10-Q: Defense Technologies Reports Q1 Loss, Cites Going Concern

Defense Technologies International Corp. reported a net loss of $222,164 for the quarter ended July 31, 2025, with management expressing substantial doubt about its ability to continue as a going concern.

Summary

• Reported a net loss of $222,164 for the three months ended July 31, 2025, a reduction from $461,239 in the same period of 2024.
• Operating expenses increased to $187,230 from $163,517 year-over-year, primarily due to higher general and administrative costs.
• The company generated no revenue during the quarter, consistent with the prior year.
• Working capital deficit expanded to $2,299,588 as of July 31, 2025, from $2,075,126 at April 30, 2025.
• Cash at the end of the period was $2,422, up from $1,493 at the beginning of the period, primarily due to financing activities.
• Management identified material weaknesses in internal control over financial reporting and stated that disclosure controls and procedures were not effective.
• The company continues to rely on debt and equity financing, including support from related parties, to fund operations.

Sentiment

Score: 2

Explanation: The company faces severe financial distress with no revenue, a growing accumulated deficit, and a substantial working capital deficit. The explicit 'going concern' warning, ineffective internal controls, and reliance on continuous financing from related parties and new debt/equity issuance indicate a highly precarious financial position, despite a reduced net loss compared to the prior year.

Positives

• Net loss attributed to the company significantly decreased to $222,164 for the three months ended July 31, 2025, from $461,239 in the prior year period.
• Total other income (expense) improved, resulting in an expense of $49,702 compared to $303,892 in the same period last year, largely due to the absence of a $295,000 loss on notes incurred in 2024.
• Consulting costs decreased to $100,250 from $117,500 year-over-year.
• Cash balance increased to $2,422 at July 31, 2025, from $1,493 at April 30, 2025.
• The company has built 33 Passive Portal units, with 5 sold in the previous fiscal year and 2 used in a BETA Test, which have performed with 100% success.

Negatives

• The company reported no revenue for the three months ended July 31, 2025, and has not yet established an ongoing source of revenue.
• Operating expenses increased to $187,230 from $163,517 in the prior year period, driven by higher general and administrative costs.
• The working capital deficit expanded to $2,299,588 as of July 31, 2025, from $2,075,126 at April 30, 2025.
• Accumulated deficit grew to $18,271,717 as of July 31, 2025.
• Net cash used in operating activities increased to $49,447 from $39,391 in the prior year period, indicating increased cash burn from operations.
• Loan origination fees significantly increased to $37,529 from $10,000 year-over-year.
• The company incurred a loss on derivative liability of $5,108, compared to a gain of $8,166 in the prior year.
• One convertible note with an institutional investor for $12,500 plus interest is currently in default.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to no revenues, an accumulated deficit of $18,271,717, and a working capital deficit of $2,229,558.
• The company has not yet established an ongoing source of revenue sufficient to cover operating costs.
• Reliance on issuing debt and equity securities and continued support from related parties for capital needs, with no guarantee of success in obtaining future financing.
• Material weaknesses in internal control over financial reporting due to limited accounting and financial personnel and lack of proper segregation of duties.
• Disclosure controls and procedures were not effective as of July 31, 2025.
• The estimated fair value of derivative liabilities is subject to significant fluctuations due to multiple inputs like stock price, interest rates, volatility, and variable conversion prices.
• The company's investment in its subsidiary PSSI was impaired as of April 30, 2019.
• Royalty payments of 5% of gross sales from the CCS license agreement, with a minimum of $12,500 paid quarterly, represent a fixed commitment regardless of sales.

Future Outlook

Management anticipates that operating funds will continue to be provided by related parties and other lenders in the short term. The immediate goal is to fund the completion of the production of the Offender Alert Passive Scan. The company is confident that successful conclusion of the Beta Test will lead to initial orders from school districts, generating revenue. Additional funds are expected to be raised through the sale of securities, stockholder loans, and convertible debt, though success in obtaining this financing is not guaranteed.

Management Comments

• Our unique technology works precisely to specifications as required by our technology and as confirmed in the market.
• All sales and marketing activities will be executed through PSSI.
• 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 July 31, 2025, the consolidated results of its operations and its consolidated cash flows for the three months ended July 31, 2025 and 2024.
• 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 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.
• 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.

Industry Context

Defense Technologies International Corp. operates in the advanced technology sector, specifically focusing on passive security scanning units for weapon detection and elevated body temperature screening. The company's products, such as the Passive Portal, are targeted at public facilities like schools. The industry for security technology, particularly in public safety and threat detection, is driven by ongoing concerns for safety and the need for non-invasive screening solutions. The company's strategy to target school districts aligns with a growing demand for enhanced security measures in educational environments.

Corporate Governance

Related Party Transactions

• Payables to related parties increased to $838,708 as of July 31, 2025, from $747,208 at April 30, 2025.
• Loan agreement with EMAC Handels AG for short-term loans up to $100,000 at 6% interest, with an outstanding balance of $122,127 as of July 31, 2025.
• Administration Agreement with EMAC Handels AG for monthly fees of $7,500, plus office rent and supplies.
• Service Agreement with Merrill W. Moses (CEO) for $7,500 per month plus issuance of 233 restricted common shares.
• PSSI Administration and Management Agreement with EMAC Handel Investments AG for $7,500 per month, office rent, telephone, 2,000 PSSI common shares, and a 12% royalty on sales.
• PSSI Service Agreement with Merrill W. Moses for $2,500 per month plus 333 PSSI common shares.
• Common stock issued for related party debt (10,000,000 shares valued at $400,000 during Q3 2024).
• Notes payable to related parties increased to $171,892 as of July 31, 2025, from $161,092 at April 30, 2025.

Stakeholder Impact

• Shareholders face significant dilution risk from ongoing issuance of common and preferred stock for debt conversion and capital raises. The "going concern" warning indicates a high risk of investment loss.
• Creditors/Lenders are exposed to high risk given the company's substantial debt, lack of revenue, and "going concern" status, with one convertible note already in default.
• Employees/Management: Compensation includes stock, indicating alignment with company performance, but the overall financial instability poses job security risks.
• Customers (potential school districts): The success of product deployment and ongoing support depends heavily on the company's ability to secure long-term financing and achieve operational stability.
• Suppliers may face payment delays or non-payment due to the company's liquidity challenges and reliance on external financing.

Next Steps

• Fund the completion of the production of the Offender Alert Passive Scan.
• Conclude the Beta Test for Passive Portal units.
• Receive initial orders from school districts following successful Beta Test.
• Raise additional funds from the sale of securities, stockholder loans, and convertible debt.

Key Dates

Recommendation

The company presents a highly distressed financial profile with no revenue, a substantial and growing accumulated deficit, and a severe working capital deficit. The explicit 'going concern' warning, coupled with material weaknesses in internal controls and disclosure procedures, indicates fundamental operational and financial instability. While the net loss decreased year-over-year, this is primarily due to the absence of a large one-time loss from the prior period, not improved core operations. The company's reliance on continuous debt and equity financing, including from related parties, to sustain operations is unsustainable without a clear path to revenue generation. A convertible note is already in default, signaling further financial strain. Given these severe risks and lack of positive operational momentum, a seasoned investor would likely recommend a strong sell to minimize potential losses.

Keywords

Defense Technologies International Corp, DTII, 10-Q, Quarterly Report, SEC Filing, Financial Results, Net Loss, Going Concern, Working Capital Deficit, Passive Portal, Security Technology, PSSI, Convertible Debt, Related Party Transactions, Internal Controls, Sarbanes-Oxley, Security Scanning, Weapon Detection, EBT Station