Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this Annual Report. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Annual Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors including, but not limited to, those noted under “Risk Factors” in this Annual Report.
We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report, except as required by U.S. federal securities laws.
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Overview
The Company’s U.S. subsidiary, Mighty Fire Breaker LLC (“MFB”) is currently engaged in developing solutions to support the resolution of the insurance crisis in the western United States by use of it’s EPA approved CitroTech products. MFB has developed and patented addition intellectual property in this regard, such as a system for commercial properties and homes that puts fire inhibiting buffer zone around a property blocking blown in embers from igniting. The technology continues to work dry which unlike other products allows for early deployment and evacuation of people. It also has developed a job site trailer allowing for the fire protection of the property during the construction phase and the fire hardening of the inner construction and installation of our patented system during that phase. Hopefully allow the owner to get insurance to start the project. The company also is continuing its USDA approval process. It has sold products to various fire departments and continues to demonstrate market its products.
Results of Operations
The following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended December 31, 2023, and 2022, which are included herein.
Our results of operations for the years ended December 31, 2023, and 2022 are summarized below:
Years Ended
December 31,
2023
2022
Change
Revenue
$ 520,645
$ 62,732
$ 457,913
Operating expenses
10,237,828
2,979,398
7,258,430
Other expenses
4,328
255
4,073
Net loss from continuing operations
$ (9,855,019 )
$ (2,918,814 )
$ 7,847,958
Income from discontinued operations
-
13,016
(13,016 )
Loss on disposition of digital currency and digital currency assets
-
(2,030 )
2,030
Net income from discontinued operations, net of tax
$ -
$ 10,986
$ (10,986 )
Net loss
$ (9,855,019 )
$ (2,907,828 )
$ (6,947,191 )
Revenue
Our Company generated $520,645 and $67,732 revenue for the years ended December 31, 2023, and 2022, respectively. The Company’s revenue is associated with revenue from Mighty Fire Breaker, LLC (“MFB”) which was acquired in April 2022.
Operating Expenses
For the year ended 31, 2023, the operating expenses consisted of stock-based management compensation of $180,000, professional fees - related party of $8,640,000, professional fees of $932,352, marketing expenses of $148,289 and general and administrative expenses of $337,187, compared to management compensation of $2,100,000, professional fees of $500,875, marketing expenses of $96,553 and general and administrative of $281,970 in the year ended December 31, 2022.
During the year ended December 31, 2022, the Company recorded management compensation of $2,100,000 related to Chief Executive Officer (CEO) for 70,000,000 restricted stock awards (the holder of the restricted stock shall be entitled to vote but is not entitled to dividends or disposal).
During the year ended December 31, 2023, the Company issued 1,200,000 shares of Convertible Series C Preferred Stock to a related party for consulting services rendered to the Company from October 2021 through July 2023. The Company valued the 1,200,000 shares of Convertible Preferred Stock, as if converted to 24,000,000 shares of common stock, using the quoted stock price of the Company’s common stock at approval date (November 1, 2022), resulting in a value of $8,640,000.
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On November 1, 2022, the Company’s Board of Directors approved the issuance of 250,000 shares of common stock to each of the two independent directors for their board services in support of the Company. As of December 31, 2023, the Company has not issued the shares. During the year ended December 31,2023, the Company valued the 500,000 shares of common stock at the market value of the Company’s common stock at approval date for the amount of $180,000.
Other expenses
For the years ended December 31, 2023, and 2022, the other expenses consisted of interest expense of $4,328 and $255 related to convertible notes and loan payable to lenders.
Discontinuing Operating Income (Expenses)
During the year ended December 31, 2022, loss on discontinued operations of $2,030 was the result of a loss on disposition of the Company’s digital currency assets, including equipment and digital currency, against a note payable issued as consideration for the equipment when it was previously acquired.
During the year ended December 31, 2022, income from discontinued operations of $13,016 was the result of the net income from the operations of crypto mining and the disposition of crypto mining which the Company implemented a plan to divest its crypto mining operations to focus its resources on the MFB acquisition.
Net Loss
As a result of the foregoing, we incurred a net loss of $9,855,019, for the year ended December 31, 2023, compared to a net loss of $2,907,828 for the corresponding year ended December 31, 2022.
Liquidity and Capital Resources
December 31,
December 31,
2023
2022
Change
Cash
$ 549,755
$ 55,434
$ 494,321
Current Assets
$ 1,218,056
$ 170,319
$ 1,047,737
Current Liabilities
$ 1,617,785
$ 1,060,918
$ 556,867
Working Capital (Deficiency)
$ (399,729 )
$ (890,599 )
$ 490,870
The decrease in working capital deficiency in 2023, was primarily the result of an increases in cash of $494,321, inventory of $115,552, accounts receivable of $427,433 and prepaid expenses of $10,431 offset by an increase in due to related parties of $409,924, promissory note of $120,000, convertible note of $19,000 and current portion of operating lease liability of $40,769 and a reduce in accounts payable and accrued liabilities of $76,657.
As of December 31, 2023, and 2022, the current assets consisted of cash of $549,755 and $55,434, inventory of $230,197 and $114,645, accounts receivable of $427,433 and $0, and prepaid expenses of $10,671 and 240, respectively.
As of December 31, 2023, and 2022, the current liabilities consisted of accounts payable and accrued liabilities of $54,572 and $87.398, due to related parties of $1,309,077 and $899,153, promissory note of $120,000 and $0, convertible note of $54,000 and $35,000, and current portion of operating lease liability of $80,136 and $39,367, respectively.
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Cash Flows
Years Ended
December 31,
2023
2022
Cash used in operating activities
$ (1,211,764 )
$ (708,450 )
Cash used in investing activities
$ (4,015 )
$ (5,349 )
Cash provided by financing activities
$ 1,710,100
$ 763,764
Net Change in Cash
$ 494,321
$ 49,965
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the year ended December 31, 2023, net cash flows used in operating activities was $1,211,764, consisting of a net loss of $9,855,019, reduced by stock-based compensation of $8,966,850, non-cash lease expenses of $71,349, depreciation of $1,263 and increased by changes in operating assets and liabilities of $396,207.
For the year ended December 31, 2022, net cash flows used in operating activities were $708,450, consisting of a net loss of $2,907,828, reduced by non-cash management compensation of $2,100,000, loss on disposition of digital currency and digital currency assets of $2,029, impairment loss on digital assets of $6,125, non-cash lease expense of $44,647, depreciation of $15,862 and reduced by an increase in changes in operating assets and liabilities of $30,175.
Cash Flows from Investing Activities
For the years ended December 31, 2023, and 2022, the cash flows used in investing activities were $4,015 and $5,350, which was related to the purchase of equipment and reduced by $0 and $1 share capital of Mighty Fire Breaker UK Limited (MFB). respectively.
Cash Flows from Financing Activities
For the year ended December 31, 2023, net cash provided by financing activities was $1,710,100, consisting of $307,500 received from a related party, $907,600 from issuance Convertible Series C Preferred Stock, $500,000 from stock subscriptions, $120,000 from promissory note and repayments of $125,000 to related party.
For the year ended December 31, 2022, net cash provided by financing activities was $763,764, consisting of $784,484 received from related parties, $35,000 from convertible note and repayments of $55,720 to related party.
Going Concern
The accompanying consolidated financial statements have been prepared (i) in accordance with accounting principles generally accepted in the United States, and (ii) assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated significant income to date. The Company is subject to the risks and uncertainties associated with a business with no substantive revenue, as well as limitations on its operating capital resources. These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. In light of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise capital and generate revenue and profits in the future.
Off-balance sheet arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
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Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.
Our most critical accounting policies and estimates relate to the following:
●
Revenue Recognition
●
Incremental borrowing rate for Right of Use Assets
●
Share based compensation
Revenue Recognition
Revenue is recognized when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligation generally of products used for lumber products for fire prevention. Revenue is recognized at a point in time, that is which the risks and rewards of ownership of the products transfer from the Company to the customer. All of our performance obligations under the terms of contracts with our customers have an original duration of one year or less.
Incremental borrowing rate for Right of Use Assets
As the Company’s operating leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate. The assessment of the Company’s incremental borrowing rate involves judgment regarding the cost of borrowing funds on a collateralized basis over a similar term and in a similar economic environment.
Share-Based Compensation
The Company accounts for employee and non-employee stock awards under ASC 718, Compensation – Stock Compensation, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to nonemployees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. Equity grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company,” this item is not required.
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