What changed in this filing

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Item 9A. Controls and Procedures

2023-03-24 compared with 2022-03-07 · 780 added, 956 removed, 521 unchanged (77% of the section changed)

8 unchanged sentences

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.

Our management, with the participation of our CEO and CFO, as in place

as of December 31, 2022, evaluated, the effectiveness of our disclosure controls and procedures as of December 31, 2022, 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 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

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to

be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time

periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures

designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and

communicated to management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions

regarding required disclosure.

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.

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

evaluation, and subject to the inherent limitations described above, our 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, 2022, at the above-described

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31, 2022, management identified the following weaknesses, which were deemed to be material weaknesses in internal controls:

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.

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.

The Company does not have an Independent Audit Committee that can provide management oversight.

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.

The Company does not have an

Independent Audit Committee that can provide management oversight.

Internal Control over Financial Reporting

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Changes in Internal Control over Financial

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

Other than the hiring of a full time CEO, there has been no change

in our internal control over financial reporting during the year ended December 31, 2022, that has materially affected, or is reasonably

likely to materially affect, our internal control over financial reporting.

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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.

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, 2022.

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, 2022, determined that the Company’s internal control over financial reporting as of December 31,

2022, was not effective due to the material weakness previously identified as stated above.

Other Information

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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;

Securities and Exchange Commission (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.

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.

CORPORATE GOVERNANCE

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UAS Drone Corp.

Tirat Carmel, Israel, 3903212

10 HaRimon Street

Mevo Carmel Science and Industrial Park, Israel

Delinquent Section 16(a) Reports

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of, and transactions in, our securities with the SEC and to provide us with copies of those filings.

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.

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

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fiscal year ended December 31, 2022.

SUMMARY COMPENSATION TABLE – FISCAL YEAR

ENDED DECEMBER 31, 2021

SUMMARY COMPENSATION TABLE - FISCAL YEAR ENDED

DECEMBER 31, 2022

Name and principal position

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stock awarded during the Company’s fiscal year ended December 31, 2022.

Outstanding Equity Awards at Fiscal Year

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.

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2022

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Grants of Plan-Based Awards for 2022

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:

following table presents the outstanding equity awards held as of December 31, 2022 by our named executive officers and directors ,

all of which have been issued pursuant to our 2021 Equity Compensation Plan, or the 2021 Plan:

Number of shares that have not vested

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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.

As of December 31, 2022, there

were no named executives with employment contracts that require or required severance or other post-employment payments.

Summary Information about Equity Compensation

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.

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.

following table summarizes certain information regarding our equity compensation plans as of December 31, 2021:

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.

of the 2021 Plan is found below.

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

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, 2022:

Plan Category

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Director Compensation

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:

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, 2022:

Erez Nachtomy

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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.

Unless otherwise indicated, the address of each person listed below is c/o Duke Robotics, 10 HaRimon Street, Mevo Carmel Science and Industrial

Park, Israel, Israel 2069203.

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.

of March 7, 2022, there were 54,018,813 shares of common stock issued and outstanding.

March 23, 2023, there were 54,218,813 shares of common stock issued and outstanding.

Name and Address of Beneficial Owner

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All directors and executive officers as a group (6 Persons)**

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.

Amir Kadosh, Zabotinsky 50, Givat Shmuel, Israel.

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

Including securities held by Y.D More Investments Ltd., B.Y.M.

Mor Investments Ltd., Eli Levy and Yosef Levy.

(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.

deemed to be the beneficial owner of securities that can be acquired by such person within sixty (60) days from March 23, 2023, 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.

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 11,250,000 shares of common stock.

Including securities

held by Y.D More Investments Ltd., B.Y.M.

Mor Investments Ltd., Elldot Ltd., Benjamin Meirov and Yosef Levy.

Changes in Control

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result in a change in control of the Company.

Equity Compensation Plan Information

Currently, there is no equity

compensation plan in place.

Certain Relationships and Related

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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

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

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.

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

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.

Atuar is entitled to prepay the outstanding

amount of the loan at any time.

The loans made from Duke to

each of Messrs.

Aharon and Atuar were extinguished in connection with the Debt Cancellation Letters (as defined below) and are referred

to as the Personal Loans.

Before entering into the Share

Exchange Agreement, Duke entered into debt cancellation letters (the “Debt Cancellation Letters”) with each of the Lenders

who are parties to the Group Loan and with each of Aphek and Sagiv Aharon under each of the Aphek and Sagiv Loans and their respective

Personal Loans.

Pursuant to the Debt Cancellation Letters, (i) 166,602 shares of Duke common stock were issued in exchange for the cancellation

of $123,286 in debt, leaving $55,394 outstanding under the Aphek Loan, (i) 75,059 shares of Duke common stock were issued in exchange

for the cancellation of $55,544 in debt, leaving $24,956 outstanding under the Sagiv Loan and (i) 600,474 shares of Duke common stock

were issued in exchange for the cancellation of $444,350 in debt, leaving $199,650 outstanding under the Group Loan (collectively, the

“Outstanding Duke Debt”).

The Outstanding Duke Debt,

including interest (which shall bear an annual fixed interest rate of 3% as of January 1, 2020), shall be repaid at the date upon which

Duke or the Company raises at least $15 million and has achieved earnings before interest, tax, depreciation and amortization of $3 million,

but not before the three year anniversary of the Effective Time and the full repayment of the amounts outstanding under the Convertible

Loan Agreements, unless such repayment is otherwise waived by the parties to the Convertible Loan Agreements.

Registration Rights Agreement

The Company entered into the

Registration Rights Agreement with, among others, Alpha, GBC, the Primary Lenders, to permit them to have their securities in the Company

included in a registration statement for resale by the holder when filed by the Company on a piggyback basis and one demand registration

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.

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.

During the fiscal years ended

December 31, 2021 and 2022, 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

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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:

independent registered public accounting firm for the year ended December 31, 2021 was Halperin Ilanit CPA, an independent registered

public accounting firm, located in Tel Aviv, Israel, PCAOB ID 650100001 .The following

is a summary of the fees billed by Halperin Ilanit CPA during the calendar years ended December 31, 2022 and 2021:

Audit Fees (1)

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All other fees

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.

(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.

Our independent registered

public accounting firm for the year ended December 31, 2022 is Somekh Chaikin, a member firm of KPMG International, located in Tel Aviv,

Israel, PCAOB ID 1057 .The following is a summary of the fees billed by Somekh Chaikin, during the calendar years ended December 31, 2022

Audit Fees (1)

Audit - related fees

All other fees

(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

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(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).

Warrant Extension Agreement, dated April 5, 2022, between UAS Drone Corp.

and the investors signatory thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 8, 2022).

Amended and Restated Code of Business Conduct and Ethics.

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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.

Consent of Independent Registered Public Accounting Firm

Consent of Halperin Ilanit, Independent Registered Public Accounting Firm

Certification of Chief Executive Officer pursuant to Sec.

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Financial Statements

See Index to Financial Statements

See Index to Financial

Financial Statement Schedules:

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/s/ Eran Antebi

FINANCIAL STATEMENTS

OF DECEMBER 31, 2021

FINANCIAL STATEMENTS

OF DECEMBER 31, 2021

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED FINANCIAL

Balance Sheets as of December 31, 2021 and December 31, 2020

Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020

of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2021 and 2020

Statements of Cash Flows for the years ended December 31, 2021 and 2020

to Consolidated Financial Statements

UAS DRONE CORP.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2022

UAS DRONE CORP.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Somekh Chaikin / PCAOB ID No.

1057/ Location:

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021

Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Stockholders and Board of Directors

UAS Drone Corp.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated

balance sheet of UAS Drone Corp., and its subsidiary (the Company) as of December 31, 2022, the related consolidated statements of

comprehensive loss, changes in stockholders’ equity, and cash flow for the year ended December 31, 2022, and the related notes

(collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for

the year ended December 31, 2022 in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated 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 consolidated

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 consolidated 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

consolidated 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 consolidated 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 consolidated financial statements that were communicated or required to be communicated to the audit committee

and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially

challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Somekh Chaikin

Member Firm of KPMG International

We have served as the Company’s

auditor since 2023.

Tel Aviv, Israel

March 24, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF

UAS DRONE CORP., INC.

UAS DRONE CORP.

Opinion on the Financial Statements

We have audited the accompanying balance sheets

We have audited the accompanying balance sheet

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.

(the “Company”) as of December 31, 2021, the related statements of operations and comprehensive loss, changes

in stockholders’ equity (deficit) and cash flows for the year in the period ended December 31, 2021, 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 the results of its operations and its cash flows for the year in the

period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Certified Public Accountants (Isr.)

PCAOB number 650100001

Tel Aviv, Israel

March 7, 2022

We have served as the Company’s auditor since 2019

We have served as the Company’s auditor since 2019 to 2022

UAS DRONE, CORP.

BALANCE SHEETS

in thousands except share and per share data)

in thousands)

Current Assets

1 unchanged sentence

Other current assets (Note 3)

Total Current assets

Property and equipment, net (Note 4)

Liabilities and Shareholders’ Equity (Deficit)

T o t a l Current assets

Lease deposit

and equipment, net (Note 4)

T o t a l assets

Liabilities and Shareholders’ Equity

Current Liabilities

Current maturities of long-term bank loan

Accounts payable

Other accounts liabilities (Note 5)

Convertible Loans (Note 6B)

Fair Value of convertible component in convertible loan (Note 6B)

Total current liabilities

Convertible Loans (Note 6A)

Fair Value of convertible component in convertible loan (Note 6A)

Stockholder loans (Note 7)

Total liabilities

Stockholders’ Equity (Deficit) (Note 8)

Other liabilities (Note 5)

T o t a l current liabilities

Loans (Note 6)

T o t a l liabilities

Shareholders’

Equity (Note 7)

Common stock of US$ 0.0001 par value each (“Common Stock”):

3 unchanged sentences

Accumulated deficit

Total stockholders’ Equity (Deficit)

Total liabilities and stockholders’ Equity (Deficit)

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

STATEMENTS OF COMPREHENSIVE LOSS

in thousands except share and per share data)

and development expenses

and administrative expenses (Note 10)

per share (basic and diluted) (Note 14)

and diluted weighted average number of shares of Common Stock outstanding

OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

in thousands , except share and per share data)

stockholders’

AT DECEMBER 31, 2019

of shares in exchange for extinguishment of debt

of shares in exchange for convertible loans

based compensation for services

of Reverse Capitalization

Comprehensive

loss for the year

AT DECEMBER 31, 2020

paid-in capital

stockholders’

equity (deficit)

AT DECEMBER 31, 2020

of shares in exchange for convertible loans

of shares for cash (net of issuance expenses) (**)

based compensation for services granted in respect of issuance of shares (Note 8)

based compensation for services

Comprehensive

profit for the year

AT DECEMBER 31, 2021

T o t a l shareholders’ Equity

T o t a l liabilities and shareholders’ Equity

The accompanying notes are an integral part

of the consolidated financial statements.

UAS DRONE, CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(USD in thousands)

Research and development expenses

General and administrative expenses (Note 9)

Operating loss

Financing expense

Financing income

Loss per share (basic and diluted) (Note 12)

Basic and diluted weighted average number of shares of Common Stock outstanding

UAS DRONE, CORP.

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(USD in thousands)

shareholders’

BALANCE AT DECEMBER 31, 2020

Issuance of shares in exchange for convertible loans

Issuance of shares for cash (net of issuance expenses) (**)

Share based compensation for services granted in respect of issuance of shares (note 7)

Share based compensation for services (note 8)

Net loss for the year

BALANCE AT DECEMBER 31, 2021

Issuance of shares to service provider (note 7)

Share based compensation for services (note 8)

Warrants modification (note 7)

Net loss for the year

BALANCE AT DECEMBER 31, 2022

(*) represents amount less than $1 thousand.

(**) Net of issuance expenses of $1,070.

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

STATEMENTS OF CASH FLOWS

in thousands )

The accompanying notes are an integral part

of the consolidated financial statements.

UAS DRONE, CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(USD in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss for the period

Adjustments required to reconcile net loss for the period to net cash used in operating activities:

Stock based compensation

Net loss for the year

Adjustments required to reconcile net loss for the year to net cash used in operating activities:

Share based compensation

Issuance of shares for services

Interest on loans

Expenses with respect to convertible loans and debentures

Increase in lease deposit

Increase in other current assets

Decrease in accounts payable

Increase (decrease) in other accounts payable

Increase (decrease) in accounts payable

Increase (decrease) in other liabilities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from secured promissory notes

Proceeds from issuance of shares

2 unchanged sentences

Net cash provided by financing activities

INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS AT END OF YEAR

Effect of exchange rate changes on cash and cash equivalents

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

Supplemental disclosure of cash flow information:

1 unchanged sentence

Non cash transactions:

Issuance of shares in exchange for extinguishment of debt

Issuance of shares in exchange for convertible loans

Issuance expenses

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

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

(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.

March 9, 2020, the Company closed on the Share Exchange Agreement (as defined hereunder), pursuant to which, Duke Robotics, Inc.

Inc.”) a corporation incorporated under the laws of the state of Delaware, became a majority-owned subsidiary of the Company.

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.

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.

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).

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

(ii) 14,614,751 shares of Common Stock of certain selling stockholders named in the Registration Statement on Form S-1;

3,649,733 shares of Common Stock issuable upon conversion of Convertible Notes (see Note 6 below).

June 25, 2020, at the closing of the transaction contemplated by the Merger Agreement, the Company issued 63,856 shares to certain Duke

stockholders, and Duke Inc.

became a wholly owned subsidiary of the Company.

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.

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)

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

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

1 – GENERAL (continue)

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

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.

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;

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) .

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).

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

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.

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 .

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.

such, at the Effective Time, the Duke stockholders owned an equivalent of approximately 71 % of the Company’s Common Stock.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

1 – GENERAL (continue)

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:

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.

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

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.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

The accompanying notes are an integral part

of the consolidated financial statements.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

UAS Drone Corp.

(“the Company”

or “USDR”) was incorporated under the laws of the State of Nevada on February 4, 2015.

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.

has a wholly-owned

subsidiary, Duke Airborne Systems Ltd.

(“Duke Israel,” and collectively with Duke Inc., “Duke”), which was formed

under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation.

On April 29, 2020, the Company, Duke

Inc., and UAS Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“UAS Sub”), executed

an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub merged with and into Duke Inc., with Duke

surviving as our wholly-owned subsidiary (the “Short-Form Merger”).

Upon closing of the Short-Form Merger, each outstanding

share of UAS Sub’s common stock, par value $ 0.0001 per share, was converted into and became one share of common stock of Duke Inc.,

with Duke Inc.

surviving as a wholly-owned subsidiary of the Company.

Following the above

transactions, Duke Israel is a wholly-owned subsidiary of Duke Inc., which is 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 as well as other civilian applications with an emphasis on

the field of infrastructure maintenance.

The Company’s advanced robotics system is able to achieve pinpoint accuracy regardless

of the movement of the weapons platform or the target.

Effective October 22, 2020, Company’s

common stock is quoted on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market, under the symbol “USDR”.

– SIGNIFICANT ACCOUNTING POLICIES

financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S.

The consolidated financial statements

are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Since inception, the Company has incurred losses and negative

cash flows from operations.

The Company has financed its operations mainly through fundraising from various investors.

Based on the projected cash flows and

cash balances as of the date of these financial statements, management is of the opinion that its existing cash will be sufficient to

meet its obligations for a period which is longer than 12 months from the date of the approval of these consolidated financial statements.

Use of estimates in the preparation of financial statements

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

As applicable to these financial statements, the most significant estimates and assumptions relate to going concern and share based compensation.

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.

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.

of consolidation

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.

and cash equivalents

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.

plant and equipment, net

The preparation of consolidated financial

statements in conformity with U.S.

GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities, certain revenues and expenses, and disclosure of contingent assets

and liabilities as of the date of the financial statements.

Actual results could differ from those estimates.

As applicable to these financial

statements, the most significant estimates and assumptions relate to share based compensation.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

– SIGNIFICANT ACCOUNTING POLICIES (continue)

Functional currency

A majority of the Group’s revenues is generated in

In addition, most of the Group’s costs are denominated and determined in dollars.

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

Transactions and monetary balances in other currencies are translated into the functional currency using the current

exchange rate.

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.

Principles of consolidation

The accompanying consolidated financial

statements include the accounts of the Company and its subsidiaries Duke Inc., and Duke Israel.

All significant intercompany balances

and transactions have been eliminated on consolidation.

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.

Property and equipment, net

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.

of depreciation:

and office equipment

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.

Rates of depreciation:

Furniture and office equipment

Office improvements

Impairment of long-lived assets

The Group’s long-lived assets

are reviewed for impairment in accordance with ASC Topic 360, “Property, Plant

and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted

cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured

by the amount by which the carrying amount of the asset exceeds its fair value.

No impairment expenses were recorded during the years

ended December 31, 2022 or 2021.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

(USD in thousands)

– SIGNIFICANT ACCOUNTING POLICIES (continue)

Impairment of long-lived assets

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.

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.

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.

Income taxes are accounted for

under the asset and liability method.

The Group accounts for income taxes in accordance with ASC Topic

740, “Income Taxes”.

Accordingly, deferred income taxes are determined 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.

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

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 2022 and 2021 financial

statements and did not recognize any liability with respect to an unrecognized tax position in its balance sheets.

Revenue recognition

The Group recognizes revenue when it

satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an

amount that reflects the consideration the Company expects to receive from its customers in exchange for those products.

involves identifying the customer contract, determining the performance obligations in the contract, determining the transaction price,

allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue when the performance

obligations have been satisfied.

A performance obligation is considered distinct from other obligations in a contract when it (a) provides

a benefit to the customer either on its own or together with other resources that are readily available to the customer and (b) is separately

identified in the contract.

The Company considers a performance obligation satisfied once it has transferred control of a good or product

to a customer, meaning the customer has the ability to direct the use and obtain the benefit of the product.

Research and development expenses

and development expenses are charged to operations as incurred.

Research and development expenses are

charged to operations as incurred.

Basic and diluted loss per share

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.

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.

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.

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

payments awarded to consultants (non-employees) are accounted for in accordance with ASC Topic 505-50, “Equity-Based Payments to

Non-Employees”.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

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

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.

in 2022 and 2021, no potential shares are considered.

Stock-based compensation

The Company measures and recognizes

the compensation expense for all equity-based payments to non employees directors and officers 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, on a straight-line basis, over the requisite service period.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

– SIGNIFICANT ACCOUNTING POLICIES (continue)

Concentrations

of credit risk

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

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.

Contingencies

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.

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.

Commitments and 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.

Derivative Liabilities and Fair Value of Financial Instruments

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

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.

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.

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.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

2 – SIGNIFICANT ACCOUNTING POLICIES (continue)

techniques are generally classified into three categories:

Fair Value Measurements

Fair value of certain of the

Company’s financial instruments including cash, accounts receivable, account payable, accrued expenses, notes payables, and

other accrued liabilities approximate cost because of their short maturities.

The Company measures and reports fair value in

accordance with ASC 820, “Fair Value Measurements and Disclosure” (“ASC 820”) defines fair value,

establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures

about fair value investments.

Fair value, as defined in ASC 820,

is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date.

The fair value of an asset should reflect its highest and best use by market participants, principal (or most

advantageous) markets, and an in-use or an in-exchange valuation premise.

The fair value of a liability should reflect the risk of non-performance,

which includes, among other things, the Company’s credit risk.

Valuation techniques are generally

classified into three categories:

the market approach;

1 unchanged sentence

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:

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

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;

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

Quoted prices (unadjusted)

in active markets that are accessible at the measurement date for identical assets or liabilities.

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;

Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the

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.

Company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates.

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.

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:

of convertible component in convertible loan

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

2– SIGNIFICANT ACCOUNTING POLICIES (continue)

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

Outstanding at January 1, 2020

Fair value of issued level 3 liability

Outstanding at December 31, 2020

Outstanding at December 31, 2021

Certain Financial Instruments with Down Round Features

Company accounts Certain Financial Instruments with Down Round Features based on ASU 2017-11, “Earnings per share:

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.

Accounting Pronouncements

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

and inputs that are derived principally from or corroborated

by observable market data for substantially the full term of the assets or liabilities;

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

– SIGNIFICANT ACCOUNTING POLICIES (continue)

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.

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.

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.

is currently evaluating the impact that the adoption of ASU 2020-06 will have on the Company’s consolidated financial

statement presentation or disclosures.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

3 – OTHER CURRENT ASSTES

in subsidiary

4 – PROPERTY AND EQUIPMENT, NET

and office equipment

- accumulated depreciation

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 comprehensive loss.

The Company determines if an arrangement

is or contains a lease at contract inception.

Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities,

and operating lease liabilities in our consolidated balance sheets.

ROU assets represent the

Company’s right to use an underlying asset for the lease term and lease liabilities represent the Group’s obligation to

make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on

the present value of lease payments over the lease term.

As the Company’s leases do not provide an implicit rate, the Company

generally uses the incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar

term of the lease payments at commencement date.

The operating lease ROU asset also includes any lease payments made and excludes

lease incentives.

The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain

that we will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company monitors for events or

changes in circumstances that require a reassessment of one of its leases.

When a reassessment results in the remeasurement of a lease

liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying

amount of the ROU asset to an amount less than zero.

In that case, the amount of the adjustment that would result in a negative ROU asset

balance is recorded in statement of comprehensive loss.

As detailed in note 10(2)

below, the property became available for Company’s use at February 2023, therefore commencement date of the lease agreement

has not yet been met as of the balance sheet date and therefore an ROU asset and liability have not been recorded.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

OTHER CURRENT ASSETS

Prepaid and deferred expenses

Government Institutions

PROPERTY AND EQUIPMENT, NET

the years ended December 31, 2021 and 2020, depreciation was US$ 3 and US$ 5 respectively.

5 –OTHER ACCOUNTS LIABILITIES

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

6 – CONVERTIBLE LOANS

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.

February 2021, Alpha converted $ 200 of the principal amount ($ 215 including accrued interest) of the New Debentures into 575,044 shares

of Common Stock.

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.

May 14, 2021, the Company repaid GBC the full principal balance and interest amount of the New Debentures in the amount of $ 109 .

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

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.

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:

dividend yield

a result of the above repayments and conversions, as of December 31, 2021, the balance of the New Debentures and the conversion feature

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

6 – CONVERTIBLE NOTES (continue)

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.

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);

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.

March 5, 2021, a holder of a Convertible Loan converted the principal amount of $ 130 into 347,594 shares of Common Stock.

May 17 and 18, 2021, the Company repaid the remaining full principal balance of the Convertible Loans, in the principal amount of $ 835 .

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

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

6 – CONVERTIBLE NOTES (continue)

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:

Common stock price

Expected volatility

Expected term

Risk free rate

Forfeiture rate

Expected dividend yield

a result of the above repayments and conversions, as of December 31, 2021, the balance of the New Debentures and the conversion feature

7 - STOCKHOLDERS LOANS

Since Duke’s inception and until 2017, certain Duke affiliates

provided loans to Duke from time to time, as needed.

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

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).

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

Furniture and office equipment

Leasehold improvements (see note 10(2))

Less - accumulated depreciation

Total property and equipment, net

the years ended December 31, 2022 and 2021, depreciation was US$ 2 and US$ 3 respectively, a nd

additional property and equipment were purchased in an amount of US$ 35 during the year ended December 31, 2022 ( none during the year ended

December 31, 2021).

– OTHER LIABILITIES

Accrued expenses

Other (note 7)

NOTE 6 – LOANS

The loans are from related parties.

The loans bear an annual fixed interest rate of 3 % and shall be repaid (principal and interest) 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 March 9, 2023 (three year anniversary of the March 9, 2020 issuance date).

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

SHAREHOLDERS’ EQUITY

of the rights attached to the Shares in the Company:

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.

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.

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 of directors out of legally available funds.

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.

redemption or sinking fund provisions applicable to the Common Stock.

All shares of Common Stock currently outstanding are fully paid

and non-assessable.

As of December 31, 2022, there were no outstanding preferred stock.

Transactions :

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.

to notes 1 above regarding shares issued during 2020.

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.

May 11, 2021, the Company entered into Securities Purchase Agreements (the “Securities Purchase Agreements”) with eight (8)

investors, pursuant to which the Company, in a private placement offering (the “Offering”), agreed to issue and

sell to the investors an aggregate of:

On May 11, 2021,

the Company entered into Securities Purchase Agreements (the “Securities Purchase Agreements”) with eight (8) non-U.S.

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;

(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.

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.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

The Company recorded $ 1,070

of issuance costs.

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.

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.

April 5, 2022, the Company and the investors executed an extension agreement, such that the term of the

Warrants was extended so that they now expire on November 11, 2023.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

SHAREHOLDERS’ EQUITY (continue)

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.

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).

following are the data and assumptions used:

The fair value of

such warrants 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.

The following are

the data and assumptions used:

Dividend yield

1 unchanged sentence

Risk-free interest rate (%)

Expected term of options

(years) (***)

Expected term of options (years)

Exercise price (US dollars)

1 unchanged sentence

Fair value (USD in thousands)

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).

9 – STOCK OPTIONS

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

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.

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.

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

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands)

9 – STOCK OPTIONS ( continue )

following table presents Company’s stock option activity the year ended December 31, 2020 and 2021:

Average Exercise Price

at December 31,2020

The fair value of the expected cash

payments component as of December 31, 2022 was estimated at $ 16 .

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

On March 17, 2022, the Company issued 100,000 restricted shares of Common Stock pursuant to the agreement.

On July 13, 2022

the Company issued 100,000 restricted shares of Common Stock pursuant to the agreement.

On September 22, 2022, the Company decided

to terminate the service agreement.

The Company determined the value of the shares issued based on Company’s shares price at the

agreement date, at $ 31 of which were recorded as share based compensation expenses in the year ended December 31, 2022.

SHARE BASED COMPENSATION

The following table presents the Company’s

stock option activity:

Weighted Average Exercise Price

Outstanding at December 31,2020

Forfeited or expired

( 1,013,631 )

at December 31,2021

of options exercisable at December 31, 2021

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.

stock options outstanding as of December 31, 2021, have been separated into exercise prices, as follows:

Outstanding at December 31,2021

Forfeited or expired

Outstanding on December 31, 2022

Number of options exercisable on December 31, 2022

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

NOTE 8 – SHARE BASED COMPENSATION (continue)

The aggregate intrinsic value of the

awards outstanding as of December 31, 2022 is $ 54 .

These amounts represent the total intrinsic value, based on the Company’s stock

price of $ 0.12 as of December 31, 2022, less the weighted exercise price.

The stock options outstanding as of

December 31, 2022, have been separated into exercise prices, as follows:

Exercise price

Stock options outstanding

Weighted average remaining contractual life – years

Stock options

As of December, 31, 2022

stock options outstanding as of December 31, 2020, have been separated into exercise prices, as follows:

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

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands , except share and per share data)

As of December

31, 2022, there was $ 137 of total unrecognized compensation cost related to non-vested options.

The cost is expected to be

recognized over a weighted average period of 2 years.

Compensation expense recorded by the Company in respect of its stock-based

compensation awards for the period ended December 31, 2022 and 2021 was $ 395 and $ 416 , respectively and are included in General and

Administrative expenses in the Statements of Operations.

In determining the fair value of the

options granted, the Company used the Black-Scholes option valuation method, with the following assumptions:

Dividend yield

Expected volatility (%) (*)

Risk-free interest rate (%) (**)

Expected term of options (years) (***)

Exercise price (US dollars)

0.0001 - 2.25

Share price (US dollars)

Fair value (USD in thousands)

(*) Due to the low trading volume

of the Company’s Common Stock and lack of historical information, the expected volatility was based on the historical volatility

of the share price of other public companies that operate in the same industry sector as the Company (agricultural chemical industry).

(**) The risk-free interest rate represented

the risk-free rate of $ zero – coupon US Government Loans.

(***) Due to the fact that the Company

does not have sufficient historical exercise data, the expected term was determined based on the “simplified method”.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

GENERAL AND ADMINISTRATIVE EXPENSES

Year ended December 31

Professional services

4 unchanged sentences

Other expenses

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.

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.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands , except share and per share data)

12 – COLLABORATION AGREEMENT

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.”

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

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

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.

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.

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.

13 – INCOME TAX

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.

of the Israeli company is taxable from 2018 onwards, at corporate tax rate of 23 %.

Company and subsidiaries have not received final tax assessments since its inception.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

in thousands , except share and per share data)

INCOME TAX ( continue )

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

tax computed at the ordinary tax rate

Non-deductible

in respect of differences in corporate tax rates

and timing differences in respect of which no

deferred taxes were generated

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:

of deferred tax assets:

Non capital loss

carry forwards

TO CONSOLIDATED FINANCIAL STATEMENTS

dollars, except share and per share data)

14 – LOSS PER SHARE

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:

average number of shares of common stock outstanding attributable to shareholders

weighted average number of shares of common stock related to outstanding options, excluded from the calculations of diluted

loss per share (*)

The effect of the inclusion of option and convertible loans in 2021 and 2020 is anti-dilutive.

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 2022 and 2021 by the Company or Elbit.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

– AGREEMENTS (continue)

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

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 2022 and 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 does not fall under the

scope of Topic 808, “Collaborative Arrangements” (“ASC 808”) nor Topic 606, “Revenue from Contracts

with Customers” (“ASC 606”).

The Company referred to ASC 606 for certain activities within the collaborative arrangement

for the delivery of a good or service and recorded the upfront fee as revenues for the year ended December 31, 2021.

On April 4, 2022, the Company signed a lease agreement for an office space in Mevo Carmel Science and

Industry Park, Israel for a term of 3 years, with an option to extend the term of the lease agreement for an additional 2 years.

lease payments under the lease agreement, for the first two years are approximately $ 5,200 and for the third year approximately $ 5,400 .

The monthly lease payments for the option period will be agreed between the parties, with a minimum increase of 5 % above the third years

monthly payments.

The property became available for Company’s use at February 2023, therefore commencement date of the lease agreement

has not yet been met as of balance sheet date.

Based on the lease agreement terms, the Company made a deposit of $ 15 as a guarantee for

its lease commitments.

On August 15, 2022 Duke Israel, signed a Collaboration and Development Agreement with the Israel Electric

Corporation Ltd.

(IEC), to implement and test during a pilot with IEC a robotic drone-enabled system for cleaning electric utility insulators, that is in development by Duke Israel.

ICE is a public and 99 % government-owned company that generates, transmits,

and supplies electricity to all sectors of the State of Israel.

The Company is entitled to be reimbursed

for a portion of its research and development expenses related to this agreement.

Such research and development expenses are recorded

in deferred expenses.

The income and deferred expense will be recorded in profit and loss when the Company satisfies its obligation according

to the agreement.

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

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 although the tax reports of Duke Israel for the years ended by December 31, 2017 are

deemed to be final.

As of December 31, 2022, the Company

and subsidiaries have carry forward losses for tax purposes of approximately $1,521 and $2,486, respectively, which can be offset against

future taxable income, if any.

The following

is a 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

Federal tax rate

Income tax computed at the ordinary tax rate

Stock-based compensation

Non-deductible expenses

Tax in respect of differences in corporate tax rates

Losses and timing differences in respect of which no deferred taxes were generated

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

Composition of deferred tax assets:

Non capital loss carry forwards

Valuation allowance

The net change during the year ended December

31, 2022 in the total valuation allowance amounted to $ 171 .

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

LOSS PER SHARE (BASIC AND DILUTED)

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, 2022 and 2021, are as follows:

Year ended December 31

Number of shares

Weighted average number of shares of common stock outstanding attributable to shareholders

Total weighted average number of

shares of common stock related to outstanding options and warrants, excluded from the calculations of diluted loss per share

RELATED PARTIES

and balances with related parties

and administrative expenses:

and Officers compensation (*)

Transactions and balances with related parties

Year ended December 31

General and administrative expenses:

Directors and Officers compensation (*)

(*) Share base compensation

with related parties:

Other accounts

Stockholders loans

Convertible loans

TO CONSOLIDATED FINANCIAL STATEMENTS

dollars, except share and per share data)

Financing expense

Balances with related

As of December 31,

Other accounts liabilities

UAS DRONE, CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(USD in thousands)

RELATED PARTIES (continue)

March 25, 2021, the Board of Directors appointed Yossi Balucka to serve as its Chief Executive Officer.

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.

On March 25, 2021, the Board of Directors appointed Yossi Balucka to serve as its Chief Executive Officer.

Balucka is entitled to a monthly fee of NIS30,000 (approximately $9,650), reimbursement of expenses and discretionary performance

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 .

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.

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 .

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.

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 was determined using the Black-Scholes

pricing model, assuming a risk free rate of 0.07 %, a volatility factor of 193.47 %, dividend yields of 0 % and an expected life of 5 years .

Total value of share based compensation were estimated to an amount of $ 189 .

Total share based compensation expenses during the Year

ended December 31, 2022 amounted to $ 61 .

In addition, in July 2021, the Board of Directors of the Company approved the issuance of options to purchase 490,000 shares of the Company’s Common Stock to its Vice Chairman, directors and CFO for exercise price of $ 0.38 .

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.

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

Total share based compensation expenses during the Year ended December

31, 2021 amounted to $ 58 .

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.

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 193.47 %, dividend yields

of 0 % and an expected life of 3.38 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, 2022 amounted to $ 83 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures