Business context and reporting period
UAS Drone Corp. (the issuer named in the filing; the request metadata identifies Duke Robotics Corp.) filed this unaudited Form 10-Q for the quarter ended September 30, 2022. The company develops robotics and drone systems, including TIKAD, a weapons-platform system, and IC Drone, a drone-enabled utility-insulator cleaning system. Duke Israel signed a pilot collaboration agreement with Israel Electric Corporation in August 2022 for IC Drone. The company also has a collaboration agreement with Elbit Systems relating to TIKAD.
Financial performance and condition
Amounts below are in USD thousands unless otherwise stated.
- Revenue: $0 for both the three and nine months ended September 30, 2022. Nine-month 2021 revenue was $500, attributed to the Elbit collaboration agreement; third-quarter 2021 revenue was $0. No cost of revenue was reported.
- Loss: Nine-month 2022 comprehensive loss was $894, versus $954 in 2021; third-quarter loss was $238, versus $787. Nine-month operating loss was $901, compared with $335 in 2021. Basic and diluted loss per share was $0.02 for the nine-month periods in both years; third-quarter 2022 loss per share rounded to $0.00 versus $0.01 in 2021.
- Expenses and margins: Nine-month R&D expense was $20, versus none in 2021; G&A was $881, down from $918. With no 2022 revenue, a revenue-based gross or operating margin is not meaningful.
- Cash flow: Operating cash use was $520 in the first nine months of 2022, compared with $64 of operating cash use in the cash-flow statement for 2021 (MD&A describes 2021 as cash provided by operations, an inconsistency). Investing cash use was $30, mainly for a lease deposit and property and equipment. Financing cash flow was $0. Cash declined by $550 from $3,560 at December 31, 2021 to $3,010 at September 30, 2022.
- Liquidity and liabilities: Current assets were $3,046 and current liabilities $188, for working capital of $2,858. Total liabilities were $491, including $303 in stockholder loans; total assets were $3,083. The filing states cash should fund operations through the end of 2023, but additional capital may be needed thereafter or sooner if assumptions change.
- Equity and dilution: Stockholders’ equity was $2,592, down from $3,101 at year-end 2021. 54,218,813 common shares were outstanding at September 30 and November 9, 2022. The company reported 2,426,812 outstanding options and warrants to purchase up to 12.5 million shares, whose term was extended to November 11, 2023.
Material changes versus the prior comparable period
Nine-month revenue fell from $500 in 2021 to zero in 2022, while the company continued to incur operating costs. The net loss narrowed modestly, primarily as financial results improved: 2022 reported $7 of financing income versus $619 of financing expense in 2021, which management attributed mainly to repayment or conversion of prior convertible loans. Third-quarter loss also narrowed, as G&A and financing expense declined year over year. Cash decreased during the first nine months of 2022, with no financing proceeds, compared with $3,689 of net financing cash inflow in the comparable 2021 period.
Outlook, risks, and unusual items
- Management says existing cash is expected to support operations through year-end 2023 and notes that securities sales may provide additional liquidity. If sufficient capital is unavailable, the company may reduce development, change its strategy, or cease operations; new equity financing could dilute shareholders.
- The filing gives no specific revenue or earnings guidance. Management cautions that commercialization remains limited and future product sales are uncertain.
- COVID-19 had not materially affected financial results or liquidity to date, according to management, but possible future effects on personnel, suppliers, manufacturing, travel, and government spending remain uncertain.
- Share-based compensation was $385 for the nine months. The company issued 200,000 restricted shares under an investor-relations agreement and terminated that agreement in September, voiding the remaining share obligation.
- The April 2022 extension of investor warrants carries an estimated fair value of expected additional cash payments of $29 as of September 30. The company also reports a three-year office lease, with monthly payments of approximately $5,200 for the first two years and $5,400 for the third year.
- The CEO and CFO concluded disclosure controls were effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for UAS Drone Corp., notwithstanding the Duke Robotics Corp. request metadata.
- Reconcile the MD&A cash-flow description for 2021 with the cash-flow statement, and its cash-balance comparison with the balance sheet.
- Review the basis for management’s cash runway estimate through 2023, including planned development and operating costs, and the need for future financing.
- Assess the status, milestones, economics, and commercialization prospects of the IEC pilot and the Elbit/TIKAD collaboration; the filing reports no 2022 revenue.
- Evaluate potential dilution from outstanding options, extended warrants, and any future equity financing.