DUKE Robotics Corp. 10-Q

10-Q 1 f10q0321_uasdronecorp.htm QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 000-55504 UAS Drone Corp. (Exact name of registrant as specified in its charter) Nevada 47-3052410 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1 Etgar Street Tirat-Carmel, Israel 3903212 (Address of Principal Executive Offices) (Zip Code) +972-4-8124101 (Registrant’s telephone number, including area code) n/a (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: Title of each class registered Trading Symbol(s) Name of exchange on which registered N/A N/A N/A Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of May 19, 2021, the registrant had 54,018,813 shares of common stock, par value $0.0001, of the registrant issued and outstanding. In this Quarterly Report, unless otherwise specified, all dollar amounts are expressed in United States dollars. Except as otherwise indicated by the context, references in this Quarterly Report to “Company”, “UAS,” “we,” “us” and “our” are references to UAS Drone Corp., a Nevada corporation, together with its consolidated subsidiaries. UAS Drone Corp. Quarterly Report on Form 10-Q TABLE OF CONTENTS Page Cautionary Note Regarding Forward-Looking Statements ii PART 1-FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Comprehensive Loss 4 Statements of Stockholders’ Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7-21 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25 Item 4. Control and Procedures 25 PART II-OTHER INFORMATION Item 6. Exhibits 26 SIGNATURES 27 i CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things: ● sales of our products; ● the size and growth of our product market; ● our activity in the civilian market; ● our manufacturing capabilities; ● our entering into certain partnerships with third parties; ● obtaining required regulatory approvals for sales or exports of our products; ● our marketing plans; ● our expectations regarding our short- and long-term capital requirements; ● the effect of COVID-19 on our business; ● our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses; and ● information with respect to any other plans and strategies for our business. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 30, 2021) entitled “Risk Factors” as well as in our other public filings. In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. ii UAS DRONE CORP. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2021 1 UAS DRONE CORP. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2021 TABLE OF CONTENTS Page CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Condensed Consolidated Balance sheets as of March 31, 2021 (unaudited), and December 31, 2020 3 Condensed Consolidated Statements of Comprehensive Income (loss) for three months ended March 31, 2021 and 2020 (unaudited) 4 Condensed Consolidated Statements of stockholders’ deficit for the period of three months ended March 31, 2021 (unaudited) and the year ended December 31, 2020 5 Condensed Consolidated Statements of cash flows for the three months ended March 31, 2021 and 2020 (unaudited) 6 Notes to unaudited condensed consolidated financial statements 7 - 21 2 UAS DRONE CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (USD in thousands, except share and per share data) March 31, December 31, 2021 2020 Assets (Unaudited) Current Assets Cash and cash equivalents 452 105 Other current assets 55 19 Total Current assets 507 124 Property and Equipment, Net 11 12 Total assets 518 136 Liabilities and Shareholders’ Deficit Current Liabilities Current maturities of long term bank loan - 6 Accounts payable 108 109 Other accounts liabilities 130 213 Convertible loans (note 3) 832 950 Fair value of convertible component in convertible loan (note 3) 134 22 Total current liabilities 1,204 1,300 Convertible Loans (note 3) 192 371 Fair Value of convertible component in convertible loan (note 3) 47 26 Stockholders loans 290 288 Total liabilities 1,733 1,985 Stockholders’ Deficit Common stock of U.S.$ 0.0001 par value each (“Common Stock”): 100,000,000 shares authorized as of March 31, 2021 and December 31, 2020; issued and outstanding 41,169,035 and 40,075,151 shares as of March 31, 2021 and December 31, 2020, respectively. 4 4 Additional paid-in capital 3,661 3,278 Accumulated deficit (4,880 ) (5,131 ) Total stockholders’ deficit (1,215 ) (1,849 ) Total liabilities and stockholders’ deficit 518 136 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 UAS DRONE CORP. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD in thousands, except share and per share data) Three months ended March 31 2021 2020 (Unaudited) Revenues (Note 6) 500 - Cost of sales - - Gross profit 500 - General and administrative expenses (161 ) (696 ) Other income 132 - Operating income (loss) 471 (696 ) Financing income (expense), net (220 ) 5 Net income (loss) 251 (691 ) Income (Loss) per share (basic and diluted) 0.00 (0.02 ) Basic and diluted weighted average number of shares of common stock outstanding 40,518,220 28,853,284 The accompanying notes are an integral part of the condensed consolidated financial statements. 4 UAS DRONE CORP. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT (USD in thousands, except share and per share data) Number of Shares Amount Additional paid-in capital Accumulated deficit Total stockholders’ deficit BALANCE AT DECEMBER 31, 2019 25,130,126 2 2,002 (3,763 ) (1,759 ) CHANGES DURING THE PERIOD OF THREE MONTHS ENDED MARCH 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 * 511 511 Effect of Reverse Capitalization 11,606,086 2 (440 ) (438 ) Comprehensive loss for three month ended March 31, 2020 - - - (691 ) (691 ) BALANCE AT MARCH 31, 2020 (Unaudited) 40,075,151 4 3,144 (4,454 ) (1,306 ) Number of Shares Amount Additional paid-in capital Accumulated deficit Total stockholders’ deficit BALANCE AT DECEMBER 31, 2020 40,075,151 4 3,278 (5,131 ) (1,849 ) CHANGES DURING THE PERIOD OF THREE MONTHS ENDED MARCH 31, 2021: Issuance of shares in exchange for convertible loans 1,093,884 * 345 - 345 Share based compensation for services - - 38 - 38 Comprehensive profit for three month ended March 31, 2021 - - - 251 251 BALANCE AT MARCH 31, 2021 (Unaudited) 41,169,035 4 3,661 (4,880 ) (1,215 ) (*) represents amount less than $1 thousand. 5 UAS DRONE CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD in thousands) Three months ended March 31, 2021 2020 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) for the period $ 251 $ (691 ) Adjustments required to reconcile net loss for the period to net cash used in operating activities: Depreciation and amortization 1 3 Stock based compensation 38 511 Interest on loans 2 (79 ) Expenses with respect to convertible loans and debentures 181 65 Increase in other current assets (36 ) (48 ) Decrease in accounts payable (1 ) (38 ) Decrease in other accounts payable (83 ) (78 ) Net cash provided by (used in) operating activities 353 (355 ) CASH FLOWS FROM INVESTING ACTIVITIES: - - CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secured promissory notes - 965 Repayments of long term banking institute (6 ) (8 ) Net cash provided by (used in) financing activities (6 ) 957 INCREASE IN CASH AND CASH EQUIVALENTS 347 602 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 105 23 CASH AND CASH EQUIVALENTS AT END OF PERIOD 452 625 Supplemental disclosure of cash flow information: Non cash transactions: Issuance of shares in exchange for extinguishment of debt - 623 Issuance of shares in exchange for convertible loans 345 448 The accompanying notes are an integral part of the condensed consolidated financial statement 6 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 1 - GENERAL UAS Drone Corp. (the “Company” or “USDR”) was incorporated under the laws of the State of Nevada on February 4, 2015. Prior to the Company’s formation, the operations were functioning under Unlimited Aerial Systems, LLP (“UAS LLP”). UAS LLP was formed under the laws of the State of Louisiana on August 22, 2014. Effective March 31, 2015, the Company completed a reverse merger with UAS LLP. The reverse merger was accounted for as a reverse capitalization. On March 9, 2020, the Company closed on the Share Exchange Agreement (as defined hereunder), pursuant to which, Duke Robotics, Inc. (“Duke Inc.”) a corporation incorporated under the laws of the state of Delaware, became a majority-owned subsidiary of the Company. Duke Inc. has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel,” and collectively with Duke Inc., “Duke”), which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation. On April 29, 2020, the Company, Duke Inc., and UAS Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“UAS Sub”), executed an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub merged with and into Duke Inc. Upon closing of the Short-Form Merger (as defined hereunder), each outstanding share of UAS Sub’s common stock, par value $0.0001 per share, was converted into and became one share of common stock of Duke Inc., with Duke Inc. surviving as a wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the Company intended to acquire the remaining outstanding shares of Duke Inc. held by certain stockholders of Duke Inc. that did not participate in the Share Exchange Agreement (as defined hereunder). On April 30, 2020, the Company filed a Registration Statement on Form S-1, which was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on June 19, 2020, which registered: (i) 63,856 shares of common stock of the Company, $0.0001 par value per share (the “Common Stock”), that were issued to certain stockholders of Duke Inc. upon the consummation of the Short-Form Merger; (ii) 14,614,751 shares of Common Stock of certain selling stockholders named in the Registration Statement on Form S-1; and (iii) 3,649,733 shares of Common Stock issuable upon conversion of Convertible Notes (see Note 6 below). On June 25, 2020, at the closing of the transaction contemplated by the Merger Agreement, the Company issued 63,856 shares to certain Duke Inc. stockholders, and Duke Inc. became a wholly owned subsidiary of the Company. The Company (collectively with Duke, the “Group”) is a robotics company dedicated to the development of an advanced robotics stabilization system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. The Company’s advanced robotics system is able to achieve pinpoint accuracy regardless of the movement of the weapons platform or the target. On January 29, 2021, the Company, through Duke Israel, and Elbit Systems Land Ltd., an Israeli corporation, entered into a collaboration agreement for the global marketing and sales, and the production and further development of our developed advanced robotic system mounted on an UAS, armed with lightweight firearms, which we market under the commercial name “TIKAD.” Effective October 22, 2020, Company’s Common Stock is quoted on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market, under the symbol “USDR”. 7 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 1 – GENERAL ( cont.) Merger Transaction On March 4, 2020, USDR entered into a Share Exchange Agreement with Duke Inc., and certain shareholders of Duke Inc. who executed and delivered the Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which Duke Inc. became a majority-owned subsidiary of USDR (the “Share Exchange”). The Share Exchange closed on March 9, 2020. Such closing date is referred to as the “Effective Time.” Before entering into the Share Exchange Agreement: (i) Duke entered into debt cancellation letters (the “Debt Cancellation Letters”) with each of its Stockholders with regard to the Stockholders Loans. Pursuant to the Debt Cancellation Letters, 842,135 shares of the Duke Inc. common stock (1,046,016 shares post Exchange Ratio) were issued in exchange for the cancellation of $623 in debt, leaving $280 of outstanding Stockholders Loans. These Stockholders Loans, including interest (which shall bear an annual fixed interest rate of 3% as of January 1, 2020), shall be repaid at the date upon which the Company raises at least $15 million and has achieved earnings before interest, tax, depreciation and amortization of $3 million, but not before the three year anniversary of the Effective Time and the full repayment of the amounts outstanding under certain convertible loan agreements in the aggregate amount of $965 (each, a “Convertible Loan Agreement”) (see Note 6B) entered into at the Effective Time, unless such repayment is otherwise waived by the parties to the Investors’ Loan; (ii) Loans made from Duke to an executive officer and a former executive officer, who are also stockholders were extinguished in connection with the Debt Cancellation Letters; (iii) Duke issued a consultant 1,146,005 shares of the Duke Inc. common stock (1,423,453 shares post Exchange Ratio), at par value, regarding services rendered to Duke Inc. The fair value of the shares issued was estimated at $429 and were recorded to share based compensation expenses.; and (iv) a convertible loan agreement in amount of $400 bearing an annual interest rate of 6%, including accumulated interest in amount of $48, was converted into 700,000 shares of Duke Inc. common stock (869,470 shares post Exchange Ratio). In conjunction with the consummation of the Share Exchange, and as a condition thereof, the USDR entered into the agreements listed below: (i) Convertible Loan Agreements, on the same terms, in the aggregated amount of $965 with several investors (the “Convertible Loans”). The term of each investor’s loan was for 12 month and each such agreement bore annual interest of 15%, and at the discretion of USDR, the term of the investors’ loans was able to be extended for an additional 12 month period, which the Company did elect to extend (see also note 6 below). The investors had the option to convert the respective unpaid balance of their loan into shares of USDR’s Common Stock based on the lower of the following valuations: (i) the lowest effective price per share set in connection with any funds raised by USDR during the six months following the Share Exchange; (ii) 80% of the lowest effective price per share set in connection with any funds raise by USDR at any time subsequent to six months following the Share Exchange until such time as the Investors’ Loans are fully repaid; (iii) a price per share reflecting a post-money valuation of USDR of $15 million following the next investment in USDR following closing; or (iv) if at any time following the 6 month anniversary of the closing of the Share Exchange and until such time as the Investors’ Loans are fully repaid, USDR sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues any common stock entitling any person to acquire shares of common stock at an effective price per share that is lower than $0.374. 8 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 1 – GENERAL ( cont.) As of March 31, 2021, the conversion price was $0.374. As of March 31, 2021, the Convertible Loan Agreements had 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. (iii) Securities exchange agreements with outstanding debt holders of USDR, Alpha Capital Anstalt (“Alpha”) and GreenBlock Capital LLC (“GBC”) to respectively cancel existing debentures or debt in the total amount of $658 and in exchange issue new debentures in the aggregate amount of $400 and issue 698,755 and 65,198 shares of Common Stock to each of Alpha and GBC, respectively (the “New Debentures”). The New Debentures were to mature three years from the Effective Date, bore interest at a rate of 8% per year and were only convertible into shares of Common Stock, at an original conversion price of $0.374 (the “Original Conversion Price”); provided, however, that such Original Conversion Price was to be adjusted downward in the event that USDR, as applicable, sells or grants any options to purchase or sells or grants any right to reprice, or otherwise disposes or issues any common stock or common stock equivalents entitling any purchaser to acquire shares of the Company’s common stock at an effective price per share that was lower than the Original Conversion Price (such issuance, a “Dilutive Event”). In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment shall occur immediately after the completion of such period. As of March 31, 2021, the New Debentures had an aggregate outstanding principal balance of $200 as a result of partial 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 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. 9 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 1 – GENERAL ( cont.) Pursuant to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of Common Stock to the Duke Inc. stockholders in exchange for 22,920,107 shares of Duke’s Inc. issued and outstanding shares of common stock, representing approximately 99% of Duke’s Inc. issued and outstanding shares of common stock. Accordingly, each outstanding share of Duke Inc. common stock was exchanged for the right to receive 1.2421 shares of the Company’s common stock (the “Exchange Ratio”). Of the shares of Duke Inc. common stock that were exchanged for shares of the Company’s common stock, 51,410 (representing 63,856 shares of the Company’s common stock post-Share Exchange) were issued but remained in escrow until the Company completed the Short-Form Merger (as defined hereunder). On June 25, 2020, at the closing of the transaction contemplated by the Merger Agreement, the Company released the shares in escrow. As such, at the Effective Time, the Duke stockholders owned an equivalent of approximately 71% of the Company’s Common Stock. After giving effect to the Share Exchange, Duke became a subsidiary of the Company. Following the Share Exchange, the Company adopted the business plan of Duke. The transaction was accounted for as a reverse asset acquisition in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Under this method of accounting, Duke was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) Duke’s stockholders owned a substantial majority of the voting rights in the combined company, (ii) Duke designated a majority of the members of the initial board of directors of the combined company, and (iii) Duke’s senior management holds all key positions in the senior management of the combined company. As a result of the Recapitalization Transaction, the shareholders of Duke received the largest ownership interest in the Company, and Duke was determined to be the “accounting acquirer” in the Recapitalization Transaction. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Duke. The number of shares prior to the reverse capitalization have been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in the Recapitalization Transaction. On April 29, 2020, the Company, Duke Inc. and UAS Sub, executed the Merger Agreement, pursuant to which UAS Sub merged with and into Duke, with Duke surviving as a wholly-owned subsidiary of the Company (the “Short-Form Merger”). Pursuant to the Merger Agreement, on June 25, 2020, the Company acquired the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate in the Share Exchange. We have not experienced any material impact on our financial condition and results of operations due to COVID-19, and we do not expect to experience any material impact on our overall liquidity positions and outlook as a result of the outbreak. Nevertheless, given that COVID-19 is still an ongoing event in different parts of the world, it is still not possible at this time to estimate the full impact that the COVID-19 pandemic, the continued spread of COVID-19, and any additional measures taken by governments, health officials or by us in response to such spread, could have on our business results of operations and financial condition. 10 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 1 – GENERAL ( cont.) Unaudited Interim Financial Statements The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, prepared in accordance with GAAP and with the instructions to Form 10-Q. In the opinion of management, the financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the three-months ended March 31, 2021. However, these results are not necessarily indicative of results for any other interim period or for the year ended December 31, 2021. The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates. Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the SEC. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report published with the SEC, for the year ended December 31, 2020. Principles of Consolidation The consolidated financial statements are prepared in accordance with GAAP. The consolidated financial statements of the Company include the Company and its wholly-owned and majority-owned subsidiaries. All inter-company balances and transactions have been eliminated. 11 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Use of Estimates The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the share based compensation, going concern assumptions and convertible loans. Derivative Liabilities and Fair Value of Financial Instruments Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under Accounting Standards Codification (“ASC”) 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815. Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. Fair value of certain of the Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments. Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of non-performance, which includes, among other things, the Company’s credit risk. Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. 12 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.) 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. The Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy are as follows: Balance as of March 31, 2021 Level 1 Level 2 Level 3 Total Liabilities: Fair Value of convertible component in convertible loan - - 181 181 Total liabilities - - 181 181 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 13 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (cont.) The following table presents the changes in fair value of the level 3 liabilities for the three months ended March 31, 2021: Fair value of Convertible component Outstanding at January 1,2021 48 Fair value of issued level 3 liability - Changes in fair value 133 Outstanding at March 31,2021 181 Recent Accounting Pronouncements In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021. Early adoption is permitted. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new guidance, but does not expect it to have a material impact on its financial statements. 14 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 3 – CONVERTIBLE NOTES A. As detailed in Note 1A above, in conjunction with the consummation of the Share Exchange, USDR entered into Securities exchange agreements with outstanding debt holders of USDR, Alpha and GBC to respectively cancel existing debentures or debt in the total amount of $658 and in exchange issue the New Debentures in the aggregate amount of $400 and issue 698,755 and 65,198 shares of Common Stock to each of Alpha and GBC, respectively. The New Debentures mature three years from the Effective Date in amount of $400, bear interest at a rate of 8% per year and are only convertible into shares of Common Stock, at an original conversion price of $0.3740; provided, however, that such Original Conversion Price was to be adjusted downward in the event of a Dilutive Event. In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment was to occur immediately after the completion of such period. During February 2021, Alpha converted $200 of the principal amount ($215 including accrued interest) of the New Debentures into 575,044 shares of Common Stock. In accordance with ASC 815-15-25, the conversion feature was considered embedded derivative instruments, and is to be recorded at their fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. The fair value of the convertible component was estimated by third party appraiser using the Black-Scholes option pricing model, to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The Company has estimated the fair value of such derivative at a value of $26 as of December 31, 2020 and at a value of $47 as of March 31, 2021. The following are the data and assumptions used as of the balance sheet date: March 31, 2021 December 31, 2020 Common stock price 0.39 0.25 Expected volatility 34.89 % 34.89 % Expected term 1.94 years 2.19 years Risk free rate 0.16 % 0.17 % 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 $192 at March 31, 2021. 15 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 3 – CONVERTIBLE NOTES ( cont.) On May 11, 2021, Alpha converted $100,946 of the principal amount ($110,614 including accrued interest) of the New Debentures into 295,759 shares of Common Stock. On May 14, 2021, the Company repaid the full principal balance and interest amount of the Convertible Loans in the amount of $108,541. B. In connection with the Share Exchange, immediately prior to the Effective Time, the Company entered into several Convertible Loan Agreements, on the same terms, in the aggregate amount of $965. The terms of the Convertible Loan Agreements required repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at our discretion, and subject to its compliance with any and all terms of the material terms of the Convertible Loan Agreements, the term of such loans is extended for an additional twelve (12) month period. The terms of the Convertible Loan Agreements also provided that we may repay any portion of the remaining outstanding loan amount, without penalty, provided, however, that the Company provides the specific lender with three business days’ written notice prior to such repayment, during which time the lender may elect to convert any or all of the outstanding loan amount into shares of Common Stock. The Convertible Loan Agreements bore simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month. The lenders had the option to convert the unpaid balance of their respective Convertible Loans into shares of Common Stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following the Effective Time. “Effective price” per share means (i) if only shares of Common Stock are sold in a transaction, the amount actually received in cash by the Company, and (ii) if shares of Common Stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Common Stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Common Stock issued in such transaction; (B) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six (6) months following the Effective Time until such time as the loans outstanding under all of the Convertible Loan Agreements are fully repaid or otherwise converted provided, however, that such price per share shall not be available in the event of an issuance of Alternative Securities to the lender); (C) a price per share reflecting a post-money valuation of the Company of $15 million following the next investment in the Company following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. On March 5, 2021, a holder of a Convertible Loan converted the principal amount of $130 into 347,594 shares of Common Stock. 16 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 3 – CONVERTIBLE NOTES ( cont.) In accordance with ASC 815-15-25 the conversion feature was considered embedded derivative instruments, and is to be recorded at their fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. The fair value of the convertible component was estimated by third party appraiser using the Black-Scholes option pricing model, to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The Company has estimated the fair value of such derivative at a value of $22 at December 31, 2020 and at a value of $134 as of March 31, 2021. The following are the data and assumptions used as of the balance sheet date: March 31, 2021 December 31, 2020 Common stock price 0.39 0.374 Expected volatility 34.89 % 37 % Expected term 0.94 year 1 year Risk free rate 0.07 % 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 $832 at March 31, 2021. On May 17 and 18, 2021, the Company repaid the full principal balance of the Convertible Loans in the amount of $835. 17 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 4 – SHAREHOLDERS’ EQUITY Transactions : On February 12, 2021 and March 2, 2021, respectively, the Company issued an aggregate of 171,246 shares of Common Stock to several holders who were signatories to the Securities Exchange according to which such holders are entitled to an anti-dilution clause in the event that the Convertible Loans detailed in Note 3B above are converted such that such the number of shares held by such investors would not be lower than original holding on a fully diluted basis prior to such conversions. NOTE 5 - STOCK OPTIONS The following table presents the Company’s stock option activity the three months ended March 31, 2021: Number of Options Weighted Average Exercise Price Outstanding at December 31,2020 995,000 2.70 Granted - - Exercised - - Forfeited or expired - - Outstanding at March 31,2021 995,000 2.70 Number of options exercisable at March 31, 2021 895,000 2.81 The aggregate intrinsic value of the awards outstanding as of March 31, 2021 was $0. These amounts represent the total intrinsic value, based on the Company’s stock price of $0.39 as of March 31, 2021, less the weighted exercise price. This represents the potential amount received by the option holders had all option holders exercised their options as of that date. See note 7C regarding options granted to Company’s CEO. The stock options outstanding as of March 31, 2021, have been separated into exercise prices, as follows: Exercise price Stock options outstanding Weighted average remaining contractual life – years Stock options vested As of March 31, 2021 2.25 400,000 1.45 300,000 3 595,000 1.05 595,000 995,000 895,000 18 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 5 - STOCK OPTIONS (cont.) The stock options outstanding as of December 31, 2020, have been separated into exercise prices, as follows: Exercise price Stock options outstanding Weighted average remaining contractual life – years Stock options vested As of December 31, 2020 2.25 400,000 1.70 300,000 3 595,000 1.30 595,000 995,000 895,000 Compensation expense recorded by the Company in respect of its stock-based compensation awards for the period ended March 31, 2021 was $38 and are included in General and Administrative expenses in the Statements of Operations. NOTE 6 – COLLABORATION AGREEMENT On January 29, 2021, the Company, through its wholly owned subsidiary Duke Israel and Elbit Systems Land Ltd., an Israeli corporation (“Elbit”), entered into a collaboration agreement (the “Agreement”) for the global marketing and sales, and the production and further development of Duke Israel’s developed advanced robotic system mounted on an Unmanned Aerial Solution (“UAS”), armed with lightweight firearms, which the Company markets under the commercial name “TIKAD.” Pursuant to the Agreement, Duke Israel granted Elbit a worldwide exclusive license for the use of Duke Israel’s know-how and intellectual property and the marketing, sales, production, and further development of the TIKAD for military, defense, homeland security, and para-military uses. As consideration for granting the worldwide exclusive license, Elbit will pay Duke royalties from revenues received from worldwide sales of TIKAD, with royalty rates ranging from low to mid-double-figure percentages, depending on the tiers of the selling price of TIKAD, for a period starting from the date of the Agreement until 15 years following receipt of $50,000 in cumulative revenues from sales of TIKAD units. In addition, Duke Israel agreed to pay Elbit similar rates of royalties for revenues received by Duke Israel from sales of its advanced robotic system for civil use, if such systems will include new know-how developed by Elbit. Pursuant to the terms of the Agreement, the parties also agreed to cooperate in continuing a project (the “Project”) that has already started with a customer in the Asia Pacific region. Per the agreement, Duke Israel shall be entitled to portion of the revenues generated in the Evaluation Phase of the Project. In addition, Elbit has agreed to invest, at its discretion and pursuant to certain milestones, in the further development and setting up of serial production lines of TIKAD, and may elect to increase such investment subject to the satisfaction of certain criteria, including Elbit’s right to terminate the Agreement if, for example, the Project is cancelled by the customer. Such investment amounts will be made into Elbit’s owned assets and production lines of TIKAD. Elbit will recoup 50% of its investment amount, up to $6,000, by offsetting 50% of royalty payments that may be due to Duke Israel. In addition to the above Elbit paid Duke Israel an upfront fee at the time of signing the Agreement for transfer of the engineering material and support for transferring the required information to Elbit. The upfront fee was recorded as revenues as of March 31, 2021. 19 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 7 – RELATED PARTIES A. Transactions and balances with related parties Three months ended March 31 2021 2020 General and administrative expenses: Directors and Officers compensation (*) 58 17 (*) Share base compensation 5 - Financing: Financing expense 160 8 Financing income - 80 B. Balances with related parties: As of March 31, As of December  31, 2021 2020 Other accounts liabilities 55 19 Stockholders loans 270 268 Convertible loans 966 972 C. On March 25, 2021, the Board of Directors appointed Yossi Balucka to serve as its Chief Executive Officer. Mr. Balucka is entitled to a monthly fee of NIS30,000 (approximately $9,100), reimbursement of expenses and discretionary performance bonus. In conjunction with the appointment of Mr. Balucka, the Company issued to Mr. Balucka options to purchase 450,000 shares of the Company’s commons stock at an exercise price of $0.0001 per share, subject to and in accordance with the terms and conditions of an Option Plan 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. 20 UAS DRONE CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (USD in thousands, except share and per share data) NOTE 8 – SUBSEQUENT EVENTS A. On May 11, 2021, the Company entered into Securities Purchase Agreements (the “Securities Purchase Agreements”) with eight (8) non-U.S. investors (the “Investors”), pursuant to which the Company, in a private placement offering (the “Offering”), agreed to issue and sell to the Investors an aggregate of: (i) 12,500,000 shares of the Company’s Common Stock, at a price of $0.40 per share; and (ii) warrants (the “Warrants”) to purchase 12,500,000 Company’s Common Stock. The Warrants are exercisable immediately and for a term of 18 months and have an exercise price of $0.40 per share. The aggregate gross proceeds from the Offering were approximately $5,000 and the Offering closed on May 11, 2021. B. On May 11, 2021, Alpha converted $101 of its principal amount ($111 including accrued interest) of the New Debentures into 295,759 shares of Common Stock. C. The Company issued 54,019 shares of Common Stock to several holders Securities Exchange Agreement, pursuant to which such holders were entitled to an anti-dilution clause in the event that the New Debentures detailed in Note 3A above are converted such that the number of shares held by such investors would not be lower than their original holdings on a fully diluted basis prior to such conversions. D. On May 14, 2021, the Company repaid the full principal balance and interest amount of the New Debentures detailed in Note 3A above, in the amount of $109. E. On May 17 and 18, 2021, the Company repaid the full principal balance of the Convertible Loans detailed in Note 3B, in the amount of $835. 21 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Readers are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2020 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . We are a robotics company dedicated to the development of an advanced robotics system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons. Our advanced robotics system is able to achieve pinpoint accuracy regardless of the movement of the weapons platform or the target. We were founded in 2014 as Unlimited Aerial Systems, LLP (“UAS LLP”), and until the consummation of the Share Exchange Agreement (as hereinafter defined), we were a developer and manufacturer of commercial unmanned aerial systems, or drones, with the goal of providing a superior Quadrotor aerial platform at an affordable price point in the law enforcement and first responder markets. On March 9, 2020, we closed on the Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which Duke Robotics, Inc., a Delaware corporation (“Duke”) became our majority-owned subsidiary (the “Share Exchange”). Such closing date is referred to as the “Effective Time.” As a result of the Share Exchange, the Company adopted the business plan of Duke. On April 29, 2020, we, Duke, and UAS Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary (“UAS Sub”), executed an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub was to merge, upon the satisfaction of customary closing conditions, with and into Duke, with Duke surviving as our wholly-owned subsidiary (the “Short-Form Merger”). Pursuant to the Merger Agreement, we intended to acquire the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate in the Share Exchange. On June 25, 2020, Duke filed a Certificate of Merger with the State of Delaware, and consequently, Duke became our wholly-owned subsidiary and the Short-Form Merger was consummated. Duke has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel”), which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation. Our mailing address is 1 Etgar Street (1st Floor), Tirat-Carmel, Israel 3903212, and our telephone number is 011-972-4-8124101. Readers are cautioned that to date, we have generated limited revenues and have not yet begun meaningful commercialization efforts with respect to our products. We intend in the long-term to derive substantial revenues from the sales of our products as well as future models of other robots and our unmanned aerial system (“UAS”) platforms for both military and civilian use, but there can be no assurance that we will be able to do so. On January 29, 2021, we, through Duke Israel, and Elbit Systems Land Ltd., an Israeli corporation (“Elbit”), entered into a collaboration agreement (the “Collaboration Agreement”) for the global marketing and sales, and the production and further development of our developed advanced robotic system mounted on an UAS, armed with lightweight firearms, which we market under the commercial name “TIKAD.” As of the date of this quarterly report, to date, we have not experienced any material impact on our financial condition and results of operations due to COVID-19, and we do not expect to experience any material impact on our overall liquidity positions and outlook as a result of the outbreak. Nevertheless, given that COVID-19 is still an ongoing event in different parts of the world, it is still not possible at this time to estimate the full impact that the COVID-19 pandemic, the continued spread of COVID-19, and any additional measures taken by governments, health officials or by us in response to such spread, could have on our business results of operations and financial condition. 22 Critical Accounting Policies Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. In addition, reference is made to Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2020 (filed on March 31, 2021) with respect to our Critical Accounting Policies and Estimates. The main changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2020, relates to convertible loans Derivative Liabilities and Fair Value of Financial Instruments. Results of Operations Comparison of the three months ended March 31, 2021 and 2020 Revenues . During the three months ended March 31, 2021, we generated revenues of $500,000. We had no revenues for the three months ended March 31, 2020. The reason for the increase in revenues for the three months ended March 31, 2021, was mainly due to the Collaboration Agreement, as detailed in note 6 to the quarterly financial statements. General and Administrative. Our general and administrative expenses for the three months ended March 31, 2021, which consisted primarily of professional services, legal expenses and stock-based compensation expenses, amounted to $161,000, compared to $696,000 for the three months ended March 31, 2020. The decrease in general and administrative expenses for the three months ended March 31, 2021 was mainly due to a decrease in stock-based compensation of $474,000 and legal expenses of $75,000. Financial Expense . For the three months ended March 31, 2021, we had financial expense of $220,000 compared to financial income of $5,000 for the three months ended March 31, 2020. The reason for the increase in financial expense for the three months ended March 31, 2021, was mainly due to interest expense related to our convertible loans. Net Profit (Loss) . We incurred a net profit of $251,000 for the three months ended March 31, 2021 as compared to $691,000 in net loss for the three months ended March 31, 2020. Liquidity and Capital Resources We had $452,000 in cash at March 31, 2021 versus $625,000 in cash at March 31, 2020. Cash provided by operations for the three months ended March 31, 2021 was $353,000 as compared to Cash used by operations of $355,000 for three months ended March 31, 2020. The reason for the decrease in cash used by operations related to the revenues and net profit during the three months ended March 31, 2021, compared to our net losses during the three months ended March 31, 2020, as described above. Net cash used by financing activities was $6,000 for the three months ended March 31, 2021, as compared to net cash provided by financing activities of $957,000 for the three months ended March 31, 2020. The decrease is mainly the result of the proceeds received pursuant to the sale of Convertible Loan Agreements (as hereinafter defined) in the aggregate amount of $965,000 as of March 31, 2020. On September 2, 2019, we executed a promissory note having a total principal amount of $35,000 bearing interest at 6% per annum and maturing September 2, 2021 (the “Promissory Note”). The Promissory Note was a non-recourse and carried no personal guarantees. In conjunction with the consummation of the Share Exchange, and as a condition thereof, on March 6, 2020, we entered into several Securities Exchange Agreements, on the same terms, to exchange the Promissory Note for 9,623,621 shares of our common stock , par value $0.0001 per share (the “Common Stock”) . On May 18, 2021, the we issued 54,019 shares of Common Stock of the Company, to several holders pursuant to the terms of the Security Exchange Agreements pursuant to which, such holders were entitled to an anti-dilution clause in the event that the Convertible Debentures were converted into shares f our Common Stock. 23 In connection with the Share Exchange, immediately prior to the Effective Time, we entered into several convertible loan agreements, on the same terms, in the aggregate amount of $965,000 (each, a “Convertible Loan Agreement”). The terms of the Convertible Loan Agreements required repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at our discretion, and subject to its compliance with any and all terms of the material terms of the Convertible Loan Agreements, the term of such loans is extended for an additional twelve (12) month period. The terms of the Convertible Loan Agreements also provide that we may repay any portion of the remaining outstanding loan amount, without penalty, provided, however, that the Company provides the specific lender with three business days’ written notice prior to such repayment, during which time the lender may elect to convert any or all of the outstanding loan amount into shares of common stock of the Company. The Convertible Loan Agreements bore simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month. On December 9, 2020, we utilized our rights under the Convertible Loan Agreements and extended the terms of the loans for an additional twelve months. As of March 31, 2021, the Convertible Loan Agreements had an aggregate outstanding principal balance of $835,000. During May 2021, we repaid the full balance of the principal of the Convertible Loans in the amount of $835,000. Also, in connection with the Share Exchange, we entered into securities exchange agreements (each, an “Exchange Agreement”) with our outstanding debt, Alpha Capital Anstalt (“Alpha”) and GreenBlock Capital LLC (“GBC”) to respectively cancel existing debentures or debt in the total amount of $658,323 and in exchange issue new debentures in the aggregate amount of $400,000 and issue 698,755 and 65,198 shares of common stock to each of Alpha and GBC, respectively. The New Debentures matured three years from the Effective Date, bore interest at a rate of 8% per year and were only convertible into shares of the Company’s common stock, at an original conversion price of $0.3740 (the “Original Conversion Price”); provided, however, that such Original Conversion Price shall be adjusted downward in the event that the Company, as applicable, sells or grants any options to purchase or sells or grants any right to reprice, or otherwise dispose or issues any common stock or common stock equivalents entitling any purchaser to acquire shares of the Company’s common stock at an effective price per share that is lower than the Original Conversion Price (such issuance, a “Dilutive Event”). In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment shall occur immediately after the completion of such period. As of March 31, 2021, the Convertible Debentures had an aggregate outstanding principal balance of $200,000. Subsequent to March 31, 2021, a portion of the Convertible Debentures, representing an aggregate amount of $110,614 (including interest) was converted into 295,759 shares of Common Stock. During May 2021, we prepaid the full balance of the principal and interest amount of the Convertible Debentures in the amount of $108,541. 24 On May 11, 2021, we entered into Securities Purchase Agreements (the “Securities Purchase Agreements”) with eight (8) non-U.S. investors (the “Investors”), pursuant to which we, in a private placement offering (the “Offering”), agreed to issue and sell to the Investors an aggregate of: (i) 12,500,000 shares of our Common Stock at a price of $0.40 per share; and (ii) warrants (the “Warrants”) to purchase 12,500,000 of our Common Stock. The Warrants are exercisable immediately and for a term of 18 months and have an exercise price of $0.40 per share. The aggregate gross proceeds from the Offering were approximately $5,000,000 and the Offering closed on May 11, 2021. In view of our cash balance following the above transactions, we anticipate that our cash balances will be sufficient to permit us to conduct our operations up to the end of 2023. We may also satisfy its liquidity through the sale of its securities, either in public or private transactions. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned development, which could harm our business, financial condition and operating results. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the Common Stock. If adequate funds are not available to us when needed on satisfactory terms, we may be required to cease operating or otherwise modify our business strategy. Off-Balance Sheet Arrangements As of March 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company and therefore are not required to provide the information for this item of Form 10-Q. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (“the Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures. Based on their evaluation, the Certifying Officers concluded that, as of March 31, 2021, our disclosure controls and procedures were designed at a reasonable assurance level and were therefore effective. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 25 PART II - OTHER INFORMATION Item 6. Exhibits. No. Description of Exhibit 4.1 Form of Warrant (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2021). 10.1 Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2021). 31.1* Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a). 31.2* Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a). 32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350. 32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350. 101.1* The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Condensed Consolidated Statements of Changes in Shareholders’ Deficit, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text and in detail. * Filed herewith. ** Furnished herewith. 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: May 24, 2021 UAS Drone Corp. By: /s/ Yossef Balucka Name: Yossef Balucka Title: Chief Executive Officer and Director (Principal Executive Officer) By: /s/ Shlomo Zakai Name: Shlomo Zakai Title: Chief Financial Officer (Principal Financial Officer) 27