NAPD 10-Q/A
NAPC Defense, Inc. (NAPD)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Amendment No. 1 )
For
the quarterly period ended
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
Formerly Beliss Corp. |
| (Exact name of registrant as specified in its charter) |
| 7310 | ||
| (State
or Other Jurisdiction of Incorporation or Organization) |
(Primary
Standard Industrial Classification Code Number) |
(IRS Employer Identification No.) |
Craig
Huffman
Chief Executive Officer
| (Address and telephone number of registrant’s principal offices) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 preceding 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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o | Accelerated filer | o | |
| o | Smaller reporting company | |||
| (Do not check if a smaller reporting company) | Emerging growth company | |||
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: The Company has common shares issued and outstanding as of December 15, 2023.
1
EXPLANATORY NOTE
No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q.
| Treasure & Shipwreck Recovery, Inc. |
| QUARTERLY REPORT ON FORM 10-Q |
| Table of Contents |
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim financial statements of Treasure & Shipwreck Recovery, Inc., formerly Beliss Corp. (“the Company”, “we”, “us” or “our”), have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.
The interim financial statements are condensed and should be read in conjunction with the Company’s latest annual financial statements. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all the information and notes required by GAAP for complete financial statement presentation.
In the opinion of management, the financial statements contain all material adjustments, consisting only of normal adjustments considered necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
3
Treasure & Shipwreck Recovery, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of October 31, 2023 and April 30, 2023
| October 31, 2023 (Unaudited) | April 30, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Total current assets | ||||||||
| Fixed Assets | ||||||||
| Fixed assets, net of depreciation | ||||||||
| Total fixed assets | ||||||||
| Other Assets | ||||||||
| Security deposit | ||||||||
| Total other assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Customer deposits | ||||||||
| Convertible notes payable, in default | ||||||||
| Short term loans | ||||||||
| Related party convertible loans | ||||||||
| Contingent liabilities | ||||||||
| Total current liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding | ||||||||
| Common stock, par value $; shares authorized, and shares issued at October 31 and April 30, 2023, respectively | ||||||||
| Common stock to be issued | ||||||||
| Additional paid in capital | ||||||||
| Unearned compensation | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
4
| Treasure & Shipwreck Recovery, Inc. |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| Three and Six months ended October 31, 2023 and 2022 |
| (Unaudited) |
| Three months ended October 31, 2023 | Three months ended October 31, 2022 | Six months ended October 31, 2023 | Six months ended October 31, 2022 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Consulting and accounting | ||||||||||||||||
| Labor | ||||||||||||||||
| Legal fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Boat expenses | ||||||||||||||||
| Rent expense | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Depreciation | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| NET LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER EXPENSES | ||||||||||||||||
| Interest expense | ||||||||||||||||
| NET LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE: BASIC AND DILUTED | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | ||||||||||||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
5
| Treasure & Shipwreck Recovery, Inc. |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES TO STOCKHOLDERS’ DEFICIT |
| Three and Six months ended October 31, 2023 and 2022 |
| (Unaudited) |
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common
Stock to be Issued | Additional
Paid-in Capital | Unearned compensation | Accumulated
Deficit | Total
Stockholders’ Deficit | ||||||||||||||||||||||||||||
| Balance, April 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Sale of common stock | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, July 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Shares issued for services | - | |||||||||||||||||||||||||||||||||||
| Conversion of debt to equity | ||||||||||||||||||||||||||||||||||||
| Warrants | - | - | ||||||||||||||||||||||||||||||||||
| Sale of Common Stock | - | |||||||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, October 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Common Stock to be Issued | Additional Paid-in Capital | Unearned compensation | Accumulated Deficit | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||
| Balance, April 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Shares issued for services | - | ( | ) | |||||||||||||||||||||||||||||||||
| Conversion of debt and accrued expenses to equity | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, July 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Exploration investment | - | - | ||||||||||||||||||||||||||||||||||
| Shares earned for services | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, October 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
6
| Treasure & Shipwreck Recovery, Inc. |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Six months ended October 31, 2023 and 2022 (Unaudited) |
| Six months ended October 31, 2023 (Unaudited) | Six months ended October 31, 2022 (Unaudited) | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of discount | ||||||||
| Warrants issued for services | ||||||||
| Stock compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Security deposits | ||||||||
| Account payable | ||||||||
| Accrued expenses | ||||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from exploration investment | ||||||||
| Increase in short term loans | ||||||||
| Increase in related party convertible notes | ||||||||
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest expense | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Conversion of debt and accrued expense to equity | $ | $ | ||||||
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements
7
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2023
Note 1 – ORGANIZATION AND NATURE OF BUSINESS
Treasure & Shipwreck Recovery, Inc (“TSR” or the “Company”), was incorporated in the State of Nevada on October 24, 2016 as Beliss Corp. The Company changed its name to Treasure & Shipwreck Recovery Inc. on June 26, 2019.
TSR formed TSR Holdings, Inc., a wholly owned subsidiary, on August 22, 2019 as the Company’s operating vehicle to focus on the recovery of sunken treasure from historic shipwrecks. The Company was originally focused on the development of high impact internet marketing, search engine optimization (“SEO”) software and techniques, and the development of digital properties (collectively “Internet Marketing”).
On April 6, 2020, TSR formed TSR Media Group, Inc. (“TSR Media”), a wholly owned subsidiary, in order to develop various digital media properties. TSR Media is in the process of developing, through an outside app developer, a treasure search and salvage gaming app.
Note 2 – GOING CONCERN
These
condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize
its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred net losses
since inception, which raises substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans include raising capital through the equity markets to fund operations and, eventually, the generation of revenue through its business.
The Company does not expect to generate any significant revenues for the foreseeable future. At October 31, 2023, the Company had a net
working capital deficit of $
Failure to raise adequate capital and generate adequate revenues could result in the Company having to curtail or cease operations. The Company’s ability to raise additional capital through the future issuances of the common stock is unknown. Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues, there can be no assurances that the revenue will be sufficient to enable it to develop to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern; however, the accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classifications of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of significant accounting policies of TSR is presented to assist in understanding the Company’s condensed consolidated financial statements. The condensed consolidated financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the condensed consolidated financial statements. The Company’s year-end is April 30.
Principles of Consolidation
The condensed consolidated financial statements of the Company include the accounts of TSR Holdings, Inc. and TSR Media Group, Inc., which are wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The process of preparing condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Significant estimates include the useful life of property and equipment, valuation allowances against deferred tax assets and fair value of non cash equity transactions.
8
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 2023
Cash and Cash Equivalents
For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents.
There
were no cash equivalents at October 31, 2023 and April 30, 2023. Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation
(“FDIC”) up to $
Research and Development Expenses
Expenditures for research and development are expensed as incurred.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from contracts with customers. The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognizes revenue in accordance with that core principle by applying the following steps: Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract and Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. Specifically, Section 606-10-50 requires an entity to provide information about: a. Revenue recognized from contracts with customers, including the disaggregation of revenue into appropriate categories; b. Contract balances, including the opening and closing balances of receivables, contract assets, and contract liabilities; c. Performance obligations, including when the entity typically satisfies its performance obligations and the transaction price that is allocated to the remaining performance obligations in a contract; and d. Significant judgments, and changes in judgments, made in applying the requirements to those contracts.
The Company offers no discounts, rebates, rights of return, or other allowances to clients which would result in the establishment of reserves against service revenue. Additionally, to date, the Company has not incurred incremental costs in obtaining a client contract.
Licensing Revenue
The Company recognizes licensing revenue under ASC 606-10-55-59. In order to determine whether the Company’s promise to provide a right to access or to use its intellectual property, the Company should consider the nature of the intellectual property to which the customer will have rights. Intellectual property is either:
| a. | Functional intellectual property. Intellectual property that has significant standalone functionality (for example, the ability to process a transaction, perform a function or task, or be played or aired). Functional intellectual property derives a substantial portion of its utility (that is, its ability to provide benefit or value) from its significant standalone functionality. |
| b. | Symbolic intellectual property. Intellectual property that is not functional intellectual property (that is, intellectual property that does not have significant standalone functionality). Because symbolic intellectual property does not have significant standalone functionality, substantially all of the utility of symbolic intellectual property is derived from its association with the entity’s past or ongoing activities, including its ordinary business activities. |
Intellectual property that has significant standalone functionality is functional IP. Functional IP is a right to use IP because the IP has standalone functionality and the customer can use the IP as it exists at a point in time.
The Company has adopted the Financial Accounting Standards Board (“FASB”) ASC 260-10, which provides for the calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.
The potentially dilutive common stock equivalents for the periods ended October 31, 2023 and 2022 were excluded from the dilutive loss per share calculation as they would be antidilutive due to the net loss. As of October 31, 2023 and 2022, there were and shares of common stock underlying our outstanding convertible notes payable and warrants, respectively.
9
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 2023
Fair Value of Financial Instruments
The carrying amounts of financial assets and liabilities, such as cash, accounts payable, short term loans, and the Company’s related party loan from a shareholder approximate their fair values because of the short maturity of these instruments.
Fixed Assets
Fixed assets are recorded at historical cost. Depreciation is computed on the straight-line method over the estimated useful lives of the respective assets. Gains and losses upon disposition are reflected in the condensed consolidated statements of operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred. Currently the Company’s only assets consist of three diving vessels and a magnetometer. They are being depreciated over three to twelve year useful lives.
Impairment of Long-Lived and Intangible Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses market quotes, if available or an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. Identified intangible assets are reviewed for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Stock Based Compensation to Employees and Service Providers
The Company recognizes all share-based payments to employees and service providers, including grants of employee stock options, as compensation expense in the condensed consolidated financial statements based on their fair values. That expense will be recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period) or immediately if the share-based payments vest immediately.
Convertible Debentures
The Company adopted the guidance in Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity on May 1, 2022. ASU 2020-06 simplifies an issuer’s accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. Additionally, ASU 2020-06 removes the requirements for accounting for beneficial conversion features. The Company adopted ASU 2020-06 utilizing the modified retrospective method, which resulted in an immaterial impact to the Company.
Customer Deposits
Customer
deposits discloses an amount paid by a customer prior to the Company providing it with goods or services. The Company has an obligation
to provide the goods or services to the customer or to return the money. The Company had $
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Recent Accounting Pronouncements
All other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future condensed consolidated financial statements.
10
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 2023
Note 4 – FIXED ASSETS
Fixed assets at October 31 and April 30, 2023 are summarized below:
| Fixed Assets | October 31, 2023 | April 30, 2023 | ||||||
| Diving Vessel | $ | $ | ||||||
| Magnetometer | ||||||||
| Diving Vessel (Boston Whaler) | ||||||||
| Diving Vessel (Commander) | ||||||||
| Accumulated Depreciation | ( | ) | ( | ) | ||||
| Fixed Assets, Net | $ | $ | ||||||
Depreciation
expense was $
Note 5 – NOTES PAYABLE
Related Party Convertible Loan
An
officer of the Company has provided a loan to TSR under a convertible promissory note. This convertible promissory note is unsecured,
non-interest bearing, and is convertible into common shares of the Company stock at $2.75 per share and due on demand. The balance due
to the officer was $
On April 20, 2022, the Company entered into a convertible note payable with an individual who is a member of the Company’s Board of Directors. The convertible note payable, with a face value of $50,000, bears interest at 10.0% per annum and was due on July 21, 2022. The convertible note payable is convertible upon default, at the note holder’s option, into the Company’s common shares at a fixed conversion rate of $0.05. The conversion of the note into shares of the Company’s common stock is potentially highly dilutive to current shareholders. If the note holder elects to sell the shares that it has acquired as a result of converting the note into shares of common stock, then any such sales may result in a significant decrease in the market price of the Company’s shares. This convertible promissory note was converted to common stock during the six months ended October 31, 2023.
Short Term Loans
As
of October 31 and April 30, 2023, the Company had a loan totaling $
On August 1, 2023, the Company entered into a convertible note payable with an individual who is a member of the Company’s Board of Directors. The note payable, with a face value of $50,000, bears interest at 10.0% per annum and is due on August 1, 2024. The convertible note payable is convertible upon default, at the note holder’s option, into the Company’s common shares at a fixed conversation rate of $0.01. The conversion of the note into shares of the Company’s common stock is potentially highly dilutive to current shareholders. If the note holder elects to sell the shares that it has acquired as a result of converting the note into shares of common stock, then any such sales may result in a significant decrease in the market price of the Company’s shares. This convertible promissory note is currently in default due to non payment of principal and interest.
Convertible Notes Payable
The following table reflects the convertible notes payable as of October 31 and April 30, 2023:
| Issue Date | Maturity Date | October 31, 2023 Principal Balance | April 30, 2023 Principal Balance | Rate | Conversion Price | |||||||||||
| Convertible notes payable | ||||||||||||||||
| $ | $ | |||||||||||||||
| Balance convertible notes payable | $ | $ | ||||||||||||||
11
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 2023
Note 6 – STOCKHOLDERS’ DEFICIT
Common Stock
In June of 2023, the Company’s Board of Directors voted to increase the authorized shares to .
Series A Preferred Stock
On May 1, 2020, the Company’s Board authorized the creation of Series A preferred shares. The Series A preferred shares will pay a quarterly payment based upon gaming revenue sharing, which all 100 Series A preferred shares will receive twenty percent of TSR’s portion of the game revenue from its game app., which equates to thirteen percent of total game gross revenues. Each Series A preferred share was priced at $4,000 with a minimum purchase of three Series A preferred shares and are only eligible to be purchased by accredited investors. Each Series A preferred share will receive one one hundredth of twenty percent of TSR game net as revenue sharing. Each Series A preferred share will continue to exist, unless the game app. is sold to another entity, at which time the Series A preferred shareholders will receive their same percentage of the game sales proceeds price, if or when such occurs. The Series A preferred shares are not convertible into common shares and are subject to all other restrictions on securities as set forth.
At October 31 and April 30, 2023, the Company had shares of Series A preferred shares outstanding.
Warrants
At April 30, 2023 there were warrants with a weighted average exercise price of $, weighted average remaining life of , and an average intrinsic value of $. There were no warrants granted during the six month period ended October 31, 2023. A total of warrants expired during the six month period ended October 31, 2023. At October 31, 2023, there were warrants with a weighted average exercise price of $, weighted average remaining life of , and an average intrinsic value of $.
Note 7 – COMMITMENTS AND CONTINGENCIES
Litigation
During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, Contingencies. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of October 31, 2023, the Company is not aware of any contingent liabilities that should be reflected in the condensed consolidated financial statements.
Media Use and License Agreement
On February 5, 2023, TSR entered into a Media Use and License Agreement with a corporation. Under the terms of the Media Use and License Agreement, TSR granted the user entity (the “Licensee”) an exclusive license to use photographic and video rights of TSR’s treasure recovery activities for use to publicize non-fungible token sales as well as appearances by TSR persons for such publication and sales. The authority to use the works includes the right to visit and photograph or video activities of TSR treasure recovery operations, interviews of TSR persons, crew or captains, as well as posts about the treasure industry by TSR on media channels provided by the Licensee and other media sources. TSR also agreed to allow the Licensee rights to purchase recovered objects or treasure as give aways or sales by the corporation to be negotiated upon recoveries being available by TSR after the 2023 treasure season. The Licensee agreed to pay to TSR an initial net rights fee of $85,000. TSR shall be owed a royalty from any net revenue to the Licensee for such amounts of sales over the initial rights payment in the amount of 30% for such net sales for any which shall be calculated within thirty days of annual year end 2023. TSR shall have the right to review all revenues and expenditures by the Licensee related to the Media Use and License Agreement.
Vessel Loan and Treasure Recovery Agreement
On March 5, 2023, the Company entered into a loan agreement with an individual. Under the terms of the loan agreement, the lender provided a loan to TSR toward the purchase price of a vessel at auction in the amount of $50,000 at a 0% per annum rate of interest. In exchange for the loan, TSR agreed to grant to the lender an amount of treasure recovered from the vessel for the 2023, 2024, and 2025 treasure recovery seasons, at a percentage of recovery from the gross amount, being 1% for each $10,000 loaned to TSR for such purchase up to a maximum of 5% for $50,000, or if less than an even $10,000 increment, then that fraction of such amount as a percentage. In addition, TSR shall allow the lender up to 3% of such treasure recovered for a fourth year, if such amount is lent up to such amount of $30,000 or more for such purchase. The lender was also given a lien on the vessel. This amount is recorded as a contingent liability on the condensed consolidated balance sheets.
12
Treasure & Shipwreck Recovery, Inc.
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
OCTOBER 31, 2023
Trademark and Usage Purchase Agreement Gaming and Media Rights Payments
TSR entered into a Trademark and Usage Purchase Agreement on March 5, 2020, Purchase of Trademark, Graphics, Related Media and Product Materials. Under the terms of the agreement TSR is obligated to pay ten percent of the gaming rights and five percent of television media revenue, which shall be for rights of the gaming name rights, as used in all such app, online or other gaming as owned by TSR and any television related media.
Note 8 – RELATED PARTY TRANSACTIONS
As
of October 31 and April 30, 2023, an officer of the Company has provided a loan to TSR under a convertible promissory note. This convertible
promissory note is unsecured, non-interest bearing, and is convertible into common shares of the Company stock at $2.75 per share and
due on demand. The balance due to the officer was $
In June of 2023, the issuer issued to a related party director, the amount of 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.
Note 9 – SUBSEQUENT EVENTS
None
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Financial information contained in this report and in our financial statements is stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
Description of Business
Treasure Shipwreck & Recovery, Inc. (“TSR”, “us,” “we,” the “Company”) is focused, through its wholly owned subsidiary TSR Holdings, Inc., on the exploration and recovery of historic shipwrecks. The Company has acquired various assets including a research vessel and specialized sensing equipment to be utilized to attempt to locate and eventually recover artifacts and treasure from historic shipwrecks, generally from the colonial era. The Company has acquired the intellectual property rights in a purchase agreement for the naming, trademark and use rights of Galleon Quest, from a third party to be used on Games and Apps, and merchandising of products.
Results of operations
We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities. However, there can be no assurances that we will be able to raise additional capital. Based on its historical rate of expenditures, the Company expects to expend its available cash in less than three months from December 20, 2023.
Summary of the Six Months Ended October 31, 2023 Results of Operations Compared to the Six Months Ended October 31, 2022 Results of Operations
Revenue
The Company did not generate any revenue during the six month periods ended October 31, 2023 and 2022.
Operating Expenses
Operating expenses were $387,861 during the six month period ended October 31, 2023 versus $267,516 during the six month period ended October 31, 2022, a year-over-year increase of approximately 45%. The Company incurred boat expenses of $93,200 during the six month period ended October 31, 2023 as compared to boat expenses of $69,845 during the same period in 2022, an increase of approximately 33%. Professional fees were $2,062 in 2023 versus $49,088 in 2022, a decrease of 96%. Consulting and accounting fees were $155,462 in 2023 and $84,378 in 2022, an increase of 84%. In 2023 general and administrative expenses were $30,719 and in 2022 they were $29,262, an increase of approximately 5%. Legal fees were $14,215 in 2023 and $19,115 in 2022, a year-over-year decrease of approximately 26%. There were $73,992 in labor expenses during the six month period ended October 31, 2023 and $10,585 in 2022. The increase in labor expense is attributable to increased exploration in 2023. Depreciation expenses were $8,611 in 2023 and $5,243 in 2022. Operating expenses increased in 2023 because the Company had expended significant resources preparing for and exploring in 2023. The Company is working with a new operations and diving partner that is more cost effective than previous partners.
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Other Income (Loss)
Interest expense was $32,107 during the six month period ended October 31, 2023 and $81,721 during the six month period ended October 31, 2022, a decrease of 61%. The decrease in interest expense in 2023 was a result of the conversion of several convertible notes.
Net Loss
For the six month period ended October 31, 2023 the Company incurred net losses of $419,968 versus net losses of $349,237 for the six month period ended October 31, 2022, a year-over-year increase of approximately 20%.
Summary of the Three Months Ended October 31, 2023 Results of Operations Compared to the Three Months Ended October 31, 2022 Results of Operations
Revenue
The Company did not generate any revenue during the three month periods ended October 31, 2023 and 2022.
Operating Expenses
Operating expenses were $143,973 during the three month period ended October 31, 2023 versus $160,264 during the three month period ended October 31, 2022, a year-over-year decrease of approximately 10%. The Company incurred boat expenses of $29,884 during the three month period ended October 31, 2023 as compared to boat expenses of $35,381 during the same period in 2022, a decrease of approximately 16%. Professional fees were $2,062 in 2023 versus $29,000 in 2022, a decrease of 93%. The decrease is attributable to a decrease in fees from capital raises. Consulting and accounting fees were $98,754 in 2023 and $60,892 in 2022, an increase of 62%. In 2023 general and administrative expenses were $4,752 and in 2022 they were $15,680, a decrease of approximately 70%. Legal fees were $4,215 in 2023 and $7,115 in 2022, a year-over-year decrease of approximately 41%. There were $0 in labor expenses during the three month period ended October 31, 2023 and $10,585 in 2022. The decrease is due to decreased exploration activities during the quarter ended October 31, 2023. Depreciation expenses were $4,306 in 2023 and $1,611 in 2022. Operating expenses decreased in 2023 because the Company is working with a new operations and diving partner that is more cost effective than previous partners.
Other Income (Loss)
Interest expense was $17,516 during the three month period ended October 31, 2023 and $40,615 during the three month period ended October 31, 2022, a decrease of 57%. The decrease in interest expense in 2023 was a result of the conversion of several convertible notes.
Net Loss
For the three month period ended October 31, 2023 the Company incurred net losses of $161,489 versus net losses of $200,879 for the period ended October 31, 2022, a year-over-year decrease of approximately 20%.
Liquidity and capital resources
As of October 31, 2023, our total assets were $153,343.
As of October 31, 2023, our current liabilities were $1,098,646 and Stockholders’ deficit was $945,303.
As of October 31, 2023 we had a net working deficit of $1,098,646.
Cash flows from operating activities
For the six months ended October 31, 2023 net cash flows used in operating activities was $306,722.
For the six months ended October 31, 2022 net cash flows used in operating activities was $237,681.
During the six month period ended October 31, 2023, the Company had a net loss, $419,968 versus $349,237 during the same period in 2022.
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Cash flows from investing activities
For the six months ended October 31, 2023 net cash flow used in investing activities was $0.
For the six months ended October 31, 2022 net cash flow used in investing activities was $0.
Cash flows from financing activities
For the six months ended October 31, 2023 we have generated $100,000 in cash flows from financing activities.
For the six months ended October 31, 2022 we have generated $192,000 in cash flows from financing activities.
We qualify as a “smaller reporting company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
For example, smaller reporting companies are not required to provide a compensation discussion and analysis under Item 402(b) of Regulation S-K or the auditor attestation of internal controls over financial reporting.
Future Financings
We will continue to rely on equity sales of the Company’s common shares in order to continue to fund business operations. Issuances of additional shares will result in dilution to existing shareholders. There is no assurance that the Company will achieve any additional sales of equity securities or arrange for debt or other financing to fund planned operations.
Liquidity and Capital Resources and Cash Requirements
As of the date of this report, the current funds available to the Company will not be sufficient to continue maintaining a reporting status. At October 31, 2023, the Company had a working capital deficit of $1,098,646. The Company is in immediate need of further working capital and is seeking options, with respect to financing, in the form of debt, equity or a combination thereof.
The Company may not be able to continue as a going concern. The report of our independent auditors for the years ended April 30, 2023 and 2022 raises substantial doubt as to our ability to continue as a going concern. If the Company is not able to continue as a going concern, it is highly likely that all capital invested in the Company will be lost.
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. Additionally, the Company will have to meet all the financial disclosure and reporting requirements associated with being a publicly reporting company. The Company’s management will have to spend additional time on policies and procedures to make sure it is compliant with various regulatory requirements, especially that of Section 404 of the Sarbanes-Oxley Act of 2002. This additional corporate governance time required of management could limit the amount of time management has to implement its business plan and impede the speed of its operations.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
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ITEM 4. CONTROLS AND PROCEDURES
Management’s Responsibility for Controls and Procedures
The Company’s management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. The Company’s controls over financial reporting are designed under the supervision of the Company’s President and Principal Financial Officer to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our President and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of October 31, 2023. Based on this evaluation, management concluded that our financial disclosure controls and procedures were not effective so as to timely record, process, summarize and report financial information required to be included on our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. However, as a result of our evaluation and review process, management believes that the financial statements and other information presented herewith are materially correct.
Internal Control Over Financial Reporting
As of October 31, 2023, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our internal control over financial reporting, as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 and based on the criteria for effective internal control described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (as revised). Based on our evaluation, management concluded that our internal control over financial reporting was not effective so as to timely record, process, summarize and report financial information required to be included on our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. However, as a result of our evaluation and review process, management believes that the financial statements and other information presented herewith are materially correct.
The management including its Principal Executive Officer/Principal Financial Officer, does not expect that its disclosure controls and procedures, or its internal controls over financial reporting will prevent all error and all fraud. A control system no matter how well conceived and operated, can provide only reasonable not absolute assurance that the objectives of the control system are met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
The Company has limited resources and as a result, a material weakness in financial reporting currently exists, because of our limited resources and personnel, including those described below.
| * | The Company has an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis. |
| * | We have not achieved the optimal level of segregation of duties relative to key financial reporting functions. |
| * | We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is managements view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over the Company’s financial statements. |
A material weakness is a deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) auditing standard 5) or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that a material weakness exists due to a lack of segregation of duties, resulting from the Company’s limited resources and personnel.
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Remediation Efforts to Address Deficiencies in Internal Control Over Financial Reporting
As a result of these findings, management, upon obtaining sufficient capital and operations, intends to take practical, cost-effective steps in implementing internal controls, including the possible remedial measures set forth below. As of October 31, 2023, we did not have sufficient capital and/or operations to implement any of the remedial measures described below.
| * | Assessing the current duties of existing personnel and consultants, assigning additional duties to existing personnel and consultants, and, in a cost effective manner, potentially hiring additional personnel to assist with the preparation of the Company’s financial statements to allow for proper segregation of duties, as well as additional resources for control documentation. |
| * | Assessing the duties of the existing officers of the Company and, in a cost effective manner, possibly promote or hire additional personnel to diversify duties and responsibilities of such executive officers. |
| * | Board to review and make recommendations to shareholders concerning the composition of the Board of Directors, with particular focus on issues of independence. The Board of Directors will consider nominating an audit committee and audit committee financial expert, which may or may not consist of independent members. |
| * | Interviewing and potentially hiring outside consultants that are experts in designing internal controls over financial reporting based on criteria established in Internal Control Integrated Framework issued by Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (as revised). |
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
(b) Change in Internal Control Over Financial Reporting
The Company has not made any change in our internal control over financial reporting during the six month period ended October 31, 2023.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation nor is it aware of any pending or threatened litigation against us.
On November 9, 2019, the Company filed a declaratory action in the Sixth Judicial Circuit Court for Pinellas County, Florida for the purpose of obtaining a judicial declaratory judgment as to the Company’s status under the Securities laws as to whether the Company has ever been a “Shell” Company under the Securities Laws. Pursuant to Chapter 86 of the Florida Statutes the Court will render a decision whether the Company had ever met the definition of being a shell company under Rule 405 of the Securities Act, so that all shareholders would be able to utilize Rule 144, and otherwise be able to enjoy complete ownership and sale of such shares. Such matter is being amended to supply exhibits in a new filing. With a change in designation from being a “shell risk” by OTCMarkets, such matter in court was no longer deemed necessary.
In May of 2023, TSR was sued in county court over a contract by the firm of Delmar which contends that TSR did not follow through on a contract for their services related to its regulation A offering in 2022. The Company has defended and is defending such on the basis that Del Mar never performed on its obligations and therefore was discharged on the contract. Such matter is pending motions by TSR in the county court. Such lawsuit is seeking $20,000 by Delmar.
ITEM 1A. RISK FACTORS
Not required.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are included as part of this report by reference:
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Treasure & Shipwreck Recovery, Inc. | ||
| Date: December 21, 2023 | By: | /s/ Craig Huffman |
| Craig
Huffman President, Chief Financial Officer and Principal Accounting Officer (Principal Executive Officer and Principal Accounting Officer) | ||
| Date: December 21, 2023 | By: | /s/ Patrick Schneider |
| Patrick
Schneider Director | ||
| Date: December 21, 2023 | By: | /s/ Frederick Conte |
| Frederick
Conte Director | ||
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