DUKE Robotics Corp. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), to allow timely decisions regarding required disclosure. Our management, with the participation of our then CEO and CFO, as in place as of December 31, 2020, evaluated, the effectiveness of our disclosure controls and procedures as of December 31, 2020, pursuant to paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act. This evaluation included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Annual Report. Our management, including the then CEO and CFO, do not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurance of achieving their objectives. Also, the projection of any evaluation of the disclosure controls and procedures to future periods is subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 25 Based on their review and evaluation, and subject to the inherent limitations described above, our then CEO and CFO concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of December 31, 2020, at the above-described reasonable assurance level. During the year ended December 31, 2020, management identified the following weaknesses, which were deemed to be material weaknesses in internal controls: 1. Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in a lack of segregation of duties. 2. The Company does not have a full time Chief Executive Officer nor Chief Financial Officer that can oversee day to day operations and the financial reporting function. 3. The Company does not have an Independent Audit Committee that can provide management oversight. Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even internal controls determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error, and the risk of fraud. The projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies may deteriorate. Because of these limitations, there can be no assurance that any system of internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management. This Annual Report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Commission that exempt from this requirement issuers that are neither accelerated filers nor large accelerated filers. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this assessment, management, as in place as of December 31, 2020, determined that the Company’s internal control over financial reporting as of December 31, 2020, was not effective. 26 Item 9B. Other Information None. 27 PART III Item 10. Directors, Executive Officers, and Corporate Governance. Our directors and executive officer and their ages as of March 30, 2021, are as follows: Name Age Position Yariv Alroy 60 Chairman Yossef Balucka 52 Chief Executive Officer and President Sagiv Aharon 40 Chief Technology Officer and Director Erez Nachtomy 59 Vice Chairman Eran Antebi 50 Director Shlomo Zakai 51 Chief Financial Officer Yariv Alroy , Director and Chairman. Mr. Yariv Alroy is the Managing Director of T.N.S.A Consulting and Management LTD., a private consulting services and investments firm. From 1989 to 1993 Mr. Alroy worked for an Israeli law firm, with his last position as a partner. From 1993 to 1997, Mr. Alroy served as COO of SHAHAL Medical Services, and from 1997 to 2000 as Managing Director of SHL International Ltd. From 2000 until January 2016 Mr. Alroy served as Co-CEO of SHL Telemedicine LTD a company in the field of medical technology development and provision of global telemedicine services, including in the United States, Germany, India, Japan and Israel, traded in the Swiss Stock exchange (SWX:SHLTN). In December 2018 Mr. Alroy was nominated as member of the board of directors and Chairman of SHL Telemedicine. Yariv Alroy holds an LL.B from Tel Aviv University. Yossi Balucka , CEO and President. Mr. Yossef Balucka has been serving as CEO and President of our Company, Duke and Duke Israel since March 2021. Prior to entering the private sector, Mr. Balucka served for twenty-five years in various field and headquarters positions in the Israeli Navy and retired as Colonel. Following his retirement from the Israeli Navy, between 2014 to 2016, Mr. Balucka served as a senior executive and management member for retail and customer service at Partner Communications Ltd. (TASE:PTNR), one of the leading mobile telecommunications companies in Israel. From 2017 to 2019 Mr. Balucka served as the CEO of Electra Technologies Ltd., a division of Electra Ltd. (TASE:ELTR), which is active in the fields of integrated electro-mechanical and construction. Since 2019 Mr. Balucka is the owner of T.R. Eshkolot Com Services Ltd., providing global strategic consulting services. Mr. Balucka holds a BA in Economics and Business Administration and an MA in Social Sciences from the Haifa University, and MA in Public Administration from the Bar Ilan University. Sagiv Aharon , CTO and Director. Mr. Sagiv Aharon co-founded Duke Israel and served as the Company’s CEO from March 2020 until March 2021. From 2008 to 2010, Mr. Aharon worked at the Israeli Aerospace Industry as a structural design engineer on a classified hybrid structure (composite/metal) air vehicle. From 2010 to 2011, Mr. Aharon worked at Rafael Advanced Weapon Systems Ltd. as a mechanical design engineer for complex active/reactive armor solutions for land vehicles. From 2011 to 2012, Mr. Aharon worked for Elbit Systems Ltd. (NASDAQ:ESLT) as a mechanical design engineer and a system integrator at several remotely operated weapon systems upon land vehicles. Mr. Aharon also serves as the CEO of Axis Aerospace Mechanical Design Ltd., a company working in the field of airborne structural projects and flight experiments, following strict aerospace level quality standards (AS9100). Mr. Aharon holds a B.Sc. in mechanical engineering with specialty in control and robotics from the Technion – Israel Institute of Technology. Erez Nachtomy , Director, Vice Chairman of the Board. Mr. Erez Nachtomy is the Managing Director of Ermi Nachtomy Assets Ltd., a private consulting services and investments firm. Since May 2020 Mr. Nachtomy is the Acting CEO of SHL Telemedicine Ltd. (SWX:SHLTN). From 1989 until 2001, Mr. Nachtomy practiced law as an associate in one of the leading law firms in Israel, becoming a partner in the firm in 1994 and later on promoted to a senior partner. In March 2001, Mr. Nachtomy joined the executive team of SHL Telemedicine Ltd. (SWX:SHLTN), as Vice President, and from January 2005 to December 2016 he served as Executive Vice President. SHL Telemedicine Ltd. is active in the field of medical technology development and provision of global telemedicine services, including in the United States, Germany, India and Japan. In December 2018 Mr. Nachtomy was nominated as Member of the Board of SHL Telemedicine, and since May 2021 Mr. Nachtomy has been serving as the acting CEO of SHL Telemedicine Ltd. Mr. Nachtomy holds an LL.B. from Tel Aviv University, Israel. 28 Eran Antebi , Director. Mr. Antebi is the Finance Director Omrix Biopharmaceuticals Ltd. (a Johnson & Johnson company) since February 2017. Prior to that he was CFO of SHL Telemedicine Ltd. (SWX:SHLTN) since 2008. Mr. Antebi joined SHL in May 2004 as CFO of Shahal Israel. Prior to joining SHL, from 2000 to 2004, Mr. Antebi was a manager with Ernst & Young in Israel. Mr. Antebi is a certified public accountant (CPA) in Israel and holds a B.A. in Accounting and Economics from Tel Aviv University, Israel. Shlomo Zakai , Chief Financial Officer. Mr. Zakai brings extensive and proven experience in similar positions with companies operating in international markets and related industries. Prior to joining the Company Mr. Zakai served as the Chief Financial Officer of Save Foods, Inc. (SAFO:OTC) (August 2017 to date), Sonovia Ltd. (NNTTF:OTC) (October 2014 to August 2020), Blue Sphere Corp. (BLSP:OTC) (January 2012 till May 2016) and of Todos Medical Ltd. (TOMDF:OTC) (February 2017 till January 2018). Prior to that, Mr Zakai worked as an accountant for nine years at Kost, Forer, Gabbay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, where he last served as a Senior Manager and worked with technology companies publicly traded on the Nasdaq Stock Market and on the Tel Aviv Stock Exchange. Mr. Zakai holds a B.A. in accounting from the College of Management in Rishon Le’Zion, Israel. Family Relationship There is no family relationship among the directors and officers of the Company. Involvement in Certain Legal Proceedings Over the past ten (10) years, none of our directors or our executive officer have been (i) involved in any petition under Federal bankruptcy laws or any state insolvency law, (ii) convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses), (iii) subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from (a) acting as a future’s commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity, (b) engaging in any type of business practice, or (c) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws, or (d) subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right to engage in any activity described in (iii)(a), (iv) found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated, (v) found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. (vi) subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation, (b) any law or regulation respecting financial institutions or insurance companies, or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity, or (vii) the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. Except as set forth in our discussion below in “Transactions with Related Persons; Promoters and Certain Control Persons; Director Independence,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC. 29 CORPORATE GOVERNANCE Code of Ethics We uphold a set of basic values to guide our actions and are committed to maintaining the highest standards of business conduct and corporate governance. Effective March 9, 2020, we adopted an Amended and Restated Code of Business Conduct and Ethics for directors, officers (including our principal executive officer and principal financial officer) and employees, which, in conjunction with our Certificate of Incorporation, and Bylaws, as amended (the “Bylaws”) form the framework for governance of UAS. The Code of Ethics and Business Conduct, Bylaws and Article of Incorporation are available at our corporate offices. Stockholders may request free printed copies of these documents from: UAS Drone Corp. Attn: CFO Etgar 1 St. Tirat Carmel, Israel, 3903212 Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the SEC and to provide us with copies of those filings. We have reviewed all forms provided to us or filed with the SEC. Based on that review and on written information given to us by our executive officers and directors, we believe that all Section 16(a) filings during the past fiscal year were filed on a timely basis and that all directors, executive officers and 10% beneficial owners have fully complied with such requirements during the past fiscal year, except as follows: ● Afek Trading – Kadosh and Razi Ltd. did not file a Form 3 as required due to their acquisition of shares on or about March 10, 2020. Committees of the Board of Directors We do not have an audit or compensation committee and have no independent directors that examines transactions of the nature described herein this item. We do not have any audit or compensation committee. the board of directors performs these functions as a whole. Thus, there is a potential conflict in that board members who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions. To the extent possible, a majority of the disinterested members of our board of directors will approve future affiliated transactions. Additionally, because the Company’s Common Stock is not listed for trading or quotation on a national securities exchange, we are not required to have such committees. Nominees to the Board of Directors During the Company’s 2020 fiscal year, there were no material changes to the procedures by which security holders may recommend nominees to the board of directors. 30 Item 11. Executive Compensation. Summary Compensation Table The following sets forth the compensation of UAS’s Chief Executive Officer during fiscal 2020, and the other persons who served as executive officers during the Company’s fiscal year ended December 31, 2020. Unless otherwise noted, the amounts shown represent what was earned in the Company’s fiscal year ended December 31, 2020. SUMMARY COMPENSATION TABLE – FISCAL YEAR ENDED DECEMBER 31, 2020 Name and principal position Year Salary ($) Bonus ($) Stock awards ($) Option awards ($) Non-equity incentive plan compensation ($) Change in Pension Value and Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Grant A. Begley – CEO* 2020 100 0 0 0 0 0 0 100 2019 7,500 0 0 0 0 0 0 7,500 (**) Chris Leith – Acting CFO* 2020 100 0 0 0 0 0 0 100 2019 0 0 0 0 0 0 0 0 Sagiv Aharon – Former CEO and current CTO and Director* 2020 48,577 0 0 0 0 0 0 48,577 2019 0 0 0 0 0 0 0 0 Shlomo Zakai – CFO* 2020 13,472 0 0 0 0 0 0 13,472 2019 0 0 0 0 0 0 0 0 (*) Grant A. Begley and Chris Leith are no longer executive officers. Messrs. Aharon and Zakai became members of our executive officers, as the case may be, following the Share Exchange. (**) During the years ended December 31, 2020 and December 31, 2019, the Company accrued pay in the amount of $200 and $7,500, respectively, to its Chief Executive Officer and Chairman of the Board for his services. The total accounts payable of the Company to its former Chief Executive Officer and Chairman of the Board for his services is $32,500 as of December 31, 2020. The account payable was compromised and converted to shares of the Company post-Share Exchange in conjunction with the Share Exchange. Restricted Stock Awards There were no shares of restricted stock awarded during the Company’s fiscal year ended December 31, 2020. Outstanding Equity Awards at Fiscal Year End The following table sets forth information concerning outstanding equity awards for the named executives as of December 31, 2020. Note that the 5,000 shares expiring on December 31, 2019 were granted prior to expiration in conjunction with the Share Exchange. 31 OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2020 Outstanding Equity Awards at Fiscal Year End There are no outstanding equity awards for the year ended December 31, 2020. Grants of Plan-Based Awards for 2020 There were no plan-based equity awards made to our executive officers during fiscal 2020. Option Exercises and Stock Vested There are no option exercises and restricted stock that vested during fiscal 2020 for our named executives. Pension Benefits The Company does not have any plans that provide for payments or other benefits at, following, or in connection with retirement. Nonqualified Deferred Compensation The Company does not have a Deferred Compensation Plan for its executive officers. Other Potential Post-Employment Payments As of December 31, 2020, there were no named executives with employment contracts that require or required severance or other post-employment payments. Summary Information about Equity Compensation Plans As of December 31, 2020, we had no stock option plans. No Loans for Option Exercises. It is our policy to not make loans to employees or officers for the purpose of paying for the exercise of stock options. Director Compensation We reimburse directors for out-of-pocket expenses they incur when attending meetings of the board of directors. On April 12, 2020, effective as of March 1, 2020, our board of directors approved payment of certain fees to our directors in the amounts of $4,980, $4,980 and $6,950 per month to our directors, Yariv Alroy, Sagiv Aharon and Erez Nachtomy (each, an “Active Director”), respectively. On April 12, 2020, we 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. 32 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security Ownership of Certain Beneficial Owners The following table sets forth certain information as of March 30, 2021 regarding the beneficial ownership of our common stock, for: ● each person (or group of affiliated persons) who, insofar as we have been able to ascertain, beneficially owned more than 5% of the outstanding shares of our common stock; ● each director; ● each named executive officer; and ● all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as otherwise indicated, each person or entity named in the table has sole voting and investment power with respect to all shares of our capital shown as beneficially owned, subject to applicable community property laws. In computing the number and percentage of shares beneficially owned by a person, shares that may be acquired by such person within 60 days of the date of this prospectus are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person. Unless otherwise indicated, the address of each person listed below is c/o Duke Robotics, 1 Etgar Street (1st Floor), Tirat-Carmel, Israel 3903212. We relied on information received from each stockholder as to beneficial ownership, including information contained on Schedules 13D and 13G and Forms 3, 4 and 5. As of March 30, 2021, there were 41,169,035 shares of common stock issued and outstanding. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership (1) Percent of Class 5% Stockholders: Afek Trading – Kadosh and Razi Ltd. (2) 7,659,536 18.61 % Elisheva Ansbacher (3) 3,093,771 7.40 % Ximena Benitez Garcia (4) 3,093,771 7.40 % Moshe Zuk (5) 2,375,475 5.71 % Eran Meytal (6) 2,144,954 5.12 % Named Executive Officers: Grant A. Begley** 85,968 * Christopher Leith** 300 * Christopher M. Nelson** - - Sagiv Aharon 5,061,631 12.29 % Yariv Alroy 5,813,266 14.12 % Eran Antebi - - Yossef Balucka - - Erez Nachtomy 1,316,801 3.20 % Shlomo Zakai - - All directors and executive officers as a group (9 Persons)** 12,277,967 29.82 % * Less than 1%. 33 ** Grant A. Begley, Christopher Leith and Christopher M. Nelson are no longer members of our board of directors or executive officers, as the case may be. Messrs. Aharon, Alroy, Nachtomy, Antebi and Zakai became members of our board of directors and executive officers, as the case may be, following the Share Exchange. (1) The persons named in this table have sole voting and investment power with respect to all shares of common stock reflected as beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within sixty (60) days from March 30, 2021, and the total outstanding shares used to calculate each beneficial owner’s percentage includes such shares, although such shares are not taken into account in the calculations of the total number of shares or percentage of outstanding shares. Beneficial ownership as reported does not include shares subject to option or conversion that are not exercisable within 60 days of March 30, 2021. (2) Address: C/O Mr. Amir Kadosh, Zabotinsky 50, Givat Shmuel, Israel. (3) Includes 645,053 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by the shareholder at the conversion price in effect as of the date of this Current Report Address: 5201 Pine Tree Dr., Miami Beach, FL,33140, USA. (4) Includes 645,053 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by the shareholder at the conversion price in effect as of the date of this Current Report. Address: Protasio Tagle 59, San Miguel Chapultepec, 11850, Miguel Hidalgo, CDMX, Mexico. (5) Includes 512,476 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by an affiliate of the shareholder at the conversion price in effect as of the date of this Current Report. Zuk Marble Products 1998 Ltd. is the lender under the Convertible Loan Agreement, and to the Company’s knowledge, this is a company held and controlled by Moshe Zuk and as a result thereof, Mr. Zuk may be deemed to be the beneficial owner of such shares. Address: 22 Hataas Street, Kfar Saba, Israel. (6) Includes 430,037 shares of common stock issuable upon full conversion of the currently outstanding principal amount of the Convertible Loan Agreement entered into by an affiliate of the shareholder at the conversion price in effect as of the date of this Current Report. Alonim Marketing and Sales Promotion Ltd. is the lender under the Convertible Loan Agreement, and to the Company’s knowledge, this is a company held and controlled by Eran Meytal and as a result thereof, Mr. Meytal may be deemed to be the beneficial owner of such shares. Address: 31 Mordekhai Elkakhi Street, Tel Aviv, Israel. Changes in Control There are no arrangements known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company. Equity Compensation Plan Information Currently, there is no equity compensation plan in place. 34 Item 13. Certain Relationships and Related Transactions, and Director Independence. Transactions with Related Persons Loan Agreements On January 1, 2015 the Duke executed a Loan Agreement with Aphek, whereby Aphek agreed to provide a loan up to an amount of approximately $132,000 (the “Aphek Loan”). On January 1, 2015 Duke executed a Loan Agreement with Sagiv Aharon whereby he agreed to provide a loan of approximately $55,000 (the “Sagiv Loan”). The Aphek Loan and Sagiv Loan bear interest rates as defined in Section 3(j) of the Israeli tax ordinance (the interest rate for 2015 is 3.05% and 2.56% for 2016). On June 5, 2016, Duke executed a Loan Agreement with Iki Alroy Investment Ltd., Erez Alroy Investment Ltd. and Ermi Nachtomy Assets Ltd. (collectively, the “Lenders”), whereby the Lenders agreed to provide a loan in an aggregate amount of $100,000 to $500,000 in the aggregate (the “Group Loan”). Pursuant to the terms of the Group Loan, the Lenders were scheduled to provide monthly installments of between $20,000 and $40,000, subject to the Lender’s discretion. The Group Loan bears an annual fixed interest rate of 3%. Any additional amounts lent to Duke in 2017 by Aphek, Sagiv or the Lenders, over the amounts stated in the Aphek Loan and Sagiv Loan agreements or the Group Loan agreement, were made available to Duke on the same terms as stated in the respective agreements. On November 20, 2017, Duke Israel made available to Mr. Sagiv Aharon, Duke’s CEO and CTO and Director, a loan in the amount of $10,000. This loan shall bear interest rates as defined in the Israeli tax ordinance. The Loan, including the accumulated interest amount, shall be repaid at the earlier of the following dates: (i) December 31, 2019; or (ii) at the date of repayment of the loan made available by Mr. Aharon to Duke according to a loan agreement dated January 1, 2015; or (iii) from any dividend or other distribution to be made by Duke to its shareholders. Mr. Aharon is entitled to repay the outstanding amount of the loan at any time. On November 20, 2017, Duke made available to Mr. Raziel Atuar, then Duke’s CEO, a loan in the amount of $10,000. The loan shall bear an annual fixed interest of 3.25%. This loan, including the accumulated interest, shall be repaid at the earlier of the following dates: (i) December 31, 2019; or (ii) at the date of repayment of the loan made available by Aphek to Duke Israel, according to a loan agreement dated January 1, 2015; (iii) from any dividend or other distribution to be made by Duke to its shareholders. Mr. Atuar is entitled to prepay the outstanding amount of the loan at any time. The loans made from Duke to each of Messrs. Aharon and Atuar were extinguished in connection with the Debt Cancellation Letters (as defined below) and are referred to as the Personal Loans. Before entering into the Share Exchange Agreement, Duke entered into debt cancellation letters (the “Debt Cancellation Letters”) with each of the Lenders who are parties to the Group Loan and with each of Aphek and Sagiv Aharon under each of the Aphek and Sagiv Loans and their respective Personal Loans. Pursuant to the Debt Cancellation Letters, (i) 166,602 shares of Duke common stock were issued in exchange for the cancellation of $123,286 in debt, leaving $55,394 outstanding under the Aphek Loan, (i) 75,059 shares of Duke common stock were issued in exchange for the cancellation of $55,544 in debt, leaving $24,956 outstanding under the Sagiv Loan and (i) 600,474 shares of Duke common stock were issued in exchange for the cancellation of $444,350 in debt, leaving $199,650 outstanding under the Group Loan (collectively, the “Outstanding Duke Debt”). The Outstanding Duke Debt, 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 Duke or 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 the Convertible Loan Agreements, unless such repayment is otherwise waived by the parties to the Convertible Loan Agreements. Registration Rights Agreement The Company entered into the Registration Rights Agreement with, among others, Alpha, GBC, the Primary Lenders, to permit them to have their securities in the Company included in a registration statement for resale by the holder when filed by the Company on a piggyback basis and one demand registration right. The Company is responsible for bearing the costs of any of these acts of registration of the securities. The Company filed a Registration Statement on Form S-1 with the SEC, which was declared effective on June 19, 2020, in compliance with the requirements of the Registration Rights Agreement. 35 Director Independence The board of directors has not determined that we have any independent directors. Item 14. Principal Accounting Fees and Services. The following is a summary of the fees billed by our principal auditor during the calendar years ended December 31, 2020 and 2019: Fee category 2020 2019 Audit Fees (1) $ 28,500 $ 24,990 Audit – related fees - - Tax fees - - All other fees - - Total fees $ 28,500 $ 24,990 (1) Consists of fees for audit of the Company’s annual financial statements, audit of the financial statements of acquired subsidiaries, the review of interim financial statements included in the Company’s quarterly reports, consents, and the review of other documents filed with the Commission. Audit fees - Consists of fees for professional services rendered by our principal auditor for the audit of our annual financial statements and the review of financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements. Audit-related fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of UAS’s financial statements and are not reported under “Audit fees.” Tax fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning. All other fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit fees,” “Audit-related fees” and “Tax fees” above. 36 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Financial Statements . Balance Sheets of UAS Drone Corp. as of December 31, 2020 and 2019 F-5 Statements of Operations of UAS Drone Corp. for the years ended December 31, 2020 and 2019 F-6 Statements of Stockholders’ Equity of UAS Drone Corp. for the years ended December 31, 2020 and 2019 F-7 Statements of Cash Flows of UAS Drone Corp. for the years ended December 31, 2020 and 2019 F-8 Notes to Financial Statements F-9 37 (b) Exhibits . Exhibit Number Description 2.1 Share Exchange Agreement dated March 4, 2020, by and among UAS Drone Corp., Duke Robotics, Inc., and the shareholders of Duke Robotics, Inc. who execute and deliver this Share Exchange Agreement. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 2.2 Agreement and Plan of Merger, dated April 29, 2020, by and among UAS Drone Corp., Duke Robotics, Inc., and UAS Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2020) 3.1* Articles of Incorporation as filed on February 4, 2015 (incorporated by reference to our Registration Statement on Form S-1 filed on August 25, 2019) 3.2 Bylaws, as amended, on March 4, 2020. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 4.1 Description of Securities (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 13, 2020). 10.1 Form of Convertible Loan Agreement dated March 9, 2020 between UAS Drone Corp. and certain lenders. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 10.2 Form of Securities Exchange Agreement dated March 9, 2020 between UAS Drone Corp. and Alpha Capital Anstalt. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 10.3 Form of Securities Exchange Agreement dated March 9, 2020 between UAS Drone Corp. and GreenBlock Capital LLC. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 10.4 Form of Securities Exchange Agreement dated March 9, 2020 between UAS Drone Corp. and certain lenders. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 10.5 Registration Rights Agreement dated March 9, 2020 and certain investors. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 10.6 8% Convertible Debenture of Alpha Capital Anstalt. (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 10.7 8% Convertible Debenture of GreenBlock Capital LLC (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 10.8** Collaboration Agreement, dated January 29, 2021, by and between Duke Airborne Systems Ltd. and Elbit Systems Land Ltd. (translation from Hebrew)*** 10.9** Services Agreement, dated March 25, 2021, between UAS Drone Corp. and Yossef Balucka. 14.1 Amended and Restated Code of Business Conduct and Ethics. (incorporated by reference to Exhibit 14.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020) 38 16.1 Letter from D. Brooks and Associates CPAS, P.A. Addressed to the U.S. Securities and Exchange Commission dated March 10, 2020 (incorporated by reference to Exhibit 16.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 13, 2020) 21.1** List of Subsidiaries of the Company. 31.1** Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002. 31.2** Certification of Chief Financial Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002. 32.1**** Certification of Chief Executive Officer pursuant to 18 U.S.C. SECTION 1350. 32.2**** Certification of Chief Financial Officer pursuant to 18 U.S.C. SECTION 1350. 101 The following materials from the Registrant, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets as of December 31, 2020 and 2019, (ii) Statements of Operations for the years ended December 31, 2020 and 2019, (iii) Statements of Stockholders’ Deficit for the years ended December 31, 2020 and 2019, (iv) Statements of Cash Flows for the years ended December 31, 2020 and 2019, and (v) Notes to Financial Statements.** * Pursuant to Rule 12b-32 of the SEC, this exhibit is incorporated herein by reference to our Registration Statement on Form S-1, filed with the SEC on August 25, 2015. ** Filed herewith. *** Certain identified information in the exhibit has been excluded from the exhibit because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. **** Furnished herewith. (c) Financial Statement Schedules. The following documents are filed as part of this Report: 1. Financial Statements See Index to Financial Statements 2. Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable or the required information is presented in the financial statements or the notes to the financial statements. Item 16. Form 10-K Summary. None. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UAS DRONE CORP. Date: March 30, 2021 By: /s/ Yossef Balucka Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 30, 2021 By: /s/ Yossef Balucka Yossef Balucka Chief Executive Officer (Principal Executive Officer) Date: March 30, 2021 By: /s/ Shlomo Zakai Shlomo Zakai Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: March 30, 2021 By: /s/ Yariv Alroy Yariv Alroy Chairman of the Board Date: March 30, 2021 By: /s/ Erez Nachtomy Erez Nachtomy Vice Chairman of the Board Date: March 30, 2021 By: /s/ Sagiv Aharon Sagiv Aharon Chief Technology Officer and Director Date: March 30, 2021 By: /s/ Eran Antebi Eran Antebi Director 40 UAS DRONE CORP. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 F- 1 UAS DRONE CORP. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2020 TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-3 – F-4 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 F-5 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020 and 2019 F-6 Statements of Changes in Shareholders’ Deficit for the years ended December 31, 2020 and 2019 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-8 Notes to Consolidated Financial Statements F-9 – F-29 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF UAS DRONE CORP., INC. Opinion on the Financial Statements We have audited the accompanying balance sheets of UAS Drone Corp. (the “Company”) as of December 31, 2020 and 2019, the related statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the years in the period ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the year in the period ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not yet generated material revenues from its operations to fund its activities and is therefore dependent upon external sources for financing its operations. As of December 31, 2020, the Company has incurred accumulated deficit of $5,131 thousands and negative operating cash flows. These factor among others, as discussed in Note 1 to the financial statements raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of’ these uncertainties. This matter is also described in the “Critical Audit Matters” section of our report. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. F- 3 Critical audit matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Going concern assessment The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not yet generated material revenues from its operations to fund its activities and is therefore dependent upon external sources for financing its operations. As of December 31, 2020, the Company has incurred accumulated deficit of $5,131 thousands and negative operating cash flows. These factor among others, as discussed in Note 1 to the financial statements raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1 to the financial statements. This matter is also described in the “Emphasis of Matter – Going Concern” section of our report. We identified management’s assumptions used to assess the Company’s ability to continue as a going concern as a critical audit matter due to inherent complexities and uncertainties related to the Company’s Management’s plans. Auditing this assumptions involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters. The primary procedures we performed to address this critical audit matter included the following: ■ Assessing the reasonableness of key assumptions underlying management’s forecast operating cash flows, including revenue growth and gross margin assumptions and evaluating the reasonableness of management’s forecast operating cash flows ■ Evaluating the probability that the Company will be able to reduce capital expenditures and other operating expenditures if required ■ Assessing management’s plans in the context of other audit evidence obtained during the audit to determine whether it supported or contradicted the conclusions reached by management ■ Assessing the effect of events and agreement signed after balance sheet date. Fair value measurement of Level 3 liabilities As discussed in Notes 2M and 6 to the consolidated financial statements, the Company entered into several Convertible Loan Agreements and in accordance with ASC 815-15-25, the conversion feature was considered an embedded derivative instrument, and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The 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. Under accounting principles generally accepted in the United States of America, these convertible component are generally classified as Level 3 convertible component. We identified Level 3 convertible component as a critical audit matter because of the complex proprietary models and unobservable inputs management uses to estimate the fair value. This evaluation required a high degree of auditor judgment and an increased extent of effort, including the need to involve our internal valuation specialists who possess significant quantitative and modeling expertise, to audit and evaluate the appropriateness of these models and inputs. Our audit procedures related to the complex proprietary models and unobservable inputs used by management to estimate the fair value of Level 3 convertible component included the following, among others: • We assessed the consistency by which management has applied significant unobservable valuation assumptions. • With the assistance of our internal valuation specialists, we evaluated the appropriateness of the valuation methodologies and techniques used in determining the fair value of Level 3 convertible component. Also, we evaluated the appropriateness of estimates of the key inputs used in determining the fair value of the Level 3 convertible component /s/ Halperin Ilanit. Certified Public Accountants (Isr.) Tel Aviv, Israel March 30, 2021 We have served as the Company’s auditor since 2019 F- 4 UAS DRONE CORP. CONSOLIDATED BALANCE SHEETS (USD in thousands except share and per share data) December 31, December 31, 2020 2019 Assets Current Assets Cash and cash equivalents 105 23 Other current assets (Note 3) 19 23 Total current assets 124 46 Property and equipment, net (Note 4) 12 17 Total assets 136 63 Liabilities and Shareholders’ Deficit Current Liabilities Current maturities of long-term bank loan 6 32 Accounts payable 109 120 Other accounts liabilities (Note 5) 213 209 Stockholders loans (Note 7) - 726 Convertible loans and debentures(Note 6B) 950 450 Fair Value of convertible component in convertible loan (Note 6B) 22 - Total current liabilities 1,300 1,537 Convertible Loans (Note 6A) 371 - Fair Value of convertible component in convertible loan (Note 6A) 26 - Stockholders loans (Note 7) 288 280 Long term bank loans - 5 Total liabilities 1,985 1,822 Stockholders’ Deficit (Note 8) Common stock of $0.0001 par value each (“Common Stock”): 100,000,000 shares authorized as of December 31, 2020 and 2019; issued and outstanding 40,075,151 and 25,130,126 shares as of December 31, 2020 and 2019, respectively. 4 2 Additional paid-in capital 3,278 2,002 Accumulated deficit (5,131 ) (3,763 ) Total stockholders’ deficit (1,849 ) (1,759 ) Total liabilities and stockholders’ deficit 136 63 The accompanying notes are an integral part of the consolidated financial statements. F- 5 UAS DRONE CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD in thousands except share and per share data) Year ended December 31 2020 2019 Revenues - 112 Cost of revenues - (105 ) Gross profit - 7 Research and development expenses - (75 ) General and administrative expenses (Note 10) (1,305 ) (961 ) Operating loss (1,305 ) (1,029 ) Financing expenses, net (63 ) (82 ) Net loss (1,368 ) (1,111 ) Loss per share (basic and diluted) (Note 12) (0.04 ) (0.04 ) Basic and diluted weighted average number of shares of Common Stock outstanding 37,285,015 25,027,075 F- 6 UAS DRONE CORP. STATEMENTS OF CHANGES IN STOCKHOLDERS’ 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 JANUARY 1, 2019 25,047,319 2 1,462 (2,652 ) (1,188 ) CHANGES DURING THE YEAR ENDED DECEMBER 31, 2019: Share based compensation for services 82,807 * 540 - 540 Comprehensive loss for the year - - - (1,111 ) (1,111 ) BALANCE AT DECEMBER 31, 2019 25,130,126 2 2,002 (3,763 ) (1,759 ) CHANGES DURING THE YEAR ENDED DECEMBER 31, 2020: Issuance of shares in exchange for extinguishment of debt 1,046,016 * 623 - 623 Issuance of shares in exchange for convertible loans 869,470 * 448 - 448 Share based compensation for services 1,423,453 * 645 - 645 Effect of Reverse Capitalization 11,606,086 2 (440 ) - (438 ) Comprehensive loss for the year - - - (1,368 ) (1,368 ) BALANCE AT DECEMBER 31, 2020 40,075,151 4 3,278 (5,131 ) (1,849 ) The accompanying notes are an integral part of the consolidated financial statements. F- 7 UAS DRONE CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (USD in thousands) Year ended December 31 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss for the period (1,368 ) (1,111 ) Adjustments required to reconcile net loss for the period to net cash used in operating activities: Depreciation and amortization 5 2 Finance expenses - 77 Stock based compensation 645 540 Interest on loans (70 ) - Expenses with respect to convertible loans and debentures 2 - Decrease (increase) in other current assets (17 ) 97 Increase (decrease) in accounts payable (52 ) 71 Increase (decrease) in other accounts payable 6 186 Net cash used in operating activities (849 ) (138 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secured promissory notes 965 - Repayments of long term banking institute (34 ) (29 ) Net cash provided by (used in) financing activities 931 (29 ) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 82 (167 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 23 190 CASH AND CASH EQUIVALENTS AT END OF YEAR 105 23 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest 126 3 Non cash transactions: Issuance of shares in exchange for extinguishment of debt 623 - Issuance of shares in exchange for convertible loans 448 - The accompanying notes are an integral part of the consolidated financial statements. F- 8 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 1 – GENERAL UAS Drone Corp. (“the Company” or “USDR”) was incorporated under the laws of the State of Nevada on February 4, 2015. Prior to the Company’s formation, the operations were functioning under Unlimited Aerial Systems, LLP (“UAS LLP”). UAS LLP was formed under the laws of the State of Louisiana on August 22, 2014. Effective March 31, 2015, the Company completed a reverse merger with UAS LLP. The reverse merger was accounted for as a reverse capitalization. On March 9, 2020, the Company closed on the Share Exchange Agreement (as defined hereunder), pursuant to which, Duke Robotics, Inc. (“Duke Inc.”) a corporation incorporated under the laws of the state of Delaware, became a majority-owned subsidiary of the Company. Duke Inc. has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel,” and collectively with Duke Inc., “Duke”), which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation. On April 29, 2020, the Company, Duke Inc., and UAS Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“UAS Sub”), executed an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub merged with and into Duke Inc. Upon closing of the Short-Form Merger (as defined hereunder), each outstanding share of UAS Sub’s common stock, par value $0.0001 per share, was converted into and became one share of common stock of Duke Inc., with Duke Inc. surviving as a wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the Company intended to acquire the remaining outstanding shares of Duke Inc. held by certain stockholders of Duke Inc. that did not participate in the Share Exchange Agreement (as defined hereunder). On April 30, 2020, the Company filed a Registration Statement on Form S-1, which was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on June 19, 2020, to register: (i) 63,856 shares of common stock of the Company that were issued to certain stockholders of Duke Inc. upon the consummation of the Short-Form Merger; (ii) 14,614,751 shares of common stock of the Company of certain selling stockholders named in the S-1 Registration Statement; and (iii) 3,649,733 shares of common stock of the Company issuable upon conversion of Convertible Notes (see Note 6 below). On June 25, 2020, at the closing of the transaction contemplated by the Merger Agreement, the Company issued 63,856 shares to certain Duke Inc. stockholders, and Duke Inc. became a wholly owned subsidiary of the Company. The Company (collectively with Duke, the “Group”) is a robotics company dedicated to the development of an advanced robotics stabilization system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. The Company’s advanced robotics system is able to achieve pinpoint accuracy regardless of the movement of the weapons platform or the target. On January 29, 2021, the Company, through Duke Israel, and Elbit Systems Land Ltd., an Israeli corporation, entered into a collaboration agreement for the global marketing and sales, and the production and further development of our developed advanced robotic system mounted on an UAS, armed with lightweight firearms, which we market under the commercial name “TIKAD.” Effective October 22, 2020, Company’s common stock in quoted on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market, under the symbol “USDR”. Merger Transaction On March 4, 2020, USDR entered into a Share Exchange Agreement with Duke Inc., and certain shareholders of Duke Inc. who executed and delivered the Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which Duke Inc. became a majority-owned subsidiary of USDR (the “Share Exchange”). The Share Exchange closed on March 9, 2020. Such closing date is referred to as the “Effective Time.” F- 9 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 1 – GENERAL (continue) Before entering into the Share Exchange Agreement: (i) Duke entered into debt cancellation letters (the “Debt Cancellation Letters”) with each of its Stockholders with regard to the Stockholders Loans. Pursuant to the Debt Cancellation Letters, 842,135 shares of the Duke Inc. common stock (1,046,016 shares post Exchange Ratio) were issued in exchange for the cancellation of $623 in debt, leaving $280 of outstanding Stockholders Loans. These Stockholders Loans, including interest (which shall bear an annual fixed interest rate of 3% as of January 1, 2020), shall be repaid at the date upon which the Company raises at least $15 million and has achieved earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year anniversary of the Effective Time and the full repayment of the amounts outstanding under certain convertible loan agreements in the aggregate amount of $965 (each, a “Convertible Loan Agreement”) (see Note 6B) entered into at the Effective Time, unless such repayment is otherwise waived by the parties to the Investors’ Loan; (ii) Loans made from Duke to an executive officer and a former executive officer, who are also stockholders were extinguished in connection with the Debt Cancellation Letters; (iii) Duke issued a consultant 1,146,005 shares of the Duke Inc. common stock (1,423,453 shares post Exchange Ratio), at par value, regarding services rendered to Duke Inc. The fair value of the shares issued was estimated at $429 and were recorded to share based compensation expenses.; and (iv) a convertible loan agreement in amount of $400 bearing an annual interest rate of 6%, including accumulated interest in amount of $48, was converted into 700,000 shares of Duke Inc. common stock (869,470 shares post Exchange Ratio). In conjunction with the consummation of the Share Exchange, and as a condition thereof, the USDR entered into the agreements listed below: (i) Convertible Loan Agreements, on the same terms, in the aggregated amount of $965 with several investors. The term of each investor’s loan is for 12 month and each such agreement bears annual interest of 15%, and at the discretion of USDR, the term of the investors’ loans can be extended for an additional 12 month period, which the Company did elect to extend (see also note 6 below). The investors have the option to convert the respective unpaid balance of their loan into shares of USDR’s common stock based on the lower of the following valuations: (i) the lowest effective price per share set in connection with any funds raised by USDR during the six months following the Share Exchange; (ii) 80% of the lowest effective price per share set in connection with any funds raise by USDR at any time subsequent to six months following the Share Exchange until such time as the Investors’ Loans are fully repaid; (iii) a price per share reflecting a post-money valuation of USDR of $15 million following the next investment in USDR following closing; or (iv) if at any time following the 6 month anniversary of the closing of the Share Exchange and until such time as the Investors’ Loans are fully repaid, USDR sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues any common stock entitling any person to acquire shares of common stock at an effective price per share that is lower than $0.374. The conversion price is currently $0.374. As of March 30, 2021, the Convertible Loan Agreements have an aggregate outstanding principal balance of $835 as a result of the conversions of certain Convertible Loan Agreements (see note 15 below). (ii) In addition, before entering into the Share Exchange the parties to certain consulting agreements agreed to exchange their contractual right to receive options in Duke for options to be granted by USDR following the Effective Time, subject to the terms and conditions of a stock incentive plan, to be adopted by the Board of Directors of USDR. F- 10 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 1 – GENERAL (continue) (iii) Securities exchange agreements with outstanding debt holders of USDR, Alpha Capital Anstalt (“Alpha”) and GreenBlock Capital LLC (“GBC”) to respectively cancel existing debentures or debt in the total amount of $658 and in exchange issue new debentures in the aggregate amount of $400 and issue 698,755 and 65,198 shares of common stock to each of Alpha and GBC, respectively (the “New Debentures”). The New Debentures mature three years from the Effective Date, bear interest at a rate of 8% per year and are only convertible into shares of the Company’s common stock, at an original conversion price of $0.374 (the “Original Conversion Price”); provided, however, that such Original Conversion Price shall be adjusted downward in the event that USDR, as applicable, sells or grants any options to purchase or sells or grants any right to reprice, or otherwise dispose or issues any common stock or common stock equivalents entitling any purchaser to acquire shares of the Company’s common stock at an effective price per share that is lower than the Original Conversion Price (such issuance, a “Dilutive Event”). In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment shall occur immediately after the completion of such period. As of March 30, 2021, the New Debentures have an aggregate outstanding principal balance of $200 as a result of conversions of the New Debentures (see note 15 below). (iv) Several Securities Exchange Agreements, with similar terms, to exchange certain promissory notes having a total principal amount of $35 bearing interest of 6% per annum, for 9,623,621 shares of Company’s common stock. Signatories to the Securities Exchange Agreements are entitled to an anti-dilution clause in the event that the Convertible Loans detailed in Note 1(iii) above are converted such that such the number of shares held by such investors would not be lower than original holding on a fully diluted basis prior to such conversions. Per Accounting Standards Update (“ASU”) 2017-11, the Company classified the anti-dilution to shareholders equity. (v) A Registration Rights Agreement with GBC, Alpha, the Primary Lenders (as defined below) and certain Duke shareholders. The Company filed a Registration Statement on Form S-1 with the SEC, which was declared effective on June 19, 2020, in compliance with the requirements of the Registration Rights Agreement. The deemed beneficial owners of the common stock, or other securities, issuable under parties to the Convertible Loan Agreements and the Note Conversion are identical and, as such, the Company refer to these parties as the “Primary Lenders.” (vi) The Company’s former CEO’s outstanding accrued pay of $32 as well as the 25,000 options he held at the end of 2019, were converted into 45,968 shares of the post-transaction Company. Pursuant to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke Inc. stockholders in exchange for 22,920,107 shares of Duke’s Inc. issued and outstanding shares of common stock, representing approximately 99% of Duke’s Inc. issued and outstanding shares of common stock. Accordingly, each outstanding share of Duke Inc. common stock was exchanged for the right to receive 1.2421 shares of the Company’s common stock (the “Exchange Ratio”). Of the shares of Duke Inc. common stock that were exchanged for shares of the Company’s common stock, 51,410 (representing 63,856 shares of the Company’s common stock post-Share Exchange) were issued but remained in escrow until the Company completed the Short-Form Merger (as defined hereunder). On June 25, 2020, at the closing of the transaction contemplated by the Merger Agreement, the Company released the shares in escrow. As such, at the Effective Time, the Duke stockholders owned an equivalent of approximately 71% of the Company’s common stock. After giving effect to the Share Exchange, Duke became a subsidiary of the Company. Following the Share Exchange, the Company adopted the business plan of Duke. F- 11 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 1 – GENERAL (continue) The transaction was accounted for as a reverse asset acquisition in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Under this method of accounting, Duke was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) Duke’s stockholders owned a substantial majority of the voting rights in the combined company, (ii) Duke designated a majority of the members of the initial board of directors of the combined company, and (iii) Duke’s senior management holds all key positions in the senior management of the combined company. As a result of the Recapitalization Transaction, the shareholders of Duke received the largest ownership interest in the Company, and Duke was determined to be the “accounting acquirer” in the Recapitalization Transaction. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Duke. The number of shares prior to the reverse capitalization have been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in the Recapitalization Transaction. On April 29, 2020, the Company, Duke Inc. and UAS Sub, executed the Merger Agreement, pursuant to which UAS Sub merged with and into Duke, with Duke surviving as a wholly-owned subsidiary of the Company (the “Short-Form Merger”). Pursuant to the Merger Agreement, on June 25, 2020, the Company acquired the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate in the Share Exchange. The COVID-19 pandemic has caused states of emergency to be declared in various countries, travel restrictions imposed globally, quarantines established in certain jurisdictions and various institutions and companies being closed. COVID-19 has also adversely affect the Group’s ability to conduct its business effectively due to disruptions to its capabilities, availability and productivity of personnel, while the Group simultaneously attempts to comply with rapidly changing restrictions, such as travel restrictions, curfews and others. In particular, on January 24, 2021, the Government of Israel announced that effective January 26, 2021, non-Israeli residents or citizens, except for non-nationals whose lives are based in Israel, are not allowed to enter Israel, and the number of Israeli citizens permitted to enter the country per day will be capped at 3,000. In addition, the Ministry of Health in the State of Israel issued guidelines on March 11, 2020, which were most recently updated in March 2021, recommending people avoid gatherings in one space and providing that no gathering of more than 20 people should be held under any circumstances. Employers (including the Group) are also required to prepare and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, on January 25, 2021, the President of the United States issued a proclamation to restrict travel to the United States from foreign nationals who have recently been in China, Iran, South Africa, and certain European and Latin America countries. Although to date these restrictions have not impacted the Group’s operations, the effect on its business, from the spread of COVID-19 and the actions implemented by the governments of the State of Israel, the United States and elsewhere across the globe, may worsen over time. The spread of COVID-19 may also result in the inability of the Group’s manufacturers to deliver components or finished products on a timely basis and may also result in the inability of the Group’s suppliers to deliver the parts required by its manufacturers to complete manufacturing of components or finished products. In addition, governments may divert spending from other budgeted resources as they seek to reduce and/or stop the spread of COVID-19. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect the Group’s business, financial condition and results of operations. The extent to which COVID-19 impacts the Group’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. The Group is actively monitoring the pandemic and it is taking any necessary measures to respond to the situation in cooperation with the various stakeholders. F- 12 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 1 – GENERAL (continue) Going Concern Since inception, the Group has devoted substantially all its efforts to research and development. The Group is still in its development stage and the extent of the Group’s future operating losses and the timing of becoming profitable, if ever, are uncertain. As of December 31, 2020, the Group had $105 in cash and cash equivalents, net losses of $1,368, an accumulated deficit of $5,131, and a negative working capital of $1,176. The Group will need to secure additional capital in the future in order to meet its anticipated liquidity needs primarily through the sale of additional Common Stock or other equity securities and/or debt financing. Funds from these sources may not be available to the Group on acceptable terms, if at all, and the Group cannot give assurance that it will be successful in securing such additional capital. These conditions raise substantial doubt about the Group’s ability to continue to operate as a “going concern.” The Company’s ability to continue operating as a going concern is dependent on several factors, among them is the ability to raise sufficient additional funding. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Risk factors The Group faces a number of risks, including uncertainties regarding finalization of the development process, demand and market acceptance of the Group’s products, the effects of technological changes, competition and the development of products by competitors. Additionally, other risk factors also exist, such as the ability to manage growth and the effect of planned expansion of operations on the Group’s future results. In addition, the Group expects to continue incurring significant operating costs and losses in connection with the development of its products and marketing efforts. The Group has not yet generated significant revenues from its operations to fund its activities, and therefore the continuance of its activities as a going concern depends on the receipt of additional funding from its current stockholders and investors or from third parties. F- 13 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2– SIGNIFICANT ACCOUNTING POLICIES The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). A. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the going concern assumptions and convertible loans. B. Functional currency A majority of the Group’s expected revenues is generated in dollars. In addition, most of the Group’s costs are denominated and determined in dollars and in new Israeli shekels. Management believes that the dollar is the currency in the primary economic environment in which the Group operates. Thus, the functional and reporting currency of the Group is the dollar. Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification (“ASC”) 830, “Foreign Currency Matters.” All transaction gains and losses of the remeasured monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate. C. Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries Duke Inc., UAS Sub and Duke Israel. All significant intercompany balances and transactions have been eliminated on consolidation. D. Cash and cash equivalents, and Restricted cash Cash equivalents are short-term highly liquid investments which include short term bank deposits (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired. E. Property, plant and equipment, net 1. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the Statements of Operations and Comprehensive Loss. 2. Rates of depreciation: % Furniture and office equipment 7-15 Computers 33 Office improvements 10 F- 14 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue) F. Impairment of long-lived assets The Group’s long-lived assets are reviewed for impairment in accordance with ASC Topic 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. No impairment expenses were recorded during the years ended December 31, 2020 or 2019. G. Deferred income taxes The Group accounts for income taxes in accordance with ASC Topic 740, “Income Taxes” (“ASC Topic 740-10”). Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized. The Group accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2020 and 2019 financial statements and did not recognize any liability with respect to an unrecognized tax position in its balance sheets. H. Research and development expenses Research and development expenses are charged to operations as incurred. I. Basic and diluted loss per share Basic loss per share is computed by dividing the loss for the period applicable to shareholders, by the weighted average number of shares of common stock outstanding during the period. Securities that may participate in dividends with the shares of common stock (such as the convertible preferred) are considered in the computation of basic loss per share under the two class method. However, in periods of net loss, only the convertible preferred shares are considered, since such shares have a contractual obligation to share in the losses of the Company. In computing diluted loss per share, basic loss per share is adjusted to reflect the potential dilution that could occur upon the exercise of potential shares. Accordingly, in periods of net loss, no potential shares are considered. F- 15 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue) J. Stock-based compensation The Company measures and recognizes the compensation expense for all equity-based payments to employees based on their estimated fair values in accordance with ASC 718, “Compensation-Stock Compensation.” Share-based payments including grants of stock options are recognized in the statement of comprehensive loss as an operating expense based on the fair value of the award at the date of grant. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model. The Company has expensed compensation costs, net of estimated forfeitures, applying the accelerated vesting method, over the requisite service period or over the implicit service period when a performance condition affects the vesting, and it is considered probable that the performance condition will be achieved. Share-based payments awarded to consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, “Equity-Based Payments to Non-Employees.” K. Concentrations of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents as well as certain other current assets that do not amount to a significant amount. Cash and cash equivalents, which are primarily held in Dollars and New Israeli Shekels, are deposited with major banks in Israel and the United States. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does not have any significant off-balance-sheet concentration of credit risk, such as foreign exchange contracts, option contracts or other foreign hedging arrangements. L. Contingencies The Company records accruals for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred. M. Derivative Liabilities and Fair Value of Financial Instruments Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under ASC 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. F- 16 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue) Fair value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” (“ASC 820”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments. Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of non-performance, which includes, among other things, the Company’s credit risk. Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values. Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income. The Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates. The debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features. The debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative liabilities over the life of the convertible notes. F- 17 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue) The Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows: Balance as of December 31, 2020 Level 1 Level 2 Level 3 Total Liabilities: Fair Value of convertible component in convertible loan - - 48 48 Total liabilities - - 48 48 The following table presents the changes in fair value of the level 3 liabilities for the Year ended December 31, 2020: Fair value of Convertible component Outstanding at January 1, 2020 - Fair value of issued level 3 liability 276 Changes in fair value (228 ) Outstanding at December 31, 2020 48 N. Certain Financial Instruments with Down Round Features The Company accounts Certain Financial Instruments with Down Round Features based on ASU 2017-11, “Earnings per share: I. Accounting for Certain Financial Instruments with Down Round Features,” which allows companies to exclude a down round feature when determining whether a financial instrument is considered indexed to the entity’s own stock. As a result, financial instruments with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. O. Recent Accounting Pronouncements Accounting Pronouncements Adopted in 2020 In June 2016, the Financial Accounting Standards Board (the “FASB”) issued an ASU that supersedes the existing impairment model for most financial assets to a current expected credit loss model. The new guidance requires an entity to recognize an impairment allowance equal to its current estimate of all contractual cash flows the entity does not expect to collect. The Group adopted this guidance effective January 1, 2020, with no material impact on its consolidated financial statements In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. This guidance replaces the current incurred loss impairment methodology. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions and reasonable and supportable forecasts. F- 18 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue) The guidance became effective on January 1, 2020, including interim periods within that year and requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Under the modified retrospective method of adoption, prior year reported results are not restated. The Company has performed its analysis of the impact on its financial instruments that are within the scope of this guidance and has concluded that there was no material impact to its consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU No. 2018-13”) as part of the FASB’s broader disclosure framework project. ASU No. 2018-13 removes, modifies and adds certain disclosures, providing greater focus on requirements that clearly communicate the most important information to the users of the financial statements with respect to fair value measurements. The adoption of ASU No. 2018-13 as of January 1, 2020 did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes.” The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation. In August 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options” (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for public companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of ASU 2020-06 will have on the Company’s consolidated financial statement presentation or disclosures. Other new pronouncements issued but not effective as of December 31, 2020 are not expected to have a material impact on the Company’s consolidated financial statements. F- 19 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 3 – OTHER CURRENT ASSTES December 31, 2020 2019 Loans to executive officers (1) - 21 Prepaid expenses 8 - Government Institutions 8 2 Investment in subsidiary 3 - 19 23 (1) On November 20, 2017, the Group made available to an executive officer and a former executive officer, who are also stockholders, a loan in the amount of $10 each. The loans bear interest at a rate of approximately 3% per year. The loans, including the accumulated interest amount, shall be repaid at the earlier of the following dates: (i) December 31, 2019; or (ii) at the date of repayment of the loan made available by the stockholders to the Company according to a loan agreement as stated in Note 5; or (iii) from any dividend or other distribution to be made by the Company to its shareholders. The two stockholders are entitled to repay the outstanding amount of the loan at any time. The loans to executive officers were extinguished in connection with and prior to the Share Exchange. NOTE 4 – PROPERTY AND EQUIPMENT, NET December 31, 2020 2019 Computers 10 10 Furniture and office equipment 12 12 Leasehold improvements 15 15 37 37 Less - accumulated depreciation (25 ) (20 ) Total property and equipment, net 12 17 In the years ended December 31, 2020 and 2019, depreciation was US$ 5 and US$ 2 respectively. NOTE 5 –OTHER ACCOUNTS LIABILITIES December 31, 2020 2019 Accrued expenses 213 208 Other - 1 213 209 F- 20 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 6 – CONVERTIBLE LOANS A. As detailed in Note 1 above, the New Debentures in the amount of $400, mature three years from the Effective Date, bear interest at a rate of 8% per year and are only convertible into shares of the Company’s common stock, at the Original Conversion Price ; provided, however, that such Original Conversion Price shall be adjusted downward in the event that the Company, as applicable, sells or grants any options to purchase or sells or grants any right to reprice, or otherwise dispose or issues any common stock or common stock equivalents entitling any purchaser to acquire shares of the Company’s common stock at Dilutive Event. In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment shall occur immediately after the completion of such period. As of March 30, 2021, the New Debentures have an aggregate outstanding principal balance of $200 as a result of conversions of the New Debentures (see note 15 below). In accordance with ASC 815-15-25, the conversion feature was considered an embedded derivative instrument, and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. The fair value of the convertible component was estimated by third party appraiser using the Black-Scholes option pricing model, to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The Company has estimated the fair value of such derivative at a value of $132 at the date of issuance and at a value of $26 as of December 31, 2020. The following are the data and assumptions used as of the balance sheet date: December 31, 2020 March 10, 2020 Common stock price 0.25 0.374 Expected volatility 34.89% 37% Expected term 2.19 years 3 years Risk free rate 0.17% 0.58% Forfeiture rate 0% 0% Expected dividend yield 0% 0% The fair value allocated to loans out of the New Debentures was estimated by third party appraiser based on the debentures’ and market interest’ rates and was estimated at a value of $332 at the issuance date. The access of the calculated fair values of the loan and the convertible components over the loan face amounted to $67, and was recorded as interest expenses. F- 21 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 6 – CONVERTIBLE NOTES (continue) B. In connection with the Share Exchange, immediately prior to the Effective Time, the Company entered into several Convertible Loan Agreements, on the same terms, in the aggregate amount of $965. The terms of the Convertible Loan Agreements require repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at Company’s discretion, and subject to its compliance with any and all terms of the material terms of the Convertible Loan Agreements, the term of such loans is extended for an additional twelve (12) month period. The terms of the Convertible Loan Agreements also provide that the Company may repay any portion of the remaining outstanding loan amount, without penalty, provided, however, that the Company provides the specific lender with three business days’ written notice prior to such repayment, during which time the lender may elect to convert any or all of the outstanding loan amount into shares of common stock of the Company. The Convertible Loan Agreements bear simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month. On December 9, 2020, the Company utilized its rights under the above agreement and extended the terms of the loans for additional twelve month. The lenders will have the option to convert the unpaid balance of their respective Convertible Loans into shares of Company’s common stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following the Effective Time. “Effective price” per share means (i) if only shares of Company’s common stock are sold in a transaction, the amount actually received in cash by the Company, and (ii) if shares of Company’s common stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Company’s common stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Company’s common stock issued in such transaction; (B) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six (6) months following the Effective Time until such time as the loans outstanding under all of the Convertible Loan Agreements are fully repaid or otherwise converted provided, however, that such price per share shall not be available in the event of an issuance of Alternative Securities to the lender); (C) a price per share reflecting a post-money valuation of the Company of $15million following the next investment in the Company following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. The conversion price is currently $0.374. As of March 30, 2021, the Convertible Loan Agreements have an aggregate outstanding principal balance of $835 as a result of the conversions of certain Convertible Loan Agreements (see note 15 below). In accordance with ASC 815-15-25, the conversion feature was considered an embedded derivative instrument, and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. F- 22 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 6 – CONVERTIBLE NOTES (continue) The fair value of the convertible component was estimated by third party appraiser using the Black-Scholes option pricing model, to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The Company has estimated the fair value of such derivative at a value of $144 at the date of issuance and at a value of $22 as of December 31, 2020. The following are the data and assumptions used as of the balance sheet date: December 31, 2020 March 10, 2020 Common stock price 0.25 0.374 Expected volatility 34.89% 37% Expected term 1.19 years 1 year Risk free rate 0.36% 0.43% Forfeiture rate 0% 0% Expected dividend yield 0% 0% The fair value allocated to loans net of the convertible component was estimated at a value of $822 at the issuance date. NOTE 7 - STOCKHOLDERS LOANS Since Duke’s inception and until 2017, certain Duke affiliates provided loans to Duke from time to time, as needed. Some of the Stockholders Loans bear an annual fixed interest at 3.00% and some of the Stockholders Loans bear an annual interest rate as defined in section 3(j) of the Israeli tax ordinance (the interest rate 2019 was set on 2.56% per annum). The Stockholders’ loans, including the accumulated interest amount, were to be repaid in full within 7-15 days from any capital raised by the Company or related parties of the Company, whether by a stock offering and / or loans in excess of NIS 10 million (approximately $2.5 million). As detailed in note 1 above, before entering into the Share Exchange Agreement: (i) Duke entered into Debt Cancellation Letters with each of its Stockholders with regard to the Stockholders Loans noted above. Pursuant to the Debt Cancellation Letters, 842,135 shares of the Duke Inc. common stock (1,046,016 shares post Exchange Ratio) were issued in exchange for the cancellation of $623 in debt, waiving $83 of accrued interest and leaving $280 of outstanding Stockholders Loans. These Stockholders Loans, including interest (which shall bear an annual fixed interest rate of 3% as of January 1, 2020), shall be repaid at the date upon which the Company raises at least $15 million and has achieved earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year anniversary of the Effective Time and the full repayment of the amounts outstanding under certain convertible loan agreements in the aggregate amount of $965 (see additional information in Note 6B). F- 23 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 8 – SHAREHOLDERS’ EQUITY Description of the rights attached to the Shares in the Company : The holders of shares of Common Stock vote together as one class on all matters as to which holders of Common Stock are entitled to vote. Except as otherwise required by applicable law and subject to the preferential rights of any outstanding preferred stock, all voting rights are vested in and exercised by the holders of Common Stock with each share of our Common Stock being entitled to one vote, including in all elections of directors. The Company does not have a classified board of directors (the “Board”). Subject to preferences that may be applicable to any outstanding preferred stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board out of legally available funds therefore. In the event of the Company’s liquidation, dissolution or winding up, holders of the Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of preferred stock, if any, then outstanding. The Common Stock has no cumulative voting rights and no preemptive or other rights to subscribe for shares of the Company. There are no redemption or sinking fund provisions applicable to the Common Stock. All shares of Common Stock currently outstanding are fully paid and non-assessable. Transactions : On June 1, 2018, the Company granted an aggregate of 200,000 shares of common stock to a consultant at a value of $3.00 per share of common stock in exchange for consulting services. The stock will be issued to the consultant over a 3-year vesting period. On June 1, 2019 the Company issued to the consultant the first tranche of 66,667 shares of common stock. During the year ended December 31, 2020 the Company recorded compensation expenses in regard to such offering in the amount of $108. Refer to notes 1 above regarding shares issued during 2020. NOTE 9 – STOCK OPTIONS The following table presents Duke Inc.’s stock option activity the year ended December 31, 2020: Number of Options Weighted Average Exercise Price Outstanding at December 31,2019 995,000 2.70 Granted - - Exercised - - Forfeited or expired - - Outstanding at December 31,2020 995,000 2.70 Number of options exercisable at December 31, 2020 895,000 2.75 F- 24 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 9 – STOCK OPTIONS (continue) The aggregate intrinsic value of the awards outstanding as of December 31, 2020 is $0. These amounts represent the total intrinsic value, based on the Company’s stock price of $0.374 as of December 31, 2020, less the weighted exercise price. This represents the potential amount received by the option holders had all option holders exercised their options as of that date. The stock options outstanding as of December 31, 2020, have been separated into exercise prices, as follows: Exercise price Stock options outstanding Weighted average remaining contractual life – years Stock options vested As of December 31, 2020 2.25 400,000 1.7 300,000 3 595,000 1.30 595,000 995,000 895,000 The stock options outstanding as of December 31, 2019, have been separated into exercise prices, as follows: Exercise price Stock options outstanding Weighted average remaining contractual life – years Stock options vested As of December 31, 2019 2.25 400,000 2.70 200,000 3 595,000 2.30 595,000 995,000 795,000 Compensation expense recorded by the Company in respect of its stock-based compensation awards for the period ended December 31, 2020 was $108 and are included in General and Administrative expenses in the Statements of Operations F- 25 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands , except share and per share data) NOTE 10 – GENERAL AND ADMINISTRATIVE EXPENSES Year ended December 31 2020 2019 Professional services 538 310 Share base compensation 645 540 Insurance 47 - Adverting and promotion 34 - Rent and office maintenance 25 107 Levies and tolls 6 - Depreciation 5 4 Other expenses 5 - 1,305 961 NOTE 11 – LITIGATION On February 14, 2018, a complaint was filed against the: (i) Duke Inc., (ii) Duke Israel, (iii) Aphek Trading Kadosh and Razi Ltd. (“Aphek”) an Israeli corporation owned by Raziel Atuar and Amir Kadosh, and (iv) Mr. Aharon Sagiv, currently, the Chief Technology Officer and Director of the Company, by Blackhawk Laboratories (the “Plaintiff”), a U.S. based company, in the Tel Aviv District of Israel (Case No. 31727-02-18). The complaint asserts a claim for breach of contract, breach of duty, negligence and unjust enrichment with regard to a services agreement dated June 13, 2014 between the Plaintiff and Duke. The complaint asserts that Duke Israel agreed to pay for certain services alleged to have been performed by the Plaintiff and that the Plaintiff was entitled to receive 8% of the issued and outstanding shares of common stock of, over a 12 month period from June 2014 to June 2015. The Plaintiff’s complaint seeks an order requiring either Duke Israel to issue to the Plaintiff 8% of its issued and outstanding shares of our common stock; or alternatively for Duke Inc. to issue to the Plaintiff 4.8% of its issued and outstanding shares of our common stock; or alternatively for Aphek and Mr. Aharon Sagiv to transfer 8% of their shareholdings in the Company to the Plaintiff. The defendants believe the Plaintiff’s complaint has no merit and they intend to vigorously defend the lawsuit. The Company and Duke Inc. do not believe the lawsuit will have a material effect on the Company as all three co-founders of the Company (Raziel Atuar, Amir Kadosh and Sagiv Aharon) have agreed to indemnify the Group for any losses resulting from the lawsuit, including taking responsibility for the issuance of any shares of the Group’s common stock in the event the Plaintiff is successful in its lawsuit. F- 26 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands , except share and per share data) NOTE 12 – INCOME TAX U.S. resident companies are taxed on their worldwide income for corporate income tax purposes at a statutory rate of 21% this reflect certain effects of the Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes. No further taxes are payable on this profit unless that profit is distributed. If certain conditions are met, income derived from foreign subsidiaries is tax exempt in the US under applicable tax treaties to avoid double taxation. Income of the Israeli company is taxable from 2018 onwards, at corporate tax rate of 23%. The Company and subsidiaries have not received final tax assessments since its inception. As of December 31, 2020, the Company and subsidiaries had carry forward losses for tax purposes of approximately $1,225 and $2,813, respectively, which can be offset against future taxable income, if any. A. The following is reconciliation between the theoretical tax on pre-tax income, at the tax rate applicable to the Company (federal tax rate) and the tax expense reported in the financial statements: Year ended December 31 2020 2019 US Dollars Pretax loss (1,368 ) (1,111 ) Federal tax rate 21 % 21 % Income tax computed at the ordinary tax rate 287 233 Stock-based compensation (135 ) (114 ) Tax in respect of differences in corporate tax rates 5 2 Losses and timing differences in respect of which no deferred taxes were generated (157 ) (121 ) - - B. Deferred taxes result primarily from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant components of the Company’s future tax assets are as follows: Year ended December 31 2020 2019 US Dollars Composition of deferred tax assets: Non capital loss carry forwards 872 378 Valuation allowance (872 ) (378 ) - - F- 27 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands , except share and per share data) NOTE 13 – LOSS PER SHARE Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during the year. The weighted average number of shares of common stock used in computing basic and diluted loss per share for the years ended December 31, 2020 and 2019, are as follows: Year ended December 31 2020 2019 Number of shares Weighted average number of shares of common stock outstanding attributable to shareholders 37,285,015 25,027,075 Total weighted average number of shares of common stock related to outstanding options, excluded from the calculations of diluted loss per share (*) 995,000 995,000 (*) The effect of the inclusion of option and convertible loans in 2020 and 2019 is anti-dilutive. NOTE 14 – RELATED PARTIES A. Transactions and balances with related parties Year ended December 31 2020 2019 General and administrative expenses: Directors compensation 175 - 175 - Financing: Financing expense 133 13 Financing income 75 - B. Balances with related parties: As of December 31, 2020 2019 Other accounts liabilities 19 - Stockholders loans 268 925 Convertible loans 972 - C. On April 12, 2020, effective as of March 1, 2020, the Board of Directors approved the payment of certain fees to directors in the amounts of $4.98, $4.98 and $6.95 per month to Yariv Alroy, Sagiv Aharon and Erez Nachtomy (each, an “Active Director”), respectively. On April 12, 2020, the Company also enacted a policy to pay each director (that is not otherwise an Active Director) an amount of $1.5 for each calendar quarter and $0.40 for attendance of each meeting of the board of directors. These amounts are exclusive of Israeli VAT if applicable. F- 28 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 15 – SUBSEQUENT EVENTS A. On January 29, 2021, the Company, through its wholly owned subsidiary Duke Israel and Elbit, entered into a collaboration agreement (the “Agreement”) for the global marketing and sales, and the production and further development of Duke’s developed advanced robotic system mounted on an Unmanned Aerial Solution (“UAS”), armed with lightweight firearms, which the Company markets under the commercial name “TIKAD.” Pursuant to the Agreement, Duke has granted Elbit a worldwide exclusive license for the use of Duke’s know-how and intellectual property and the marketing, sales, production, and further development of the TIKAD for military, defense, homeland security, and para-military uses. As consideration for granting the worldwide exclusive license, Elbit will pay Duke royalties from revenues received from worldwide sales of TIKAD, with royalty rates ranging from low to mid-double-figure percentages, depending on the tiers of the selling price of TIKAD, for a period starting from the date of the Agreement until 15 years following receipt of $5,000 in cumulative revenues from sales of TIKAD units. In addition, Duke agreed to pay Elbit similar rates of royalties for revenues received by Duke from sales of its advanced robotic system for civil use, if such systems will include new know-how developed by Elbit. Pursuant to the terms of the Agreement, the parties also agreed to cooperate in continuing a project (the “Project”) that has already started with a customer in the Asia Pacific region. Elbit has agreed to invest, at its discretion and pursuant to certain milestones, in the further development and setting up of serial production lines of TIKAD, and may elect to increase such investment subject to the satisfaction of certain criteria, including Elbit’s right to terminate the Agreement if, for example, the Project is cancelled by the customer. Such investment amounts will be made into Elbit’s owned assets and production lines of TIKAD. Elbit will recoup 50% of its investment amount, up to $6,000, by offsetting 50% of royalty payments that may be due to Duke. B. During February 2021, holder of Convertible Loan as detailed in note 6A above, converted $200 principal amount ($215.066 including accrued interest) into 575,044 common stock of the Company. C. On February 12, 2021 and March 2, 2021, the Company issued 171,246 common stock of the Company, to several holders Security Exchange Agreement signed at March 9, 2020 between the Company and several debt holders (see note 1(iii) above), according to which, such holders are entitled to an anti-dilution clause in the event that the Convertible Loans detailed in notes 6B and 1(iii) above are converted such that such the number of shares held by such investors would not be lower than original holding on a fully diluted basis prior to such conversions. D. On March 5, 2021 holder of Convertible Loan as detailed in note 6B above, converted the principal amount of $130 into 347,594 shares of the Company’s common stock. E. On March 25, 2021, the Board of Directors appointed Yossef Balucka to serve as its Chief Executive Officer and President. In conjunction with the appointment of Mr. Balucka, the Company issued to Mr. Balucka options to purchase 450,000 shares of the Company’s commons stock at an exercise price of $0.0001 per share, subject to and in accordance with the terms and conditions of an Option Plan to be set up and approved by the Company at the discretion of the board of directors. The options shall vest over a three year period, with 50% of the options to vest on the first anniversary of the grant date, and the balance of 50% of the options to vest in equal parts on the second and third anniversary of the grant date, respectively, subject to the Mr. Balucka providing continued services to the Company. F- 29