Drone Delivery Canada Q3 Financial Review
Canada, here is everything you need to know. Lets go okay. So if youre not familiar with drone delivery, canada, then you got to check out my youtube channel. I have made several videos about the company, including when i bought in at 65 cents and two separate interviews with the ceo michael zara. I currently hold a position in the canadian version right now: im in at 65 cents, current price is 92 cents and im up about 41 right now, so i am definitely biased as i make this video, but it is not a sponsored. Video now lets dive into the mean potatoes. Here we are going to be reviewing the basically the last quarter that they just reported. The financials came out today and everything that im about to review in this video is available at cdar.com. Otherwise, i will post another link for where you can find it, but lets start off with the balance sheet. This is where i like to start with companies, because the balance sheet explains how they got to where they are at. If a company does 100 million dollars in revenue with absolutely no debt, thats super impressive, but if they do 100 million dollars in revenue with a billion dollars in debt, thats a very different story, and so you want to be able to know that and understand it Before you look at the rest of the financial statements and thats, why we start with the balance sheet, and so this is where i start and when you look at the balance sheet for drone delivery, canada, its actually very impressive.
It looks very, very healthy and just the first thing you look at is total assets, 36 million dollars total liabilities under 2.4 million dollars. They have an excellent excellent book value right here, a phenomenal current ratio, which would be your current assets, divided by your current liabilities. In this case, its probably like 15, which is just absolutely phenomenal and pretty much every ratio you do on this balance sheet – looks great. They have 31 million dollars worth of cash in the bank and were going to take a look at the cash flow statement. In just a second here, but as of right now, they have tons of runway theyre doing extremely well, and the only thing that you might knock them for on this balance sheet is a deficit right here. So far theyve burned through 73 million dollars to get to where theyre at today. Now it is not in debt. That means that they have raised money in order to do that, and so people like me and you and other shareholders have been the ones that have funded that, but whats great about it is the company has no debt. They do have a bit of a deficit though, but thats never going to come back and haunt them because they dont have to repay it its me and you holding the shares now when we look at the income statement here, this actually shocked me. This surprised me and it wasnt what i was expecting, because the revenue had declined.
The revenue had gone down and had gone down fairly significantly. This income statement is reported in canadian dollars, not in thousands or millions. So realistically, the company did six thousand two hundred and eighty six dollars in the three month period ended september 30th, which is not very impressive um in any way. My youtube channel does more than that so thats a little bit disappointing um, but were gon na dive into the reasons behind that coming up here now. The other numbers here um are also fairly important. Most of them are up, so most of the operating expenses have gone up year over year, which is sort of what you would expect. If you werent looking at the revenue numbers, you would say that this company is growing theyre, making good progress, theyre, bringing on new projects, and you would expect all of these numbers to go up its a little disappointing that the revenue didnt go up. But thats. Okay were going to talk about that in one second personnel expenses increase pretty dramatically theyre spending over a million dollars a quarter on personnel, so that is one thing to be. Mindful of that does seem a little expensive, especially when research and development is only 325, but it kind of depends on how you classify those things like. Maybe the labor is in personnel expenses, even though research and development is probably like half engineering, labor, so kind of depends on how you classify that.
Definitely something to keep an eye on, though, and then share based. Compensation is probably the one that is down the most from 958 000 down to 268 000, so theyre reigning in that share based compensation a little bit, at least over the last three months, six thousand dollars in revenue, but the company did lose operating loss or net Loss of 3.32 million dollars um some of this was factored into depreciation and things like that. So lets look at the cash flow statement, so heres the net loss for the period of 3.32 million dollars and when you take out the depreciation, the amortization, the interest expense things like that. The net cash used in operating activities was a little over two million dollars, and so realistically the cash burn is about two million dollars for operations um. They did have a little bit going on in investing activities which were going to talk about shortly and then financing activities they brought in 250 000 through the exercise of options right here, which is probably just employees exercising options at least that what thats? What goes to? My mind here now, as you can see at the bottom, the increase and decrease in cash. They were left. They started with about 32 million dollars, 32.9 million at the beginning of the quarter, and they finished with just over 31 million at the end of the quarter. So right around that two million dollar per quarter burn rate. Now the revenue lets go back to the revenue here.
This was in the management, discussion and analysis. So every time a company puts out theyre basically quarter end financials they put out the financial statements was it, which is exactly what i just walked you through, and then they also have another paper associated with that called called the management, discussion and analysis, and it usually Dives a little bit deeper into the business model, the strategy, the corporate updates and whats nice about drone delivery account. Is they actually give you a revenue breakdown by quarter and so 2019 december 31st, zero revenue, 2020 march, 31st, 2.5, 000, 24. 000. 36. 000. 200. 2. 000 and at this point, youre going holy cow if this continues, this is gon na go crazy. This is gon na be bonkers, and this company is going to the moon and then the next quarter it kind of settled out it tapered off just a little bit. Nothing to be concerned about maybe just a little bump in the road, and then these last two quarters revenue has fallen off and i think its because the lack of demand for the covit and kind of the emergency deliveries and those kind of testing projects, as well As a couple of projects that have come to an end and a couple of projects that havent started yet, so those are some of the factors that go into the decline in revenue over the last three months, but luckily they also directly address it. In the management, discussion and analysis, so ive literally just taken a screenshot of it and heres what they say.
The decrease in revenue is a result of damage to a sparrow from an impact occurrence at a customer site that resulted in operations being paused. In order for the company to investigate and replace the drone on renewal, a decrease in price year over year and the conclusion of the global medic contract, which began in september 2020 and concluded in march 2021, as defined in the original commercial agreement, so the decline in Revenue was caused by an impact occurrence with the drone um a decrease in price year over year, which i have questions about im kind of curious. Why the price decreased year over year and then the conclusion of this contract, which we just talked about. So it kind of makes sense. I do have some questions. I want to know more about the impact occurrence and then, when you read about the how the revenue looked over the nine month period, it was directly underneath it, but it was on two pages. So i took another screenshot of it and this is really interesting. They kind of talk about the nine months so far this year compared to the nine months so far last year and some of the changes here. But what really caught my eye and which i wasnt aware of and which i just didnt know about um – was this here, so the increase was partially offset by a result of damage from two separate impact occurrences at a customer site.
I didnt realize there was two separate occurrences. I thought it was just one, but now were finding out that there was two. Maybe that was reported before i just didnt know about it. But that actually surprised me is that in the last little, while probably six to nine months here, there has now been two impact occurrences at customer sites, which is a bit of a red flag and a little bit of a concern. Considering um the whole position and the whole value proposition behind drone delivery, canada is that they give you the entire package with the flight management system and clearly there was some bugs that are just being worked out in these younger stages, so obviously its a young company Theyre growing theyre trying to scale up theres going to be issues like this, but i didnt realize there was two so close together, so that caught me off guard. I didnt know if that had been reported before now. The other thing that everybody wants to know about is the condor drone. This is like the crown jewel of the company. What everybody is so excited about, and it looks really cool ive actually been to the facility. I went and visited drone delivery. Canada, a few months ago when i was in toronto, i went to the facility, i saw the condor, they were working on it and they even started up the engine, so it exists theres, a video of it. It exists but its not ready its, not quite ready, and when i interviewed michael zara to ask about it, i said: hey whats, holding it up.
What do you got to do and he said we got to do more testing and we got to do a couple of a couple of different things. I said the testing whos requiring the testing. Is it? Is it transport, canada or is it drone delivery? Canada? Is it you guys that need to do your own testing, or are you trying to pass somebody elses test, and he said it was their own testing, and so that leads me to believe that theyre still trying to develop and finalize the condor it sounds like its Approved to fly as soon as its ready to go, it sounds like they already have the system and the infrastructure to fly it. They just need to make sure that they can actually fly it properly and they are still putting it through the test. So this is what they say: company anticipates endurance testing scheduled for q4 2021 in ontario. Additional testing is anticipated in q1, 2022 in foremost alberta. So this is what theyre saying the company anticipates. Endurance testing scheduled for q4 2021 in ontario and additional testing is anticipated for q1 2022 in foremost alberta. So this condor is still going to be testing in q1 of 2022 and then based on successful completed testing. To date, the company continues to believe it will be in a position to deploy the condor in certain low risk, commercial pilot applications in remote and rural environments. As intended with no date or no anticipated deadline or no anticipated launch date, they kind of leave us hanging again.
They dont give us a whole lot of information here, except for continued testing in q1 2022. So we are at least four to five months away from somebody using the condor to deliver, and that would be best case scenario right now. Now. The other concern that ive seen a lot of people have is insider buying and how many shares does michael zara own, and what does the management actually look like, and so i did the due diligence. I went into cdy s e d – i i dont know if thats actually the right way to say this, but you can find all this information online. You just have to kind of do some digging and some filtering, but basically this is what michael zara owns right. Now its all publicly available, so this is this – is very easy to find and its really interesting. So basically, in 2019 he acquired 20 000 shares in the public market and he was also issued 1.1 million options in 2019 and then in 2021 right here he exercised those options for 733, 000 shares and the next day or actually the same day. Here it looks like he sold all 733 000 of those shares, so he had options which is basically the right to buy shares at a specific price on or before a specific date. He exercised those options, he cashed out and he sold 375 and then 357 000 shares all at the same time, and i think this is what everybody saw.
This is at least what i saw was michael czar selling out of 700 000 shares and only being left with 20 000 shares. But what you needed to do was a little bit more digging and a little bit more research to see how many options he still holds and the truth of that is that he was granted 1.1 million in 2019, another 350 000 in 2020. He exercised the 733 000 options from right here and he is left with 716 000 options at a price of one dollar, and so michael zara is extremely extremely motivated to get this price back up above one dollar, because otherwise his 716 000 options are completely worthless And hes only left with 20 000 shares, and so this is what he currently owns. This is what it currently looks like um, at least for my due diligence, and what i could find again. All of this is publicly available as of right now it looks like he owns 716 000 options at an exercise price of about one dollar, and he owns 20 033 shares. Now, in other news that we need to talk about the financials and everything that we just went through was released on september 30th. That was about 46 45 days ago. As i make this video and since then theres been several updates and a lot of progress from the company, so not not all bad news, not all doom and gloom theres been a lot of cool things such as the announcement that just came out yesterday.
Actually so drone delivery. Canada announces first test of next generation, sparrow drone. This is what it looks like and theyre already testing it out for new applications, which is very, very nice. It kind of extends the number of people that they can service and that they can offer their capabilities to now. The next announcement was john delivery. Canada announces opening of commercialization center. I want to say this: one came out about a week and a half to two weeks ago and theyre opening a new commercialization center to test out these drones and bring them to commercial scale and commercial viability, so very, very exciting. Theyre ramping things up there and theyre getting ready and then lastly, drone delivery. Canada project with ubc is now commercially operational, and that was dated october 18th. So remember, these financials were september 30th. This is now operational on october 18th, which means this project is now gon na start bringing in revenue, which means hopefully, in the next set of financials. We have more than six thousand dollars worth of revenue, which would be absolutely fantastic, but it feels like you cant go much lower at this point, but it this is good. What im trying to say here is that this is really good. We got a big project, its coming online, its already online as of almost a month ago now, and it should be bringing in revenue for at least the next 12 months, which is absolutely fantastic.
We just need a couple more like this to become operational and then start scaling this up and i think, theres a great opportunity here. Still i, like the company im not going to go into the evaluation and the comparables right now, because its kind of a long video already. But this was just kind of the breakdown and the summary of the financials that just came out literally this morning, and here are my final thoughts. Number one revenue was lower than expected and i think it also could take longer than expected when we saw the growth from like 24 to like 50 000 to like 200 000. In a matter of months i was hoping that was gon na continue, and i think that was just unrealistic. I think its going to be fairly choppy, its gon na be up and down, and its gon na be dependent on the projects that are operational at the time. So i do think that revenue could take a little bit longer than expected um. They also had two impact occurrences, so if that was reported before, please take me below, and let me know where, because i clearly missed it, but that surprised me. I also realized that the condor is taking longer than anticipated, and i can tell you i think, management realizes that as well. I think everybodys, aware of that, and i it sounds like theyre trying very hard to get it up to speed and uh and up to the commercialization level of the other products.
But the recent announcements have been positive. The three announcements that i just showed you there all positive all moving in the right direction and uh. It feels like, over the long term, companies moving in the right direction, but it also feels like that stock chart and that stock price are not necessarily correlated with the path of the company theyre, more so correlated based on the industry and the hype around the industry And so definitely something to be keeping aware of now, if youre interested in seeing my trades definitely check out my discord, chat thats, where i post all of my analysis, all of my entries and exits im trying to build a community of traders and investors to share Their due diligence share their resources and share what theyre looking at so that you dont have to sit at home alone and do all this work by yourself. You can get access to everybody, elses work. You can share your work. You can share your resources and im trying to build a community its five dollars per month. You get full access to all of my trades and my analysis, and i would love to have you there. The link is down in the description to this. Video definitely check it out. Ive also got a free course there that walks you through how to get started in the stock market, so this probably isnt for you, but if youre interested in learning about technical analysis or any of those features check out the links you get two weeks of free Access to skillshare and youll be able to find pretty much anything you want on there.
You can just filter by whatever you want to see, and thank you so much for watching this video. I know this was a long one. This one took a bit of work, so if you get any value out of this video, all im asking is hit that like and subscribe button.