UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
|
[X] |
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the Quarterly Period Ended October 31, 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)
|
Delaware
|
99-0363802
|
|
(State of
Incorporation)
|
(I.R.S.
Employer Identification Number)
|
2683 Via De La Valle, Suite G418, Del Mar CA 92014
(Address of
principal executive offices)
(800) 520-9485
(Registrant’s
telephone number, including area code)
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 past 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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
[X] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company.
|
Large accelerated filer
|
[ ]
|
Accelerated filer
|
[ ]
|
|
Non-accelerated filer
|
[X ]
|
Smaller reporting company
|
[X]
|
| |
|
Emerging Growth Company
|
[ ]
|
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
[ ] No [X]
As of December 18, 2019, there were 7,136,596 shares of the
registrant’s common stock, and 2,925,369 Series A preferred and
520,000 Series B preferred; $0.0001 par value, outstanding.
DEFENSE
TECHNOLOGIES INTERNATIONAL CORP.
FORM
10-Q
FOR THE
THREE MONTH PERIODS ENDED OCTOBER 31, 2019 AND 2018
TABLE
OF CONTENTS
| |
PART I — FINANCIAL INFORMATION
|
Page
|
|
|
|
|
|
Item 1.
|
Financial Statements:
|
|
| |
|
|
|
|
Condensed Consolidated Balance
Sheets as of October 31, 2019 (Unaudited) and April 30, 2019
(Audited)
|
3
|
| |
|
|
|
|
Condensed Consolidated Statements
of Operations for the Three and Six Month Periods Ended October 31,
2019 and 2018 (Unaudited)
|
4
|
| |
|
|
|
|
Condensed Consolidated Statements
of Shareholders Deficit for the Three and Six Months Ended October
31, 2019 and 2018 (Unaudited)
|
5
|
| |
|
|
|
|
Condensed Consolidated Statements
of Cash Flows for the Six Month Periods Ended October 31, 2019 and
2018 (Unaudited)
|
6
|
| |
|
|
|
|
Notes to Condensed Consolidated
Financial Statements
|
7
|
| |
|
|
|
Item 2.
|
Management's Discussion and
Analysis of Financial Condition and Results of Operations
|
15
|
| |
|
|
|
Item 3.
|
Quantitative and Qualitative
Disclosures about Market Risk
|
17
|
| |
|
|
|
Item 4.
|
Controls and Procedures
|
17
|
| |
|
|
|
|
PART
II — OTHER INFORMATION
|
|
| |
|
|
|
Item 1.
|
Legal Proceedings
|
18
|
| |
|
|
|
Item 1A.
|
Risk Factors
|
18
|
| |
|
|
|
Item 2.
|
Unregistered Sales of Equity
Securities and Use of Proceeds
|
18
|
| |
|
|
|
Item 3.
|
Defaults upon Senior
Securities
|
18
|
| |
|
|
|
Item 4.
|
Mine Safety Disclosure
|
18
|
| |
|
|
|
Item 5.
|
Other Information
|
18
|
| |
|
|
|
Item 6.
|
Exhibits
|
18
|
| |
|
|
|
|
Signatures
|
19
|
PART I
— FINANCIAL
INFORMATION
Item 1. Financial Statements
|
Defense
Technologies International Corp.
|
|
|
Condensed Consolidated Balance Sheets
|
|
| |
|
| |
|
October
31,
2019
|
|
|
April
30,
2019
|
|
|
ASSETS
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,513
|
|
|
$
|
60
|
|
|
Inventory
|
|
|
2,787
|
|
|
|
2,787
|
|
|
Prepaid
|
|
|
--
|
|
|
|
10,500
|
|
|
Total current
assets
|
|
|
4,300
|
|
|
|
13,347
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
3,000
|
|
|
|
--
|
|
|
Right of use
lease
|
|
|
72,256
|
|
|
|
--
|
|
|
Total assets
|
|
$
|
79,556
|
|
|
$
|
13,347
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
and accrued expense
|
|
$
|
303,246
|
|
|
$
|
283,489
|
|
|
Accrued licenses
agreement payable
|
|
|
61,300
|
|
|
|
36,300
|
|
|
Accrued interest
and fees payable
|
|
|
122,425
|
|
|
|
209,981
|
|
|
Convertible notes
payable, net of discount
|
|
|
752,360
|
|
|
|
959,800
|
|
|
Derivative
liabilities
|
|
|
469,550
|
|
|
|
1,252,539
|
|
|
Payables –
related parties
|
|
|
864,623
|
|
|
|
749,879
|
|
|
Customer
deposits
|
|
|
45,695
|
|
|
|
--
|
|
|
Lease liability-
current portion
|
|
|
35,946
|
|
|
|
--
|
|
|
Notes
payable
|
|
|
429,226
|
|
|
|
429,226
|
|
|
Total current liabilities
|
|
|
3,084,371
|
|
|
|
3,921,214
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities
|
|
|
|
|
|
|
|
|
|
Lease liability –
noncurrent
|
|
|
36,310
|
|
|
|
--
|
|
|
Total liabilities
|
|
|
3,120,681
|
|
|
|
3,921,214
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
--
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 20,000,000
shares authorized, Series A – 2,925,369 and 2,925,369 shares issued
and outstanding, respectively
|
|
|
292
|
|
|
|
292
|
|
|
Series B – 520,000
shares issued and outstanding, respectively
|
|
|
52
|
|
|
|
52
|
|
|
Common stock, $0.0001 par value; 200,000,000
shares authorized, 6,358,025, net of treasury and 5,022,244 shares
issued and outstanding, respectively
|
|
|
636
|
|
|
|
502
|
|
|
Additional
paid-in capital
|
|
|
5,818,331
|
|
|
|
5,496,972
|
|
|
Accumulated
deficit
|
|
|
(8,716,910
|
)
|
|
|
(9,276,082
|
)
|
|
Total
|
|
|
(2,897,943
|
)
|
|
|
(3,778,608
|
)
|
|
Non-controlling interest
|
|
|
(143,526
|
)
|
|
|
(129,603
|
)
|
|
Total
stockholders’ deficit
|
|
|
(3,041,125
|
)
|
|
|
(3,908,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’
deficit
|
|
$
|
79,556
|
|
|
$
|
13,347
|
|
See notes to condensed consolidated financial statements
|
Defense Technologies International Corp.
|
|
Condensed Consolidated Statements of Operations
|
|
(Unaudited)
|
| |
|
Three
Months ended
October
31,
|
|
|
Six
Months Ended
October
31,
|
|
| |
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative
|
|
$
|
189,840
|
|
|
$
|
252,747
|
|
|
$
|
411,662
|
|
|
$
|
421,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
189,840
|
|
|
|
252,747
|
|
|
|
411,662
|
|
|
|
421,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(189,840
|
)
|
|
|
(252,747
|
)
|
|
|
(411,662
|
)
|
|
|
(421,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(5,558
|
)
|
|
|
(100,575
|
)
|
|
|
(50,082
|
)
|
|
|
(119,236
|
)
|
|
Gain (loss) on
derivative liability
|
|
|
(38,636
|
)
|
|
|
(1,036,410
|
)
|
|
|
824,396
|
|
|
|
1,214,992
|
|
|
Gain (loss) on
extinguishment of debt
|
|
|
(9,910
|
)
|
|
|
(10,000
|
)
|
|
|
199,544
|
|
|
|
(10,000
|
)
|
|
Gain (loss) on
cancellation of stock
|
|
|
96,517
|
|
|
|
--
|
|
|
|
96,517
|
|
|
|
--
|
|
|
Interest- note
discount
|
|
|
(43,916
|
)
|
|
|
(8,472
|
)
|
|
|
(49,241
|
)
|
|
|
(8,472
|
)
|
|
Gain (loss) on
notes
|
|
|
5,325
|
|
|
|
(5,244
|
)
|
|
|
(64,223
|
)
|
|
|
(7,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other
income (expense)
|
|
|
3,822
|
|
|
|
(1,160,701
|
)
|
|
|
956,911
|
|
|
|
1,069,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes
|
|
|
(186,018
|
)
|
|
|
(1,413,448
|
)
|
|
|
545,249
|
|
|
|
648,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before
non-controlling interest
|
|
|
(186,018
|
)
|
|
|
(1,413,448
|
)
|
|
|
545,249
|
|
|
|
648,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- controlling interest in net
loss of the consolidated subsidiary
|
|
|
5,769
|
|
|
|
3,872
|
|
|
|
13,923
|
|
|
|
9,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to the
Company
|
|
$
|
(180,249
|
)
|
|
$
|
(1,409,576
|
)
|
|
$
|
559,172
|
|
|
|
658,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
0.09
|
|
|
$
|
0.38
|
|
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
0.01
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,766,950
|
|
|
|
2,083,095
|
|
|
|
5,730,368
|
|
|
|
1,716,403
|
|
|
Diluted
|
|
|
5,766,950
|
|
|
|
2,083,095
|
|
|
|
44,884,736
|
|
|
|
4,136,181
|
|
See notes to
condensed consolidated financial statements
Defense
Technologies International Corp. and Subsidiary
Condensed Consolidated Statements of Stockholders’ Deficit
For the Three and Six Months Ended October 31, 2019 and 2018
(Unaudited)
| |
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Non- |
|
|
Total |
|
|
|
|
Series A |
|
|
Series B |
|
|
Common Stock |
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Controlling |
|
|
Stockholders’ |
|
| |
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Deficit
|
|
|
Balance, April 30, 2018
|
|
|
3,277,369
|
|
|
$
|
327
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
|
1,283,758
|
|
|
$
|
128
|
|
|
$
|
5,076,110
|
|
|
$
|
(9,745,809
|
)
|
|
$
|
(15,596
|
)
|
|
$
|
(4,684,787
|
)
|
|
Common stock issued for debt
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
224,062
|
|
|
|
23
|
|
|
|
39,755
|
|
|
|
--
|
|
|
|
--
|
|
|
|
39,778
|
|
|
Common stock for service
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
150,000
|
|
|
|
15
|
|
|
|
44,985
|
|
|
|
--
|
|
|
|
--
|
|
|
|
45,000
|
|
|
Common stock for conversion of preferred shares
|
|
|
(200,000
|
)
|
|
|
(20
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
2,000,000
|
|
|
|
200
|
|
|
|
(180
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Adjustment to preferred shares
|
|
|
(152,000
|
)
|
|
|
(15
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
15
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Debt discount
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
73,313
|
|
|
|
--
|
|
|
|
--
|
|
|
|
73,313
|
|
|
Net loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
658,158
|
|
|
|
(9,967
|
)
|
|
|
648,191
|
|
|
Balance, October 31, 2018
|
|
|
2,925,369
|
|
|
$
|
292
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
|
3,657,820
|
|
|
$
|
366
|
|
|
$
|
5,233,998
|
|
|
$
|
(9,087,651
|
)
|
|
$
|
(25,563
|
)
|
|
$
|
(3,878,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2018
|
|
|
3,277,369
|
|
|
$
|
327
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
|
1,507,820
|
|
|
$
|
151
|
|
|
$
|
5,115,505
|
|
|
$
|
(7,678,075
|
)
|
|
$
|
(21,691
|
)
|
|
$
|
(2,583,386
|
)
|
|
Common stock issued for service
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
150,000
|
|
|
|
15
|
|
|
|
44,985
|
|
|
|
--
|
|
|
|
--
|
|
|
|
45,000
|
|
|
Common stock for conversion of Preferred shares
|
|
|
(200,000
|
)
|
|
|
(20
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
2.000,000
|
|
|
|
200
|
|
|
|
180
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Adjustment to preferred shares miss recorded
|
|
|
(152,000
|
)
|
|
|
(15
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
15
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
Debt discount
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
---
|
|
|
|
73,313
|
|
|
|
--
|
|
|
|
--
|
|
|
|
73,313
|
|
|
Net loss
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,409,576
|
)
|
|
|
(3,872
|
)
|
|
|
(1,413,448
|
)
|
|
Balance October 31, 2018
|
|
|
2,925,369
|
|
|
$
|
292
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
|
3,657,820
|
|
|
$
|
366
|
|
|
$
|
5,233,998
|
|
|
$
|
(9,087,651
|
)
|
|
$
|
(25,563
|
)
|
|
$
|
(3,878,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2019 (Restated)
|
|
|
2,925,369
|
|
|
$
|
292
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
|
5,508,294
|
|
|
$
|
551
|
|
|
$
|
5,616,696
|
|
|
$
|
(8,536,661
|
)
|
|
$
|
(137,757
|
)
|
|
$
|
(3,057,171
|
)
|
|
Common stock issued for debt
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
818,773
|
|
|
|
82
|
|
|
|
65,578
|
|
|
|
--
|
|
|
|
--
|
|
|
|
65,660
|
|
|
Common stock issued for service
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
253,200
|
|
|
|
25
|
|
|
|
33,154
|
|
|
|
--
|
|
|
|
--
|
|
|
|
33,179
|
|
|
Common stock issued for service cancelled
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(408,333
|
)
|
|
|
(41
|
)
|
|
|
(96,478
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(96,517
|
)
|
|
Common stock issued for accounts payable
|
|
|
---
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
186,091
|
|
|
|
19
|
|
|
|
50,226
|
|
|
|
--
|
|
|
|
--
|
|
|
|
50,245
|
|
|
Retirement of derivative at conversion
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
149,153
|
|
|
|
--
|
|
|
|
--
|
|
|
|
149,153
|
|
|
Net income (loss)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(180,249
|
)
|
|
|
(5,769
|
)
|
|
|
(186,018
|
)
|
|
Balance October 31, 2019
|
|
|
2,925,369
|
|
|
$
|
292
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
|
6,358,015
|
|
|
$
|
636
|
|
|
$
|
5,818,331
|
|
|
$
|
(8,716,910
|
)
|
|
$
|
(143,526
|
)
|
|
$
|
(3,041,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2019 (Restated)
|
|
|
2,925,369
|
|
|
$
|
292
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
$
|
5,022,244
|
|
|
$
|
502
|
|
|
$
|
5,496,972
|
|
|
$
|
(9,276,082
|
)
|
|
$
|
(129,603
|
)
|
|
$
|
(3,908,211
|
)
|
|
Common stock issued for service
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
578,200
|
|
|
|
58
|
|
|
|
113,721
|
|
|
|
--
|
|
|
|
--
|
|
|
|
113,779
|
|
|
Common stock issued for service cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(408,333
|
)
|
|
|
(41
|
)
|
|
|
(96,476
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(96,517
|
)
|
|
Common stock issued for debt conversion
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
979,823
|
|
|
|
98
|
|
|
|
104,735
|
|
|
|
--
|
|
|
|
--
|
|
|
|
104,833
|
|
|
Common stock for accounts payable
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
186,091
|
|
|
|
19
|
|
|
|
50,226
|
|
|
|
--
|
|
|
|
--
|
|
|
|
50,245
|
|
|
Retirement of derivative at conversion
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
149,153
|
|
|
|
--
|
|
|
|
--
|
|
|
|
149,153
|
|
|
Net income (loss)
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
559,172
|
|
|
|
(13,923
|
)
|
|
|
545,249
|
|
|
Balance October 31, 2019
|
|
|
2,925,369
|
|
|
$
|
292
|
|
|
|
520,000
|
|
|
$
|
52
|
|
|
|
6,358,025
|
|
|
$
|
636
|
|
|
$
|
5,818,331
|
|
|
$
|
(8,716,910
|
)
|
|
$
|
(143,526
|
)
|
|
$
|
(3,041,125
|
)
|
See notes to
condensed consolidated financial statements
|
Defense Technologies International Corp.
|
|
Condensed Consolidated Statements of Cash Flows
|
|
(Unaudited)
|
| |
|
Six
Months Ended
October
31,
|
|
| |
|
2019
|
|
|
2018
|
|
Cash flows from operating
activities: |
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
545,249
|
|
|
$
|
648,191
|
|
|
Adjustments to
reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
Common shares
issued for services
|
|
|
113,779
|
|
|
|
45,000
|
|
|
Common stock issued
for service cancelled
|
|
|
(96,517
|
)
|
|
|
--
|
|
|
Amortization
of debt discount to interest expense
|
|
|
49,241
|
|
|
|
(21,529
|
)
|
|
(Gain) loss
on derivative liability
|
|
|
(824,396
|
)
|
|
|
(1,204,747
|
)
|
|
(Gain) loss
on debt extinguishment
|
|
|
(199,544
|
)
|
|
|
--
|
|
|
Loss on
note
|
|
|
64,223
|
|
|
|
8,093
|
|
|
Operating lease
expense
|
|
|
19,281
|
|
|
|
--
|
|
|
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid
|
|
|
7,500
|
|
|
|
--
|
|
|
( Increase)
decrease in inventory
|
|
|
|
|
|
|
(2,787
|
)
|
|
Increase
(decrease) in accounts payable
|
|
|
131,479
|
|
|
|
56,752
|
|
|
Operating lease
liability
|
|
|
(19,281
|
)
|
|
|
--
|
|
|
Customer
deposits
|
|
|
45,695
|
|
|
|
(3,000
|
)
|
|
Increase in
payables – related parties
|
|
|
114,744
|
|
|
|
154,531
|
|
|
Net cash provided
by (used in) operating activities
|
|
|
(48,547
|
)
|
|
|
(319,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
Repayment
of convertible notes payable
|
|
|
(65,000
|
)
|
|
|
(190,100
|
)
|
|
Proceeds from
convertible notes
|
|
|
115,000
|
|
|
|
280,000
|
|
|
Proceeds from
notes payable
|
|
|
--
|
|
|
|
300,000
|
|
|
Repayment of
notes payable
|
|
|
--
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by (used in) financing activities
|
|
|
50,000
|
|
|
|
379,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
cash
|
|
|
1,453
|
|
|
|
60,404
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
60
|
|
|
|
8
|
|
|
Cash at end of period
|
|
$
|
1,513
|
|
|
$
|
60,412
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplement Disclosures
|
|
|
|
|
|
|
|
|
|
Interest Paid
|
|
$
|
--
|
|
|
$
|
--
|
|
|
Income tax Paid
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash financing and investing
activities
|
|
|
|
|
|
|
|
|
|
Common stock
issued for the conversion of preferred shares
|
|
$
|
--
|
|
|
$
|
200
|
|
|
Common stock
issued for convertible debt
|
|
$
|
104,833
|
|
|
$
|
39,779
|
|
|
Note payable
issued for accounts payable
|
|
$
|
50,245
|
|
|
$
|
114,226
|
|
|
Retirement of
derivative liability on conversion
|
|
$
|
149,153
|
|
|
$
|
--
|
|
|
Accrued interest
paid through repayment of notes
|
|
$
|
--
|
|
|
$
|
90,037
|
|
See notes to
condensed consolidated financial statements
Defense Technologies International
Corp.
Notes to Condensed Consolidated Financial Statements
As of October 31, 2019
(Unaudited)
NOTE -1: BASIS OF PRESENTATION AND ORGANIZATION
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.
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 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 Company agreed to pay CCS an initial
licensing fee of $25,000 and to pay ongoing royalties as defined in
the Definitive Agreement. On May 30, 2018 the Company and
Control Capture Systems, LLC amended their license agreement as
follows (1) 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 (2) 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 (3) Invoices for parts and materials will be billed
separate of the license fees noted above.
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
several 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 split became effective
with FINRA on March 20, 2018, or as soon thereafter as practicable.
The number of shares in the financials are reflective of the
reverse split.
Basis of
Presentation
These
condensed 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.
The
interim condensed consolidated financial statements have been
prepared without audit in accordance with accounting principles
generally accepted in the United States for interim financial
information and with the instructions to Securities and Exchange
Commission (“SEC”) Form 10-Q. They do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. Therefore,
these unaudited interim condensed consolidated financial statements
should be read in conjunction with the Company’s audited financial
statements and notes thereto for the year ended April 30, 2019
included in its Annual Report on Form 10-K filed with the
SEC.
The
interim condensed consolidated financial statements included herein
are unaudited; however, they contain all normal recurring accruals
and adjustments that, in the opinion of management, are necessary
to present fairly the Company’s consolidated financial position as
of October 31, 2019, the consolidated results of its operations and
its consolidated cash flows for the six months ended October 31,
2019 and 2018 The results of operations for any interim
period are not necessarily indicative of the results to be expected
for the full fiscal year.
Consolidation and Non-Controlling Interest
These
consolidated financial statements include the accounts of the
Company, and its majority-owned subsidiary, PSSI, from its
formation on January 12, 2017 to date. All inter-company
transactions and balances have been eliminated.
Inventory
Inventories
are stated at the lower of cost using the first-in, first-out
(FIFO) cost method of accounting. Inventories as of October 31,
2019 consist of parts used in assembly of the units being sold with
no work in progress or finished goods. As of October 31, 2019 and
2018 the value of the inventory was $2,787, respectively.
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates.
Impairment of
Long-Lived Assets
We continually monitor
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, we assess 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,
we recognize 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. On April 30, 2019 the Company
elected to impair its licenses agreement of $378,600 so
as of
October 31, 2019, no impairment of asset was
necessary.
Reclassification
The Company has restated
the number of shares outstanding and subsequent amount related to
the change in shares as of October 31, 2019 due to the cancellation
of common shares that were accounted for but not issued. In
addition the Company had granted the conversion of 283,135 shares
of Series A preferred shares into 2,831,350 of common shares
but the conversion was never completed so the shares in the
shareholders deficit has been restated accordingly.
Net
Income (Loss) per Common Share
Basic net
income or loss per common share is calculated by dividing the
Company’s net income or loss by the weighted average number of
common shares outstanding during the period. Diluted net
income or loss per common share is calculated by dividing the
Company’s net income or loss by sum of the weighted average number
of common shares outstanding and the dilutive potential common
share equivalents then outstanding. Potential dilutive common
share equivalents consist of shares issuable upon exercise of
outstanding stock options and warrants, using the treasury stock
method and the average market price per share during the period,
and conversion of convertible debt, using the if converted
method. As of October 31, 2019, the Company had potential
shares issuable under convertible preferred shares, outstanding
options, warrants and convertible debt for a total of 39,154,360.
With the income in operations for the six-month period ended
October 31, 2019, the additional shares were determined to be
dilutive and were used in the calculation of net income per share
on a diluted basis.
Recent
Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2016-02, "Leases
(Topic 842)". The amendments in this ASU revise the accounting
related to lessee accounting. Under the new guidance, lessees is
required to recognize a lease liability and a right-of-use asset
for all leases. The new lease guidance also simplifies the
accounting for sale and leaseback transactions primarily because
lessees must recognize lease assets and lease liabilities. The
amendments in this ASU are effective for public companies for
fiscal years beginning after December 15, 2018 and are to be
applied through a modified retrospective transition approach for
leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements.
Early adoption is permitted. The Company has adopted the new
accounting pronouncement and is recording a lease use asset and
lease liability as of October 31, 2019.
NOTE- 2: GOING CONCERN
These
condensed 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 October 31, 2019, the Company has no revenues, has
accumulated deficit of $8,716,910 and a working capital deficit of
$3,080,071 and expects to incur further losses in the development
of its business. The Company has not yet established an ongoing
source of revenue sufficient to cover operating costs, which raises
substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustment that might
result from the outcome of this uncertainty.
Management plans to continue to provide for the Company's capital
needs during the year ending April 30, 2020 by issuing debt and
equity securities and by the continued support of its related
parties. The condensed 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.
NOTE – 3: INVESTMENTS
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 for 17,500
shares of PSSI valued at $378,600 for 76.28% of PSSI. The balance
of PSSI was 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. The investment
was impaired as of April 30, 2019.
NOTE -4:
RELATED PARTY TRANSACTIONS
Management and administrative services are currently compensated as
per a Service Agreement between the Company and its Chief Executive
Officer and Director executed on April 25, 2016 and a Service
Agreement with the subsidiary PSSI executed on January 12, 2017, a
Service Agreement between the Company and a Director executed on
May 20, 2016, and an Administration Agreement with a related party
executed on March 15, 2011 and renewed on May 1, 2017 plus the
assumption of a Service Agreement with the subsidiary PSSI assumed
on January 12, 2017, whereby the fee is 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 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.
As of
October 31, 2019, and April 30, 2019, the Company had payable
balances due to related parties totaling $864,623 and $749,879,
respectively, which resulted from transactions with these related
parties and other significant shareholders.
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
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 October 31, 2019,
$25,000 of the loan was funded by the lender.
As of
October 31, 2019 and April 30, 2019 the outstanding balances of
notes payable was $429,266, respectively.
NOTE –
6: CONVERTIBLE DEBT
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
10, 2018 RAB Investments AG 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.
During the six months ended October 31, 2018, the Company issued a
total of 224,062 shares of its common stock in the conversion of
$39,778 in convertible notes principal, accrued interest payable
and fees.
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
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 received
150,000 shares of the Company. As of October 31, 2019 the $10,000
was converted in to 150,000 shares of common stock.
On July
11, 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.
During
the six months ended October 31, 2019 the Company issued 979,823
shares of common stock with a value of $104,833 for debt.
As
of October 31, 2019, and April 30, 2019, the convertible debt
outstanding, net of discount, was $752,360 and $959,800,
respectively.
NOTE – 7: FAIR VALUE MEASUREMENTS AND DERIVATIVE
LIABILITIES
As defined in
(Financial Accounting Standards Board ASC 820), fair value is the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date (exit price). The Company utilized the market
data of similar entities in its industry or assumptions that market
participants would use in pricing the asset or liability, including
assumptions about risk and the risks inherent in the inputs to the
valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Company classifies
fair value balances based on the observability of those inputs.
FASB ASC 820 establishes a fair value hierarchy that prioritizes
the inputs used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurement) and the
lowest priority to unobservable inputs (level 3 measurement).
The three
levels of the fair value hierarchy are as follows:
|
Level 1
–
|
Quoted prices
are available in active markets for identical assets or liabilities
as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient
frequency and volume to provide pricing information on an ongoing
basis. Level 1 primarily consists of financial instruments such as
exchange-traded derivatives, marketable securities and listed
equities.
|
| |
|
|
Level 2
–
|
Pricing inputs
are other than quoted prices in active markets included in level 1,
which are either directly or indirectly observable as of the
reported date and includes those financial instruments that are
valued using models or other valuation methodologies. These models
are primarily industry-standard models that consider various
assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant
economic measures. Substantially all of these assumptions are
observable in the marketplace throughout the full term of the
instrument, can be derived from observable data or are supported by
observable levels at which transactions are executed in the
marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest
rate swaps, options and collars.
|
| |
|
|
Level 3
–
|
Pricing inputs
include significant inputs that are generally less observable from
objective sources. These inputs may be used with internally
developed methodologies that result in management’s best estimate
of fair value.
|
As
of October 31, 2019, 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.
The following table represents the
change in the fair value of the derivative liabilities during the
six months ended October 31, 2019:
| |
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair value of derivative liability
as of April 30, 2019
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,252,539
|
|
|
Debt discount related to new
debt
|
|
|
--
|
|
|
|
--
|
|
|
|
(8,984
|
)
|
|
Retirement of derivative at
conversion
|
|
|
--
|
|
|
|
--
|
|
|
|
(149,153
|
)
|
|
Change in fair value of the
derivative
|
|
|
--
|
|
|
|
--
|
|
|
|
(824,396
|
)
|
|
Gain on debt extinguishment
|
|
|
--
|
|
|
|
--
|
|
|
|
199,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2019
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
469,550
|
|
The estimated fair value of the
derivative liabilities at October 31, 2019 was calculated using the
Binomial Lattice pricing model with the following
assumptions:
|
Risk-free interest rate
|
2.39%
|
|
Expected life in years
|
0.25 to
0.85
|
|
Dividend yield
|
0%
|
|
Expected volatility
|
460.00%
|
NOTE – 8:
EQUITY
During
the six month period ended October 31, 2018, the Company issued
224,062 shares of its common stock in the conversion of debt of
$39,778.
On May 10,
2019 the Company issued 150,000 shares of common stock to First
Fire Financial as part of a debt settlement with a value of
$37,501.
On May
20, 2019 the Company approved the issuance of 2,831,350
shares of its common stock for the conversion of 283,135 for
Series A preferred with a value of $28. As of October 31, 2019 the
Common shares had not been issued and the conversion had not been
completed.
During
the six months ended October 31, 2019 the Company issued 979,823
shares of common stock with a value of $104,833 for debt.
During
the six months ended October 31, 2019 the Company issued 186,091
shares of common stock with a value of $50,245 for accounts
payable.
During
the six month period ended October 31, 2019, the Company issued
578,200 shares of its common stock for service with a value of
$113,779.
During the six
month period ended October 31, 2019, the Company cancelled 408,333
shares of its common stock for service with a value of $96,517. The
shares were cancelled as they had been authorized by the Company
but never issued by the transfer agent thus the Company elected to
cancel the shares. The cancellation resulted in a gain on
cancellation of shares of $96,517.
The Company
has 20,000,000 shares of $0.0001 par value preferred stock
authorized and has designated Series A and 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.
On May 20, 2019 the Company approved the
issuance of 2,831,350 shares of its common stock for the conversion
of 283,135 for Series A preferred with a value of $28. As of
October 31, 2019 the Common shares had not been issued and the
conversion had not been completed.
As of October 31, 2019 the Company had
2,925,369 Series A and 520,000 Series
B preferred share issued and outstanding.
NOTE – 9: STOCK OPTIONS AND WARRANTS
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 October 31, 2019, and
changes during the three months then ended is as follows:
| |
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2019
|
|
|
850,000
|
|
|
$
|
1.14
|
|
|
|
2.75
|
|
|
$
|
816,000
|
|
|
Granted
|
|
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at October 31, 2019
|
|
|
850,000
|
|
|
$
|
1.14
|
|
|
|
2.50
|
|
|
$
|
799,000
|
|
NOTE – 10:
COMMITMENTS AND CONTINGENCIES
The Company has the following
material commitments as of October 31, 2019:
|
a)
|
Administration
Agreement with EMAC Handel’s AG, renewed effective May 1,
2017
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
Handel Investments 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.
|
On May
30, 2018 the Company and Control Capture Systems, LLC amended their
license agreement as follows;
|
•
|
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.
|
| |
|
|
•
|
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.
|
| |
|
|
•
|
Invoices
for parts and materials will be billed separate of the license fees
noted above.
|
On October 16,
2018 the Company signed a three year lease for the Company’s
warehouse space effective on November 1, 2018 through October 31,
2021. The lease is for approximately 4,700 square feet of warehouse
space with a gross monthly rental cost including common area
charges of $3,250.
The yearly
rental obligations including the lease agreements are as
follows:
|
Fiscal Year
|
|
|
|
|
2020
|
|
$
|
19,500
|
|
|
2021
|
|
$
|
39,000
|
|
|
2022
|
|
|
19,500
|
|
|
Total
|
|
$
|
78,000
|
|
Under the new
standards the lease has been determined to be an operating lease
with a fair value was determined to be $91,474 which is presented
in the balance sheet as an asset labeled “right to use lease”
offset by a liability labeled “lease liability”. The rate was
determined as a fair value of the lease over a 30 month period
using a 5% interest rate for the present value calculation. During
the six months ended October 31, 2019 the asset and liability were
both reduced by $19,218.
NOTE 12: SUBSEQUENT EVENTS
On
November 1, 2019 the Company issued a convertible note to Adar
Alef, LLC for $40,700. The note matures on October 31, 2020
bearing interest at the rate of 7% per annum. The note is
convertible into common stock of the Company after 180 days at the
rate of 70% of the lowest trading price for twenty days prior to
conversion. The note may be repaid to the issuer within 180 days
from issuance at variable premium rates of 115% to135% above face
value.
On
November 12, 2019 the Company issued a convertible note to
Jefferson Street Capital, LLC for $41,250. The note matures
on November 12, 2020 bearing interest at the rate of 8% per annum.
The note is convertible into common stock of the Company after 180
days at the rate of 60% of the lowest trading price for twenty days
prior to conversion. The note may be repaid to the issuer within
180 days from issuance at variable premium rates of 115% to 135%
above face value.
On
November 1, 2019 the Company issued a convertible note to Platinum
Point Capital, LLC for $41,250. The note matures on November
12, 2020 bearing interest at the rate of 8% per annum. The note is
convertible into common stock of the Company after 180 days at the
rate of 60% of the lowest trading price for twenty days prior to
conversion. The note may be repaid to the issuer within 180 days
from issuance at variable premium rates of 115% to 135% above face
value.
On
November 11, 2019 the Company issued 100,000 shares of common stock
with a value of $20,000 for the conversion of a $20,000 note
payable.
On
November 19, 2019 the Company 20,000 shares of common stock to two
entities with a value of $3,000 for the issuance of
convertible debt.
During
November 2019 the Company issued 458,571 shares of common stock
with a value of $30,304 for the conversion of debt.
On
December 3, 2019 the Company filed an S-8 registering 200,000 share
of common stock with a value of $80,000 that were issued for
accounts payable.
The Company
has evaluated subsequent events to determine events occurring after
October 31, 2019 through December 18, 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.
Item 2: Management's Discussion
and Analysis of Financial Condition and Results of
Operations
Overview
The
following information should be read in conjunction with the
condensed consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-Q.
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.
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 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 Company agreed to pay CCS an initial
licensing fee of $25,000 and to pay ongoing royalties as defined in
the Definitive Agreement.
On May
30, 2018 the Company and Control Capture Systems, LLC amended their
license agreement as follows (1) 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 (2) 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 (3)Invoices for parts and
materials will be billed separate of the license fees noted
above.
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 owns 79.8% of PSSI with 20.2% acquired by several
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 split became effective on March 20, 2018.
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.
Results of Operations
We
currently have no operating revenue for the three and six months
ended October 31, 2019. We do have customer deposits of $45,695
which will be recognized as revenue when the unit are shipped to
the buyers.
Our
general and administrative expenses for the three and six
months ended October 31, 2019 was $189,840 and $411,662 compared to
$252,747 and $421,497 for the same period ended October 31,
2018. The decrease was due primarily to consulting
costs.
Interest
expenses incurred in the three and six months ended
October 31, 2019 was $5,558 and $50,082 compared to $100,575
and $119,236 for the three and six months ended October 31,
2018.
A gain of
$96,517 was realized for the three and six months ended October 31,
2019 on the cancellation of shares verse zero for the same periods
in 2018
Change is
derivative liability of a loss of $38,636 and gain of $824,396 for
the three and six months period ended October 31, 2019,
compared to a loss of $1,036,410 and gain of $1,214,992 for the
same periods ended October 31, 2018. We estimate the
fair value of the derivative for the conversion feature of our
convertible notes payable using the American Binominal Lattice
pricing model at the inception of the debt, at the date of
conversions to equity, cash payments and at 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 will fluctuate from period
to period and the fluctuation may be material.
We
recognized a change in extinguishment of debt for the
three and six months ended October 31, 2019 with a loss
of $9,910 and gain of $199,544 compared to a loss on notes of
$10,000 for the same periods in 2018. The gain on notes resulted
primarily as a result of the settlement of convertible notes with
one note holder.
Total other income
and expense for the three and six months periods ended
October 31, 2019 was income of $3,822 and
$956,911 compared to a loss of $1,160,701 and income of
$1,069,688 for the three and six months period in 2018. The
variance is primarily due to the gains in derivative liability in
the six months month period in both 2019 and 2018.
Net
income and loss before non-controlling interest for the three and
six months ended October 31, 2019 was a net loss of $186,018
and net income of $545,249 compared a net loss of
$1,413,448 and net income of $648,191 for the same three and
six months periods in 2018. After adjusting for our consolidated
subsidiary, net loss and net income for the three and six months
ended October 31, 2019 a net loss of $180,249 and net income of
$559,172 compared to a net loss of $1,409,576 and net income of
$658,158 for the same periods in 2018, respectively.
Liquidity and Capital Resources
At October
31, 2019, we had total current assets of $4,300, and total current
liabilities of $3,084,371, resulting in a working capital deficit
of $3,080,071 Included in our current liabilities and working
capital deficit at October 31, 2019 are derivative liabilities
totaling $469,550 related to the conversion features of certain of
our convertible notes payable, convertible notes of $752,360, net
of discount, notes payable related parties of $864,623, accounts
payable and accrued expense of $303,246 and notes payable of
$429,226. We anticipate that in the short-term, operating funds
will continue to be provided by related parties and other
lenders.
At
October 31, 2019, we had total convertible notes payable of
$752,360. 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.
During
the six months ended October 31, 2019, net cash used in operating
activities was $48,547 compared to $319,496 in the same period in
2018. Net cash used in 2019 consisted of net income of
$545,249 offset by gain in derivative liability of $824,396 and
increase in payables to related parties of $114,744.
During the six months ended
October 31, 2019, net cash provided by financing activities was
$50,000, comprised of proceeds from notes payable of $115,000
offset by repayment of convertible notes payable of $65,000. This
compares to net cash provided in the same period in 2018 of
$379,900,with proceeds from convertible notes of $280,000,
increase in notes payable of $300,000 and offset by repayment
of notes totaling $200,100 in 2018.
We have
had minimal revenue 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.
On
September 6, 2018, we received funding for the production of up to
100 units at a cost of $84,500.00. We built 4 Passive Portal units,
two of which will be used in the previously announced BETA Test at
a school near Austin Tx. The units have been tested multiple times
and performed with a 100% success every time. We are confident that
upon the successful conclusion of the Beta Test, we will receive
the first orders from school districts that will generate
initial revenues to the Company.
We
believe a related party and other lenders will provide sufficient
funds to carry on general operations in the near term and fund
DTC’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.
See the notes to our
condensed consolidated financial statements for a discussion of
recently issued accounting pronouncements that we have either
implemented or that may have a material future impact on our
financial position or results of operations.
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
3. Quantitative and Qualitative
Disclosures About Market Risk.
This item is not required for a smaller reporting company.
Item 4.
Controls and
Procedures.
Evaluation of Disclosure Controls and Procedures. As of the
end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of our
management including our principal executive officer and principal
financial officer, of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
(“Exchange Act”). Based on this evaluation, the principal
executive officer and principal financial officer concluded that,
as of the end of the period covered by this report, our disclosure
controls and procedures were not effective in ensuring that
information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in
applicable rules and forms and that such information is accumulated
and communicated to our management, including our principal
executive officer and principal financial officer, in a manner that
allows timely decisions regarding required disclosures.
We
operate with a limited number of accounting and financial
personnel. Although we retain the services of an experienced
certified public accountant, we have been unable to implement
proper segregation of duties over certain accounting and financial
reporting processes, including timely and proper documentation of
material transactions and agreements. We believe these
control deficiencies represent material weaknesses in internal
control over financial reporting.
Despite
the material weaknesses in financial reporting noted above, we
believe that our consolidated financial statements included in this
report fairly present our financial position, results of operations
and cash flows as of and for the periods presented in all material
respects.
Changes in Internal Control over
Financial Reporting. There was no change in our
internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) during our most recently
completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
PART II — OTHER INFORMATION
Item 1.
Legal
Proceedings
There are no material pending legal proceedings to which we are a
party or to which any of our property is subject and, to the best
of our knowledge, no such actions against us are contemplated or
threatened.
This item is not
required for a smaller reporting company.
Item 2.
Unregistered Sales
of Equity Securities and Use of Proceeds
On May 10,
2019 the Company issued 150,000 shares of common stock to First
Fire Financial as part of a debt settlement with a value of
$37,501.
During
the six months ended October 31, 2019 the Company issued 979,823
shares of common stock with a value of $104,833 for debt.
During
the six months ended October 31, 2019 the Company issued 186,091
shares of common stock with a value of $50,245 for accounts
payable.
During
the six month period ended October 31, 2019, the Company issued
578,200 shares of its common stock for service with a value of
$113,779.
During
the six month period ended October 31, 2019, the Company cancelled
408,333 shares of its common stock for service with a value of
$96,517.
The issuances
of the Company’s common stock set forth above were in private
transactions to a persons familiar with the Company’s business,
pursuant to an exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933.
Item 3.
Defaults Upon
Senior Securities
This item is not
applicable.
Item 4.
Mine Safety
Disclosure
This item is not
applicable.
Item 5.
Other
Information
Not applicable.
Item 6.
Exhibits
The following exhibits are filed as
part of this report:
|
Exhibit
No.
|
Description of Exhibit
|
|
|
|
|
31.1
|
|
| |
|
|
32.1
|
|
| |
|
|
101 INS*
|
XBRL Instance Document
|
| |
|
|
101SCH*
|
XBRL Taxonomy Extension
Schema
|
| |
|
|
101 CAL*
|
XBRL Taxonomy Extension Calculation
Linkbase
|
| |
|
|
101 DEF*
|
XBRL Taxonomy Extension Definition
Linkbase
|
| |
|
|
101 LAB*
|
XBRL Taxonomy Extension Label
Linkbase
|
| |
|
|
101 PRE*
|
XBRL Taxonomy Extension
Presentation Linkbase
|
* 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 Exchange Act of 1933, as
amended, except as shall be expressly set forth by specific
reference in such filing or document.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
| |
DEFENSE TECHNOLOGIES INTERNATIONAL CORP.
|
| |
|
| |
|
|
Date:
December 18, 2019
|
By: /S/
MERRILL W. Moses
|
| |
Merrill W. Moses
|
|
|
Chief Executive
Officer
|
| |
Acting Chief
Financial Officer
|
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