The accompanying notes are an integral part of these unauditedthe condensed consolidated financial statements.

3

UAS DRONE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE LOSS

(Unaudited)(USD in thousands, except share and per share data)

The accompanying notes are an integral part of these unauditedthe condensed consolidated financial statements.

4

UAS DRONE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN SHAREHOLDERS’ DEFICIT

(Unaudited)

(USD in thousands, except share and per share data)

The accompanying notes are an integral part of these unauditedthe condensed consolidated financial statements.

5

UAS DRONE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(USD in thousands)

The accompanying notes are an integral part of the condensed consolidated financial statement

UAS DRONE CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 1 – DESCRIPTION OF BUSINESS- GENERAL

UAS Drone Corp. (“the Company” or “USDR”) was incorporated under the laws of the State of Nevada on February 4, 2015. The Company began limited operations on February 11, 2015. Prior to the Company’s formation, the operations were functioning under Unlimited Aerial Systems, LLP (UAS LLP)(“UAS LLP”). UAS LLP was formed under the laws of the State of Louisiana on August 22, 2014. Effective March 31, 2015, the Company completed a reverse merger with UAS LLP. The reverse merger was accounted for as a reverse capitalization.

On March 9, 2020, the Company closed on the Share Exchange Agreement (as defined hereunder), pursuant to which, Duke Robotics, Inc. (“Duke Inc.”) a corporation incorporated under the laws of the state of Delaware, became a majority-owned subsidiary of the Company. Duke Inc. has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel,” and collectively with Duke Inc., “Duke”), which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation.

On April 29, 2020, the Company, Duke Inc., and UAS Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“UAS Sub”), the executed an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which UAS Sub merged with and into Duke Inc. Upon closing of the Short-Form Merger (as defined hereunder), each outstanding share of UAS Sub’s common stock, par value $0.0001 per share, was converted into and became one share of common stock of Duke Inc., with Duke Inc. surviving as a wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the Company intended to acquire the remaining outstanding shares of Duke Inc. held by certain stockholders of Duke Inc. that did not participate in the Share Exchange Agreement (as defined hereunder).

On April 30, 2020 the Company filed a Form S-1 Registration Statement, which was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on June 19, 2020, to register: (i) 63,856 shares of common stock of the Company that were issued to certain stockholders of Duke Inc. upon the consummation of the Short-Form Merger; (ii) 14,614,751 shares of common stock of the Company of certain selling stockholders named in the S-1 Registration Statement; and (iii) 3,649,733 shares of common stock of the Company issuable upon conversion of Convertible Notes (see Note 3 below).

On June 25, 2020, at the closing of the transaction contemplated by the Merger Agreement, the Company issued 63,856 shares to certain Duke Inc. stockholders, and Duke Inc. became a wholly owned subsidiary of the Company.

The Company (collectively with Duke, the “Group”) is a robotics company dedicated to the development of an advanced robotics stabilization system that enables remote, real-time, pinpoint accurate firing of small arms and light weapons.

Effective October 22, 2020, Company’s common stock was approved for quotation on the OTC Markets Group, Inc.’s OTCQB® tier Venture Market.

Merger Transaction

On March 4, 2020, USDR entered into a Share Exchange Agreement with Duke Inc., and certain shareholders of Duke Inc. who executed and delivered the Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which Duke Inc. became a majority-owned subsidiary of USDR (the “Share Exchange”). The Share Exchange closed on March 9, 2020. Such closing date is referred to as the “Effective Time.”

Before entering into the Share Exchange Agreement: (i) Duke entered into debt cancellation letters (the “Debt Cancellation Letters”) with each of its Stockholders with regard to the Stockholders Loans.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES1 – GENERAL (continue)

BasisPursuant to the Debt Cancellation Letters, 842,135 shares of Accountingthe 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 3B) entered into at the Effective Time, unless such repayment is otherwise waived by the parties to the Investors’ Loan; (ii) Loans made from Duke to an executive officer and a former executive officer, who are also stockholders were extinguished in connection with the Debt Cancellation Letters; (iii) Duke issued a consultant 1,146,005 shares of the Duke Inc. common stock (1,423,453 shares post Exchange Ratio), at par value, regarding services rendered to Duke Inc. The fair value of the shares issued was estimated at $429 and were recorded to share based compensation expenses.; and (iv) a convertible loan agreement in amount of $400 bearing an annual interest rate of 6%, including accumulated interest in amount of $48, was converted into 700,000 shares of Duke Inc. common stock (869,470 shares post Exchange Ratio).

These condensed  financial statements are presented

In conjunction with the consummation of the Share Exchange, and as a condition thereof, the USDR entered into the agreements listed below.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in United States dollarsthousands, except share and have been preparedper share data)

NOTE 1 – GENERAL (continue)

Pursuant to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke Inc. stockholders in exchange for 22,920,107 shares of Duke’s Inc. issued and outstanding shares of common stock, representing approximately 99% of Duke’s Inc. issued and outstanding shares of common stock. Accordingly, each outstanding share of Duke Inc. common stock was exchanged for the right to receive 1.2421 shares of the Company’s common stock (the “Exchange Ratio”). Of the shares of Duke Inc. common stock that were exchanged for shares of the Company’s common stock, 51,410 (representing 63,856 shares of the Company’s common stock post-Share Exchange) were issued but remained in escrow until the Company completed the Short-Form Merger (as defined hereunder). On June 25, 2020, at the closing of the transaction contemplated by the Merger Agreement, the Company released the shares in escrow.

As such, at the Effective Time, the Duke stockholders owned an equivalent of approximately 71% of the Company’s common stock. After giving effect to the Share Exchange, Duke became a subsidiary of the Company. Following the Share Exchange, the Company adopted the business plan of Duke.

The transaction was accounted for as a reverse asset acquisition in accordance with accounting principles generally accepted in the United States. The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 fiscal year end.

Interim Financial Statements

The accompanying unaudited condensed  financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”)accounting principles in the United States of America (“U.S.”GAAP”) as promulgated. Under this method of accounting, Duke was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) Duke’s stockholders owned a substantial majority of the voting rights in the combined company, (ii) Duke designated a majority of the members of the initial board of directors of the combined company, and (iii) Duke’s senior management holds all key positions in the senior management of the combined company. As a result of the Recapitalization Transaction, the shareholders of Duke received the largest ownership interest in the Company, and Duke was determined to be the “accounting acquirer” in the Recapitalization Transaction. As a result, the historical financial statements of the Company were replaced with the historical financial statements of Duke. The number of shares prior to the reverse capitalization have been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in the Recapitalization Transaction.

On April 29, 2020, the Company, Duke Inc. and UAS Sub, executed the Merger Agreement, pursuant to which UAS Sub merged with and into Duke, with Duke surviving as a wholly-owned subsidiary of the Company (the “Short-Form Merger”). Pursuant to the Merger Agreement, on June 25, 2020, the Company acquired the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate in the Share Exchange.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 1 – GENERAL (continue)

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of May 2020, has spread to over 180 countries, including the United States and Israel. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus, including in the United States and in Israel. The spread of an infectious disease, including COVID-19, may also result in the inability of Company’s manufacturers to deliver components or finished products on a timely basis and may also result in the inability of Company’s suppliers to deliver the parts required by Company’s manufacturers to complete manufacturing of components or finished products. In addition, governments may divert spending from other budgeted resources as they seek to reduce and/or stop the spread of an infectious disease, such as COVID-19. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect the Company’s business, financial condition and results of operations. The extent to which COVID-19 impacts the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

Going Concern

Since inception, the Group has devoted substantially all its efforts to research and development. The Group is still in its development stage and the extent of the Group’s future operating losses and the timing of becoming profitable, if ever, are uncertain. As of September 30, 2020, the Group had $271 in cash and cash equivalents, net losses of $1,229, accumulated deficit of $4,992, and a negative working capital of $997.

The Group will need to secure additional capital in the future in order to meet its anticipated liquidity needs primarily through the sale of additional Common Stock or other equity securities and/or debt financing. Funds from these sources may not be available to the Group on acceptable terms, if at all, and the Group cannot give assurance that it will be successful in securing such additional capital.

These conditions raise substantial doubt about the Company’s ability to continue to operate as a “going concern.” The Company’s ability to continue operating as a going concern is dependent on several factors, among them is the ability to raise sufficient additional funding.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Unaudited Interim Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)Statements

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary, prepared in accordance with GAAP and with the rules and regulationsinstructions to Form 10-Q. In the opinion of management, the U.S Securities and Exchange Commission (“SEC”) for interim financial information. The unaudited condensed financial statements reflectpresented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments,adjustments) which are, in the opinion of management, are considered necessary for a fair presentationstatement of the results for the periods shown. Thefinancial condition, results of operations and cash flows for the periods presentednine-months ended September 30, 2020. However, these results are not necessarily indicative of the results expectedfor any other interim period or for the full fiscal year orended December 31, 2020. The preparation of financial statements in conformity with GAAP requires the Company to make certain estimates and assumptions for any future period. Thethe reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

Certain information and footnote disclosures normally included in these unaudited condensedfinancial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the SEC. These financial statements should be read in conjunction with Management’s Discussion and Analysis and Results of Operations contained in this report and the audited financial statements and accompanying notes thereto contained in the Company’s Annual Report published with the SEC for the periodyear ended December 31, 2018, as filed2019.

Principles of Consolidation

The consolidated financial statements are prepared in accordance with GAAP. The consolidated financial statements of the SEC on March 29, 2019.Company include the Company and its wholly-owned and majority-owned subsidiaries. All inter-company balances and transactions have been eliminated.

Use of Estimates and Assumptions

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 atas of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.statements. Actual results could differ from those estimates. As applicable to these financial statements, the most significant estimates and assumptions relate to the share based compensation, going concern assumptions and convertible loans.

UAS DRONE CORP.

CashNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and Cash Equivalentsper share data)

The Company considers all highly liquid investments with an original maturity date of three months or less when purchased to be cash equivalents.  At September 30, 2019

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continue)

Derivative Liabilities and December 31, 2018, The Company held no cash equivalents. At September 30, 2019 and December 31, 2018, the Company had no cash balance in excess of federally insured limits.

Fair Value of Financial Instruments

The carrying

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments and measurement of their fair value for accounting purposes. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt under Accounting Standards Codification (“ASC”) 470, the Company will continue its evaluation process of these instruments as derivative financial instruments under ASC 815.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.

Fair value of certain of the Company’s financial instruments consisting ofincluding cash, accounts receivable, account payable, accrued expense, promissory note payableexpenses, notes payables, and convertible notes payableother accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value duein accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of non-performance, which includes, among other things, the Company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity, and that are significant to the short-term maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial statements.fair values.

6

UAS DRONE CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 2 -– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – ContinuedAND BASIS OF PRESENTATION (continue)

Revenue Recognition

On January 1, 2018, we adopted the Financial Accounting Standards Board's (FASB) new revenue recognition standard using the modified retrospective method applied to those contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018Fair value measurements are presented under the new standard, while prior period amounts were not adjusted and continuerequired 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 accordance with our historic accounting.the statement of income.

The Company is inrecords a debt discount related to the businessissuance of selling unmanned aerial systems (“drones”).convertible debts that have conversion features at adjustable rates. The sale of dronesdebt discount for the convertible instruments is recognized upon shipmentand measured by allocating a portion of the product which isproceeds as an increase in additional paid-in capital and as a reduction to the point in time the Company’s performance obligation is complete.  The Company had no revenues during the nine months ended September 30, 2019 and 2018.

Income Taxes

A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or allcarrying amount of the deferred tax assetsconvertible instrument equal to the fair value of the conversion features. The debt discount will not be realized. Deferred taxaccreted by recording additional non-cash gains and losses related to the change in fair values of derivative liabilities over the life of the convertible notes. 

The Company’s financial assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

When required, the Company records a liability for unrecognized tax positions, defined as the aggregate tax effect of differences between positions taken on tax returns and the benefits recognized in the financial statements. Tax positionsthat are measured at fair value on a recurring basis by level within the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. No tax benefitsfair value hierarchy are recognized for positions that do not meet this thresholdas follows:

We recognize interest and penalties related to unrecognized tax benefits on the interest expense line and other expense line, respectively, in the accompanying  statement of operations. Accrued interest and penalties are included on the related liability lines in the unaudited condensed balance sheet. As of September 30, 2019, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities.

Loss per Share

The basic loss per share is calculated by dividing our net loss byfollowing table presents the weighted average numberchanges in fair value of common shares during the period. The diluted earnings (loss) per share is calculated by dividing our net loss by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.  As of September 30, 2019, 1,358,003 shares underlying the convertible debt and 25,000 shares underlying stock options have been excluded from the calculation of diluted loss per share because their impact was anti-dilutive. As of September 30, 2018, 1,277,533 shares underlying the convertible debt and 45,000 shares underlying stock options have been excluded from the calculation of diluted loss per share because their impact was anti-dilutive.

Recently Issued Accounting Pronouncements

Recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

7

UAS DRONE CORP

NOTES TO UNAUDITED CONDENSED  FINANCIAL STATEMENTS

NOTElevel 3 — GOING CONCERN

The accompanying condensed  financial statements have been prepared assuming that the Company will continue as a going concern. The Company has net losses for the year ended December 31, 2018 andliabilities for the nine months ended September 30, 2019,2020:

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (continue)

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”, which amends the scope and transition requirements of ASU 2016-13. Topic 326 requires a working capital deficit.financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Topic 326 will originally become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. As a smaller reporting company, the effective date for the Company has been delayed until fiscal years beginning after December 15, 2022, in accordance with ASU 2019-10, although early adoption is still permitted. This condition raises substantial doubt aboutstandard is not expected to have a material impact to the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability. Theconsolidated financial statements doafter evaluation.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not include any adjustmentsyet been issued. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This standard will require entities to disclose the amount of total gains or losses for the period recognized in other comprehensive income that might resultis attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy. This ASU will be effective for the Company for annual and interim periods beginning after December 31, 2020. Early adoption of this standard is permitted. We have not yet determined the impact of the adoption of this ASU on our results of operations, financial position and cash flows.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 3 – CONVERTIBLE NOTES

In accordance with ASC 815-15-25 the conversion feature was considered embedded derivative instruments, and is to be recorded at their fair value as its fair value can be separated from the outcome of this uncertainty. Managementconvertible loan and its conversion is planning to raise additional funds through debt or equity offerings. There is no guarantee that the Company will be successful in these efforts.

NOTE 4 – RELATED PARTY TRANSACTIONS

During 2018, a stockholderindependent of the underlying note value. The Company advanced $98,349 to the Company. During the first nine months of 2019, a stockholderrecorded finance expenses in respect of the Company advanced $53,254 toconvertible component in the Company. The advances bear no interest or maturity.  The balance due toconvertible loan in the stockholder is $199,611 and $146,357, as of September 30, 2019 and December 31, 2018, respectively, and has been presented on the accompanying balance sheets as advances from stockholder.  

During the first nine months of 2019, the Company paid our Chief Executive Officer and Chairmanexcess amount of the Board $7,500 for his services onconvertible component fair value over the Board. Further, our accounts payable include $32,500 and $25,000 dueface loan amount. The conversion liability is then marked to this individual asmarket each reporting period with the resulting gains or losses shown in the statements of September 30, 2019 and December 31, 2018, respectively.operations.

NOTE 5 – NOTES PAYABLE

On April 1, 2015, the Company closed a Subscription Agreement by which one institutional investor purchased an 8% Convertible Debenture having a total principal amount of $300,000, convertible into common sharesThe fair value of the Company at $0.33 per share and maturing April 1, 2017.  The maturity dateconvertible component was estimated by third party appraiser using the Black-Scholes option pricing model, to compute the fair value of the note was extendedderivative and to December 31, 2019.mark to market the fair value of the derivative at each balance sheet date. The Company determined that the embedded conversion option did not require bifurcation and liability treatment because the underlying shares were not readily convertible to cash. The Companyhas estimated the fair value of such derivative at a value of $132 at the underlyingdate of issuance and at a value of $114 as of September 30, 2020.  The following are the data and assumptions used as of the balance sheet date:

The fair value allocated to loans out of the New Debentures was estimated by third party appraiser based on the debentures’ and market interest’ rates and was estimated at a value of $332 at the issuance date. The access of the calculated fair values of the loan and the convertible components over the loan face amounted to $67, and was recorded as interest expenses.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 3 – CONVERTIBLE NOTES (continue)

The lenders will have the option to convert the unpaid balance of their respective Convertible Loans into shares of Company’s common stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following the Effective Time. “Effective price” per share means (i) if only shares of Company’s common stock are sold in a transaction, the amount actually received in cash by the Company, and (ii) if shares of Company’s common stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Company’s common stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Company’s common stock issued in such transaction; (B) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six (6) months following the Effective Time until such time as the loans outstanding under all of the Convertible Loan Agreements are fully repaid or otherwise converted provided, however, that such price per share shall not be available in the event of an issuance of Alternative Securities to the lender); (C) a price per share reflecting a post-money valuation of the Company of $15million following the next investment in the Company following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. The conversion price is currently $0.374.

In accordance with ASC 815-15-25 the conversion feature was considered embedded derivative instruments, and is to be recorded at their fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note did not include a beneficial conversion feature.  As of September 30, 2019, and December 31, 2018, the balancevalue. The Company recorded finance expenses in respect of the convertible note payable was $300,000.

On April 1, 2016,component in the Company closed an Additional Advance Agreement by which one institutional investor purchased an 8% Convertible Debenture having a total principalconvertible loan in the excess amount of $100,010,the convertible into common sharescomponent 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.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 3 – CONVERTIBLE NOTES (continue)

The fair value of the Company at $1.55 per share and maturing April 1, 2017.  The maturity dateconvertible component was estimated by third party appraiser using the Black-Scholes option pricing model, to compute the fair value of the note was extendedderivative and to December 31, 2019.mark to market the fair value of the derivative at each balance sheet date. The Company determined that the embedded conversion option did not require bifurcation and liability treatment because the underlying shares were not readily convertible to cash. The Companyhas estimated the fair value of such derivative at a value of $144 at the underlying common stockdate of issuance and determined that the convertible note did not includeat a beneficial conversion feature.  Asvalue of $94 as of September 30, 2019,2020.  The following are the data and December 31, 2018,assumptions used as of the balance of this convertible note payable was $100,010.sheet date:

On January 27, 2017, the Company closed a convertible debenture by which one institutional investor purchased an 8% Convertible Debenture having a total principal amount of $50,005, convertible into common sharesThe fair value allocated to loans net of the Companyconvertible component was estimated at $1.55 per share and maturing August 1, 2018.  The maturity date of the note was extended to December 31, 2019. The Company determined that the embedded conversion option did not require bifurcation and liability treatment because the underlying shares were not readily convertible to cash. The Company estimated the faira value of $822 at the underlying common stock and determined that the convertible note did not include a beneficial conversion feature.  As of September 30, 2019, and December 31, 2018, the balance of this convertible note payable was $50,005.

8

UAS DRONE CORP

NOTES TO UNAUDITED CONDENSED  FINANCIAL STATEMENTS

NOTE 5 – NOTES PAYABLE - Continued

On October 1, 2018, the Company financed the premium for directors’ and officers’ insurance.  The Company borrowed $30,610 at 5.68% interest, and the note will be repaid in 10 equal installments of $3,244.  As of September 30, 2019, and December 31, 2018, the balance of the note payable was $0 and $25,407, respectively.

On September 2, 2019, the Company executed a promissory note having a total principal amount of $35,000 bearing interest at 6% per annum and maturing September 2, 2021.  The note is non-recourse and carries no personal guarantees. As of September 30, 2019, the balance of this note payable was $35,000.

NOTE 6 — EQUITYissuance date.

Common StockNOTE 4 – STOCK OPTIONS

The Company has authorized 100,000,000 shares of commonfollowing table presents the Company’s stock $0.0001 par value.  As of September 30, 2019, and December 31, 2018, 1,172,544 shares were issued and outstanding.  

As of September 30, 2019, and December 31, 2018, the Company accrued liabilities of $3,300 for refunds that will be returned to prospective investors.

Stock Options

No options were granted duringoption activity the nine months ended September 30, 2019.  A summary2020:

The aggregate intrinsic value of the status of options grantedawards outstanding as of September 30, 2019, and changes during2020 is $0. These amounts represent the period then ended are as follows:

The Company had 35,000 vested options at the beginning of the period.  At September 30, 2019, the Company had 25,000 vested options with a weighted average exercise price of $1.50.

The total intrinsic value, based on the Company’s stock price of $0.374 as of September 30, 2020, less the weighted exercise price. This represents the potential amount received by the option holders had all option holders exercised their options duringas of that date.

UAS DRONE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and per share data)

NOTE 4 – STOCK OPTIONS (continue)

The stock options outstanding as of September 30, 2020, have been separated into exercise prices, as follows:

The stock options outstanding as of December 31, 2019, have been separated into exercise prices, as follows:

Compensation expense recorded by the nine monthsCompany in respect of its stock-based compensation awards for the period ended September 30, 20192020 was $0.  Intrinsic value is measured using$92 and are included in General and Administrative expenses in the fair market value at the dateStatements of exercise (for shares exercised) or at September 30, 2019 (for outstanding options), less the applicable exercise price.Operations 

NOTE 7 — CONFLICTS OF INTEREST

UAS DRONE CORP.

The officersNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(USD in thousands, except share and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such person(s) may face a conflict in selecting between the Company and his other business interests. The Company has not formulated a policy for the resolution of such conflicts.per share data)

NOTE 5 – RELATED PARTIES

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Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.

Safe Harbor Statement.

Statements madeReaders are advised to review the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q which are not purely historical are forward-lookingand the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performanceour plans and business of the Company, including, without limitation, (i) our ability to gain a larger share of unmanned aerial systems industry, our ability to continue to develop products acceptable to our industry, our ability to retainstrategy for our business, relationships, and our ability to raise capital and the growth of the unmanned aerial systems industry, and (ii)includes forward-looking statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets", "tend" or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, anduncertainties. See “Cautionary Note Regarding Forward-Looking Statements”. You should review the “Risk Factors” section of our Annual Report for the fiscal year ended December 31, 2019 for a discussion of important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forththe results described in or implied by the forward-looking statements including the following, in addition to those contained in the Company's reports on file with the Securitiesfollowing discussion and Exchange Commission (the “SEC”): general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the unmanned aerial systems,analysis.

We are a robotics company dedicated to the development of productsan advanced robotics system that may be superiorenables remote, real-time, pinpoint accurate firing of small arms and light weapons. Our advanced robotics system is able to the products offered by the Company, competition, changes in the quality or compositionachieve pinpoint accuracy regardless of the Company's products, our ability to develop new products, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Company’s operations, products and prices.

Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only asmovement of the date they are made.  The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect eventsweapons platform or circumstances occurring after the date of such statements.target.  

Business Highlights

UAS Drone Corp. (the “Company”, “UAS”, “we”, “us”, or similar terms), headquartered in Palm Beach Florida, wasWe were founded in 2014 as Unlimited Aerial Systems, LLP (“UAS LLP”).   We completed an Asset Purchase, and until the consummation of the Share Exchange Agreement on March 31, 2015, purchasing all the assets and certain liabilities of UAS LLP in exchange for 600,000 shares of our common stock and our assumption of certain liabilities of UAS LLP.

We are(as hereinafter defined), we were a developer and manufacturer of commercial unmanned aerial systems, or drones, with the goal of providing a superior Quadrotor aerial platform at an affordable price point in the law enforcement and first responder markets.

In late 2016,On March 9, 2020, we began workingclosed on the Share Exchange Agreement (the “Share Exchange Agreement”) between the Company, Duke Robotics, Inc., a Delaware corporation (“Duke”) and certain prior stockholders of Duke, pursuant to which Duke became a majority-owned subsidiary of the Company (the “Share Exchange”). Such closing date is referred to as the “Effective Time.”

On April 29, 2020, the Company, Duke, 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 was to merge, upon the satisfaction of customary closing conditions, with and into Duke, with Duke surviving as a flight training companywholly-owned subsidiary of the Company (the “Short-Form Merger”). Pursuant to the Merger Agreement, we intended to acquire the remaining outstanding shares of Duke held by those certain Duke shareholders that did not participate in the western U.S.Share Exchange. On June 25, 2020, Duke filed a Certificate of Merger with the State of Delaware, and consequently, Duke became a wholly-owned subsidiary of the Company and the Short-Form Merger was consummated.

Duke has a wholly-owned subsidiary, Duke Airborne Systems Ltd. (“Duke Israel”), which was formed under the laws of the State of Israel in March 2014 and became the sole subsidiary of Duke after its incorporation. As a result of the Share Exchange, the we adopted the business plan of Duke.

Readers are cautioned that to date, we have generated limited revenues and have not yet begun meaningful commercialization efforts with respect to our products. We sent oneintend in the long-term to derive substantial revenues from the sales of our inventory Quadrotorsproducts as well as future models of other robots and our unmanned aerial system (“UAS”) platforms for both military and civilian use, but there can be no assurance that we will be able to them withdo so.

Uplisting to OTCQB

Our common stock was approved for quotation on the intention of: (1) allowing them to use our drone in their training courses, specifically with law enforcementOTC Markets Group, Inc.’s OTCQB® tier Venture Market (the “OTCQB”) under the symbol “USDR,” effective as of October 22, 2020.

The OTCQB is a venture market operated by the OTC Markets Group, Inc. and first responder professionals; (2) obtaining feedback on performanceis designed for early-stage and operating characteristics of our drone with the intention of improving the product for future generations; and (3) seeking sales of additional Quadrotors to this company or its clients.  During 2018 and the first three quarters of 2019, the Company did not sell any drones.

In October 2015, we entered into two agreements with Havis Inc., of Warminster, Pennsylvania, to provide manufacturing and distribution services for our products. Havis is an 80 year-old privately held, ISO 9001:2008 certified company that manufactures in-vehicle mobile computer and workflow solutions for public safety, public works government agencies and mobile professionals.  Havis products are distributed through a nationwide network of resellers and sales representatives in the United States.

Under the Manufacturing Agreement, Havis agreed to manufacture the Company’s commercial drone products for the law enforcement sector in the United States.  The agreement has a five-year term with successive three-year renewal terms, and lays out a framework for engineering, fulfillment of purchase orders, warehousing and other material terms.

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Under the Distribution Agreement, the Company has appointed Havis as its distributor to the law enforcement sectordeveloping companies located both in the United States and abroad. To be eligible for quotation on the OTCQB, companies must be current in their reporting and undergo an annual verification and management certification process. Companies must also meet a minimum bid price test and cannot be in bankruptcy. The OTCQB is recognized by the Securities and Exchange Commission as an established public market and provides current public information to investors that need to analyze, value, and trade securities.

Critical Accounting Policies

Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the Company’s commercial drones.summary of significant accounting policies. In addition, reference is made to Part I, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation of our Annual Report on Form 10-K for the year ended December 31, 2019 (filed on April 13, 2020) with respect to our Critical Accounting Policies and Estimates. The agreement has a five-year term with successive three-year renewal terms,main changes to our critical accounting policies and provides a frameworkestimates since our Annual Report on Form 10-K for the year ended December 31, 2019, relates to convertible loans Derivative Liabilities and Fair Value of Financial Instruments.

Going Concern Uncertainty

The development and commercialization of marketing materials, warrantyour product will require substantial expenditures. We have not yet generated any material revenues and service programs, traininghave incurred substantial accumulated deficit and risk mitigation, among other material terms.  The agreement also provides for sales quotas to be established after the first yearnegative operating cash flows. We currently have no sources of sales, and Havis to brand all drones with its corporate name and logo. No pricing or margins are specified in the agreement.

Our agreements with Havis are currently on holdrecurring revenue and are expectedtherefore dependent upon external sources for financing our operations. There can be no assurance that we will succeed in obtaining the necessary financing to be terminated,continue our operations. As a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as there has been no manufacturinga going concern. The financial statements do not include any adjustments that might result from the outcome of the drones nor development of marketing or service programs.  this uncertainty.

Results of Operations

Nine Months EndedComparison of the three months ended September 30, 2020 and 2019

Revenues. We had no revenues for the three months ended September 30, 2020. During the three months ended September 30, 2019, versuswe generated revenues of $112,000

Research and Development. During the three months ended September 30, 2018.2020, we had no research and development expenses, compared to $5,000 in research and development expenses for the three months ended September 30, 2019. The decrease in our research and development expenses for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, is mainly as a result of our efforts towards the consummation of the Share Exchange, the filing of a Registration Statement on Form S-1 and the consummation of the Short-Form Merger pursuant to which Duke became our wholly-owned subsidiary, all of which resulted in a temporary freeze of our research and development operations.

General and Administrative. Our general and administrative expenses for the three months ended September 30, 2020, which consisted primarily of professional services and legal expenses, amounted to $172,000, compared to $175,000 for the three months ended September 30, 2019.

Financial Expense. For the three months ended September 30, 2020, we had financial expense of $55,000 compared to financial expense of $27,000 for the three months ended September 30, 2019. The reason for the increase in financial expense for the three months ended September 30, 2020, was mainly due to interest expenses related to our outstanding convertible loans.

Net Loss. We incurred a net loss of $227,000 for the three months ended September 30, 2020 as compared to $200,000 in net loss for the three months ended September 30, 2019.

Comparison of the nine months ended September 30, 2020 and 2019

Revenues. We had no revenues for the nine months ended September 30, 2020. During the nine months ended September 30, 2019, we generated revenues of $112,000.

Research and 2018, the Company did not sell any drones and did not receive any revenue.

Development. During the nine months ended September 30, 2019, the Company incurred $59,990 of operating2020, we had no research and development expenses, compared to operating$58,000 in research and development expenses of $81,264 for the nine months ended September 30, 2018.  The expenses for the 2019 period were primarily for director fees, legal fees, directors and officers insurance and audit fees.2019. The decrease was the result of a decrease in OTC Market fees off-set by an increase in audit feesour research and directors and officer insurance.

UAS’s net loss was $92,696development expenses for the nine months ended September 30, 2019, versus a net loss of $108,632 for2020, compared to the same period in 2018.

Three Months Ended September 30, 2019 versus September 30, 2018.

During the threenine months ended September 30, 2019, is mainly as a result of the Company’s efforts towards the consummation of the Share Exchange, the filing of a Registration Statement on Form S-1 and 2018, the Company did not sell any dronesconsummation of the Short-Form Merger pursuant to which Duke became our wholly-owned subsidiary, resulting in a temporary freeze of our research and did not receive any revenue.development operations.

DuringGeneral and Administrative. Our general and administrative expenses for the threenine months ended September 30, 2019, the Company incurred $13,7172020, which consisted primarily of professional services and legal expenses, amounted to $1,114,000, compared to $33,926$632,000 for the threenine months ended September 30, 2018.  The2019. This increase in general and administrative expenses for the 2019 period were primarily for director fees, legal fees, directors and officers insurance and audit fees.

UAS’s net loss was $27,894 for the threenine months ended September 30, 2019, versus $42,9392020 was mainly due to an increase in stock-based compensation, legal and other professional expenses of $202,000, $103,000 and $91,000, respectively, as a result of the Share Exchange, the filing of its a Registration Statement on Form S-1 and the consummation of the Short-Form Merger pursuant to which Duke became our wholly-owned subsidiary.

Financial Expense. For the nine months ended September 30, 2020, we had financial expense of $115,000 compared to financial expense of $81,000 for the same periodnine months ended September 30, 2019. The reason for the increase in 2018.financial expense for the nine months ended September 30, 2020 was due to $71,000 of interest expense related to the fair value of a convertible component in our existing convertible loans, $107,000 of interest expense related to interest accrued on our outstanding convertible loans, as well as exchange rate differences resulting from variations in the New Israel Shekel exchange rate to the U.S. Dollar, offset by $74,000 of interest income related to the extinguishment of a portion of stockholders’ loans.

Net Loss. We incurred a net loss of $1,229,000 for the nine months ended September 30, 2020 as compared to a net loss of $764,000 for the nine months ended September 30, 2019. The reason for the increase in net loss is mainly due to an increase in stock-based compensation and legal and other professional expenses of $202,000, $103,000 and $84,000, respectively, as a result of the Share Exchange, the filing of a Registration Statement on Form S-1 and the consummation of the Short-Form Merger pursuant to which Duke became our wholly-owned subsidiary.

Liquidity and Capital Resources.

Cash on hand was $35,319We had $271,000 in cash at September 30, 2020 versus $55,000 in cash at September 30, 2019. The increase is mainly the result of the proceeds received pursuant to the sale of Convertible Loan Agreements (as hereinafter defined) in the aggregate amount of $965,000. Cash used by operations for the nine months ended September 30, 2019,2020 was $27,589 versus $59,062$692,000 as compared to $112,000 for nine months ended September 30, 2019. The reason for the same periodincrease in 2018.  The cash used by operations related to the increase in our net losses as described above offset mainly by stock base compensation expenses and expenses with respect to an outstanding convertible loan.

Net cash provided by financing activities was $940,000 for legal and accounting fees, board fees and consulting fees.the nine months ended September 30, 2020, as compared to net cash used by financing activities of $23 for the nine months ended September 30, 2019. The increase is mainly the result of the proceeds received pursuant to the sale of Convertible Loan Agreements (as hereinafter defined) in the aggregate amount of $965,000.

Cash on hand at September 30, 2020 is not sufficient to sustain operations for the next twelve months. While there can be no guarantees, the Company plans to raise additional capital to fund its operations.

On September 2, 2019, the Company executed a promissory note having a total principal amount of $35,000 bearing interest at 6% per annum and maturing September 2, 2021.  2021 (the “Promissory Note”).  The Promissory Note was a non-recourse and carried no personal guarantees. In conjunction with the consummation of the Share Exchange, and as a condition thereof, on March 6, 2020, the Company entered into several Securities Exchange Agreements, on the same terms, to exchange the Promissory Note for 9,623,621 shares of Company common stock.

On March 4, 2020, the Company consummated a Share Exchange Agreement with Duke and the shareholders of Duke who executed and delivered the Share Exchange Agreement. Pursuant to the terms of the Share Exchange Agreement, at the Effective Time, the Company issued an aggregate of 28,469,065 shares of its common stock to the Duke’s stockholders in exchange for 22,920,107 shares of Duke’s issued and outstanding shares of common stock, representing approximately 99% of Duke’s issued and outstanding shares of common stock.

In connection with the Share Exchange, immediately prior to the Effective Time, we entered into several convertible loan agreements, on the same terms, in the aggregate amount of $965,000 (each, a “Convertible Loan Agreement”). The terms of the Convertible Loan Agreements require repayment of the borrowed amount by the one-year anniversary of the Effective Time, unless, at our discretion, and subject to its compliance with any and all terms of the material terms of the Convertible Loan Agreements, the term of such loans is extended for an additional twelve (12) month period. The terms of the Convertible Loan Agreements also provide that we may repay any portion of the remaining outstanding loan amount, without penalty, provided, however, that the Company provides the specific lender with three business days’ written notice prior to such repayment, during which time the lender may elect to convert any or all of the outstanding loan amount into shares of common stock of the Company. The Convertible Loan Agreements bear simple interest at a rate equal to 15% per annum, payable on the 15th day of each calendar month.

The lenders will have the option to convert the unpaid balance of their respective Convertible Loans into shares of Company’s common stock based on the lower of (A) lowest effective price per share set in connection with any funds raised by the Company during the six (6) months following the Effective Time. “Effective price” per share means (i) if only shares of Company’s common stock are sold in a transaction, the amount actually received in cash by the Company, and (ii) if shares of Company’s common stock are sold in a transaction and, in connection therewith additional securities or rights are sold or otherwise issued, the amount actually received in cash by the Company, for the shares of Company’s common stock and such additional rights upon their issuance, reduced by the aggregate fair market value of the additional rights (as determined using the Black-Scholes option pricing model or another method determined by the Company in good faith), in each case divided by the number of shares of Company’s common stock issued in such transaction; (B) 80% of the lowest effective price per share set in connection with any funds raise by the Company at any time subsequent to six (6) months following the Effective Time until such time as the loans outstanding under all of the Convertible Loan Agreements are fully repaid or otherwise converted provided, however, that such price per share shall not be available in the event of an issuance of Alternative Securities to the lender); (C) a price per share reflecting a post-money valuation of the Company of $15,000,000 following the next investment in the Company following the Effective Time; or (D) the conversion price, as adjusted for a Dilutive Event, under the New Debentures. The conversion price is currently $0.374.

Also, in connection with the Share Exchange, we entered into securities exchange agreements (each, an “Exchange Agreement”) with outstanding debt holders of the Company, Alpha Capital Anstalt (“Alpha”) and GreenBlock Capital LLC (“GBC”) to respectively cancel existing debentures or debt in the total amount of $658,323 and in exchange issue new debentures in the aggregate amount of $400,000 and issue 698,755 and 65,198 shares of common stock to each of Alpha and GBC, respectively. The New Debentures mature three years from the Effective Date, bear interest at a rate of 8% per year and are only convertible into shares of the Company’s common stock, at an original conversion price of $0.3740 (the “Original Conversion Price”); provided, however, that such Original Conversion Price shall be adjusted downward in the event that the Company, as applicable, sells or grants any options to purchase or sells or grants any right to reprice, or otherwise dispose or issues any common stock or common stock equivalents entitling any purchaser to acquire shares of the Company’s common stock at an effective price per share that is lower than the Original Conversion Price (such issuance, a “Dilutive Event”). In the event of a Dilutive Event at any time from the Effective Time through the six (6) month anniversary of the Effective Time, any such adjustment shall occur immediately after the completion of such period.

Immediately prior to the Effective Time, and effective at such time, the Company entered into the Registration Rights Agreement with several investors to permit them to have their securities in the Company included in a registration statement for resale by the holder when filed by the Company on a piggyback basis and one demand registration right. The Company is responsible for bearing the costs of any of these acts of registration of the securities.

On April 29, 2020, the Company, Duke, and UAS Sub, entered into the Merger Agreement, pursuant to which UAS Sub was to merge, upon the satisfaction of customary closing conditions, with and into Duke. Upon closing of the Short-Form Merger, each outstanding share of UAS Sub’s common stock, par value $0.0001 per share, was to be converted into and become one share of common stock of Duke, with Duke surviving as a wholly-owned subsidiary of the Company. Pursuant to the Merger Agreement, the Company intended to acquire the remaining outstanding shares of Duke held by certain stockholders of Duke that did not participate in the Share Exchange Agreement. At the closing of the transaction contemplated by the Merger Agreement, the Company was to issue 63,856 shares to certain Duke stockholders, and Duke will become a wholly owned subsidiary of the Company. On June 25, 2020, Duke filed a Certificate of Merger with the State of Delaware, and consequently, Duke became a wholly-owned subsidiary of the Company and the Short-Form Merger was consummated.

The cash on handCompany believes that the result of the Share Exchange, and the Short Form Merger, provides us with a platform to be utilized to raise funding that is not sufficientrequired to fund operations forfurther sustain and develop our operations. Therefore, in the next twelve months.  Whileforthcoming period we intend to continue to undertake efforts to raise additional funding; provided, however, that there can be no guarantees,assurance that we will be able to raise capital, or that any capital raise will be on favorable terms or on terms that do not create further dilution to our stockholders. In addition, we do not know if the COVID-19 pandemic will have a material effect on our ability to raise capital or if this will require us to raise capital on terms less favorable to us as a result of global market conditions or as a result of the direct effect, if any, of COVID-19 on our business.  

In view of our cash balance following the above transactions, we anticipate that our cash balances will be sufficient to permit us to conduct our operations up to the second half of 2021. The Company may also satisfy its liquidity through the sale of its securities, either in public or private transactions.

If the Company plansis unable to raiseobtain sufficient amounts of additional capital, we may be required to fundreduce the scope of our planned development, which could harm our business, financial condition and operating results. If the Company obtain additional funds by selling any of its operations.

During first nine monthsequity securities or by issuing common stock to pay current or future obligations, the percentage ownership of 2019, a Shareholder advanced $53,254Company stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. If adequate funds are not available to us when needed on satisfactory terms, the Company formay be required to cease operating purposes.or otherwise modify our business strategy.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.  Risk.

Not required forWe are a smaller reporting companies.company and therefore are not required to provide the information for this item of Form 10-Q.

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Item 4. Controls and Procedures.Procedures.

(a)  Evaluation of Disclosure Controls and Procedures

OurAs of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (“the Certifying Officers”), conducted evaluations of our disclosure controls and procedures (asprocedures. As defined in Rule 13a-15(e) under Sections 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act), which we refer to as disclosure controls, areAct, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed with the objective of ensuringto ensure that information required to be disclosed by the issuer in ourthe reports filedthat it files or submits under the Exchange Act such as this report, is recorded, processed, summarized and reported within the time periods specified in the EC's rules and forms.forms of the Securities and Exchange Commission. Disclosure controls are alsoand procedures include without limitation, controls and procedures designed withto ensure that information required to be disclosed by an issuer in the objective of ensuringreports that such informationit files or submits under the Exchange Act is accumulated and communicated to ourthe issuer’s management, including the Chief Executive Officer and the Acting Chief Financial Officer, as appropriateCertifying Officers, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.disclosures.

As of September 30, 2019, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls.  Based upon thaton their evaluation, the Chief Executive Officer and the Acting Chief Financial OfficerCertifying Officers concluded that, as of such date, the design and operation of theseSeptember 30, 2020, our disclosure controls and procedures were not effective to accomplish their objectivesdesigned at thea reasonable assurance level.

Management identified the following weaknesses, whichlevel and were deemed to be material weaknesses in internal controls:

1.

Due to the size of the Company and available resources, there are limited personnel to assist with the accounting and financial reporting function, which results in a lack of segregation of duties.

2.

The Company does not have a full time Chief Executive Officer nor Chief Financial Officer that can oversee day to day operations and the financial reporting function.

3.therefore effective.    

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

(b)  Changes in Internal Control over Financial Reporting

No changeThere were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act),that occurred during the fiscal quarter ended September 30, 20192020, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.

We have no material pending legal or administrative proceedings to which we or any of our subsidiaries are a party or of which any property is the subject.  

Item 1A.   Risk Factors.

Not required for smaller reporting companies.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

During the quarterly period ended September 30, 2019, the Company did not offer or sell any equity securities that were not registered under the Securities Act of 1933, as amended.

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Item 3.   Defaults Upon Senior Securities.

None; not applicable.

Item 4.   Mine Safety Disclosures.

None; not applicable.

Item 5.   Other Information.

(a)  On September 30, 2019, the SEC filed a complaint in the Southern District of New York regarding certain actions by Christopher J. Spencer, who is the beneficial owner of Greenblock Capital, LLC, the beneficial owner of 37.2 percent of our outstanding common stock, involving FAB Universal Corp. (“FAB”). The Company understands that the SEC is in the process of filing settled charges arising out of the complaint for court approval and expects that public notice regarding such settlement will appear shortly on the SEC’s website.6. Exhibits.

According to the SEC’s complaint, between 2012 and 2013, Mr. Spencer and John Busshaus, the former Chief Executive Officer and former Chief Financial Officer of FAB, respectively, negligently used a series of misrepresentations about the capabilities and growth prospects of a central component of FAB’s business in China, namely FAB’s multi-media kiosk business. At the time, Mr. Spencer and Mr. Busshaus believed they were acting properly in receiving and reviewing information provided by FAB’s accounting and financial personnel located in China and relying upon this information prior to making these representations, and have accepted the SEC’s offer of settlement without admitting or denying the allegations or findings contained in the complaint. The settlement is not expected to prevent Mr. Spencer or Mr. Busshaus from serving as an officer or director of a public company.

SIGNATURES

Neither Mr. Spencer nor Mr. Busshaus are officers or directors of the Company.   The Company was not named in this SEC complaint nor involved in any way in the underlying activities of FAB from 2012 to 2013.  Furthermore, neither Greenblock Capital, a shareholder of the Company, nor any officers, directors or employees of Greenblock Capital other than Mr. Spencer were named in the SEC complaint or involved in any way in the underlying activities of FAB from 2012 to 2013.

(b)  During the quarterly period ended September 30, 2019, there were no changes to the procedures by which shareholders may recommend nominees to the Company’s Board of Directors.

Item 6.   Exhibits.

Exhibit No.

Description

31.1

302 Certification of Grant A. Begley

31.2

302 Certification of Christopher Leith

32

 906 Certification.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned thereuntohereunto duly authorized.

UAS DRONE CORP.

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