Business context and reporting period
UAS Drone Corp. (the registrant named in the filing) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. The company develops and sells unmanned aerial systems, targeting U.S. law enforcement and first responders. It has manufacturing and exclusive U.S. law-enforcement distribution agreements with Havis. The request metadata identifies DUKE Robotics Corp.; that does not match the registrant named in the filing.
Financial performance and condition
| Metric | Three months ended Sep. 30, 2016 | Nine months ended Sep. 30, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $30,164 | $215,282 |
| Net loss | $38,178 | $237,456 |
| Loss per share | $0.03 | $0.21 |
At September 30, cash was $669, inventory $25,968, and total current assets $33,637. Current liabilities were $462,427, including $400,010 of convertible notes; stockholders’ deficit was $428,790. The balance sheet reports no long-term convertible notes at quarter-end. Cash used in operating activities was $134,384 for the nine-month period; financing provided $120,978. No income-tax expense was reported. Gross margin was not applicable in 2016 because there were no sales.
Material changes versus comparable periods
Revenue fell from $25,998 in the first nine months of 2015 to zero in 2016; the prior-period gross profit was $14,205. Nine-month net loss increased from $195,518 to $237,456, while operating expenses rose from $197,723 to $215,282. Interest expense increased from $12,000 to $22,174. Third-quarter net loss improved to $38,178 from $86,007 in 2015, mainly alongside lower professional fees; quarterly revenue was zero in both periods. Cash declined from $14,075 at December 31, 2015 to $669 at September 30, 2016. Working capital moved from a $10,409 surplus to a $428,790 deficit.
Outlook, risks and unusual items
- Management said FAA commercial-drone rules were finalized June 21, 2016, and took effect August 29, 2016; it anticipated sales in subsequent quarters. The filing provides no quantified revenue or earnings guidance, and reports no 2016 sales to Havis.
- Management estimated at least $1 million of additional capital would be needed to execute its plans. It stated that cash was insufficient to fund the next 12 months and that substantial doubt existed about the company’s ability to continue as a going concern. Additional debt or equity funding was being pursued, with no assurance of success.
- The $300,000 and $100,010 convertible debentures each carry 8% interest, convert at $0.33 and $1.55 per share, respectively, and mature April 1, 2017. The balance sheet classifies $400,010 as current at September 30.
- In November 2016, a stockholder advanced the company $22,300. During the first nine months, the company also raised $38,766 from stock sales and recorded $52,500 of common stock awards and $6,992 of option expense for board services.
- Management concluded disclosure controls were ineffective and identified material weaknesses involving limited accounting staff and segregation of duties, absence of full-time CEO/CFO oversight, and lack of an independent audit committee. The filing also notes potential conflicts of interest involving officers’ and directors’ other business activities.
- The company disclosed no material pending legal proceedings. Forward-looking results remain subject to financing, competition, regulatory, product-development, and other risks.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for UAS Drone Corp., not DUKE Robotics Corp.
- Verify the status, terms, maturity, and potential dilution of both convertible notes, and the November stockholder advance.
- Assess available financing and cash runway given $669 in quarter-end cash, the working-capital deficit, and management’s stated funding need.
- Check whether FAA rule changes led to sales, and confirm the current status of the Havis agreements, product development, and distribution activity.
- Review remediation of the disclosed material weaknesses and any subsequent developments affecting going-concern uncertainty.