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, 2021, evaluated, the effectiveness of our disclosure controls and procedures as of December 31, 2021, 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, 2021, at the above-described reasonable assurance level. During the year ended December 31, 2021, 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, 2021, 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, 2021. 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, 2021, determined that the Company’s internal control over financial reporting as of December 31, 2021, was not effective. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 26 PART III Item 10. Directors, Executive Officers, and Corporate Governance. Our directors and executive officer and their ages as of March 7, 2022, are as follows: Name Age Position Yariv Alroy 61 Chairman Yossef Balucka 53 Chief Executive Officer and President Sagiv Aharon 41 Chief Technology Officer and Director Erez Nachtomy 60 Vice Chairman Eran Antebi 51 Director Shlomo Zakai 52 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. Yossef 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. 27 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 December 2021), Sonovia Ltd. (NNTTF:OTC) (October 2014 to August 2020) 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. 28 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. 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 2021 fiscal year, there were no material changes to the procedures by which security holders may recommend nominees to the board of directors. 29 Item 11. Executive Compensation. Summary Compensation Table The following sets forth the compensation of UAS’s Chief Executive Officer during fiscal 2021, and the other persons who served as executive officers during the Company’s fiscal year ended December 31, 2021. Unless otherwise noted, the amounts shown represent what was earned in the Company’s fiscal year ended December 31, 2021. SUMMARY COMPENSATION TABLE – FISCAL YEAR ENDED DECEMBER 31, 2021 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 ($) Total ($) Yossef Bakula –CEO 2020 48,577 0 0 0 0 0 0 48,577 2021 88,470 0 0 103,532 0 0 0 192,002 Shlomo Zakai – CFO 2020 13,472 0 0 0 0 0 0 13,472 2021 20,138 0 0 5,966 0 0 0 26,104 Restricted Stock Awards There were no shares of restricted stock awarded during the Company’s fiscal year ended December 31, 2021. 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, 2021. Note that the 5,000 shares expiring on December 31, 2019 were granted prior to expiration in conjunction with the Share Exchange. 30 OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2021 Outstanding Equity Awards at Fiscal Year End There are no outstanding equity awards for the year ended December 31, 2021 except as disclosed below. Grants of Plan-Based Awards for 2021 The following table presents the outstanding equity awards held as of December 31, 2021 by our named executive officers, all of which have been issued pursuant to our 2021 Equity Compensation Plan, or the 2021 Plan: Name Number of shares that have not vested (#) Market value of shares that have not vested ($) Equity incentive plan awards: Number of shares that have not vested (#) Equity incentive plan awards: Market value of shares that have not vested ($) Yossef Bakula - - 450,000 98,955 Erez Nachtomy - - 200,000 0 Eran Antebi - - 120,000 0 Sagiv Aharon - - 120,000 0 Shlomo Zakai - - 50,000 0 Pension Benefits We have no arrangements or plans, except for those we are obligated to maintain pursuant to the Israeli law, under which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive share options or restricted shares at the discretion of our Board in the future. 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, 2021, there were no named executives with employment contracts that require or required severance or other post-employment payments. Summary Information about Equity Compensation Plans Equity Compensation Plan Information On May 27, 2021, our Board of Directors approved the 2021 Plan, pursuant to which we may issue awards, from time to time, consisting of non-qualified stock options, restricted stock grants and restricted stock units (“RSUs”). In addition, stock option awards that qualify under Section 102 of the Israeli Tax Ordinance (New Version) 1961 (the “ITO”), and/or under Section 3(i) of the ITO, may be granted. A summary of the 2021 Plan is found below. 31 Under the 2021 Plan, options, restricted share and RSUs may be granted to our officers, directors, employees and consultants or the officers, directors, employees and consultants of our subsidiary. The total number of awards to acquire shares of the Company’s common stock may not exceed 4,800,000 shares. To the extent that an award lapses or is forfeited, the shares subject to such Award will again become available for grant under the terms of the 2021 Plan. The following table summarizes certain information regarding our equity compensation plans as of December 31, 2021: Plan Category Number of securities to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans Equity compensation plan not approved by security holders 2,426,812 0.81 2,373,188 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 $400 for attendance of each meeting of the board of directors. These amounts are exclusive of Israeli VAT, if applicable. Director Compensation The following table provides information regarding compensation earned by, awarded or paid to each person for serving as a director who is not an executive officer during the fiscal year ended December 31, 2021: Name Fees Earned or Paid in Cash ($) Stock Awards ($) Total ($) Yariv Alroy 59,732 - 59,732 Sagiv Aharon 59,820 14,318 74,137 Erez Nachtomy 83,646 23,863 107,509 Eran Antebi 8,890 14,318 23,208 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 7, 2022 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 7, 2022, there were 54,018,813 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 14.18 % More Provident Fund Ltd (3) 11,250,000 34.47 % Named Executive Officers: Sagiv Aharon 5,061,631 9.37 % Yariv Alroy 5,813,267 10.76 % Eran Antebi - - Yossef Balucka - - Erez Nachtomy 1,316,801 2.44 % Shlomo Zakai - - All directors and executive officers as a group (6 Persons)** 12,191,699 22.57 % (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 7, 2022, 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 7, 2022. (2) Address: C/O Mr. Amir Kadosh, Zabotinsky 50, Givat Shmuel, Israel. (3) Based solely on information contained in Form 13D filed with the SEC on July 6, 2021. Includes warrants to purchase 10,000,000 shares of common stock, subject to a contractual beneficial ownership limitation of 9.9%. Including securities held by Y.D More Investments Ltd., B.Y.M. Mor Investments Ltd., Eli Levy and Yosef Levy. 33 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. 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. 34 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. Except for the arrangements described in Item 11, or as described above, during fiscal years 2021 and 2020, we did not participate in any transaction, and we are not currently participating in any proposed transaction, or series of transactions, in which the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which, to our knowledge, any of our directors, officers, five percent beneficial security holders, or any member of the immediate family of the foregoing persons had, or will have, a direct or indirect material interest. 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, 2021 and 2020: Fee category 2021 2020 Audit Fees (1) $ 25,500 $ 28,500 Audit – related fees - - Tax fees - - All other fees - - Total fees $ 25,500 $ 28,500 (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. 35 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Financial Statements . Balance Sheets of UAS Drone Corp. as of December 31, 2021 and 2020 F-3 Statements of Operations of UAS Drone Corp. for the years ended December 31, 2021and 2020 F-4 Statements of Stockholders’ Equity of UAS Drone Corp. for the years ended December 31, 2021 and 2020 F-5 Statements of Cash Flows of UAS Drone Corp. for the years ended December 31, 2021 and 2020 F-6 Notes to Financial Statements F-7 36 (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). 4.2 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). 10.2 UAS Drone Corp. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2021). 10.3*** Collaboration Agreement, dated January 29, 2021, by and between Duke Airborne Systems Ltd. and Elbit Systems Land Ltd. (translation from Hebrew) (incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2021) . 10.4 Services Agreement, dated March 25, 2021, between UAS Drone Corp. and Yossef Balucka. (incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2021). 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). 37 Exhibit  Number Description 21.1 List of Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2021. 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 inline XBRL (Extensible Business Reporting Language): (i) Balance Sheets as of December 31, 2021 and 2020, (ii) Statements of Operations for the years ended December 31, 2021 and 2020, (iii) Statements of Stockholders’ Deficit for the years ended December 31, 2021 and 2020, (iv) Statements of Cash Flows for the years ended December 31, 2021 and 2020, and (v) Notes to Financial Statements.** 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Furnished 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. (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. 38 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 7, 2022 By: /s/ Yossef Balucka Yossef Balucka Chief Executive Officer (Principal Executive Officer) By: /s/ Shlomo Zakai Shlomo Zakai Chief Financial Officer (Principal Financial Officer and Principal Accounting 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 7, 2022 By: /s/ Yossef Balucka Yossef Balucka Chief Executive Officer (Principal Executive Officer) Date: March 7, 2022 By: /s/ Shlomo Zakai Shlomo Zakai Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: March 7, 2022 By: /s/ Yariv Alroy Yariv Alroy Chairman of the Board Date: March 7, 2022 By: /s/ Erez Nachtomy Erez Nachtomy Vice Chairman of the Board Date: March 7, 2022 By: /s/ Sagiv Aharon Sagiv Aharon Chief Technology Officer and Director Date: March 7, 2022 By: /s/ Eran Antebi Eran Antebi Director 39 UAS DRONE CORP. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021 F- 1 UAS DRONE CORP. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021 TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-3 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020 F-4 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020 F-5 Statements of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F-7 Notes to Consolidated Financial Statements F-8 – 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, 2021 and 2020, the related statements of operations and comprehensive loss, changes in stockholders’ equity (deficit) and cash flows for the years in the period ended December 31, 2021 and 2020, 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, 2021 and 2020, and the results of its operations and its cash flows for the year in the period ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America. 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. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the 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 financial statements and (ii) involved our especially challenging, subjective, or complex judgments. We determined there are no critical audit matters. /s/ Halperin Ilanit . Certified Public Accountants (Isr.) PCAOB number 650100001 Tel Aviv, Israel March 7, 2022 We have served as the Company’s auditor since 2019 F- 3 UAS DRONE, CORP. CONSOLIDATED BALANCE SHEETS (USD in thousands except share and per share data) December 31, December 31, 2021 2020 Assets Current Assets Cash and cash equivalents 3,560 105 Other current assets (Note 3) 40 19 Total Current assets 3,600 124 Property and equipment, net (Note 4) 9 12 Total assets 3,609 136 Liabilities and Shareholders’ Equity (Deficit) Current Liabilities Current maturities of long-term bank loan - 6 Accounts payable 75 109 Other accounts liabilities (Note 5) 136 213 Convertible Loans (Note 6B) - 950 Fair Value of convertible component in convertible loan (Note 6B) - 22 Total current liabilities 211 1,300 Convertible Loans (Note 6A) - 371 Fair Value of convertible component in convertible loan (Note 6A) - 26 Stockholder loans (Note 7) 297 288 - Total liabilities 508 1,985 Stockholders’ Equity (Deficit) (Note 8) Common stock of US$ 0.0001 par value each (“Common Stock”): 100,000,000 shares authorized as of December 31, 2021 and 2020; issued and outstanding 54,018,813 and 40,075,151 shares as of December 31, 2021 and 2020, respectively. 5 4 Additional paid-in capital 9,115 3,278 Accumulated deficit ( 6,019 ) ( 5,131 ) Total stockholders’ Equity (Deficit) 3,101 ( 1,849 ) Total liabilities and stockholders’ Equity (Deficit) 3,609 136 The accompanying notes are an integral part of the consolidated financial statements. F- 4 UAS DRONE, CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD in thousands except share and per share data) Year ended December 31 2021 2020 Revenues (Note 12) 500 - Cost of revenues - - Gross profit 500 - Research and development expenses ( 14 ) - General and administrative expenses (Note 10) ( 1,026 ) ( 1,305 ) Other income 98 - Operating loss ( 442 ) ( 1,305 ) Financing expense, net ( 446 ) ( 63 ) Net loss ( 888 ) ( 1,368 ) Loss per share (basic and diluted) (Note 14) ( 0.02 ) ( 0.04 ) Basic and diluted weighted average number of shares of Common Stock outstanding 49,212,028 37,285,015 F- 5 UAS DRONE, CORP. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (USD in thousands , except share and per share data) Number of Shares Amount Additional paid-in capital Accumulated deficit Total stockholders’ deficit BALANCE AT DECEMBER 31, 2019 25,130,126 2 2,002 ( 3,763 ) ( 1,759 ) 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 ) Number of Shares Amount Additional paid-in capital Accumulated deficit Total stockholders’ equity (deficit) BALANCE AT DECEMBER 31, 2020 40,075,151 4 3,278 ( 5,131 ) ( 1,849 ) Issuance of shares in exchange for convertible loans 1,443,662 * 806 - 806 Issuance of shares for cash (net of issuance expenses) (**) 12,500,000 1 3,929 - 3,930 Share based compensation for services granted in respect of issuance of shares (Note 8) - - 686 - 686 Share based compensation for services - - 416 - 416 Comprehensive profit for the year - - - ( 888 ) ( 888 ) BALANCE AT DECEMBER 31, 2021 54,018,813 5 9,115 ( 6,019 ) 3,101 (*) represents amount less than $1 thousand. (**) Net of issuance expenses of $1,070. The accompanying notes are an integral part of the consolidated financial statements. F- 6 UAS DRONE, CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (USD in thousands ) Year ended December 31 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss for the period ( 888 ) ( 1,368 ) Adjustments required to reconcile net loss for the period to net cash used in operating activities: Depreciation 3 5 Stock based compensation 416 645 Interest on loans 9 ( 70 ) Expenses with respect to convertible loans and debentures 391 2 Increase in other current assets ( 21 ) ( 17 ) Decrease in accounts payable ( 34 ) ( 52 ) Increase (decrease) in other accounts payable ( 110 ) 6 Net cash used in operating activities ( 234 ) ( 849 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secured promissory notes - 965 Proceeds from issuance of shares 4,649 - Repayments of convertible loans ( 954 ) - Repayments of long term banking institute ( 6 ) ( 34 ) Net cash provided by financing activities 3,689 931 INCREASE IN CASH AND CASH EQUIVALENTS 3,455 82 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 105 23 CASH AND CASH EQUIVALENTS AT END OF YEAR 3,560 105 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest 59 126 Non cash transactions: Issuance of shares in exchange for extinguishment of debt - 623 Issuance of shares in exchange for convertible loans 806 448 Issuance expenses 719 - The accompanying notes are an integral part of the consolidated financial statements. F- 7 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, 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.” (see Note 12) 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”. As of December 31, 2020, the Company had incurred accumulated losses of approximately $ 1.8 million, and based on the then Company’s projected cash flows, and Company’s cash balance, the Company’s management was of the opinion that without further fundraising, it would not have sufficient resources to enable it to continue advancing its activities, including the development, manufacturing, and marketing of its products, which cast substantial doubt on the entity’s ability to continue as a going concern. Based on the Company’s current cash balances, capital raised during the year ended December 31, 2021, the Company has sufficient funds for its plans for the next twelve months from the issuance of these financial statements. The Company’s management cannot determine with reasonable certainty when and if it will have sustainable profits. Even if management believes that the Company have sufficient funds for our current Company's future operating plans, it may seek additional capital if market conditions are favorable or if it have specific strategic considerations. F- 8 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 1 – GENERAL (continue) 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, 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 months period, which the Company did elect to extend (see also note 6 below). The investors had the option to convert the respective unpaid balance of their loan into shares of USDR’s Common Stock based on the lower of the following valuations: (i) the lowest effective price per share set in connection with any funds raised by USDR during the six months following the Share Exchange; (ii) 80% of the lowest effective price per share set in connection with any funds raise by USDR at any time subsequent to six months following the Share Exchange until such time as the Investors’ Loans are fully repaid; (iii) a price per share reflecting a post-money valuation of USDR of $15 million following the next investment in USDR following closing; or (iv) if at any time following the 6 month anniversary of the closing of the Share Exchange and until such time as the Investors’ Loans are fully repaid, USDR sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues any common stock entitling any person to acquire shares of common stock at an effective price per share that is lower than $0.374. As of December 31, 2021, the Convertible Loans were fully repaid (see note 6B 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, which was adopted by the Board of Directors of USDR on May 27, 2021. F- 9 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 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 December 31, 2021, the New Debentures were fully repaid or converted (see note 6A 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 . 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. F- 10 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. 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. F- 11 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 (U.S. GAAP). A. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with U.S. 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 including the effects of COVID-19. As applicable to these financial statements, the most significant estimates and assumptions relate to going concern and share based compensation. B. Functional currency A majority of the Group’s 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 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- 12 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 Accounting Standards Codification (“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, 2021 or 2020. G. Deferred income taxes The Group accounts for income taxes in accordance with ASC Topic 740, “Income Taxes”. 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 2021 and 2020 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. 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”. F- 13 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continue) 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. 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. F- 14 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continue) 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. 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, 2021 Level 1 Level 2 Level 3 Total Liabilities: Fair Value of convertible component in convertible loan - - - - Total liabilities - - - - Balance as of December 31, 2020 Level 1 Level 2 Level 3 Total Liabilities: Fair Value of convertible component in convertible loan - - 48 48 Total liabilities - - 48 48 F- 15 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2– SIGNIFICANT ACCOUNTING POLICIES (continue) The following table presents the changes in fair value of the level 3 liabilities for the years ended December 31, 2020 and 2021: Fair value of Convertible component Outstanding at January 1, 2020 - Fair value of issued level 3 liability 276 Changes ( 228 ) Outstanding at December 31, 2020 48 Changes ( 48 ) Outstanding at December 31, 2021 - 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 On October 1, 2021, the Company early adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. The new standard was effective for us beginning January 1, 2022, with early adoption permitted. The adoption of this new standard is not expected to have a material impact on our consolidated financial statements. F- 16 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continue) In December 2019, the Financial Accounting Standards Board (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, 2021 are not expected to have a material impact on the Company’s consolidated financial statements. F- 17 UAS DRONE CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 3 – OTHER CURRENT ASSTES December 31, 2021 2020 Prepaid expenses 23 8 Government Institutions 14 8 Investment in subsidiary 3 3 40 19 NOTE 4 – PROPERTY AND EQUIPMENT, NET December 31, 2021 2020 Computers 10 10 Furniture and office equipment 12 12 Leasehold improvements 15 15 37 37 Less - accumulated depreciation ( 28 ) ( 25 ) Total property and equipment, net 9 12 In the years ended December 31, 2021 and 2020, depreciation was US$ 3 and US$ 5 respectively. NOTE 5 –OTHER ACCOUNTS LIABILITIES December 31, 2021 2020 Accrued expenses 95 213 Other (Note 8) 41 - 136 213 F- 18 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 6 – CONVERTIBLE LOANS A. As detailed in Note 1A above, in conjunction with the consummation of the Share Exchange, USDR entered into Securities exchange agreements with outstanding debt holders of USDR, Alpha and GBC to respectively cancel existing debentures or debt in the total amount of $658 and in exchange issue the New Debentures in the aggregate amount of $400 and issue 698,755 and 65,198 shares of Common Stock to each of Alpha and GBC, respectively. The New Debentures mature three years from the Effective Date in amount of $400, bear interest at a rate of 8% per year and are only convertible into shares of Common Stock, at an original conversion price of $0.3740; provided, however, that such Original Conversion Price was to be adjusted downward in the event of a Dilutive Event. In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment was to occur immediately after the completion of such period. During February 2021, Alpha converted $ 200 of the principal amount ($ 215 including accrued interest) of the New Debentures into 575,044 shares of Common Stock. On May 11, 2021, Alpha converted the remaining $ 100 of its principal amount ($ 111 including accrued interest) of the New Debentures into 295,759 shares of Common Stock. On May 14, 2021, the Company repaid GBC the full principal balance and interest amount of the New Debentures in the amount of $ 109 . 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 $ 26 as of December 31, 2020. The following are the data and assumptions used as of the balance sheet date: December 31, 2020 Common stock price 0.25 Expected volatility 34.89 % Expected term 2.19 years Risk free rate 0.17 % Forfeiture rate 0 % Expected dividend yield 0 % As a result of the above repayments and conversions, as of December 31, 2021, the balance of the New Debentures and the conversion feature was zero. F- 19 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 required repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at our discretion, and subject to its compliance with any and all terms of the material terms of the Convertible Loan Agreements, the term of such loans is extended for an additional twelve (12) month period. The terms of the Convertible Loan Agreements also provided that we may repay any portion of the remaining outstanding loan amount, without penalty, provided, however, that the Company provides the specific lender with three business days’ written notice prior to such repayment, during which time the lender may elect to convert any or all of the outstanding loan amount into shares of Common Stock. The Convertible Loan Agreements bore simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month. The lenders had the option to convert the unpaid balance of their respective Convertible Loans into shares of Common Stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following the Effective Time. “Effective price” per share means (i) if only shares of Common Stock are sold in a transaction, the amount actually received in cash by the Company, and (ii) if shares of Common Stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Common Stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Common Stock issued in such transaction; (B) 80 % of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six (6) months following the Effective Time until such time as the loans outstanding under all of the Convertible Loan Agreements are fully repaid or otherwise converted provided, however, that such price per share shall not be available in the event of an issuance of Alternative Securities to the lender); (C) a price per share reflecting a post-money valuation of the Company of $ 15 million following the next investment in the Company following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. On March 5, 2021, a holder of a Convertible Loan converted the principal amount of $ 130 into 347,594 shares of Common Stock. On May 17 and 18, 2021, the Company repaid the remaining full principal balance of the Convertible Loans, in the principal amount of $ 835 . 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- 20 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 $ 22 at December 31, 2020. The following are the data and assumptions used as of the balance sheet date: December 31, 2020 Common stock price 0.374 Expected volatility 34.89 % Expected term 1.19 years Risk free rate 0.36 % Forfeiture rate 0 % Expected dividend yield 0 % As a result of the above repayments and conversions, as of December 31, 2021, the balance of the New Debentures and the conversion feature was zero. NOTE 7 - STOCKHOLDERS LOANS Since Duke’s inception and until 2017, certain Duke affiliates provided loans to Duke from time to time, as needed. 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- 21 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: Common stock: 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 years ended December 31, 2021 and 2020 the Company recorded compensation expenses in regard to such offering in the amount of $ 28 and $ 108 , respectively. Refer to notes 1 above regarding shares issued during 2020. On February 12, 2021, March 2, 2021 and May 18, 2021, the Company issued an aggregate of 225,265 shares of Common Stock to several holders who were signatories to the Securities Exchange according to which such holders are entitled to an anti-dilution clause in the event that the Convertible Loans detailed in Note 6B above are converted such that such the number of shares held by such investors would not be lower than original holding on a fully diluted basis prior to such conversions. On May 11, 2021, the Company entered into Securities Purchase Agreements (the “Securities Purchase Agreements”) with eight (8) non-U.S. investors, pursuant to which the Company, in a private placement offering (the “Offering”), agreed to issue and sell to the investors an aggregate of: (i) 12,500,000 shares of the Company’s Common Stock, at a price of $0.40 per share; and (ii) warrants (the “Warrants”) to purchase 12,500,000 Company’s Common Stock. The Warrants are exercisable immediately and for a term of 18 months and have an exercise price of $0.40 per share. The aggregate gross proceeds from the Offering were approximately $5,000. The Company recorded $1,070 of issuance costs - see below. On May 11, 2021, the Company signed a service agreement with a non U.S. third party pursuant to which the service provider agreed to provide the Company with financial and project oversight services with respect to the Offering. Pursuant to the service agreement, the Company agreed to pay the service provider (1) 6% of the investment amounts received which amounted to $351 and (2) options to receive a number of units (each unit for a price of $0.40 includes one share and one warrant with an exercise price of $0.40 per share) equal to 6% of the investment amount received, divided by $0.40. F- 22 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 8 – SHAREHOLDERS’ EQUITY ( continue ) In the event that the investors that participated in the Offering exercise their Warrants, the service provider shall be entitled to receive an additional payment of (1) 6% of the investment amounts received (2) 6% of the warrants exercised amounts received and (3) options to receive a number of units equal to 6% of the warrants exercised amounts received, divided by $0.40. The fair value of such options as of the offering date was estimated at $ 686 using the Black-Scholes option-pricing model and is presented within the consolidated statements of changes in shareholders equity (deficit). The following are the data and assumptions used: May 11, 2021 Dividend yield 0 Expected volatility (%) (*) 180.32 % Risk-free interest rate (%) (**) 0.11 % Expected term of options (years) (***) 1.58 Exercise price (US dollars) 0.4 Share price (US dollars) 0.32 Fair value (USD in thousands) 686 The fair value of the expected cash payments as of May 11, 2021 was estimated based on the expected probability that the investors would exercise their warrants and was estimated at $ 33 . The fair value expected cash payments as of December 31, 2021 was estimated at $ 41 (see Note 5). NOTE 9 – STOCK OPTIONS On May 27, 2021, the board of directors of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”) pursuant to which the Company may issue awards, from time to time, consisting of non-qualified stock options, restricted stock grants and restricted stock units. In addition, stock option awards that qualify under Section 102 of the Israeli Tax Ordinance (New Version) 1961 (the “ITO”), and/or under Section 3(i) of the ITO, may be granted. In July 2021, the Board of Directors of the Company approved the issuance of options to purchase 2,445,443 shares of the Company’s Common Stock to certain employees, directors and services providers, under the Company’s 2021 Plan. Options to purchase 1,629,443 shares of Common Stock shall vest as follows: 50% on the first anniversary of the grant date, 25% after the second anniversary of the grant and 25% after the third anniversary of the grant date. Options to purchase 450,000 shares of Common Stock shall vest as follows: 50% on the first anniversary of the grant date, 25% after the second anniversary of the grant and 25% after the third anniversary of the grant date. Options to purchase 366,000 shares of Common Stock shall fully vest on the first anniversary of the grant date. The fair value of the options was determined using the Black-Scholes pricing model, assuming a risk free rate of 0.07%, a volatility factor of 156.12%, dividend yields of 0% and an expected life of 5-6. Total value of share based compensation were estimated to an amounted of $897. F- 23 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands) NOTE 9 – STOCK OPTIONS ( continue ) The following table presents Company’s stock option activity the year ended December 31, 2020 and 2021: Number of Options Weighted Average Exercise Price Outstanding at December 31,2020 995,000 2.70 Granted - - Exercised - - Forfeited or expired - - Outstanding at December 31,2020 995,000 2.70 Granted 2,445,443 0.82 Exercised - - Forfeited or expired ( 1,013,631 ) 2.67 Outstanding at December 31,2021 2,426,812 0.81 Number of options exercisable at December 31, 2021 - - The aggregate intrinsic value of the awards outstanding as of December 31, 2021 is $ 99 . These amounts represent the total intrinsic value, based on the Company’s stock price of $ 0.22 as of December 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. The stock options outstanding as of December 31, 2021, have been separated into exercise prices, as follows: Exercise price Stock options outstanding Weighted average remaining contractual life – years Stock options vested As of December 31, 2021 0.0001 450,000 4.23 - 0.38 1,256,822 5.53 - 1.00 99,369 5.5 - 2.25 620,621 5.5 - 2,426,812 5.28 - 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 Compensation expense recorded by the Company in respect of its stock-based compensation awards for the Year ended December 31, 2021 was $ 388 and are included in General and Administrative expenses in the Statements of Operations. F- 24 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 2021 2020 Professional services 521 538 Share base compensation 416 645 Insurance 50 47 Adverting and promotion 1 34 Rent and office maintenance 26 25 Levies and tolls 1 6 Depreciation 3 5 Other expenses 8 5 1,026 1,305 NOTE 11 – LITIGATION (1) 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. The complaint asserted 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 asserted 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 sought 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 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. On June 14, 2021 the Company, the three co-founders and the Plaintiff signed a settlement agreement according to which certain co-founders would transfer to the Plaintiff the shares of Common Stock of the Company owned by them for complete and final resolution of the complaint. (2) On August 22, 2021 , the Company and a former vendor of the Company signed a settlement agreement according to which the Company agreed to pay the former vendor NIS160 (approximately $ 50 ) for an alleged debt to the vendor for complete and final resolution of the vendor’s complaint and the Company’s counter claim. The amount was included as part of other income. F- 25 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands , except share and per share data) NOTE 12 – 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. No TIKAD units were sold during 2021 by the Company or 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. No revenues were generated from the Evaluation Phase of the Project during 2021. 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 December 31, 2021. NOTE 13 – INCOME TAX U.S. resident companies are taxed on their worldwide income for corporate income tax purposes at a statutory rate of 21 % this reflects 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, 2021, the Company and subsidiaries has carry forward losses for tax purposes of approximately $1,255 and $1,979, respectively, which can be offset against future taxable income, if any. F- 26 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands , except share and per share data) NOTE 13 – INCOME TAX ( continue ) 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 2021 2020 US Dollars Pretax loss ( 880 ) ( 1,368 ) Federal tax rate 21 % 21 % Income tax computed at the ordinary tax rate 185 287 Stock-based compensation ( 87 ) ( 23 ) Non-deductible expenses ( 82 ) ( 80 ) Tax in respect of differences in corporate tax rates - 5 Losses and timing differences in respect of which no deferred taxes were generated ( 16 ) ( 189 ) - - 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 2021 2020 Composition of deferred tax assets: US Dollars Non capital loss carry forwards 704 685 Valuation allowance ( 704 ) ( 685 ) - - F- 27 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars, except share and per share data) NOTE 14 – 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, 2021 and 2020, are as follows: Year ended December 31 2021 2020 Number of shares Weighted average number of shares of common stock outstanding attributable to shareholders 49,212,028 37,285,015 Total weighted average number of shares of common stock related to outstanding options, excluded from the calculations of diluted loss per share (*) 2,426,812 995,000 (*) The effect of the inclusion of option and convertible loans in 2021 and 2020 is anti-dilutive. NOTE 15 – RELATED PARTIES A. Transactions and balances with related parties Year ended December 31 2021 2020 General and administrative expenses: Directors and Officers compensation (*) 483 175 (*) Share base compensation 162 - Financing: Financing expense 9 133 Financing income - 75 B. Balances with related parties: As of December 31, 2021 2020 Other accounts liabilities 30 19 Stockholders loans 276 268 Convertible loans - 972 F- 28 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars, except share and per share data) NOTE 15 – RELATED PARTIES ( continue ) C. On March 25, 2021, the Board of Directors appointed Yossi Balucka to serve as its Chief Executive Officer. Mr. Balucka is entitled to a monthly fee of NIS30,000 (approximately $9,650), reimbursement of expenses and discretionary performance bonus. In conjunction with the appointment of Mr. Balucka, the Company issued to Mr. Balucka options to purchase 450,000 shares of the Company’s commons stock at an exercise price of $0.0001 per share, subject to and in accordance with the terms and conditions of an Option Plan . The options shall vest over a three year period, with 50 % of the options to vest on the first anniversary of the grant date, and the balance of 50 % of the options to vest in equal parts on the second and third anniversary of the grant date, respectively, subject to the Mr. Balucka providing continued services to the Company. The fair value of the options were determined using the Black-Scholes pricing model, assuming a risk free rate of 0.07 %, a volatility factor of 156.12 %, dividend yields of 0 % and an expected life of 5 years. Total value of share based compensation were estimated to an amounted of $ 189 . Total share based compensation expenses during the Year ended December 31, 2021 amounted to $ 104 . D. In addition, in July 2021, the Board of Directors of the Company approved the issuance options to purchase 490,000 shares of the Company’s Common Stock to its Vice Chairman, directors and CFO. The options shall vest over a three year period, with 50 % of the options to vest on the first anniversary of the grant date, and the balance of 50 % of the options to vest in equal parts on the second and third anniversary of the grant date. The fair value of the options were determined using the Black-Scholes pricing model, assuming a risk free rate of 0.07 %, a volatility factor of 156.12 %, dividend yields of 0 % and an expected life of 6 years. Total value of share based compensation were estimated to an amounted of $ 176 . Total share based compensation expenses during the Year ended December 31, 2021 amounted to $ 58 . NOTE 16 – SUBSEQUENT EVENTS On March 1, 2022, the Company signed an investor relations service agreement with a consultant pursuant to which the Company agreed to pay the consultant a monthly retainer and in addition, to issue the consultant 300,000 restricted shares of common stock, to be issued in three tranches. In the event that the agreement is terminated prior to the issuance date, the remaining share obligation shall be void. F-29