The Drone Delivery Corp (FLT) IPO Raises Red Flags
The miniaturization of drones has been enabled by the rapidly decreasing cost of batteries, small sensors that can detect obstacles, and an increasing acceptance and trust in automated vehicles. This has led to the emergence of “drone delivery” solutions. We’ve looked at air drones that deliver medicines in Africa, larger drones that want to transport people, and even ground-based delivery drones to deliver goods. When all the hype surrounding the potential of drone delivery catches the eye of investors, it also catches the eye of people who want to provide retail investors with a way to invest their hard-earned cash in a “drone delivery venture”. Here’s one Canadian company in this space that recently began trading.
Just last week, Drone Delivery Corp (CNSX:FLT) began trading on the Canadian Securities Exchange (CSE) through a reverse merger of sorts that separates the company into two subsidiaries; Drone Delivery Canada Inc. and Asher Resources. Now the Asher Resources subsidiary has some mining claims but we don’t care about any of that. The name “Drone Delivery Canada Corp.” implies that we’re going to get exposure to “drone delivery” technology by investing in this company so that’s what we’re here for. It remains to be seen if the Company decides to say that somehow their mining operation compliments their drone delivery option. The FLT website states that they are using graphene in their drones, so will they try to say that their subsidiary with some exploration rights will somehow produce superior materials for their drones in the future? We’ve heard this story before and wouldn’t buy it at all.
Here’s what FLT states about their business focus:
Drone’s evolution from a concept to a business stems from management’s extensive knowledge and track record in building successful technology businesses in the past. Utilizing managements business, technical expertise along with harnessing their extensive network of contacts in the capital markets, technology and academia, Drone has quickly mobilized from a start-up concept to a leading Canadian drone technology company.
Now firstly, if there are no other Canadian drone companies then you’re leading by default. FLT goes on to say that they have signed 9 memorandums of understanding (MOUs) with various businesses. We’ve noted before that MOUs have the legally binding equivalent of next to nothing. They simply mean that you agree to work with a given company on developing your technology.
FLT claims to be working on the fifth rendition of their next-generation delivery drone and anticipates that commercial drone testing will begin in Q2-Q3 2016. So what sort of money have they sunk into R&D to develop this drone?
There are plenty of companies that crowdfund themselves well beyond $93,000 and they don’t command a market cap of over $15 million USD which is where FLT is trading now. The listing raised $3.3 million CAD and here’s what FLT will spend the money on:
Just under one-third will be spent on R&D which is 10X the amount they’ve spent so far. We don’t like the “investment relations” expenditures of $135,000 as this implies stock promotion. Very few legitimate technology companies would spend money on trying to promote their stock as opposed to getting a product to market.
Now we don’t benefit much from writing about companies like this one. Oftentimes when we write about over-the-counter (OTC) companies, or companies whose actions resemble OTC companies, we’re threatened with lawsuits and have to deal with all kinds of harassment just for objectively writing about the facts. In this case, we’ve laid out the facts and they differ very little from so many similar stories we’ve seen in the past. It remains to be seen whether or not this $15 million company will be able to use the $777,000 they have allocated to R&D in order to bring a superior delivery drone to market that uses graphene.
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