Filing summary
Business context and reporting period
This Form 10-Q covers the three months ended March 31, 2016. The filing identifies the registrant as UAS Drone Corp., a Nevada company developing and selling drones for law enforcement and first responders—not DUKE Robotics Corp. Verify that this is the intended filing.
The company had manufacturing and exclusive U.S. law-enforcement distribution agreements with Havis. It reported no drone sales in either the first quarter of 2016 or the comparable 2015 period.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 or prior balance-sheet date |
|---|---|---|
| Revenue | No drone sales | No drone sales |
| Operating expenses | $129,448 | $23,291 |
| Net loss | $135,673 | $23,291 |
| Reported loss per share | $0.12 | $0.15 |
| Cash used in operating activities | $42,856 | $43,180 |
| Cash at period end | $1,575 | $14,075 at December 31, 2015 |
| Total assets | $45,376 | $65,613 at December 31, 2015 |
| Total liabilities | $377,048 | $355,204 at December 31, 2015 |
With no revenue, gross profit and operating margins are not meaningful. Current liabilities were $77,048, compared with current assets of $45,376. Debt included a $300,000 convertible note due April 1, 2017, bearing 8% interest, and an $11,388 insurance-financing note. Stockholders’ deficit was $331,672.
Material changes, outlook and risks
- Operating expenses rose substantially year over year, primarily because professional fees increased to $114,688 from $12,696. Management attributed costs to consulting, legal and audit fees, transfer-agent costs, and stock awarded for services.
- The company sold 25,844 shares for $38,766 during the quarter. It closed its registered offering on March 15, 2016, having raised $48,816 in total; proceeds were used for operating expenses.
- Management said cash on hand was insufficient to fund operations for the next 12 months and estimated at least $1 million in additional capital would be needed to execute its plans. It intended to seek debt or equity financing; success was not assured.
- The filing states that losses raise substantial doubt about the company’s ability to continue as a going concern. On April 10, 2016, after quarter-end, it received $50,000 from an investor, with terms to be negotiated.
- Management described continuing product development, market research, and marketing and training work with Havis. It also reported discussions about a possible acquisition of a drone-detection business, with no assurance a definitive agreement would be reached. No financial guidance was provided.
- Disclosure controls were deemed ineffective, with material weaknesses attributed to limited accounting personnel and segregation of duties, lack of full-time CEO/CFO oversight, and absence of an independent audit committee.
- The company reported no material pending legal proceedings. It disclosed that 3,400 shares were mistakenly issued from authorized company stock and were reissued by the transfer agent after quarter-end.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for UAS Drone Corp., despite the request naming DUKE Robotics Corp.
- Review the Havis agreements, current product readiness, sales prospects, and the absence of first-quarter drone revenue.
- Assess near-term funding needs, the terms and status of the $50,000 post-quarter-end funding, and the company’s ability to meet obligations.
- Verify the convertible note terms, potential dilution from its conversion, and the status of the OTC Markets and FINRA quotation process.
- Evaluate remediation of the disclosed material weaknesses in internal controls.