DUKE Robotics Corp. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including the CEO and the CFO, to allow timely decisions regarding required disclosure. 26 Our management, with the participation of our CEO and CFO, as in place as of December 31, 2023, evaluated, the effectiveness of our disclosure controls and procedures as of December 31, 2023, 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 are met. 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 CEO and CFO concluded that our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) were not effective as of December 31, 2023, at the above-described reasonable assurance level. During the year ended December 31, 2023, management identified the following weaknesses, which were deemed to be material weaknesses in internal controls: 1. Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in a lack of segregation of duties. 2. The Company does not have an Independent Audit Committee that can provide management oversight. Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even internal controls determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error, and the risk of fraud. The projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies may deteriorate. Because of these limitations, there can be no assurance that any system of internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management. This Annual Report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Commission that exempt from this requirement issuers that are neither accelerated filers nor large accelerated filers. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting during the year ended December 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. 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, 2023, determined that the Company’s internal control over financial reporting as of December 31, 2023, was not effective due to the material weakness previously identified as stated above. Item 9B. Other Information None . Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 27 PART III Item 10. Directors, Executive Officers, and Corporate Governance. Our directors and executive officer and their ages as of March 14, 2024, are as follows: Name Age Position Yariv Alroy 62 Chairman Yossef Balucka 54 Chief Executive Officer and President Sagiv Aharon 41 Chief Technology Officer and Director Erez Nachtomy 61 Vice Chairman Eran Antebi 52 Director Shlomo Zakai 53 Chief Financial Officer Yariv Alroy , Director and Chairman. Mr. Yariv Alroy is the Managing Director of T.N.S.A Consulting and Management LTD., a private consulting services and investments firm. From 1989 to 1993 Mr. Alroy worked for an Israeli law firm, with his last position as a partner. From 1993 to 1997, Mr. Alroy served as COO of SHAHAL Medical Services, and from 1997 to 2000 as Managing Director of SHL International Ltd. From 2000 until January 2016 Mr. Alroy served as Co-CEO of SHL Telemedicine LTD a company in the field of medical technology development and provision of global telemedicine services, including in the United States, Germany, India, Japan and Israel, traded in the Swiss Stock exchange (SWX:SHLTN). In December 2018 Mr. Alroy was nominated as member of the board of directors and Chairman of SHL Telemedicine. Yariv Alroy holds an LL.B from Tel Aviv University. Yossef Balucka , CEO and President. Mr. Yossef Balucka has been serving as CEO and President of our Company, Duke and Duke Israel since March 2021. Prior to entering the private sector, Mr. Balucka served for twenty-five years in various field and headquarters positions in the Israeli Navy and retired as Colonel. Following his retirement from the Israeli Navy, between 2014 to 2016, Mr. Balucka served as a senior executive and management member for retail and customer service at Partner Communications Ltd. (TASE:PTNR), one of the leading mobile telecommunications companies in Israel. From 2017 to 2019 Mr. Balucka served as the CEO of Electra Technologies Ltd., a division of Electra Ltd. (TASE:ELTR), which is active in the fields of integrated electro-mechanical and construction. Since 2019 Mr. Balucka is the owner of T.R. Eshkolot Com Services Ltd., providing global strategic consulting services. Mr. Balucka holds a BA in Economics and Business Administration and an MA in Social Sciences from the Haifa University, and MA in Public Administration from the Bar Ilan University. Sagiv Aharon , CTO and Director. Mr. Sagiv Aharon co-founded Duke Israel and served as the Company’s CEO from March 2020 until March 2021. From 2008 to 2010, Mr. Aharon worked at the Israeli Aerospace Industry as a structural design engineer on a classified hybrid structure (composite/metal) air vehicle. From 2010 to 2011, Mr. Aharon worked at Rafael Advanced Weapon Systems Ltd. as a mechanical design engineer for complex active/reactive armor solutions for land vehicles. From 2011 to 2012, Mr. Aharon worked for Elbit Systems Ltd. (NASDAQ:ESLT) as a mechanical design engineer and a system integrator at several remotely operated weapon systems upon land vehicles. Mr. Aharon also serves as the CEO of Axis Aerospace Mechanical Design Ltd., a company working in the field of airborne structural projects and flight experiments, following strict aerospace level quality standards (AS9100). Mr. Aharon holds a B.Sc. in mechanical engineering with specialty in control and robotics from the Technion - Israel Institute of Technology. Erez Nachtomy , Director, Vice Chairman of the Board. Mr. Erez Nachtomy is the Managing Director of Ermi Nachtomy Assets Ltd., a private consulting services and investments firm. Since May 2020 Mr. Nachtomy is the Acting CEO of SHL Telemedicine Ltd. (SWX:SHLTN). From 1989 until 2001, Mr. Nachtomy practiced law as an associate in one of the leading law firms in Israel, becoming a partner in the firm in 1994 and later on promoted to a senior partner. In March 2001, Mr. Nachtomy joined the executive team of SHL Telemedicine Ltd. (SWX:SHLTN), as Vice President, and from January 2005 to December 2016 he served as Executive Vice President. SHL Telemedicine Ltd. is active in the field of medical technology development and provision of global telemedicine services, including in the United States, Germany, India and Japan. In December 2018 Mr. Nachtomy was nominated as Member of the Board of SHL Telemedicine, and since May 2021 Mr. Nachtomy has been serving as the acting CEO of SHL Telemedicine Ltd. Mr. Nachtomy holds an LL.B. from Tel Aviv University, Israel. 28 Eran Antebi , Director. Mr. Antebi is the Finance Director Omrix Biopharmaceuticals Ltd. (a Johnson & Johnson company) since February 2017. Prior to that he was CFO of SHL Telemedicine Ltd. (SWX:SHLTN) since 2008. Mr. Antebi joined SHL in May 2004 as CFO of Shahal Israel. Prior to joining SHL, from 2000 to 2004, Mr. Antebi was a manager with Ernst & Young in Israel. Mr. Antebi is a certified public accountant (CPA) in Israel and holds a B.A. in Accounting and Economics from Tel Aviv University, Israel. Shlomo Zakai , Chief Financial Officer. Mr. Zakai brings extensive and proven experience in similar positions with companies operating in international markets and related industries. Prior to joining the Company Mr. Zakai served as the Chief Financial Officer of Save Foods, Inc. (SAFO:OTC) (August 2017 to December 2021), Sonovia Ltd. (NNTTF:OTC) (October 2014 to August 2020) and of Todos Medical Ltd. (TOMDF:OTC) (February 2017 till January 2018). Prior to that, Mr Zakai worked as an accountant for nine years at Kost, Forer, Gabbay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, where he last served as a Senior Manager and worked with technology companies publicly traded on the Nasdaq Stock Market and on the Tel Aviv Stock Exchange. Mr. Zakai holds a B.A. in accounting from the College of Management in Rishon Le’Zion, Israel. Family Relationship There is no family relationship among the directors and officers of the Company. Involvement in Certain Legal Proceedings Over the past ten (10) years, none of our directors or our executive officer have been (i) involved in any petition under Federal bankruptcy laws or any state insolvency law, (ii) convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses), (iii) subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from (a) acting as a future’s commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity, (b) engaging in any type of business practice, or (c) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws, or (d) subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right to engage in any activity described in (iii)(a), (iv) found by a court of competent jurisdiction in a civil action or by the U.S. 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. 29 CORPORATE GOVERNANCE Code of Ethics We uphold a set of basic values to guide our actions and are committed to maintaining the highest standards of business conduct and corporate governance. Effective March 9, 2020, we adopted an Amended and Restated Code of Business Conduct and Ethics for directors, officers (including our principal executive officer and principal financial officer) and employees, which, in conjunction with our Certificate of Incorporation, and Bylaws, as amended (the “Bylaws”) form the framework for governance of UAS. The Code of Ethics and Business Conduct, Bylaws and Article of Incorporation are available at our corporate offices. Stockholders may request free printed copies of these documents from: UAS Drone Corp. Attn: CFO 10 HaRimon Street Mevo Carmel Science and Industrial Park, Israel 2069203 Committees of the Board of Directors We do not have an audit or compensation committee and have no independent directors that examines transactions of the nature described herein this item. We do not have any audit or compensation committee. The board of directors performs these functions as a whole. Thus, there is a potential conflict in that board members who are also part of management will participate in discussions concerning management compensation and audit issues that may affect management decisions. To the extent possible, a majority of the disinterested members of our board of directors will approve future affiliated transactions. Additionally, because the Company’s Common Stock is not listed for trading or quotation on a national securities exchange, we are not required to have such committees. Nominees to the Board of Directors During the Company’s 2023 fiscal year, there were no material changes to the procedures by which security holders may recommend nominees to the board of directors. 30 Item 11. Executive Compensation. Summary Compensation Table The following sets forth the compensation of UAS’s Chief Executive Officer during fiscal 2023, and the other persons who served as executive officers during the Company’s fiscal year ended December 31, 2023. Unless otherwise noted, the amounts shown represent what was earned in the Company’s fiscal year ended December 31, 2023. SUMMARY COMPENSATION TABLE - FISCAL YEAR ENDED DECEMBER 31, 2023 Name and principal position Year Salary ($) Bonus ($) Stock awards ($) Option awards ($) Non-equity incentive plan compensation ($) Change in Pension Value and Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Yossef Bakula - 2022 107,878 0 0 61,410 0 0 0 169,289 CEO 2023 97,568 0 0 20,864 0 0 0 118,431 Shlomo Zakai - 2022 28,900 0 0 8,497 0 0 0 37,397 CFO 2023 35,262 0 0 2,685 0 0 0 37,947 Restricted Stock Awards There were no shares of restricted stock awarded during the Company’s fiscal year ended December 31, 2023. OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2023 Outstanding Equity Awards at Fiscal Year End There are no outstanding equity awards for the year ended December 31, 2023 except as disclosed below. Grants of Plan-Based Awards for 2023 The following table presents the outstanding equity awards held as of December 31, 2023 by our named executive officers and directors, all of which have been issued pursuant to our 2021 Equity Compensation Plan, or the 2021 Plan: Name Number of shares that have not vested (#) Market value of shares that have not vested ($) Equity incentive plan awards: Number of shares that have not vested (#) Equity incentive plan awards: Market value of shares that have not vested ($) Yossef Bakula - - 112,500 11,250 Erez Nachtomy - - 50,000 - Eran Antebi - - 30,000 - Sagiv Aharon - - 30,000 - Shlomo Zakai - - 12,500 - 31 Pension Benefits We have no arrangements or plans, except for those we are obligated to maintain pursuant to the Israeli law, under which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive share options or restricted shares at the discretion of our Board in the future. Nonqualified Deferred Compensation The Company does not have a Deferred Compensation Plan for its executive officers. Other Potential Post-Employment Payments As of December 31, 2023, there were no named executives with employment contracts that require or required severance or other post-employment payments. Summary Information about Equity Compensation Plans Equity Compensation Plan Information On May 27, 2021, our Board of Directors approved the 2021 Plan, pursuant to which we may issue awards, from time to time, consisting of non-qualified stock options, restricted stock grants and restricted stock units (“RSUs”). In addition, stock option awards that qualify under Section 102 of the Israeli Tax Ordinance (New Version) 1961 (the “ITO”), and/or under Section 3(i) of the ITO, may be granted. A summary of the 2021 Plan is found below. Under the 2021 Plan, options, restricted share and RSUs may be granted to our officers, directors, employees and consultants or the officers, directors, employees and consultants of our subsidiary. The total number of awards to acquire shares of the Company’s common stock may not exceed 4,800,000 shares. To the extent that an award lapses or is forfeited, the shares subject to such Award will again become available for grant under the terms of the 2021 Plan. The following table summarizes certain information regarding our equity compensation plans as of December 31, 2023: Plan Category Number of securities to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options Number of securities remaining available for future issuance under equity compensation plans Equity compensation plan not approved by security holders 2,426,812 0.81 2,373,188 No Loans for Option Exercises. It is our policy to not make loans to employees or officers for the purpose of paying for the exercise of stock options. Director Compensation We reimburse directors for out-of-pocket expenses they incur when attending meetings of the board of directors. On April 12, 2020, effective as of March 1, 2020, our board of directors approved payment of certain fees to our directors in the amounts of $4,980, $4,980 and $6,950 per month to our directors, Yariv Alroy, Sagiv Aharon and Erez Nachtomy (each, an “Active Director”), respectively. On April 12, 2020, we also enacted a policy to pay each director (that is not otherwise an Active Director) an amount of $1,500 for each calendar quarter and $400 for attendance of each meeting of the board of directors. These amounts are exclusive of Israeli VAT, if applicable. 32 Director Compensation The following table provides information regarding compensation earned by, awarded or paid to each person for serving as a director who is not an executive officer during the fiscal year ended December 31, 2023: Name Fees Earned or Paid in Cash ($) Stock Awards ($) Total ($) Yariv Alroy 64,395 - 64,395 Sagiv Aharon 60,655 6,444 67,099 Erez Nachtomy 84,550 10,739 95,289 Eran Antebi 9,253 6,444 15,697 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security Ownership of Certain Beneficial Owners The following table sets forth certain information as of March 14, 2024 regarding the beneficial ownership of our common stock, for: ● each person (or group of affiliated persons) who, insofar as we have been able to ascertain, beneficially owned more than 5% of the outstanding shares of our common stock; ● each director; ● each named executive officer; and ● all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Except as otherwise indicated, each person or entity named in the table has sole voting and investment power with respect to all shares of our capital shown as beneficially owned, subject to applicable community property laws. In computing the number and percentage of shares beneficially owned by a person, shares that may be acquired by such person within 60 days of the date of this prospectus are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person. Unless otherwise indicated, the address of each person listed below is c/o Duke Robotics Ltd., 10 HaRimon Street, Mevo Carmel Science and Industrial Park, Israel, Israel 2069203. 33 We relied on information received from each stockholder as to beneficial ownership, including information contained on Schedules 13D and 13G and Forms 3, 4 and 5. As of March 14, 2024, there were 54,218,813 shares of common stock issued and outstanding. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership (1) Percent of Class 5% Stockholders: Afek Trading - Kadosh and Razi Ltd. (2) 7,423,895 13.69 % Y.D More Investments Ltd. (3) 22,500,000 34.37 % Named Executive Officers: Sagiv Aharon 4,994,537 9.2 % Yariv Alroy 5,813,267 10.72 % Eran Antebi 90,000 0.17 % Yossef Balucka 337,500 0.62 % Erez Nachtomy 1,466,801 2.70 % Shlomo Zakai 37,500 0.07 % All directors and executive officers as a group (6 Persons)** 12,739,605 23.20 % (1) The persons named in this table have sole voting and investment power with respect to all shares of common stock reflected as beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within sixty (60) days from March 14, 2024, 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 14, 2024. (2) Address: C/O Mr. Amir Kadosh, Zabotinsky 50, Givat Shmuel, Israel. (3) Based solely on information contained in Form 13D filed with the SEC on January 29, 2024. Includes (i) 10,000,000 shares of Common Stock and 10,000,000 warrants exercisable into 10,000,000 shares of Common Stock held directly by More Provident Funds and Pension Ltd., an Israeli company controlled by Y.D More Investments Ltd. and (ii) 1,250,000 shares of Common Stock and 1,250,000 warrants exercisable into 1,250,000 shares of Common Stock held directly by More Co-Invest (L.P.), Limited Partnership, an Israeli limited partnership, whose general partner, More Co-Invest 1 (G.P.) Ltd., is controlled by Y.D More Investments Ltd. Y.D More Investments Ltd. is an Israeli public company controlled through a voting agreement among the following individuals: (a) Yosef Meirov, directly and through B.Y.M. Mor Investments Ltd., a company he controls with Michael Meirov and Dotan Meirov, (b) Benjamin Meirov (c) Yosef Levy and (d) Eli Levy through Elldot Ltd., a wholly owned company. Changes in Control There are no arrangements known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company. Item 13. Certain Relationships and Related Transactions, and Director Independence. Transactions with Related Persons During the fiscal years ended December 31, 2022 and 2023, 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. 34 Director Independence The board of directors has not determined that we have any independent directors. Item 14. Principal Accounting Fees and Services. Our independent registered public accounting firm for the year ended December 31, 2023 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, 2023 and 2022: Fee category 2023 2022 Audit Fees $ 105,000 $ 68,000 Audit - related fees - - Tax fees 10,000 - All other fees - - Total fees $ 115,000 $ 68,000 Audit fees - Consists of fees for professional services rendered by our principal auditor for the audit of our annual financial statements and the review of financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements. Audit-related fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of UAS’s financial statements and are not reported under “Audit fees.” Tax fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning. All other fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit fees,” “Audit-related fees” and “Tax fees” above. 35 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Financial Statements . Balance Sheets of UAS Drone Corp. as of December 31, 2023 and 2022 F-3 Statements of Operations of UAS Drone Corp. for the years ended December 31, 2023 and 2022 F-4 Statements of Stockholders’ Equity of UAS Drone Corp. for the years ended December 31, 2023 and 2022 F-5 Statements of Cash Flows of UAS Drone Corp. for the years ended December 31, 2023 and 2022 F-6 Notes to Financial Statements F-7 (b) Exhibits . Exhibit Number Description 2.1 Share Exchange Agreement dated March 4, 2020, by and among UAS Drone Corp., Duke Robotics, Inc., and the shareholders of Duke Robotics, Inc. who execute and deliver this Share Exchange Agreement. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020). 2.2 Agreement and Plan of Merger, dated April 29, 2020, by and among UAS Drone Corp., Duke Robotics, Inc., and UAS Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2020). 3.1 Articles of Incorporation as filed on February 4, 2015 (incorporated by reference to our Registration Statement on Form S-1 filed on August 25, 2019). 3.2 Bylaws, as amended, on March 4, 2020 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020). 4.1 Description of Securities (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 13, 2020). 4.2 Form of Warrant (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2021). 10.1 Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 12, 2021). 10.2 UAS Drone Corp. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2021). 10.3*** Collaboration Agreement, dated January 29, 2021, by and between Duke Airborne Systems Ltd. and Elbit Systems Land Ltd. (translation from Hebrew) (incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2021). 10.4 Services Agreement, dated March 25, 2021, between UAS Drone Corp. and Yossef Balucka. (incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2021). 36 Exhibit Number Description 10.5 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). 10.6 Warrant Extension Agreement, dated November 1, 2023, between UAS Drone Corp. and the investors signatory thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 3, 2023). 14.1 Amended and Restated Code of Business Conduct and Ethics. (incorporated by reference to Exhibit 14.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2020). 21.1 List of Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2021. 31.1* Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. 32.2** Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. 101 The following materials from the Registrant, formatted in inline XBRL (Extensible Business Reporting Language): (i) Balance Sheets as of December 31, 2023 and 2022, (ii) Statements of Operations for the years ended December 31, 2023 and 2022, (iii) Statements of Stockholders’ Deficit for the years ended December 31, 2023 and 2022, (iv) Statements of Cash Flows for the years ended December 31, 2023 and 2022, and (v) Notes to Financial Statements.** 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Furnished herewith. *** Certain identified information in the exhibit has been excluded from the exhibit because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. (c) Financial Statement Schedules. The following documents are filed as part of this Report: 1. Financial Statements See Index to Financial Statements 2. Financial Statement Schedules: All financial statement schedules have been omitted because they are not applicable or the required information is presented in the financial statements or the notes to the financial statements. Item 16. Form 10-K Summary. None. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UAS DRONE CORP. Date: March 15, 2024 By: /s/ Yossef Balucka Yossef Balucka Chief Executive Officer (Principal Executive Officer) By: /s/ Shlomo Zakai Shlomo Zakai Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 15, 2024 By: /s/ Yossef Balucka Yossef Balucka Chief Executive Officer (Principal Executive Officer) Date: March 15, 2024 By: /s/ Shlomo Zakai Shlomo Zakai Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Date: March 15, 2024 By: /s/ Yariv Alroy Yariv Alroy Chairman of the Board Date: March 15, 2024 By: /s/ Erez Nachtomy Erez Nachtomy Vice Chairman of the Board Date: March 15, 2024 By: /s/ Sagiv Aharon Sagiv Aharon Chief Technology Officer and Director Date: March 15, 2024 By: /s/ Eran Antebi Eran Antebi Director 38 UAS DRONE CORP. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2023 UAS DRONE CORP. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2023 TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Firm Name: Somekh Chaikin / PCAOB ID No. 1057/ Location: Tel Aviv, Israel) F-2 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 F-3 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 2022 F-4 Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023 and 2022 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-6 Notes to Consolidated Financial Statements F-7 – F- 22 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors UAS Drone Corp.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of UAS Drone Corp., and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023 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 audits. 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 audits 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 audits, 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 audits 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 audits 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 audits provide 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. Somekh Chaikin Member Firm of KPMG International We have served as the Company’s auditor since 2023. Tel Aviv, Israel March 15, 2024 F- 2 UAS DRONE, CORP. CONSOLIDATED BALANCE SHEETS (USD in thousands except share and per share data) December 31, December 31, 2023 2022 A s s e t s Current Assets Cash and cash equivalents 2,281 2,849 Other current assets (Note 3) 41 86 Total Current Assets 2,322 2,935 Operating lease right-of-use asset and lease deposit (Note 4) 117 15 Property and equipment, net (Note 5) 40 42 Total Assets 2,479 2,992 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable 98 85 Operating lease liability 52 Other liabilities (Note 6) 161 176 Total current liabilities 311 261 Related parties loans (Note 7) 314 305 Operating lease liability (Note 4) 46 - Total Liabilities 671 566 Stockholders’ Equity (Note 8) Common stock of US$ 0.0001 par value each (“Common Stock”): 100,000,000 shares authorized as of December 31, 2023 and 2022; issued and outstanding 54,218,813 shares as of December 31, 2023 and 2022. 5 5 Additional paid-in capital 11,750 11,437 Accumulated deficit ( 9,947 ) ( 9,016 ) Total Stockholders’ Equity 1,808 2,426 Total liabilities and stockholders’ Equity 2,479 2,992 The accompanying notes are an integral part of the consolidated financial statements. F- 3 UAS DRONE, CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD in thousands except share and per share data) Year ended December 31 2023 2022 Revenues (Note 11(2)) 300 - Cost of revenues ( 273 ) - Gross profit 27 Research and development expenses ( 3 ) ( 20 ) General and administrative expenses (Note 10) ( 826 ) ( 1,104 ) Operating loss ( 802 ) ( 1,124 ) Financial income, net 76 23 Net loss ( 726 ) ( 1,101 ) Loss per share (basic and diluted) (Note 13) ( 0.02 ) ( 0.06 ) Basic and diluted weighted average number of shares of Common Stock outstanding 54,530,423 54,318,060 The accompanying notes are an integral part of the consolidated financial statements. F- 4 UAS DRONE, CORP. STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (USD in thousands, except share and per share data) Number of Shares Amount Additional paid-in capital Accumulated deficit Total stockholders’ equity (deficit) BALANCE AT DECEMBER 31, 2021 54,018,813 5 9,115 ( 6,019 ) 3,101 Issuance of shares to service provider (note 9) 200,000 (*)- 31 - 31 Share based compensation for services - - 395 - 395 Warrants modification (note 8) - - 1,896 ( 1,896 ) - Net loss for the year - - - ( 1,101 ) ( 1,101 ) BALANCE AT DECEMBER 31, 2022 54,218,813 5 11,437 ( 9,016 ) 2,426 Share based compensation for services - - 108 - 108 Warrants modification (note 8) - - 205 ( 205 ) - Net loss for the year - - - ( 726 ) ( 726 ) BALANCE AT DECEMBER 31, 2023 54,218,813 5 11,750 ( 9,947 ) 1,808 (*) represents amount less than $1 thousand. The accompanying notes are an integral part of the consolidated financial statements. F- 5 UAS DRONE, CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (USD in thousands, except share and per share data) Year ended December 31 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss for the year ( 726 ) ( 1,101 ) Adjustments required to reconcile net loss for the year to net cash used in operating activities: Depreciation 20 2 Share based compensation 108 395 Issuance of shares for services - 31 Interest on loans from related parties 9 8 Reduction in the carrying amount of right-of-use assets 43 - Change in operating lease liability ( 47 ) - Increase in lease deposit - ( 15 ) Decrease (increase) in other current assets 47 ( 42 ) Increase in accounts payable 13 10 Increase (decrease) in other liabilities ( 15 ) 40 Net cash used in operating activities ( 548 ) ( 672 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 18 ) ( 35 ) Net cash used in investing activities ( 18 ) ( 35 ) Effect of exchange rate changes on cash and cash equivalents ( 2 ) ( 4 ) DECREASE IN CASH AND CASH EQUIVALENTS ( 568 ) ( 711 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,849 3,560 CASH AND CASH EQUIVALENTS AT END OF YEAR 2,281 2,849 Supplemental disclosure of cash flow information: Non cash transactions: Initial recognition of operating lease right-of-use assets 146 - Initial recognition of operating lease liability 146 - The accompanying notes are an integral part of the consolidated financial statements. F- 6 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 1 – GENERAL A. 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. Duke Inc. has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel,” and collectively with Duke Inc., “Duke”), which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation. On April 29, 2020, the Company, Duke Inc., and UAS Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“UAS Sub”), executed an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub merged with and into Duke Inc., with Duke Inc. surviving as our wholly-owned subsidiary (the “Short-Form Merger”). Upon closing of the Short-Form Merger, each outstanding share of UAS Sub’s common stock, par value $ 0.0001 per share, was converted into and became one share of common stock of Duke Inc., with Duke Inc. surviving as a wholly-owned subsidiary of the Company. Following the above transactions, Duke Israel became 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 focused on 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”. B. In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. Following the attack by Hamas on Israel’s southern border, Hezbollah in Lebanon also launched missile, rocket, drone and shooting attacks against Israeli military sites, troops and Israeli towns in northern Israel. In response to these attacked, the Israeli army has carried out a number of targeted strikes on sites belonging to Hezbollah in southern Lebanon. It is possible that the hostilities with Hezbollah will escalate, and that other terrorist organizations, including Palestinian military organizations in the West Bank, as well as other hostile countries, such as Iran, will join the hostilities. Such hostilities may include terror and missile attacks. Certain of our consultants in Israel may be called up for reserve duty, in addition to employees of our service providers located in Israel, have been called, for service and such persons may be absent for an extended period of time. In the event that hostilities disrupt our ongoing operations, our ability to deliver or provide services in a timely manner to meet our contractual obligations towards customers and vendors could be materially and adversely affected. The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such economic implications on the Company’s business and operations and on Israel’s economy in general. These events may be intertwined with wider macroeconomic indications of a deterioration of Israel’s economic standing, which may have a material adverse effect on the Company and its ability to effectively conduct its operations. Since this is an event that is not under the control of the Company, and matters such as the fighting continuing or stopping may affect the Company’s assessments, as at the reporting date the Company is unable to assess the extent of the effect of the war on its business activities and on the business activities of its subsidiaries, and on their medium and long term results. The Company is continuing to regularly follow developments on the matter and is examining the effects on its operations and the value of its assets. F- 7 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). A. Liquidity 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. B. Use of estimates in the preparation of financial statements 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. C. Functional currency A majority of the Group’s revenues is generated in U.S. dollars. 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 is the U.S. dollar. 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. D. 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. E. 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. F- 8 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued) F. Property, plant and equipment, net 1. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. When an asset is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition is reflected in the Statements of Operations and Comprehensive Loss. 2. Rates of depreciation: % Furniture and office equipment 7 - 15 Computers 33 Office improvements 5 G. 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, 2023 or 2022. H. Income taxes 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. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized. The Group accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2023 and 2022 financial statements and did not recognize any liability with respect to an unrecognized tax position in its balance sheets. F- 9 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued) I. Revenue recognition The Group provides services to customers and has related performance obligations and recognizes revenue in accordance with ASC 606. Revenues are recognized when the Group satisfies performance obligations under the terms of its contracts, and control of its services or 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. This process 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. (see note 11(2)). J. Research and development expenses Research and development expenses are charged to operations as incurred. K. Basic and diluted loss per share Basic loss per share is computed by dividing the loss for the period applicable to shareholders, by the weighted average number of shares of common stock outstanding during the period. In computing diluted loss per share, basic loss per share is adjusted to reflect the potential dilution that could occur upon the exercise of potential shares. Accordingly, in 2023 and 2022, no potential shares are considered. L. 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, over the requisite service period. F- 10 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued) M. 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. N. 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. O. 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; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and F- 11 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued) Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the fair values. Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of comprehensive loss. P. Leases 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. F- 12 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 3 – OTHER CURRENT ASSETS December 31, 2023 2022 Prepaid and deferred expenses 24 78 Government Institutions 17 8 41 86 NOTE 4 – LEASES A. On April 4, 2022, the Company signed a lease agreement for an office space in Mevo Carmel Science and Industry Park, Israel for a term of 3 years, with an option to extend the term of the lease agreement for an additional 2 years. The monthly lease payments under the lease agreement, for the first two years are NIS 16.5 (approximately $ 4.6 ) and for the third year NIS 17.2 (approximately $ 4.8 ). 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. Lease payment are linked to the Israeli Consumer Price Index. The property became available for Company’s use at February 2023. Based on the lease agreement terms, the Company made a deposit of $ 15 as a guarantee for its lease commitments B. The components of operating lease expense for the period ended December 31, 2023 and 2022 were as follows: December 31, 2023 2022 Operating lease expense 53 - C. Supplemental cash flow information related to operating leases was as follows: December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases 52 - Right-of-use assets obtained in exchange for lease obligations (non-cash): Operating leases 146 - F- 13 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 4 – LEASES (continued) D. Amounts reported in the consolidated balance sheets related to operating lease as of December 31, 2023 and 2022 are as follows: Year ended December 31, 2023 2022 Operating leases: Operating leases right-of-use asset and lease deposit 117 - Current operating lease liabilities 52 - Non-current operating lease liabilities 46 - Total operating lease liabilities 98 - Weighted average remaining lease term (years) 2.09 - Weighted average discount rate 8.75 % - E. Future minimum lease payments under non-cancellable leases as of December 31, 2023 are as follows: 2024 55 2025 52 Total operating lease payments 107 Less: imputed interest ( 9 ) Present value of lease liabilities 98 NOTE 5 – PROPERTY AND EQUIPMENT, NET December 31, 2023 2022 Computers 10 10 Furniture and office equipment 14 12 Leasehold improvements 66 50 90 72 Less - accumulated depreciation ( 50 ) ( 30 ) Total property and equipment, net 40 42 In the years ended December 31, 2023 and 2022, depreciation expenses amounted to $ 20 and $ 2 respectively, and additional property and equipment were purchased for cash in an amount of $ 18 and $ 35 during the years ended December 31, 2023 and 2022, respectively. F- 14 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 6 – OTHER LIABILITIES December 31, 2023 2022 Accrued expenses 148 160 Other (note 8) 13 16 161 176 NOTE 7 – RELATED PARTIES LOANS The Company has outstanding loans with 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. NOTE 8 – SHAREHOLDERS’ EQUITY Description of the rights attached to the Shares in the Company : Common stock: The holders of shares of Common Stock vote together as one class on all matters as to which holders of Common Stock are entitled to vote. Except as otherwise required by applicable law and subject to the preferential rights of any outstanding preferred stock, all voting rights are vested in and exercised by the holders of Common Stock with each share of our Common Stock being entitled to one vote, including in all elections of directors. 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. There is no 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, 2023, there were no outstanding preferred stock. Transactions : On May 11, 2021, the Company entered into Securities Purchase Agreements (the “Securities Purchase Agreements”) with eight (8) non-U.S. investors, pursuant to which the Company, in a private placement offering (the “Offering”), agreed to issue and sell to the investors an aggregate of: (i) 12,500,000 shares of the Company’s Common Stock, at a price of $ 0.40 per share; and (ii) warrants (the “Warrants”) to purchase 12,500,000 Company’s Common Stock. The Warrants are exercisable immediately and for a term of 18 months and have an exercise price of $ 0.40 per share. The aggregate gross proceeds from the Offering were approximately $ 5,000 . The Company recorded $ 1,070 of issuance costs. F- 15 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 8 – SHAREHOLDERS’ EQUITY (continued) 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. On April 5, 2022, the Company and the investors executed an extension agreement, such that the term of the Warrants was extended so that they expire on November 11, 2023. On November 1, 2023, the Company and the investors executed an addition extension agreement, such that the term of the Warrants was extended so that they expire on November 11, 2024. The Company accounted for the Warrants extensions as a dividend component. The fair value of the Warrants modifications were estimated using the Black-Scholes option-pricing model and is presented within the consolidated statements of changes in shareholders equity as a credit to additional paid in capital and a debit to the accumulated deficit. The following are the data and assumptions used: April 5, 2022 November 1, 2023 Dividend yield 0 0 Expected volatility (%) 105.25 - 149.49 % 128.44 - 184.22 % Risk-free interest rate (%) 1.45 - 2.14 % 5.44 - 5.56 % Expected term of options (years) 0.6 - 1.68 0.03 - 1.11 Exercise price (US dollars) 0.4 0.4 Share price (US dollars) 0.35 0.08 Fair value (USD in thousands) 1,896 205 The fair value of the expected cash payments component as of December 31, 2023 and 2022 was estimated at $ 13 and $ 16 , respectively. On March 1, 2022, the Company signed an investor relations service agreement with a consultant pursuant to which the Company agreed to pay the consultant a monthly retainer and in addition, to issue the consultant 300,000 restricted shares of common stock, to be issued in three tranches. In the event that the agreement is terminated prior to the issuance date, the remaining share obligation shall be void. On March 17, 2022, the Company issued 100,000 restricted shares of Common Stock pursuant to the agreement. 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. F- 16 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 9 – SHARE BASED COMPENSATION The following table presents the Company’s stock option activity: Number of Options Weighted Average Exercise Price Outstanding at December 31, 2021 2,426,812 0.81 Granted - - Exercised - - Forfeited or expired - - Outstanding at December 31, 2022 2,426,812 0.81 Granted - - Exercised - - Forfeited or expired - - Outstanding on December 31, 2023 2,426,812 0.81 Number of options exercisable on December 31, 2023 1,906,952 0.86 The aggregate intrinsic value of the awards outstanding as of December 31, 2023 is $ 45 . These amounts represent the total intrinsic value, based on the Company’s stock price of $ 0.10 as of December 31, 2023, less the weighted exercise price. The stock options outstanding as of December 31, 2023, have been separated into exercise prices, as follows: Exercise price Stock options outstanding Weighted average remaining contractual life – years Stock options exercisable As of December, 31, 2023 0.0001 450,000 2.23 337,500 0.38 1,256,822 3.53 942,617 1.00 99,369 3.50 99,369 2.25 620,621 3.50 527,466 2,426,812 3.28 1,906,952 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 vested As of December 31, 2022 0.0001 450,000 3.23 225,000 0.38 1,256,822 4.53 628,412 1.00 99,369 4.50 99,369 2.25 620,621 4.50 434,311 2,426,812 4.28 1,387,092 F- 17 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 9 – SHARE BASED COMPENSATION (continued) As of December 31, 2023 and 2022, there was $ 28 and $ 137 , respectively of total unrecognized compensation cost related to non-vested options. The cost is expected to be recognized over a weighted average period of 0.38 years. Compensation expense recorded by the Company in respect of its stock-based compensation awards for the period ended December 31, 2023 and 2022, was $ 108 and $ 395 , respectively and are included in General and Administrative expenses in the Statements of Operations. NOTE 10 – GENERAL AND ADMINISTRATIVE EXPENSES Year ended December 31 2023 2022 Professional services 575 598 Share base compensation 108 426 Insurance 45 47 Adverting and promotion - 2 Rent and office maintenance 60 12 Levies and tolls 8 2 Depreciation 20 2 Other expenses 10 15 826 1,104 NOTE 11 – AGREEMENTS 1. 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 2023 and 2022 by the Company or Elbit. F- 18 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 11 – AGREEMENTS (continued) Pursuant to the terms of the Agreement, the parties also agreed to cooperate in continuing a project (the “Project”) that has already started with a customer in the Asia Pacific region. Per the agreement, Duke Israel shall be entitled to portion of the revenues generated in the Evaluation Phase of the Project. In addition, Elbit has agreed to invest, at its discretion and pursuant to certain milestones, in the further development and setting up of serial production lines of TIKAD, and may elect to increase such investment subject to the satisfaction of certain criteria, including Elbit’s right to terminate the Agreement if, for example, the Project is cancelled by the customer. Such investment amounts will be made into Elbit’s owned assets and production lines of TIKAD. Elbit will recoup 50 % of its investment amount, up to $ 6,000 , by offsetting 50 % of royalty payments that may be due to Duke Israel. No revenues were generated from the Evaluation Phase of the Project during 2023 and 2022. 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. No royalties were accrued during the years ended December 31, 2023 and 2022. 2. On August 15, 2022, Duke Israel, signed a Collaboration and Development Agreement with the Israel Electric Corporation Ltd. (IEC), to perform a test pilot together with IEC of a robotic drone-enabled system for cleaning electric utility insulators to be developed by Duke Israel for a total amount of $ 300 . ICE is a public utility and a 99 % government-owned company that generates, transmits, and supplies electricity to all sectors of the State of Israel. During October 2023, the Company successfully completed its obligations under the agreement with IEC upon delivery of the robotic drone, and accordingly recorded revenues and corresponding expenses at that point in time. As part of the agreement, Duke will be obligated to pay IEC percentage of earned revenues for all future transactions relating to the developed technology up to a maximum of $ 900 . F- 19 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (USD in thousands, except share and per share data) NOTE 12 – INCOME TAX U.S. resident companies are taxed on their worldwide income for corporate income tax purposes at a statutory rate of 21 % this 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, 2023, the Company and subsidiaries have carry forward losses for tax purposes of approximately $ 4,609 , which can be offset against future taxable income, if any. A. The following is reconciliation between the theoretical tax on pre-tax income, at the tax rate applicable to the Company (federal tax rate) and the tax expense reported in the financial statements: Year ended December 31 2023 2022 US Dollars Pretax loss ( 726 ) ( 1,101 ) Federal tax rate 21 % 21 % Income tax computed at the ordinary tax rate 153 231 Stock-based compensation ( 23 ) ( 83 ) Non-deductible income 1 5 Tax in respect of differences in corporate tax rates 12 10 Losses and timing differences in respect of which no deferred taxes were generated ( 143 ) ( 163 ) - - B. Deferred taxes result primarily from temporary differences in the recognition of certain revenue and expense items for financial and income tax reporting purposes. Significant components of the Company’s future tax assets are as follows: Year ended December 31 2023 2022 US Dollars Composition of deferred tax assets: Non capital loss carry forwards 1,011 875 Valuation allowance ( 1,011 ) ( 875 ) - - The net change during the year ended December 31, 2023 in the total valuation allowance amounted to $ 136 . F- 20 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars, except share and per share data) NOTE 13 – LOSS PER SHARE Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during the year. The weighted average number of shares of common stock used in computing basic and diluted loss per share for the years ended December 31, 2023 and 2022, are as follows: Year ended December 31 2023 2022 Number of shares Weighted average number of shares of common stock outstanding attributable to shareholders 54,530,423 54,318,060 Total weighted average number of shares of common stock related to outstanding options and warrants, excluded from the calculations of diluted loss per share 17,589,312 17,701,812 NOTE 14 – RELATED PARTIES A. Transactions and balances with related parties Year ended December 31 2023 2022 General and administrative expenses: Directors and Officers compensation (*) 425 529 (*) Share base compensation 47 144 Financing: Financing expense 9 8 B . Balances with related parties: As of December 31, 2023 2022 Other accounts liabilities 38 35 Loans 314 305 F- 21 UAS DRONE, CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars, except share and per share data) NOTE 14 – RELATED PARTIES (continued) C. On March 25, 2021, the Board of Directors appointed Yossi Balucka to serve as its Chief Executive Officer. Mr. Balucka is entitled to a monthly fee of NIS 30,000 (approximately $ 9,650 ), reimbursement of expenses and discretionary performance bonus. In conjunction with the appointment of Mr. Balucka, the Company issued to Mr. Balucka options to purchase 450,000 shares of the Company’s commons stock at an exercise price of $ 0.0001 per share, subject to and in accordance with the terms and conditions of an option plan. The options shall vest over a three year period, with 50 % of the options to vest on the first anniversary of the grant date, and the balance of 50 % of the options to vest in equal parts on the second and third anniversary of the grant date, respectively, subject to the Mr. Balucka providing continued services to the Company. The fair value of the options 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, 2023 amounted to $ 21 . D. 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. 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, 2023 amounted to $ 26 . F- 22