Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended April 30, 2018
[  ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from to __________
	Commission File Number: 000-55766

 

Drone Guarder, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada	39-2079422
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

86-90 Paul Street London, EC2A 4NE

(Address of principal executive offices)

 

415-835-9463

(Registrant’s telephone number)

___________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☐ Yes ☒ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.

 

☐ Large accelerated filer	☐ Accelerated filer
☐ Non-accelerated filer	☒ Smaller reporting company
	☒ Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No  ☒

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 133,400,000 as of June 18, 2018

 

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Table of Contents

 

 

	TABLE OF CONTENTS	Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	6
Item 4:	Controls and Procedures	6
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	8
Item 1A:	Risk Factors	8
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3:	Defaults Upon Senior Securities	8
Item 4:	Mine Safety Disclosure	8
Item 5:	Other Information	8
Item 6:	Exhibits	8

 

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PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our condensed financial statements included in this Form 10-Q are as follows:

 

F-1	Condensed Balance Sheets as of April 30, 2018 (unaudited) and January 31, 2018 (audited);
F-2	Condensed Statements of Operations for the three months ended April 30, 2018 and 2017(unaudited);
F-3	Condensed Statements of Cash Flows for the three months ended April 30, 2018 and 2017 (unaudited); and
F-4	Notes to Condensed Financial Statements.

 

These condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended April 30, 2018 are not necessarily indicative of the results that can be expected for the full year.

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

BALANCE SHEETS

 

		April 30, 2018				January 31, 2018
ASSETS
Current Assets
Cash and cash equivalents		$	53,425			$	19,525
Prepaid expenses			158,754
Total Current Assets			212,179				19,525
Fixed Assets
Furniture and Equipment			1,050				1,050
Accumulated Depreciation			(1,050	)			(1,040)
Total Fixed Assets			0				10
Investment in intellectual property			84,123				78,123
Total Assets		$	296,302			$	97,658
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
Liabilities
Current Liabilities
Accrued expenses		$	25,321			$	33,016
Accrued expense-related party			500,000				333,333
Accrued interest			48,234				28,756
Convertible note payable, net of debt discount and deferred financing costs of $297,328 (January 31, 2018 - $112,500)			257,672				112,500
Promissory notes payable			192,500				192,500
Advances from related party			18,000				18,000
Due to shareholder			2,308				2,308
Derivative Liability			443,067				85,560
Total Liabilities			1,487,102				805,973
Stockholders’ Equity (Deficiency)
Common stock, par value $0.001; 250,000,000 shares authorized, 133,400,000 (January 31, 2018 – 133,400,000) shares issued and outstanding			133,400				133,400
Additional paid in capital			130,123				130,123
Deficit accumulated			(1,454,323)				(971,838)
Total Stockholders’ Equity (Deficiency)			(1,190,800	)			(708,315)
Total Liabilities and Stockholders’ Equity		$	296,302			$	97,658

 

The accompanying notes are an integral part of these condensed financial statements .

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

STATEMENTS OF OPERATIONS

 

		Three months Ended April 30, 2018				Three months Ended April 30, 2017
REVENUES		$	—			$	—
OPERATING EXPENSES
Depreciation Expense			10				52
General and administrative			26,500				7,270
Bank fees			840				190
Consulting fees			2,000				2,000
Management compensation			184,667				—
Website			164				—
Professional fees			14,546				31,855
TOTAL OPERATING EXPENSES			228,727				41,367
LOSS FROM OPERATIONS			(228,727	)			(41,367)
OTHER INCOME (EXPENSE)
Interest Expense			(19,479	)			(2,873)
Amortization of debt discount			(180,875	)			—
Amortization of deferred financing			(16,897	)
Change in derivative liability			(36,507)				—
TOTAL OTHER INCOME (EXPENSE)			(253,758	)			(2,873)
PROVISION FOR INCOME TAXES			—				—
NET INCOME (LOSS)		$	(482,485	)		$	(44,240)
NET LOSS PER SHARE: BASIC AND DILUTED			*				*
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED (as adjusted for 20-1 forward stocks split)			133,400,000				132,900,000

 

* Less than $0.00 per share

 

The accompanying notes are an integral part of these condensed financial statements .

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

STATEMENTS OF CASH FLOWS

 

		Three months Ended April 30, 2018				Three months Ended April 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period		$	(482,485	)		$	(44,240)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation Expense			10				52
Stock based compensation			166,667				—
Amortization of deferred financing costs			16,897
Change in derivative liability			36,507				—
Changes in assets and liabilities:
Increase (decrease) in accrued expenses			(7,695	)			3,534
Increase in accrued interest			19,478				2,873
Increase in prepaid expenses			(158,754	)			—
CASH FLOWS USED IN OPERATING ACTIVITIES			(228,500	)			(37,781)
							—
CASH FLOWS FROM INVESTING ACTIVITIES							—
Investment in intellectual property			(6,000	))			(20,000)
CASH FLOWS USED BY INVESTING ACTIVITIES			(6,000	)			(20,000)
							—
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred financing costs			(43,600	)
Proceeds from convertible note payable			330,000				—
Proceeds from promissory note payable			—				75,000
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			268,400				75,000
NET INCREASE (DECREASE) IN CASH			33,900				17,219
Cash, beginning of period			19,525				2,726
Cash, end of period		$	53,425			$	19,945
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid		$	—			$	—
Income taxes paid		$	—			$	—

 

The accompanying notes are an integral part of these condensed financial statements .

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

NOTES TO THE FINANCIAL STATEMENTS

APRIL 30, 2018

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

Drone Guarder, Inc. (Formerly Vopia, Inc.) was incorporated as Blue Fashion Corp. under the laws of the State of Nevada on May 14, 2012.  The Company is an early stage security and surveillance company focusing on commercializing a drone enhanced home security system as a turnkey solution. On August 5, 2014, the Company changed its name to Vopia, Inc. On March 24, 2017, the Company changed its name to Drone Guarder, Inc.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accompanying financial statements of Drone Guarder, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), . In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for the financial statements to be not misleading have been reflected herein.

 

Accounting Basis

The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting).  The Company has adopted a January 31 fiscal year end.

 

Cash and Cash E q ui v a lents

T h e C o m p a ny c o nsi d ers all h i gh ly li qu i d inves t m e n ts wit h t h e ori g i n a l m atu ritie s o f thre e m on t hs or les s to be ca s h e q u i v a le n t s. The Company had $53,425 and $19,525 of cash as of April 30, 2018 and January 31, 2018, 2017, respectively.

 

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents and amounts due to shareholder. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Income Taxes

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition

The Company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured.

 

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with ASC Topic 718. To date, the Company has not adopted a stock option plan and has not granted any stock options.

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

NOTES TO THE FINANCIAL STATEMENTS

APRIL 30, 2018

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There are no such common stock equivalents outstanding as of April 30, 2018.

 

Comprehensive Income

The Company has which established standards for reporting and display of comprehensive income, its components and accumulated balances. When applicable, the Company would disclose this information on its Statement of Stockholders’ Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. The Company has not had any significant transactions that are required to be reported in other comprehensive income.

 

Recent Accounting Pronouncements

Drone Guarder, Inc. does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

 

NOTE 3 – INVESTMENT IN INTELLECTUAL PROPERTY

 

On February 24, 2017, the Company paid $20,000 as an intial payment toward software development related to the Drone Guarder technology . In addition, the Company has paid $ 26,623 in additional software development costs to April 30, 2018. On October 2, 2017, the Company issued 500,000 common shares of capital stock with a deemed value of $ 57,500 for services related to the development of the intellectual property.

 

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

NOTES TO THE FINANCIAL STATEMENTS

APRIL 30, 2018

 

NOTE 4 – LOANS FROM DIRECTOR AND SHAREHOLDER

 

On December 6, 2016, a shareholder paid expenses of $1,963 on behalf of the Company.

 

During the year ended January 31, 2018 the shareholder paid net expenses of $ 100 that was not reimbursed as of April 30, 2018.

 

The balance due to the shareholder was $2,308 and $2,208 as of April 30, 2018 and January 31,2018, respectively.

 

NOTE 5 – ADVANCES FROM RELATED PARTY

 

On May 14, 2014 the Company received advances from a related party in the amount of $18,000. The advances are unsecured, non-interest bearing, with no specified terms of repayment.

 

On November 20, 2014 the Company issued a promissory note payable in the amount of $10,000. The note bears interest at 10% per annum and is due on demand. For the year ended January 31, 2015, this note was recorded in error as an advance from related party, when it should have been recorded as a note payable. This has been reclassified on the balance sheet as of April 30, 2018 and January 31, 2018.

 

The balance as of April 30, 2018 and January 31, 2018 of advances from related party was $18,000 and $18,000, respectively.

 

NOTE 6 – NOTES PAYABLE

 

On November 20, 2014 the Company issued a promissory note payable in the amount of $10,000. The note bears interest at 10% per annum and is due on demand. For the year ended January 31, 2015, this note was recorded in error as an advance from related party, when it should have been recorded as a note payable. This has been reclassified on the balance sheet as of January 31, 2016.

 

On June 24, 2015 the Company issued a promissory note payable in the amount of $12,500. The note bears interest at 10% per annum and is due on demand.

 

On December 10, 2015 the Company issued a promissory note payable in the amount of $15,000. The note bears interest at 10% per annum and is due on demand.

 

On December 23, 2016 the Company issued a promissory note payable in the amount of $25,000. The note bears interest at 10% per annum and is due on demand.

 

On February 6, 2017 the Company issued a promissory note payable in the amount of $55,000. The note bears interest at 10% per annum and is due on demand.

 

On April 19, 2017 the Company issued a promissory note payable in the amount of $20,000. The note bears interest at 10% per annum and is due on demand.

 

On May 24, 2017 the Company issued a promissory note payable in the amount of $20,000. The note bears interest at 10% per annum and is due on demand.

 

On July 5, 2017 the Company issued a promissory note payable in the amount of $20,000. The note bears interest at 10% per annum and is due on demand.

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

NOTES TO THE FINANCIAL STATEMENTS

APRIL 30, 2018

 

NOTE 6 – NOTES PAYABLE (CONTINUED)

 

On September 18, 2017 the Company issued a promissory note payable in the amount of $15,000. The note bears interest at 10% per annum and is due on demand.

 

The balance as of April 30, 2018 and January 31, 2018 of notes payable $192,500 and $62,500, respectively.

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE

 

On October 17, 2017, the Company entered into a financing arrangement in the principal amount of $445,000 consisting of a convertible promissory note and warrants to purchase common shares of the company. As of April 30, 2018, the company has borrowed $225,000 of the available balance of $ 445,000. The outstanding principal of the Note bears interest at the rate of 10% per annum and is due July 17, 2018. An original debt discount in the amount of $ 25,000 on the issuance of the note and will be amortized over the life of the note.

 

The Note is convertible at the option of the holder into common stock of the Company at a conversion price of $0.25 per share. A debt discount related to the fixed rate conversion feature in the amount of $66,442 was recorded and is being amortized over the life of the note.  In addition, the holder of the note received warrants to purchase shares of the Company’s common stock equal to $225,000 divided by the market value of the shares on the date the financing arrangement was entered into. Upon issue, the Company recorded derivative liabilities for the conversion feature of the convertible notes and warrants, based up on the Binomial Fair Value Model and using the following assumptions: an exercise price of $0.25, our stock price on the date of grant $.126 expected dividend yield of 0%, expected volatility of 251.50, risk free interest rate of 1.25 for notes payable and 1.97% for warrants and an expected term of 0.75 years for notes payable and 5 years for warrants. . Upon initial valuation, the derivative liability of $168,573 was recorded as a debt discount which is being amortized over the life of the note payable.

 

During the period ended April 30, 2018, $75,000 of the debt discount was amortized

 

On January 17, 2018, the Company issued a convertible note payable the principal amount of $165,0000. principal of the Note bears interest at the rate of 8% per annum and is due January 17, 2019. An original debt discount in the amount of $ 9,000 on the issuance of the note and will be amortized over the life of the note.

 

The Note is convertible at the option of the holder into common stock of the Company at a conversion price of the lesser of the trading price of the the common stock on the trading day prior to the closing date of the note or 50% of the lowest trading or closing bid for the common stock during the 20 trading day period immediately prior to conversion.. Upon issue, the Company recorded derivative liabilities for the conversion feature of the convertible notes and warrants, based up on the Binomial Fair Value Model and using the following assumptions: an exercise price of $0.052, our stock price on the date of grant $.024, expected dividend yield of 0%, expected volatility of 113.400, risk free interest rate of 1.79 for notes payable , and remaining term of 1.00 year. Upon initial valuation, the derivative liability of $156,000 was recorded as a debt discount which is being amortized over the life of the note payable.

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

NOTES TO THE FINANCIAL STATEMENTS

APRIL 30, 2018

 

NOTE 7 – CONVERTIBLE NOTES PAYABLE (CONTINUED)

 

During the period ended April 30, 2018, $48,125 of the debt discount was amortized

 

On January 22, 2018, the Company issued a convertible note payable the principal amount of $165,0000. principal of the Note bears interest at the rate of 12% per annum and is due October 22, 2018. The “Conversion Price” will be the lesser of (i) the lowest trading price of our common stock during the twenty-five-day trading period prior to the issue date of the Note and (ii) 50% of the lowest trading price of our common stock during the twenty-five-day trading period prior to the conversion. Upon issue, the Company recorded derivative liabilities for the conversion feature of the convertible notes and warrants, based up on the Binomial Fair Value Model and using the following assumptions: an exercise price of $0.037, our stock price on the date of grant $.079, expected dividend yield of 0%, expected volatility of 113.400, risk free interest rate of 1.79 for notes payable , and remaining term of .75 year. . Upon initial valuation, the derivative liability of $165,000 was recorded as a debt discount which is being amortized over the life of the note payable.  

 

During the period ended April 30, 2018, $57,750 of the debt discount was amortized.

 

On issuance of the notes payable, financing fees of $ 52,600 were deducted from loan proceeds. These have been deferred and are being amortized over the terms of the loans. During the period ended April 30, 2018, $ 16,897 of the deferred financing costs was amortized.

 

NOTE 8 – COMMON STOCK

 

The Company has 250,000,000, $0.001 par value shares of common stock authorized.

 

Effective September 9, 2014 the Company’s board of directors and majority of its shareholders approved a 20 for 1 forward split of the Company’s common stock.

 

On October 2, 2017, the Company agreed to issue 500,000 shares of common stock valued at $ 57,500 for consulting services, which has been capitalized as part of investment in intellectual property.

 

There were 133,400,000 shares of common stock issued and outstanding as of April 30, 2018.

 

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DRONE GUARDER, INC.

(FORMERLY VOPIA, INC.)

NOTES TO THE FINANCIAL STATEMENTS

APRIL 30, 2018

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Effective May 3, 2017, the Company entered into an employment agreement with its new chief executive officer. Under the agreement, the Company agreed to compensate the officer $36,000 annually and to provide him with 10 million shares of common stock, if the agreement is renewed after the first year. During the year ended January 31, 2018, a pro-rated accrual of $ 333,333 of management compensation was recorded in the financial statements based on the share value of $ 0.05 per share and recorded as accrued expenses-related party. For the period ended April 30, 2018 an additional accrual of of $ 167,000 of management compensation has been recorded in the financial statements based on the share value of $ 0.05 per share.

 

NOTE 10 – GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. However, the Company had no revenues as of April 30, 2018. The Company currently has limited working capital and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

 

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern.

 

NOTE 11 – SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to April 30, 2018 through the date these financial statements were issued and has determined that, aside from that set forth below, it does not have any material subsequent events to disclose in these financial statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

Overview

 

We are an early stage security and surveillance company focusing on commercializing a drone enhanced home security system as a turnkey solution. The solution is app-based and includes a drone, infrared camera, and Android mobile app component: once an alarm has been triggered, the DroneGuarder™ will immediately take off from a wireless charging pad. The camera within the drone will record video for a few seconds, process it and then send an alert if a threat is found, which the DroneGuarder™ app sends in the form of a text, image or short recorded video if supported by the GSM network. The DroneGuarder™ can fly for up to 20 minutes, using GPS to navigate in its preprogrammed areas and return back to its charging pad after completing surveillance.

 

Once an alarm has been triggered the drone will instantly leave its charging pad and fly to the destination where the alarm was activated, or any other predefined destination programmed for the specific alarm. The infrared (IR) camera will recognize any human movement night or day, and stream it directly to the smartphone that is connected to the drone when the app is open and the user is on that screen, recording all activity. On this drone and all drones from DJI, simultaneous action is not possible. The video must end before the phone can do other things. This is because if the video goes into the background, the video will stop and the drone will immediately return. All homes or businesses are great candidates for the drone alarm system as it is compatible with standard surveillance cameras and movement detectors. Each sensors GPS position has been registered in the drone with a smartphone, so it knows exactly where to go.

 

The solution is expected to come as a packaged solution that can be tailored to fit the requirements of an individual security installation company and will be sold to U.S. based companies that provide security solutions for private homes, gated communities and construction sites. The solution is designed to be flexible enough to integrate into all existing security solutions that a gated community or private home might already have, as well incorporate add-ons with extra features if needed. The targeted markets include the USA, Canada, Europe, South Africa and the Asia-Pacific region.

 

Our primary revenue model is expected to consist of selling home security systems directly to the clients (e.g. homes, business, or security resellers). We plan to focus on selling to resellers, as it enables the Company to reach the widest customer base for the lowest cost. Our secondary business model is expected to be leasing home security systems for a monthly flat fee and pre-selling discounted first-versions of the product. We plan to develop our own software and acquire the hardware needed from a third party in an attempt to lower expenses.

 

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We have recently decided to pursue an agreement with a Chinese company to develop our drone hardware. We expect this agreement to be completed in the coming weeks. This will delay our final prototype, but we have completed the AI portion of the system. In addition, our new App is expected to be launched in December 2018.

 

The App is a key component of our security solution with our proprietary functionality built into the App controlled by a customer’s iPhone or iPad. The performance includes “Patrol” where a customer clicks the Patrol button on the App and the drone autonomously patrols the entire grid of the customer’s property using pre-designated GEO Fencing GPS weigh points that stream a real-time video feed back to the phone or tablet via the App.

 

Our new App will have a function called “Go Home” where at any time a customer can call the drone back to its home wireless charging base, normally located on the roof of the home or business. Additionally, we have a live weather function on the App and other abilities that are all part of the Drone Guarder App platform.

 

Results of operations for the three months ended April 30, 2018 and 2017

 

We have not earned any revenues since our inception on May 14, 2012. We do not expect to generate any revenue until we have successfully marketed and sold our drone security system.

 

We incurred operating expenses in the amount of $228,727 for the three months ended April 30, 2018, as compared with $41,367 for the same period ended 2017. Our operating expenses for the three months ended April 30, 2018 were mainly attributable to general and administrative expenses of $26,500, management compensation of $184,667 and professional fees of $14,546 and whereas our operating expenses for the three months ended April 30, 2017 were mainly attributable to professional fees of $31,855 and general and administrative expenses of $7,270.  

 

We expect our operating expenses to increase in future quarters, as we take more steps to advance our business plan.

 

We incurred other expenses of $253,758 and other expenses of $2,873 for the three months ended April 30, 2018 and 2017, respectively. Our other expenses for the three months ended April 30, 2018 is the result amortization of debt discount, interest expense, amortization of deferred financing and change in derivative liability. Other expenses for the three months ended April 30, 2017 is the result of interest expense.

 

We incurred a net loss in the amount of $482,485 for the three months ended April 30, 2018, as compared with a net loss of $44,240 for the same period ended 2017.

 

Liquidity and Capital Resources

 

As of April 30, 2018, we had current assets of $212,179 and total assets of $296,302. Our total current liabilities as of April 30, 2018 were $1,522,805. As a result, we had a working capital deficit of $1,310,626 as of April 30, 2018.

 

Operating activities used $228,500 in cash for the three months ended April 30, 2018, as compared with $37,781 for the three months ended April 30, 2017. Our negative operating cash in 2018 flow was mainly the result of our net loss for the period, and a change in prepaid expenses, offset mainly by stock based compensation and amortization of debt discount. We primarily relied on cash from loans to fund our operations during the period ended April 30, 2018.

Investing activities used $6,000 in cash for the three months ended April 30, 2018, as compared with $20,000 for the three months ended April 30, 2017. Our negative investing cash flow was related to software development of our drone technology.

 

Financing activities provided $268,400 in cash for the three months ended April 30, 2018, as compared with $75,000 for the three months ended April 30, 2017.

 

We received proceeds from convertible promissory notes with an aggregate principal amount of $330,000. These notes are described in our Current Reports on Form 8-K filed with the SEC on February 12 and 14, 2018 and March 5, 2018.

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Despite the short term loans, we have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. The success of our business plan beyond the next 12 months is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all. 

 

Off Balance Sheet Arrangements

 

As of April 30, 2018 , there were no off balance sheet arrangements.

 

Going Concern

 

We have negative working capital, have incurred losses since inception, and have not yet received revenues from sales of products or services. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

 

Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of April 30, 2018. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of April 30, 2018, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of April 30, 2018, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

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Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending January 31, 2019: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

We are unable to remedy our controls related to the inadequate segregation of duties and ineffective risk management until we receive financing to hire additional employees.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended April 30, 2018 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A. Risk Factors

 

See Risk Factors contained in our Annual Report on Form 10-K filed with the SEC on June 15, 2018.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2018 formatted in Extensible Business Reporting Language (XBRL).

**Provided herewith

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Drone Guarder, Inc.
Date:	July 16, 2018
By:	/s/ Adam Taylor Adam Taylor
Title:	Chief Executive Officer and Director

 

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