10-Q: NAPC Defense, Inc. Reports Net Loss and Going Concern Uncertainty in Q2 2025

NAPC Defense, Inc.'s Q2 2025 report reveals a significant net loss and raises substantial doubt about the company's ability to continue as a going concern.

Summary

• NAPC Defense, Inc., formerly Treasure & Shipwreck Recovery, Inc., reported its financial results for the quarter ended October 31, 2024.
• The company incurred a net loss of $453,921 for the three months ended October 31, 2024, compared to a net loss of $161,489 for the same period in 2023.
• For the six months ended October 31, 2024, the net loss was $889,784, significantly higher than the $419,968 loss in the corresponding period of 2023.
• The company's management expresses substantial doubt about its ability to continue as a going concern, citing recurring losses and a working capital deficit of $990,136 as of October 31, 2024.
• NAPC Defense is exploring options for financing, including debt, equity, or a combination thereof, to address its immediate need for working capital.
• The company generated $67,467 in revenue during the six months ended October 31, 2024, from ammunition and military equipment consulting services, but later determined this revenue was uncollectible.
• Operating expenses increased to $529,229 for the six months ended October 31, 2024, from $387,861 in the same period of 2023, driven by new ventures.
• The company is pursuing opportunities in the defense and law enforcement sectors, including the production and sale of CornerShot units and small arms.
• NAPC Defense is also involved in brokering ammunition and armored vehicles for domestic and overseas sales.
• The company's internal controls over financial reporting were deemed ineffective due to limited resources and a lack of segregation of duties.

Sentiment

Score: 2

Explanation: The document presents a highly negative outlook due to significant losses, going concern uncertainty, and ineffective internal controls. While there are some positive developments in terms of new ventures, the overall financial situation is precarious.

Positives

• The company has entered new ventures in the defense and law enforcement sectors, potentially opening up new revenue streams.
• NAPC Defense is actively seeking financing to address its working capital needs.
• The company has established partnerships for distribution of ballistics protection and less-than-lethal products.
• The company has direct lines of sourcing personal ballistics protection for personnel, such as helmets, bullet resistant vests and shields for overseas sale and domestic sale to US entities.

Negatives

• The company has incurred significant net losses, with a net loss of $889,784 for the six months ended October 31, 2024.
• Management expresses substantial doubt about the company's ability to continue as a going concern.
• The company has a significant working capital deficit of $990,136.
• Revenue generated during the period was deemed uncollectible and written off as bad debt.
• Internal controls over financial reporting were found to be ineffective.
• The company expects to expend its available cash in less than one month from February 26, 2025.

Risks

• The company's ability to continue as a going concern is uncertain.
• Failure to raise adequate capital could result in curtailing or ceasing operations.
• Convertible notes payable represent significant potential dilution to current shareholders.
• The company's internal controls over financial reporting are ineffective.
• The company is involved in a legal proceeding related to a contract dispute.
• The company's utilization of any net operating loss carry forward may be unlikely as a result of its intended activities.

Future Outlook

The company will require additional capital to meet its long-term operating requirements and expects to raise additional capital through the sale of equity or debt securities, but there are no assurances that it will be able to do so.

Management Comments

• Management expresses substantial doubt about the company's ability to continue as a going concern.
• Management believes that current trends toward lower capital investment in start-up companies pose the most significant challenge to the Company's success over the next year and in future years.

Industry Context

The company is transitioning from treasure and shipwreck recovery to the defense and law enforcement sectors, which may provide new opportunities but also involves significant risks and competition.

Comparison to Industry Standards

• It is difficult to compare NAPC Defense's results to industry standards due to its unique combination of business activities and its early stage of development in the defense sector.
• Companies in the defense industry, such as Lockheed Martin and Boeing, typically have significant revenue and established contracts, which NAPC Defense currently lacks.
• Smaller companies in the defense sector often focus on niche markets or specific technologies, which may be a more appropriate comparison for NAPC Defense as it develops its product lines.

Management Changes

Legal Proceedings

• In May of 2023, NAPC Defense, Inc. was sued in county court over a contract by the firm of Delmar which contends that NAPC Defense, Inc. did not follow through on a contract for their services related to its regulation A offering in 2022.
• As of October 31, 2024, the suit was pending dismissal for lack of prosecution.

Related Party Transactions

• The Company entered into a month to month lease agreement for 13,000 square feet of commercial office space and 40,000 square feet of warehousing and parking with a related party, with base month rent of $25,000.
• In June 2023, the Company issued to a related party former director, the amount of 2,525,618 shares for debt conversion and satisfaction of a note for $50,000, including $25,769 in accrued interest, at the rate of $0.03 per share.

Stakeholder Impact

• Shareholders face significant dilution risk from convertible notes and potential loss of investment if the company cannot continue as a going concern.
• Employees face job security risks if the company is forced to curtail or cease operations.
• Creditors face increased risk of non-payment due to the company's financial difficulties.

Next Steps

• The company will seek additional financing through debt or equity.
• The company will implement remedial measures to address deficiencies in internal control over financial reporting, upon obtaining sufficient capital and operations.
• The company will continue to pursue opportunities in the defense and law enforcement sectors.

Key Dates