DEFENSE TECHNOLOGIES INTERNATIONAL CORP. - Quarter Report: 2018 January (Form 10-Q)

---

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 January 31, 2018

[   ]

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)

 

(Address of principal executive offices)

(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	[   ]	Smaller reporting company	[X]
			Emerging Growth Company	[X]

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 13, 2018, there were 132,910 shares of the registrant's common stock, and 3,375,369 Series A preferred and 520,000 Series B preferred; $0.0001 par value, outstanding

DEFENSE TECHNOLOGIES INTERNATIONAL CORP.

FORM 10-Q

FOR THE THREE AND NINE MONTH PERIODS ENDED JANUARY31, 2018 AND 2017

TABLE OF CONTENTS

	PART  I    —   FINANCIAL INFORMATION	Page
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of January 31, 2018 (Unaudited) and  April 30, 2017 (Audited)	3
	Condensed Consolidated Statements of Operations for the Three and Nine Month Periods Ended January 31, 2018 and 2017 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended January 31, 2018 and 2017 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	15
	Signatures	20

 

PART  I   —   FINANCIAL INFORMATION

 

Defense Technologies International Corp.
Condensed Consolidated Balance Sheets
		January 31, 2018				April 30, 2017
ASSETS		(Unaudited)				(Audited)
Current assets:
Cash		$	981			$	193
Total current assets			981				193
Investments			378,600				378,600
Total assets		$	379,581			$	378,793
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable		$	272,161			$	320,207
Accrued licenses agreement payable			6,300				25,000
Accrued interest and fees payable			123,510				74,181
Accrued interest payable – related parties			--				13,953
Convertible notes payable, net of discount			734,954				594,772
Convertible notes payable – related parties			--				57,050
Notes payable – related parties			--				34,426
Derivative liabilities			806,437				823,452
Payables – related parties			492,993				334,753
Total current liabilities			2,436,355				2,277,794
Total liabilities			2,436,355				2,277,794
Commitments and Contingencies			--				--
Stockholders' deficit:
Preferred stock, $0.0001 par value; 20,000,000 shares authorized, Series A – 3,375,369 and 1,473,545 shares issued and outstanding, respectively			337				147
Series B – 520,000 shares issued and outstanding, respectively			52				50
Common stock, $0.0001 par value; 200,000,000 shares authorized, 132,910, net of treasury and 125,550 shares issued and outstanding, respectively			13				13
Additional paid-in capital			5,036,216				4,682,357
Accumulated deficit			(7,098,226	)			(6,586,401	)
Total			(2,061,607	)			(1,904,031	)
Non-controlling interest			4,833				4,833
Total stockholders' deficit			(2,056,774	)			(1,899,198	)
Total liabilities and stockholders' deficit		$	378,581			$	378,793

See notes to condensed consolidated financial statements

 

 

Defense Technologies International Corp.

Condensed Consolidated Statements of Operations

(Unaudited)

		Three Months ended January 31,								Nine Months Ended January 31,
		2018				2017				2018				2017
Expenses:
General and administrative		$	62,776			$	192,337			$	305,192			$	1,160,683
Research and development			--				--				--				1,452
Total expenses			62,776				192,337				305,192				1,162,135
Loss from operations			(62,776	)			(192,337	)			(305,192	)			(1,162,135	)
Other income (expense):
Interest expense			(31,910	)			(117,280	)			(129,790	)			(555,641	)
Gain (loss) on derivative liability			(477,166	)			(238,802	)			(14,140	)			1,084,350
Gain (loss) on notes			--				---				(62,703	)			--
Gain on extinguishment of debt			--				48,429				--				359,618
Total other income (expense)			(509,076	)			(307,653	)			(206,633	)			888,327
Income (loss) before income taxes			(571,852	)			(499,990	)			(511,825	)			(273,808	)
Provision for income taxes			--				--				--				--
Net income (loss) before non-controlling interest			(571, 852	)			(499,990	)			(511,825	)			(273,808	)
Non- controlling interest in net loss of the consolidated subsidiary			4,833				3,313				4,833				3,313
Net income (loss) attributed to the Company		$	(567,019	)		$	(496,677	)		$	(506,992	)		$	(270,495	)
Net loss per common share:
Basic and diluted		$	( 4.38	)		$	(24.30	)		$	( 3.90	)		$	(15.33	)
Weighted average common shares outstanding:
Basic and diluted			130,565				20,578				129,780				17,859

 

See notes to condensed consolidated financial statements

 

Defense Technologies International Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

		Nine Months Ended January 31,
		2018				2017
Cash flows from operating activities:
Net income (loss)		$	(511,825	)		$	(273,808	)
Adjustments to reconcile net income (loss) to net cash by (used in) operating activities:
Common shares issued for services			27,996				591,880
Stock options issued for service			--				9,056
Imputed interest on convertible notes payable			--				1,687
Share issuance for payment extension			2				--
Amortization of debt discount to interest expense			123,396				508,5463
Debt extension penalty added to note principal			--				55,000
(Gain) loss on derivative liability			14,140				(1,084,350	)
(Gain) on extinguishment of debt			--				(359,618	)
Change in operating assets and liabilities:
Increase in prepaid expenses			15,000				875
Increase (decrease) in accounts payable			11,091				72,315
Increase (decrease) in accrued interest and fees payable			--				10,109
Increase in accrued interest payable – related parties			--				4,813
Increase in payables – related parties			205,488				125,945
Net cash provided by (used in) operating activities			(114,712	)			(331,433	)
Cash flows from financing activities:
Proceeds from convertible notes payable			115,500				477,940
Repayment of convertible notes payable			--				(132,894	)
Payment of debt issuance costs			--				(13,500	)
Net cash provided by (used in) financing activities			115,500				331,546
Net increase (decrease) in cash			788				113
Cash at beginning of period			193				23
Cash at end of period		$	981			$	136
Supplement Disclosures
Interest Paid		$	---				--
Income tax Paid		$	--			$	--
Noncash financing and investing activities
Common stock issued for convertible debt		$	13,890			$	--
Common stock issued for accrued interest and fees		$	--			$	--
Preferred shares issued for conversion of debt		$	190,383			$	--
Common stock retired to treasury		$	1,178			$	--
Derivative liability on debt conversion		$	121,779			$	--

See notes to condensed consolidated financial statements

Defense Technologies International Corp.

Notes to Condensed Consolidated Financial Statements

January 31, 2018

(Unaudited)

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 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. We anticipate that the split will become 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 consolidated financial statements include the accounts of the Company, and its majority-owned subsidiary, PSSI, from its formation on January 15, 2017 to date.  All inter-company transactions and balances have been eliminated.

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, 2018, the Company had 187,547 potential shares issuable under outstanding options, warrants and convertible debt. With a loss in operations for the nine-month period ended January 31, 2018, the additional shares were determined to be anti-dilutive.

Certain amounts in the 2017 consolidated financial statements have been reclassified to conform with the current year presentation to effect a reverse split of the Company's outstanding common stock on a 1 share for 1,500 shares (1:1500) basis.

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 15,000,000 shares of PSSI valued at $378,600 for 79.8% of PSSI. The balance of PSSI was 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.

NOTE -4:  RELATED PARTY TRANSACTIONS

NOTE – 5: CONVERTIBLE DEBT

On February 4, 2016, the Company entered into a convertible promissory note with an institutional investor for $41,000, which matures on February 4, 2017.  The Company may repay the note at any time on or before the date that is 120 days after the date of the note.  If the Company does not repay the note during the first 120 days, a one-time interest charge of 12% will be charged.  After the first 120 days, the note may be prepaid by the Company with the prior written consent of the investor at 125% of the principal owed. The investor has the right, after the first 180 days of the note, to convert the note and accrued interest in whole or in part into shares of the common stock of the Company at a price per share equal to 60% (representing a discount rate of 40%) of the lowest bid price of the Company's common stock during the 60 consecutive trading days immediately preceding the date of the conversion notice.  At the inception of the convertible note to institutional investor, the Company paid debt issuance costs of $2,500, and recorded a debt discount of $41,000, including an original issue discount of $3,500, a derivative liability of $78,034 related to the conversion feature, and a loss on derivative liability of $40,534.  Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.

On June 8, 2016, the Company entered into a convertible promissory note with an institutional investor for $25,000, which bears interest at an annual rate of 10% and matures on December 9, 2016.  The note holder has the right, after a period of 180 days of the note, to convert the note and accrued interest into shares of the common stock of the Company at a discounted price per share equal to 50% to 65% of the market price of the Company's common stock, depending upon the stock's liquidity as determined by the note holder's broker.  At the inception of the convertible note, the Company paid debt issuance costs of $2,500, recorded a debt discount of $22,500, and recorded a derivative liability of $51,553 related to the conversion feature, and a loss on derivative liability of $29,053.  Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.

On July 18, 2016, the Company entered into a Senior Secured Convertible Promissory Note with an institutional investor for $189,000, with net proceeds to the Company of $175,000.  The note bears interest at an annual rate of 8%, matures on January 17, 2017 and is convertible into common shares of the Company after six months at a fixed conversion price of $0.25 per share.  In the event of default, the conversion price changes to a variable price based on a defined discount to the market price of the Company's common stock.  The net proceeds were used to retire two outstanding convertible promissory notes and to provide working capital.

On May 25, 2017, the Company entered into a Convertible Promissory Note with an institutional investor for $56,500, with net proceeds to the Company of $52,000.  The note bears interest at an annual rate of 2%, matures on May 25, 2018 and is convertible into common shares of the Company after twelve months at a variable conversion price equal to 55% multiplied by the lowest one-day trading price of the Company's common stock during the twenty trading days prior to the conversion date. At the inception of the convertible note, the Company paid debt issuance costs of $4,500, recorded a debt discount of $47,500 and a loss on note issuance of $50,959.  Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.

On July 17, 2017, the Company entered into a Convertible Promissory Note amendment with an institutional investor for $ $25,000.  The note bears interest at an annual rate of 15%, as part of the note that is in default.  The note is convertible into common shares of the Company at a variable conversion price equal to 60% multiplied by the lowest one-day trading price of the Company's common stock during the twenty one trading days prior to the conversion date. At the inception of the convertible note, the recorded a debt discount of $22,920.

On July 24, 2017, the Company entered into a Convertible Promissory Note with an institutional investor for $15,000.  The note bears interest at an annual rate of 2%, matures on May 25, 2018 and is convertible into common shares of the Company after twelve months at a variable conversion price equal to 55% multiplied by the lowest one-day trading price of the Company's common stock during the twenty trading days prior to the conversion date. At the inception of the convertible note, the Company recorded a debt discount of $15,000and a loss on note issuance of $11,717.  Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.

On July 24, 2017, the Company entered into a Funding Agreement with RAB Investments AG, a current lender and stockholder located in Zug, Switzerland, which is intended to provide necessary funding towards the initial production of our Offender Alert Passive Scan. The Funding Agreement calls for RAB to fund a minimum of $50,000 to a maximum of $150,000 on a "best efforts basis," with a first tranche of $25,000 to be completed during August 2017. In exchange for the funds, DTIC will issue convertible notes that may be converted into common stock of the Company at a discount of 25%, based on the 10-day average trading value of Company shares at the time of the initial conversion.  The notes may be converted at any time, in whole or partially, but all conversions must be at the same rate as the initial conversion.  No funding has been provided as of the date of this filing and there is no assurance that funds will be provided.

On September 11, 2017, the Company entered into a Convertible Promissory Note with an institutional investor for $5,000.  The note bears interest at an annual rate of 15% and is convertible into common shares of the Company after twelve months at a variable conversion price equal to 55% multiplied by the lowest one-day trading price of the Company's common stock during the twenty trading days prior to the conversion date. At the inception of the convertible note, the Company recorded a debt discount of $5,000, and recorded a derivative liability of $23,828 related to the conversion feature, and a loss on note issuance of $18,828.  Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.

On September 28, 2017, the Company entered into a Convertible Promissory Note with an institutional investor for $2,500.  The note bears interest at an annual rate of 12%, matures on May 25, 2018 and is convertible into common shares of the Company after twelve months at a variable conversion price equal to 60% multiplied by the lowest one-day trading price of the Company's common stock during the twenty one trading days prior to the conversion date. At the inception of the convertible note, the Company recorded a debt discount of $2,500 and a loss on note issuance of $4,875.  Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the convertible note.

On December 12, 2017, the Company entered into a Convertible Promissory Note with an institutional investor for $3,000.  The note bears interest at an annual rate of 2%, matures on May 25, 2018 and is convertible into common shares of the Company after twelve months at a variable conversion price equal to 55% multiplied by the lowest one-day trading price of the Company's common stock during the twenty one trading days prior to the conversion date.

On January 31, 2018, the Company entered into a Convertible Promissory Note with an institutional investor for $5,500.  The note bears interest at an annual rate of 6%, matures on August 1, 2018 and is convertible into common shares of the Company at $0.01 per share. During the period ended January 31, 2018 the Company was advanced $2,500 of the note.

Pursuant to a Securities Purchase Agreement dated July 18, 2016 (the "July 2016 SPA", the Company entered into a Senior Secured Convertible Promissory Note (the "July 2016 Note") with Firstfire Global Opportunities Fund, LLC ("Firstfire) for $189,000.  The July 2016 Note was in default with respect to the maturity date, and the Company was in default on certain terms of the July 2016 SPA, including calculation of exercise prices on Firstfire debt conversions and limitations on the Company entering into subsequent "Variable Rate Transactions."  On August 9, 2017, the Company and Firstfire entered into a Waiver and Settlement Agreement whereby the Company will issue an additional 8,667 shares of its common stock to Firstfire to cure the deficiency of shares previously issued in the debt conversions.  Further, Firstfire agreed to waive any default with respect to the subsequent variable rate transactions. As of January 31, 2018 the shares had not been issued.

During the nine months ended January31, 2018, the Company issued a total of 58,771 shares of its common stock in the conversion of $8,090 in convertible notes principal and $5,800 in accrued interest payable and fees.

As of January31, 2018, and April 30, 2017, the convertible debt outstanding, net of discount, was $734,954 and $594,772, respectively.

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.

The following table represents the change in the fair value of the derivative liabilities during the year ended January31, 2018:

		Level 1				Level 2				Level 3
Fair value of derivative liability as of April 30, 2017		$	--			$	--			$	823,452
Debt discount related to new debt			--				--				61,921
Day one measurement of new debt			--				--				28,702
Change in fair value of the derivative			--				--				14,140
Conversion of debt to shares of common stock   and repayment of debt			--				--				(121,778	)
Balance at January31, 2018		$	--			$	--			$	806,437

The estimated fair value of the derivative liabilities at January31, 2018 was calculated using the Black-Scholes pricing model with the following assumptions:

Risk-free interest rate	0.10%
Expected life in years	0.01 - 0.71
Dividend yield	0%
Expected volatility	475.00% - 493.00%

NOTE – 7: EQUITY

Common Stock

On August 10, 2017, a shareholder returned to the Company 3,167 share of common stock to be cancelled. Subsequent to the returning of these shares, the Company issued 3,167 shares to Mark Taggatz for service.

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.

Effective June 12, 2017, the Company issued 1,309,380 shares of Series A preferred stock to EMAC for consideration totaling $130,938: convertible note payable of $25,000; three notes payable totaling $34,426; accrued interest payable of $18,718; payables – related parties of $22,794 and prepayment of services of $30,000 for the months of May 2017 through January2017.  The accrued interest payable included interest on the $25,000 convertible note payable compounded at 6% per annum retroactive to January 1, 2012, as negotiated between the parties.

Effective June 12, 2017, the Company issued 442,444 shares of Series A preferred stock to a related party lender in payment of Company indebtedness totaling $44,244: convertible note payable of $32,050; accrued interest payable of $4,694 and repayment of accounts payable of $7,500.

 

During the year ended April 30, 2016, the Company issued options to a consultant to purchase a total of 667 shares of the Company's common stock and warrants to a lender to purchase 46 shares of the Company's common stock.

During the nine months ended January31, 2016, the Company issued warrants to a lender to purchase 167 shares of the Company's common stock at an exercise price of $900 per share.  The warrants vested upon grant and expire on July 17, 2018.  The Company estimated the grant date fair value of the warrants at $14,365 using the Black-Scholes option-pricing model and charged the amount to debt discount.

Risk free interest rate	.68%
Expected life in years	2.0
Dividend yield	0%
Expected volatility	137.99%

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contract Term (Years)				Aggregate Intrinsic Value
Outstanding at April 30, 2017			867			$	1.385				1.07			$	--
Granted			--			$	--
Exercised			-			$	-
Forfeited or expired			-			$	-
Outstanding and exercisable at January31, 2018			867			$	1.385				0.57			$	--

a)

Administration Agreement with EMAC Handels AG, renewed effective May 1, 2014 for a period of three years and was renewed on April 30, 2017. 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 167 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 for a three-year term, with RAB 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. No term of the agreement is specified.
f)	Business Development and Consulting Agreement of PSSI signed January 15, 2017 for a twelve-month term, 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 February 16, 2018 the Company entered into a convertible loan agreement for $20,000. The note bears interest of 6% and is convertible after 6 months into the common stock of the Company at a 50% discount of the average 10day trading prices 10 days prior to conversion.

The Company has evaluated subsequent events to determine events occurring after January 31, 2018 through March 13, 2018 that would have a material impact on the Company's financial results and determined there were none except noted above.

 

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.

Effective July 15, 2016, the Company executed documents intended to finalize the acquisition of 100% of Defense Technology Corporation, a privately held Colorado company ("DTC"), a developer of defense, detection, and protection products to improve security for Anchor schools and other public facilities.  DTC has informed us that it is unable to complete the required audited financial statements.  Accordingly, the Company will not be able to consolidate DTC's financial statements into its audited financial statements. After a thorough review of the situation and discussions with DTC, we have mutually agreed to rescind the acquisition of DTC and entered into a Rescission Agreement and Mutual Release (the "Rescission Agreement"), effective October 17, 2016.

In connection with the Rescission Agreement with the Company, DTC rescinded its agreement with the inventor and developer of the technology and assets that were subject to the original agreement between the Company and DTC.  On October 19, 2016, the Company entered into a new Definitive Agreement with Controlled Capture Systems, LLC ("CCS"), representing the inventor of the technology and assets previously acquired by DTC, that included a new exclusive Patent License Agreement and Independent Contractor agreement.  Under the license agreement with CCS, the Company acquired the world-wide exclusive rights and privileges to the CCS security technology, patents, products and improvements.  The Company agreed to pay CCS an initial licensing fee of $25,000 and to pay ongoing royalties as defined in the Definitive Agreement.

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. We anticipate that the split will become effective on March 20, 2018, or as soon thereafter as practicable.
                 

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.

This item is not required for a smaller reporting company.

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

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.

During the nine-month period ended January31, 2017, the Company issued 5,877 shares of its common stock in the conversion of debt and interest of $13,890.

On August 10, 2017, a shareholder returned to the Company 3,167 share of common stock to be cancelled. Subsequent to the returning of these shares, the Company issued 3,167 shares to Mark Taggatz for service.

Effective July 5, 2017, EMAC returned 7,850 common shares of the Company that were previously issued in payment for certain mineral lease properties in Nevada.

This item is not applicable.

This item is not applicable.

Not applicable

The following exhibits are filed as part of this report:

Exhibit No.	Description of Exhibit
31.1	Section 302 Certification of Chief Executive Officer and Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
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.

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  13, 2018	By: /S/ MERRILL W. Moses
	Merrill W. Moses
	Chief Executive Officer
	Acting Chief Financial Officer

 

 

---