Here are the basics:
Best Quarterly revenue to date of $537,153. This was mostly because of Pioneer Aerial with a little help from High Eye.
This amount does not include any revenues from the AIR acquisition as that deal was formally closed in Q3.
Cost of Goods Sold (COGS) is a funny one with UAV… In my conversations with management it was made very clear that the per-job margins are very high, but it varies on the job location. So when I see COGS of $6K for this quarter I’m not convinced these margins will carry on once the other subsidiaries are operational. my guess is that there is no allocation of overhead, labour or materials as most of the jobs are outsourced to contractors. I believe that annual financial statements will better reflect the true COGS amount, especially when the other Subs start operating.
Im happy to see that expenses have decreased Q over Q. Subcontractors fee’s, Wages and Management and Consultants fee’s are the largest expenses, which of course represent the actual day-to-day operations of UAV. I’d expect these accounts to go up proportionately with revenues.
Im happy to see that Share-based compensation is gone (hopefully forever!), and Salaries and wages are up. This removes the ambiguity around expenses.
Including ‘Other items’ (which are not gains/losses from normal operating activities), the net loss is $328,670. This number has been decreasing gradually. I expect UAV to be profitable only once other subsidiaries are online, contributing to top-line growth. This may happen this year, but considering the acquisition of AIR, I bet there will be impairment losses at year end, which will tip the scale to the negative.
So my profitability target is only in 2019.
The capital raise of $1.77 million:
The good: More money = more expenditure on R&D, exploration of new markets, procuring top talent.
The bad: Dilution.
The ugly: The common shareholders will want to see results sooner than those who bought into the PP. If UAV cant show the fruit of the capital raise soon, then shareholders will lose patience. The PP participants wont mind sitting on their shares for a while as they can exercise their warrants for a nice profit in the coming years.
I hope that once UAV is cashflow positive and self sufficient, they will announce a share buyback of reverse split or whatever other tool they want in order to reduce share count. Generally speaking, I don't mind dilution early on in a companies life in order to fund growth. I’d be more concerned if UAV was a mature company needing to raise capital. Additionally, I like that insiders have bought into the company via PP.
About the balance sheet, the current ratio is 2.2. Assets are increasing, Inventory increasing (Novarial probably), Liabilities are minimal and thats just Q2. Q3 will increase cash and longterm assets (from AIR) significantly. A healthy balance sheet gives confidence to shareholders, and institutions. In the future, I’d hope to see an announcement that UAV secures a line of credit from a bank. This means UAV wont have to raise money by issuing more shares. This can only happen when UAV’s financial statements are less risky, which I believe is happening Q over Q.
Overall, Im very optimistic about UAV’s future. All trends are positive. Share price is undervalued in comparison with FLT or DVR. In the drone market in general, UAV’s multiples are relatively low. I believe UAV will get noticed eventually and when it does will probably be trading at +$0.25 which has been my target for a while.
Im heavily invested in UAV, which probably makes me biased. But I also do investing for a living so, hopefully I know a good investment when I see one ;)
As much as i’d want to see UAV’s SP jump up really quickly, i’d rather have slow growth over a few months in order to reduce volatility and speculation.
Now that financials are out, I'm expecting heavier news flow from management about new contracts and/or new markets to pursue.
Good luck!