VMRI Valmie Res Inc (CE)

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

As used in this quarterly report, the terms “we”, “us” and “our” mean Valmie Resources, Inc. and all dollar amounts refer to U.S. dollars, unless otherwise indicated.

Forward-Looking Statements

This quarterly report contains forward-looking statements. All statements other than statements of historical fact are “forward-looking statements”, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by any forward-looking statements due to a number of factors. These forward-looking statements are made as of the date of this annual report, and we assume no obligation to update such forward-looking statements.

The discussion of our financial condition and results of operations in this quarterly report is based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements, including the notes thereto, that appear elsewhere in this quarterly report. The discussion of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.

Overview

We were incorporated pursuant to the laws of the State of Nevada on August 26, 2011. We have one wholly owned subsidiary, Vertitek Inc., a Wyoming corporation (“Vertitek”), and a 50% interest in a joint venture entity, AeroLift eXpress, LLC, a Wyoming limited liability corporation (“AeroLift”).

We were formerly a mineral exploration company; however, in early December 2014, we changed our business focus to pursuing opportunities for the commercialization of leading edge products and services in the rapidly expanding technology industry, and in particular, developing or acquiring concepts with valid business models positioned to make a significant impact within the software, hardware, networking and semiconductor sectors.

On December 8, 2014, we appointed Gerald B. Hammack as our sole officer and director. Mr. Hammack has more than 30 years of experience in a variety of technology-related fields, including programming, digital telephony and database management, as well as substantial expertise in the setup and management of complex data processing systems.

On January 27, 2015 we entered into a share exchange agreement (the “Share Exchange Agreement”) with Vertitek and the sole shareholder of Vertitek, Masamos Services Ltd., a Cypriot corporation (“Masamos”), to acquire 100% of the capital stock of Vertitek. Vertitek was established to provide unmanned vehicle software, hardware and cloud services for a wide range of commercial applications around the globe, and its under development commercial unmanned aerial vehicles or UAVs (more commonly referred to as drones) include multi-rotor and fixed-wing models.

On March 31, 2015, the closing of the Share Exchange Agreement occurred, Vertitek became our wholly owned subsidiary and we acquired all the assets of Vertitek including, but not limited to, all intellectual property, trade names, trade secrets, trademarks, personnel contracts, website domain and content, strategic partnerships, manuals, licenses and all other confidential information related to the technologies under development by Vertitek.

On August 20, 2015, we entered into an equity investment agreement (the “Equity Investment Agreement”) with Tuverga Finance Ltd., a Cypriot corporation (“Tuverga”), pursuant to which Tuverga is irrevocably committed to purchase up to $2.5 million of our common stock over the course of 24 months. The aggregate number of shares issuable by us and purchasable by Tuverga under the Equity Investment Agreement is limited by the dollar amount sold and will depend upon the trading price of our shares. When we sell shares to Tuverga, the per share purchase price that Tuverga will pay to us will be determined in accordance with a formula set forth in the Equity Investment Agreement. Generally, with respect to each sale, Tuverga will pay us a per share purchase price equal to fifty percent (50%) of the volume weighted average price of our common stock during the three (3) consecutive trading day period immediately preceding the date of delivery of our request for funds.

In connection with the Equity Investment Agreement, we also entered into a registration rights agreement with Tuverga (the “Registration Rights Agreement”) pursuant to which we were obligated to file a registration statement with the SEC covering the shares of common stock underlying the Equity Investment Agreement. Under the Registration Rights Agreement, we are obligated to maintain the effectiveness of the registration statement until the earlier to occur of the date on which (a) Tuverga has sold all of the shares of our common stock registered thereunder or (b) we have no right to sell any additional shares to Tuverga under the Equity Investment Agreement.

On February 10, 2016, we were granted an exemption (No. 14749, Regulatory Docket No. FAA–2015–4694) from Section 333 of Public Law 112-95 by the Federal Aviation Administration (the “FAA”) to operate two models of our V-Series drones to perform aerial data collection, and in particular, to conduct aerial based agricultural applications, search and rescue operations, power-line inspections, pipe-line inspections, infrastructure surveying and aerial imaging. The exemption is subject to industry standard weight, speed and altitude limitations, as well as certain visual line of sight, visual observer, operating document, safety and pre-flight inspection measures, among others. The exemption will terminate on February 28, 2018, and we do not anticipate being unable to comply with any conditions of the exemption during the term. As Vertitek completes new UAV hardware offerings, we will petition the FAA to add these new platforms to our existing exemption under Section 333.

In 2016, Vertitek formed the Vertitek Racing team in order to participate in the burgeoning drone racing industry. Vertitek maintains a team of sponsored pilots who fly in these events on behalf of Vertitek Racing, and has also designed a series of racing specific drone frames that it manufactures and expects to sell to other drone operators both through traditional retail methods as well as from its own interactive e-commerce platform. As of February 28, 2017, no such sales had been completed.

On April 15, 2016, we entered into a joint venture agreement with James Stafford to form AeroLift (the “Joint Venture Agreement”). Pursuant to the Joint Venture Agreement, we currently own 50% of AeroLift and have committed funding up to $500,000 to launch the AeroLift business model, of which $362,000 had been advanced as of February 28, 2017. AeroLift is led by a team of military trained pilots, mission commanders and specialists with more than 60 years of combined aviation experience, and it expects to utilize military grade UAVs which have been specifically adapted for its applications in conjunction with the Vertitek design and manufacturing team. Together with state of the art ground control stations and flight control software, AeroLift intends to deliver cutting edge unmanned services to clients in a variety of challenging environments.

In late 2016, we executed a purchase order with Alti UAS of South Africa regarding the manufacture and delivery of five customized VTOL (vertical takeoff and landing) UAV systems to be used by AeroLift in the provisioning of its services. These new systems will be customized and flight-tested by a team consisting of resources from us, Vertitek and AeroLift. Once certified for flight operations, these Alti systems will allow AeroLift to provide a new level of services to interested parties.

In early 2017, Vertitek opened a new technology development and manufacturing facility in Lake Charles, Louisiana, at which Vertitek’s in-house staff has the capabilities to manufacture components for and assemble its UAV offerings.

To date, we have not generated any revenue through the sales of UAVs or the provision of software, hardware or cloud-based services, either through Vertitek, AeroLift or otherwise. Our operating divisions, Vertitek and AeroLift, are continuing to develop their product and service offerings while beginning to market those offerings to potential customers. The service offerings of AeroLift have a long sales cycle due in large part to the necessity of introducing new technologies and systems into industries that have shown historical resistance to change.

We have never declared bankruptcy, receivership or any similar proceedings nor have we had any material reclassifications, mergers, consolidations, or purchases or sales of a significant amount of assets not in the ordinary course of business.

Results of Operations

Revenues

We have not generated any revenue since our inception. We anticipate that we will incur substantial losses for the foreseeable future and our ability to generate any revenue during the next 12 months continues to be uncertain.

Operating Expenses

During the three months ended February 28, 2017, we incurred $213,415 in operating expenses, including $137,554 in general and administrative expenses, $66,364 in professional fees, $7,500 in management fees and $1,997 in transfer agent fees. During the same period in fiscal 2016, we incurred $77,609 in operating expenses, including $11,160 in general and administrative expenses, $50,349 in professional fees, $15,000 in management fees and $1,100 in transfer agent fees. The $135,806 increase in our operating expenses between the two periods was therefore largely attributable to the increase in our general and administrative expenses, the most significant items of which were as follows:

The $66,364 we spent on professional fees during the period consisted of $48,032 in unmanned aircraft systems consulting fees that we paid to Praxis Aerospace Concepts International, $15,352 in accounting and legal expenses and $2,800 in business development consulting fees.

Other Expenses

During the three months ended February 28, 2017, we incurred other expenses of $54,315, all of which was attributable to equity loss associated with the AeroLift joint venture, whereas we only incurred $5,411 in other expenses during the same period in fiscal 2016, all of which was in the form of interest expense.

Net Loss

During the three months ended February 28, 2017, we incurred a loss from operations of $213,415, a net loss of $267,730, and a net loss per share of $0.00. During the same period in fiscal 2016, we incurred a net loss from operations of $77,609, a net loss of $83,020, and a net loss per share of $0.00.

Liquidity and Capital Resources

As of February 28, 2017, we had $37,230 in cash and cash equivalents, $82,020 in current assets, $507,270 in total assets, $228,560 in current and total liabilities, a working capital deficit of $146,540 and a retained deficit of $15,198,925.

During the three months ended February 28, 2017, we used $197,601 in net cash on operating activities due to a combination of our adjusted net loss and certain changes in our operating assets and liabilities, including a $50,838 increase in our accounts payable. During the same period in fiscal 2016, we used $65,444 in net cash on operating activities. The majority of our spending on operating activities for the three months ended February 28, 2017 and 2016 was attributable to our net loss as described above, as adjusted for depreciation and any equity loss on the AeroLift joint venture, and was associated with carrying out our reporting obligations under applicable securities laws and pursuing opportunities for the commercialization of products and services in the technology industry.

During the three months ended February 28, 2017, we used $322,859 in net cash on investing activities, including $197,859 on the acquisition of equipment and $125,000 on our investment in AeroLift. During the same period in fiscal 2016, we only used $74 in net cash on investing activities.

During the three months ended February 28, 2017, we received $295,500 from financing activities, all of which was in the form of proceeds from the sale of our common stock under the equity-line investment agreement with Tuverga. During the same period in fiscal 2016, we received $67,500 from financing activities, all of which was in the form of proceeds from promissory notes.

During the three months ended February 28, 2017, our cash position decreased by $224,960 due to a combination of our operating, investing and financing activities.

Our plans for the next 12 months are uncertain due to our current financial condition; however, we intend to raise additional funds through public or private placement offerings, including our equity investment agreement with Tuverga. If we are unsuccessful in raising enough money through such efforts, we may review other financing possibilities such as bank loans. At this time we do not have a commitment from any broker-dealer to provide us with financing. There is no assurance that any financing will be available to us or if available, on terms that will be acceptable to us. In the absence of such financing, we may be forced to cease or significantly curtail our operations.

Plan of Operations

We will need to raise additional capital to carry out our business plan. We have a 24-month plan during which we intend to implement business development and marketing initiatives in order to create a vertically integrated UAV goods and services provider that covers all operational areas from technology development to the end user experience.

We believe we must raise approximately $1,900,000 to pay for expenses associated with the development and commercialization of the products and services being offered by us, Vertitek and AeroLift. Of this, we plan to use $1,150,000 to finance our general and administrative expenses as well as acquire new equipment and systems, which we in turn plan to lease to our subsidiaries; $250,000 to develop Vertitek and its latest offering, Vertitek Racing; and $500,000 to help launch AeroLift.

During the next 24 months, we will continue to focus on integrating and leveraging our operating subsidiaries, Vertitek and AeroLift, to develop and expand our position within the commercial UAV industry. We plan to seek acquisition opportunities or joint venture partners that will allow us to enter under-developed or under-served segments of the market, and intend to form a leasing entity through which we will acquire the systems and technologies required by our operating subsidiaries and lease them at commercially reasonable rates. Using this leasing system, we will be able to maintain control of our capital assets and allow our subsidiaries to focus solely on revenue generating activities and serving the needs of their customers.

As Vertitek continues to develop its product line of customized drone platforms and systems, it will expand its service offerings to include specialized engineering and development support for us, AeroLift and any other entities in which we may acquire an interest. The Vertitek Racing team and its competition schedule will allow engineers to use real world testing and results to continue the development of Vertitek’s offerings.

We anticipate that the next 24 months will be an exciting time for AeroLift as it continues to work towards providing both time-critical UAV delivery services and actionable intelligence delivered through military grade UAV systems not currently available to the general public. A series of full-scale public and private demonstrations are in the planning stages, which will showcase for potential customers the cost savings and safety benefits of using the services AeroLift offers.

Continued Funding

We believe that the remaining funding available to us under our Equity Investment Agreement with Tuverga will be sufficient to cover our needs for the next 24 months. In the event that we require additional financing, such as for the acquisition of UAV systems, we will likely approach Tuverga to participate in a separate transaction related solely to the acquisition of those assets. We believe Tuverga would be willing to participate under commercially reasonable terms.

If we are unable to agree to terms with Tuverga, we intend to pursue capital through public or private financing as well as borrowings and other sources, such as loans from our existing shareholders in order to finance our business activities. We cannot guarantee that additional funding will be available on favourable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.

Going Concern

Our financial statements have been prepared on a going concern basis, which contemplates, among other things, that we will continue to realize our assets and satisfy our liabilities in the normal course of business. As at February 28, 2017, we had a working capital deficit of $146,540 and a retained deficit of $15,198,925. We intend to fund our operations through equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital and other cash requirements for the next 12 months.

Our ability to continue in existence is dependent upon, among other things, obtaining additional financing to continue our operations and the operations of both Vertitek and AeroLift. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We do not have any 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.