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iso4217:USD xbrli:shares iso4217:USD xbrli:shares
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 31, 2021
☐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
|
☒
|
|
|
|
|
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 March 3, 2021,
there were 48,395,998 shares of the registrant’s common stock, and
2,925,369 Series A preferred and 520,000 Series B preferred and
120,000 Series C preferred: $0.0001 par value, outstanding.
1
DEFENSE TECHNOLOGIES INTERNATIONAL CORP.
FORM 10-Q
FOR THE THREE AND NINE MONTH PERIODS ENDED JANUARY
31, 2021 AND 2020
TABLE OF CONTENTS
|
|
PART I — FINANCIAL
INFORMATION
|
Page
|
|
Item
1.
|
Financial Statements:
|
|
|
|
Condensed Consolidated Balance Sheets as of January 31, 2021
(Unaudited) and April 30, 2020 (Audited)
|
3
|
|
|
Condensed Consolidated Statements of Operations for the Three and
Nine Month Periods Ended January 31, 2021 and 2020 (Unaudited)
|
4
|
|
|
Condensed Consolidated Statements of Shareholders Deficit for the
Three and Nine Months Ended January 31, 2021 and 2020
(Unaudited)
|
5
|
|
|
Condensed Consolidated Statements of Cash Flows for the Nine Month
Periods Ended January 31, 2021 and 2020 (Unaudited)
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
Item
2.
|
Management's Discussion and Analysis of Financial Condition and
Results of Operations
|
16
|
|
Item
3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
18
|
|
Item
4.
|
Controls and Procedures
|
18
|
|
|
PART II — OTHER INFORMATION
|
|
|
Item
1.
|
Legal
Proceedings
|
19
|
|
Item
1A.
|
Risk
Factors
|
19
|
|
Item
2
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
19
|
|
Item
3.
|
Defaults upon Senior Securities
|
19
|
|
Item
4.
|
Mine
Safety Disclosure
|
19
|
|
Item
5.
|
Other
Information
|
19
|
|
Item
6.
|
Exhibits
|
19
|
|
|
Signatures
|
20
|
2
PART I
— FINANCIAL INFORMATION
Item 1. Financial
Statements
|
Defense Technologies International Corp.
|
|
Condensed Consolidated Balance Sheets
|
|
|
January 31, 2021
|
April 30, 2020
|
|
ASSETS
|
(Unaudited)
|
(Audited)
|
|
Current assets:
|
|
|
|
Cash
|
$
8,351
|
$
70,416
|
|
Inventory
|
100,275
|
21,368
|
|
Prepaid
|
20,000
|
20,000
|
|
Total current assets
|
128,626
|
111,784
|
|
|
|
|
|
Fixed assets, net of depreciation
|
23,232
|
31,996
|
|
Total assets
|
$
151,858
|
$
143,780
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued
expense
|
$
454,023
|
$
364,199
|
|
Accrued licenses agreement
payable
|
108,800
|
71,300
|
|
Accrued interest and fees
payable
|
192,960
|
178,066
|
|
Convertible notes payable, net of
discount
|
901,104
|
821,949
|
|
Derivative liabilities
|
2,206,713
|
1,333,288
|
|
Payables – related
parties
|
1,162,568
|
970,547
|
|
Customer deposits
|
30,375
|
45,694
|
|
Notes payable
|
377,542
|
424,226
|
|
Total current
liabilities
|
5,434,085
|
4,209,270
|
|
|
|
|
|
Total
liabilities
|
5,434,085
|
4,209,270
|
|
|
|
|
|
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
|
|
Series C - 120,000 shares issued and outstanding and zero,
respectively
|
12
|
--
|
|
Common stock, $0.0001 par
value; 400,000,000 shares authorized, 48,395,998 and 9,056,524
shares issued and outstanding, respectively
|
4,838
|
905
|
|
Additional paid-in capital
|
7,571,467
|
6,288,325
|
|
Accumulated deficit
|
(12,670,018)
|
(10,193,808)
|
|
Total
|
(5,093,358)
|
(3,904,234)
|
|
Non-controlling
interest
|
(188,869)
|
(161,256)
|
|
Total stockholders’ deficit
|
(5,282,226)
|
(4,065,490)
|
|
|
|
|
|
Total liabilities and stockholders’
deficit
|
$
151,858
|
$
143,780
|
See notes to
condensed consolidated financial statements
3
|
Defense Technologies International Corp.
|
|
Condensed Consolidated Statements of Operations
|
|
As of January 31,
|
|
(Unaudited)
|
|
|
Three Months
|
Nine Months
|
|
2021
|
2020
|
2021
|
2020
|
|
Revenue
|
$ --
|
$ --
|
$ 15,320
|
$ --
|
|
Cost of goods
|
--
|
--
|
(13,085)
|
--
|
|
Gross Profit
|
--
|
--
|
2,235
|
--
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Depreciation
|
2,915
|
--
|
8,745
|
--
|
|
Consulting
|
104,500
|
--
|
300,500
|
---
|
|
General and administrative
|
70,985
|
227,066
|
232,931
|
638,668
|
|
|
|
|
|
|
|
Total expenses
|
178,400
|
227,006
|
542,176
|
638,668
|
|
|
|
|
|
|
|
Loss from operations
|
(178,400)
|
(227,006)
|
(539,941)
|
(638,668)
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
Interest expense
|
(21,379)
|
(52,139)
|
(76,476)
|
(102,221)
|
|
Interest expense- loan
penalty
|
--
|
--
|
(27,658)
|
--
|
|
Gain (loss) on derivative
liability
|
(676,207)
|
1,577,169
|
(909,852)
|
2,401,565
|
|
Gain (loss) on extinguishment of
debt
|
--
|
--
|
54,831
|
204,906
|
|
Gain (loss) on cancellation of
stock
|
--
|
--
|
--
|
96,518
|
|
Gain (loss) on shares issued for
service
|
--
|
11,338
|
--
|
11,338
|
|
Finance costs
|
(749)
|
1,482
|
(103,860)
|
(9,206)
|
|
Interest- note discount
|
(176,792)
|
(116,874)
|
(434,648)
|
(160,790)
|
|
Gain (loss) on notes
|
--
|
(2,053,148)
|
(466,200)
|
(2,117,371)
|
|
|
|
|
|
|
|
Total other income
(expense)
|
(875,127)
|
(632,172)
|
(1,963,863)
|
324,739
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
(1,053,527)
|
(859,178)
|
(2,503,804)
|
(313,929)
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before non-controlling
interest
|
(1,053,527)
|
(859,178)
|
(2,503,804)
|
(313,929)
|
|
|
|
|
|
|
|
Non- controlling interest in net loss of the
consolidated subsidiary
|
(7,031)
|
(6,139)
|
(27,594)
|
(20,062)
|
|
|
|
|
|
|
|
Net income (loss) attributed to the
Company
|
$ (1,046,496)
|
$ (853,039)
|
$ (2,476,210)
|
$ (293,867)
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
Basic and
diluted
|
$ (0.02)
|
$ (0.11)
|
$ (0.08)
|
$ (0.05)
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic and
Diluted
|
48,395,998
|
7,602,724
|
31,785,033
|
6,239,867
|
See
notes to condensed consolidated financial statements
4
Defense Technologies
International Corp. and Subsidiary
Condensed Consolidated Statements of Stockholders’
Deficit
For the Three and Nine Months Ended January 31, 2021 and
2020
(Unaudited)
|
|
Preferred Shares
|
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Non-Controlling
Interest
|
Total
Stockholders’
Deficit
|
|
|
Series A
|
Series B
|
Series C
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, April 30,
2019
|
2,925,369
|
$292
|
520,000
|
$
52
|
--
|
--
|
5,022,224
|
$
502
|
$5,496,972
|
$(9,276,082)
|
$(129,603)
|
$(3,908,211)
|
|
Common stock issued for debt
|
--
|
--
|
--
|
--
|
--
|
--
|
161,050
|
16
|
39,694
|
--
|
--
|
39,711
|
|
Common stock issued for service
|
--
|
--
|
--
|
--
|
--
|
--
|
325,000
|
33
|
80,567
|
--
|
--
|
80,600
|
|
Net loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
739,421
|
(8,154)
|
731,267
|
|
Balance July 31, 2019
|
2,925,369
|
292
|
520,000
|
52
|
--
|
--
|
5,508,294
|
551
|
5,616,979
|
(8,536,661)
|
(137,757)
|
(3,056,289)
|
|
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
cancellation
|
--
|
--
|
--
|
--
|
--
|
--
|
(408,333)
|
(41)
|
(96,478)
|
--
|
--
|
(96,517)
|
|
Common stock issued for accounts payable
|
--
|
--
|
--
|
--
|
--
|
--
|
186,091
|
19
|
50,226
|
--
|
--
|
50,245
|
|
Retirement of derivatives on debt
conversion
|
--
|
|
--
|
--
|
--
|
--
|
--
|
--
|
149,153
|
--
|
--
|
149,153
|
|
Net loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
(180,249)
|
(5,769)
|
(186,018)
|
|
Balance at 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)
|
|
Common stock issued
for service
|
--
|
--
|
--
|
--
|
--
|
--
|
220,000
|
22
|
52,978
|
|
|
53,000
|
|
Common stock issued
for debt conversion
|
--
|
--
|
--
|
--
|
--
|
--
|
1,663,037
|
166
|
78,003
|
|
|
78,169
|
|
Common stock issued
for accounts payable
|
--
|
--
|
--
|
--
|
--
|
--
|
200,000
|
20
|
39,980
|
|
|
40,000
|
|
Retirement of
derivative conversion
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
216,437
|
|
|
216,437
|
|
Net loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
(853,039)
|
(6,139)
|
(859,178)
|
|
Balance at January 31,
2020
|
2,925,369
|
$
292
|
520,000
|
$
52
|
--
|
--
|
8,441,062
|
$
844
|
$6,205,729
|
$
9,569,949
|
$
(149,665)
|
$
(3,512,697)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2020
|
2,925,369
|
$292
|
520,000
|
$
52
|
|
|
9,056,524
|
$905
|
$6,288,325
|
$(10,193,808)
|
$(161,256)
|
$(4,065,490)
|
|
Common stock issued for debt
|
--
|
--
|
--
|
--
|
|
|
10,635,623
|
1,063
|
130,446
|
--
|
--
|
131,509
|
|
Retirement of derivative on debt
conversion
|
--
|
--
|
--
|
--
|
|
|
--
|
--
|
237,433
|
|
|
237,433
|
|
Net income (loss)
|
--
|
--
|
--
|
--
|
|
|
|
|
|
(281,996)
|
(10,827)
|
(292,823)
|
|
Balance July 31, 2020
|
2,925,369
|
292
|
520,000
|
52
|
|
|
19,692,147
|
1,968
|
6,656,204
|
(10,475,804)
|
(172,083)
|
(3,989,371)
|
|
Common stock issued for debt
|
--
|
--
|
--
|
--
|
|
|
28,703,851
|
2,870
|
231,868
|
--
|
--
|
234,738
|
|
Retirement of derivatives on debt
conversion
|
--
|
--
|
--
|
--
|
|
|
--
|
|
579,907
|
--
|
--
|
579,907
|
|
Net loss
|
--
|
--
|
--
|
--
|
|
|
--
|
--
|
--
|
(1,147,719)
|
(9,755)
|
(1,157,473)
|
|
Balance at October 31, 2020
|
2,925,369
|
292
|
520,000
|
52
|
|
|
48,395,998
|
4,838
|
7,467,979
|
(11,623,522)
|
(181,838)
|
(4,332,199)
|
|
Series C preferred
stock issued for cash
|
--
|
--
|
--
|
--
|
120,000
|
12
|
--
|
--
|
103,488
|
--
|
--
|
103,500
|
|
Net Loss
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
(1,046,496)
|
(7,031)
|
(1,053,527)
|
|
Balance at January 31,
2021
|
2,925,369
|
$292
|
520,000
|
$52
|
120,000
|
$12
|
48,395,998
|
$4,838
|
$7,571,467
|
$(12,670,018)
|
$(188,869)
|
$
(5,282,226)
|
See
notes to condensed consolidated financial statements
5
|
Defense Technologies International Corp.
|
|
Condensed Consolidated Statements of Cash Flows
|
|
(Unaudited)
|
|
|
Nine Months Ended January 31,
|
|
2021
|
2020
|
|
Cash flows from operating activities:
|
|
|
|
Net income (loss)
|
$
(2,503,804)
|
$
(313,929)
|
|
Adjustments to reconcile net income
(loss) to net cash
provided
by (used in) operating activities:
|
|
|
|
Common
stock issued for service
|
--
|
166,779
|
|
Common
stock issued for service cancelled
|
--
|
(96,517)
|
|
Amortization of debt
discount to interest expense
|
382,145
|
160,790
|
|
(Gain) loss on
derivative liability
|
909,852
|
(2,401,565)
|
|
Operating
lease expense
|
--
|
28,649
|
|
(Gain)
loss on debt extinguishment
|
(46,684)
|
(204,906)
|
|
Loss on
note
|
466,200
|
2,117,271
|
|
Depreciation
|
8,745
|
--
|
|
Change in operating
assets and liabilities:
|
|
|
|
Deposits
|
|
7,500
|
|
(Increase)
decrease in inventory
|
(78,907)
|
(23,950)
|
|
Increase
(decrease) in accounts payable and accrued expenses
|
344,472
|
137,450
|
|
Operating
lease liability
|
--
|
(28,649)
|
|
Customer
deposits
|
(15,320)
|
45,695
|
|
Increase
in payables – related parties
|
192,021
|
154,243
|
|
Net cash provided by (used in)
operating activities
|
(340,280)
|
(251,039)
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
Purchase
of fixed assets
|
--
|
(31,836)
|
|
|
|
|
|
Net cash used
in investing activities
|
--
|
(31,836)
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
Repayment of convertible notes
payable
|
(135,500)
|
(158,000)
|
|
Proceeds from
Series C preferred shares
|
100,000
|
--
|
|
Proceeds from convertible notes
|
314,715
|
522,000
|
|
|
|
|
|
Net cash provided by financing
activities
|
279,215
|
364,000
|
|
|
|
|
|
Net increase (decrease) in cash
|
(62,065)
|
81,125
|
|
|
|
|
|
Cash at beginning of period
|
70,416
|
60
|
|
Cash at end of
period
|
$8,351
|
$
81,185
|
|
|
|
|
|
Supplement Disclosures
|
|
|
|
Interest Paid
|
$
--
|
$
22,600
|
|
Income tax Paid
|
$
--
|
$
--
|
|
|
|
|
|
Noncash financing and investing
activities
|
|
|
|
Retirement of derivative at debt
conversion
|
$
817,340
|
$
365,590
|
|
Derivative of convertible notes on day
one
|
$
780,913
|
$
2,607,576
|
|
Notes issued for accounts
payable
|
$
--
|
$
90,245
|
|
Common stock issued for convertible
debt
|
$
366,247
|
$
183,002
|
See
notes to condensed consolidated financial statements
6
Defense Technologies International Corp.
Notes to Condensed Consolidated Financial Statements
As of January 31, 2021
(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.
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, 2020
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 January 31, 2021, the consolidated results of its
operations and its consolidated cash flows for the three and nine
months ended January 31, 2021 and 2020 The results of operations
for any interim period are not necessarily indicative of the
results to be expected for the full fiscal year.
7
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
January 31, 2021 consist of parts used in assembly of the units
being sold plus work in progress and finished goods. As of January
31, 2021 and April 30, 2020 the value of the inventory was $100,275
and $21,368, respectively.
Equipment
Equipment is carried at the cost of acquisition and depreciated
over the estimated useful lives of the assets. Costs associated
with repair and maintenance is expensed as incurred. Costs
associated with improvements which extend the life, increase the
capacity or improve the efficiency of our property and equipment
are capitalized and depreciated over the remaining life of the
related asset. Gains and losses on dispositions of equipment are
reflected in operations. Depreciation is provided using the
straight-line method over the estimated useful lives of the
assets
Use of
Estimates
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.
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 January 31,
2021, the Company had potential shares issuable under convertible
preferred shares, outstanding options, warrants and convertible
debt for a total of 158,018,862. With the loss in operations for
the nine months period ended January 31, 2021, the additional
shares were determined to be non-dilutive.
8
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 May 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 January 31, 2021, the Company had revenues
of $15,320, has accumulated deficit of $12,670,018 and a working
capital deficit of $5,305,459 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 January 31, 2021 and April 30, 2020, the Company had payable
balances due to related parties totaling $1,162,568 and $970,547,
respectively, which resulted from transactions with these related
parties and other significant shareholders.
9
NOTE
– 5: NOTES PAYABLE
On July 6, 2018, the Company signed an investment agreement with a
third party. Under the terms of the agreement the Company received
$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 January
31, 2021, $25,000 of the loan was funded by the lender.
During the nine months ended January 31, 2021; the Company settled
a portion of a note payable resulting on a gain on settlement of
debt of $54,381.
As
of January 31, 2021 and April 30, 2020 the outstanding balances of
notes payable was $377,542 and $424,226, 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.
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. On September 12, 2019, the $10,000
was converted in to 123,456 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. On January 16, 2020, the
Company paid GS Capital partners $80,620 consisting of
principal of the face amount of the note of $58,000 plus $22,600 in
prepayment penalty which was charged to interest.
On December 20, 2019, the Company issued a convertible note to
Lliah for $63,950 with an original discount of $8,950. The
note matures on December 19, 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.
10
On January 10, 2020, the Company issued a convertible note to Crown
Bridge Partners, LLC with a principal; amount of $171,000 and a
prorate original discount of $15,000. The first tranche of
the note received by the Company was a face value of $57,000 and
net amount received of $50,000. Each tranche of the note matures
twelve months from receipt of the tranche and bears interest
at the rate of 10% per annum with a default rate of 15%. 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 125% above face
value.
On January 13, 2020, the Company issued an additional note to Ionic
Ventures, LLC for $220,000 with an original discount of $20,000.
The note is part of a securities purchase agreement dated
August 31, 2018. The note matures on June 20, 2020 bearing interest
at the rate of 15% per annum. The note is convertible into common
stock of the Company at $0.60 per share or of 60% of the
lowest trading price for twenty days prior to conversion, whichever
is the lowest.
On September 8, 2020, the Company issued a note to Diamond
Investment II LLC for $75,350 with an original discount of $6,850.
The note matures on September 8, 2021 bearing interest at the
rate of 8% per annum. The note is convertible into common stock of
the Company at 70% of the lowest trading price for twenty days
prior to conversion.
On October 16, 2020, the Company issued an additional note to Ionic
Ventures, LLC for $272,500 with an original discount of $20,000.
The note is part of a securities purchase agreement dated
August 31, 2018. The note matures on January 1, 2022 bearing
interest at the rate of 8% per annum. The note is convertible into
common stock of the Company at $0.50 per share or the lowest VWAP
pricing 5 days prior to conversion, whichever is the lowest.
During the nine months ended January 31, 2020 the Company issued
2,642,860 shares of common stock with a value of $183,002 for
debt.
During the nine months ended January 31, 2021 the Company issued
39,339,474 shares of common stock with a value of $366,247 for
debt.
As of
January 31, 2021, and April 30, 2020, the convertible debt
outstanding, net of discount, was $901,104 and $821,949,
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.
11
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
January 31, 2021, 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 nine months ended January 31, 2021:
|
|
Level 1
|
Level 2
|
Level 3
|
|
Balance at April 30,
2020
|
$
--
|
$
--
|
$
1,333,288
|
|
Derivative assigned
day of initial issuance
|
|
|
780,913
|
|
Retirement of
derivative at conversion
|
|
|
(817,340)
|
|
Change in fair value
of derivative liability
|
--
|
--
|
909,852
|
|
|
|
|
|
|
Balance at January
31, 2021
|
$
--
|
$
--
|
$2,206,713
|
The estimated fair
value of the derivative liabilities at January 31, 2021 was
calculated using the Binomial Lattice pricing model with the
following assumptions:
|
Risk-free interest
rate
|
0.18%
|
|
Expected life in
years
|
0.25 to 1.08
|
|
Dividend yield
|
0%
|
|
Expected
volatility
|
260.00%
|
NOTE – 8:
EQUITY
Common Stock
During the nine months ended January 31, 2020 the Company issued
2,642,860 shares of common stock with a value of $183,002 for
debt.
During the nine months ended January 31, 2020 the Company issued
386,091 shares of common stock with a value of $90,245 for accounts
payable.
During the nine month period ended January 31, 2020, the Company
issued 798,200 shares of its common stock for service with a value
of $166,779.
During the nine month period ended January 31, 2020, 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
12
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
$96,518.
During the nine months ended January 31, 2021 the Company issued
39,339,474 shares of common stock with a value of $366,247 for
debt.
Preferred
Stock
The Company has 20,000,000 shares of $0.0001 par value preferred
stock authorized and has designated Series A ,B and C 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. Each Series C is convertible into 10 shares of
common stock and has 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 January 31, 2021
the common shares had not been issued and the conversion was not
completed.
On November 13, 2020 and corrected on December 1, 2020 the Company
designated 1,500,000 preferred shares as Series C nonvoting
preferred shares. The shares are convertible into common stock with
terms and conditions set by the Company’s Board of Directors.
On December 8, 2020, the Company issued 120,000 shares Series C
nonvoting preferred for $100,000 in cash. The Company may redeem
the shares up to 180 days after issuance at a premium up to 120%.
The shares are convertible 180 days after the purchase at 80%
of the lowest trading price 15 days prior to conversion
On November 20, 2020, the Company filed a certificate of amendment
to their articles of incorporation increasing the authorized shares
to 400,000,000 of common stock, par value $0.0001 and 20,000,000
shares of preferred stock, par value $0.0001. The preferred shares
were designated 5,000,000 series A, 5,000,000 series B and
1,500,000 series C. Series A is convertible into 10 shares of
common stock and has 100 votes per preferred share. Series B is
convertible into 10 shares of common stock with no voting rights.
Series C is convertible into common stock of the Company as set by
the board of directors with no voting rights.
On
December 8, 2020, the Company issued 120,000 Series C preferred
shares for $100,000 in cash.
As of January 31, 2021 the Company had 2,925,369 Series A, 520,000
Series B and 120,000 Series C
preferred share issued and outstanding.
13
NOTE
– 9: STOCK OPTIONS AND WARRANTS
A
summary of the Company’s stock options and warrants as of January
31, 2021, and changes during the nine months then ended is as
follows:
|
|
Shares
|
Weighted
Average
Exercise Price
|
Weighted Average
Remaining
Contract Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2020
|
850,000
|
$
|
1.14
|
2.00
|
$ 882,300
|
|
Granted
|
--
|
$
|
--
|
--
|
--
|
|
Exercised
|
--
|
$
|
--
|
--
|
--
|
|
Forfeited or expired
|
--
|
$
|
--
|
--
|
--
|
|
Outstanding and exercisable
at January 31, 2021
|
850,000
|
$
|
1.14
|
1.25
|
$
950,725
|
NOTE – 10:
COMMITMENTS AND CONTINGENCIES
The
Company has the following material commitments as of January 31,
2021:
|
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.
|
14
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.
NOTE – 11: LEASE
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 lease was terminated by the landlord on August 30, 2019
with the outstanding balance due of $11,230.
NOTE
– 12: SUBSEQUENT EVENTS
On
February 16, 2021, the Company sold 62,350 shares of Series C
preferred shares for $53,500.
On
February 25, 2021, the Company paid Crown Bridge Holdings $25,000
to settle a convertible note payable Crown Bridge purchased from
Black Ice.
The Company has
evaluated subsequent events to determine events occurring after
January 31, 2021 through March 3, 2021 that would have a material
impact on the Company’s financial results or require disclosure and
have determined none exist other than the ones disclosed above.
15
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.
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. All sales and marketing
activities are through PSSI.
The extent to which the COVID-19 pandemic may directly or
indirectly impact our business, financial condition, and results of
operations is highly uncertain and subject to change. We considered
the potential impact of the COVID-19 pandemic on our estimates and
assumptions and there was not a material impact to our consolidated
financial statements as of and for the nine months ended January
31, 2021.
The Company’s security products are licensed from CCS and developed
by the company designed for personal and collateral
protection. Products derived from this technology are intended to
provide passive security scanning units for either walk-through or
hand-held use to improve security for schools and other public
facilities. Passive Portal units use electromagnets and do not
emit anything (such as x-rays) through the subject. We have
also 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.
As
of May 19, 2020 the Company added an IR Camera for detection of
elevated body temperatures and is presently offering three
products:
●PASSIVE
PORTAL – Screens for Weapons only;
●PASSIVE
PORTAL with EBT – Screens for Weapons and elevated body
temperature;
●EBT
Station – Screens for elevated body temperature
only.
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
16
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
During the nine months ended January 31, 2021 the Company had
revenue of $15,320. The Company recorded cost of goods of $13,085
and holds customer deposits of $30,375 which will be recognized as
revenue when units are shipped to the buyers.
Our operating expenses for the three and nine months ended January
31, 2021 was $178,400 and $542,176 compared to $227,066 and
$638,668 for the same in 2020. The decrease was due primarily
to lower consulting costs, which were $104,500 and $300,500 for the
three and nine months periods ending January 31, 2021. The lower
consulting cost in 2021 was due to stock for services issued in
2020 for consulting compared to 2021. The Company recorded
depreciation of $2,915 and $8,745 for the three and nine month
periods ended January 31, 2021 compared to zero for the same
periods in 2020.
Interest expenses incurred in the three and nine months ended
January 31, 2021 was $21,379 and $76,476 compared to $52,139 and
$102,221 for the three and nine month periods in 2020.
Change in derivative liability resulted in a loss of $909,852for
the nine months period ended January 31, 2021, compared to a gain
of $2,401,565 for the same period in 2020 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.
Total other income and expense for the three and nine month periods
ended January 31, 2021 was expense of $875,127 and $1,963,863
compared to other expense of $612,172 for the three months period
and other income of $324,739 for the nine months period in
2020. The variance is primarily due to the change in derivative
liability and debt extinguishment plus loss on notes in the nine
months periods in both 2021 and 2020 plus finance costs and
interest attributed to note discount in, 2021 versus the same
period in 2020.
Net income and loss before non-controlling interest for the three
and nine months periods ended January 31, 2021 was a net loss of
$1,053,527 and $2,503,804 compared net loss of $859,178 and
$313,929 for the same periods in 2020. After adjusting for our
consolidated subsidiary, net loss and net income for the three and
nine month periods ended January 31, 2021 were a net loss of $
1,046,496 and $2,476,210 compared to a net loss of $853,039 and
$293,867 for the same periods in 2020, respectively.
Liquidity and Capital Resources
At January 31, 2021, the Company had total current assets of
$128,626, and total current liabilities of $5,434,085, resulting in
a working capital deficit of $5,305,459. Included in our current
liabilities and working capital deficit at January 31, 2021 are
derivative liabilities totaling $2,206,713 related to the
conversion features of certain of our convertible notes payable,
convertible notes of $901,104, net of discount, notes payable
related parties of $192,960, accounts payable and accrued expense
of $454,023 and notes payables of $377,542. We anticipate that in
the short-term, operating funds will continue to be provided by
related parties and other lenders.
17
As of January 31, 2021, we had total convertible notes payable of
$901,104, 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.
During the nine months ended January 31, 2021, net cash used in
operating activities was $341,280 compared to cash used of $251,039
in the same period in 2020. Net cash used in 2021 consisted of net
loss of $2,503,823, a loss in derivative liability of $909,852 and
increase in payables to related parties of $192,021 and accounts
payable of $283,471.
During the nine months ended January 31, 2021, net cash provided by
financing activities was $279,215 consisting of proceeds from
convertible notes of $314,715 offset by repayment of convertible
notes of $135,500 plus sale of Series C preferred shares for
$100,000.
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
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 have built 11 Passive Portal units, two of which were used in
the previously announced BETA Test at a school near Austin Tx and
5 were sold. 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
18
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.
Item
1A.Risk Factors
This
item is not required for a smaller reporting company.
Item
2.Unregistered Sales of Equity Securities and Use of
Proceeds
On
December 8, 2020, the Company issued 120,000 Series C preferred
shares for $100,000 in cash
During the nine months ended January 31, 2021 the Company issued
39,339,474 shares of common stock with a value of $366,247 for
debt.
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:
19
* 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DEFENSE TECHNOLOGIES INTERNATIONAL CORP.
Date:
March 3, 2021
By:
/S/ MERRILL W.
MOSES
Merrill W. Moses
Chief Executive Officer
Acting
Chief Financial Officer
20
