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 six months ended October 31,
2022.
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.
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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
During the three and six months ended October 31, 2022 the Company had no
revenue.
Our operating expenses for the three and six months ended October 31, 2022 was
$362,194 and $1,302,403 compared to $205,595 and $409,875 for the same period in
2021. The increase was due primarily to higher consulting costs, which were
$885,400 and higher development costs of $259,243 for the six months periods
ending October 31, 2022. The Company recorded depreciation of $2,915 and $5,830
and general and administrative costs of $92,179 and $151,930 for the three and
six month periods ended October 31, 2022 compared to depreciation of $2,915 and
$5,830 and general and administrative expense of $82,680 and $149,045 for the
same periods in 2021.
Interest expenses incurred in the three months and six months periods ended
October 31, 2022 was $8,644 and expense of $51,744 compared to interest expense
of $24,890 and $50,332 for the three and six month periods in 2021.
Change in derivative liability resulted in a gain of $148,030 for the six months
period ended October 31, 2022, compared to a net gain of $26,820 for the same
period in 2021. 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.
Other expenses for the three and six month periods ending October 31, 2022
included interest from note discount of $22,838 and $45,676 compared to zero and
$90,060 for the same periods in 2021. A loss on the settlement of debt and
accruals of $835,829 for the six month period ended October 31, 2022 compared to
none for the same period in 2021.
Total other expense for the three and six month periods ended October 31, 2022
was other income of $479,873 and expense of $761,063 compared to other expense
of $519,707 and $121,072 for the same periods in 2021. The increase is primarily
due to the loss on the settlement of debt and accruals in the six months period
in 2022.
Net income and loss before non-controlling interest for the three and six month
periods ended October 31, 2022 were a net income of $117,679 and net loss of
$2,063,466 compared net income of $314,112 and net loss of $530,947 for the same
periods in 2021. After adjusting for our consolidated subsidiary, net loss and
net income for the three and six month period ended October 31, 2022 were net
income of $122,430 and net loss of $2,045,189 compared to a net income of
$324,703 and net loss of $510,342 for the same period in 2021.
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Liquidity and Capital Resources
At October 31, 2022, the Company had total current assets of $103,359, and total
current liabilities of $1,634,374 resulting in a working capital deficit of
$1,531,015. Included in our current liabilities and working capital deficit at
October 31, 2022 are derivative liabilities totaling $157,202 related to the
conversion features of certain of our convertible notes payable, convertible
notes of $341,803, net of discount, payables due related parties of $701,413,
accounts payable and accrued expense of $119,072 and notes payables of $142,042.
We anticipate that in the short term, operating funds will continue to be
provided by related parties and other lenders.
During the six months ended October 31, 2022, net cash used in operating
activities was $68,203 compared to cash used of $164,386 in the same period in
2021. Net cash used in 2022 consisted of net loss of $2,063,466, a gain in
derivative liability of $148,030, loss on settlement of accrued expense of
$835,829 and change in payables to related parties of $221,024 and accounts
payable of $769,089.
During the six months ended October 31, 2022, net cash provided by financing
activities was $67,000 consisting of a note payable of $97,000 offset by
repayment of a note payable of $30,000.
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.
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