Business context and reporting period
UAS Drone Corp. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The filing describes a company seeking to develop and sell commercial drones, but says it was not developing or manufacturing drones and had extremely limited operations and staffing. It reported no drone sales or revenue in the first half of 2019 or 2018. The filing identifies the registrant as UAS Drone Corp., not DUKE Robotics Corp.; investors should verify the intended issuer.
Financial results and liquidity
| Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $18,588 | $18,388 | $46,273 | $47,338 |
| Interest expense | $9,137 | $9,119 | $18,529 | $18,355 |
| Net loss | $27,725 | $27,507 | $64,802 | $65,693 |
| Basic and diluted loss per share | $0.02 | $0.02 | $0.06 | $0.06 |
Margins are not meaningful because the company had no revenue. At June 30, 2019, cash was $3,695, total assets $12,445, current liabilities $824,713, and stockholders’ deficit $812,268. The resulting working-capital deficit was $812,268. Current liabilities included $450,015 of convertible notes, $183,489 in non-interest-bearing stockholder advances, $140,826 of accrued interest and expenses, $43,910 of accounts payable, and a $6,472 note payable.
For the six months, operating activities used $14,563 of cash, compared with $24,481 in 2018. Financing provided $18,197, including $37,132 in stockholder advances, partly offset by $18,935 in note payments. Cash increased by $3,634 from $61 at year-end 2018. Cash paid for interest was $528.
Changes versus the prior comparable period
First-half operating expenses declined $1,065 and net loss improved $891 year over year; quarterly operating expenses rose $200 and quarterly net loss widened $218. Revenue remained zero. Cash used in operations decreased by $9,918 year over year. Stockholder advances increased the related-party balance from $146,357 at December 31, 2018 to $183,489 at June 30, 2019. The convertible-note balance remained $450,015; the insurance-premium note payable declined from $25,407 to $6,472.
Outlook, risks, and unusual items
- Going concern: Management states that the company’s losses and working-capital deficit raise substantial doubt about its ability to continue as a going concern. Cash is insufficient to fund the next 12 months. Management plans to seek debt or equity financing, with no assurance of success.
- Business plans: The company says its manufacturing and distribution agreements with Havis are on hold and management expects them to be terminated. Management is exploring strategic opportunities, including a potential merger or acquisition, and reports discussions with several groups, but no agreement or term sheet had been completed as of the filing date.
- Debt maturities: Three 8% convertible debentures totaling $450,015 had maturity dates extended to December 31, 2019. Repayment, refinancing, or conversion outcomes are not specified.
- Related parties: A stockholder advanced $37,132 during the first half; advances have no interest or stated maturity. The company also paid its CEO and board chair $5,000 for board services and owed the individual $30,000 in accounts payable at June 30.
- Controls: Management concluded disclosure controls were ineffective and identified material weaknesses involving limited accounting personnel and segregation of duties, lack of a full-time CEO/CFO, and absence of an independent audit committee.
- Other: The company checked the box indicating it is a shell company. It reported no material pending legal proceedings and no uncertain tax positions expected to create a tax liability.
Important facts for investors to verify
- Confirm the issuer’s identity and whether this UAS Drone Corp. filing relates to the requested DUKE Robotics Corp.
- Assess the company’s ability to obtain financing and meet the December 31, 2019 convertible-note maturities, given minimal cash and substantial current liabilities.
- Check for subsequent developments in the proposed merger or acquisition discussions and the expected termination of the Havis agreements.
- Verify whether operations, product development, sales, or revenue resumed after June 30, 2019.
- Review subsequent filings for remediation of the disclosed material weaknesses in internal controls.