Business context and reporting period
This is UAS Drone Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The filing describes a developer and seller of commercial drones focused on law enforcement and first responders, with Havis Inc. as its manufacturing and exclusive U.S. law-enforcement distribution partner. The filing identifies the registrant as UAS Drone Corp., not DUKE Robotics Corp.; verify the company identity.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2016; $25,998 in 2015 | $0 in 2016; $25,998 in 2015 |
| Gross profit | $0 in 2016; $14,205 in 2015 | $0 in 2016; $14,205 in 2015 |
| Operating expenses | $55,670 in 2016; $94,426 in 2015 | $185,118 in 2016; $117,717 in 2015 |
| Net loss | $63,605 in 2016; $86,221 in 2015 | $199,278 in 2016; $109,512 in 2015 |
| Loss per share | $0.05 in 2016; $0.08 in 2015 | $0.17 in both years |
At June 30, cash was $40,379, total current assets $74,416, current liabilities $467,480, total liabilities $467,480, and stockholders’ deficit $393,064. Current liabilities included $400,010 of convertible notes; the notes bear 8% interest and are due April 1, 2017. The filing says cash on hand is insufficient to fund operations for the next 12 months.
Six-month operating cash use was $95,540, versus $135,052 in 2015. Financing provided $121,844, including $100,010 of convertible-note proceeds and $38,766 from common-stock sales, partly offset by $16,932 of insurance-financing payments. No income-tax expense was reported. The filing provides no meaningful current-period revenue or gross-margin rate because there were no sales.
Changes versus the prior comparable period
- No drones were sold in either 2016 comparison period; revenue fell from $25,998 in 2015 to zero.
- Six-month net loss increased by $89,766, while second-quarter net loss narrowed by $22,616. Six-month operating expenses rose by $67,401, including higher professional and general and administrative costs.
- Cash increased from $14,075 at year-end 2015 to $40,379 at June 30, 2016. Convertible notes shifted from $300,000 classified as long-term at year-end to $400,010 classified as current at June 30.
- Common shares outstanding rose from 1,116,700 at December 31, 2015 to 1,172,544 at June 30, 2016.
Outlook, risks and unusual items
Management said FAA commercial-drone rules were announced June 21, 2016 and would take effect August 29, 2016, and anticipated sales in following quarters. This is not quantified guidance. The company continued product, sales-strategy, marketing and training work with Havis; it reported no 2016 sales to the distributor.
The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management planned to seek additional debt or equity financing, estimated at least $1 million was needed for its business plans, and cautioned that financing was not assured. The prior equity offering closed March 15, 2016 after raising $48,816, with proceeds used for operating expenses.
Disclosure controls were assessed as ineffective, with material weaknesses cited in segregation of duties, executive financial oversight, and lack of an independent audit committee. Other risks include competition, regulatory and market uncertainty, ability to raise capital, and potential conflicts because officers and directors have other business activities and no conflict-resolution policy was established. The company reported no material pending legal proceedings. Board-service stock awards and options were recorded as noncash compensation; no other material contingency outcome is specified.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for UAS Drone Corp., despite the request metadata naming DUKE Robotics Corp.
- Assess funding runway, the stated need for at least $1 million, and repayment or conversion terms and timing for $400,010 of convertible notes.
- Track whether FAA rule implementation translated into sales, and whether Havis distribution and manufacturing arrangements generated orders.
- Review the company’s plans and progress in remediating material weaknesses in disclosure controls.
- Reconcile the filing’s reported share issuances, board awards, and outstanding shares, including 5,000 awarded shares still to be issued at June 30.