DUKE Robotics Corp. (formerly UAS Drone Corp.) — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed April 13, 2020. The reported financial statements cover UAS Drone Corp. before its March 9, 2020 share exchange with Duke Robotics, Inc.; they do not include Duke’s historical financial results. After the exchange, Duke became a majority-owned subsidiary and the company adopted Duke’s robotics business plan.
Business context and financial performance
At year-end, UAS reported no business operations and described itself as a shell company. Its prior commercial-drone effort generated no revenue in 2018 or 2019. The post-exchange business develops the TIKAD robotics system, designed to stabilize and remotely operate small arms and light weapons on aerial and other platforms. The filing says the system had received Israeli marketing approvals for about 50 countries, including the United States; sales remain subject to applicable approvals.
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $135,543 | $100,560 |
| Operating loss | $135,543 | $105,671 |
| Interest expense | $37,405 | $36,653 |
| Net loss | $172,948 | $142,324 |
| Net cash used in operating activities | $55,815 | $60,442 |
| Cash at year-end | $262 | $61 |
Professional fees rose to $97,596 from $49,334, primarily due to consulting and legal costs; general and administrative expense declined to $37,947 from $51,226. There was no 2019 revenue, so a revenue margin is not meaningful. At December 31, 2019, total assets were $9,034, total liabilities $929,447, and stockholders’ deficit $920,413. Current liabilities were $894,447, including $450,015 in convertible notes, $200,111 in stockholder advances, and $198,114 in accrued interest and expenses. A separate $35,000 promissory note was long-term.
Liquidity, financing and material changes
- Cash used in operations improved by $4,627 year over year, but year-end cash was only $262; management said it was insufficient to sustain operations for the next 12 months.
- The auditor’s report and management identified substantial doubt about the company’s ability to continue as a going concern. The statements contain no adjustments for the possible outcome.
- After year-end, in connection with the share exchange, the company entered into convertible loan agreements totaling $965,000. These loans bear 15% annual interest and generally mature one year after the effective date, with a possible 12-month extension. Management said the additional cash was expected to fund operations through the second half of 2021.
- Existing debt was restructured after year-end: $400,000 of new debentures bear 8% interest, mature in 2023 and are convertible at an initial $0.374 per share, subject to downward adjustment provisions. A $35,000 promissory note was exchanged for 9,623,621 common shares. The conversion and financing terms may cause substantial dilution.
- The March 2020 share exchange issued 28,469,065 shares to Duke holders for approximately 99% of Duke, leaving those holders with about 71% of the company’s shares at closing. The filing reports 40,075,151 shares outstanding as of April 13, 2020.
Outlook, risks and unusual items
Management provided no quantified revenue or earnings guidance. Its liquidity outlook depends on financing and future capital raising; it warned that unavailable financing could require reduced, delayed or discontinued development and commercialization efforts. The post-exchange business intends to focus initially on U.S. defense customers, with possible expansion to allied and civilian markets.
- Commercialization is unproven: the company reported no drone sales in 2018 or 2019 and expects substantial dependence on government contracts, especially U.S. defense procurement.
- Defense marketing, sales and exports require government approvals. Export restrictions, procurement rules, competition, supplier disruption and product safety or liability claims could affect operations.
- COVID-19 was identified as a potential source of manufacturing, supply-chain, travel and government-spending disruption; its impact was uncertain at filing.
- The company reported ineffective disclosure controls and material weaknesses in internal control, citing limited accounting personnel and segregation of duties, lack of full-time CEO/CFO oversight, and no independent audit committee.
- A pending Israeli lawsuit alleges entitlement to equity or other relief related to a services agreement. Defendants dispute the claim; the company says certain individuals agreed to indemnify it for resulting losses.
- Other risks include operations and facilities in Israel, regional security conditions, foreign exchange exposure, concentrated ownership, illiquid OTC trading and potential dilution. The filing states there was no established public market and no bids for the stock in the prior two years as of year-end.
Important facts for investors to verify
- Review Duke’s audited financial statements and subsequent filings: this 10-K’s financial results are for pre-exchange UAS, not the robotics business now being pursued.
- Confirm the cash actually received, remaining loan balances, interest obligations, conversion prices and potential dilution under the 2020 financing and debt-exchange agreements.
- Assess whether available capital and operating plans have changed since management’s estimate of runway through the second half of 2021.
- Track customer orders, revenue, regulatory/export approvals and evidence of production capability; the filing reports no sales in 2018 or 2019.
- Monitor remediation of the disclosed material weaknesses, the litigation outcome, and any changes in going-concern disclosures.