Business context and reporting period
UAS Drone Corp. (the registrant named in the filing; the request metadata identifies Duke Robotics Corp.) filed this unaudited Form 10-Q for the quarter ended September 30, 2020. Following its March 2020 share exchange and June 2020 short-form merger, UAS adopted Duke Robotics’ business plan and reported Duke as a wholly owned subsidiary. The company develops a robotics stabilization system for remotely operated, precision firing of small arms and light weapons. It reported no meaningful commercialization and no 2020 revenue.
Financial results and liquidity
Amounts below are in thousands of U.S. dollars, except per-share data.
| Metric | Three months ended Sept. 30, 2020 | Three months ended Sept. 30, 2019 | Nine months ended Sept. 30, 2020 | Nine months ended Sept. 30, 2019 |
|---|---|---|---|---|
| Revenue | 0 | 112 | 0 | 112 |
| Gross profit | 0 | 7 | 0 | 7 |
| Research and development | 0 | 5 | 0 | 58 |
| General and administrative | 172 | 175 | 1,114 | 632 |
| Operating loss | 172 | 173 | 1,114 | 683 |
| Financing expense, net | 55 | 27 | 115 | 81 |
| Net loss | 227 | 200 | 1,229 | 764 |
| Loss per share, basic and diluted | $0.01 | $0.01 | $0.03 | $0.04 |
Cash and cash equivalents were $271 at September 30, 2020, versus $23 at December 31, 2019. Nine-month operating cash use was $692, compared with $112 in 2019; financing provided $940, primarily from $965 of convertible-loan proceeds. Total assets were $310, current liabilities $1,294, total liabilities $2,052, and stockholders’ deficit $1,742. Working capital was negative $997. Current and long-term convertible loans were reported at $896 and $358, respectively; related convertible-component fair-value liabilities totaled $208. Stockholders’ loans were $286. The balance sheet reported $14 of current bank-loan maturities and no long-term bank loans.
Common shares outstanding increased to 40,075,151 at September 30, 2020 from 25,130,126 at year-end 2019. The filing attributes issuances to the business combination, debt exchanges, loan conversion, and share-based compensation.
Material changes versus the prior comparable period
- Revenue fell from $112 in the 2019 periods to zero in both the 2020 quarter and nine-month period.
- Nine-month net loss increased to $1,229 from $764. General and administrative expense rose by $482, while financing expense increased by $34.
- Management attributed higher G&A mainly to transaction-related stock compensation, legal fees, and other professional expenses. R&D was temporarily frozen during the share exchange, registration, and merger process.
- Cash increased from $23 at year-end 2019, primarily because of financing, while operating cash use also rose. The June transaction made Duke a wholly owned subsidiary.
Outlook, risks, and unusual items
- Going concern: The filing states that substantial doubt exists about the company’s ability to continue as a going concern. It reported accumulated deficit of $4,992, negative working capital, operating losses, and dependence on additional external financing. The financial statements include no adjustments for the outcome of this uncertainty.
- Funding outlook: Management said September cash was insufficient to sustain operations for the next 12 months, planned to raise capital, and separately anticipated cash could fund operations into the second half of 2021. It cautioned that financing may be unavailable or dilutive and that operations could need to be reduced or cease if funding is inadequate.
- Debt terms: The $965 investor convertible loans bear 15% interest, generally mature one year after the March 2020 effective date, and may be extended for 12 months. Conversion pricing uses specified price and valuation alternatives. New debentures totaling $400 bear 8% interest, mature three years after the effective date, and include anti-dilution provisions.
- COVID-19 and execution risks: Management cited possible disruption to suppliers, manufacturing, operations, government spending, and access to financing. It also warned that product development, regulatory approvals, partnerships, manufacturing capacity, and commercialization remain uncertain.
- Accounting and listing: Convertible-note conversion features were treated as derivative liabilities and measured using Level 3 fair-value inputs. The shares were approved for quotation on OTCQB effective October 22, 2020. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer and security being analyzed: the filing is by UAS Drone Corp., despite the request metadata naming Duke Robotics Corp.; Duke became its wholly owned subsidiary in June 2020.
- Reconcile management’s cash-runway statements: the filing says cash was insufficient for the next 12 months, yet also anticipates funding operations into the second half of 2021.
- Review the timing, conversion-price provisions, fair-value accounting, and potential dilution of convertible loans and debentures, along with future capital-raising needs.
- Assess the lack of revenue, paused R&D, commercialization progress, and the stated going-concern uncertainty.
- Check the reported cash-flow and debt classifications against the underlying statements and notes; the filing’s text does not clearly reconcile all loan balances and terms.