UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ]
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the Fiscal Year Ended April 30, 2019
[ ]
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: 000-54851
DEFENSE TECHNOLOGIES INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
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Delaware
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2683 Via De La Valle, Suite G418, Del Mar CA 92014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(800) 520-9485
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes [ ] No [ X ]
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 [ X ] No
[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [X]
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Smaller reporting company [X]
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Emerging Growth Company [X]
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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 [ X ]
The number of shares outstanding of the Company’s $.0001 Par Value Common Stock as of August 13, 2019 was 5,022,244. The
aggregate number of shares of the voting stock held by non-affiliates on October 31, 2018 was with a market value of $1,282,581. For the purposes of the foregoing calculation only, all directors and executive officers of the registrant have been
deemed affiliates
.
DOCUMENTS INCORPORATED BY REFERENCE
A description of "Documents Incorporated by Reference" is contained in Part IV, Item 15.
DEFENSE TECHNOLOGIES INTERNATIONAL CORP.
TABLE OF CONTENTS
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Page
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PART I
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Item 1.
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Business
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3
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Item 1A.
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Risk Factors
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5
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Item 1B.
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Unresolved Staff Comments
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5
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Item 2.
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Properties
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5
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Item 3.
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Legal Proceedings
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5
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Item 4.
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Mine Safety Disclosures
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5
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PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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5
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Item 6.
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Selected Financial Data
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7
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Item 7.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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7
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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12
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Item 8.
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Financial Statements and Supplementary Data
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12
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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12
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Item 9A.
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Controls and Procedures
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12
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Item 9B
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Other Information
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13
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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13
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Item 11.
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Executive Compensation
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15
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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15
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Item 13.
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Certain Relationships and Related Transactions and Director Independence
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16
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Item 14.
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Principal Accounting Fees and Services
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17
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PART IV
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Item 15.
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Exhibits, Financial Statement Schedules.
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18
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Signatures
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19
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As used in this report, unless otherwise indicated, “we”, “us”, “our”, “DTII” and the “Company” refer to Defense Technologies
International Corp.
PART I
Defense Technologies International Corp. (the “Company”) was incorporated in the State of Delaware on May 27, 1998. Effective June 15, 2016, the Company changed its name from
Canyon Gold Corp. to Defense Technologies International Corp. to more fully represent the Company’s expansion goals into the advanced technology sector.
Our principal executive office is located at 2683 Via De La Ville Suite G418, Del Mar CA 92014 147, telephone (1-800) 520-9485. Additional office space is subleased from EMAC at
641 West 3rd Street, North Vancouver BC, Canada.
Our website address is http://www.defensetechnologiesintl.com.
Development of Scanner Technology Business
Defense Technologies International Corp. (the “Company”) acquired the world-wide exclusive rights to the
Passive Security
Scan™
a ‘next generation, walk-through personnel scanning system. This patented product (US Patent: 7408461) is an advanced passive scanning technology for detection and identifying concealed threats to be used for the security of schools
and other public venues.
On October 19, 2016, the Company entered into a Definitive Agreement with Controlled Capture Systems, LLC ("CCS"), representing the inventor of the technology and assets that
include a new exclusive Patent License Agreement and Independent Contractor agreement. Under the license agreement with CCS, the Company acquired the world-wide exclusive rights and privileges to the CCS security technology, patents, products and
improvements. The term of the License Agreement shall be from October 19, 2016 until the expiration of the last to expire of the licensed issued patents or patents to be issued.
The Company agreed to pay CCS an initial licensing fee of $25,000 and to pay ongoing royalties at the end of each six-month period at the rate of the greater of 5% of gross sales
used or sold, or the minimum royalty payment of $25,000. The Company also agreed to compensate investors that have provided funding for the development of CCS's technology with 2,667 shares of the Company's common stock. Additionally, CCS will be
entitled to receive 167 shares of the Company's common stock upon completed sales of 1,000 passive scanner units based on the CCS technology.
On December 14, 2017, the Company issued 20,000 shares of Series B preferred
stock to Controlled Capture Systems, LLC to extend the exclusive rights to the Passive Security Scan to March 15, 2018.
On May 30, 2018 the Company and Control Capture Systems, LLC amended their license agreement as follows:
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1.
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Royalty payments of 5% of gross sale from the license agreement will be calculated and paid quarterly with a minimum of $12,500 paid each quarter.
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2.
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All payment will be in US dollars or stock of the Company and or its subsidiary. The value of the stock will be a discount to market of 25% of the average trading price for
the 10 days prior to conversion. The number of shares received by Control Capture prior to any reverse split are anti-dilutive.
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3.
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Invoices for parts and materials will be billed separate of the license fees noted above.
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The Company capitalized the costs to acquire the License Agreement, including the $25,000 initial licensing fee and the estimated value of $353,600 of the 2,667 shares of the
Company's common stock issued on November 10, 2016 to the CCS investors, which value was based on the closing market price of the Company's common stock on the date of the Definitive Agreement. The Company has recorded a current liability of $36,000
for the remaining obligation in its consolidated balance sheet as of April 30, 2019 Once sales of products based on the CCS technology begin, the Company will amortize the capitalized costs over the estimated life of the license agreement as
determined by the legal life of patents issued. To date no sales of the product have been completed. The Company reviewed the valuation of the license agreement and determined to impair the asset of $378,600.
Effective January 12, 2017, Passive Security Scan, Inc. ("PSSI") was incorporated in the state of Utah as a wholly owned subsidiary. The Company merged its wholly-owned
subsidiary, Long Canyon Gold Resources Corp. ("Long Canyon"), into PSSI, with PSSI the surviving entity. The Company transferred to PSSI its exclusive world-wide license to the defense, detection and protection security products previously acquired
by the Company. The Company currently owns 76.28% of PSSI with 23.72% acquired by several individuals and entities. With the merger of Long Canyon into PSSI, the Company discontinued its mineral exploration business. The Company concluded the
initial development of the technology and will proceed to put the system through the required Beta Test at a high-school near Austin Tx. All sales and marketing activities will be executed through PSSI.
The security products licensed from CCS as developed by the Company are designed for personal and collateral protection. The proposed detection technology is intended to provide
passive security scanning units for either walk-through or hand-held use to improve security for schools and other public facilities. The units use electromagnets and do not emit anything (such as x-rays) through the subject. The Company, in
consultation with CCS, recently completed a prototype with optional “Digital Imaging” which will give the user of the scanner the ability to recall the entire traffic passing through the scanner at any time thereafter. The prototype scanner unit has
successfully passed elaborate lab testing and is ready for deployment and demonstration.
Competition
We believe we have the only known passive scanner technology based on earth magnetic technology that does not cause any harm to the subject passing through the scanner. Our
scanners are therefore uniquely suited for school systems and other public venues. Our competitors’ technology is based on X-Ray, microwave or radio signals, all of which are harmful over time. We believe this provides an advantage to our scanners
over those developed by our competition.
Sales and Marketing
Through our newly appointed Marketing Director, we have made contact with several schools that have expressed interest in having the Passive Security Scan Unit presented at the
school for demonstration and evaluation. Furthermore, as funding permits, we plan to install a demonstration unit in every state free of charge via the state’s Governor’s Office. We expect major exposure through this program.
We will also plan to announce the availability of distributorships. A distributor will get a 20% discount on Gross Sales, but is required to purchase a minimum of 25 units at time
of signing for a distributorship. General referrals will earn a 10% discount.
With the completion of requisite funding, we expect to place the first units during the fall of 2019 and commence a major marketing campaign at the same time. We believe that we
will start production and sales within the coming three to six months.
With the start of initial sales, we believe that we will be able to raise major funding through more conventional sources for our production.
Trademarks and Copyrights
We acquired the world-wide exclusive rights and privileges to the CCS security technology, patents, products and improvements. The term of the License Agreement shall be from
October 19, 2016 until the expiration of the last to expire of the licensed issued patents or patents to be issued. CCS currently owns 3 patents and 2 patents pending related to the technology.
Employees
We presently do not have any employees and do not anticipate adding employees until our business operations and financial resources so warrant. The Independent Contractor Agreement
between the Company and CCS provides that CCS will provide support for the development of the security technology and products. The management of our Company is provided through a series of service agreements with our officers and directors and key
consultants.
Facilities
We presently rent office facilities at 2683 Via De La Ville Suite G418, Del Mar CA 92014 that serve as our principal executive offices. The facilities
are rented on a month-to-month basis.
Employee Stock Plan
We have not adopted any kind of stock or stock option plan for employees at this time.
Industry Segments
No information is presented regarding industry segments. We are presently an emerging company seeking business opportunities in one segment, the defense, detection and protection
products industry.
Item 1A. Risk Factors.
This item is not required for a smaller reporting company.
Item 1B. Unresolved Staff Comments.
This item is not required for a smaller reporting company.
Item 2.
Properties.
We do not presently own any property.
Item 3.
Legal Proceedings.
There are no material pending legal proceedings to which the Company or its subsidiary is a party, or to which any property is subject and, to the best of our
knowledge, no such action against us is contemplated or threatened.
Item 4.
Mine Safety Disclosures.
This item is not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
On January 19, 2018 the Board of Directors, with the approval of a majority of the shareholders, passed a resolution to effect a reverse split of the Company’s outstanding common
stock on a 1 share for 1,500 shares (1:1500) basis. The reverse split was effective on March 20, 2018. The number of shares throughout this report are reflective of the reverse split.
Our common shares are quoted on the OTCQB under the symbol “DTII”. Set forth in the table below are the quarterly high and low prices of our common stock as obtained from the OTCQB for
the past two fiscal years ended April 30, 2019.
Fiscal year ended April 30, 2019
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High
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Low
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First Quarter
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$
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1.80
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$
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0.33
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Second Quarter
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$
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1.00
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$
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0.29
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Third Quarter
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$
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0.85
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$
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0.25
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Fourth Quarter
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$
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0.48
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$
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0.15
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Fiscal year ended April 30, 2018
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High
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Low
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First Quarter
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$
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8.41
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$
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2.38
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Second Quarter
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$
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12.68
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$
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3.73
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Third Quarter
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$
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5.46
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$
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5.46
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Fourth Quarter
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$
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3.73
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$
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0.75
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As
of August 3, 2019, there
were approximately 136 stockholders of record of our common stock, which does not
take into account those shareholders whose certificates are held in the name of broker-dealers or other nominee accounts.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during our fiscal year ended April 30, 2019.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
During the year ended April 30, 2019 the Company issued 686,425 shares of common stock with a value of $189,374 for service.
During the year ended April 30, 2019, the Company issued 768,728 shares of its common stock in the conversion of debt of $85,055.
During the year ended April 30, 2019, the Company issued 33,333 shares of its common stock for cash with a value of $5,000.
During the year ended April 30, 2019, the Company issued 250,000 shares of its common stock for the extension of a convertible note payable with a value of
$12,500.
Dividends Policy
We have never declared cash dividends on our preferred or common stock, nor do we anticipate paying any dividends on our common stock in the foreseeable future.
A summary of the Company’s stock options and warrants as of April 30, 2019, and changes during the two years then ended is as follows:
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Shares
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Weighted
Average
Exercise Price
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Weighted Average
Remaining
Contract Term
(Years)
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Aggregate
Intrinsic
Value
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Outstanding and exercisable at April 30, 2017
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866
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$
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1.385
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1.07
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$
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-
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Granted
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0
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$
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--
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--
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--
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Exercised
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0
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$
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--
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--
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--
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Forfeited or expired
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(33
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$
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--
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--
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--
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Outstanding and exercisable at April 30, 2018
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833
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1.50
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.06
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$
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83
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Granted
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850,000
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1.14
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2.75
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--
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Exercised
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--
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--
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--
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--
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Forfeited or expired
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(833
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--
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--
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--
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Outstanding and exercisable at April 30. 2019
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850,000
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1.14
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2.75
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$
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816,000
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The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $0.18as of April 30, 2019, which
would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.
Item 6. Selected Financial Data.
This item is not required for a smaller reporting company.
Item 7
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Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
The following information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-K.
The consolidated financial statements included in this annual report include the financial statements of the Company and those of Passive Security Scan, Inc. ("PSSI"), a
consolidated subsidiary
Effective January 12, 2017, PSSI was incorporated in the state of Utah as a wholly owned subsidiary. The Company merged its wholly owned subsidiary, Long Canyon Gold Resources
Corp. ("Long Canyon"), into PSSI, with PSSI the surviving entity. The Company transferred to PSSI its exclusive world-wide license to the defense, detection and protection security products previously acquired by the Company. The Company currently
owns 76.28% of PSSI with 23.72% acquired by four other individuals and entities. With the merger of Long Canyon into PSSI, the Company discontinued its mineral exploration business. The Company plans to continue the development of the technology
and conduct all sales and marketing activities in PSSI.
Forward Looking and Cautionary Statements
This report contains forward-looking statements relating to future events or our future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will” “should," “expect," "intend," "plan," anticipate," "believe," "estimate," "predict," "potential," "continue," or similar terms, variations of such terms or the negative of such terms. These statements
are only predictions and involve known and unknown risks, uncertainties and other factors. Although forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment, actual results
could differ materially from those anticipated in such statements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements
to actual results.
Going Concern
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going
concern. Through April 30, 2019, the Company has no revenues, has accumulated losses of $9,276,082 since inception on June 19, 2008 and had a working capital deficit of $3,921,154 and expects to incur further losses in the development of its
business, all of which cast substantial doubt about the Company’s ability to continue as a going concern. Management plans to continue to provide for the capital needs during the year ending April 30, 2019 by issuing debt and equity securities and
by the continued support of its related parties. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence. There is no assurance that funding will be available to continue the Company’s business operations.
Results of Operations
We currently have no sources of operating revenues. Accordingly, no revenues were recorded for the years ended April 30, 2019 and 2018.
Our general and administrative expenses increased to $863,775 in the year ended April 30, 2019 from $586,213 in the year ended April 30, 2018. The increases are
due primarily to an increase in stock based compensation, including shares issued to our new President and to a Director, and the issuance of shares to investor relations consultants. We also incurred an increase in professional fees and costs.
Our interest expense decreased to $196,233 in the year ended April 30, 2019 from $209,822 in the year ended April 30, 2018. The decrease in interest expense is due
primarily to lower interest-bearing debt issued to institutional investors, related extension and early payment penalties, and to the amortization of debt discount to interest expense in the current year. A portion of our interest expense is
incurred to related parties.
We recognized a gain on derivative liability of $2,008,512 and loss of $2,326,136 in the years ended April 30, 2019 and 2018, respectively. We estimate the fair
value of the derivative for the conversion feature of our convertible notes payable using the American Option Binomial pricing model at the inception of the debt, at the date of conversions to equity, cash payments and at each reporting date,
recording a derivative liability, debt discount and a gain or loss on change in derivative liability as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility,
and variable conversion prices based on market prices as defined in the respective loan agreements. These inputs are subject to significant changes from period to period; therefore, the estimated fair value of the derivative liability and associated
gain or loss on derivative liability will fluctuate from period to period and the fluctuation may be material.
We recognized a loss on extinguishment of debt of $10,000 and a gain of $105,000 in the years ended April 30, 2019 and 2018, respectively. The gain on
extinguishment of debt resulted primarily from the elimination of derivative liabilities upon debt extinguishment. This gain will fluctuate from period to period depending on the number of debt conversions and the associated balance of derivative
liabilities, and the fluctuation may be material. In addition we had a loss on notes payable of $ 10,243 in 2019 and $192,430 in 2018 and finance and interest cost on notes of $193,941 in 2019.
As of April 30, 2019 after an impairment analysis the Company decided to impair the license agreement with a value of $378,600 reducing it to zero.
As a result, we recognized a net gain of $355,720 and net loss of $3,179,837 in the years ended April 30, 2019 and 2018, respectively.
Because we own 76.28% of PSSI as of April 30, 2019, we include 76.28% of the net loss of PSSI for the year ended April 30, 2019 in our consolidated net loss and
have reported non-controlling interest of 23.72% of the net loss of PSSI, or $114,007, for the year ended April 30, 2019.
Liquidity and Capital Resources
At April 30, 2019, we had total current assets of $13.347, consisting of cash of $60, inventory of $2,787 and prepaid expenses of $10,500. Current liabilities at
April 30, 2019 were $3,921,214 resulting in a working capital deficit of $3,921,154. Included in our current liabilities and working capital deficit are derivative liabilities totaling $1,252,539 related to the conversion features of certain of our
convertible notes payable. We do not believe the derivative liabilities will require settlement in cash.
A significant portion of our current liabilities as of April 30, 2019 is comprised of amounts due to related parties of $749,879. We anticipate that in the
short-term, operating funds will continue to be provided by related parties and other lenders. Subsequent to April 30, 2018, we extinguished a substantial portion of our related party liabilities through the issuance of shares of our Class A
preferred stock.
At April 30, 2019, we had total convertible notes payable of $959,800, net of discount. Several of the note agreements require repayment through conversion of
principal and interest into shares of the Company's common stock. We anticipate, therefore, converting these notes payable into shares of our common stock without the need for replacement financing; however, there can be no assurance that we will be
successful in accomplishing this.
Pursuant to convertible notes payable, we received total net cash proceeds of $320,000 during the year ended April 30, 2019. These new short-term notes, which have
a total principal balance of $959,800 at April 30, 2019, bear interest at annual rates ranging from 6% to 15% per annum and are convertible into common shares of the Company upon the terms and subject to the limitations and conditions set forth in
the note agreements. The notes generally contain early repayment penalties if repaid before defined payment dates in the note agreements.
During the year ended April 30, 2019 we extinguished $85,055 in principal through conversion of convertible notes payable to common stock.
During the year ended April 30, 2019 we repaid $190,000 in convertible notes payable from the proceeds of new notes.
During the year ended April 30, 2019, net cash used in operating activities was $424,940, as a result of our net gain of $355,720 and loss on extinguishment of debt
of $10,000, change in fair value of $2,008,512, increase in prepaid expenses of $10,500, and increases in accounts payable of $155,951 and accrued payable – related parties of $290,528.
During the year ended April 30, 2018, net cash used in operating activities was $158,185, as a result of our net loss of $3,179,837, stock based compensation of
$62,999, shares issued for loan extension of $2, amortization of debt discount of $68,831 and derivative liability change of $2,326,136. Accounts payable increased $206,667 and payables to related party increased $299,351, with a loss on notes of
$192,430 and gain on debt extinguishment of $105,000.
During the year ended April 30, 2019, net cash provided by financing activities was $425,000. This was comprised of net proceeds from convertible notes payable of
$320,000, partially offset by repayment of convertible notes payable of $190,000, along with common stock sold for cash of $5,000 and notes payable issued for $290,000.
During the year ended April 30, 2018, net cash provided by financing activities was $158,000 comprised of net proceeds from convertible notes payable of $133,000,
and a note payable of $25,000.
We have not realized any revenues since inception and paid expenses and costs with proceeds from the issuance of securities as well as by loans from investor,
stockholders and other related parties.
Our immediate goal is to provide funding for the completion of the initial production of the Offender Alert Passive Scan licensed from CCS. The Offender Alert
Passive Scan is an advanced passive scanning system for detecting and identifying concealed threats.
We believe a related party and other lenders will provide sufficient funds to carry on general operations in the near term and fund
PSSI’s production and sales. We expect to raise additional funds from the sale of securities, stockholder loans and convertible debt. However, we may not be successful in our efforts to obtain financing to carry out our business plan.
As of April 30, 2019, we did not have sufficient cash to fund our operations for the next twelve months.
On July 24, 2017, the Company entered into a Funding Agreement with RAB Investments AG, a current lender and stockholder located in Zug, Switzerland, which is
intended to provide necessary funding towards the initial production of our non-X-ray security scanner. The Funding Agreement calls for RAB to fund a minimum of $50,000 to a maximum of $150,000 on a "best efforts basis," with a first tranche of
$25,000 to be completed by August 15, 2017. In exchange for the funds, DTII will issue convertible notes that may be converted into common stock of the Company at a discount of 25%, based on the 10-day average trading value of Company shares at the
time of the initial conversion. The notes may be converted at any time, in whole or partially, but all conversions must be at the same rate as the initial conversion.
No funding has been provided as of the date hereof and there is no assurance that funds will be provided by the anticipated initial first tranche of August 15,
2017, or thereafter. The Company does not intend to file a registration statement for the convertible notes or any shares of the Company’s common stock to be issued upon conversion of the notes. Any securities issued pursuant to the Funding
Agreement or conversion of the notes will be considered restricted securities.
On May 22, 2018 the Company signed an agreement with an investor for a loan of $25,000. The note is convertible 180 days after the date of the note to shares of
the Company’s common stock at $0.75 per share or a 25% discount to the 10 day trading average prior to conversion; whichever is lower. The total amount of the loan must be converted on the date of conversion. The note has an annual interest rate
of 6%.
On July 6, 2018 the Company signed an investment agreement with a third party. Under the terms of the agreement the Company receive $250,000 through the Company
attorney’s trust account. On July 12, 2018 the Company received the $250,000 less wire and legal payment of $10,045 for a total of $239,955. In addition the note holder will receive a royalty of 5% up to $250,000 and then a royalty of 3.5% for two
years thereafter. The note holder will receive 150,000 shares of the Company’s common stock plus 100,000 warrants to purchase common shares within three years at $2.50 per share
Inflation
In the opinion of management, inflation has not and will not have a material effect on our operations until such time as we begin to realize revenues from
operations. At that time, management will evaluate the possible effects of inflation related to our business and operations following a successful acquisition or merger.
Net Operating Loss Carryforward
We have accumulated a net operating loss carryforward of approximately $4,074,509 as of April 30, 2019. This loss carry forward may be offset against future
taxable income. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforward. In the event of certain changes in control, there will
be an annual limitation on the amount of net operating loss carryforward that can be used. No tax benefit has been reported in the financial statements for the years ended April 30, 2019 and 2018 because it has been fully offset by a valuation
reserve. The use of future tax benefit is undeterminable because we presently have no operations.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to intangible assets, derivative liabilities, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions.
For further information on our significant accounting policies see Note 2 to our consolidated financial statements included in this Annual Report. There were no
changes to our significant accounting policies during the year ended April 30, 2019. The following is a description of those significant accounting policies that involve estimates and judgment by management.
Derivative Liabilities
We have identified the conversion features of certain of our convertible notes payable as derivatives. We estimate the
fair value of the derivatives using American Option Binomial pricing model. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date,
recording a derivative liability, debt discount, and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price
volatility and variable conversion prices based on market prices as defined in the respective agreements. These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of
the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Basic and Diluted Loss per Common Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share, which requires presentation of both basic and diluted loss per share (“EPS”)
on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, convertible preferred stock, and convertible debt, using the if-converted method. In computing
diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive common shares if their effect is
antidilutive.
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures and ASC 825, Financial Instruments, an entity is required to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value using a hierarchy based on the level of independent, objective evidence when measuring fair value using a hierarch based on the level of independent, objective evidence surrounding the
inputs used to measure fair value. A financial instrument’s categorization with the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy prioritized the inputs into three
levels that may be used to measure fair value:
Level 1: applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted
prices for similar assets or liabilities in markets that are not active.
Level 3: applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets
or liabilities.
As of April 30, 2019 and 2018, the Company believes the amounts reported for cash, payables, accrued liabilities and amounts due to related parties approximate their fair values due to
the nature or duration of these instruments.
Liabilities measured at fair value on a recurring basis were estimated as follows at April 30, 2018 and 2019:
|
2018
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
3,248,160
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,248,160
|
|
|
Convertible notes payable , net
|
|
|
816,526
|
|
|
|
816,526
|
|
|
|
-
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
4,064,686
|
|
|
$
|
816,526
|
|
|
$
|
-
|
|
|
$
|
3,248,160
|
|
|
2019
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,252,539
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,252,539
|
|
|
Convertible notes payable, net
|
|
|
959,800
|
|
|
|
959,800
|
|
|
|
-
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
2,212,339
|
|
|
$
|
959,800
|
|
|
$
|
-
|
|
|
$
|
1,252,539
|
|
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of
long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell. As of April 30, 2019 the Company impaired the license agreement expensing $378,600.
Recent Accounting Pronouncements
See Note 2
to our consolidated financial statements included in this Annual Report for disclosure of recent accounting pronouncements.
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 stockholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This item is not required for a smaller reporting company.
Item 8.
Financial Statements and Supplementary Data.
The consolidated financial statements filed with this report are presented beginning on page F-1, immediately following the signature page.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
For purposes of this section, the term
disclosure controls and procedures
means controls and other procedures of an issuer that are
designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”) (15 U.S.C. 78a et seq.) is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the
reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of how remote. As of the end of the period covered by this Annual Report, we carried out an evaluation, under the supervision and with the participation of our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO has concluded that the Company’s disclosure controls and
procedures are not effective because of the identification of a material weakness in our internal control over financial reporting, which is identified below, which we view as an integral part of our disclosure controls and procedures.
Changes in Internal Controls over Financial Reporting
We have not made any changes in our internal controls over financial reporting that occurred during the period covered by this Form 10-K that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act of 1934. Our internal control system was designed 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. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30, 2019 using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on its evaluation, our management concluded that there are material weaknesses in our internal control over financial reporting. We lack
full time personnel in accounting and financial staff to sufficiently monitor and process financial transactions in an efficient and timely manner. This allows for insufficient segregation of duties and a lack of multiple levels of supervision and
review. Our history of losses has severely limited our budget to hire and train enough accounting and financial personnel needed to adequately provide this function. Consequently, we lacked sufficient technical expertise, reporting standards and
written policies and procedures. 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 the Company’s
annual or interim financial statements will not be prevented or detected on a timely basis.
This Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting because the attestation
report requirement has been removed for “smaller reporting companies” under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Our executive officers and directors are as follows:
|
Name
|
Age
|
Position
|
|
|
|
|
|
Merrill W. Moses
|
65
|
President, CEO, Secretary, Interim CFO and Director
|
|
|
|
|
|
Charles C. Hooper
|
71
|
Director
|
On April 30, 2016, the Board of Directors appointed Merrill W. Moses to replace Stephen M. Studdert as a director, President, CEO, acting CFO and Secretary of the
Company.
On May 20, 2016, the Board of Directors appointed Charles C. Hooper to replace Frank Thorwald as a director.
All directors serve for a one-year term until their successors are elected or they are re-elected at the annual stockholders' meeting. Officers hold their positions
at the pleasure of the board of directors, absent any employment agreement, of which none currently exists or is contemplated.
We presently anticipate that we will consider new, qualified persons to become directors in the future, although no new appointments or arrangements have been made
as of the date hereof.
There is no arrangement, agreement or understanding between any of the directors or officers and any other person pursuant to which any director or officer was or
is to be selected as a director or officer. Also, there is no arrangement, agreement or understanding between management and non-management stockholders under which non-management stockholders may directly or indirectly participate in or influence
the management of our affairs.
The business experience of each of the persons listed above during the past five years is as follows:
Merrill W. Moses
attended Brigham Young University and over the past 40 years has been an entrepreneur
and founder of a variety of independent business ventures. He has also been involved in operating an independent oil and gas company and a mining and exploration company. Since 1992, Mr. Merrill has served as President and CEO of two oil and gas
companies, Energy Pro Inc. and Dynamic Energy & Petroleum Inc. Mr. Moses is also a founding partner in 2007 of Liberty Capital International, Inc., an international financial and project management company that provides various private client
financial and asset management services.
Charles C. Hooper
has a background in Mineral Exploration and Mining and currently is the owner of Old
Town Financial in La Jolla, California, a designer, financier and developer of commercial buildings and other real estate projects. Previously, he was a missile guidance engineer designing and building missile guidance systems for the U.S. Army. Mr.
Hooper also served as an officer in the U.S. Navy during the Viet Nam war. He is a graduate system engineer from the University of California at Los Angeles and holds a Master of Science Degree in Management.
None of our officers, directors or control persons has had any of the following events occur:
|
●
|
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two
years prior to that time;
|
|
|
|
|
●
|
any conviction in a criminal proceeding or being subject to a pending criminal proceeding, excluding traffic violations and other minor offenses;
|
|
|
|
|
●
|
being subject to any order, judgment or decree, not substantially reversed, suspended or vacated, of any court of competent jurisdiction, permanently enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities or banking business; and
|
|
|
|
|
●
|
being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended or vacated.
|
No director is deemed to be an independent director. Our board of directors performs some of the functions associated with a nominating committee and a compensation
committee, including reviewing all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation. The board will also perform the functions of an audit committee until we establish a
formal committee.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of our common stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of our common stock and other equity securities. We believe that no reports were filed during the fiscal year 2019.
Code of Ethics
We currently do not have a code of ethics. We do intend to adopt a code of ethics that applies to our principal executive officer, principal financial officer,
principal accounting officer or controller or persons performing similar functions
Item 11. Executive Compensation
.
We do not have a bonus, profit sharing, or deferred compensation plan for the benefit of employees, officers or directors. We currently have no employees and do not pay any
salaries. Compensation for our officers and directors is generally established through a written Service Agreement.
The following table depicts compensation accrued to officers and directors for the fiscal years ended April 30, 2019, 2018 and 2017
|
Name and Principal Position
|
|
Year Ended
April 30,
|
|
|
Salary
|
|
|
Bonus
|
|
|
All Other
Consideration
|
|
|
Total
|
|
|
Merrill W. Moses, President, CEO, Secretary, Interim CFO and Director (1)
(1)
|
|
|
2017
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
260,750
|
|
|
$
|
260,750
|
|
|
|
|
|
2018
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
142,500
|
|
|
$
|
142,500
|
|
|
|
|
|
2019
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
Charles Cortland Hooper, Director
(2)
|
|
|
2017
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
167,500
|
|
|
$
|
167,500
|
|
|
|
|
|
2018
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
|
|
|
|
2019
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
(1)
Mr. Moses’ compensation for services as President, CEO, Secretary, Interim CFO and Director was accrued pursuant to a Service Agreement with the Company dated April 25, 2016. As of April 30, 2019, $260,500 was payable to
Mr. Moses by the Company. In addition, pursuant to a Service Agreement with Passive Security Scan Inc. (“PSSI”), compensation of $30,000 was accrued for the year with a payable as of April 30, 2019 of $67,500 payable to Mr. Moses.
(2)
Mr. Hooper’s compensation for the fiscal year ended April 30, 2019 was $60,000 with $174,000 accrued as a payable to Mr. Hooper. The compensation for services as Director was accrued pursuant to a Service Agreement dated
May 20, 2016.
During each of the fiscal year ended April 30, 2018, we accrued expenses and services rendered by EMAC in the amount of $212,271 pursuant to Administration
Agreements with DTII and PSSI. Total accrued payable to EMAC for services and expense reimbursement as of April 30, 2019 was $227,083.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information as of August 14, 2019 with respect to the beneficial ownership of our common stock and based on 5,022,244 shares
outstanding:
|
●
|
Each stockholder believed to be the beneficial owner of more than 5% of our common stock;
|
|
|
|
|
●
|
by each of our directors and executive officers; and
|
|
|
|
|
●
|
all of our directors and executive officers as a group.
|
For purposes of the following table, a person is deemed to be the beneficial owner of any shares of common stock
(I) over which the person has or shares, directly or indirectly, voting or investment power, or (ii) of which the person has a right to acquire beneficial ownership at any time within 60 days after the date of this report. “Voting power” is the power
to vote or direct the voting of shares and “investment power” includes the power to dispose or direct the disposition of shares.
|
Name and Address of Beneficial Owner
|
|
Amount and
Nature of
Beneficial Ownership(1)
|
|
|
Percent
of Class(2)
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrill W. Moses, President & CEO
4730 S. Fort Apache Road, Suite 300
Las Vegas, Nevada 89147
|
|
|
1,000,467
|
|
|
|
19.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Charles C. Hooper, Director
4730 S. Fort Apache Road, Suite 300
Las Vegas, Nevada 89147
|
|
|
167
|
|
|
|
0..00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
5% Beneficial Owners
:
EMAC Handels AG
(3)
Schuetzenstr. 22
Pfaeffikon,Switzerland
|
|
|
1,374,605
|
|
|
|
27.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (2 person)
|
|
|
1,000,634
|
|
|
|
19.92
|
%
|
|
(1)
|
Unless otherwise indicated, the named person will be the record and beneficially owner of the shares indicated.
|
|
(2)
|
Percentage ownership is based on 5,022,244 shares of common stock outstanding as of August 14, 2019.
|
|
(3)
|
EMAC Handels AG is a Swiss company located in Pfaeffikon, Switzerland, owned and controlled by Thomas Hiestand.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Except as set forth below, we have not entered into any other material transactions with any officer, director, nominee for election as director, or any stockholder
owning greater than five percent (5%) of our outstanding shares, nor any member of the above referenced individuals' immediate family.
During the years ended April 30, 2019 and 2018, management and administrative services were compensated by the Company pursuant to: a Service Agreement between
the Company and Merrill Moses, President, CEO, Secretary, acting CFO and director, dated April 25, 2016; a Service Agreement between the Company and Charles Hooper, director, dated May 20, 2016; a Service Agreement between the Company and Stephen
Studdert, former President, CEO, Secretary, acting CFO and director, dated April 30, 2011; and an Administration Agreement with EMAC Handles AG (“EMAC”), a shareholder of the Company and PSSI, executed on March 15, 2011 and renewed on May 1, 2014.
During the year ended April 30, 2019, management and administrative services were compensated by PSSI pursuant to a Service Agreement between PSSI and Merrill
Moses, dated January 12, 2017 and effective February 1, 2017 and an Administration and Management Agreement dated January 12, 2017 between PSSI and RAB Investments AG (“RAB”), a significant lender of the Company and a shareholder of PSSI.
The fees are based on services provided and invoiced by the related parties on a monthly basis and the fees are paid in cash when possible or with the Company’s
common stock. The Company also, from time to time, has some of its expenses paid by related parties with the intent to repay. These types of transactions, when incurred, result in payables to related parties in the Company's consolidated
financial statements as a necessary part of funding the Company's operations.
Previously on December 11, 2018, the Board of Directors resolved to change the terms of the company’s Series A and Series B Preferred Shares from ten (10) shares of DTII common
stock for each one (1) share of Preferred Stock, to five (5) shares of DTII common stock for each one (1) share of Preferred Stock. The revised conversion terms applied to all issued and outstanding Preferred Shares and to future issuances of Series
A and Series B Preferred Stock.
As of April 30, 2019, the Company and PSSI had the following consolidated payable balances due to related parties, which resulted from transactions with significant shareholders and
officers and directors of the Company.
|
EMAC
|
|
$
|
294,587
|
|
|
|
|
|
|
|
|
Merrill Moses, President, CEO, Secretary, acting CFO & director
|
|
|
260,500
|
|
|
Charles Hooper, director
|
|
|
174,000
|
|
|
Delbert Blewett, Former President & CEO
|
|
|
20,792
|
|
|
|
|
$
|
749,879
|
|
None of our directors are deemed to be independent directors. We do not have a compensation, audit or nominating committee, rather those functions are carried out by the board as a
whole.
Item 14. Principal Accounting Fees and Services.
The following tables present for each of the last two fiscal years the aggregate fees billed in connection with the audits of our financial statements and other professional
services rendered by our independent registered public accounting firm Fruci & Associates II, PLLC :
|
|
|
2019
|
|
|
2018
|
|
|
Audit fees
|
|
$
|
34,939
|
|
|
$
|
17,600
|
|
|
Audit related fees
|
|
|
1,168
|
|
|
|
--
|
|
|
Tax fees
|
|
|
--
|
|
|
|
--
|
|
|
All other fees
|
|
|
--
|
|
|
|
--
|
|
Audit fees represent the professional services rendered for the audit of our annual financial statements and the review of our financial statements included in quarterly reports,
along with services normally provided by the accounting firm in connection with statutory and regulatory filings or engagements. Audit-related fees represent professional services rendered for assurance and related services by the accounting firm
that are reasonably related to the performance of the audit or review of our financial statements that are not reported under audit fees.
Tax fees represent professional services rendered by the accounting firm for tax compliance, tax advice, and tax planning. All other fees represent fees billed for products and
services provided by the accounting firm, other than the services reported for in the other categories.
PART IV
Item 15. Exhibits, Financial Statement Schedules
|
Exhibit No.
|
Exhibit Name
|
|
|
|
|
21.1
|
|
|
|
|
|
31.1
|
|
|
|
|
|
32.1
|
|
|
|
|
|
101 INS*
|
XBRL Instance Document
|
|
|
|
|
101 SCH*
|
XBRL Schema Document
|
|
|
|
|
101 CAL*
|
XBRL Calculation Linkbase Document
|
|
|
|
|
101DEF*
|
XBRL Definition Linkbase Document
|
|
|
|
|
101 LAB*
|
XBRL Labels Linkbase Document
|
|
|
|
|
101 PRE*
|
XBRL Presentation Linkbase Document
|
*The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such
filing or document.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
Defense Technologies International Corp.
|
|
|
|
|
|
By:
/S/
Merrill W. Moses
|
|
|
Merrill W. Moses
|
|
|
Chief Executive Officer
|
|
|
Dated: August 13, 2019
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/S/
Merrill W. Moses
|
Director
|
August 13, 2019
|
|
Merrill W. Moses
|
|
|
|
|
|
|
|
/S/
Charles C. Hooper
|
Director
|
August 13, 2019
|
|
Charles C. Hooper
|
|
|
Defense Technologies International Corp. and Subsidiary
Index to Consolidated Financial Statements
Years Ended April 30, 2019 and 2018
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated Balance Sheets as of April 30, 2019 and 2018
|
F-3
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended April 30, 2019 and 2018
|
F-4
|
|
|
|
|
Consolidated Statements of Stockholders’ Deficit for the Years Ended April 30, 2019 and 2018
|
F-5
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended April 30, 2019 and 2018
|
F-6
|
|
|
|
|
Notes to the Consolidated Financial Statements
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Defense Technologies International Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Defense Technologies International Corp. (“the Company”) as of April 30, 2019 and 2018, and the related consolidated statements of
operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended April 30, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of April 30, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2019, in conformity with
accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an
accumulated deficit, net losses, and negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to
obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Fruci & Associates II, PLLC
Fruci & Associates II, PLLC
|
We have served as the Company’s auditor since 2017.
Spokane, Washington
|
|
August 13, 2019
|
|
Defense Technologies International Corp. and Subsidiary
|
Consolidated Balance Sheets
|
|
|
|
April 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
60
|
|
|
$
|
8
|
|
|
Inventory
|
|
|
2,787
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
10,500
|
|
|
|
--
|
|
|
Total current assets
|
|
|
13,347
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
License agreement
|
|
|
--
|
|
|
|
378,600
|
|
|
Total assets
|
|
$
|
13,347
|
|
|
$
|
378,608
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
283,489
|
|
|
$
|
352,162
|
|
|
Accrued license agreement payment
|
|
|
36,300
|
|
|
|
6,300
|
|
|
Accrued interest and fees payable
|
|
|
209,981
|
|
|
|
155,896
|
|
|
Accrued interest payable – related parties
|
|
|
--
|
|
|
|
21,383
|
|
|
Derivative liabilities
|
|
|
1,252,539
|
|
|
|
3,248,160
|
|
|
Convertible notes payable, net of discount
|
|
|
959,800
|
|
|
|
816,526
|
|
|
Payables – related parties
|
|
|
749,879
|
|
|
|
437,968
|
|
|
Notes payable
|
|
|
429,226
|
|
|
|
25,000
|
|
|
Total current liabilities
|
|
|
3,921,214
|
|
|
|
5,063,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,921,214
|
|
|
|
5,063,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.0001 par value; 20,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
|
Series A – 2,925,369 and 3,277,369 shares issued and outstanding, respectively
|
|
|
292
|
|
|
|
328
|
|
|
Series B – 520,000 and 520,000 shares issued and outstanding, respectively
|
|
|
52
|
|
|
|
52
|
|
|
Total preferred shares
|
|
|
344
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 200,000,000 shares authorized, 5,022,244 and 1,283,758 shares issued and outstanding, respectively, post reverse split
|
|
|
502
|
|
|
|
128
|
|
|
Additional paid-in capital
|
|
|
5,496,972
|
|
|
|
5,076,110
|
|
|
Accumulated deficit
|
|
|
(9,276,082
|
)
|
|
|
(9,745,809
|
)
|
|
Total
|
|
|
(3,778,608
|
)
|
|
|
(4,669,571
|
)
|
|
Non-controlling interest
|
|
|
(129,603
|
)
|
|
|
(15,596
|
)
|
|
Total stockholders’ deficit
|
|
|
(3,908,211
|
)
|
|
|
(4,684,787
|
)
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
13,347
|
|
|
$
|
378,608
|
|
The accompanying notes are an integral part of these consolidated financial statements
|
Defense Technologies International Corp. and Subsidiary
|
|
Consolidated Statements of Operations
|
|
|
|
Years Ended April 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
487,362
|
|
|
|
457,011
|
|
|
General and administrative
|
|
|
376,413
|
|
|
|
129,202
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
863,775
|
|
|
|
586,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(863,775
|
)
|
|
|
(586,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
Impairment of asset
|
|
|
(378,600
|
)
|
|
|
--
|
|
|
Gain on share issuance
|
|
|
--
|
|
|
|
29,764
|
|
|
Gain (loss) on notes payable
|
|
|
(10,243
|
)
|
|
|
(192,430
|
)
|
|
Finance and interest cost on notes
|
|
|
(193,941
|
)
|
|
|
--
|
|
|
Interest expense
|
|
|
(196,233
|
)
|
|
|
(209,822
|
)
|
|
Gain (loss) on derivative liabilities
|
|
|
2,008,512
|
|
|
|
(2,326,136
|
)
|
|
Gain on extinguishment of debt
|
|
|
(10,000
|
)
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
1,219,495
|
|
|
|
(2,593,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gain(loss) before income taxes
|
|
|
355,720
|
|
|
|
(3,179,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
--
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss)
|
|
|
355,720
|
|
|
|
(3,179,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in net loss of consolidated subsidiary
|
|
|
114,008
|
|
|
|
20,429
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) attributed to the Company
|
|
$
|
469,728
|
|
|
$
|
(3,159,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic
|
|
$
|
0.15
|
|
|
$
|
(16.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
|
3,063,756
|
|
|
|
193,429
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – diluted
|
|
$
|
0.01
|
|
|
$
|
(16,44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
49,799,334
|
|
|
|
193,429
|
|
The accompanying notes are an integral part of these consolidated financial statements
Defense Technologies International Corp. and Subsidiary
|
Consolidated Statements of Stockholders’ Deficit
For the Years Ended April 30, 2019 and 2018
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In
Capital
|
|
|
Accumulated
Deficit
|
|
|
Non-Controlling
Interest
|
|
|
Total
Stockholders’
Deficit
|
|
|
|
|
Preferred
stock
|
|
|
Common Stock
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance April 30, 2017
|
|
|
1,973,545
|
|
|
$
|
197
|
|
|
|
125,550
|
|
|
$
|
13
|
|
|
$
|
4,682,357
|
|
|
$
|
(6,586,401
|
)
|
|
$
|
4,833
|
|
|
$
|
(1,899,198
|
)
|
|
Series A preferred stock issued in payment of debt-related party
|
|
|
1,309,380
|
|
|
|
131
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,807
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,807
|
|
|
Series A preferred stock issued in payment of debt-related party
|
|
|
442,444
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
44,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,200
|
|
|
Common stock issued for conversion of Series A preferred
|
|
|
152,000
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,185
|
|
|
Series A preferred stock issued for stock based compensation
|
|
|
(100,000
|
)
|
|
|
(10
|
)
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
(90
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
Series B preferred shares issued for consulting
|
|
|
20,000
|
|
|
|
2
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Common stock issued for conversion of debt
|
|
|
--
|
|
|
|
--
|
|
|
|
121,040
|
|
|
|
12
|
|
|
|
18,878
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,889
|
|
|
Common stock issued for stock based compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
47,500
|
|
|
|
4
|
|
|
|
62,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,999
|
|
|
Common stock returned to the company for reissuance
|
|
|
--
|
|
|
|
--
|
|
|
|
(11,016
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
--
|
|
|
Derivative gain on conversion of debt
|
|
|
--
|
|
|
|
--
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121,778
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121,778
|
|
|
Rounding shares issued due to reverse
|
|
|
--
|
|
|
|
--
|
|
|
|
684
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,159,408
|
)
|
|
|
(20,429
|
)
|
|
|
(3,179,837
|
)
|
|
Balance, April 30, 2018
|
|
|
3,797,369
|
|
|
|
380
|
|
|
|
1,283,758
|
|
|
|
128
|
|
|
|
5,076,110
|
|
|
|
(9,745,809
|
)
|
|
|
(15,596
|
)
|
|
|
(4,684,787
|
)
|
|
Common stock issued for cash
|
|
|
--
|
|
|
|
--
|
|
|
|
33,333
|
|
|
|
3
|
|
|
|
4,997
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,000
|
|
|
Common stock issued for service
|
|
|
--
|
|
|
|
--
|
|
|
|
686,425
|
|
|
|
69
|
|
|
|
189,305
|
|
|
|
--
|
|
|
--=
|
|
|
|
189,374
|
|
|
Common stock issued for debt
|
|
|
--
|
|
|
|
--
|
|
|
|
768,728
|
|
|
|
77
|
|
|
|
84,978
|
|
|
|
--
|
|
|
|
--
|
|
|
|
85,055
|
|
|
Preferred shares issued earlier
|
|
|
(152,000
|
)
|
|
|
(16
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
16
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Common stock issued for conversion of preferred shares
|
|
|
(200,000
|
)
|
|
|
(20
|
)
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
(180
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Common stock issued for contract extension
|
|
|
--
|
|
|
|
--
|
|
|
|
250,000
|
|
|
|
25
|
|
|
|
12,475
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12,500
|
|
|
Warrants and options issued
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
129,271
|
|
|
|
--
|
|
|
|
--
|
|
|
|
129,271
|
|
|
Net loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
469,727
|
|
|
|
(114,007
|
)
|
|
|
355,720
|
|
|
Balance, April 30, 2019
|
|
|
3,445,369
|
|
|
$
|
344
|
|
|
|
5,022,244
|
|
|
$
|
502
|
|
|
$
|
5,496,972
|
|
|
$
|
(9,276,082
|
)
|
|
|
(129,603
|
)
|
|
|
(3,908,211
|
)
|
The accompanying notes are an integral part of these consolidated financial statements
|
Defense Technologies International Corp. and Subsidiary
|
|
Consolidated Statements of Cash Flows
|
|
|
|
Years Ended April 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net gain (loss)
|
|
$
|
355,720
|
|
|
$
|
(3,179,837
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
189,374
|
|
|
|
62,999
|
|
|
Gain on issuance
|
|
|
|
|
|
|
(29,764
|
)
|
|
Impairment of asset
|
|
|
378,600
|
|
|
|
2
|
|
|
Shares issued for contract extension
|
|
|
12,500
|
|
|
|
2
|
|
|
Fee for loan extension
|
|
|
30,000
|
|
|
|
|
|
|
Amortization of debt discount to interest expense
|
|
|
163,943
|
|
|
|
68,831
|
|
|
(Gain) loss on derivative liabilities
|
|
|
(2,008,512
|
)
|
|
|
2,326,136
|
|
|
Gain(loss) on extinguishment of debt
|
|
|
10,000
|
|
|
|
(105,000
|
)
|
|
Loss on notes
|
|
|
10,243
|
|
|
|
192,430
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
(increase) decrease in inventory
|
|
|
(2,787
|
)
|
|
|
--
|
|
|
(Increase) decrease in prepaid expenses
|
|
|
(10,500
|
)
|
|
|
--
|
|
|
Increase in accounts payable
|
|
|
155,951
|
|
|
|
206,667
|
|
|
Increase in payables – related parties
|
|
|
290,528
|
|
|
|
299,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(424,940
|
)
|
|
|
(158,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock for cash
|
|
|
5,000
|
|
|
|
--
|
|
|
Repayment of convertible notes
|
|
|
(190,000
|
)
|
|
|
--
|
|
|
Proceeds from convertible notes payable, net
|
|
|
320,000
|
|
|
|
133,000
|
|
|
Proceeds from notes payable
|
|
|
290,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
425,000
|
|
|
|
158,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
52
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of the year
|
|
|
8
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of the year
|
|
$
|
60
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Monetary Transactions
|
|
|
|
|
|
|
|
|
|
Common stock issued for convertible debt
|
|
$
|
85,055
|
|
|
$
|
18,890
|
|
|
Common stock issued for the conversion of preferred shares
|
|
$
|
20
|
|
|
$
|
--
|
|
|
New notes issued to pay old notes
|
|
$
|
90,037
|
|
|
$
|
--
|
|
|
Ap converted to note payable
|
|
$
|
114,226
|
|
|
$
|
--
|
|
|
Preferred shares issued for convertible debt
|
|
$
|
--
|
|
|
$
|
190,383
|
|
|
Common stock returned to treasury
|
|
$
|
--
|
|
|
$
|
1,179
|
|
|
Derivative liability on debt conversion
|
|
$
|
73,312
|
|
|
$
|
121,779
|
|
|
Preferred shares adjusted to issuance
|
|
$
|
16
|
|
|
$
|
--
|
|
|
Warrant financing expense
|
|
$
|
73,313
|
|
|
$
|
--
|
|
The accompanying notes are an integral part of these consolidated financial statements
Defense Technologies International Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended April 30, 2019 and 2018
NOTE 1. NATURE OF BUSINESS AND CONTINUED OPERATIONS
Defense Technologies International Corp. (the "Company ") was incorporated in the State of Delaware on May 27, 1998.
Effective June 15, 2016, the Company changed its name to Defense Technologies International Corp. from Canyon Gold Corp. to
more fully represent the Company’s expansion goals into the advanced technology sector.
Effective January 12, 2017, Passive Security Scan, Inc. ("PSSI") was incorporated in the state of Utah as subsidiary controlled by the Company. The Company transferred to PSSI its exclusive
world-wide license to the defense, detection and protection security products previously acquired by the Company. The Company currently owns 76.28% of PSSI with 23.72% acquired by four individuals and entities. The Company plans to continue the
development of the technology and conduct all sales and marketing activities in PSSI.
On January 19, 2018 the Board of Directors, with the approval of a majority of the shareholders, passed a resolution to effect a reverse split of the Company’s outstanding
common stock on a 1 share for 1,500 shares (1:1500) basis. The reverse split was effective on March 20, 2018. The number of shares in the financials are reflective of the reverse split.
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going
concern. Through April 30, 2019, the Company has no revenues, has accumulated losses of $9,276,082 since inception on June 19, 2008 and a working capital deficit of $3,921,154 and expects to incur further losses in the development of its business,
all of which cast substantial doubt about the Company’s ability to continue as a going concern. Management plans to continue to provide for the Company's capital needs during the year ending April 30, 2019 by issuing debt and equity securities and
by the continued support of its related parties. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that
might be necessary should the Company be unable to continue in existence. There is no assurance that funding will be available to continue the Company’s business operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s fiscal year end is April
30.
Recent Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-4, "Intangibles – Goodwill and Other (Topic 350): "Simplifying the Test for Goodwill Impairment." This
update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with
the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity
should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature
of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this
update. A public business entity that is an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to
determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.
In January 2017, the FASB issued ASU No. 2017-1, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this update clarify the definition
of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of
accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods
beginning after December 15, 2019. The amendments in this Update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of
this new accounting pronouncement.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not
believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations.
Consolidation and Non-Controlling Interest
.
These consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, Long Canyon, through January 15, 2017, and its majority-owned
subsidiary, PSSI, from its formation on January 15, 2017. All inter-company transactions and balances have been eliminated.
The non-controlling interest in PSSI, representing 5,441,436 common shares, or 23,72%, was acquired by several individuals and entities, including related parties, in exchange for
services valued at $6,100 and the extinguishment of Company accounts payable – related parties with a book value of $9,835.
Impairment of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the
asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. Fair value is estimated based upon either discounted cash flow analysis or
estimated salvage value.
As of April 30, 2019 the Company elected to impair its licenses agreement of $378,600.
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260,
Earnings per Share
, which requires presentation of both basic and
diluted loss per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the
period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, convertible preferred stock, and convertible debt, using the if-converted
method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all potentially dilutive common
shares if their effect is antidilutive.
As of April 30, 2018, convertible debt and related accrued interest payable were convertible into 121,040 shares of the Company’s common stock, 100,000 shares of convertible
preferred stock was convertible into 1,000,000 shares of the Company’s common stock.
As of April 30, 2019, convertible debt and related accrued interest payable were convertible into 5,706,022 shares of the Company’s common stock, 200,000 shares of convertible
preferred stock was convertible into 2,000,000 shares of the Company’s common stock, 582,857 warrants were convertible into 582,857 shares of common stock and 250,000 options were convertible into 250,000 shares of common stock.
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740,
Income Taxes
. The asset and
liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce
deferred tax assets to the amount that is believed more likely than not to be realized.
Use of Estimates
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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates
and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material
differences between the estimates and the actual results, future results of operations will be affected.
Financial Instruments
Pursuant to ASC 820,
Fair Value Measurements and Disclosures
and ASC 825,
Financial Instruments,
an
entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value using a hierarchy based on the level of independent, objective evidence when measuring fair value using a hierarch
based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization with the fair value hierarchy is based upon the lowest level of input that is significant to the fair
value measurement. The hierarchy prioritized the inputs into three levels that may be used to measure fair value:
Level 1: applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar
assets or liabilities in markets that are not active.
Level 3: applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
As of April 30, 2019 and 2018, the Company believes the amounts reported for cash, payables, accrued liabilities and amounts due to related parties approximate their fair values due
to the nature or duration of these instruments.
Liabilities measured at fair value on a recurring basis were estimated as follows at April 30, 2019 and 2018:
|
2018
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
3,248,160
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,248,160
|
|
|
Convertible notes payable , net
|
|
|
816,526
|
|
|
|
816,526
|
|
|
|
-
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
4,064,686
|
|
|
$
|
816,526
|
|
|
$
|
-
|
|
|
$
|
3,248,160
|
|
|
2019
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
1,252,539
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,252,539
|
|
|
Convertible notes payable, net
|
|
|
959,800
|
|
|
|
959,800
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
2,212,339
|
|
|
$
|
959,800
|
|
|
$
|
-
|
|
|
$
|
1,252,539
|
|
(a)
Derivative Liabilities
We have identified the conversion features of certain of our convertible notes payable as derivatives. We estimate the fair value of the derivatives using the Black-Scholes pricing
model. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, and a gain or loss on
change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility and variable conversion prices based on market prices as defined in
the respective agreements. These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the
fluctuation may be material.
(b)
Non-Monetary Transactions
All issuances of the Company’s common stock for non-cash consideration have been assigned a dollar amount equaling either the market value of the shares issued or the value of
consideration received whichever is more readily determinable. The majority of the non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the shares issued.
The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC 505,
Equity Based Payments to Non Employees
. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the
consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.
In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
(c)
Cash and Cash Equivalents
The Company considers all investments purchased with original maturity of three or fewer months to be cash equivalents.
(d)
Inventory
Inventories are stated at the lower or cost of market using the first-in; first-out (FIFO) cost method of accounting. The inventory consists of raw materials used to make various products for sale.
NOTE 3 – LICENSE AGREEMENT
Effective July 15, 2016, the Company executed documents intended to finalize the acquisition of 100% of Defense Technology Corporation, a non-related privately held Colorado company
("DTC"), a developer of defense, detection and protection products to improve security for Anchor schools and other public facilities. Subsequently, the Company and DTC mutually agreed to rescind the acquisition of DTC and entered into a
Rescission Agreement and Mutual Release (the "Rescission Agreement"), dated October 17, 2016.
In connection with the Rescission Agreement with the Company, DTC rescinded its agreement with the inventor and developer of the technology and assets that were subject to the
original agreement between the Company and DTC. On October 19, 2016, the Company entered into a new Definitive Agreement with Controlled Capture Systems, LLC ("CCS"), representing the inventor of the technology and assets previously acquired by
DTC, that included a new exclusive Patent License Agreement and Independent Contractor agreement. Under the license agreement with CCS, the Company acquired the world-wide exclusive rights and privileges to the CCS security technology, patents,
products and improvements. The term of the License Agreement will be from October 19, 2016 until the expiration of the last to expire of the licensed issued patents or patents to be issued.
The Company agreed to pay CCS an initial licensing fee of $25,000 and to pay ongoing royalties at the end of each six-month period at the rate of the greater of 5% of gross sales
used or sold, or the minimum royalty payment of $25,000. The Company also agreed to compensate investors that have provided funding for the development of CCS's technology with 2,667shares of the Company's common stock. Additionally, CCS will be
entitled to receive 167 shares of the Company's common stock upon completed sales of 1,000 passive scanner units based on the CCS technology.
The Independent Contractor Agreement between the Company and CCS provides that CCS will provide support for the development of the security technology and products. An initial
payment of $5,000 was paid to CCS plus ongoing hourly compensation for services provided.
The Company capitalized the costs to acquire the License Agreement, including the $25,000 initial licensing fee and the estimated value of $353,600 of the 2,667 shares of the
Company's common stock issued on November 10, 2016 to the CCS investors, which value was based on the closing market price of the Company's common stock on the date of the Definitive Agreement. The Company has recorded a current liability of
$36,300 in its consolidated balance sheet as of April 30, 2019 and $6,300 as of April 30, 2018. Once sales of products based on the CCS technology begin, the Company will amortize the capitalized costs over the estimated life of the license
agreement as determined by the legal life of patents issued.
On January 15, 2017, the Company transferred the License Agreement to PSSI in exchange for 15,000,000 common shares of PSSI, or 65.38% ownership. During the FY 2018 the Company
increased its ownership of PSSI to 17,500,000 shares or 76.28% of the Company The Company plans to continue the development of the technology and conduct all sales and marketing activities in PSSI.
On January 22, 2017, the Company and CCS entered into an Amendment to the Definitive Agreement, whereby CCS consented to the transfer of the Definitive Agreement, Patent License
Agreement and Independent Contractor Agreement to PSSI and agreed to extend the due dates of certain payments due CCS to April 30, 2017. In exchange, CCS received 100,000 shares of PSSI common stock.
Also in cononection with the Amendment to the Definitive Agreement, the investors that provided funding for the development of CCS's technology received 500,000 shares of PSSI
common stock.
The Company reviewed its valuation of the license agreement and as of April 30, 2019 the Company elected to impair its licenses agreement resulting in an impairment loss of $378,600.
NOTE 4. RELATED PARTY TRANSACTIONS
Payables – Related Parties
During the years ended April 30, 2019 and 2018, management and administrative services were compensated by the Company pursuant to: a Service Agreement between the Company and
Merrill Moses, President, CEO, Secretary, acting CFO and director, dated April 25, 2016; a Service Agreement between the Company and Charles Hooper, director, dated May 20, 2016; a Service Agreement between the Company and Stephen Studdert, former
President, CEO, Secretary, acting CFO and director, dated April 30, 2011; and an Administration Agreement with EMAC Handles AG (“EMAC”), a shareholder of the Company and PSSI, executed on March 15, 2011 and renewed on May 1, 2014.
During the year ended April 30, 2019, management and administrative services were compensated by PSSI pursuant to a Service Agreement between PSSI and Merrill Moses, dated January
12, 2017 and effective February 1, 2017 and an Administration and Management Agreement dated January 12, 2017 between PSSI and RAB Investments AG (“RAB”), a significant lender of the Company and a shareholder of PSSI.
The fees are based on services provided and invoiced by the related parties on a monthly basis and the fees are paid in cash when possible or with the Company’s common stock. The
Company also, from time to time, has some of its expenses paid by related parties with the intent to repay. These types of transactions, when incurred, result in payables to related parties in the Company's consolidated financial statements as a
necessary part of funding the Company's operations.
Previously on December 11, 2018, the Board of Directors resolved to change the terms of the company’s Series A and Series B Preferred Shares from ten (10) shares of DTII common stock for each one (1)
share of Preferred Stock, to five (5) shares of DTII common stock for each one (1) share of Preferred Stock. The revised conversion terms applied to all issued and outstanding Preferred Shares and to future issuances of Series A and Series B
Preferred Stock.
As of April 30, 2019 and 2018, the Company had payable balances due to related parties totaling $749,879 and $437,968, respectively, which resulted from transactions with shareholders, officers and
directors of the Company.
Notes Payable
On March 5, 2018 the Company subsidiary PSSI entered into a note agreement with Premium Marketing Associates, LLC for $25,000.The funds were designated for use in a marketing agreement with the
Edward Fitzgerald Group for raising funds for PSSI. The note was to be repaid from investment fund generated by the Fitzgerald group plus 15% of the funds generated are paid to the investor.
On July 6, 2018 the Company signed an investment agreement with a third party. Under the terms of the agreement the Company receive $250,000 through the Company attorney’s trust
account. On July 12, 2018 the Company received the $250,000 less wire and legal payment of $10,045. In addition the note holder will receive a royalty of 5% up to $250,000 and then a royalty of 3.5% for two years thereafter. The note holder will
receive 150,000 shares of the Company’s common stock plus 100,000 warrants to purchase common shares within three years at $2.50 per share.
On July 18, 2018 the Company entered into a promissory note of $114,226.26 with interest rate of 8% per annum with Haynie & Company the Company’s former auditors. Under the
terms of the agreement commencing August 15, 2018 the Company is to pay Haynie $5,000 per month. In addition the Company shall pay the note holder 20% of any funding event of private or public equity. As of April 30, 2019 the Company owed the note
holder $104,363 plus interest.
On January 26, 2019 the Company approved a loan from Brian McLain of $275,000. The note is convertible into common stock of the Company and is non-dilutive for 2 years from date of
the note. In addition the Company granted the lender 100,000 warrants convertible into common shares at $1.00 per share. As of April 30, 2019 the $25,000 of the loan was funded by the lender.
NOTE 5. CONVERTIBLE DEBT
On March 10, 2016, the Company entered into a convertible promissory note for $17,000 with ACM Services GmbH, which bears interest at an annual rate of 6% and is convertible into
shares of the Company’s common stock at $0.05 per share. The Company recorded a debt discount and a beneficial conversion feature of $17,000 at the inception of the note.
On May 25, 2017, the Company entered into a Convertible Promissory Note with an institutional investor for $56,500, with net proceeds to the Company of $52,000. The note bears interest at an annual
rate of 2%, matured on May 25, 2018 and is convertible into common shares of the Company after twelve months at a variable conversion price equal to 55% multiplied by the lowest one-day trading price of the Company’s common stock during the twenty
trading days prior to the conversion date. At the inception of the convertible note, the Company paid debt issuance costs of $4,500, recorded a debt discount of $47,500 and a loss on note issuance of $50,959. Interest expense for the amortization of
the debt discount was calculated on a straight-line basis over the life of the convertible note. The note is in default and now carries an interest rate of 15%.
On July 17, 2017, the Company entered into a Convertible Promissory Note amendment with an institutional investor for $25,000. The note bears interest at an annual rate of 15%, as part of the note
that is in default. The note is convertible into common shares of the Company at a variable conversion price equal to 60% multiplied by the lowest one-day trading price of the Company’s common stock during the twenty one trading days prior to the
conversion date. At the inception of the convertible note, the recorded a debt discount of $22,920.
On July 24, 2017, the Company entered into a Convertible Promissory Note with an institutional investor for $15,000. The note bears interest at an annual rate of 2%, matured on May 25, 2018 and is
convertible into common shares of the Company after twelve months at a variable conversion price equal to 55% multiplied by the lowest one-day trading price of the Company’s common stock during the twenty trading days prior to the conversion date. At
the inception of the convertible note, the Company recorded a debt discount of $15,000 and a loss on note issuance of $11,717. Interest expense for the amortization of the debt discount was calculated on a straight-line basis over the life of the
convertible note. The note is in default and now carries an interest rate of 15%.
On July 24, 2017, the Company entered into a Funding Agreement with RAB Investments AG, a current lender and stockholder located in Zug, Switzerland, which was intended to provide necessary funding
towards the initial production of our Offender Alert Passive Scan. The Funding Agreement calls for RAB to fund a minimum of $50,000 to a maximum of $150,000 on a “best efforts basis,” with a first tranche of $25,000 completed during August 2017. In
exchange for the funds, DTII will issue convertible notes that may be converted into common stock of the Company at a discount of 25%, based on the 10-day average trading value of Company shares at the time of the initial conversion. The notes may
be converted at any time, in whole or partially, but all conversions must be at the same rate as the initial conversion. No funding has been provided as of the date of this filing and there is no assurance that funds will be provided.
Pursuant to a Securities Purchase Agreement dated July 18, 2016 (the "July 2016 SPA", the Company entered into a Senior Secured Convertible Promissory Note (the "July 2016 Note") with Firstfire
Global Opportunities Fund, LLC ("Firstfire) for $189,000. The July 2016 Note was in default with respect to the maturity date, and the Company was in default on certain terms of the July 2016 SPA, including calculation of exercise prices on
Firstfire debt conversions and limitations on the Company entering into subsequent "Variable Rate Transactions." On August 9, 2017, the Company and Firstfire entered into a Waiver and Settlement Agreement whereby the Company will issue an
additional 8,667 shares of its common stock to Firstfire to cure the deficiency of shares previously issued in the debt conversions. Further, Firstfire agreed to waive any default with respect to the subsequent variable rate transactions. As of
April 30, 2019 the shares had not been issued.
On February 16, 2018 Passive Security Scan Inc , a subsidiary of the Company issued a $20,000 convertible note to Stuart Young. The note bears interest at 6% and is convertible after 6 months
from the date of the note into stock of either PSSI or the Company at 50% discount to the 10 day trailing trading value of the Company’s common stock.
On March 5, 2018 the Company subsidiary PSSI entered into a note agreement with Premium Marketing Associates, LLC for $25,000.The funds were designated for use in a marketing agreement with the
Edward Fitzgerald Group for raising funds for PSSI. The note was to be repaid from investment fund generated by the Fitzgerald group plus 15% of the funds generated are paid to the investor.
On May 22, 2018 the Company signed an agreement with an investor for a loan of $25,000. The note is convertible 180 days after the date of the note to shares of the Company’s common
stock at $0.75 per share or a 25% discount to the 10 day trading average prior to conversion; whichever is lower. The total amount of the loan must be converted on the date of conversion. The note has an annual interest rate of 6%.
On July 6, 2018 the Company signed an investment agreement with a third party. Under the terms of the agreement the Company receive $250,000 through the Company attorney's trust account. On July
12, 2018 the Company received the $250,000 less wire and legal payment of $10,045. In addition the note holder will receive a royalty of 5% up to $250,000 and then a royalty of 3.5% for two years thereafter. The note holder received 150,000 shares
of the Company's common stock plus 100,000 warrants to purchase common shares within three years at $2.50 per share.
On July 10, 2018 RAB agreed to buy the outstanding convertible debt from Jabro Funds for $35,000. The Company as part of the agreement paid Jabro Funds the $35,000 for the debt and
considered it retired and paid in full.
On August 29, 2018 the Company entered into a settlement agreement with Firstfire Global Opportunity Fund where the Company will pay Firstfire $250,000 plus $50,000 in common stock to settle all
the debt owed Firstfire by the Company. Under terms of the agreement the Company will pay $125,000 upon receipt of initial funding and $125,000 within 90 days after the initial payment. The Company agreed to issue on December 31, 2018 $50,000 in
stock with the number of shares being based on the lessor of $1.00 per share or a 25% discount of the average closing share price during the 10 trading days prior to the issuance of the shares. If funding is not secured the funding for the second
payment within 90 days of the initial payment the present note due Firstfire will remain in place less the $125,000 paid by the Company. The initial payment of $125,000 was made on September 6, 2018. The shares have been issued but the balance of
the note has not been paid.
On September 5, 2018 the Company entered into a settlement agreement with Crown Bridge Partners LLC where the Company will pay Crown Bridge $100,000 to settle all the debt owed Crown Bridge by the
Company. Under terms of the agreement the Company will pay $30,000 upon receipt of initial funding and $70,000 within 90 days after the initial payment. If funding is not secured the funding for the second payment within 90 days of the initial
payment the present note due Crown Bridge will remain in place less the $30,000 paid by the Company. The initial payment of $30,000 was made on September 6, 2018.The balance of the payment was not paid within the 90 day period.
On September 6, 2018, the company received $250,000 upon issuance of a debenture related to a certain securities purchase agreement with Ionic Ventures. The debenture bears interest at 15% per
annum. The 15% original issue discount debenture (face amount $275,000) is for a six-month period and is convertible into shares of the company's common stock at an initial conversion price of $0.60 per share. Also, the debenture holder will
receive 100,000 common stock purchase warrants to purchase DTII common stock, which may be exercised for up to three years at an initial exercise price of $0.70 per share. The Company did not meet its payment obligation so Ionic granted an
extension for an additional $30,000 being added to the principal.
On October 4, 2018 the Company entered into an agreement with RAB Investments AG to consolidate all RAB outstanding notes issued by the Company prior to October 31, 2018. Under the terms of the
agreement the Company agreed to accept a six percent interest to be calculated on all the notes since their inception. The agreement resulted in a new note for $330,626 which included the additional interest and retired the original notes.
On January 26, 2019 the Company approved a loan from Brian McLain of $275,000. The note is convertible into common stock of the Company and is non-dilutive for 2 years from
date of the note. In addition the Company granted the lender 100,000 warrants convertible into common shares at $1.00 per share. As of April 30 2019 $25,000 of the loan was funded by the lender.
On March 26, 2019 the Company entered into an agreement with Iconic Ventures, LLC to consolidate all RAB outstanding notes issued by the Company prior to October 31, 2018. Under the terms of the
agreement the Company agreed to accept a six percent interest to be calculated on all the notes since their inception. The agreement resulted in a new note for $330,626 which included the additional interest and retired the original notes.
During the year ended April 30, 2018, the Company issued a total of 121,040 shares of its common stock in the conversion of $18,890 in convertible notes principal and in accrued
interest payable and fees.
During the year ended April 30, 2019, the Company issued a total of 768,728 shares of its common stock in the conversion of $85,055 convertible notes principal and accrued interest
payable.
As of April 30, 2019, and April 30, 2018, the convertible debt outstanding, net of discount, was $959,800 and $816,526, respectively.
During the years ended April 30, 2018 and 2019, we had the following activity in our derivative liabilities:
|
Balance at April 30, 2017
|
|
|
823,452
|
|
|
|
|
|
|
|
|
Issuance of convertible notes
|
|
|
200,379
|
|
|
Loss on derivative liability
|
|
|
2,326,136
|
|
|
Conversion of debt to shares of common stock and repayment of debt
|
|
|
(140,393
|
)
|
|
|
|
|
|
|
|
Balance at April 30, 2018
|
|
$
|
3,248,160
|
|
|
|
|
|
|
|
Issuance and conversion of convertible debt - net
|
|
|
12,891
|
|
|
Gain on gain on derivative liability
|
|
|
(2,008,512
|
)
|
|
|
|
|
|
|
|
Balance at April 30, 2019
|
|
|
1,252,539
|
|
The estimated fair value of the derivative liabilities at April 30, 2019 was calculated using the Black-Scholes pricing model with the following assumptions:
|
Risk-free interest rate
|
0.80 – 1.070%
|
|
Expected life in years
|
0.25
|
|
Dividend yield
|
0%
|
|
Expected volatility
|
516.20%
|
Accrued interest and fees payable were $49,449 and $61,491 at April 30, 2019 and 2018, respectively.
NOTE 6. EQUITY
Preferred Stock
The Company has 20,000,000 shares of $0.0001 par value preferred stock authorized and has designated a Series A and a Series B preferred stock. Each share of the Series A preferred stock is
convertible into ten common shares and carries voting rights on the basis of 100 votes per share. Each share of the Series B preferred stock is convertible into ten common shares and carries no voting rights.
Effective June 12, 2017, the Company issued 1,309,380 shares of Series A preferred stock to EMAC for consideration totaling $130,938: convertible note payable of $25,000; three
notes payable totaling $34,426; accrued interest payable of $18,718; payables – related parties of $22,794 and prepayment of services of $30,000 for the months of May 2017 through January 2017. The accrued interest payable included interest on the
$25,000 convertible note payable compounded at 6% per annum retroactive to January 1, 2012, as negotiated between the parties.
Effective June 12, 2017, the Company issued 442,444 shares of Series A preferred stock to a related party lender in payment of Company indebtedness totaling $44,244: convertible
note payable of $32,050; accrued interest payable of $4,694 and repayment of accounts payable of $7,500.
Effective June 12, 2017, the Company issued 152,000 shares of Series A preferred stock to a related party in repayment of accrued services of $15,200.
Effective December 14, 2017, the Company issued 20,000 shares of Series B preferred stock to Controlled Capture Systems, LLC to extend the exclusive rights to the Passive Security
Scan to March 15, 2018.
During the year ended April 30, 2018 the Company issued 1,750,824 series A preferred shares to a related party with a value of $175,182 for the retirement of convertible debt of
$57,050, notes payable of $34,426, interest of $23,487 and payables of $37,719, accounts payable of $7,500 and prepaid of $15,000.
During the year ended April 30, 2018 the Company issued 152,000 shares of series A preferred to a related party for $15,200 in accounts payable.
During the year ended April 30, 2019 the Company converted 200,000 shares of Series A preferred into 2,000,000 shares of common stock.
As of April 30, 2019 the Company had 2,925,369 shares of Series A and 520,000 Series B preferred shares issued and outstanding.
The Company has 200,000,000 shares of $0.0001 par value common stock authorized.
On January 19, 2018 the Board of Directors, with the approval of a majority of the shareholders, passed a resolution to effect a reverse split of the Company’s outstanding common stock on a 1 share
for 1,500 shares (1:1500) basis. The reverse split was effective on March 20, 2018. The number of shares in the financials are reflective of the reverse split.
During the year ending April 30, 2018 11,016 shares were returned to the Company and redistributed during the year.
During the years ended April 30, 2018, the Company issued 121,040 shares of its common stock in the conversion of debt and interest of $18,889.
During the year ended April 30, 2018 the Company issued 47,500 shares of common stock for service for $62.999 .
On August 15, 2018 the Company issued 150,000 shares of common stock to Michele Hillbery with a value of $45,000 per the definitive agreement with the Company dated July
6, 2018.
On October 10, 2018, the Company issued 2,000,000 shares of common stock, to EMAC Handels AG for the conversion of 200,000 shares of Defense Technologies Series A Convertible Preferred Stock. Each
Series A Preferred Share is convertible into ten shares of the company's common stock. EMAC, a Swiss company, is a principal stockholder and, after the new issuance of shares, owns a total of 2,624,605 shares of common stock, or 71.75% of the total
issued and outstanding shares.
During the year ended April 30, 2019 the Company issued 686,425 shares of common stock with a value of $189,374 for service.
During the year ended April 30, 2019, the Company issued 768,728 shares of its common stock in the conversion of debt of $85,055.
During the year ended April 30, 2019, the Company issued 33,333 shares of its common stock for cash with a value of $5,000.
During the year ended April 30, 2019, the Company issued 250,000 shares of its common stock for the extension of a convertible note payable with a value of $12,500.
NOTE 7. STOCK OPTIONS AND WARRANTS
On July 18, 2016, the Company issued warrants to a lender to purchase 167 shares of the Company’s common stock at an exercise price
of $0.60 per share. The warrants vested upon grant and expire on July 17, 2018. The Company estimated the grant date fair value of the warrants at $14,365 using the Black-Scholes option-pricing model and charged the amount to debt discount.
On June 14, 2016, the Company issued warrants to a consultant to purchase 33 shares of the Company’s common stock at an exercise price of $0.50 per share. The warrants vested upon
grant and expired on June 14, 2017. The Company estimated the grant date fair value of the warrants at $9,056 using the Black-Scholes option-pricing model and charged the amount to general and administrative expenses.
The following assumptions were used in estimating the value of the warrants issued June and July 2017:
On April 30, 2016, the Company issued options to a consultant to purchase a total of 667 shares of the
Company’s common stock. The options vested upon grant, expire on May 31, 2018, with 166 options exercisable at $1.25 per share, 166 options exercisable at $1.50 per share, 166 options exercisable at $1.75 per share and 167,000 options exercisable
at $2.00 per share. The Company estimated the grant date fair value of the options at $117,221 using the Black-Scholes option-pricing model and charged the amount to professional fees.
On February 4, 2016, the Company issued warrants to a lender to purchase 46 shares of the Company’s common stock at $0.60 per share. The warrants vested upon grant and were to expire
on February 4, 2021. The Company estimated the grant date fair value of the warrants at $18,403 using the Black-Scholes option pricing model and charged the amount to interest expense.
The Company and the
warrant holder ("Holder") entered into a Warrant Settlement Agreement on August 9, 2016 whereby the Holder exercised 46 shares in exchange for a cash payment by the Company of $50,000, recorded as a reduction of additional paid-in capital, and the
issuance by the Company of 200 of its common shares, recorded at par value of $30.
During the year ended April 30, 2019 the Company issued 600,000 options and 250,000 warrants with a conversion price of $0.70 to $2.50 to 5
individuals. The options have a three year term and the warrants a three and one half term and are convertible into the common shares of the Company.
A summary of the Company’s stock options and warrants as of April 30, 2019, and changes during the two years then ended is as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding and exercisable at April 30, 2017
|
|
|
866
|
|
|
$
|
1.385
|
|
|
|
1.07
|
|
|
$
|
-
|
|
|
Granted
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Exercised
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Forfeited or expired
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at April 30, 2018
|
|
|
833
|
|
|
|
1.50
|
|
|
|
.06
|
|
|
$
|
83
|
|
|
Granted
|
|
|
850,000
|
|
|
|
1.14
|
|
|
|
2.75
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at April 30. 2019
|
|
|
850,000
|
|
|
|
1.14
|
|
|
|
2.75
|
|
|
$
|
816,000
|
|
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on our closing stock price of $0.18 as of April 30, 2019,
which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.
NOTE 8. INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards
and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by the valuation
allowances when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company’s deferred tax assets for the Company consisted of the following as of April 30, 2019 and 2018:
|
|
|
2019
|
|
|
2018
|
|
|
Income/(Loss) Before Income Taxes
|
|
$
|
356,572
|
|
|
$
|
(3,179,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Recovery/Expense
|
|
|
(2,014,255
|
)
|
|
|
(574,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
855,647
|
|
|
|
432,653
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Losses
|
|
$
|
(4,074,509
|
)
|
|
$
|
(2,060,254
|
)
|
|
Tax Rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets
|
|
|
(855,647
|
)
|
|
|
(432,653
|
)
|
|
Valuation Allowance
|
|
|
855,647
|
|
|
|
432,653
|
|
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company had a net loss of for the years ended April 30, 2019 and 2018, respectively. As of April 30, 2019, the Company had a net operating loss carry forward of $4,074,509 which can be used to
offset future taxable income.
The effective rate of corporate income tax was reduced from a maximin rate of 35% to 21% effective in the tax year 2017. A reconciliation of income taxes at the federal statutory rate to amounts
provided for the years ended April 30, 2019 and 2018 is as follows:
|
|
|
2019
|
|
|
2018
|
|
|
U.S. federal statutory rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
Net operating loss
|
|
|
(21
|
%)
|
|
|
(21
|
%)
|
|
Effective tax rate
|
|
|
--
|
%
|
|
|
--
|
%
|
The Company’s tax years within the United States remain open for review back to 2015.
The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The tax rates the Company calculated the deferred tax asset for the year ended April 30, 2019 and 2018
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company has the following commitments as of April 30, 2019:
|
a)
|
Administration Agreement with EMAC Handels AG, renewed effective May 1, 2014 for a period of three years. Monthly fee
for administration services of $5,000, office rent of $250 and office supplies of $125. Extraordinary expenses are invoiced by EMAC on a quarterly basis. The fee may be paid in cash and or with common stock.
|
|
b)
|
Service Agreement signed April 25, 2016 with Merrill W. Moses, President, Director and CEO, for services of $7,500 per
month beginning May 2016 and the issuance of 233 restricted common shares of the Company. The fees may be paid in cash and or with common stock.
|
|
c)
|
Service Agreement signed May 20, 2016 with Charles C. Hooper, Director, for services of $5,000 per month beginning May
2016 and the issuance of 233 restricted common shares of the Company. The fees may be paid in cash and or with common stock.
|
|
d)
|
Administration and Management Agreement of PSSI signed January 12, 2017 with EMAC Handels AG, for general fees of
$5,000 per month, office rent of $250 and telephone of $125 beginning January 2017, the issuance of 2,000 common shares of PSSI and a 12% royalty calculated on defines sales revenues payable within 10 days after the monthly sales. .
|
|
e)
|
Service Agreement of PSSI signed January 12, 2017 with Merrill W. Moses, President, Director and CEO, for services of
$2,500 per month beginning February 2017 and the issuance of 333 common shares of PSSI.
|
|
f)
|
Business Development and Consulting Agreement of PSSI signed January 15, 2017 with WSMG Advisors, Inc., for finder’s
fees of 10% of funding raised for PSSI and the issuance of 1,000 common shares of PSSI.
|
NOTE 10. SUBSEQUENT EVENTS
On May 6, 2019 the Company issued an 8% convertible note to Black Ice Advisors, LLC for $57,500 which matures on May 6, 2020. The note redeemable at a premium up to 140% of the face
value within 180 days of issuance or is convertible after 180 days to the Company common stock at 60% of the lowest trading price twenty days prior to conversion.
On May 9, 2019, DTII’s Board of Directors unanimously resolved to revise the terms of the company’s Series A and Series B Preferred Shares. Under the new terms, the conversion right of both Series A
and B Preferred Shares was changed from five (5) shares of DTII common stock for each one (1) share of Preferred Stock, to a new conversion right of ten (10) shares of DTII common stock for each one (1) share of Preferred Stock. The revised
conversion terms apply to all issued and outstanding Preferred Shares and to future issuances of Series A and Series B Preferred Stock. The Board received the unanimous consent to the changed terms from each current Preferred shareholder.
On May 10, 2019 the Company entered into a settlement agreement with Firstfire Global for payment of the original note for $189,000 issued on July 18, 2016. Under the terms of
the agreement the Company paid Firstfire $65,000 on May 10, 2019 and $10,000 to be paid on or before May 31, 2019. In addition Firstfire will receive 150,000 shares of the Company. As the $10,000 was not received by May 31, 2019 Firstfire will
receive additional shares for the $10,000.
On May 25, 2019 the Company issued 250,000 shares to Stuart Young per the investment agreement dated April 30, 2019 with a value of $50,000 for service.
On May 25, 2019 the Company issued 75,000 shares of common stock to Kenneth Fitzpatrick per the consulting agreement dated February 25, 2019 with a value of $215,000.
On July11, 2019 the Company issued an 8% convertible note to GS Capital Partners, LLC for $58,000 which matures on July 11, 2020. The note redeemable at a premium up to 135% of the
face value within 180 days of issuance or is convertible after 180 days to the Company common stock at 62% of the lowest trading price twenty days prior to conversion.
On August 7, 2019 the Company issued 100,000 to David King with a value of $13,500 for service.
The Company has evaluated subsequent events to determine events occurring after April 30, 2019 through August 13, 2019 that would have a material impact on the Company’s financial results or require
disclosure and have determined none exist other than those noted above in this footnote.
F - 19