Business context and reporting period
UAS Drone Corp. (the registrant identified in the filing; Duke Robotics, Inc. is its subsidiary) filed this unaudited Form 10-Q for the three months ended March 31, 2021. The company develops the TIKAD robotic system, a weapon-stabilization platform mounted on unmanned aircraft. Management says it has generated limited revenue and has not begun meaningful commercialization. Amounts below are in U.S. dollars; financial-statement figures are in thousands unless noted.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $500 | $0 |
| Cost of sales / gross profit | $0 / $500 | $0 / $0 |
| General and administrative expenses | $161 | $696 |
| Operating income (loss) | $471 | ($696) |
| Financing income (expense), net | ($220) | $5 |
| Net income (loss) | $251 | ($691) |
| Operating cash flow | $353 provided | $355 used |
| Cash and cash equivalents | $452 at March 31, 2021 | $105 at December 31, 2020; $625 at March 31, 2020 |
Reported gross margin was 100%, reflecting no cost of sales recorded against the quarter’s revenue. Net income included $132 of other income and was offset by $220 of net financing expense; the filing does not clearly characterize the $132 other-income item in the presented results. Basic and diluted earnings per share were reported as $0.00, versus a $0.02 loss a year earlier.
At March 31, total assets were $518 and total liabilities were $1,733, leaving a stockholders’ deficit of $1,215. Current assets of $507 were below current liabilities of $1,204. Current liabilities included $832 of convertible loans and $134 of related conversion-component fair value; the balance sheet also reported $192 of noncurrent convertible loans, $47 of noncurrent conversion-component fair value, and $290 of stockholder loans. The company reported no investing cash flow; financing activities used $6 in the quarter.
Material changes and developments
- Revenue rose from zero to $500, principally from an upfront fee under the January 2021 collaboration agreement with Elbit Systems Land Ltd. The filing does not identify this as recurring product-sales revenue.
- G&A declined by $535, mainly because share-based compensation fell by $474 and legal expenses by $75. Financing results swung from $5 of income to $220 of expense, mainly due to interest on convertible loans.
- Cash from operations improved by $708, from $355 used to $353 provided. Cash at quarter-end was $452, compared with $625 at March 31, 2020.
- During Q1, 1,093,884 shares were issued in exchange for convertible loans; shares outstanding were 41,169,035 at March 31, versus 40,075,151 at December 31, 2020.
- After quarter-end, the company completed a private placement on May 11 for 12.5 million shares at $0.40 per share and warrants for 12.5 million shares, generating approximately $5 million gross proceeds. The warrants are immediately exercisable at $0.40 and expire after 18 months.
- After quarter-end, the company reported repayment of $835 of convertible loans and approximately $109 of New Debentures, following a partial New Debenture conversion. As of May 19, the filing reports 54,018,813 common shares issued and outstanding.
Outlook, risks and other notable items
- The Elbit agreement grants a worldwide exclusive license for TIKAD in military, defense, homeland-security and paramilitary uses. Elbit owes tiered royalties described as low- to mid-double-digit percentages. Elbit may invest in development and production subject to milestones and may recoup 50% of qualifying investment, up to $6 million, by offsetting half of royalties otherwise due.
- Management said that, after the subsequent financing and debt repayments, it expects cash to fund operations through the end of 2023. This is a forward-looking estimate, not a guarantee. The company says it may need further capital; insufficient funding could require reduced development, a change in strategy or cessation of operations, while equity financing could dilute shareholders.
- Management reported no material COVID-19 impact to date but said the full effects remain uncertain. The filing cautions that actual results may differ materially from forward-looking statements, particularly given the company’s start-up stage.
- Convertible-loan conversion features are measured at fair value using significant unobservable inputs. The reported Level 3 fair-value liability increased from $48 at year-end to $181 at March 31, contributing to non-cash earnings volatility.
- Management concluded disclosure controls and procedures were effective at a reasonable-assurance level as of March 31. It reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the $500 upfront Elbit fee is recognized appropriately and what revenue, if any, is expected from continuing TIKAD sales and royalties.
- The exact terms, remaining obligations and cash impact of the May financing and subsequent debt repayments, including any warrant exercises or further dilution.
- The basis for management’s estimate that liquidity will last through 2023, given negative working capital at quarter-end and the company’s limited operating history.
- The balance-sheet and earnings treatment of convertible instruments and related fair-value changes, including the sizable increase in the Level 3 liability.
- The filing identifies UAS Drone Corp. as the registrant, while the request names DUKE Robotics Corp.; confirm the intended issuer and corporate relationship.