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, 2023.
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 nine months ended January 31, 2023, the Company did not
receive any revenue.
Our operating expenses for the three and nine months ended January 31, 2023, was
$183,061 and $1,485,465 compared to $239,472 and $649,347 for the same period in
2022. The increase was due primarily to higher consulting costs, which were
$1,022,900 and higher development costs of $259,243 for the nine months periods
ending January 31, 2023. The Company recorded depreciation of $2,846 and $8,676
and general and administrative costs of $42,715 and $194,645 for the three and
nine month periods ended January 31, 2023, compared to depreciation of $2,915
and $8,745 and general and administrative expense of $116,557 and $265,602 for
the same periods in 2022.
Interest expenses incurred in the three months and nine months periods ended
January 31, 2023, was $8,519 and expense of $60,263 compared to interest expense
of $28,658 and $78,990 for the three and nine month periods in 2022.
Change in derivative liability resulted in a gain of $216,920 for the nine
months period ended January 31, 2023, compared to a net gain of $141,172 for the
same period in 2022 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 nine month periods ending January 31, 2023,
included interest from note discount of $30,450 and $76,126 compared to zero and
$90,060 for the same periods in 2022. A loss on the settlement of debt and
accruals of $849,329 for the nine month period ended January 31, 2023, compared
to none for the same period in 2022.
Total other income and expense for the three and nine month periods ended
January 31, 2023 was other income of $14,891 and other expense of $746,172
compared to other income of $85,694 and $35,378 for the same periods in 2022.
The loss in the three and nine months periods ending January 31, 2023 are
primarily due to the loss on the settlement of debt and accruals in the nine
months period in 2023.
Net loss before non-controlling interest for the three and nine month periods
ended January 31, 2023 were a net loss of $168,170 and $2,231,637 compared net
loss of $153,778 and $684,725 for the same periods in 2022. After adjusting for
our consolidated subsidiary, net loss and net income for the three and nine
month period ended January 31, 2023 were net loss of $157,854 and $2,205,043
compared to a net loss of $143,765 and $654,725 for the same period in 2022.
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Liquidity and Capital Resources
At January 31, 2023, the Company had total current assets of $110,881 and total
current liabilities of $1,724,934 resulting in a working capital deficit of
$1,614,059 Included in our current liabilities and working capital deficit at
January 31, 2023 are derivative liabilities totaling $58,038 related to the
conversion features of certain of our convertible notes payable, convertible
notes of $351,253, net of discount, payables due related parties of $808,128,
accounts payable and accrued expense of $153,018 and notes payables of $160,642.
We anticipate that in the short term, operating funds will continue to be
provided by related parties and other lenders.
During the nine months ended January 31, 2023, net cash used in operating
activities was $83,602 compared to cash used of $213,404 in the same period in
2022. Net cash used in the nine month 2023 period consisted of net loss of
$2,231,637, loss on settlement of accrued expense of $849,329 and change in
payables to related parties of $87,707 and change in accounts payable of
$541,416.
During the nine months ended January 31, 2023, net cash provided by financing
activities was $85,600 consisting of a note payable of $115,600 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 33 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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