10-K: Defense Technologies Faces Going Concern Amid Zero Revenue

Defense Technologies International Corp. reported zero revenue and increased net losses for fiscal year 2025, raising substantial doubt about its ability to continue as a going concern.

Summary

• Defense Technologies International Corp. (DTII) reported no revenue for the fiscal year ended April 30, 2025, a significant decrease from $49,012 in the prior year.
• The company's net loss increased to $942,295 for fiscal year 2025, up from $575,766 in fiscal year 2024.
• Total operating expenses more than doubled to $1,379,209 in 2025 from $631,143 in 2024, primarily due to higher general and administrative costs, including legal and license expenses.
• DTII has an accumulated deficit of $18,042,197 and a working capital deficit of $2,075,126 as of April 30, 2025.
• The company's cash balance remains critically low at $1,493 as of April 30, 2025.
• DTII's subsidiary, Passive Security Scan, Inc. (PSSI), holds exclusive worldwide rights to the Passive Portal, a patented (US Patent: 7408461) radiation-free walk-through personnel scanning system.
• The Passive Portal successfully completed over 500 tests by the NUSTL, a Department of Homeland Security department, in September 2024.
• DTII has manufactured 35 Passive Portal Units and 10 EBT Stations and has parts for an additional 25 Passive Portals at its Dallas, TX facility, with a capacity to produce up to 500 units per month.
• Management identified material weaknesses in internal control over financial reporting due to a lack of full-time accounting and financial staff, insufficient segregation of duties, and inadequate supervision.
• The company continues to rely heavily on related party financing, converting $695,000 in related party debt and $367,431 in accrued liabilities into common and preferred stock during fiscal year 2025.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to zero revenue, significantly increased net losses, a substantial accumulated deficit, critical liquidity issues, and an explicit 'going concern' warning. While product testing shows promise, the financial instability and reliance on related party financing overshadow any operational positives.

Positives

• The Passive Portal, a radiation-free security scanner, successfully passed over 500 tests by the NUSTL, a Department of Homeland Security department, in September 2024.
• The company has established a production facility in Dallas, TX, capable of manufacturing up to 500 Passive Portals per month, and has already produced 35 units and 10 EBT Stations.
• DTII believes its passive sensing technology offers a unique advantage over competitors' active scanning systems, which use potentially harmful radiation.
• A Cooperative Research and Development Agreement (CRADA) was signed with the Department of Homeland Security's Science and Technology Directorate (DHS S&T) for further testing of the Passive Portal.

Negatives

• The company reported zero revenue for the fiscal year ended April 30, 2025, a significant decline from $49,012 in the previous year.
• Net loss increased substantially to $942,295 in 2025 from $575,766 in 2024.
• Operating expenses more than doubled to $1,379,209 in 2025, indicating increased cash burn without corresponding revenue generation.
• DTII has an accumulated deficit of $18,042,197 and a working capital deficit of $2,075,126, raising substantial doubt about its ability to continue as a going concern.
• The company's cash balance is extremely low at $1,493, indicating severe liquidity issues.
• Management identified material weaknesses in internal control over financial reporting due to a lack of adequate accounting and financial staff, leading to insufficient segregation of duties and supervision.
• Significant reliance on related party debt and equity conversions for funding, including converting $695,000 in related party debt and $367,431 in accrued liabilities into stock.
• Several notes payable are in default as of April 30, 2025, including one with the company's former auditors.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to no revenue, significant accumulated deficit, and working capital deficit.
• The company's ability to secure sufficient funding through debt, equity, or related party support is uncertain, which could impact its business operations.
• High dependence on third-party provided software applications and systems for key operations, posing cybersecurity risks.
• Material weaknesses in internal control over financial reporting due to insufficient accounting staff, lack of segregation of duties, and inadequate supervision, increasing the risk of financial misstatements.
• The company has not yet adopted a code of ethics, which could pose governance risks.
• Reliance on a limited number of consultants for operations, with no plans to add full-time employees until financial resources warrant.
• The company's business plan and ability to generate significant revenues are unproven, as evidenced by zero revenue in the latest fiscal year.
• Potential negative effects on operations from uncontrollable events like pandemics (e.g., COVID-19) due to reliance on third-party consultants and virtual operations.
• The use of net operating loss carryforwards is uncertain and depends on generating sufficient taxable income before expiration, with potential limitations in case of control changes.

Future Outlook

Management plans to continue providing for capital needs by issuing debt and equity securities and through continued support from related parties, expecting to raise additional funds from the sale of securities, stockholder loans, and convertible debt. The company expects to commence a major marketing campaign and begin production to meet sales demand once required funding is secured. The Passive Portal system is slated for a required Beta Test at a high school near Austin, TX.

Management Comments

• "Management plans to continue to provide for the Company's capital needs during the year ending April 30, 2025 by issuing debt and equity securities and by the continued support of its related parties."
• "We expect to raise additional funds from the sale of securities, stockholder loans and convertible debt."
• "With the completion of required funding, we expect to commence a major marketing campaign at the same time begin the production to meet the sales demand from a marketing campaign."
• "Our immediate goal is to provide funding for the completion of the initial production of the Offender Alert Passive Scan licensed from CCS."
• "We believe a related party and other lenders will provide sufficient funds to carry on general operations in the near term and fund PSSIs production and sales."

Industry Context

Defense Technologies International Corp. operates in the advanced technology security sector, specifically focusing on personnel scanning systems. Its Passive Portal technology, being radiation-free, positions it uniquely against competitors who primarily use active scanning methods (X-ray, microwave, radio signals) that may be perceived as harmful over time. This radiation-free aspect makes it particularly suitable for sensitive environments like schools and public venues, potentially giving it a competitive edge in a market increasingly concerned with safety and health. The company's engagement with the Department of Homeland Security (DHS S&T and NUSTL) indicates an effort to gain credibility and market acceptance within the government and public safety sectors, which are key drivers for security technology adoption.

Comparison to Industry Standards

• The company claims its Passive Portal is the only known walk-through scanner based on passive sensing (zero-radiation), differentiating it from competitors' active scanning technologies (X-ray, microwave, radio signals) which are stated to be harmful over time. Specific comparable companies or projects are not detailed in the filing, making a direct quantitative comparison difficult.
• While the Passive Portal successfully passed over 500 tests by NUSTL (DHS), the filing does not provide specific performance metrics (e.g., detection rates, false alarm rates) that could be benchmarked against established industry standards or competitor products like those from Rapiscan Systems, L3Harris Technologies, or Smiths Detection, which offer various active scanning solutions.

Management Changes

Corporate Governance

Legal Proceedings

• There are no material pending legal proceedings to which the Company or its subsidiary is a party, or to which any property is subject, and no such action is contemplated or threatened.

Related Party Transactions

• As of April 30, 2025, the company had consolidated payable balances due to related parties totaling $747,208, including $684,708 to EMAC Handels AG, $15,000 to Eric Forrest, and $47,500 to Merrill W. Moses.
• Management and administrative services are compensated via service agreements with Merrill W. Moses and EMAC Handels AG, and a service agreement with Eric Forrest for PSSI.
• The company has loans from EMAC Handels AG and Star Anchor (both related parties), with outstanding balances of $125,287 and $19,050 respectively, plus accrued interest as of April 30, 2025.
• During fiscal year 2025, the company issued 10,000,000 shares of common stock with an aggregate value of $695,000 for the payment of related party debt, recognizing a loss on notes of $295,000.
• During fiscal year 2025, the company issued 94,991 shares of Series B preferred stock with a value of $367,431 to two related parties for accrued liabilities.
• An officer of the company advanced $9,460, due August 28, 2025, bearing no interest.
• A related party advances funds from time to time, with an outstanding balance of $8,060 as of April 30, 2025.

Stakeholder Impact

• **Shareholders:** Face significant dilution from ongoing issuance of common and preferred stock to settle debt and payables, particularly to related parties. The 'going concern' warning indicates a high risk of capital loss. Lack of revenue and increasing losses negatively impact shareholder value.
• **Employees/Consultants:** The company relies on five full and part-time consultants and does not anticipate adding additional employees until financial resources warrant, indicating limited job growth and potential instability for current consultants.
• **Creditors:** Several notes payable are in default, indicating increased risk for creditors and potential for further debt restructuring or non-payment.
• **Customers/Distributors:** While 10 units have been sold to two distributors, the lack of significant revenue and delays in a major marketing campaign suggest that product availability and support might be inconsistent or limited, potentially impacting customer confidence and future sales.
• **Regulatory Bodies:** The identified material weaknesses in internal control over financial reporting and the lack of a code of ethics may draw scrutiny from regulatory authorities like the SEC.

Next Steps

• Secure required funding to commence a major marketing campaign and begin production to meet sales demand.
• Proceed with the required Beta Test of the Passive Portal system at a high school near Austin, TX.
• Implement a cybersecurity training program.
• Set up and implement a third-party risk management program and policy.
• Set up and test a Cybersecurity Incident Response Plan.
• Establish additional processes for identifying cybersecurity threats and vulnerabilities.
• Enhance technical security safeguards and configurations.
• Consider new, qualified persons to become directors in the future.
• Adopt a code of ethics that applies to principal executive, financial, and accounting officers.

Key Dates

Recommendation

The company's financial position is extremely precarious, marked by zero revenue, escalating net losses, a substantial accumulated deficit, and a critical working capital deficit. The explicit 'going concern' warning from both management and auditors indicates a high probability of financial distress or failure. While the Passive Portal technology shows promise with successful DHS testing, the company's inability to generate revenue, its heavy reliance on dilutive related-party financing, and significant internal control weaknesses present insurmountable risks for investors. Several notes payable are in default, further highlighting severe liquidity issues. The ongoing dilution and lack of a clear path to profitability make this a high-risk investment with a strong likelihood of further capital erosion.

Keywords

Passive Portal, Security Scanner, Defense Technology, Radiation-Free, Personnel Scanning, DHS S&T, NUSTL, School Security, Public Venue Security, Concealed Threat Detection, Walk-Through Scanner, EBT Station