UAS Drone Corp. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015; financial statements are unaudited. The filing identifies the registrant as UAS Drone Corp., not DUKE Robotics Corp.
Business context
The company develops and sells quadrotor unmanned aerial systems, targeting government and law-enforcement customers. It completed a reverse merger with Unlimited Aerial Systems, LLP on March 31, 2015; the statements reflect the LLP’s historical operations. The company reported three employees.
Financial results and liquidity
| Metric | Three months ended September 30, 2015 | Nine months ended September 30, 2015 |
|---|---|---|
| Revenue | $0 | $25,998 |
| Cost of services | $0 | $11,793 |
| Gross profit / margin | $0 | $14,205 / approximately 54.6% |
| Operating expenses | $80,007 | $197,723 |
| Operating loss | $80,007 | $183,518 |
| Interest expense | $6,000 | $12,000 |
| Net loss | $86,007 | $195,518 |
- Cash was $74,856 at September 30, 2015, versus none at December 31, 2014. Nine-month operating cash use was $225,244; financing provided $300,000.
- Total assets were $127,627, including $18,452 in inventory and $34,319 in prepaid expenses. Current liabilities were $40,098, including a $28,098 insurance-premium note; a further $300,000 convertible debenture was outstanding. Total liabilities were $340,098, and stockholders’ deficit was $212,471.
- The $300,000 debenture bears 8% interest, is convertible at $0.33 per share, and matures April 1, 2017. The insurance-financing note bears 5.29% interest and is payable in 10 installments.
- For the nine-month period, one customer accounted for all revenue. The filing reports sales of three drones during the period.
Changes, outlook, and risks
- There was no revenue in the third quarter, compared with $25,998 for the nine-month period. The prior-year comparison covers only the period from the predecessor’s August 22, 2014 inception through September 30, 2014; it reported no revenue and a $130 net loss.
- Management estimated that at least $1 million of additional capital would be needed to execute its plans. A registered offering of up to $4.5 million, at $1.50 per share, had raised no proceeds as of the filing. Management said it planned to seek additional debt or equity financing.
- The filing states that accumulated losses raise substantial doubt about the company’s ability to continue as a going concern; continued operations depend on meeting obligations, obtaining financing, and ultimately achieving profitability. Management cautioned that financing efforts might not succeed.
- On October 21, 2015, after quarter-end, the company entered five-year manufacturing and distribution agreements with Havis Inc. Havis became the exclusive U.S. law-enforcement-sector manufacturer and distributor of the company’s commercial drones. Pricing and margins were not specified; sales quotas were to be set after the first year of sales.
- Other disclosed risks include competition, regulatory and industry changes, ability to raise capital and retain business relationships, and potential conflicts because officers and directors have other business interests. The company reported no material pending legal proceedings. Management concluded disclosure controls were effective; no material change in internal control was reported.
Key facts for investors to verify
- Whether the company can raise capital and fund operations, given the going-concern disclosure, cash use, and zero proceeds from the registered offering.
- Whether the Havis agreements lead to orders and sales, and the resulting pricing, margins, quotas, and financial commitments.
- Customer concentration, repeat demand, and the economics of producing and selling the drones.
- The terms and potential dilution from the convertible debenture, including the 900,000 underlying shares excluded from diluted loss per share as anti-dilutive.
- The filing’s identity and reporting status: it names UAS Drone Corp. and states the registrant had not been subject to Exchange Act reporting requirements for the preceding 90 days.