10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission file number 000-55789

DRONE USA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	30-0967943
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

16 Hamilton Street, West Haven, CT	06516
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (203) 220-2296

N/A

(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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 51,377,737 shares as of May 15, 2018.

DRONE USA, INC.

Form 10-Q

March 31, 2018

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets - As of March 31, 2018 (unaudited) and September 30, 2017	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2018 and 2017 (unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2018 and 2017 (unaudited)	3
	Condensed Notes to Unaudited Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
Signatures		26

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			September 30,
	2018			2017
	(Unaudited)
ASSETS
Current Assets
Cash	$	13,679		$	152,492
Accounts receivable		1,079,451			1,169,091
Inventory		333,994			681,057
Prepaid expenses and other current assets		38,964			56,606
Total Current Assets		1,466,088			2,059,246
Long-term Assets
Goodwill		2,410,335			2,410,335
Tradename		760,000			760,000
Customer list, net		647,783			780,281
Total Long-term Assets		3,818,118			3,950,616
Total Assets	$	5,284,206		$	6,009,862
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable	$	2,398,009		$	3,815,546
Accrued expenses		1,182,947			1,015,880
Convertible notes payable - net of discounts and premium		8,418,018			3,779,572
Note payable - seller		900,000			900,000
Convertible note payable - related party affiliate		688,444			688,444
Convertible note payable - related party officer		32,500			122,000
Notes payable - net of discount and premium		703,604			-
Line of credit - bank		45,959			48,506
Contingent liability - advisory fees		-			850,000
Accrued liability - advisory fees		-			1,200,000
Derivative liability		116,693			-
Total Current Liabilities		14,486,174			12,419,948
Total Liabilities		14,486,174			12,419,948
Commitments and Contingencies (Note 11)
Stockholders' Deficit:
Preferred stock - $0.0001 par value, 5,000,000 shares authorized, Series A preferred stock - no par value, 250 shares designated, issued and outstanding		-			-
Common stock - $0.0001 par value, 200,000,000 shares authorized,  45,381,868 and 43,104,692 shares issued and outstanding at March 31, 2018 and September 30, 2017, respectively		4,538			4,311
Additional paid-in capital		7,671,727			7,442,028
Accumulated deficit		(16,878,233	)		(13,856,425	)
Total Stockholders' Deficit		(9,201,968	)		(6,410,086	)
Total Liabilities and Stockholders' Deficit	$	5,284,206		$	6,009,862

See accompanying notes to unaudited condensed consolidated financial statements

1

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31,
	2018			2017			2018			2017
Sales	$	4,602,343		$	5,620,335		$	9,035,403		$	12,604,727
Cost of Goods Sold		3,946,076			5,168,852			8,087,969			11,701,662
Gross Profit		656,267			451,483			947,434			903,065
Operating Expenses:
Selling, general, and administrative expenses		650,032			3,046,732			1,470,794			4,014,208
Amortization		66,248			66,249			132,498			132,499
Total Operating Expenses		716,280			3,112,981			1,603,292			4,146,707
Loss from Operations		(60,013	)		(2,661,498	)		(655,858	)		(3,243,642	)
Other Income (Expenses):
Derivative liability expense		(19,680	)		-			(37,693	)		-
Gains on settlement		48,544			-			81,905			-
Interest and financing costs		(1,690,086	)		(1,007,179	)		(2,410,162	)		(1,376,769	)
Total Other Expenses		(1,661,222	)		(1,007,179	)		(2,365,950	)		(1,376,769	)
Net Loss before Provision for Income Tax		(1,721,235	)		(3,668,677	)		(3,021,808	)		(4,620,411	)
Provision for Income Tax		-			-			-			50
Net Loss	$	(1,721,235	)	$	(3,668,677	)	$	(3,021,808	)	$	(4,620,461	)
Basic and Diluted Loss Per Share		(0.04	)		(0.09	)		(0.07	)		(0.11	)
Weighted Average Number of Common Shares Outstanding:
Basic and diluted		43,945,221			42,483,456			43,589,547			42,078,659

See accompanying notes to unaudited condensed consolidated financial statements

2

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH  FLOWS

(Unaudited)

	For the Six Months Ended
	March 31,
	2018			2017
Cash Flows from Operating Activities:
Net loss	$	(3,021,808	)		(4,620,461	)
Adjustments to reconcile net loss to net cash used in operating activities:
Intangibles amortization		132,498			132,499
Amortization of debt discounts		445,734			368,820
Accretion of premium on convertible note		1,306,123			617,647
Share-based compensation expense		193,053			1,043,517
Deferred rent		-			(10,000	)
Debt financing costs		133,145			-
Derivative expense		37,693			-
Gain on settlement		(81,905	)		-
Changes in operating assets and liabilities:
Accounts receivable		89,640			(472,193	)
Inventory		347,063			732,091
Prepaid expenses and other current assets		43,862			(56,500	)
Accounts payable and accrued expenses		(445,966	)		1,822,713
Due to vendor - insurance financing		25,149			23,695
Customers deposits		-			(78,841	)
Income tax payable		-			50
Cash Used in Operating Activities		(795,719	)		(496,963	)
Cash Flows from Financing Activities:
Net proceeds from convertible notes payable		640,000			-
Net proceeds from note payable		232,500			-
Repayments of notes payable		(123,547	)		-
Repayment of line of credit		(2,547	)		(983	)
Repayment of lines of credit - related parties		-			(3,682	)
Proceeds from (repayments of) loan payable - related party, net		(89,500	)		5,000
Cash Provided by Financing Activities		656,906			335
Net Decrease in Cash		(138,813	)		(496,628	)
Cash - beginning of period		152,492			631,020
Cash - end of period	$	13,679		$	134,392
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest	$	274,096		$	316,759
Noncash financing and investing activities:
Increase in prepaid expenses and accrued expenses	$	70,000		$	-
Issuance of common stock to satisfy settlement payable	$	150		$	48,998
Issuance of warrant for debt issuance costs	$	12,508		$	-
Initial derivative liability and debt discount	$	79,000		$	-
Issuance of convertible debt for deferred financing costs	$	65,000		$	-
Reclassification of debt premium upon conversion	$	-		$	26,384
Reclassification of accrued fee and interest to convertible notes payable	$	2,288,642		$	-
Reclassification of accounts payable to notes payable	$	579,106		$	-

See accompanying notes to unaudited condensed consolidated financial statements

3

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS

Drone USA, Inc. (“Drone”) is an Unmanned Aerial Vehicles (“UAV”) and related services and technology company that intends to engage in the research, design, development, testing, manufacturing, distribution, exportation, and integration of advanced low altitude UAV systems, services and products. Drone also provides product procurement, distribution, and logistics services through its wholly-owned subsidiary, HowCo Distributing Co., (“HowCo”) (collectively, the “Company”) to the United States Department of Defense and Defense Logistics Agency. The Company has operations based in West Haven, Connecticut and Vancouver, Washington. The Company is registered with the U.S. State Department and has met the requirements of the Arms Export Control Act and International Traffic in Arms Regulations (“ITAR”). The registration allows for the Company to apply for export, and temporary import, of product, technical data, and services related to defense articles. The Company continues to seek strategic acquisitions and partnerships with UAV firms that offer superior technologies in high-growth markets, as well as acquisitions and partnerships with firms that have complementary technologies and infrastructure.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Drone USA, Inc. and its wholly-owned subsidiaries, Drone USA, LLC (inactive), and HowCo. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended September 30, 2017 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on December 29, 2017. The consolidated balance sheet as of September 30, 2017 contained herein has been derived from the audited consolidated financial statements as of September 30, 2017, but does not include all disclosures required by GAAP.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. For the six months ended March 31, 2018, the Company has incurred a net loss of $3,021,808 and used cash in operations of $795,719. The working capital deficit, stockholders' deficit and accumulated deficit was $13,020,086, $9,201,968, and $16,878,233, respectively, at March 31, 2018. Furthermore, on April 13, 2017 the Company received a default notice on its payment obligations under the senior secured credit facility agreement (see Note 5), defaulted on its Note Payable – Seller, and as of March 31, 2018 is subject to lawsuits and has received demands for payment of past due amounts from several consultants and service providers. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The ability of the Company to continue as a going concern is dependent upon management’s ability to further implement its business plan and raise additional capital as needed from the sales of stock or debt. The Company has been implementing cost-cutting measures and restructuring or setting up payment plans with vendors and service providers and plans to raise equity through a private placement, and restructure or repay its secured obligations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for bad debt on accounts receivable, reserves on inventory, valuation of goodwill and intangible assets for impairment analysis, valuation of the earn-out liability, valuation of stock based compensation, the valuation of derivative liabilities and the valuation allowance on deferred tax assets.

4

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

Fair Value Measurements

The Company follows the FASB Fair Value Measurements standard, as they apply to its financial instruments. This standard defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Level 1 inputs include quoted market prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. The standard requires the utilization of the lowest possible level of input to determine fair value and carrying amounts of current liabilities approximate fair value due to their short-term nature. The Company accounts for certain instruments at fair value using level 3 valuation.

	At March 31, 2018						At September 30, 2017
Description	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Derivative liability		-		-	$	116,693		-		-	$	-

A roll forward of the level 3 valuation financial instruments is as follows:

	Derivative Liabilities
Balance at September 30, 2017	$	-
Initial valuation of derivative liability recorded as derivative expense		70,028
Initial valuation of derivative liability recorded as debt discount		79,000
Change in fair value of derivative liability		(32,335	)
Balance at March 31, 2018	$	116,693

Inventory

Inventory consists of finished goods, which are purchased directly from manufacturers. The Company utilizes a just in time type of inventory system where products are ordered from the vendor only when the Company has received sales order from its customers. Inventory is stated at the lower of cost and net realizable value on a first-in, first-out basis.

Revenue Recognition

Sales are recognized upon shipment of product to the customer. Provisions for returns and allowances are recorded in the period the sales occur. Payments received from customers prior to shipment of the product to them, are recorded as customer deposit liabilities.

Convertible Notes with Fixed Rate Conversion Options

The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - "Distinguishing Liabilities from Equity".

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine expected term because of lack of sufficient exercise history. Additionally, effective January 1, 2017, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements and related disclosures.

Pursuant to ASC 505-50 – “Equity-Based Payments to Non-Employees”, all share-based payments to non-employees, including grants of stock options, are recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusted the expense recognized in the consolidated financial statements accordingly.

5

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

Derivative Liabilities

The Company has certain financial instruments that contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40.  This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date.  In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to income or expense as part of gain or loss on extinguishment. 

Net Loss Per Share

Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of March 31, 2018 and 2017, potentially dilutive securities consisted of the following:

	March 31, 2018		March 31, 2017
Stock options		44,351,200		33,025,000
Warrants		600,000		500,000
Related party convertible debt and accrued interest		9,398,132		3,688,000
Senior convertible debt		77,814,212		17,670,000
Convertible debt		31,285,292		-
Contingent liability – advisory fees		-		3,156,448
Total		163,448,836		58,039,448

Segment Reporting

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. As of March 31, 2018, the Company did not report any segment information since the Company only generates sales from its subsidiary, HowCo.

Recent Accounting Pronouncements

In May 2014, the FASB issued a new accounting standard that attempts to establish a uniform basis for recording revenue to virtually all industries financial statements, under U.S. GAAP as amended in March 2016 and April 2016. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. In order to accomplish this objective, companies must evaluate the following five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. There are three basic transition methods that are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. guidance at the date of initial application and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. Prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. guidance. For public business entities, this standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is prohibited. The Company does not believe that the adoption of this new accounting standard to have a material impact on its consolidated financial position and results of operations.

In February 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented. The Company is currently evaluating the impact of this new accounting standard on its consolidated financial position and results of operations.

The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

NOTE 3 - INVENTORY

At March 31, 2018 and September 30, 2017, inventory consists of finished goods which was valued at $333,994 and $681,057, respectively.

6

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

NOTE 4 - LINE OF CREDIT - BANK

The Company has a revolving line of credit with a financial institution. This revolving line of credit is in the amount of $50,000, and is personally guaranteed by the Company’s Chief Executive Officer (“CEO”). The line bears interest at a fluctuating rate equal to the prime rate plus 4.25%, which at March 31, 2018 and September 30, 2017 was 9.00% and 8.50%, respectively. As of March 31, 2018, the balance of the line of credit was $45,959 with $4,041 available.

NOTE 5 - NOTE PAYABLE – SELLER

In connection with the acquisition of HowCo in September 2016, the Company issued a note payable in the amount of $900,000 to the sellers of HowCo. The note matured on September 9, 2017 and bears interest at 5.50% per annum. The note requires payment of unpaid principal and interest upon maturity. The note is secured by all assets of HowCo Distribution Co. and subordinated to the Senior Secured Credit Facility discussed below. The note is currently in default and the default interest rate is 8% per annum. At March 31, 2018 and September 30, 2017, accrued interest on this note amounted to $89,583 and $53,682, respectively.

NOTE 6 - CONVERTIBLE NOTES PAYABLE – RELATED PARTIES

The Company has an $840,000 convertible note payable (“Note 1”) to a related party entity controlled by the Company’s CEO. Note 1 bears interest at an annual rate of 7% with an original maturity date of June 11, 2017 that was extended to June 11, 2018, at which time all unpaid principal and interest is due. The holder of Note 1 has the option to convert the outstanding principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted average price per share of common stock for the 30-day period prior to conversion. As of March 31, 2018 and September 30, 2017, Note 1 has not been converted and the balance of the note was $688,444 and $688,444, and accrued interest was $101,806 and $77,776, respectively. This note is considered a stock settled debt in accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion formula.

The Company has a convertible note payable (“Note 2”) with the Company’s CEO. Note 2 bears interest at an annual rate of 7% with a maturity date of December 31, 2017, at which time all unpaid principal and interest was due. On December 15, 2017, the due date of Note 2 was extended to July 2, 2018. The holder of Note 2 has the option to convert the outstanding principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted average price per share of common stock for the 30-day period prior to conversion. During the six months ended March 31, 2018, the Company borrowed $500 and repaid $90,000 on this note. As of March 31, 2018 and September 30, 2017, Note 2 has not been converted and the balance was $32,500 and $122,000, and accrued interest was $12,744 and $10,707, respectively. This note is considered a stock settled debt in accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion formula.

NOTE 7 – CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES

Senior Secured Credit Facility Note

Effective September 13, 2016 (“Effective Date”), the Company entered into a senior secured credit facility note (the “Agreement”) with an investment fund to provide capital for the acquisition of HowCo. The Company can borrow up to $6,500,000, subject to lender approval, with an initial convertible promissory note at closing of $3,500,000 (the “Convertible Note”). The Convertible Note bears interest at a rate of 18% per annum, required monthly payments of $52,500 which is interest only starting on October 13, 2016 through February 13, 2017, and monthly payments, including interest and principal, of $298,341 starting on March 13, 2017 through maturity on March 13, 2018. Events of default are defined in the Agreement and Convertible Note. In the event of default the Convertible Note balance will bear interest at 25% per annum. In connection with this Agreement, the Company was obligated to pay additional advisory fees of $850,000 payable in the form of cash or common stock in accordance with the terms of the Agreement. The Company was also required to reserve 7,000,000 shares of common stock related to this transaction. The reserved shares will be released upon the satisfaction of the loan.

7

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

In the event the lender makes additional loans under the Agreement, the Company agreed to pay additional advisory fees under similar terms as the $850,000 fee. As of March 31, 2018, the Company had issued 539,204 shares of common stock in satisfaction of the $850,000 advisory fee in accordance with the terms of the agreement, such shares being issued in September 2016. The proceeds from the sale of the 539,204 shares were supposed to be applied towards the $850,000 advisory fee due. Based upon the value of the shares, at the time the lender sells the shares, the Company may be required to redeem unsold shares for the difference between the $850,000 and the lender’s sales proceeds. Accordingly, the $850,000 was reflected as a current liability through December 31, 2017. In January 2018, in connection a settlement agreement, the accrued advisory fee was reclassified to the principal balance of the replacement Convertible Note. Through the date of the settlement agreement and through March 31, 2018, the lender had not reported any proceeds from the sale of these shares (see below). Prior to the settlement agreement in January 2018, notwithstanding anything contained in the Agreement to the contrary, in the event the Lender has not realized net proceeds from the sale of Advisory Fee Shares equal to at least the Advisory Fee by the earlier to occur of: (A) the twelve (12) month anniversary of the Effective Date; (B) the occurrence of an Event of Default; or (C) the Maturity Date, then at any time thereafter, the Lender shall have the right, upon written notice to the Borrower, to require that the Borrower redeem all Advisory Fee Shares then in Lender’s possession for cash equal to the Advisory Fee, less any cash proceeds received by the Lender from any previous sales of Advisory Fee Shares, if any. In the event such redemption notice is given by the Lender, the Borrower shall redeem the then remaining Advisory Fee Shares in Lender’s possession for an amount of Dollars equal to the Advisory Fee, less any cash proceeds received by the Lender from any previous sales of Advisory Fee Shares, if any, payable by wire transfer to an account designated by Lender within five (5) Business Days from the date the Lender delivers such redemption notice to the Borrower.

The Convertible Note is only convertible upon default or mutual agreement by both parties at a conversion rate of 85% of the lowest of the daily volume weighted average price of the Company’s common stock during the 5 business days immediately prior to the conversion date. Once a default occurs the Convertible Note will be accounted for as stock settled debt at its fixed monetary value and any shares issued upon conversion are also subject to a make whole provision similar to that described above for the $850,000 advisory fee payable. On March 13, 2017 the Company defaulted on the monthly principal and interest payment of $298,341. Due to this default, as of March 31, 2017, the Company has accounted for the embedded conversion option as stock settled debt and recorded a debt premium of $617,647 with a charge to interest expense, and the interest rate increased to 25% (default rate). The Company has been making interest-only payments of $52,500 each month, however, the Company has not made the full default interest payment of $72,917 per month.

On March 28, 2017, the Company entered into an agreement with the above senior secured credit facility lender to receive a range of advisory services for a total of $1,200,000 with no definitive terms or length of service which was expensed in fiscal 2017 and had been recorded as an accrued liability – advisory fees through December 31, 2017. In connection with the settlement agreement discussed below, in January 2018, the advisory services fee payable was reclassified to the principal balance of the replacement Convertible Note.

On January 3, 2018, the Company entered into a settlement agreement (the “Settlement Agreement”) and replacement note agreements with the investment fund related to a senior secured credit facility note dated September 13, 2016. On the effective date of the Settlement Agreement, all amounts owed to the investment fund aggregated $5,788,642 and consisted of a convertible promissory note of $3,500,000, accrued interest payable of $238,642, and accrued advisory fees payable of $2,050,000. Additionally, on the effective date, the amount due of $5,788,642 was split and apportioned into 2 separate and distinct replacement notes (“Replacement Note A” and “Replacement Note B”). Replacement Note A shall have a principal amount of $1,000,000 and Replacement Note B shall have a principal balance of $4,788,642, both of which shall be and remained secured by the original security agreements, the pledge agreements, the guarantee agreement and other applicable loan documents and both shall bear interest at 18% per annum. The default was not waived by this settlement agreement. The Company originally recorded a premium on stock settled debt of $617,647 on the $3,500,000, and subsequent to the settlement agreement recorded an additional premium on stock settled debt of $403,878 on the additional $2,288,642.

The Credit Agreement is hereby amended such that the Maturity Date is extended to January 13, 2019 (the "Extended Maturity Date") for replacement Note B, while the Note A maturity date remained at March 13, 2018 but was due as of March 2017 due to the principal and interest payment default discussed above. Notwithstanding anything contained in this Agreement to the contrary, all Obligations owing by the Company and all other Credit Parties under the Credit Agreement, First Replacement Note B, and all other Loan Documents shall be paid in full by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to December 13, 2018 and the remaining principal and accrued interest on January 13, 2019.

8

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

On January 30, 2018, the Replacement Note A in the principal amount of $1,000,000 was purchased by Livingston Asset Management LLC (“Livingston”) from the original lender. On November 15, 2017, the Company executed a Liability Purchase Term Sheet with Livingston Asset Management (“Livingston”) under which Livingston agreed to purchase up to $10,000,000 that the Company owes to its creditors through direct purchase of the debts from the Company’s creditors. (See below). Replacement Note A is due to Livingston and bears interest at 18% per annum. At any time and from time to time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents; or (ii) mutual agreement between the Company and the Holder, this Note may be, at the sole option of the Holder, convertible into shares of the Company’s common stock, in accordance with the terms and conditions set forth below. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents; or (ii) mutual agreement between the Company and the Holder, the Holder may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable hereunder or under any other Loan Documents (such total amount, the "Conversion Amount") into shares of common stock of the Company (the "Conversion Shares") at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) 85% of the lowest of the daily volume weighted average price of the Company’s common stock during the five business days immediately prior to the conversion date, which price shall be indicated in the conversion notice (the denominator) (the "Conversion Price"). Upon liquidation by the Holder of Conversion Shares issued pursuant to a Conversion Notice, provided that the Holder realizes a net amount from such liquidation equal to less than the Conversion Amount specified in the relevant conversion notice (such net realized amount, the "Realized Amount"), the Company shall issue to the Holder additional shares of the Company's common stock equal to: (i) the Conversion Amount specified in the relevant conversion notice; minus (ii) the Realized Amount, as evidenced by a reconciliation statement from the Holder (a "Sale Reconciliation") showing the Realized Amount from the sale of the Conversion Shares; divided by (iii) the average volume weighted average price of the Company's common stock during the five business days immediately prior to the date upon which the Holder delivers notice (the "Make-Whole Notice") to the Company that such additional shares are requested by the Holder (such number of additional shares to be issued, the "Make-Whole Shares"). As of March 31, 2018, there has been one issuance under section 3(a)(10) of the Securities Act for 1,500,000 shares (see below), which have been recorded at par value with an equal charge to additional paid-in capital and which value has been recorded as a liability remaining in convertible note balance, until these shares have been sold and reported to the Company by the lender as part of the Make-Whole provision at which time the proceeds value of such shares will be reclassified to additional paid-in capital.

Other Convertible Debt

In July 2017, the FASB issued Accounting Standards Update No. 2017-11 Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, ASU 2017-11 requires entities that present earnings per share (EPS) in accordance with ASC Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. For the Company, ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company adopted this standard on October 1, 2017.

On October 5, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) under which the Company received $78,500, net of $21,500 in fees and expenses to be recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the “Note”) in the principal amount of $100,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of July 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices of Drone USA’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of the Company’s common stock. The Note is subject to customary default provisions, including a cross default provision. The Company’s CEO entered into a confession of judgment in the principal amount of the Note. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $53,846 with a charge to interest expense.

9

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

On November 9, 2017, the Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge Partners, LLC (“Crown Bridge”) under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 and a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.35 as a commitment fee which is equal to the product of one-third of the face value of each tranche divided by $0.35. The warrants have full ratchet price protection and cashless exercise rights. The convertible note (the “Note”) issued to Crown Bridge is in the principal amount of $105,000, has an original issue discount of $10,500 and issue costs of $19,000 both of which are recorded as debt discount along with the warrant relative fair value to be amortized over the twelve month term of this tranche, bears interest of 10% (12% default rate) per annum, and has a maturity date of 12 months from the date of each tranche of payments under the Note with future tranches being at the discretion of Crown Bridge. The conversion rate for any conversion of unpaid principal and interest under the Notes is at a 35% discount to the lowest market price of the shares of the Company’s common stock within a 20 day trading period prior to the date of conversion to which an additional 10% discount will be added if the conversion price of the Company’s common stock is less than $0.05 per share and no shares of the Company’s common stock can be issued to the extent Crown Bridge would own more than 4.99% of the outstanding shares of the Company’s common stock and the conversion shares contain piggy-back registration rights. The Note is subject to customary default provisions including an event of default if the bid price of the Company’s common stock is less than its par value of $.0001 per share. The Company is entitled to prepay the Note between 30 days after its issuance until 180 days from its issuance at amounts that increase from 112% of the prepayment amount to 137% of the prepayment amount depending on the length of time when prepayments are made. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense.

On November 15, 2017, the Company executed a Liability Purchase Term Sheet with Livingston Asset Management (“Livingston”) under which Livingston agreed to purchase up to $10,000,000 that the Company owes to its creditors through direct purchase of the debts from the Company’s creditors in return for (i) a convertible note issued by the Company in the principal amount of $50,000 bearing interest of 10% per year to cover certain legal fees and other expenses of Livingston that matures in six months and is convertible into shares of our common stock at a 30% reduction off the lowest closing bid price for 20 trading days prior to the date of conversion, (ii) a convertible note subject to these same terms as the convertible note issued to Livingston payable to Scottsdale Capital Advisors in the principal amount of $15,000 as a placement agent fee and (iii) the right of Livingston to retain 30% of any negotiated reduction off the face amount of the liability the Company owes to such creditors. The Company has accounted for the convertible promissory notes as stock settled debt under ASC 480 and recorded a debt premium of $27,857 with a charge to interest expense. On March 7, 2018 the Company entered into a placement agent and advisory agreement with Scottsdale Capital Advisors in connection with the Livingston liability purchase term sheet executed on November 15, 2017. The placement agent services amounted to $15,000 payable in the form of a convertible note which was assigned by Livingston (the “Scottsdale Note”). The Scottsdale Note matures six months from the date of issuance and shall accrue interest at the rate of 10% per annum. The $15,000 note is convertible into shares of the Company’s common stock at a discount of 30% of the low closing bid price for the twenty trading days prior to the conversion and is not subject to any registration rights.

Pursuant to the Liability Purchase Term Sheet, following a court judgment for the liabilities purchased by Livingston, the Company will issue free trading shares of its common stock under section 3(a)(10) of the Securities Act to Livingston in the amount of such judgment in a series of tranches so that Livingston will not own more than 9.99% of our outstanding shares per tranche. In connection with the Livingston Liability Purchase Term Sheet, on February 8, 2018, the Company and Livingston entered into a Settlement Agreement and Stipulation whereby Livingston filed a complaint for payment of Replacement Note A in the principal amount of $1,000,000 (the “Claim Amount”) pursuant to the section 3(a)(10) settlement (See above). In accordance with the terms of the Settlement Agreement, the Court was advised of Company's intention to rely upon the exception to registration set forth in Section 3(a)(l0) of the Act to support the issuance of its common shares and the Court held a fairness hearing regarding the issuance (the "Hearing") on March 12, 2018. Following entry of an Order by the Court which occurred on March 12, 2018, in settlement of the claims, the Company shall issue and deliver to Livingston shares of its common stock (the "Settlement Shares") in one or more tranches as necessary, and subject to adjustment and ownership limitations as set forth in the Settlement Agreement, sufficient to generate proceeds such that the aggregate Remittance Amount equals the Claim Amount. The parties reasonably estimate that the fair market value of the Settlement Shares to be received by Livingston is equal to approximately $1,666,667 which is based on a discount of 40%. 

On November 28, 2017, the Company received a payment of $84,000, net of issue costs of $23,500 which was recorded as a debt discount and is being amortized to interest expense over the Note term, under the terms of a Securities Purchase Agreement dated November 20, 2017, with Labrys Fund, LP (“Labrys”) under which Drone USA issued to Labrys (i) a convertible note (the “Note”) in the principal amount of $107,500 that bears interest of 10% (24% default rate) per annum and (ii) 335,938 shares of the Company’s common stock as a commitment fee which were to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of November 20, 2017. Pursuant to ASC 260, as of December 31, 2017, the 335,938 contingent shares issued under the Financial Consulting Agreement are not considered outstanding and are not included in basic net loss per share or as potentially dilutive shares in calculating the diluted EPS. The Note has a maturity date of August 28, 2018 and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company’s common stock during the fifteen (15) trading day period ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion price is less than $.01 per share or if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). In addition, if the Company issues any shares of its common stock at less than the conversion price Labrys is entitled to full ratchet anti-dilution in such event. No shares of the Company’s common stock can be issued to the extent Labrys would own more than 4.99% of the outstanding shares of the Company’s common stock unless Labrys agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). Initially, the Company must instruct its transfer agent to reserve 6,198,049 shares of its common stock. The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink) and a $15,000 penalty if not paid by the maturity date. The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter.  In November 2017, the Company accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $57,885 with a charge to interest expense. On February 7, 2018 the Company amended the terms to the Note whereby Labrys waives all existing events of default on the Note and in return will no longer be required, under any circumstances, to return the commitment shares back to the Company’s treasury. The Company was under default for failing to maintain a market capitalization of at least $5,000,000 on any trading day. The 335,938 commitment shares were considered issued in February 2018 which was recorded as interest and financing costs at the then market close price of $0.09 per share for a value of $30,234.

10

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

On December 7, 2017, the Company received a payment of $79,000, net of an original issue discount of $5,800 and issue costs of $20,200 fees which was recorded as a debt discount which is being amortized into interest expense over the Note term, under the terms of a Securities Purchase Agreement dated November 21, 2017, with EMA Financial, LLC (“EMA Financial”) under which the Company issued to EMA Financial a convertible note (the “Note”) in the principal amount of $105,000 that bears interest of 10% (24% default rate) per annum. The Note has a maturity date of December 7, 2018 and has a conversion rate for any unpaid principal and interest at a conversion price which is the lower of (i) the closing sales price of the Company’s common stock on the trading day immediately preceding the date of funding and (ii) a 35% discount to (a) the lowest sales price of the shares of the Company’s common stock within a 20 day trading period including and immediately preceding the conversion date or (b) the lowest bid price on the conversion date, whichever is lower, and the conversion shares contain piggy-back registration rights. The conversion rate is further reduced under certain events, including if the closing sales price is less than $0.095 in which case the conversion rate is a 50% discount under the terms set forth above. No shares of the Company’s common stock can be issued to the extent EMA Financial would own more than 4.99% of the outstanding shares of the Company’s common stock. The Company also is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion or adjustment of the Note (based on the conversion price of the Note in effect from time to time) and initially must instruct its transfer agent to reserve 6,802,000 shares of common stock in the name of EMA Financial for issuance upon conversion. The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium of 135% of the unpaid principal and interest if paid within 90 days after the issue date and 150% thereafter. In connection with the issuance of this Note, the Company determined that the terms of the Note contain a conversion formula that caused variations in the conversion price resulting in the treatment of the conversion option as a bifurcated derivative to be accounted for at fair value. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives were determined using the Binomial valuation model. At the end of each period, the Company revalued the embedded conversion option and warrants derivative liabilities. In connection with this Note, on the initial measurement date of December 7, 2017, the fair values of the embedded conversion option derivative of $149,028 was recorded as derivative liabilities, $70,028 was charged to current period operations as initial derivative expense, and $79,000 was recorded as a debt discount and is being amortized into interest expense over the term of this Note. At the end of the period, the Company revalued the embedded conversion option derivative liability. In connection with this revaluations, the Company recorded derivative expense of $19,680 and $37,693 for the three and six months ended March 31, 2018. During the six months ended March 31, 2018, the fair value of the derivative liability was estimated using the Binomial valuation model with the following assumptions:

Dividend rate	0
Term (in years)	.69 year
Volatility	222.18	%
Risk-free interest rate	1.76% to 2.09	%

A number of terms included in the Securities Purchase Agreement and Note issued subsequently (see paragraph below) were more favorable than the terms granted to EMA Financial under its Securities Purchase Agreement and the EMA Note. Accordingly, on December 31, 2017, EMA Financial notified the Company that pursuant to the EMA Securities Purchase Agreement that the EMA Note was automatically amended by increasing (i) the annual interest rate to 12% percent and (ii) the Original Issue Discount to $9,450.

11

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

On December 13, 2017, the Company received a payment of $60,000, net of original issue discount fees of $7,500 and $15,000 of issue costs recorded as debt discounts and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated December 8, 2017, with Morningview Financial, LLC (“Morningview Financial”) under which the Company issued to Morningview Financial a convertible note (the “Note”) in the principal amount of $82,500 that bears interest of 12% (18% default rate) per annum. The Note has a maturity date of 12 months and a conversion rate for any unpaid principal and interest and a conversion price which is a 35% discount to the lowest sales price of the shares of the Company’s common stock within a 20-day trading period including and immediately preceding the conversion date. The conversion rate is further reduced under certain events, including if the closing sales price is less than $0.05 in which case the conversion rate is a 45% discount under the terms set forth above. No shares of the Company’s common stock can be issued to the extent Morningview Financial would own more than 4.99% of the outstanding shares of the Company’s common stock. The Company also is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion or adjustment of the Note (based on the conversion price of the Note in effect from time to time). The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company’s Trading Price as that term is defined in the Note is less than $.0001 or if a money judgment, writ or similar process shall be entered or filed against the Company or any of its subsidiaries for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of 20 days unless otherwise consented to by the holder of the Note. Additionally, upon default and default notice by the lender, the amount immediately due shall be increased to 150% or 200% of the outstanding principal and interest due depending upon the default provisions, plus default interest. The Company is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium of 135% of the unpaid principal and interest. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $44,423 with a charge to interest expense.

On January 3, 2018, the Company entered into a Securities Purchase Agreement with Power Up under which the Company received $42,000, net of $11,000 in fees and expenses which were recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the “Note”) in the principal amount of $53,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of October 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices of the Company’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of Drone USA common stock. The Note is subject to customary default provisions, including a cross default provision. The Company is required to have authorized for issuance six times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation is not in effect) and based on the applicable conversion price of the Note in effect from time to time, initially to be 3,462,355 shares of common stock. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,538 with a charge to interest expense.

On January 9, 2018, the Company received a payment of $84,000, net of $23,500 in fees and expenses which was recorded as a debt discount and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated November 20, 2017, with Labrys under which the Company issued to Labrys (i) a convertible note (the “Note”) in the principal amount of $107,500 that bears interest of 10% per annum and (ii) 421,238 shares of the Company’s common stock as a commitment fee which was to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of December 26, 2017. Pursuant to ASC 260, as of January 9, 2018, the 421,238 contingent shares issued under the Financial Consulting Agreement are not considered outstanding and are not included in basic net loss per share or as potentially dilutive shares in calculating the diluted EPS. The Note has a maturity date of nine months or September 26, 2018, and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company’s common stock during the fifteen trading day period ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion price is less than $.01 per share or if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). In addition, if the Company issues any shares of its common stock at less than the conversion price, Labrys is entitled to full ratchet anti-dilution in such event. No shares of Drone USA common stock can be issued to the extent Labrys would own more than 4.99% of the outstanding shares of the Company’s common stock unless Labrys agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). Initially, the Company must instruct its transfer agent to reserve 8,535,980 shares of its common stock. The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $57,885 with a charge to interest expense. On February 7, 2018 the Company amended the terms to the Note whereby Labrys waives all existing events of default on the Note and in return will no longer be required, under any circumstances, to return the commitment shares back to the Company’s treasury. The Company was under default for failing to maintain a market capitalization of at least $5,000,000 on any trading day. The 421,238 commitment shares were considered issued in February 2018 at a price of $0.09 per share based on the then market close price for a total value of $37,911 which was recorded as interest and financing costs.

12

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

On January 31, 2018 the Company received a payment of $95,000, net of $2,750 for legal fees and $7,250 for due diligence to be recorded as a debt discount and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated January 31, 2018, with Auctus Fund, LLC (“Auctus”) under which the Company issued to Auctus a convertible note (the “Note”) in the principal amount of $105,000 that bears interest of 10% per annum. The Note has a maturity date of nine months or October 26, 2018, and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company’s common stock during the fifteen trading day period ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion shares cannot be delivered by DWAC. In addition, if the Company issues any shares of its common stock at less than the conversion price, Auctus is entitled to full ratchet anti-dilution in such event. No shares of the Company’s common stock can be issued to the extent Auctus would own more than 4.99% of the outstanding shares of the Company’s common stock unless Auctus agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense.

On March 5, 2018, the Company entered into a Securities Purchase Agreement with Power Up under which the Company received $42,000, net of $11,000 in fees and expenses to be recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the “Note”) in the principal amount of $53,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of December 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices of the Company’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of Drone USA common stock. The Note is subject to customary default provisions, including a cross default provision. The Company is required to have authorized for issuance six times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation is not in effect) and based on the applicable conversion price of the Note in effect from time to time, initially to be 13,046,154 shares of common stock. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,538 with a charge to interest expense.

The senior secured credit facility note balance and convertible debt balances consisted of the following at March 31, 2018 and September 30, 2017: 

	March 31, 2018			September 30, 2017
Principal	$	6,672,142		$	3,500,000
Premiums		1,923,770			617,647
Unamortized discounts		(177,894	)		(338,075	)
		8,418,018			3,779,572
Non-current		-			-
Current	$	8,418,018		$	3,779,572

For the six months ended March 31, 2018 and 2017, amortization of debt discount amounted to $445,734 and $368,820, respectively.

13

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

NOTE 8 – NOTE AND LOAN PAYABLE

On October 19, 2017, the Company entered into a loan agreement with a third party entity under which the Company received approximately $232,500, net of fees and expenses of $17,500 recorded as debt discounts and amortized to interest expense over the Note term, in return for issuing a promissory note (the “Note”) in the principal amount of $250,000. The Note bears interest at 12% (18% default rate) per annum and has a maturity date of April 20, 2018. The Note may be prepaid in full or in part with additional premium or penalty. The Note is secured by certain assets of the Company’s CEO, certain assets of HowCo and all of the assets of Drone USA as a junior security interest to the first secured interest of the senior lender. Additionally, the loan is guaranteed by the Company’s CEO. For the three and six months ended March 31, 2018, amortization of debt discount amounted to $8,799 and $15,545 and the balance of the note was $248,045 net of remaining discount of $1,955. On April 20, 2018, the note matured and all principal and unpaid interest was due immediately. The Company is currently working with the lender to settle this note and in the meantime is responsible for all collection expenses, including reasonable attorneys’ fees incurred with or without suit and on appeal. The Company will be accruing interest at the default interest rate of 18% until settlement.

On February 2, 2018, the Company entered into a oral loan agreement with a vendor under which the Company reclassified $579,106 in accounts payable in return for promising to pay the principal amount of $579,106. The loan bears interest at 18% per annum and has a maturity date of October 31, 2018. The loan will be paid in full by the maturity date by making monthly payments of $70,000 from February 28, 2018 to September 30, 2018 and a final balance payment of approximately $63,000 by October 31, 2018. The loan does not have a default interest rate nor prepayment penalties if the note is paid in full or in part. During the six months ended March 31, 2018 the Company has made its first two payments of principal and interest and the balance of the note was $455,559.

NOTE 9 - STOCKHOLDERS’ DEFICIT

Preferred Stock

As of March 31, 2018, the Company is authorized to issue 5,000,000 shares of $.0001 par value preferred stock, with designations, voting, and other rights and preferences to be determined by the Board of Directors of which 4,999,750 remain available for designation and issuance.

As of March 31, 2018 and 2017, the Company has designated 250 shares of $0.0001 par value Series A preferred stock, of which 250 shares are issued and outstanding. These preferred shares have voting rights per share equal to the total number of issued and outstanding shares of common stock divided by 0.99.

Common Stock

Stock Incentive Plan

The Company established its 2016 Stock Incentive Plan (the “Plan”) that permits the granting of incentive stock options and other common stock awards. The maximum number of shares available under the Plan is 100,000,000 shares. The Plan is open to all employees, officers, directors, and non-employees of the Company. Option granted under the Plan will terminate and may no longer be exercised (i) immediately upon termination of an employee or consultant for cause or (ii) one year after termination of employment, but not later than the remaining term of the option. As of March 31, 2018, 55,648,800 awards remain available for grant under the Plan.

Shares Issued for Services

On September 1, 2017, the Company entered into a consulting agreement with an individual. In connection with this agreement, the Company agreed to issue 10,000 common shares per month until the agreement is terminated. During the six months ended March 31, 2018, an aggregate of 30,000 common shares were issuable pursuant to the agreement. Such shares were valued on the vesting dates of October 1, 2017 and November 1, 2017 at $3,950, or $0.20 and $0.195 per share, respectively, based on the quoted trading price. In connection with these shares, during the six months ended March 31, 2018, the Company recorded professional fees of $3,950. This agreement was terminated in December 2017.

14

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

Shares Issued for debt issuance costs

On November 28, 2017, pursuant to a Securities Purchase Agreement and Convertible Note Agreement with Labrys (see Note 7), the Company considered issued to Labrys 335,938 shares of the Company’s common stock, as a commitment fee which was to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of November 20, 2017. Prior to the February 7, 2018 amendment discussed below, pursuant to ASC 260 the 335,938 shares were considered contingent shares and not considered outstanding and not accounted for due to the contingency. On February 7, 2018 the Company amended the terms of the convertible note dated November 28, 2017 whereby the holder waives all existing events of default to date and in return shall no longer be required to return, under any circumstances, the commitment shares back to the Company’s treasury. On February 16, 2018 the Company issued the 335,938 shares at the then market close price of $0.09 per share for a value of $30,234 which was expensed.

On February 16, 2018, pursuant to a Securities Purchase Agreement and Convertible Note Agreement with Labrys (see Note 7), the Company issued to Labrys 421,238 shares of the Company’s common stock, as a commitment fee which was to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of December 26, 2017. Prior to the February 7, 2018 amendment discussed below, pursuant to ASC 260 the 421,238 shares were considered contingent shares ad not considered outstanding and not accounted for due to the contingency. On February 7, 2018 the Company amended the terms to the convertible note dated December 26, 2017 whereby the holder waives all existing events of default to date and in return shall no longer be required to return, under any circumstances, the commitment shares back to the Company’s treasury. On February 16, 2018 the Company issued the 421,238 shares at the then market close price of $0.09 per share for a value of $37,911 which was expensed.

On March 14, 2018, pursuant to Replacement Note A with Livingston (see Note 7), the Company issued to Livingston 1,500,000 shares of the Company’s common stock under section 3(a)(10) of the Securities Act, which have been recorded at par value with an equal charge to additional paid-in capital and which value has been recorded as a liability remaining in convertible note balance, until these shares have been sold and reported to the Company.

Stock Options

For the six months ended March 31, 2018 and 2017, the Company recorded $145,322 and $894,016 of compensation and consulting expense related to stock options, respectively. Total unrecognized compensation and consulting expense related to unvested stock options at March 31, 2018 amounted to $1,352,943. The weighted average period over which share-based compensation expense related to these options will be recognized is approximately 3 years.

For the six months ended March 31, 2018, a summary of the Company’s stock options activity is as follows:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at September 30, 2017		44,351,200	$	0.21		9.27	$	-	$	0
Granted		-		-		-		-		-
Forfeited		-		-		-		-		-
Outstanding at March 31, 2018		44,351,200	$	0.21		8.68	$	-	$	0
Exercisable at March 31, 2018		27,294,600	$	0.20		8.51	$	-	$	0

All options were issued at an options price equal to the market price on the date of the grant.

Warrants

On November 9, 2017, the Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 and a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.35 as a commitment fee which is equal to the product of one-third of the face value of each tranche divided by $0.35. The warrants have full ratchet price protection and cashless exercise rights (See Note 7).

15

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

For the six months ended March 31 2018, a summary of the Company’s warrant activity is as follows:

	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at September 30, 2017		500,000	$	0.01		3.44	$	-	$	95,000
Granted		100,000		0.35		4.61		-		-
Outstanding at March 31, 2018		600,000	$	0.07		3.64	$	-	$	32,500
Exercisable at March 31, 2018		600,000	$	0.07		3.64	$	-	$	32,500

NOTE 10 - RELATED PARTY TRANSACTIONS

Since July 2017, the Company utilizes the office space and equipment of an entity in West Haven, Connecticut related to the Company’s CEO at no cost.

The Company has certain convertible notes payable to related parties (see Note 6).

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Contingencies

Legal Matters

In connection with the merger with Texas Wyoming Drilling, Inc., a vendor has a claim for unpaid bills of approximately $75,000 against the Company. The Company and its legal counsel believe the Company is not liable for the claim pursuant to its indemnification clause in the merger agreement.

During the quarter ended June 30, 2017, the Company received demands for non-payment of five months of rent for its New York location. In July 2017, the Company vacated the New York premises. Subsequent to June 30, 2017, a lawsuit was filed in the Supreme Court of the State of New York for an alleged breach of a Service Agreement for approximately $63,000 in connection with the lease the Company entered into for its former office space in New York. As of September 30, 2017, the Company accrued into accounts payable approximately $63,000 pursuant to ASC 420-10-30 “Cost to Terminate an Operating Lease”. In October 2017, the Company entered into a settlement agreement with the New York lease landlord and paid $30,000 in full settlement and recorded a settlement gain of $33,361.

The Company has filed a lawsuit against the former Chief Strategy Officer and member of the Board, who was terminated for cause on July 7, 2017, for breach of contract, breach of the covenant of good faith and fair dealing, and violation of the California Business & Professions Code. On July 31, 2017, the former Chief Strategy Officer and member of the Board subsequently filed a counterclaim against the Company seeking, among other items, damages in excess of $900,000, prejudgment interest, and reimbursement of legal fees. The Company believes it will prevail in this matter and therefore has not accrued any additional liabilities. Prior to the termination and as of March 31, 2018 and September 30, 2017, there was accrued a 401(k) matching contribution of $9,230 and a $100,000 sign on bonus.

On August 9, 2017, a lawsuit was filed by an investor relations firm against the Company in the Supreme Court, Westchester County (Index No. 61772/2017). The complaint alleged two causes of action, one for goods and services furnished and one for an account stated, in the amount of $74,325. The plaintiff obtained a default judgment. The Company has filed an Order to Show Cause to vacate the default judgment on the grounds that the service of the complaint was invalid. The court granted the Company’s Order to Show Cause on December 19, 2017 and set the hearing on the Order to Show Cause for January 12, 2018. At December 31, 2017, $68,544 was accrued in accounts payable. On February 14, 2018 the Company entered into a stipulation agreement with the investor relations firm which settled the amount due at $20,000 if payment was made by February 21, 2018. The lump sum payment was made on February 16, 2018 and a gain on extinguishment of debt of $48,544 was recorded.

On February 6, 2018 the Company sent a letter to the previous owners of HowCo Distributing Co. (“HowCo”) in relation to the Stock Purchase Agreement entered into. The Company believes that there were certain financial misrepresentations provided during the acquisition of Howco during 2016. These misrepresentations likely impacted the transaction price paid as well as the working capital after closing. The Company estimates that damages sum to approximately $800,000 in regards to working capital deficit as well as approximately $370,000 in regards to the transaction prices. On March 13, 2018 the Company started a lawsuit against the previous owners by issuing a summons. On April 12, 2018, the Company received the Defendants’ answer and affirmative defenses in relation to the summons sent out to the previous owners of HowCo Distributing Co. on March 13, 2018 on the financial misrepresentations provided during the acquisition of HowCo. The answer states that damages at issue, if any, were caused by the fault of others. The owners seek for the Company to dismiss its complaint with prejudice and award them for their attorneys’ fees, costs and disbursements.

16

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

Commitments

Exclusive Agreement

On June 1, 2016, the Company entered into an exclusive agreement with a Brazilian entity in the drone technology market. The agreement provides that the Company will acquire exclusive rights to this entity’s UAV technology and intellectual property that includes research and development efforts completed by this entity. The Company will also secure exclusive export and representation rights to this entity’s products along with the non-binding option to acquire full ownership of this entity for $1 million should the companies agree at a later date it would be in the best interest of both businesses. As consideration for this agreement, the Brazilian entity CEO was appointed to the position of Chief Technology Officer of the Company and granted an option for 2,000,000 shares of common stock.

Consulting Agreements

In June 2017, the Company entered into an agreement with an investment bank to provide placement agent services on an exclusive basis as it relates to a private placement (“the placement”). The agreement calls for the investment bank to receive 9% of the gross proceeds of the placement and 2.5% warrant coverage of the amount raised. The warrants shall entitle the investment bank to purchase securities of the Company at a purchase price equal to 110% of the implied price per share of the placement or 100% of the public market closing price of the Company’s common stock on the date of the placement, whichever is lower. The warrants shall have a term of five years after the closing of the placement. The agreement expired on September 30, 2017 but the terms of the agreement was effective for certain capital raised during the six months ended March 31, 2018 (see Note 7).

Lease Obligations

The Company entered into an agreement with a manufacturer in Pismo Beach, California. The agreement provides for certain services to be provided by the manufacturer as needed by the Company. The agreement has an initial term of three years with one year renewals. In connection with this agreement, the Company has agreed to sublease space based in San Luis Obispo, California from the manufacturer for the purposes of the development and manufacturing of unmanned aerial vehicles. The lease provides for base monthly rent of approximately $15,000 for the initial term to be increased to $16,500 per month upon extension. The lease term begins February 1, 2017 and expires January 31, 2019 with the option to extend the term an additional 24 months. However, the Company never took possession of the premises and in July 2017, the Company made a decision to not take possession of the premises. The Company is in default of the rent payments and had received verbal demand of payments. As of March 31, 2018, the Company has not made any of the required monthly rent payments in connection with this agreement. As of March 31, 2018 and September 30, 2017, the Company had accrued into accounts payable the remaining amounts due under the term of the lease for a total accrual of $360,000 pursuant to ASC 420-10-30.

In May 2017, the Company extended HowCo’s office lease through May 30, 2020. The lease requires monthly payments including base rent plus CAM with annual increases. Future minimum lease payments under non-cancelable operating leases at March 31, 2018 are as follows: 

Years ending March 31,	Amount
2018		44,507
2019		60,499
2020		25,460
Total minimum non-cancelable operating lease payments	$	130,466

For the six months ended March 31, 2018 and 2017, rent expense amounted to $28,330 and $27,774, respectively.

Purchase commitments

The Company entered into agreements to act as a distributor or dealer with third party drone suppliers. Some of these agreements require the Company to maintain certain levels of inventory of the supplier’s products. Such levels of inventory are not quantifiable as of the date of this report.

17

DRONE USA, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(Unaudited)

Profit Sharing Plan (for HowCo)

On April 13, 2018, HowCo Distributing announced to its employees a company-wide profit sharing program. In fiscal year 2018, HowCo Distributing, will redistribute the total of ten-percent of company net income. The employee profit is equal to their annual salary divided by the Company’s total annual payroll and multiplied by 10% of net income for the fiscal year.

Other

On January 29, 2018, the Company entered into a settlement agreement and mutual release with a vendor who had provided public relations and other consulting services whereby the Company shall pay to this vendor an aggregate amount of $60,000 of which $30,000 was paid on February 2, 2018. Additionally, the Company shall pay ten monthly payments of $3,000 per month beginning on February 29, 2018. Additionally, the vendor returned 400,000 common shares of the Company’s common stock which will be cancelled.

NOTE 12 - CONCENTRATIONS

Concentration of Credit Risk

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At March 31, 2018, cash in bank did not exceed the federally insured limits of $250,000. The Company has not experienced any losses in such accounts through March 31, 2018.

Economic Concentrations

With respect to customer concentration, three customers accounted for approximately 55%, 16%, and 11% , of total sales for the six months ended March 31, 2018. Three customers accounted for approximately 65%, 12% and 11% of total sales for the six months ended March 31, 2017.

With respect to accounts receivable concentration, four customers accounted for approximately 94% of total accounts receivable at March 31, 2018 at 56%, 15%, 14% and 9%. Three customers accounted for approximately 60%, 12% and 12% of total accounts receivable at March 31, 2017.

With respect to supplier concentration, there were two suppliers accounted for approximately 41% and 12% of total purchases for the six months ended March 31, 2018. Two suppliers accounted for approximately 48% and 13% of total purchases for the six months ended March 31, 2017.

With respect to accounts payable concentration, two suppliers accounted for approximately 23% and 11% of total accounts payable at March 31, 2018. Two suppliers accounted for approximately 44% and 11% of total accounts payable at March 31, 2017.

With respect to foreign sales, it totaled approximately $32,000 for the six months ended March 31, 2018. Foreign sales totaled approximately $207,000 for the six months ended March 31, 2017.

NOTE 13 - SUBSEQUENT EVENTS

Shares Issued for Services

On April 1, 2018, the Company entered into a one year oral management consulting agreement with an individual. In connection with this agreement, the Company issued 4,000,000 common shares to the consultant. Such shares were valued on the vesting dates of April 1, 2018 at $296,000, or $0.074 per share based on the quoted trading price. In connection with these shares, the Company will record professional fees over the one-year term.

Shares Issued for Conversion

During the period from April 30, 2018 through May 8, 2018 the company received multiple notices of conversion from Power Up Lending Group Ltd., to convert a total of $49,000 of principal from the convertible note entered into on October 5, 2017 (see Note 7). The Company issued 1,995,869 common shares for these conversions leaving a remaining principal balance due on this note of $51,000.

Legal

On April 12, 2018, the Company received the Defendants’ answer and affirmative defenses in relation to the summons sent out to the previous owners of HowCo Distributing Co. on March 13, 2018 on the financial misrepresentations provided during the acquisition of HowCo. The answer states that damages at issue, if any, were caused by the fault of others. The owners seek for the Company to dismiss its complaint with prejudice and award them for their attorneys’ fees, costs and disbursements.

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This quarterly report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ materially are set forth in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended September 30, 2017, as filed with the SEC on December 29, 2017.

We caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

The following discussion should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q.

Overview

Drone USA, Inc. is a UAV and related services and technology company that intends to engage in the research, design, development, testing, manufacturing, distribution, exportation, and integration of advanced low altitude UAV systems, services and products. Drone also provides product procurement, distribution, and logistics services through its wholly-owned subsidiary, HowCo Distributing Co., to the United States Department of Defense and Defense Logistics Agency. The Company has operations based in West Haven, Connecticut and Vancouver, Washington. The Company continues to seek strategic acquisitions and partnerships with UAV firms that offer superior technologies in high-growth markets, as well as acquisitions and partnerships with firms that have complementary technologies and infrastructure.

Liquidity and Capital Resources

As of March 31, 2018, we had $1,466,088 in current assets, including $13,679 in cash, compared to $2,059,246 in current assets, including $152,492 in cash, at September 30, 2017. Current liabilities at March 31, 2018 totaled $14,486,174 compared to $12,419,948 at September 30, 2017. The decrease in current assets from September 30, 2017 to March 31, 2018 is primarily due to a decrease in inventory of approximately $347,000 and a decrease in cash of approximately $139,000. The increase in current liabilities from September 30, 2017 to March 31, 2018 is primarily due to the increase in convertible notes payable of approximately $4,638,500 primarily due to the borrowing of funds under convertible note agreements and conversion of accrued and contingent advisory fees of $2,050,000 into convertible notes, amortization of debt discount and accretion of a premium, an increase in notes payable of $703,604, and an increase in accrued expenses of approximately $167,000 offset by a decrease in accounts payable of approximately $1,417,000. While we have revenues as of this date, no significant UAV revenues are anticipated until we have implemented our full plan of operations, specifically, initiating sales campaigns for our UAV platforms. We must raise cash to implement our strategy to grow and expand per our business plan. We anticipate over the next 12 months the cost of being a reporting public company will be approximately $250,000.

If we cannot raise additional proceeds via a private placement of our equity or debt securities, or secure more loans, we would be required to cease business operations. As a result, investors would lose all of their investment. Under the terms of our credit agreement with TCA, all potential new investments must first be reviewed and approved by TCA, which may constrain our options for new fundraising.

19

We anticipate our short-term liquidity needs to be approximately $12,500,000 which will be used to satisfy our existing current liabilities and we expect gross profits of approximately $2,000,000. To meet these needs we intend to complete equity financing and refinance or restructure certain existing liabilities. Once this is completed, and we implement our sales and marketing plan to sell UAV products, we anticipate minimal long-term liquidity needs which we expect to meet through equity financing or short-term borrowings.  

Additionally, we will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. Our management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, especially that of Section 404 of the Sarbanes-Oxley Act of 2002. This additional corporate governance time required of management could limit the amount of time management has to implement the business plan and may impede the speed of its operations.

The following is a summary of the Company’s cash flows provided by (used in) operating, investing and financing activities:

	Six Months Ended March 31, 2018			Six Months Ended March 31, 2017
Net Cash Used in Operating Activities	$	(795,719	)	$	(496,963	)
Net Cash Provided by Financing Activities	$	656,906		$	335
Net Decrease in Cash	$	(138,813	)	$	(496,628	)

Results of Operations

Three months Ended March 31, 2018 and 2017

We generated sales of $4,602,343 and $5,620,335 for the three months ended March 31, 2018 and 2017, respectively, a decrease of $1,017,992, or 18.1%. For the three months ended March 31, 2018 and 2017, we reported cost of goods sold of $3,946,076 and $5,168,852, respectively, a decrease of $1,222,776, or 23.7%. The decrease in sales and cost of goods sold for the 2018 period as compared to the 2017 period is due to us ceasing our sales of certain products with low gross margins.

For the three months ended March 31, 2018 and 2017, we reported selling, general, and administrative expenses of $650,032 as compared to $3,046,732, a decrease of $2,396,700, or 78.7%. For the three months ended March 31, 2018 and 2017, selling, general, and administrative expenses consisted of the following:

	For the Three Months ended			For the Three Months ended
	March 31, 2018			March 31, 2017
Compensation and related benefits	$	492,478		$	531,273
Professional fees		(46,151	)		2,406,050
Other selling, general and administrative expenses		203,705			109,409
Total selling, general and administrative expenses	$	650,032		$	3,046,732

The decrease in selling, general, and administrative costs for the 2018 period as compared to the 2017 period was due to a significant reduction in professional fees. For the three months ended March 31, 2018, professional fees amounted to ($46,151) and compared to $2,406,050. During the three months ended March 31, 2017 we recorded a $1,200,000 advisory fee expense related to an agreement with the senior secured credit facility lender to receive a range of advisory services, and we recorded stock-based consulting fees of $783,602. During the three months ended March 31, 2018, we did not incur this advisory fee. Additionally, during the three months ended March 31, 2018, we recorded a reversal of stock-based consulting fee of $160,279 caused by the revaluation of the fair value of non-employee options in accordance with ASC 505-50 – “Equity-Based Payments to Non-Employees.

For the three months ended March 31, 2018 and 2017, amortization expense amounted to $66,248 and $66,249, respectively, and related to the amortization of intangible assets.

For the three months ended March 31, 2018, other income (expense) amounted to $1,661,222 and $1,007,179, respectively, an increase of $654,043 or 64.9%. The increase was attributable to an increase in interest and financing costs of $682,907, or 67.8%, primarily due to an increase in interest-bearing debt financings, and the amortization of related discounts and accretion of premiums, an increase in derivative expense of $19,680, offset by an increase in gain on settlement of debt of $48,544.

As a result, we reported a net loss of $1,721,235, or $0.04 per common share, and $3,668,677, or $0.09 per common share, for the three months ended March 31, 2018 and 2017, respectively.

20

Six months Ended March 31, 2018 and 2017

We generated sales of $9,035,403 and $12,604,727 for the six months ended March 31, 2018 and 2017, respectively, a decrease of $3,569,324, or 28.3%. For the six months ended March 31, 2018 and 2017, we reported cost of goods sold of $8,087,969 and $11,701,662, respectively, a decrease of $3,613,693, or 30.9%. The decrease in sales and cost of goods sold for the 2018 period as compared to the 2017 period is due to us ceasing our sales of certain products with low gross margins.

For the six months ended March 31, 2018 and 2017, we reported selling, general, and administrative expenses of $1,470,794 as compared to $4,014,208, a decrease of $2,543,414, or 63.4%. For the six months ended March 31, 2018 and 2017, selling, general, and administrative expenses consisted of the following:

	For the Six Months ended		For the Six Months ended
	March 31, 2018		March 31, 2017
Compensation and related benefits	$	973,095	$	1,083,000
Professional fees		177,072		2,586,000
Other selling, general and administrative expenses		320,627		345,208
Total selling, general and administrative expenses	$	1,470,794	$	4,014,208

The decrease in selling, general, and administrative costs for the 2018 period as compared to the 2017 period was due to a reduction in employees, a reduction in professional fees and a decrease in other selling, general and administrative due to cost cutting measures. For the three months ended March 31, 2018, professional fees amounted to $177,072 and compared to $2,586,000, a decrease of $2,408,928. During the six months ended March 31, 2017 we recorded a $1,200,000 advisory fee expense related to an agreement with the senior secured credit facility lender to receive a range of advisory services, and we recorded stock-based consulting fees of approximately $841,000. During the six months ended March 31, 2018, we did not incur this advisory fee. Additionally, during the six months ended March 31, 2018, we recorded a reversal of stock-based consulting fee of $160,279 caused by the revaluation of the fair value of non-employee options in accordance with ASC 505-50 – “Equity-Based Payments to Non-Employees.

For the six months ended March 31, 2018 and 2017, amortization expense amounted to $132,498 and $132,499, respectively, and related to the amortization of intangible assets.

For the six months ended March 31, 2018, other income (expense) amounted to $2,365,950 and $1,376,769, respectively, an increase of $989,181 or 71.8%. The increase was attributable to an increase in interest and financing costs of $1,033,393, or 75.1%, primarily due to an increase in interest-bearing debt financings, and the amortization of related discounts and accretion of premiums, an increase in derivative expense of $37,693, offset by an increase in gain on settlement of debt of $81,905.

As a result, we reported a net loss of $3,021,808, or $0.07 per common share, and $4,620,461, or $0.11 per common share, for the six months ended March 31, 2018 and 2017, respectively.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. For the six months ended March 31, 2018 we incurred a net loss of $3,021,808 and used cash in operations of $795,719. The working capital deficit, stockholders' deficit and accumulated deficit was $13,020,086, $9,201,968, and $16,878,233, respectively, at March 31, 2018. Furthermore, on April 13, 2017, we received a default notice on its payment obligations under the senior secured credit facility agreement, defaulted on its Note Payable – Seller, and as of March 31, 2018 is subject to two lawsuits and has received demands for payment of past due amounts from several consultants and service providers. These matters raise substantial doubt about our ability to continue as a going concern for a period of twelve months from the issuance date of this report. Our ability to continue as a going concern is dependent upon management’s ability to further implement its business plan and raise additional capital as needed from the sales of stock or debt. We have been implementing cost-cutting measures and restructuring or setting up payment plans with vendors and service providers and plan to raise equity through a private placement, and restructure or repay our secured obligations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be required should we be unable to continue as a going concern.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

21

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. These estimates are based on Management’s historical industry experience and not the company’s historical experience.

Accounts Receivable

Trade receivables are recorded at net realizable value consisting of the carrying amount less the allowance for doubtful accounts, as needed. Factors used to establish an allowance include the credit quality of the customer and whether the balance is significant. The Company may also use the direct write-off method to account for uncollectible accounts that are not received. Using the direct write-off method, trade receivable balances are written off to bad debt expense when an account balance is deemed to be uncollectible.

Inventory

Inventory consists of finished goods, which are purchased directly from manufacturers. The Company utilizes a just in time type of inventory system where products are ordered from the vender only when the Company has received sales order from its customers. Inventory is stated at the lower of cost and net realizable value on a first-in, first-out basis.

Goodwill and Intangible Assets

The Company’s goodwill and tradename assets are deemed to have indefinite lives and, accordingly, are not amortized, but are evaluated for impairment at least annually, but more often whenever changes in facts and circumstances occur which may indicate that the carrying value may not be recoverable. The customer list was deemed to have a life of four years and will be amortized through September 2020.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment is measured by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from use of the assets and their ultimate disposition. In instances where impairment is determined to exist, the Company writes down the asset to its fair value based on the present value of estimated future cash flows.

Revenue Recognition

Sales are recognized upon shipment of product to the customer. Provisions for returns and allowances are recorded in the period the sales occur. Payments received from customers prior to shipment of the product to them, are recorded as customer deposit liabilities.  

Stock-Based Compensation

The cost of all share-based payments to employees, including grants of restricted stock and stock options, is recognized in the consolidated financial statements based on their fair values measured at the grant date, or the date of any later modification, over the requisite service period. The cost of all share-based payments to non-employees, including grants of restricted stock and stock options, is recognized in the consolidated financial statements based on their fair values at each reporting date until measurement date occurs, over the requisite service period. The Company recognizes compensation cost for unvested stock awards on a straight-line basis over the requisite vesting period.

Convertible Notes with Fixed Rate Conversion Options

We may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. We record the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - "Distinguishing Liabilities from Equity".

22

Derivative Liabilities

The Company has certain financial instruments that contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40.  This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to income or expense as part of gain or loss on extinguishment. 

Net Loss Per Share

Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. Pursuant to ASB 260, contingent shares issued under a Securities purchase agreement are not considered outstanding and are not included in basic net loss per shares or as potentially dilutive shares in calculating the diluted EPS.

Tax Loss Carryforwards

The Company recognizes deferred tax assets and liabilities for the tax effects of differences between the financial statement and tax basis of assets and liabilities. A valuation allowance is established to reduce the deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of the principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2018, our disclosure controls and procedures were not effective.

The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses in our internal control over financial reporting: (1) the lack of multiples levels of management review on complex accounting and financial reporting issues, (2) a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems, (3) lack of inventory controls, and (4) since the resignation of our former CFO in July 2017, we do not have a qualified in-house financial accounting expert to maintain our parent company and consolidation level books and records. To remediate this situation we have engaged outsourced accountants. It is likely that we will continue to report material weaknesses in our internal control over financial reporting.

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In connection with the merger with Texas Wyoming Drilling, Inc., a vendor has a claim for unpaid bills of approximately $75,000 against the company. The Company and its legal counsel believe the Company is not liable for the claim pursuant to its indemnification clause in the merger agreement.

In response to the Complaint we filed July 12, 2017 against Paulo Ferro in the United States District Court for the Central District of California (Case No. 2:17-cv-05124) seeking damages and injunctive relief for alleged violations of the Federal Trade Secrets Act and the California Trade Secrets Act, breach of his employment agreement, breach of his duty of good faith and fair dealing and violation of the California Business and Professional Code, Mr. Ferro filed an answer and counterclaim on July 31, 2017 seeking damages in the amount of $900,000 based on allegations of breach of his employment agreement by Drone USA as well as additional amounts based on alleged libel and a demand for punitive damages. We are currently engaged in discovery. We intend to vigorously pursue our claims and oppose the counterclaims by Mr. Ferro.

On February 22, 2018, the court entered a Stipulation of Discontinuance with Prejudice following a payment of $20,000 by the Company to Porter, LeVay & Rose in the case styled Porter, LeVay & Rose v. Drone USA, Inc., filed on August 9, 2017, against the Company in Supreme Court, Westchester County (Index No. 61772/2017) alleging two causes of action, one for goods and services furnished and one for an account stated, in the amount of $74,325.

On March 13, 2018, we filed a Complaint in Clark County Superior Court (Case No. 18-2-00692-2) against the previous owners of HowCo Distributing Co. (“HowCo”), Paul Charles Joy and Kathryn Joy, alleging material financial misrepresentations under the terms of a Stock Purchase Agreement entered into between the Company and the Joys and claiming overpayment of the purchase price for HowCo of $800,000. On April 12, 2018, the Joys filed an answer and asserted certain affirmative defenses seeking dismissal of the Complaint and an award of their attorneys’ fees, costs and disbursements in connection with their defense of the lawsuit. The case will be entering into the discovery phase.

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Under the terms of the Liability Purchase Term Sheet discussed above with Livingston Asset Management LLC, the Company entered into a letter settlement of claims dated March 13, 2018, under section 3(a)(10) of the Securities Act pursuant to which the Company issued to Livingston Asset Management LLC 1,500,000 shares for purchase of $1,000,000 of debt the Company owed to TCA Global. The purchase of the debt allowed the Company to reduce the accrued monthly interest payments to TCA Global on the unpaid principal balance of the promissory note held by TCA Global.

On April 3, 2018, the Company issued to Len Harac 4,000,000 shares of its common stock as payment for his management consulting services.

These securities were issued in reliance upon the exemptions provided by section 4(a) (2) under the Securities Act of 1933, as amended.

24

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Description of Exhibit
31.1*	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL INSTANCE DOCUMENT
101.SCH*	XBRL TAXONOMY EXTENSION SCHEMA
101.CAL*	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*	XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE*	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

* Filed herewith.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DRONE USA, INC.
Dated: May 15, 2018	By:	/s/ Michael Bannon
		Michael Bannon
		Chief Executive Officer / Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer)

26

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Michael Bannon, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2018 of Drone USA, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2018	/s/ Michael Bannon
	Michael Bannon
	Chief Executive Officer / Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer)

EX-31.2

Exhibit 31.2

  CERTIFICATIONS

I, Michael Bannon, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2018 of Drone USA, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2018	/s/ Michael Bannon
	Michael Bannon
	Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Drone USA, Inc. (the “Company”) for the quarter ended March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Bannon, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 15, 2018	/s/ Michael Bannon
	Michael Bannon
	Chief Executive Officer / Chief Financial Officer (Principal Executive Officer) (Principal Financial Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2018	May 15, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	Drone USA Inc.
Entity Central Index Key	0001704795
Amendment Flag	false
Trading Symbol	DRUS
Current Fiscal Year End Date	--09-30
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		51,377,737

XML

Condensed Consolidated Balance Sheets - USD ($)	Mar. 31, 2018	Sep. 30, 2017
Current Assets
Cash	$ 13,679	$ 152,492
Accounts receivable	1,079,451	1,169,091
Inventory	333,994	681,057
Prepaid expenses and other current assets	38,964	56,606
Total Current Assets	1,466,088	2,059,246
Long-term Assets
Goodwill	2,410,335	2,410,335
Tradename	760,000	760,000
Customer list, net	647,783	780,281
Total Long-term Assets	3,818,118	3,950,616
Total Assets	5,284,206	6,009,862
Current Liabilities:
Accounts payable	2,398,009	3,815,546
Accrued expenses	1,182,947	1,015,880
Convertible notes payable - net of discounts and premium	8,418,018	3,779,572
Note payable - seller	900,000	900,000
Convertible note payable - related party affiliate	688,444	688,444
Convertible note payable - related party officer	32,500	122,000
Notes payable - net of discount and premium	703,604
Line of credit - bank	45,959	48,506
Contingent liability - advisory fees		850,000
Accrued liability - advisory fees		1,200,000
Derivative liability	116,693
Total Current Liabilities	14,486,174	12,419,948
Total Liabilities	14,486,174	12,419,948
Commitments and Contingencies (Note 11)
Stockholders' Deficit:
Preferred stock - $0.0001 par value, 5,000,000 shares authorized, Series A preferred stock- no par value, 250 shares designated, issued and outstanding
Common stock - $0.0001 par value, 200,000,000 shares authorized, 45,381,868 and 43,104,692 shares issued and outstanding at March 31, 2018 and September 30, 2017, respectively	4,538	4,311
Additional paid-in capital	7,671,727	7,442,028
Accumulated deficit	(16,878,233)	(13,856,425)
Total Stockholders' Deficit	(9,201,968)	(6,410,086)
Total Liabilities and Stockholders' Deficit	$ 5,284,206	$ 6,009,862

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2018	Sep. 30, 2017
Statement of Financial Position [Abstract]
Preferred stock, par or stated value per share	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	250	250
Preferred stock, shares outstanding	250	250
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	43,460,630	43,104,692
Common stock, shares outstanding	43,124,692	43,104,692

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Income Statement [Abstract]
Sales	$ 4,602,343	$ 5,620,335	$ 9,035,403	$ 12,604,727
Cost of Goods Sold	3,946,076	5,168,852	8,087,969	11,701,662
Gross Profit	656,267	451,483	947,434	903,065
Operating Expenses:
Selling, general, and administrative expenses	650,032	3,046,732	1,470,794	4,014,208
Amortization	66,248	66,249	132,498	132,499
Total Operating Expenses	716,280	3,112,981	1,603,292	4,146,707
Loss from Operations	(60,013)	(2,661,498)	(655,858)	(3,243,642)
Other Income (Expenses):
Derivative liability expense	(19,680)		(37,693)
Gains on settlement	48,544		81,905
Interest and financing costs	(1,690,086)	(1,007,179)	(2,410,162)	(1,376,769)
Total Other Expenses	(1,661,222)	(1,007,179)	(2,365,950)	(1,376,769)
Net Loss before Provision for Income Tax	(1,721,235)	(3,668,677)	(3,021,808)	(4,620,411)
Provision for Income Tax				50
Net Loss	$ (1,721,235)	$ (3,668,677)	$ (3,021,808)	$ (4,620,461)
Basic and Diluted Loss Per Share	$ (0.04)	$ (0.09)	$ (0.07)	$ (0.11)
Weighted Average Number of Common Shares Outstanding:
Basic and diluted	43,945,221	42,483,456	43,589,547	42,078,659

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash Flows from Operating Activities:
Net loss	$ (3,021,808)	$ (4,620,461)
Adjustments to reconcile net loss to net cash used in operating activities:
Intangibles amortization	132,498	132,499
Amortization of debt discounts	445,734	368,820
Accretion of premium on convertible note	1,306,123	617,647
Share-based compensation expense	193,053	1,043,517
Deferred rent		(10,000)
Debt financing costs	133,145
Derivative expense	37,693
Gain on settlement	(81,905)
Changes in operating assets and liabilities:
Accounts receivable	89,640	(472,193)
Inventory	347,063	732,091
Prepaid expenses and other current assets	43,862	(56,500)
Accounts payable and accrued expenses	(445,966)	1,822,713
Due to vendor - insurance financing	25,149	23,695
Customers deposits		(78,841)
Income tax payable		50
Cash Used in Operating Activities	(795,719)	(496,963)
Cash Flows from Financing Activities:
Net proceeds from convertible notes payable	640,000
Net proceeds from note payable	232,500
Repayments of notes payable	(123,547)
Repayment of line of credit	(2,547)	(983)
Repayment of lines of credit - related parties		(3,682)
Proceeds from (repayments of) loan payable - related party, net	(89,500)	5,000
Cash Provided by Financing Activities	656,906	335
Net Decrease in Cash	(138,813)	(496,628)
Cash - beginning of period	152,492	631,020
Cash - end of period	13,679	152,492
Cash paid for:
Interest	274,096	316,759
Noncash financing and investing activities:
Increase in prepaid expenses and accrued expenses	70,000
Issuance of common stock to satisfy settlement payable	150	48,998
Issuance of warrant for debt issuance costs	12,508
Initial derivative liability and debt discount	79,000
Issuance of convertible debt for deferred financing costs	65,000
Reclassification of debt premium upon conversion		26,384
Reclassification of accrued fee and interest to convertible notes payable	2,288,642
Reclassification of accounts payable to notes payable	$ 579,106

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Nature of Operations

6 Months Ended

Mar. 31, 2018

Nature of Operations [Abstract]

NATURE OF OPERATIONS

NOTE 1 - NATURE OF OPERATIONS

Drone USA, Inc. (“Drone”) is an Unmanned Aerial Vehicles (“UAV”) and related services and technology company that intends to engage in the research, design, development, testing, manufacturing, distribution, exportation, and integration of advanced low altitude UAV systems, services and products. Drone also provides product procurement, distribution, and logistics services through its wholly-owned subsidiary, HowCo Distributing Co., (“HowCo”) (collectively, the “Company”) to the United States Department of Defense and Defense Logistics Agency. The Company has operations based in West Haven, Connecticut and Vancouver, Washington. The Company is registered with the U.S. State Department and has met the requirements of the Arms Export Control Act and International Traffic in Arms Regulations (“ITAR”). The registration allows for the Company to apply for export, and temporary import, of product, technical data, and services related to defense articles. The Company continues to seek strategic acquisitions and partnerships with UAV firms that offer superior technologies in high-growth markets, as well as acquisitions and partnerships with firms that have complementary technologies and infrastructure.

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Summary of Significant Accounting Policies and Going Concern

6 Months Ended

Mar. 31, 2018

Summary of Significant Accounting Policies and Going Concern [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Drone USA, Inc. and its wholly-owned subsidiaries, Drone USA, LLC (inactive), and HowCo. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended September 30, 2017 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on December 29, 2017. The consolidated balance sheet as of September 30, 2017 contained herein has been derived from the audited consolidated financial statements as of September 30, 2017, but does not include all disclosures required by GAAP.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. For the six months ended March 31, 2018, the Company has incurred a net loss of $3,021,808 and used cash in operations of $795,719. The working capital deficit, stockholders' deficit and accumulated deficit was $13,020,086, $9,201,968, and $16,878,233, respectively, at March 31, 2018. Furthermore, on April 13, 2017 the Company received a default notice on its payment obligations under the senior secured credit facility agreement (see Note 5), defaulted on its Note Payable – Seller, and as of March 31, 2018 is subject to lawsuits and has received demands for payment of past due amounts from several consultants and service providers. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The ability of the Company to continue as a going concern is dependent upon management’s ability to further implement its business plan and raise additional capital as needed from the sales of stock or debt. The Company has been implementing cost-cutting measures and restructuring or setting up payment plans with vendors and service providers and plans to raise equity through a private placement, and restructure or repay its secured obligations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for bad debt on accounts receivable, reserves on inventory, valuation of goodwill and intangible assets for impairment analysis, valuation of the earn-out liability, valuation of stock based compensation, the valuation of derivative liabilities and the valuation allowance on deferred tax assets.

Fair Value Measurements

The Company follows the FASB Fair Value Measurements standard, as they apply to its financial instruments. This standard defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Level 1 inputs include quoted market prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. The standard requires the utilization of the lowest possible level of input to determine fair value and carrying amounts of current liabilities approximate fair value due to their short-term nature. The Company accounts for certain instruments at fair value using level 3 valuation.

	At March 31, 2018						At September 30, 2017
Description	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Derivative liability		-		-	$	116,693		-		-	$	-

A roll forward of the level 3 valuation financial instruments is as follows:

	Derivative  Liabilities
Balance at September 30, 2017	$	-
Initial valuation of derivative liability recorded as derivative expense		70,028
Initial valuation of derivative liability recorded as debt discount		79,000
Change in fair value of derivative liability		(32,335	)
Balance at March 31, 2018	$	116,693

Inventory

Inventory consists of finished goods, which are purchased directly from manufacturers. The Company utilizes a just in time type of inventory system where products are ordered from the vendor only when the Company has received sales order from its customers. Inventory is stated at the lower of cost and net realizable value on a first-in, first-out basis.

Revenue Recognition

Sales are recognized upon shipment of product to the customer. Provisions for returns and allowances are recorded in the period the sales occur. Payments received from customers prior to shipment of the product to them, are recorded as customer deposit liabilities.

Convertible Notes with Fixed Rate Conversion Options

The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - "Distinguishing Liabilities from Equity".

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine expected term because of lack of sufficient exercise history. Additionally, effective January 1, 2017, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements and related disclosures.

Pursuant to ASC 505-50 – “Equity-Based Payments to Non-Employees”, all share-based payments to non-employees, including grants of stock options, are recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusted the expense recognized in the consolidated financial statements accordingly.

Derivative Liabilities

The Company has certain financial instruments that contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40.  This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date.  In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to income or expense as part of gain or loss on extinguishment. 

Net Loss Per Share

Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of March 31, 2018 and 2017, potentially dilutive securities consisted of the following:

	March 31, 2018		March 31, 2017
Stock options		44,351,200		33,025,000
Warrants		600,000		500,000
Related party convertible debt and accrued interest		9,398,132		3,688,000
Senior convertible debt		77,814,212		17,670,000
Convertible debt		31,285,292		-
Contingent liability – advisory fees		-		3,156,448
Total		163,448,836		58,039,448

Segment Reporting

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. As of March 31, 2018, the Company did not report any segment information since the Company only generates sales from its subsidiary, HowCo.

Recent Accounting Pronouncements

In May 2014, the FASB issued a new accounting standard that attempts to establish a uniform basis for recording revenue to virtually all industries financial statements, under U.S. GAAP as amended in March 2016 and April 2016. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. In order to accomplish this objective, companies must evaluate the following five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. There are three basic transition methods that are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. guidance at the date of initial application and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. Prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. guidance. For public business entities, this standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is prohibited. The Company does not believe that the adoption of this new accounting standard to have a material impact on its consolidated financial position and results of operations.

In February 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented. The Company is currently evaluating the impact of this new accounting standard on its consolidated financial position and results of operations.

The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

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Inventory

6 Months Ended

Mar. 31, 2018

Inventory [Abstract]

INVENTORY

NOTE 3 - INVENTORY

At March 31, 2018 and September 30, 2017, inventory consists of finished goods which was valued at $333,994 and $681,057, respectively.

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Line of Credit - Bank

6 Months Ended

Mar. 31, 2018

Line Of Credit Bank [Abstract]

LINE OF CREDIT - BANK

NOTE 4 - LINE OF CREDIT - BANK

The Company has a revolving line of credit with a financial institution. This revolving line of credit is in the amount of $50,000, and is personally guaranteed by the Company’s Chief Executive Officer (“CEO”). The line bears interest at a fluctuating rate equal to the prime rate plus 4.25%, which at March 31, 2018 and September 30, 2017 was 9.00% and 8.50%, respectively. As of March 31, 2018, the balance of the line of credit was $45,959 with $4,041 available.

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Note Payable - Seller

6 Months Ended

Mar. 31, 2018

Notes Payable - Seller [Abstract]

NOTE PAYABLE - SELLER

NOTE 5 - NOTE PAYABLE – SELLER

In connection with the acquisition of HowCo in September 2016, the Company issued a note payable in the amount of $900,000 to the sellers of HowCo. The note matured on September 9, 2017 and bears interest at 5.50% per annum. The note requires payment of unpaid principal and interest upon maturity. The note is secured by all assets of HowCo Distribution Co. and subordinated to the Senior Secured Credit Facility discussed below. The note is currently in default and the default interest rate is 8% per annum. At March 31, 2018 and September 30, 2017, accrued interest on this note amounted to $89,583 and $53,682, respectively.

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Convertible Notes Payable - Related Parties

6 Months Ended

Mar. 31, 2018

Convertible Notes Payable - Related Parties/Convertible Notes Payable and Advisory Fee Liabilities [Abstract]

CONVERTIBLE NOTES PAYABLE - RELATED PARTIES

NOTE 6 - CONVERTIBLE NOTES PAYABLE – RELATED PARTIES

The Company has an $840,000 convertible note payable (“Note 1”) to a related party entity controlled by the Company’s CEO. Note 1 bears interest at an annual rate of 7% with an original maturity date of June 11, 2017 that was extended to June 11, 2018, at which time all unpaid principal and interest is due. The holder of Note 1 has the option to convert the outstanding principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted average price per share of common stock for the 30-day period prior to conversion. As of March 31, 2018 and September 30, 2017, Note 1 has not been converted and the balance of the note was $688,444 and $688,444, and accrued interest was $101,806 and $77,776, respectively. This note is considered a stock settled debt in accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion formula.

The Company has a convertible note payable (“Note 2”) with the Company’s CEO. Note 2 bears interest at an annual rate of 7% with a maturity date of December 31, 2017, at which time all unpaid principal and interest was due. On December 15, 2017, the due date of Note 2 was extended to July 2, 2018. The holder of Note 2 has the option to convert the outstanding principal and accrued interest, in whole or in part, into shares of common stock at a conversion price equal to the volume weighted average price per share of common stock for the 30-day period prior to conversion. During the six months ended March 31, 2018, the Company borrowed $500 and repaid $90,000 on this note. As of March 31, 2018 and September 30, 2017, Note 2 has not been converted and the balance was $32,500 and $122,000, and accrued interest was $12,744 and $10,707, respectively. This note is considered a stock settled debt in accordance with ASC 480 and the fixed monetary amount is equal to the principal amount based on the conversion formula.

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Convertible Notes Payable and Advisory Fee Liabilities

6 Months Ended

Mar. 31, 2018

Convertible Notes Payable - Related Parties/Convertible Notes Payable and Advisory Fee Liabilities [Abstract]

CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES

NOTE 7 – CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES

Senior Secured Credit Facility Note

Effective September 13, 2016 (“Effective Date”), the Company entered into a senior secured credit facility note (the “Agreement”) with an investment fund to provide capital for the acquisition of HowCo. The Company can borrow up to $6,500,000, subject to lender approval, with an initial convertible promissory note at closing of $3,500,000 (the “Convertible Note”). The Convertible Note bears interest at a rate of 18% per annum, required monthly payments of $52,500 which is interest only starting on October 13, 2016 through February 13, 2017, and monthly payments, including interest and principal, of $298,341 starting on March 13, 2017 through maturity on March 13, 2018. Events of default are defined in the Agreement and Convertible Note. In the event of default the Convertible Note balance will bear interest at 25% per annum. In connection with this Agreement, the Company was obligated to pay additional advisory fees of $850,000 payable in the form of cash or common stock in accordance with the terms of the Agreement. The Company was also required to reserve 7,000,000 shares of common stock related to this transaction. The reserved shares will be released upon the satisfaction of the loan.

In the event the lender makes additional loans under the Agreement, the Company agreed to pay additional advisory fees under similar terms as the $850,000 fee. As of March 31, 2018, the Company had issued 539,204 shares of common stock in satisfaction of the $850,000 advisory fee in accordance with the terms of the agreement, such shares being issued in September 2016. The proceeds from the sale of the 539,204 shares were supposed to be applied towards the $850,000 advisory fee due. Based upon the value of the shares, at the time the lender sells the shares, the Company may be required to redeem unsold shares for the difference between the $850,000 and the lender’s sales proceeds. Accordingly, the $850,000 was reflected as a current liability through December 31, 2017. In January 2018, in connection a settlement agreement, the accrued advisory fee was reclassified to the principal balance of the replacement Convertible Note. Through the date of the settlement agreement and through March 31, 2018, the lender had not reported any proceeds from the sale of these shares (see below). Prior to the settlement agreement in January 2018, notwithstanding anything contained in the Agreement to the contrary, in the event the Lender has not realized net proceeds from the sale of Advisory Fee Shares equal to at least the Advisory Fee by the earlier to occur of: (A) the twelve (12) month anniversary of the Effective Date; (B) the occurrence of an Event of Default; or (C) the Maturity Date, then at any time thereafter, the Lender shall have the right, upon written notice to the Borrower, to require that the Borrower redeem all Advisory Fee Shares then in Lender’s possession for cash equal to the Advisory Fee, less any cash proceeds received by the Lender from any previous sales of Advisory Fee Shares, if any. In the event such redemption notice is given by the Lender, the Borrower shall redeem the then remaining Advisory Fee Shares in Lender’s possession for an amount of Dollars equal to the Advisory Fee, less any cash proceeds received by the Lender from any previous sales of Advisory Fee Shares, if any, payable by wire transfer to an account designated by Lender within five (5) Business Days from the date the Lender delivers such redemption notice to the Borrower.

The Convertible Note is only convertible upon default or mutual agreement by both parties at a conversion rate of 85% of the lowest of the daily volume weighted average price of the Company’s common stock during the 5 business days immediately prior to the conversion date. Once a default occurs the Convertible Note will be accounted for as stock settled debt at its fixed monetary value and any shares issued upon conversion are also subject to a make whole provision similar to that described above for the $850,000 advisory fee payable. On March 13, 2017 the Company defaulted on the monthly principal and interest payment of $298,341. Due to this default, as of March 31, 2017, the Company has accounted for the embedded conversion option as stock settled debt and recorded a debt premium of $617,647 with a charge to interest expense, and the interest rate increased to 25% (default rate). The Company has been making interest-only payments of $52,500 each month, however, the Company has not made the full default interest payment of $72,917 per month.

On March 28, 2017, the Company entered into an agreement with the above senior secured credit facility lender to receive a range of advisory services for a total of $1,200,000 with no definitive terms or length of service which was expensed in fiscal 2017 and had been recorded as an accrued liability – advisory fees through December 31, 2017. In connection with the settlement agreement discussed below, in January 2018, the advisory services fee payable was reclassified to the principal balance of the replacement Convertible Note.

On January 3, 2018, the Company entered into a settlement agreement (the “Settlement Agreement”) and replacement note agreements with the investment fund related to a senior secured credit facility note dated September 13, 2016. On the effective date of the Settlement Agreement, all amounts owed to the investment fund aggregated $5,788,642 and consisted of a convertible promissory note of $3,500,000, accrued interest payable of $238,642, and accrued advisory fees payable of $2,050,000. Additionally, on the effective date, the amount due of $5,788,642 was split and apportioned into 2 separate and distinct replacement notes (“Replacement Note A” and “Replacement Note B”). Replacement Note A shall have a principal amount of $1,000,000 and Replacement Note B shall have a principal balance of $4,788,642, both of which shall be and remained secured by the original security agreements, the pledge agreements, the guarantee agreement and other applicable loan documents and both shall bear interest at 18% per annum. The default was not waived by this settlement agreement. The Company originally recorded a premium on stock settled debt of $617,647 on the $3,500,000, and subsequent to the settlement agreement recorded an additional premium on stock settled debt of $403,878 on the additional $2,288,642.

The Credit Agreement is hereby amended such that the Maturity Date is extended to January 13, 2019 (the "Extended Maturity Date") for replacement Note B, while the Note A maturity date remained at March 13, 2018 but was due as of March 2017 due to the principal and interest payment default discussed above. Notwithstanding anything contained in this Agreement to the contrary, all Obligations owing by the Company and all other Credit Parties under the Credit Agreement, First Replacement Note B, and all other Loan Documents shall be paid in full by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to December 13, 2018 and the remaining principal and accrued interest on January 13, 2019.

On January 30, 2018, the Replacement Note A in the principal amount of $1,000,000 was purchased by Livingston Asset Management LLC (“Livingston”) from the original lender. On November 15, 2017, the Company executed a Liability Purchase Term Sheet with Livingston Asset Management (“Livingston”) under which Livingston agreed to purchase up to $10,000,000 that the Company owes to its creditors through direct purchase of the debts from the Company’s creditors. (See below). Replacement Note A is due to Livingston and bears interest at 18% per annum. At any time and from time to time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents; or (ii) mutual agreement between the Company and the Holder, this Note may be, at the sole option of the Holder, convertible into shares of the Company’s common stock, in accordance with the terms and conditions set forth below. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under any of the Loan Documents; or (ii) mutual agreement between the Company and the Holder, the Holder may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable hereunder or under any other Loan Documents (such total amount, the "Conversion Amount") into shares of common stock of the Company (the "Conversion Shares") at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) 85% of the lowest of the daily volume weighted average price of the Company’s common stock during the five business days immediately prior to the conversion date, which price shall be indicated in the conversion notice (the denominator) (the "Conversion Price"). Upon liquidation by the Holder of Conversion Shares issued pursuant to a Conversion Notice, provided that the Holder realizes a net amount from such liquidation equal to less than the Conversion Amount specified in the relevant conversion notice (such net realized amount, the "Realized Amount"), the Company shall issue to the Holder additional shares of the Company's common stock equal to: (i) the Conversion Amount specified in the relevant conversion notice; minus (ii) the Realized Amount, as evidenced by a reconciliation statement from the Holder (a "Sale Reconciliation") showing the Realized Amount from the sale of the Conversion Shares; divided by (iii) the average volume weighted average price of the Company's common stock during the five business days immediately prior to the date upon which the Holder delivers notice (the "Make-Whole Notice") to the Company that such additional shares are requested by the Holder (such number of additional shares to be issued, the "Make-Whole Shares"). As of March 31, 2018, there has been one issuance under section 3(a)(10) of the Securities Act for 1,500,000 shares (see below), which have been recorded at par value with an equal charge to additional paid-in capital and which value has been recorded as a liability remaining in convertible note balance, until these shares have been sold and reported to the Company by the lender as part of the Make-Whole provision at which time the proceeds value of such shares will be reclassified to additional paid-in capital.

Other Convertible Debt

In July 2017, the FASB issued Accounting Standards Update No. 2017-11 Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, ASU 2017-11 requires entities that present earnings per share (EPS) in accordance with ASC Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. For the Company, ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company adopted this standard on October 1, 2017.

On October 5, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) under which the Company received $78,500, net of $21,500 in fees and expenses to be recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the “Note”) in the principal amount of $100,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of July 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices of Drone USA’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of the Company’s common stock. The Note is subject to customary default provisions, including a cross default provision. The Company’s CEO entered into a confession of judgment in the principal amount of the Note. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $53,846 with a charge to interest expense.

On November 9, 2017, the Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge Partners, LLC (“Crown Bridge”) under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 and a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.35 as a commitment fee which is equal to the product of one-third of the face value of each tranche divided by $0.35. The warrants have full ratchet price protection and cashless exercise rights. The convertible note (the “Note”) issued to Crown Bridge is in the principal amount of $105,000, has an original issue discount of $10,500 and issue costs of $19,000 both of which are recorded as debt discount along with the warrant relative fair value to be amortized over the twelve month term of this tranche, bears interest of 10% (12% default rate) per annum, and has a maturity date of 12 months from the date of each tranche of payments under the Note with future tranches being at the discretion of Crown Bridge. The conversion rate for any conversion of unpaid principal and interest under the Notes is at a 35% discount to the lowest market price of the shares of the Company’s common stock within a 20 day trading period prior to the date of conversion to which an additional 10% discount will be added if the conversion price of the Company’s common stock is less than $0.05 per share and no shares of the Company’s common stock can be issued to the extent Crown Bridge would own more than 4.99% of the outstanding shares of the Company’s common stock and the conversion shares contain piggy-back registration rights. The Note is subject to customary default provisions including an event of default if the bid price of the Company’s common stock is less than its par value of $.0001 per share. The Company is entitled to prepay the Note between 30 days after its issuance until 180 days from its issuance at amounts that increase from 112% of the prepayment amount to 137% of the prepayment amount depending on the length of time when prepayments are made. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense.

On November 15, 2017, the Company executed a Liability Purchase Term Sheet with Livingston Asset Management (“Livingston”) under which Livingston agreed to purchase up to $10,000,000 that the Company owes to its creditors through direct purchase of the debts from the Company’s creditors in return for (i) a convertible note issued by the Company in the principal amount of $50,000 bearing interest of 10% per year to cover certain legal fees and other expenses of Livingston that matures in six months and is convertible into shares of our common stock at a 30% reduction off the lowest closing bid price for 20 trading days prior to the date of conversion, (ii) a convertible note subject to these same terms as the convertible note issued to Livingston payable to Scottsdale Capital Advisors in the principal amount of $15,000 as a placement agent fee and (iii) the right of Livingston to retain 30% of any negotiated reduction off the face amount of the liability the Company owes to such creditors. The Company has accounted for the convertible promissory notes as stock settled debt under ASC 480 and recorded a debt premium of $27,857 with a charge to interest expense. On March 7, 2018 the Company entered into a placement agent and advisory agreement with Scottsdale Capital Advisors in connection with the Livingston liability purchase term sheet executed on November 15, 2017. The placement agent services amounted to $15,000 payable in the form of a convertible note which was assigned by Livingston (the “Scottsdale Note”). The Scottsdale Note matures six months from the date of issuance and shall accrue interest at the rate of 10% per annum. The $15,000 note is convertible into shares of the Company’s common stock at a discount of 30% of the low closing bid price for the twenty trading days prior to the conversion and is not subject to any registration rights.

Pursuant to the Liability Purchase Term Sheet, following a court judgment for the liabilities purchased by Livingston, the Company will issue free trading shares of its common stock under section 3(a)(10) of the Securities Act to Livingston in the amount of such judgment in a series of tranches so that Livingston will not own more than 9.99% of our outstanding shares per tranche. In connection with the Livingston Liability Purchase Term Sheet, on February 8, 2018, the Company and Livingston entered into a Settlement Agreement and Stipulation whereby Livingston filed a complaint for payment of Replacement Note A in the principal amount of $1,000,000 (the “Claim Amount”) pursuant to the section 3(a)(10) settlement (See above). In accordance with the terms of the Settlement Agreement, the Court was advised of Company's intention to rely upon the exception to registration set forth in Section 3(a)(l0) of the Act to support the issuance of its common shares and the Court held a fairness hearing regarding the issuance (the "Hearing") on March 12, 2018. Following entry of an Order by the Court which occurred on March 12, 2018, in settlement of the claims, the Company shall issue and deliver to Livingston shares of its common stock (the "Settlement Shares") in one or more tranches as necessary, and subject to adjustment and ownership limitations as set forth in the Settlement Agreement, sufficient to generate proceeds such that the aggregate Remittance Amount equals the Claim Amount. The parties reasonably estimate that the fair market value of the Settlement Shares to be received by Livingston is equal to approximately $1,666,667 which is based on a discount of 40%. 

On November 28, 2017, the Company received a payment of $84,000, net of issue costs of $23,500 which was recorded as a debt discount and is being amortized to interest expense over the Note term, under the terms of a Securities Purchase Agreement dated November 20, 2017, with Labrys Fund, LP (“Labrys”) under which Drone USA issued to Labrys (i) a convertible note (the “Note”) in the principal amount of $107,500 that bears interest of 10% (24% default rate) per annum and (ii) 335,938 shares of the Company’s common stock as a commitment fee which were to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of November 20, 2017. Pursuant to ASC 260, as of December 31, 2017, the 335,938 contingent shares issued under the Financial Consulting Agreement are not considered outstanding and are not included in basic net loss per share or as potentially dilutive shares in calculating the diluted EPS. The Note has a maturity date of August 28, 2018 and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company’s common stock during the fifteen (15) trading day period ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion price is less than $.01 per share or if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). In addition, if the Company issues any shares of its common stock at less than the conversion price Labrys is entitled to full ratchet anti-dilution in such event. No shares of the Company’s common stock can be issued to the extent Labrys would own more than 4.99% of the outstanding shares of the Company’s common stock unless Labrys agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). Initially, the Company must instruct its transfer agent to reserve 6,198,049 shares of its common stock. The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink) and a $15,000 penalty if not paid by the maturity date. The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter.  In November 2017, the Company accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $57,885 with a charge to interest expense. On February 7, 2018 the Company amended the terms to the Note whereby Labrys waives all existing events of default on the Note and in return will no longer be required, under any circumstances, to return the commitment shares back to the Company’s treasury. The Company was under default for failing to maintain a market capitalization of at least $5,000,000 on any trading day. The 335,938 commitment shares were considered issued in February 2018 which was recorded as interest and financing costs at the then market close price of $0.09 per share for a value of $30,234.

On December 7, 2017, the Company received a payment of $79,000, net of an original issue discount of $5,800 and issue costs of $20,200 fees which was recorded as a debt discount which is being amortized into interest expense over the Note term, under the terms of a Securities Purchase Agreement dated November 21, 2017, with EMA Financial, LLC (“EMA Financial”) under which the Company issued to EMA Financial a convertible note (the “Note”) in the principal amount of $105,000 that bears interest of 10% (24% default rate) per annum. The Note has a maturity date of December 7, 2018 and has a conversion rate for any unpaid principal and interest at a conversion price which is the lower of (i) the closing sales price of the Company’s common stock on the trading day immediately preceding the date of funding and (ii) a 35% discount to (a) the lowest sales price of the shares of the Company’s common stock within a 20 day trading period including and immediately preceding the conversion date or (b) the lowest bid price on the conversion date, whichever is lower, and the conversion shares contain piggy-back registration rights. The conversion rate is further reduced under certain events, including if the closing sales price is less than $0.095 in which case the conversion rate is a 50% discount under the terms set forth above. No shares of the Company’s common stock can be issued to the extent EMA Financial would own more than 4.99% of the outstanding shares of the Company’s common stock. The Company also is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion or adjustment of the Note (based on the conversion price of the Note in effect from time to time) and initially must instruct its transfer agent to reserve 6,802,000 shares of common stock in the name of EMA Financial for issuance upon conversion. The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium of 135% of the unpaid principal and interest if paid within 90 days after the issue date and 150% thereafter. In connection with the issuance of this Note, the Company determined that the terms of the Note contain a conversion formula that caused variations in the conversion price resulting in the treatment of the conversion option as a bifurcated derivative to be accounted for at fair value. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives were determined using the Binomial valuation model. At the end of each period, the Company revalued the embedded conversion option and warrants derivative liabilities. In connection with this Note, on the initial measurement date of December 7, 2017, the fair values of the embedded conversion option derivative of $149,028 was recorded as derivative liabilities, $70,028 was charged to current period operations as initial derivative expense, and $79,000 was recorded as a debt discount and is being amortized into interest expense over the term of this Note. At the end of the period, the Company revalued the embedded conversion option derivative liability. In connection with this revaluations, the Company recorded derivative expense of $19,680 and $37,693 for the three and six months ended March 31, 2018. During the six months ended March 31, 2018, the fair value of the derivative liability was estimated using the Binomial valuation model with the following assumptions:

Dividend rate	0
Term (in years)	.69 year
Volatility	222.18	%
Risk-free interest rate	1.76% to 2.09	%

A number of terms included in the Securities Purchase Agreement and Note issued subsequently (see paragraph below) were more favorable than the terms granted to EMA Financial under its Securities Purchase Agreement and the EMA Note. Accordingly, on December 31, 2017, EMA Financial notified the Company that pursuant to the EMA Securities Purchase Agreement that the EMA Note was automatically amended by increasing (i) the annual interest rate to 12% percent and (ii) the Original Issue Discount to $9,450.

On December 13, 2017, the Company received a payment of $60,000, net of original issue discount fees of $7,500 and $15,000 of issue costs recorded as debt discounts and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated December 8, 2017, with Morningview Financial, LLC (“Morningview Financial”) under which the Company issued to Morningview Financial a convertible note (the “Note”) in the principal amount of $82,500 that bears interest of 12% (18% default rate) per annum. The Note has a maturity date of 12 months and a conversion rate for any unpaid principal and interest and a conversion price which is a 35% discount to the lowest sales price of the shares of the Company’s common stock within a 20-day trading period including and immediately preceding the conversion date. The conversion rate is further reduced under certain events, including if the closing sales price is less than $0.05 in which case the conversion rate is a 45% discount under the terms set forth above. No shares of the Company’s common stock can be issued to the extent Morningview Financial would own more than 4.99% of the outstanding shares of the Company’s common stock. The Company also is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion or adjustment of the Note (based on the conversion price of the Note in effect from time to time). The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company’s Trading Price as that term is defined in the Note is less than $.0001 or if a money judgment, writ or similar process shall be entered or filed against the Company or any of its subsidiaries for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of 20 days unless otherwise consented to by the holder of the Note. Additionally, upon default and default notice by the lender, the amount immediately due shall be increased to 150% or 200% of the outstanding principal and interest due depending upon the default provisions, plus default interest. The Company is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium of 135% of the unpaid principal and interest. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $44,423 with a charge to interest expense.

On January 3, 2018, the Company entered into a Securities Purchase Agreement with Power Up under which the Company received $42,000, net of $11,000 in fees and expenses which were recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the “Note”) in the principal amount of $53,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of October 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices of the Company’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of Drone USA common stock. The Note is subject to customary default provisions, including a cross default provision. The Company is required to have authorized for issuance six times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation is not in effect) and based on the applicable conversion price of the Note in effect from time to time, initially to be 3,462,355 shares of common stock. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,538 with a charge to interest expense.

On January 9, 2018, the Company received a payment of $84,000, net of $23,500 in fees and expenses which was recorded as a debt discount and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated November 20, 2017, with Labrys under which the Company issued to Labrys (i) a convertible note (the “Note”) in the principal amount of $107,500 that bears interest of 10% per annum and (ii) 421,238 shares of the Company’s common stock as a commitment fee which was to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of December 26, 2017. Pursuant to ASC 260, as of January 9, 2018, the 421,238 contingent shares issued under the Financial Consulting Agreement are not considered outstanding and are not included in basic net loss per share or as potentially dilutive shares in calculating the diluted EPS. The Note has a maturity date of nine months or September 26, 2018, and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company’s common stock during the fifteen trading day period ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion price is less than $.01 per share or if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). In addition, if the Company issues any shares of its common stock at less than the conversion price, Labrys is entitled to full ratchet anti-dilution in such event. No shares of Drone USA common stock can be issued to the extent Labrys would own more than 4.99% of the outstanding shares of the Company’s common stock unless Labrys agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). Initially, the Company must instruct its transfer agent to reserve 8,535,980 shares of its common stock. The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $57,885 with a charge to interest expense. On February 7, 2018 the Company amended the terms to the Note whereby Labrys waives all existing events of default on the Note and in return will no longer be required, under any circumstances, to return the commitment shares back to the Company’s treasury. The Company was under default for failing to maintain a market capitalization of at least $5,000,000 on any trading day. The 421,238 commitment shares were considered issued in February 2018 at a price of $0.09 per share based on the then market close price for a total value of $37,911 which was recorded as interest and financing costs.

On January 31, 2018 the Company received a payment of $95,000, net of $2,750 for legal fees and $7,250 for due diligence to be recorded as a debt discount and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated January 31, 2018, with Auctus Fund, LLC (“Auctus”) under which the Company issued to Auctus a convertible note (the “Note”) in the principal amount of $105,000 that bears interest of 10% per annum. The Note has a maturity date of nine months or October 26, 2018, and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company’s common stock during the fifteen trading day period ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion shares cannot be delivered by DWAC. In addition, if the Company issues any shares of its common stock at less than the conversion price, Auctus is entitled to full ratchet anti-dilution in such event. No shares of the Company’s common stock can be issued to the extent Auctus would own more than 4.99% of the outstanding shares of the Company’s common stock unless Auctus agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the “bid” price for its common stock ($0.0001 on the “ask” with zero market makers on the “bid” per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense.

On March 5, 2018, the Company entered into a Securities Purchase Agreement with Power Up under which the Company received $42,000, net of $11,000 in fees and expenses to be recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the “Note”) in the principal amount of $53,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of December 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company’s common stock at a discount of 35% of the average of the two lowest closing bid prices of the Company’s common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of Drone USA common stock. The Note is subject to customary default provisions, including a cross default provision. The Company is required to have authorized for issuance six times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation is not in effect) and based on the applicable conversion price of the Note in effect from time to time, initially to be 13,046,154 shares of common stock. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,538 with a charge to interest expense.

The senior secured credit facility note balance and convertible debt balances consisted of the following at March 31, 2018 and September 30, 2017: 

	March 31, 2018			September 30, 2017
Principal	$	6,672,142		$	3,500,000
Premiums		1,923,770			617,647
Unamortized discounts		(177,894	)		(338,075	)
		8,418,018			3,779,572
Non-current		-			-
Current	$	8,418,018		$	3,779,572

For the six months ended March 31, 2018 and 2017, amortization of debt discount amounted to $445,734 and $368,820, respectively.

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Note and Loan Payable

6 Months Ended

Mar. 31, 2018

Note and Loan Payable [Abstract]

NOTE AND LOAN PAYABLE

NOTE 8 – NOTE AND LOAN PAYABLE

On October 19, 2017, the Company entered into a loan agreement with a third party entity under which the Company received approximately $232,500, net of fees and expenses of $17,500 recorded as debt discounts and amortized to interest expense over the Note term, in return for issuing a promissory note (the “Note”) in the principal amount of $250,000. The Note bears interest at 12% (18% default rate) per annum and has a maturity date of April 20, 2018. The Note may be prepaid in full or in part with additional premium or penalty. The Note is secured by certain assets of the Company’s CEO, certain assets of HowCo and all of the assets of Drone USA as a junior security interest to the first secured interest of the senior lender. Additionally, the loan is guaranteed by the Company’s CEO. For the three and six months ended March 31, 2018, amortization of debt discount amounted to $8,799 and $15,545 and the balance of the note was $248,045 net of remaining discount of $1,955. On April 20, 2018, the note matured and all principal and unpaid interest was due immediately. The Company is currently working with the lender to settle this note and in the meantime is responsible for all collection expenses, including reasonable attorneys’ fees incurred with or without suit and on appeal. The Company will be accruing interest at the default interest rate of 18% until settlement.

On February 2, 2018, the Company entered into a oral loan agreement with a vendor under which the Company reclassified $579,106 in accounts payable in return for promising to pay the principal amount of $579,106. The loan bears interest at 18% per annum and has a maturity date of October 31, 2018. The loan will be paid in full by the maturity date by making monthly payments of $70,000 from February 28, 2018 to September 30, 2018 and a final balance payment of approximately $63,000 by October 31, 2018. The loan does not have a default interest rate nor prepayment penalties if the note is paid in full or in part. During the six months ended March 31, 2018 the Company has made its first two payments of principal and interest and the balance of the note was $455,559.

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Stockholders' Deficit

6 Months Ended

Mar. 31, 2018

Stockholders' Deficit [Abstract]

STOCKHOLDERS' DEFICIT

NOTE 9 - STOCKHOLDERS’ DEFICIT

Preferred Stock

As of March 31, 2018, the Company is authorized to issue 5,000,000 shares of $.0001 par value preferred stock, with designations, voting, and other rights and preferences to be determined by the Board of Directors of which 4,999,750 remain available for designation and issuance.

As of March 31, 2018 and 2017, the Company has designated 250 shares of $0.0001 par value Series A preferred stock, of which 250 shares are issued and outstanding. These preferred shares have voting rights per share equal to the total number of issued and outstanding shares of common stock divided by 0.99.

Common Stock

Stock Incentive Plan

The Company established its 2016 Stock Incentive Plan (the “Plan”) that permits the granting of incentive stock options and other common stock awards. The maximum number of shares available under the Plan is 100,000,000 shares. The Plan is open to all employees, officers, directors, and non-employees of the Company. Option granted under the Plan will terminate and may no longer be exercised (i) immediately upon termination of an employee or consultant for cause or (ii) one year after termination of employment, but not later than the remaining term of the option. As of March 31, 2018, 55,648,800 awards remain available for grant under the Plan.

Shares Issued for Services

On September 1, 2017, the Company entered into a consulting agreement with an individual. In connection with this agreement, the Company agreed to issue 10,000 common shares per month until the agreement is terminated. During the six months ended March 31, 2018, an aggregate of 30,000 common shares were issuable pursuant to the agreement. Such shares were valued on the vesting dates of October 1, 2017 and November 1, 2017 at $3,950, or $0.20 and $0.195 per share, respectively, based on the quoted trading price. In connection with these shares, during the six months ended March 31, 2018, the Company recorded professional fees of $3,950. This agreement was terminated in December 2017.

Shares Issued for debt issuance costs

On November 28, 2017, pursuant to a Securities Purchase Agreement and Convertible Note Agreement with Labrys (see Note 7), the Company considered issued to Labrys 335,938 shares of the Company’s common stock, as a commitment fee which was to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of November 20, 2017. Prior to the February 7, 2018 amendment discussed below, pursuant to ASC 260 the 335,938 shares were considered contingent shares and not considered outstanding and not accounted for due to the contingency. On February 7, 2018 the Company amended the terms of the convertible note dated November 28, 2017 whereby the holder waives all existing events of default to date and in return shall no longer be required to return, under any circumstances, the commitment shares back to the Company’s treasury. On February 16, 2018 the Company issued the 335,938 shares at the then market close price of $0.09 per share for a value of $30,234 which was expensed.

On February 16, 2018, pursuant to a Securities Purchase Agreement and Convertible Note Agreement with Labrys (see Note 7), the Company issued to Labrys 421,238 shares of the Company’s common stock, as a commitment fee which was to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of December 26, 2017. Prior to the February 7, 2018 amendment discussed below, pursuant to ASC 260 the 421,238 shares were considered contingent shares ad not considered outstanding and not accounted for due to the contingency. On February 7, 2018 the Company amended the terms to the convertible note dated December 26, 2017 whereby the holder waives all existing events of default to date and in return shall no longer be required to return, under any circumstances, the commitment shares back to the Company’s treasury. On February 16, 2018 the Company issued the 421,238 shares at the then market close price of $0.09 per share for a value of $37,911 which was expensed.

On March 14, 2018, pursuant to Replacement Note A with Livingston (see Note 7), the Company issued to Livingston 1,500,000 shares of the Company’s common stock under section 3(a)(10) of the Securities Act, which have been recorded at par value with an equal charge to additional paid-in capital and which value has been recorded as a liability remaining in convertible note balance, until these shares have been sold and reported to the Company.

Stock Options

For the six months ended March 31, 2018 and 2017, the Company recorded $145,322 and $894,016 of compensation and consulting expense related to stock options, respectively. Total unrecognized compensation and consulting expense related to unvested stock options at March 31, 2018 amounted to $1,352,943. The weighted average period over which share-based compensation expense related to these options will be recognized is approximately 3 years.

For the six months ended March 31, 2018, a summary of the Company’s stock options activity is as follows:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at September 30, 2017		44,351,200	$	0.21		9.27	$	-	$	0
Granted		-		-		-		-		-
Forfeited		-		-		-		-		-
Outstanding at March 31, 2018		44,351,200	$	0.21		8.68	$	-	$	0
Exercisable at March 31, 2018		27,294,600	$	0.20		8.51	$	-	$	0

All options were issued at an options price equal to the market price on the date of the grant.

Warrants

On November 9, 2017, the Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 and a five-year warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.35 as a commitment fee which is equal to the product of one-third of the face value of each tranche divided by $0.35. The warrants have full ratchet price protection and cashless exercise rights (See Note 7).

For the six months ended March 31 2018, a summary of the Company’s warrant activity is as follows:

	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at September 30, 2017		500,000	$	0.01		3.44	$	-	$	95,000
Granted		100,000		0.35		4.61		-		-
Outstanding at March 31, 2018		600,000	$	0.07		3.64	$	-	$	32,500
Exercisable at March 31, 2018		600,000	$	0.07		3.64	$	-	$	32,500

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Related Party Transactions

6 Months Ended

Mar. 31, 2018

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 10 - RELATED PARTY TRANSACTIONS

Since July 2017, the Company utilizes the office space and equipment of an entity in West Haven, Connecticut related to the Company’s CEO at no cost.

The Company has certain convertible notes payable to related parties (see Note 6).

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Commitments and Contingencies

6 Months Ended

Mar. 31, 2018

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Contingencies

Legal Matters

In connection with the merger with Texas Wyoming Drilling, Inc., a vendor has a claim for unpaid bills of approximately $75,000 against the Company. The Company and its legal counsel believe the Company is not liable for the claim pursuant to its indemnification clause in the merger agreement.

During the quarter ended June 30, 2017, the Company received demands for non-payment of five months of rent for its New York location. In July 2017, the Company vacated the New York premises. Subsequent to June 30, 2017, a lawsuit was filed in the Supreme Court of the State of New York for an alleged breach of a Service Agreement for approximately $63,000 in connection with the lease the Company entered into for its former office space in New York. As of September 30, 2017, the Company accrued into accounts payable approximately $63,000 pursuant to ASC 420-10-30 “Cost to Terminate an Operating Lease”. In October 2017, the Company entered into a settlement agreement with the New York lease landlord and paid $30,000 in full settlement and recorded a settlement gain of $33,361.

The Company has filed a lawsuit against the former Chief Strategy Officer and member of the Board, who was terminated for cause on July 7, 2017, for breach of contract, breach of the covenant of good faith and fair dealing, and violation of the California Business & Professions Code. On July 31, 2017, the former Chief Strategy Officer and member of the Board subsequently filed a counterclaim against the Company seeking, among other items, damages in excess of $900,000, prejudgment interest, and reimbursement of legal fees. The Company believes it will prevail in this matter and therefore has not accrued any additional liabilities. Prior to the termination and as of March 31, 2018 and September 30, 2017, there was accrued a 401(k) matching contribution of $9,230 and a $100,000 sign on bonus.

On August 9, 2017, a lawsuit was filed by an investor relations firm against the Company in the Supreme Court, Westchester County (Index No. 61772/2017). The complaint alleged two causes of action, one for goods and services furnished and one for an account stated, in the amount of $74,325. The plaintiff obtained a default judgment. The Company has filed an Order to Show Cause to vacate the default judgment on the grounds that the service of the complaint was invalid. The court granted the Company’s Order to Show Cause on December 19, 2017 and set the hearing on the Order to Show Cause for January 12, 2018. At December 31, 2017, $68,544 was accrued in accounts payable. On February 14, 2018 the Company entered into a stipulation agreement with the investor relations firm which settled the amount due at $20,000 if payment was made by February 21, 2018. The lump sum payment was made on February 16, 2018 and a gain on extinguishment of debt of $48,544 was recorded.

On February 6, 2018 the Company sent a letter to the previous owners of HowCo Distributing Co. (“HowCo”) in relation to the Stock Purchase Agreement entered into. The Company believes that there were certain financial misrepresentations provided during the acquisition of Howco during 2016. These misrepresentations likely impacted the transaction price paid as well as the working capital after closing. The Company estimates that damages sum to approximately $800,000 in regards to working capital deficit as well as approximately $370,000 in regards to the transaction prices. On March 13, 2018 the Company started a lawsuit against the previous owners by issuing a summons. On April 12, 2018, the Company received the Defendants’ answer and affirmative defenses in relation to the summons sent out to the previous owners of HowCo Distributing Co. on March 13, 2018 on the financial misrepresentations provided during the acquisition of HowCo. The answer states that damages at issue, if any, were caused by the fault of others. The owners seek for the Company to dismiss its complaint with prejudice and award them for their attorneys’ fees, costs and disbursements.

Commitments

Exclusive Agreement

On June 1, 2016, the Company entered into an exclusive agreement with a Brazilian entity in the drone technology market. The agreement provides that the Company will acquire exclusive rights to this entity’s UAV technology and intellectual property that includes research and development efforts completed by this entity. The Company will also secure exclusive export and representation rights to this entity’s products along with the non-binding option to acquire full ownership of this entity for $1 million should the companies agree at a later date it would be in the best interest of both businesses. As consideration for this agreement, the Brazilian entity CEO was appointed to the position of Chief Technology Officer of the Company and granted an option for 2,000,000 shares of common stock.

Consulting Agreements

In June 2017, the Company entered into an agreement with an investment bank to provide placement agent services on an exclusive basis as it relates to a private placement (“the placement”). The agreement calls for the investment bank to receive 9% of the gross proceeds of the placement and 2.5% warrant coverage of the amount raised. The warrants shall entitle the investment bank to purchase securities of the Company at a purchase price equal to 110% of the implied price per share of the placement or 100% of the public market closing price of the Company’s common stock on the date of the placement, whichever is lower. The warrants shall have a term of five years after the closing of the placement. The agreement expired on September 30, 2017 but the terms of the agreement was effective for certain capital raised during the six months ended March 31, 2018 (see Note 7).

Lease Obligations

The Company entered into an agreement with a manufacturer in Pismo Beach, California. The agreement provides for certain services to be provided by the manufacturer as needed by the Company. The agreement has an initial term of three years with one year renewals. In connection with this agreement, the Company has agreed to sublease space based in San Luis Obispo, California from the manufacturer for the purposes of the development and manufacturing of unmanned aerial vehicles. The lease provides for base monthly rent of approximately $15,000 for the initial term to be increased to $16,500 per month upon extension. The lease term begins February 1, 2017 and expires January 31, 2019 with the option to extend the term an additional 24 months. However, the Company never took possession of the premises and in July 2017, the Company made a decision to not take possession of the premises. The Company is in default of the rent payments and had received verbal demand of payments. As of March 31, 2018, the Company has not made any of the required monthly rent payments in connection with this agreement. As of March 31, 2018 and September 30, 2017, the Company had accrued into accounts payable the remaining amounts due under the term of the lease for a total accrual of $360,000 pursuant to ASC 420-10-30.

In May 2017, the Company extended HowCo’s office lease through May 30, 2020. The lease requires monthly payments including base rent plus CAM with annual increases. Future minimum lease payments under non-cancelable operating leases at March 31, 2018 are as follows: 

Years ending March 31,	Amount
2018		44,507
2019		60,499
2020		25,460
Total minimum non-cancelable operating lease payments	$	130,466

For the six months ended March 31, 2018 and 2017, rent expense amounted to $28,330 and $27,774, respectively.

Purchase commitments

The Company entered into agreements to act as a distributor or dealer with third party drone suppliers. Some of these agreements require the Company to maintain certain levels of inventory of the supplier’s products. Such levels of inventory are not quantifiable as of the date of this report.

Profit Sharing Plan (for HowCo)

On April 13, 2018, HowCo Distributing announced to its employees a company-wide profit sharing program. In fiscal year 2018, HowCo Distributing, will redistribute the total of ten-percent of company net income. The employee profit is equal to their annual salary divided by the Company’s total annual payroll and multiplied by 10% of net income for the fiscal year.

Other

On January 29, 2018, the Company entered into a settlement agreement and mutual release with a vendor who had provided public relations and other consulting services whereby the Company shall pay to this vendor an aggregate amount of $60,000 of which $30,000 was paid on February 2, 2018. Additionally, the Company shall pay ten monthly payments of $3,000 per month beginning on February 29, 2018. Additionally, the vendor returned 400,000 common shares of the Company’s common stock which will be cancelled.

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Concentrations

6 Months Ended

Mar. 31, 2018

Concentrations [Abstract]

CONCENTRATIONS

NOTE 12 - CONCENTRATIONS

Concentration of Credit Risk

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. At March 31, 2018, cash in bank did not exceed the federally insured limits of $250,000. The Company has not experienced any losses in such accounts through March 31, 2018.

Economic Concentrations

With respect to customer concentration, three customers accounted for approximately 55%, 16%, and 11% , of total sales for the six months ended March 31, 2018. Three customers accounted for approximately 65%, 12% and 11% of total sales for the six months ended March 31, 2017.

With respect to accounts receivable concentration, four customers accounted for approximately 94% of total accounts receivable at March 31, 2018 at 56%, 15%, 14% and 9%. Three customers accounted for approximately 60%, 12% and 12% of total accounts receivable at March 31, 2017.

With respect to supplier concentration, there were two suppliers accounted for approximately 41% and 12% of total purchases for the six months ended March 31, 2018. Two suppliers accounted for approximately 48% and 13% of total purchases for the six months ended March 31, 2017.

With respect to accounts payable concentration, two suppliers accounted for approximately 23% and 11% of total accounts payable at March 31, 2018. Two suppliers accounted for approximately 44% and 11% of total accounts payable at March 31, 2017.

With respect to foreign sales, it totaled approximately $32,000 for the six months ended March 31, 2018. Foreign sales totaled approximately $207,000 for the six months ended March 31, 2017.

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Subsequent Events

6 Months Ended

Mar. 31, 2018

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 13 - SUBSEQUENT EVENTS

Shares Issued for Services

On April 1, 2018, the Company entered into a one year oral management consulting agreement with an individual. In connection with this agreement, the Company issued 4,000,000 common shares to the consultant. Such shares were valued on the vesting dates of April 1, 2018 at $296,000, or $0.074 per share based on the quoted trading price. In connection with these shares, the Company will record professional fees over the one-year term.

Shares Issued for Conversion

During the period from April 30, 2018 through May 8, 2018 the company received multiple notices of conversion from Power Up Lending Group Ltd., to convert a total of $49,000 of principal from the convertible note entered into on October 5, 2017 (see Note 7). The Company issued 1,995,869 common shares for these conversions leaving a remaining principal balance due on this note of $51,000.

Legal

On April 12, 2018, the Company received the Defendants’ answer and affirmative defenses in relation to the summons sent out to the previous owners of HowCo Distributing Co. on March 13, 2018 on the financial misrepresentations provided during the acquisition of HowCo. The answer states that damages at issue, if any, were caused by the fault of others. The owners seek for the Company to dismiss its complaint with prejudice and award them for their attorneys’ fees, costs and disbursements.

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Summary of Significant Accounting Policies and Going Concern (Policies)

6 Months Ended

Mar. 31, 2018

Summary of Significant Accounting Policies and Going Concern [Abstract]

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Drone USA, Inc. and its wholly-owned subsidiaries, Drone USA, LLC (inactive), and HowCo. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly certain information and footnote disclosures normally included in financial statements in accordance with GAAP have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending September 30, 2018. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended September 30, 2017 and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on December 29, 2017. The consolidated balance sheet as of September 30, 2017 contained herein has been derived from the audited consolidated financial statements as of September 30, 2017, but does not include all disclosures required by GAAP.

Going Concern

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. For the six months ended March 31, 2018, the Company has incurred a net loss of $3,021,808 and used cash in operations of $795,719. The working capital deficit, stockholders' deficit and accumulated deficit was $13,020,086, $9,201,968, and $16,878,233, respectively, at March 31, 2018. Furthermore, on April 13, 2017 the Company received a default notice on its payment obligations under the senior secured credit facility agreement (see Note 5), defaulted on its Note Payable – Seller, and as of March 31, 2018 is subject to lawsuits and has received demands for payment of past due amounts from several consultants and service providers. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. The ability of the Company to continue as a going concern is dependent upon management’s ability to further implement its business plan and raise additional capital as needed from the sales of stock or debt. The Company has been implementing cost-cutting measures and restructuring or setting up payment plans with vendors and service providers and plans to raise equity through a private placement, and restructure or repay its secured obligations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be required should the Company be unable to continue as a going concern.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for bad debt on accounts receivable, reserves on inventory, valuation of goodwill and intangible assets for impairment analysis, valuation of the earn-out liability, valuation of stock based compensation, the valuation of derivative liabilities and the valuation allowance on deferred tax assets.

Fair Value Measurements

Fair Value Measurements

The Company follows the FASB Fair Value Measurements standard, as they apply to its financial instruments. This standard defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The standard establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Level 1 inputs include quoted market prices for identical assets or liabilities in an active market that the Company has the ability to access at the measurement date. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. The standard requires the utilization of the lowest possible level of input to determine fair value and carrying amounts of current liabilities approximate fair value due to their short-term nature. The Company accounts for certain instruments at fair value using level 3 valuation.

	At March 31, 2018						At September 30, 2017
Description	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Derivative liability		-		-	$	116,693		-		-	$	-

A roll forward of the level 3 valuation financial instruments is as follows:

	Derivative  Liabilities
Balance at September 30, 2017	$	-
Initial valuation of derivative liability recorded as derivative expense		70,028
Initial valuation of derivative liability recorded as debt discount		79,000
Change in fair value of derivative liability		(32,335	)
Balance at March 31, 2018	$	116,693

Inventory

Inventory

Inventory consists of finished goods, which are purchased directly from manufacturers. The Company utilizes a just in time type of inventory system where products are ordered from the vendor only when the Company has received sales order from its customers. Inventory is stated at the lower of cost and net realizable value on a first-in, first-out basis.

Revenue Recognition

Revenue Recognition

Sales are recognized upon shipment of product to the customer. Provisions for returns and allowances are recorded in the period the sales occur. Payments received from customers prior to shipment of the product to them, are recorded as customer deposit liabilities.

Convertible Notes with Fixed Rate Conversion Options

Convertible Notes with Fixed Rate Conversion Options

The Company may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. The Company records the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - "Distinguishing Liabilities from Equity".

Stock-based compensation

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company utilizes the Black-Sholes option pricing model and uses the simplified method to determine expected term because of lack of sufficient exercise history. Additionally, effective January 1, 2017, the Company adopted the Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements and related disclosures.

Pursuant to ASC 505-50 – “Equity-Based Payments to Non-Employees”, all share-based payments to non-employees, including grants of stock options, are recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusted the expense recognized in the consolidated financial statements accordingly.

Derivative Liabilities

Derivative Liabilities

The Company has certain financial instruments that contain embedded derivatives. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40.  This accounting treatment requires that the carrying amount of any embedded derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date.  In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to income or expense as part of gain or loss on extinguishment.

Net Loss Per Share

Net Loss Per Share

Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings (loss) of the Company. Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of March 31, 2018 and 2017, potentially dilutive securities consisted of the following:

	March 31, 2018		March 31, 2017
Stock options		44,351,200		33,025,000
Warrants		600,000		500,000
Related party convertible debt and accrued interest		9,398,132		3,688,000
Senior convertible debt		77,814,212		17,670,000
Convertible debt		31,285,292		-
Contingent liability – advisory fees		-		3,156,448
Total		163,448,836		58,039,448

Segment Reporting

Segment Reporting

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. As of March 31, 2018, the Company did not report any segment information since the Company only generates sales from its subsidiary, HowCo.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued a new accounting standard that attempts to establish a uniform basis for recording revenue to virtually all industries financial statements, under U.S. GAAP as amended in March 2016 and April 2016. The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. In order to accomplish this objective, companies must evaluate the following five basic steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. There are three basic transition methods that are available - full retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. guidance at the date of initial application and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings. Prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. guidance. For public business entities, this standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is prohibited. The Company does not believe that the adoption of this new accounting standard to have a material impact on its consolidated financial position and results of operations.

In February 2016, the FASB issued a new accounting standard on leases. The new standard, among other changes, will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption will require a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented. The Company is currently evaluating the impact of this new accounting standard on its consolidated financial position and results of operations.

The Company does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

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Summary of Significant Accounting Policies and Going Concern (Tables)

6 Months Ended

Mar. 31, 2018

Summary of Significant Accounting Policies and Going Concern [Abstract]

Summary instruments at fair value using level 3 valuation

	At March 31, 2018						At September 30, 2017
Description	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Derivative liability		-		-	$	116,693		-		-	$	-

Schedule of roll forward of the level 3 valuation financial instruments

	Derivative  Liabilities
Balance at September 30, 2017	$	-
Initial valuation of derivative liability recorded as derivative expense		70,028
Initial valuation of derivative liability recorded as debt discount		79,000
Change in fair value of derivative liability		(32,335	)
Balance at March 31, 2018	$	116,693

Schedule of potentially dilutive securities

	March 31, 2018		March 31, 2017
Stock options		44,351,200		33,025,000
Warrants		600,000		500,000
Related party convertible debt and accrued interest		9,398,132		3,688,000
Senior convertible debt		77,814,212		17,670,000
Convertible debt		31,285,292		-
Contingent liability – advisory fees		-		3,156,448
Total		163,448,836		58,039,448

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Convertible Notes Payable and Advisory Fee Liabilities (Tables)

6 Months Ended

Mar. 31, 2018

Convertible Notes Payable - Related Parties/Convertible Notes Payable and Advisory Fee Liabilities [Abstract]

Schedule of fair value of the derivative liability

Dividend rate	0
Term (in years)	.69 year
Volatility	222.18	%
Risk-free interest rate	1.76% to 2.09	%

Schedule of senior secured credit facility note balance and convertible debt balances

	March 31, 2018			September 30, 2017
Principal	$	6,672,142		$	3,500,000
Premiums		1,923,770			617,647
Unamortized discounts		(177,894	)		(338,075	)
		8,418,018			3,779,572
Non-current		-			-
Current	$	8,418,018		$	3,779,572

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Stockholders' Deficit (Tables)

6 Months Ended

Mar. 31, 2018

Class of Stock [Line Items]

Summary of the company's stock options activity

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at September 30, 2017		44,351,200	$	0.21		9.27	$	-	$	0
Granted		-		-		-		-		-
Forfeited		-		-		-		-		-
Outstanding at March 31, 2018		44,351,200	$	0.21		8.68	$	-	$	0
Exercisable at March 31, 2018		27,294,600	$	0.20		8.51	$	-	$	0

Summary of the company's warrant activity

	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Weighted- Average Grant-Date Fair Value		Aggregate Intrinsic Value
Outstanding at September 30, 2017		500,000	$	0.01		3.44	$	-	$	95,000
Granted		100,000		0.35		4.61		-		-
Outstanding at March 31, 2018		600,000	$	0.07		3.64	$	-	$	32,500
Exercisable at March 31, 2018		600,000	$	0.07		3.64	$	-	$	32,500

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Commitments and Contingencies (Tables)

6 Months Ended

Mar. 31, 2018

Commitments and Contingencies [Abstract]

Schedule of future minimum lease payments

Years ending March 31,	Amount
2018		44,507
2019		60,499
2020		25,460
Total minimum non-cancelable operating lease payments	$	130,466

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Summary of Significant Accounting Policies and Going Concern (Details) - USD ($)	Mar. 31, 2018	Sep. 30, 2017
Level 1 [Member]
Summary instruments at fair value using level 3 valuation
Derivative liability
Level 2 [Member]
Summary instruments at fair value using level 3 valuation
Derivative liability
Level 3 [Member]
Summary instruments at fair value using level 3 valuation
Derivative liability	$ 116,693

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Summary of Significant Accounting Policies and Going Concern (Details 1)	6 Months Ended
	Mar. 31, 2018 USD ($)
Schedule of roll forward of the level 3 valuation financial instruments
Balance at September 30, 2017
Initial valuation of derivative liability recorded as derivative expense	70,028
Initial valuation of derivative liability recorded as debt discount	79,000
Change in fair value of derivative liability	(32,335)
Balance at March 31, 2018	$ 116,693

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Summary of Significant Accounting Policies and Going Concern (Details 2) - shares	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Schedule of potentially dilutive securities
Stock options	44,351,200	33,025,000
Warrants	600,000	500,000
Related party convertible debt and accrued interest	9,398,132	3,688,000
Senior convertible debt	77,814,212	17,670,000
Convertible debt	31,285,292
Contingent liability - advisory fees		3,156,448
Total	163,448,836	58,039,448

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Summary of Significant Accounting Policies and Going Concern (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017	Sep. 30, 2017
Summary of Significant Accounting Policies and Going Concern (Textual)
Net loss	$ (1,721,235)	$ (3,668,677)	$ (3,021,808)	$ (4,620,461)
Cash in operations			(795,719)	$ (496,963)
Working capital deficit			13,020,086
Stockholders' deficit	9,201,968		9,201,968
Accumulated deficit	$ (16,878,233)		$ (16,878,233)		$ (13,856,425)

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Inventory (Details) - USD ($)	Mar. 31, 2018	Sep. 30, 2017
Inventory (Textual)
Finished goods value	$ 333,994	$ 681,057

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Line of Credit - Bank (Details) - USD ($)	6 Months Ended
	Mar. 31, 2018	Sep. 30, 2017	Sep. 30, 2016
Line of Credit Bank (Textual)
Line bears interest, description	The line bears interest at a fluctuating rate equal to the prime rate plus 4.25
Balance of the line of credit	$ 45,959	$ 48,506
Revolving line of credit [Member]
Line of Credit Bank (Textual)
Revolving line of credit	$ 50,000
Debt instrument, interest rate, effective percentage	9.00%		8.50%
Balance of the line of credit	$ 46,397
Line of credit facility, available	$ 4,041

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Note Payable - Seller (Details) - USD ($)	6 Months Ended
	Mar. 31, 2018	Sep. 30, 2017
Notes Payable By Seller (Textual)
Accrued interest	$ 89,583	$ 53,682
HowCo. [Member]
Notes Payable By Seller (Textual)
Issued a note payable	$ 900,000
Notes bears interest rate	5.50%
Maturity date of note	Sep. 09, 2017
Default interest rate	8.00%

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Convertible Notes Payable - Related Parties (Details) - USD ($)	6 Months Ended	12 Months Ended
	Mar. 31, 2018	Sep. 30, 2017
Convertible Notes Payable - Related Parties (Textual)
Convertible note payable - related party affiliate	$ 688,444	$ 688,444
Convertible note payable - related party officer	32,500	122,000
Convertible note payable ("Note 1") [Member]
Convertible Notes Payable - Related Parties (Textual)
Convertible note payable	$ 840,000
Convertible note payable, description	Note 1 bears interest at an annual rate of 7% with an original maturity date of June 11, 2017 that was extended to June 11, 2018, at which time all unpaid principal and interest is due.
Accrued interest	$ 101,806	77,776
Convertible note payable ("Note 2") [Member]
Convertible Notes Payable - Related Parties (Textual)
Convertible note payable, description	Note 2 bears interest at an annual rate of 7% with a maturity date of December 31, 2017, at which time all unpaid principal and interest was due. On December 15, 2017, the due date of Note 2 was extended to July 2, 2018.
Accrued interest	$ 12,774	$ 10,707
Borrowed amount	500
Repayments of borrowed amount	$ 90,000

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Convertible Notes Payable and Advisory Fee Liabilities (Details)	6 Months Ended
	Mar. 31, 2018
Schedule of fair value of the derivative liability
Dividend rate	0.00%
Term (in years)	8 months 9 days
Volatility	222.18%
Minimum [Member]
Schedule of fair value of the derivative liability
Risk-free interest rate	1.76%
Maximum [Member]
Schedule of fair value of the derivative liability
Risk-free interest rate	2.09%

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Convertible Notes Payable and Advisory Fee Liabilities (Details 1) - Senior secured credit facility note [Member] - USD ($)	Mar. 31, 2018	Sep. 30, 2017
Schedule of senior secured credit facility note balance and convertible debt balances
Principal amount	$ 6,672,142	$ 3,500,000
Premium	1,923,770	617,647
Unamortized discount	(177,894)	(338,075)
Convertible note payable	8,418,018	3,779,572
Non-current
Current	$ 8,418,018	$ 3,779,572

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Convertible Notes Payable and Advisory Fee Liabilities (Details Textual) - USD ($)							1 Months Ended		6 Months Ended
	Jan. 03, 2018	Nov. 15, 2017	Nov. 09, 2017	Nov. 09, 2017	Oct. 05, 2017	Sep. 13, 2016	Nov. 28, 2017	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017	Jan. 30, 2018	Sep. 30, 2017	Sep. 01, 2017	Mar. 28, 2017
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Reserve shares of common stock													10,000
Advisory fee									$ 850,000			$ 850,000
Embedded conversion option as stock settled debt								$ 617,647		$ 617,647
Increase in interest rate, percentage								25.00%
Payment of interest								$ 52,500
Payment of monthly principal and interest								72,917
Accrued liabilities, current									1,182,947			1,015,880
Amortization of debt discounts									445,734	368,820
Payment of convertible debt									$ 640,000
Common stock commitment fee							335,938
Contingent shares issued										3,156,448
Settlement Agreement [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Advisory fee	$ 2,050,000
Embedded conversion option as stock settled debt	3,500,000
Accrued interest	238,642
Principal amount	1,000,000
Investments received	$ 5,788,642
Securities purchase agreement term, description	Additionally, on the effective date, the amount due of $5,788,642 was split and apportioned into 2 separate and distinct replacement notes ("Replacement Note A" and "Replacement Note B"). Replacement Note A shall have a principal amount of $1,000,000 and Replacement Note B shall have a principal balance of $4,788,642, both of which shall be and remained secured by the original security agreements, the pledge agreements, the guarantee agreement and other applicable loan documents and both shall bear interest at 18% per annum. The default was not waived by this settlement agreement. The Company originally recorded a premium on stock settled debt of $617,647 on the $3,500,000, and subsequent to the settlement agreement recorded an additional premium on stock settled debt of $403,878 on the additional $2,288,642.
Credit Agreement [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Maturity date, description	The Maturity Date is extended to January 13, 2019 (the "Extended Maturity Date") for replacement Note B, while the Note A maturity date remained at March 13, 2018 but was due as of March 2017 due to the principal and interest payment default discussed above. Notwithstanding anything contained in this Agreement to the contrary, all Obligations owing by the Company and all other Credit Parties under the Credit Agreement, First Replacement Note B, and all other Loan Documents shall be paid in full by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to December 13, 2018 and the remaining principal and accrued interest on January 13, 2019.
Crown Bridge [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Principal amount			$ 105,000	$ 105,000
Investments received				75,500
Livingston [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Convertible note, description									The placement agent services amounted to $15,000 payable in the form of a convertible note which was assigned by Livingston (the "Scottsdale Note"). The Scottsdale Note matures six months from the date of issuance and shall accrue interest at the rate of 10% per annum. The $15,000 note is convertible into shares of the Company's common stock at a discount of 30% of the low closing bid price for the twenty trading days prior to the conversion and is not subject to any registration rights.
Interest rate		18.00%
Issued of stock, shares									1,500,000
Issued of stock		$ 10,000,000
Principal amount											$ 1,000,000
Debt conversion, description		(i) the Conversion Amount (the numerator); divided by (ii) 85% of the lowest of the daily volume weighted average price of the Company's common stock during the five business days immediately prior to the conversion date, which price shall be indicated in the conversion notice (the denominator) (the "Conversion Price").
Convertible Notes Payable [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Convertible note, description									Note 1 bears interest at an annual rate of 7% with an original maturity date of June 11, 2017 that was extended to June 11, 2018, at which time all unpaid principal and interest is due.
Convertible Notes Payable [Member] | Power Up [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Convertible note, description					Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of July 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company's common stock at a discount of 35% of the average of the two lowest closing bid prices of Drone USA's common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of the Company's common stock.
Principal amount					$ 100,000
Debt premium					53,846
Fees and expenses					21,500
Investments received					$ 78,500
Other Convertible Debt [Member] | Crown Bridge [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Amortization of debt discounts			10,500
Principal amount			$ 105,000	$ 105,000
Warrants to purchase of common stock shares			100,000	100,000
Exercise price of warrants			$ 0.35	$ 0.35
Payment of dividend face value			$ 0.35	$ 0.35
Debt issuance cost			$ 19,000
Debt discount maturity term			12 months
Debt instrument interest rate, percentage			10.00%	10.00%
Debt instrument fixed interest rate, percentage			12.00%	12.00%
Debt instrument conversion price, description			The conversion rate for any conversion of unpaid principal and interest under the Notes is at a 35% discount to the lowest market price of the shares of the Company's common stock within a 20 day trading period prior to the date of conversion to which an additional 10% discount will be added if the conversion price of the Company's common stock is less than $0.05 per share and no shares of the Company's common stock can be issued to the extent Crown Bridge would own more than 4.99% of the outstanding shares of the Company's common stock and the conversion shares contain piggy-back registration rights.
Debt default common stock par value, description			The Note is subject to customary default provisions including an event of default if the bid price of the Company's common stock is less than its par value of $.0001 per share.
Warrants maturity term			5 years
Debt conversion, description			The Company is entitled to prepay the Note between 30 days after its issuance until 180 days from its issuance at amounts that increase from 112% of the prepayment amount to 137% of the prepayment amount depending on the length of time when prepayments are made. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense.
Securities purchase agreement term, description			The terms of a Securities Purchase Agreement dated October 25, 2017.
Other Convertible Debt [Member] | Labrys [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Reserve shares of common stock							6,198,049
Principal amount							$ 107,500
Debt discount maturity term							9 months
Debt instrument interest rate, percentage							10.00%
Debt instrument fixed interest rate, percentage							24.00%
Debt conversion, description							No shares of the Company's common stock can be issued to the extent Labrys would own more than 4.99% of the outstanding shares of the Company's common stock unless Labrys agrees to increase the ownership to 9.99%.
Securities purchase agreement term, description							The terms of a Securities Purchase Agreement dated November 20, 2017.
Payment of issue costs							$ 23,500
Common stock commitment fee							335,938
Debt instrument penalty							$ 15,000
Debt premium							$ 57,885
Debt conversion rate, description							A conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company's common stock during the fifteen (15) trading day period ending on the latest complete trading day prior to the date of conversion. The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion price is less than $.01 per share or if the Company loses the "bid" price for its common stock ($0.0001 on the "ask" with zero market makers on the "bid" per Level 2 and/or a market such as OTC Pink).
Additional loans [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Additional advisory fees									$ 850,000
Advisory fee									$ 850,000			850,000
Issued of stock, shares									539,204
Issued of stock									$ 850,000
Common Stock [Member] | Convertible Notes Payable [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Convertible note, description									The Convertible Note is only convertible upon default or mutual agreement by both parties at a conversion rate of 85% of the lowest of the daily volume weighted average price of the Company's common stock during the 5 business days immediately prior to the conversion date.
Senior secured credit facility note [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Maximum borrowing amount						$ 6,500,000
Convertible note, description						The Convertible Note bears interest at a rate of 18% per annum, required monthly payments of $52,500 which is interest only starting on October 13, 2016 through February 13, 2017, and monthly payments, including interest and principal, of $298,341 starting on March 13, 2017 through maturity on March 13, 2018.
Remaining borrowing amount						$ 3,500,000
Interest rate at period end						25.00%
Additional advisory fees						$ 850,000
Reserve shares of common stock						7,000,000
Payments of interest, line of credit facility						$ 52,500
Advisory fee														$ 1,200,000
Payment of monthly principal and interest								$ 298,341
Principal amount									$ 6,672,142			3,500,000
Debt premium									$ 1,923,770			$ 617,647

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Convertible Notes Payable and Advisory Fee Liabilities (Details Textual 1) - USD ($)							1 Months Ended		3 Months Ended	6 Months Ended
	Mar. 05, 2018	Jan. 09, 2018	Jan. 03, 2018	Dec. 13, 2017	Dec. 07, 2017	Nov. 15, 2017	Feb. 07, 2018	Jan. 31, 2018	Mar. 31, 2018	Mar. 31, 2018	Mar. 31, 2017	Feb. 08, 2018	Sep. 01, 2017
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Reserve shares of common stock													10,000
Amortization of debt discounts										$ 445,734	$ 368,820
Payment of convertible debt										640,000
Recorded derivative expense									$ 19,680	37,693
Securities Purchase Agreement [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Principal amount			$ 53,000
Securities purchase agreement term, description		The conversion rate is further reduced if the Company enters into any section 3(a)(9) or 3(a)(10) transactions under the Securities Act of 1933, as amended, if the terms of those transactions offer greater discounts on conversion prices or a longer look back period for determining the conversion rate and under certain other enumerated events, including if the conversion price is less than $.01 per share or if the Company loses the "bid" price for its common stock ($0.0001 on the "ask" with zero market makers on the "bid" per Level 2 and/or a market such as OTC Pink). In addition, if the Company issues any shares of its common stock at less than the conversion price, Labrys is entitled to full ratchet anti-dilution in such event. No shares of Drone USA common stock can be issued to the extent Labrys would own more than 4.99% of the outstanding shares of the Company's common stock unless Labrys agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). Initially, the Company must instruct its transfer agent to reserve 8,535,980 shares of its common stock. The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the "bid" price for its common stock ($0.0001 on the "ask" with zero market makers on the "bid" per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $57,885 with a charge to interest expense.
Annual interest rate			10.00%
Agreement, description			The Company received $42,000, net of $11,000 in fees and expenses which were recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the "Note") in the principal amount of $53,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of October 15, 2018. The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company's common stock at a discount of 35% of the average of the two lowest closing bid prices of the Company's common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of Drone USA common stock. The Note is subject to customary default provisions, including a cross default provision. The Company is required to have authorized for issuance six times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation is not in effect) and based on the applicable conversion price of the Note in effect from time to time, initially to be 3,462,355 shares of common stock. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,538 with a charge to interest expense.
Securities purchase agreement, description	The Company entered into a Securities Purchase Agreement with Power Up under which the Company received $42,000, net of $11,000 in fees and expenses to be recorded as a debt discount and amortized to interest expense over the Note term, in return for issuing a convertible promissory note (the "Note") in the principal amount of $53,000. Power Up received a right of first refusal for the first nine months from the date of the Note to provide any debt or equity financing less than $150,000. The Note bears interest at 10% per annum and has a maturity date of December 15, 2018.	The Company received a payment of $84,000, net of $23,500 in fees and expenses which was recorded as a debt discount and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated November 20, 2017, with Labrys under which the Company issued to Labrys (i) a convertible note (the "Note") in the principal amount of $107,500 that bears interest of 10% per annum and (ii) 421,238 shares of the Company's common stock as a commitment fee which was to be returned to the Company in the event that it pays all unpaid principal and interest under the Note within 180 days of December 26, 2017. Pursuant to ASC 260, as of January 9, 2018, the 421,238 contingent shares issued under the Financial Consulting Agreement are not considered outstanding and are not included in basic net loss per share or as potentially dilutive shares in calculating the diluted EPS. The Note has a maturity date of nine months or September 26, 2018, and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company's common stock during the fifteen trading day period ending on the latest complete trading day prior to the date of conversion.
Labrys [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Long-term purchase commitment, description							The Company amended the terms to the Note whereby Labrys waives all existing events of default on the Note and in return will no longer be required, under any circumstances, to return the commitment shares back to the Company's treasury. The Company was under default for failing to maintain a market capitalization of at least $5,000,000 on any trading day. The 421,238 commitment shares were considered issued in February 2018 at a price of $0.09 per share based on the then market close price for a total value of $37,911 which was recorded as interest and financing costs.
Auctus [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Debt default common stock par value, description								In addition, if the Company issues any shares of its common stock at less than the conversion price, Auctus is entitled to full ratchet anti-dilution in such event. No shares of the Company's common stock can be issued to the extent Auctus would own more than 4.99% of the outstanding shares of the Company's common stock unless Auctus agrees to increase the ownership to 9.99%. The Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the Note (based on the conversion price of the Note in effect from time to time). The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company loses the "bid" price for its common stock ($0.0001 on the "ask" with zero market makers on the "bid" per Level 2 and/or a market such as OTC Pink). The Company is entitled to prepay the Note between the issue date until 180 days from its issuance but not thereafter. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $56,538 with a charge to interest expense.
Securities purchase agreement, description								The Company received a payment of $95,000, net of $2,750 for legal fees and $7,250 for due diligence to be recorded as a debt discount and amortized to interest expense over the Note term under the terms of a Securities Purchase Agreement dated January 31, 2018, with Auctus Fund, LLC ("Auctus") under which the Company issued to Auctus a convertible note (the "Note") in the principal amount of $105,000 that bears interest of 10% per annum. The Note has a maturity date of nine months or October 26, 2018, and a conversion rate for any unpaid principal and interest at a 35% discount to the market price which is defined as the average of the two lowest trading prices (defined as the lower of the trading price or closing bid price) for the Company's common stock during the fifteen trading day period ending on the latest complete trading day prior to the date of conversion.
Livingston Asset Management [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Principal amount												$ 1,000,000
Debt issuance cost										1,666,667
Debt conversion, description						The Note may be prepaid at a premium ranging from 112% to 137% depending on the length of time following the date of the Note. The Note is convertible after 180 days into shares of the Company's common stock at a discount of 35% of the average of the two lowest closing bid prices of the Company's common stock 15 days prior to the date of conversion and the maximum number of shares issued to Power Up may not exceed 4.99% of the issued and outstanding shares of Drone USA common stock. The Note is subject to customary default provisions, including a cross default provision. The Company is required to have authorized for issuance six times the number of shares that would be issuable upon full conversion of the Note (assuming that the 4.99% limitation is not in effect) and based on the applicable conversion price of the Note in effect from time to time, initially to be 13,046,154 shares of common stock. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt premium of $28,538 with a charge to interest expense.
Debt premium						$ 27,857
Long-term purchase commitment, amount						$ 10,000,000
Percentage of outstanding shares per tranche						9.99%
Liability purchase term, description						the Company executed a Liability Purchase Term Sheet with Livingston Asset Management ("Livingston") under which Livingston agreed to purchase up to $10,000,000 that the Company owes to its creditors through direct purchase of the debts from the Company's creditors in return for (i) a convertible note issued by the Company in the principal amount of $50,000 bearing interest of 10% per year to cover certain legal fees and other expenses of Livingston that matures in six months and is convertible into shares of our common stock at a 30% reduction off the lowest closing bid price for 20 trading days prior to the date of conversion, (ii) a convertible note subject to these same terms as the convertible note issued to Livingston payable to Scottsdale Capital Advisors in the principal amount of $15,000 as a placement agent fee and (iii) the right of Livingston to retain 30% of any negotiated reduction off the face amount of the liability the Company owes to such creditors. The Company has accounted for the convertible promissory notes as stock settled debt under ASC 480 and recorded a debt premium of $27,857 with a charge to interest expense.
Other Convertible Debt [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Long-term purchase commitment, description							The 335,938 commitment shares were considered issued in February 2018 which was recorded as interest and financing costs at the then market close price of $0.09 per share for a value of $30,234.
Market capitalization							$ 5,000,000
Other Convertible Debt [Member] | EMA Financial [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Reserve shares of common stock					6,802,000
Amortization of debt discounts					$ 79,000
Principal amount					105,000
Debt issuance cost					$ 20,200
Debt discount maturity term					12 months
Debt instrument interest rate, percentage					10.00%
Debt instrument fixed interest rate, percentage					24.00%
Debt conversion, description					No shares of the Company's common stock can be issued to the extent EMA Financial would own more than 4.99% of the outstanding shares of the Company's common stock.
Securities purchase agreement term, description					The terms of a Securities Purchase Agreement dated November 21, 2017.
Debt conversion rate, description					A conversion price which is the lower of (i) the closing sales price of the Company's common stock on the trading day immediately preceding the date of funding and (ii) a 35% discount to (a) the lowest sales price of the shares of the Company's common stock within a 20 day trading period including and immediately preceding the conversion date or (b) the lowest bid price on the conversion date, whichever is lower, and the conversion shares contain piggy-back registration rights. The conversion rate is further reduced under certain events, including if the closing sales price is less than $0.095 in which case the conversion rate is a 50% discount under the terms set forth above.
Debt instrument redemption, description					The Company is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium of 135% of the unpaid principal and interest if paid within 90 days after the issue date and 150% thereafter.
Embedded conversion option derivative liabilities					$ 149,028				$ 70,028	$ 70,028
Annual interest rate									12.00%	12.00%
Original issue discount					$ 5,800					$ 9,450
Convertible Debt [Member] | Morningview Financial, LLC [Member]
Convertible Notes Payable and Advisory Fee Liabilities (Textual)
Amortization of debt discounts				$ 7,500
Principal amount				82,500
Debt issuance cost				$ 15,000
Debt discount maturity term				12 months
Debt instrument interest rate, percentage				12.00%
Debt instrument fixed interest rate, percentage				18.00%
Debt conversion, description				No shares of the Company's common stock can be issued to the extent Morningview Financial would own more than 4.99% of the outstanding shares of the Company's common stock.
Debt conversion rate, description				A conversion rate for any unpaid principal and interest and a conversion price which is a 35% discount to the lowest sales price of the shares of the Company's common stock within a 20-day trading period including and immediately preceding the conversion date. The conversion rate is further reduced under certain events, including if the closing sales price is less than $0.05 in which case the conversion rate is a 45% discount under the terms set forth above.
Debt instrument redemption, description				The Company is entitled to prepay the Note between the issue date until 180 days from its issuance at a premium of 135% of the unpaid principal and interest
Debt default common stock par value, description				The Note is subject to customary default provisions and also includes a cross-default provision as well as default being triggered if the Company's Trading Price as that term is defined in the Note is less than $.0001 or if a money judgment, writ or similar process shall be entered or filed against the Company or any of its subsidiaries for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of 20 days unless otherwise consented to by the holder of the Note.
Debt default, short-term debt, increase percentage				The amount immediately due shall be increased to 150% or 200% of the outstanding principal and interest due depending upon the default provisions, plus default interest.
Debt premium				$ 44,423

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Note and Loan Payable (Details) - USD ($)		1 Months Ended	3 Months Ended	6 Months Ended
	Feb. 02, 2018	Oct. 19, 2017	Mar. 31, 2018	Mar. 31, 2018	Mar. 31, 2017
Note and Loan Payable (Textual)
Net proceeds from note payable				$ 232,500
Amortization of debt discounts				445,734	$ 368,820
Third Party [Member]
Note and Loan Payable (Textual)
Net proceeds from note payable		$ 232,500
Net of fees and expenses		17,500
Principal amount		$ 250,000
Bears interest rate		12.00%
Default rate		18.00%
Maturity date		Apr. 20, 2018
Amortization of debt discounts			$ 8,799	15,545
Note payable			248,045	248,045
Discount			$ 1,955	$ 1,955
Vendor [Member]
Note and Loan Payable (Textual)
Net proceeds from note payable	$ 579,106
Principal amount	$ 579,106
Bears interest rate	18.00%
Maturity date	Oct. 31, 2018
Loan payable, description	The loan will be paid in full by the maturity date by making monthly payments of $70,000 from February 28, 2018 to September 30, 2018 and a final balance payment of approximately $63,000 by October 31, 2018. The loan does not have a default interest rate nor prepayment penalties if the note is paid in full or in part. During the six months ended March 31, 2018 the Company has made its first two payments of principal and interest and the balance of the note was $455,559.

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Stockholders' Deficit (Details) - Stock Options [Member]	6 Months Ended
	Mar. 31, 2018 USD ($) $ / shares shares
Option Indexed to Issuer's Equity [Line Items]
Number of Options, Outstanding | shares	44,351,200
Number of Options, Granted | shares
Number of Options, Forfeited | shares
Number of Options, Outstanding | shares	44,351,200
Number of Options, Exercisable | shares	27,184,000
Weighted-Average Exercise Price, Outstanding	$ 0.21
Weighted-Average Exercise Price, Granted
Weighted-Average Exercise Price, Forfeited
Weighted-Average Exercise Price, Outstanding	0.21
Weighted-Average Exercise Price, Exercisable	$ 0.20
Weighted-Average Remaining Contractual Term (Years),Outstanding	9 years 3 months 8 days
Weighted-Average Remaining Contractual Term (Years),Outstanding	8 years 8 months 5 days
Weighted-Average Remaining Contractual Term (Years), Exercisable	8 years 6 months 3 days
Weighted-Average Grant-Date Fair Value, Outstanding
Weighted-Average Grant-Date Fair Value, Granted
Weighted-Average Grant-Date Fair Value, Forfeited
Weighted-Average Grant-Date Fair Value, Outstanding
Aggregate Intrinsic Value, Outstanding | $	$ 0
Aggregate Intrinsic Value, Outstanding | $	0
Aggregate Intrinsic Value, Exercisable | $	$ 0

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Stockholders' Deficit (Details 1) - Warrant [Member]	6 Months Ended
	Mar. 31, 2018 USD ($) $ / shares shares
Class of Stock [Line Items]
Number of Warrants, Outstanding | shares	500,000
Number of Warrants, Granted | shares	100,000
Number of Warrants, Outstanding | shares	600,000
Number of Warrants, Exercisable | shares	600,000
Weighted-Average Exercise Price, Outstanding	$ 0.01
Weighted-Average Exercise Price, Granted	0.35
Weighted-Average Exercise Price, Outstanding	0.07
Weighted-Average Exercise Price, Exercisable	$ 0.07
Weighted-Average Remaining Contractual Term (Years), Outstanding	3 years 5 months 9 days
Weighted-Average Remaining Contractual Term (Years), Granted	4 years 7 months 10 days
Weighted-Average Remaining Contractual Term (Years), Outstanding	3 years 7 months 21 days
Weighted-Average Remaining Contractual Term (Years), Exercisable	3 years 7 months 21 days
Weighted-Average Grant-Date Fair Value, Outstanding
Weighted-Average Grant-Date Fair Value, Granted
Weighted-Average Grant-Date Fair Value, Outstanding
Aggregate Intrinsic Value, Outstanding | $	$ 95,000
Aggregate Intrinsic Value, Outstanding | $	32,500
Aggregate Intrinsic Value, Exercisable | $	$ 32,500

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Stockholders' Deficit (Details Textual) - USD ($)

1 Months Ended

6 Months Ended

Nov. 09, 2017

Nov. 09, 2017

Nov. 28, 2017

Mar. 31, 2017

Mar. 31, 2018

Mar. 31, 2017

Nov. 01, 2017

Oct. 05, 2017

Sep. 30, 2017

Class of Stock [Line Items]

Preferred stock, shares authorized

5,000,000

5,000,000

Preferred stock, par or stated value per share

$ 0.0001

$ 0.0001

Preferred stock designations amount

4,999,750

Preferred stock, shares issued

250

250

Preferred stock, shares outstanding

250

250

Shares available under the Plan

55,648,800

First tranche payment

$ 72,917

Consulting Agreement [Member]

Class of Stock [Line Items]

Professional Fees

$ 3,950

Price per share

$ 0.195

$ 0.20

Securities Purchase Agreement [Member]

Class of Stock [Line Items]

Shares Issued for debt issuance costs

335,938

335,938

Convertible Note Agreement [Member]

Class of Stock [Line Items]

Shares Issued for debt issuance costs

335,938

2016 Stock Incentive Plan [Member]

Class of Stock [Line Items]

Shares available under the Plan

100,000,000

Series A Preferred Stock [Member]

Class of Stock [Line Items]

Preferred stock, shares authorized

250

250

250

Preferred stock, par or stated value per share

$ 0.0001

$ 0.0001

$ 0.0001

Preferred Stock, voting rights

These preferred shares have voting rights per share equal to the total number of issued and outstanding shares of common stock divided by 0.99.

Preferred stock, shares issued

250

250

250

Preferred stock, shares outstanding

250

250

250

Stock Options [Member]

Class of Stock [Line Items]

Compensation and consulting expense related to stock options

$ 145,322

$ 894,016

Total unrecognized compensation and consulting expense related to unvested stock options

$ 1,352,943

Weighted average period share-based compensation expense

3 years

Warrant [Member] | Securities Purchase Agreement [Member]

Class of Stock [Line Items]

Convertible note, description

The Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated October 25, 2017, with Crown Bridge under which the Company issued to Crown Bridge a convertible note in the principal amount of $105,000 and a five-year warrant to purchase 100,000 shares of the Company's common stock at an exercise price of $0.35 as a commitment fee which is equal to the product of one-third of the face value of each tranche divided by $0.35. The warrants have full ratchet price protection and cashless exercise rights

First tranche payment

$ 75,000

Issuance date

Oct. 25, 2017

Principal amount

$ 105,000

Exercise price

$ 0.35

Purchase of common stock

100,000

Warrant term

5 years

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Commitments and Contingencies (Details)	Mar. 31, 2018 USD ($)
Commitments and Contingencies [Abstract]
2018	$ 44,507
2019	60,499
2020	25,460
Total minimum non-cancelable operating lease payments	$ 130,466

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Commitments and Contingencies (Details Textual) - USD ($)				1 Months Ended		6 Months Ended
	Feb. 14, 2018	Aug. 09, 2017	Jun. 01, 2016	Oct. 31, 2017	Jul. 31, 2017	Mar. 31, 2018	Mar. 31, 2017	Sep. 30, 2017
Loss Contingencies [Line Items]
Percentage of gross proceeds of the placement						9.00%
Percentage of warrant						2.50%
Leases rent expense						$ 28,330	$ 27,774
Lease payment				$ 30,000
Total accrual under the lease term						360,000		$ 360,000
Accounts payable						$ 2,398,009		3,815,546
Accrued accounts payable								63,000
Settlement gain amount				$ 33,361
Description of agreement term						The agreement has an initial term of three years with one year renewals.
Description of commitments						The Company will also secure exclusive export and representation rights to this entity's products along with the non-binding option to acquire full ownership of this entity for $1 million should the companies agree at a later date it would be in the best interest of both businesses.
Stipulation agreement, description	The Company entered into a stipulation agreement with the investor relations firm which settled the amount due at $20,000 if payment was made by February 21, 2018. The lump sum payment was made on February 16, 2018 and a gain on extinguishment of debt of $48,544 was recorded.
Working capital deficit						$ 13,020,086
HowCo. [Member]
Loss Contingencies [Line Items]
Working capital deficit						800,000
Transaction prices						370,000
Texas Wyoming Drilling, Inc. [Member]
Loss Contingencies [Line Items]
Amount of claim for unpaid bills						75,000
Causes of action [Member]
Loss Contingencies [Line Items]
Amount of claim for unpaid bills		$ 74,325
Accounts payable						68,544		68,544
Chief Technology Officer [Member]
Loss Contingencies [Line Items]
Number of Options, Granted			2,000,000
Former Chief Strategy Officer [Member]
Loss Contingencies [Line Items]
Amount of claim for unpaid bills					$ 900,000
Other current liabilities one [Member] | Former Chief Strategy Officer [Member]
Loss Contingencies [Line Items]
Matching contribution						9,230		9,230
Other current liabilities two [Member] | Former Chief Strategy Officer [Member]
Loss Contingencies [Line Items]
Matching contribution						100,000		$ 100,000
Maximum [Member]
Loss Contingencies [Line Items]
Monthly lease rent obligation						16,500
Minimum [Member]
Loss Contingencies [Line Items]
Monthly lease rent obligation						$ 15,000

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Concentrations (Details)	6 Months Ended
	Mar. 31, 2018 USD ($) Customers Suppliers	Mar. 31, 2017 USD ($) Customers Suppliers
Concentrations (Textual)
Concentrations of foreign sales | $	$ 32,000	$ 207,000
Cash, FDIC insured amount | $	$ 250,000
Accounts Payable [Member] | Supplier One [Member]
Concentrations (Textual)
Concentration risk, percentage	23.00%	41.00%
Number of suppliers | Suppliers	2	2
Accounts Payable [Member] | Supplier Two [Member]
Concentrations (Textual)
Concentration risk, percentage	11.00%	11.00%
Number of suppliers | Suppliers	2	2
Supplier Concentration [Member] | Supplier One [Member]
Concentrations (Textual)
Concentration risk, percentage	41.00%	48.00%
Number of customers | Suppliers	2	2
Supplier Concentration [Member] | Supplier Two [Member]
Concentrations (Textual)
Concentration risk, percentage	12.00%	13.00%
Number of customers | Suppliers	2	2
Total Sales [Member] | Customer One [Member]
Concentrations (Textual)
Concentration risk, percentage	55.00%	65.00%
Number of customers	3	3
Total Sales [Member] | Customer Two [Member]
Concentrations (Textual)
Concentration risk, percentage	16.00%	12.00%
Number of customers	3	3
Total Sales [Member] | Customer Three [Member]
Concentrations (Textual)
Concentration risk, percentage	11.00%	11.00%
Number of customers	3	3
Accounts Receivable [Member]
Concentrations (Textual)
Concentration risk, percentage	94.00%
Accounts Receivable [Member] | Customer One [Member]
Concentrations (Textual)
Concentration risk, percentage	56.00%	60.00%
Number of customers	4	3
Accounts Receivable [Member] | Customer Two [Member]
Concentrations (Textual)
Concentration risk, percentage	15.00%	12.00%
Number of customers	4	3
Accounts Receivable [Member] | Customer Three [Member]
Concentrations (Textual)
Concentration risk, percentage	14.00%	12.00%
Number of customers	4	3
Accounts Receivable [Member] | Customer Four [Member]
Concentrations (Textual)
Concentration risk, percentage	9.00%
Number of customers	4

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Subsequent Events (Details) - Subsequent Events [Member] - USD ($)	May 08, 2018	Apr. 01, 2018
Subsequent Events (Textual)
Shares issued for services, shares		4,000,000
Shares issued for services		$ 296,000
Per share value		$ 0.074
Principal amount	$ 49,000
Issued of common shares for conversions, shares	1,995,869
Conversions of remaining principal balance	$ 51,000