CitroTech Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. We caution that the factors described herein, and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Our audited financial statements are stated in United States Dollars (USD) and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock. As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean General Enterprise Ventures, Inc. General Overview The Company’s U.S. subsidiary, Mighty Fire Breaker LLC (“MFB”) is engaged in developing solutions to support the resolution of the insurance crisis in the western United States by use of its EPA approved CitroTech products. MFB has developed and patented additional intellectual property in this regard, such as a system for commercial properties and homes that puts a 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. MFB also has developed a job site trailer allowing for the fire protection of property during the construction phase and fire hardening of the inner construction and installation of our patented system during that phase. The intent is for the home owner to be able to bind insurance to start a construction project. The Company has achieved USDA approval. It has sold products to various fire departments and continues to demonstrate a market for its products. 21 Table of Contents Results of Operations The following summary of our results of operations should be read in conjunction with our unaudited interim financial statements for the period ended June 30, 2024, which are included herein. Our operating results for the three and six months ended June 30, 2024 and 2023 and the changes between those periods for the respective items are summarized as follows: Results of Operations for the three months ended June 30, 2024 and the three months ended June 30, 2023 Three Months Ended June 30, 2024 2023 Change Revenue $ 198,669 $ 28,355 $ 170,314 Operating expenses 1,106,073 445,641 660,432 Other expense - 584 (584 ) Net loss $ (907,404 ) $ (417,870 ) $ 489,534 Revenue The Company’s revenue is associated with revenue from Mighty Fire Breaker, LLC, an Ohio limited liability company (“MFB Ohio’) which acquired intellectual property to fire suppression in April 2022. During the three months ended June 30, 2024, the revenue increased $170,314 over the three months ended June 30, 2023, due to MFBs EPA approval and the filing of additional patents. With the EPA approval, MFB started the marketing phase of the Company’s evolution. MFB started selling directly to fire departments and launched its proactive wild-fire defense systems and is gaining momentum with commercial customers, along with attempting to influence the insurance industry to the benefit of consumers. Operating Expenses Three Months Ended June 30, 2024 2023 Change % Cost of revenue $ 89,939 $ 28,576 $ 61,363 215 % Amortization and depreciation 62,765 62,079 686 1 % General and administration 199,459 76,886 122,573 159 % Advertising and marketing 247,170 28,217 218,953 776 % Professional fees 506,740 249,883 256,857 103 % Total operating expenses $ 1,106,073 $ 445,641 $ 660,432 148 % The increase in operating expenses was primarily attributed to cost of revenue of $61,000, professional fees of $257,000, advertising and marketing of $219,000 and general and administrative expenses of $123,000. Cost of revenue Three Months Ended June 30, 2024 2023 Change % Cost of inventory $ 58,529 $ 4,607 $ 53,922 1170% Freight and shipping 5,620 9,334 (3,714 ) (40%) Consulting and advisory - related party 6,200 11,800 (5,600 ) (47%) Royalty and sales commission - related party 19,590 2,835 16,755 591 % Total cost of revenue $ 89,939 $ 28,576 $ 61,363 215 % 22 Table of Contents During the three months ended June 30, 2024, the cost of revenue increased $61,000 over the three months ended June 30, 2023, primarily due to an increase in cost of inventory and royalty and sales commissions. Cost of inventory consists of the sales of product, related supplies and direct testing our CitroTech™ product and various components required to for installation of Mighty Firebreaker proactive wildfire defense systems. Cost of inventory increased during the three months ended June 30, 2024, primarily due to an increase in product sales and supplies and royalty and commission, from increased sales. Royality and sales commissions increased in the three months ended June 30, 2024 from more revenue. The Company recognizes an allocated portion of consulting and direct labor costs associated with our revenue. Professional fees The increase in professional fees during the three months ended June 30, 2024, of $257,000 over June 30, 2023, is primarily due to stock-based services compensation of $200,000 and professional fees of $57,000 for maintaining reporting status with the Securities and Exchange Commission (“SEC”). Advertising and marketing The increase in advertising and marketing during the three months ended June 30, 2024, of $219,000 over June 30, 2023, is primarily due to stock-based service compensation of $160,000 and increased expenses to support revenue growth. Other Expenses For the three months ended June 30, 2023, the other expense consisted of interest related to convertible note payable. Net loss The net loss for the three months ended June 30, 2024, increased by $490,000 as compared to the three months ended June 30,2023 primarily due to the increase in operating expenses, primarily from stock-based compensation and professional fees for maintaining reporting status with the Securities and Exchange Commission (“SEC”). Results of Operations for the six months ended June 30, 2024 and the six months ended June 30, 2023 Six Months Ended June 30, 2024 2023 Change Revenue $ 631,687 $ 83,950 $ 547,737 Operating expenses 4,175,637 916,484 3,259,153 Other expenses 883,164 759 882,405 Net loss $ (4,427,114 ) $ (833,293 ) $ 3,593,821 Revenue The Company’s revenue is associated with revenue from Mighty Fire Breaker, LLC, an Ohio limited liability company (“MFB Ohio’) which acquired intellectual property to fire suppression in April 2022. During the six months ended June 30, 2024, the revenue increased $548,000 over the six months ended June 30, 2023, due to MFB Ohio’s EPA approval and the filing of additional patents. With the EPA approval, MFB Ohio started the marketing phase of the company’s evolution. MFB Ohio started selling directly to fire departments and launched its proactive wild-fire defense systems and is gaining momentum with commercial customers, along with attempting to influence the insurance industry to the benefit of consumers. 23 Table of Contents Operating Expenses Six Months Ended June 30, 2024 2023 Change % Cost of revenue $ 216,011 $ 68,351 $ 147,660 216 % Amortization and depreciation 126,600 124,155 2,445 2 % General and administration 339,927 151,678 188,249 124 % Advertising and marketing 357,376 39,818 317,558 798 % Professional fees 3,135,723 532,482 2,603,241 489 % Total operating expenses $ 4,175,637 $ 916,484 $ 3,259,153 356 % The increase in operating expenses was primarily attributed to increases in cost of revenue of $148,000, professional fees of $2.6 million, advertising and marketing of $318,000 and general and administrative expenses of $188,000. Cost of revenue Six Months Ended June 30, 2024 2023 Change % Cost of inventory $ 134,725 $ 30,761 $ 103,964 338 % Freight and shipping 8,150 10,425 (2,275 ) (22%) Consulting and advisory-related party 10,400 20,800 (10,400 ) (50%) Royalty and sales commission-related party 62,736 6,365 56,371 886 % Total cost of revenue $ 216,011 $ 68,351 $ 147,660 216 % During the six months ended June 30, 2024, the cost of revenue increased $148,000 over the six months ended June 30, 2023, primarily due to an increase in cost of inventory and royalty and sales commissions. Cost of inventory consists of the sales of product, related supplies and direct testing our CitroTech™ product and various components required to for installation of Mighty Firebreaker proactive wildfire defense systems. Cost of inventory increased during the six months ended June 30, 2024, primarily due to an increase in product sales and supplies and royalty and commission, from increased sales. Royality and sales commissions increased in the six months ended June 30, 2024 from more revenue. The Company recognizes an allocated portion of consulting and direct labor costs associated with our revenue. Professional fees The increase in professional fees during the six months ended June 30, 2024, of $2.6 million over June 30, 2023, is primarily due to stock-base management compensation of $1.4 million and stock-based services compensation of $1.2 million. 24 Table of Contents Advertising and marketing The increase in advertising and marketing during the six months ended June 30, 2024, of $318,000 over June 30, 2023, is primarily due to stock-based compensation for services of $160,000 and increased expenses to support revenue growth. Other Expenses For the six months ended June 30, 2024 and 2023, the other expenses consisted of $885 and $759 interest related to convertible note payable and loss on settlement of debt of $882,279 and $0, respectively. Net loss The net loss for the six months ended June 30, 2024, increased by $3.6 million as compared to the six months ended June 30, 2023 primarily due to the increase in operating expenses, primarily from stock-based compensation and professional fees for maintaining reporting status with the Securities and Exchange Commission (“SEC”). Liquidity and Capital Resources June 30, December 31, 2024 2023 Change Cash $ 546,555 $ 549,755 $ (3,200 ) Current Assets $ 1,435,644 $ 1,218,056 $ 217,588 Current Liabilities $ 2,131,001 $ 1,617,785 $ 513,216 Working Capital (Deficiency) $ (695,357 ) $ (399,729 ) $ (295,628 ) The increase in working capital deficiency in 2024 was primarily the result of an increase in accounts receivable of $223,000, prepaid expenses of $791, deferred offering cost of $35,000 and a decrease in cash of $3,200, inventory of 38,000 offset by an increase in accounts payable and accrued liabilities of $46,000, operating lease liability-current portion of $3,900, advances payable of $695,000 and a decrease in promissory note of $120,000, convertible note of $54,000 and due to related party of $58,000. As of June 30, 2024, and December 31, 2023, the current assets consisted of cash of $547,000 and $550,000, inventory of $192,000 and $230,000, accounts receivable of $651,000 and $427,000, prepaid expenses of $11,000 and $11,000, and deferred offering costs of $35,000 and $0 respectively. As of June 30, 2024, and December 31, 2023, the current liabilities consisted of accounts payable and accrued liabilities of $101,000 and $55,000, due to related parties of $1.3 million and $1.3 million, convertible note of $0 and $54,000, promissory note of $0 and $120,000, advances of $695,000 and $0, and operating lease liability-current portion of $84,000 and $80,000, respectively. Cash Flows Six Months Ended June 30, 2024 2023 Cash used in operating activities $ (768,525 ) $ (423,890 ) Cash used in investing activities $ - $ - Cash provided by financing activities $ 765,325 $ 454,600 Net Change In Cash $ (3,200 ) $ 30,710 25 Table of Contents Cash Flows from Operating Activities We have not generated positive cash flows from operating activities. For the six months ended June 30, 2024, net cash flows used in operating activities consisted of a net loss of $4.4 million, reduced by stock-based compensation of $2.8 million , non-cash lease expenses of $40,000, amortization and depreciation of $127,000, loss on settlement of debt of $882,000 and increased by net changes in operating assets and liabilities of $148,000. For the six months ended June 30, 2023, net cash flows used in operating activities consisted of a net loss of $833,000, reduced by stock-based compensation of $147,000, amortization and depreciation of $124,000, non-cash lease expenses of $30,000 and reduced by net changes in operating assets and liabilities of $108,000. Cash Flows from Investing Activities The Company did not use any funds for investing activities during the six months ended June 30, 2024 and 2023. Cash Flows from Financing Activities For the six months ended June 30, 2024, net cash provided by financing activities consisted of $165,000 proceed from issuance Series C Preferred Stock, $695,000 advances received from eleven (11) lenders in cash for issuance of convertible promissory notes and warrants, $35,000 deferred offering cost payment and $65,000 repayment of loan -related party. For the six months ended June 30, 2023, net cash provided by financing activities consisted of $275,000 received from a related party and $179,600 received from Series C Preferred Stock subscription. Contractual Obligations Lease Agreements The Company has one lease classified as an operating lease for an office and warehouse purpose. The following table outlines maturities of our lease liabilities as of June 30, 2024: Year ending December 31, 2024 (excluding the six months ended June 30, 2024) $ 43,396 2025 50,862 Thereafter - 94,258 Less: Imputed interest (2,994 ) Operating lease liabilities $ 91,264 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. 26 Table of Contents 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 revenues currently consist 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. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company”, we are not required to provide the information required by this Item.