DUKE Robotics Corp. / UAS Drone Corp. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 24, 2023. The registrant is UAS Drone Corp. (OTCQB: USDR), whose post-2020 operating business is Duke Robotics. Amounts below are U.S. dollars; financial statement figures are in thousands unless noted. This is an annual report, not a separate fourth-quarter filing.
Business context
The company develops robotic stabilization systems, including TIKAD, a drone-mounted platform designed for remote precision operation of small arms and light weapons. It is also pursuing civilian applications, including infrastructure maintenance. Elbit Systems has a worldwide exclusive license for TIKAD military, defense, homeland-security and paramilitary applications, with royalties payable to Duke Israel on sales. The company reported no TIKAD unit sales in 2022 or 2021.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $0 | $500 |
| Research and development expense | $20 | $14 |
| General and administrative expense | $1,104 | $1,026 |
| Operating loss | $(1,124) | $(442) |
| Net loss | $(1,101) | $(888) |
| Basic and diluted loss per share | $(0.06) | $(0.02) |
| Net cash used in operating activities | $(672) | $(234) |
| Cash and cash equivalents at year-end | $2,849 | $3,560 |
| Working capital at year-end | $2,674 | $3,389 |
| Total liabilities at year-end | $566 | $508 |
Revenue in 2021 was an upfront fee under the Elbit collaboration agreement for engineering materials and information transfer; the filing reports no revenue in 2022. Gross margin is not meaningful for 2022 given zero revenue. Management attributed higher G&A mainly to a $51 increase in professional services. G&A included $426 of stock-based compensation in 2022, versus $416 in 2021. Financing expense declined to $19 from $448, principally because convertible borrowings were repaid or converted in 2021; financing income rose to $42 from $2, mainly from interest on bank deposits.
Cash declined by $711 during 2022. Operating cash use was $672 and investing cash use was $35, including property and equipment purchases. The company reported accumulated losses of $9,016. Related-party loans were $305 at year-end, bear 3% annual interest, and are repayable only after specified financing and EBITDA conditions are met, and not before March 9, 2023. No revenue-producing commercial sales were reported.
Changes, outlook and notable matters
- Net loss increased by $213 and operating cash use increased by $438 versus 2021; revenue fell from $500 to zero.
- Management said existing cash was expected to fund operations for at least 12 months. It also warned that faster-than-expected cash consumption or delays in commercialization could require earlier financing, which may not be available on acceptable terms.
- No quantified revenue or earnings guidance was provided. The company is evaluating civilian applications; in August 2022 it signed a collaboration and development agreement with Israel Electric Corporation for a pilot drone-enabled system to clean utility insulators. Related R&D reimbursement and deferred costs are to be recognized when contractual obligations are satisfied.
- In April 2022, the company extended the May 2021 offering warrants to November 11, 2023. The 2021 offering raised approximately $5 million gross and included warrants to purchase 12.5 million shares at $0.40 per share. The filing reports 17.7 million potential shares from outstanding options and warrants excluded from diluted loss per share because they were antidilutive.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022, citing material weaknesses from limited accounting personnel and lack of an independent audit committee. The board had no audit or compensation committee and had not identified any independent directors.
- The independent auditor changed in January 2023 from Halperin Ilanit to Somekh Chaikin, a KPMG member firm. The 2022 financial statements received an unqualified opinion; the auditor reported no critical audit matters. The 2021 and 2020 auditor’s 2020 report had included a substantial-doubt-about-going-concern explanatory paragraph.
- Key risks include dependence on government and defense markets, regulatory and export approvals, limited commercialization and financing capacity, competition, dependence on Elbit for military commercialization, operations and personnel in Israel, and limited OTCQB share liquidity. The company reported no material pending legal proceedings.
Important facts for investors to verify
- Whether the company has obtained new contracts, regulatory/export approvals, or commercial sales since year-end, and whether the IEC pilot has advanced.
- Cash runway assumptions behind management’s at-least-12-month liquidity statement, including expected operating spend and any financing plans.
- Terms and current balances of the $305 related-party loans, and the status and potential dilution from outstanding warrants and options.
- Whether management has remediated the disclosed control weaknesses and established independent audit oversight.
- The economics, milestones, and termination rights under the Elbit and IEC agreements, including how royalties, investment recovery, and reimbursable R&D costs are determined.