6% per annum and maturing on September 2, 2021 (the “Promissory Note”). The Promissory Note was a non-recourse and carried no personal guarantees. In conjunction with the consummation of the Share Exchange, and as a condition thereof, on March 6, 2020, we entered into several Securities Exchange Agreements, on the same terms, to exchange the Promissory Note for 9,623,621 shares of our common stock, par value $0.0001 per share (the “Common Stock”). On May 18, 2021, we issued 54,019 shares of Common Stock of the Company, to several holders pursuant to the terms of the Security Exchange Agreements pursuant to which, such holders were entitled to an anti-dilution clause in the event that the Convertible Debentures were converted into shares of our Common Stock.

 

In connection with the Share Exchange, immediately prior to the Effective Time, we entered into several convertible loan agreements, on the same terms, in the aggregate amount of $965,000 (each, a “Convertible Loan Agreement”). 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 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 bore simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month. On December 9, 2020, we utilized our rights under the Convertible Loan Agreements and extended the terms of the loans for an additional twelve months. During May 2021, we repaid the full balance of the principal of the Convertible Loans in the amount of $835,000.

 

Also, in connection with the Share Exchange, we entered into securities exchange agreements (each, an “Exchange Agreement”) with our outstanding debt, Alpha Capital Anstalt (“Alpha”) and GreenBlock Capital LLC (“GBC”) to respectively cancel existing debentures or debt in the total amount of $658,323 and in exchange issue new debentures in the aggregate amount of $400,000 and issue 698,755 and 65,198 shares of common stock to each of Alpha and GBC, respectively. The New Debentures matured three years from the Effective Date, bore interest at a rate of 8% per year and were 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 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 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.  Subsequent to March 31, 2021, a portion of the Convertible Debentures, representing an aggregate amount of $110,614 (including interest) was converted into 295,759 shares of Common Stock. During May 2021, we prepaid the full balance of the principal and interest amount of the Convertible Debentures in the amount of $108,541.

 

16

 

 

On May 11, 2021, we entered into Securities Purchase Agreements with eight (8) non-U.S. investors (the “Investors”), pursuant to which we, in a private placement offering (the “Offering”), agreed to issue and sell to the Investors an aggregate of: (i) 12,500,000 shares of our Common Stock at a price of $0.40 per share; and (ii) warrants (the “Warrants”) to purchase 12,500,000 of our 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 $5,000,000 and the Offering closed on May 11, 2021. On April 5, 2022, we entered into an agreement with the Investors pursuant to which we extended the term of the Warrants, which now expire on November 11, 2023. The fair value of the expected additional cash payments as of June 30, 2022 was estimated at $27.

 

In view of our cash balance following the above transactions, we anticipate that our cash balances will be sufficient to permit us to conduct our operations up to the end of 2023. We may also satisfy its liquidity through the sale of its securities, either in public or private transactions.

 

If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the Common Stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (“the Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

 

Based on their evaluation, the Certifying Officers concluded that, as of June 30, 2022, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

17

 

 

PART II - OTHER INFORMATION

 

Item 6. Exhibits.

 

No.   Description of Exhibit
31.1*   Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
31.2*   Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a).
32.1**   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2**   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
101.INS   Inline XBRL Instance Document.
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

  * Filed herewith.

 

  ** Furnished herewith.

 

18

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 5, 2022 UAS Drone Corp.
       
  By: /s/ Yossef Balucka
    Name:  Yossef Balucka
    Title: Chief Executive Officer and Director
      (Principal Executive Officer)
       
  By:  /s/ Shlomo Zakai
    Name: Shlomo Zakai
    Title: Chief Financial Officer
(Principal Financial Officer)

 

  

19

 

 

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