UAS Drone Corp. — Form 10-Q Summary
Entity note: The supplied filing is for UAS Drone Corp., not DUKE Robotics Corp. Confirm that this is the intended filing. The report covers the quarter and six months ended June 30, 2017; financial statements are unaudited.
Business context
The company develops and sells quadrotor drones, targeting law enforcement and first responders. It reported two drone sales to a flight-training company during Q2. Its manufacturing and distribution agreements with Havis were on hold while it used feedback from the training company to develop the product. Management was discussing having that company manufacture a next-generation drone, but no ongoing agreement was reported as finalized.
Financial results and liquidity
| Metric | Q2 2017 | Six months 2017 | Comparable 2016 |
|---|---|---|---|
| Revenue | $5,000 | $5,000 | $0 |
| Gross profit | $259 | $259 | $0 |
| Gross margin | 5.2% | 5.2% | Not applicable |
| Operating expenses | $22,941 | $58,277 | $55,670 / $185,118 |
| Net loss | $32,142 | $77,044 | $63,605 / $199,278 |
| Loss per share | $0.03 | $0.07 | $0.05 / $0.17 |
| Operating cash used | Not separately provided | $35,016 | $95,540 |
Interest expense for the first six months was $19,026, compared with $14,160 in 2016. Cash at June 30 was $5,329, versus none at year-end 2016. Financing activities provided $40,345 during the first half, including $50,005 of convertible-note proceeds and net stockholder advances.
At June 30, current assets were $26,690 and current liabilities were $520,324, a working-capital deficit of $493,634. Total liabilities were $570,329 and stockholders’ deficit was $543,639. Convertible notes totaled $450,015: $400,010 current and $50,005 noncurrent. The $400,010 notes, each bearing 8% interest, had their maturities extended to April 1, 2018. A separate $50,005 8% note matures August 1, 2018. Related-party borrowing was carried at $34,079 net of discount.
Changes, outlook and risks
- First-half revenue began at $5,000, while the comparable 2016 period had no sales. All 2017 revenue came from one customer. The filing says the Havis distributor had no product sales during 2017.
- First-half operating expenses fell to $58,277 from $185,118, which management attributed mainly to lower consulting fees. Net loss narrowed to $77,044 from $199,278.
- Management said cash on hand was insufficient to fund operations for the next 12 months and that additional debt or equity financing was planned. The filing warns there is no guarantee financing will be obtained; the going-concern note states that substantial doubt exists about the company’s ability to continue as a going concern.
- No quantified financial guidance was provided. Management cited product development, customer relationships, competition, industry conditions, regulation, and ability to raise capital as factors that could affect results.
- Disclosure controls were deemed ineffective, with material weaknesses involving limited accounting personnel and segregation of duties, absence of a full-time CEO/CFO overseeing operations and reporting, and lack of an independent audit committee. No material change in internal control was reported during the quarter.
- Other notable matters include $9,572 of noncash stock-option compensation in the first half and $3,300 accrued for refunds to prospective investors. The company reported no material pending legal proceedings.
Important facts for investors to verify
- Whether this UAS Drone Corp. filing is the intended document for DUKE Robotics Corp.
- The status and terms of planned financing, and whether available funding can sustain operations.
- Whether the flight-training relationship becomes a formal manufacturing or sales arrangement, and whether Havis agreements resume.
- Customer concentration and evidence of repeat sales beyond the single customer responsible for all first-half revenue.
- Convertible-note maturity, interest, repayment, and potential dilution terms; the filing identifies 1,176,945 shares underlying convertible debt and 35,000 option shares excluded from diluted loss per share as anti-dilutive.
- Plans to remediate the disclosed material weaknesses in disclosure controls and internal control over financial reporting.