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 General Enterprise Ventures, Inc., (“GEVI,” “we,” “us,” or the “Company”) was originally incorporated in Nevada on March 14, 1990. Our principal executive offices are located at 1740H Del Range Blvd, Suite 166, Cheyenne, Wyoming 82009. We are an environmentally sustainable flame retardant and flame suppression company for the residential home industry throughout the United States. On January 3, 2022, the Company formed Mighty Fire Breaker, LLC, an Ohio limited liability company (“MFB Ohio”), to acquire all the intellectual property of Mighty Fire Breaker, LLC, a California limited liability company (“MFB California”) in connection with the flame retardant and flame suppression segments of the environmental industry, including patents and patents pending. On April 13, 2022, the transaction between the Company, MFB Ohio and MFB California closed. The transaction consideration to the equity holders of MFB California was 1,000,000 shares of the Series C Convertible Preferred Stock of the Company with a value at closing of $4,200,000, and a 10% royalty on gross sales before taxes of the MFB Ohio family of products. 24 Table of Contents Steve Conboy, who founded MFB California, has been in the lumber business for over 30 years. Approximately 10 years ago, he realized that residential and commercial fires, as well as wildfires, would not cease for the foreseeable future. Mr. Conboy understood that, even if lumber was treated, it was toxic by nature and this toxicity is harmful to humans and the environment. He realized that there was a market, and most importantly a need, for a product that was capable of fire suppression and being a fire retardant while also being the safest for the environment and for human beings. Mr. Conboy set out to develop a formula for a product that would meet these requirements. During the course of research and development, Mr. Conboy formed MFB California and contributed numerous patents toward development of a green product line that was envisioned many years ago. That product is its CitroTech MFB 31 Technology™. Since MFB Ohio acquired the MFB California portfolio of intellectual property, Company management has continued to develop many formulations to achieve the vision. In addition, the Company has been recognized and certified for their achievement. These recognitions and achievements, including twice receiving the EPA Safer Choice award and being the first and only EPA certified fire retardant, UL Certification, GreenGaurd Gold for no VOCs, other accreditations, and adoption by departments throughout the State of California. Our management is comprised of one individual, Joshua Ralston, who is our President, Chief Executive officer, Chief Financial Officer and Chairman of the Board of Directors.. Results of Operations The following summary of our results of operations should be read in conjunction with our unaudited interim financial statements for the three and nine months ended September 30, 2024 and 2023, which are included herein. Our results of operations for the three months ended September 30, 2024 and 2023 are summarized below: Three Months Ended September 30, 2024 2023 Change % Revenue $ 107,042 $ 174,710 $ (67,668 ) (39 %) Operating expenses 668,405 9,257,765 (8,589,360 ) (93 %) Other expense 93,875 1,760 92,115 5,234 % Net loss $ (655,238 ) $ (9,084,815 ) $ 8,429,577 (93 %) Revenue The Company’s revenue is associated with revenue from MFB Ohio which acquired intellectual property to fire suppression in April 2022. Although overall, the Company’s revenue has increased year to date, during the three months ended September 30, 2024, revenue decreased $68,000 over the three months ended September 30, 2023, due to decreased wildfire activity associated with cooler temperatures during the summer months of July 2024 and August 2024. 25 Table of Contents Operating Expenses Three Months Ended September 30, 2024 2023 Change % Cost of revenue $ 126,064 $ 103,290 $ 22,774 22 % Amortization and depreciation 63,647 62,152 1,495 2 % General and administration 194,381 87,530 106,851 122 % Advertising and marketing 172,667 18,656 154,011 826 % Management compensation - 180,000 (180,000 ) (100 %) Professional fees 111,646 8,806,137 (8,694,491 ) (99 %) Total operating expenses $ 668,405 $ 9,257,765 $ (8,589,360 ) (93 %) The decrease in operating expenses was primarily due to decreases in professional fee of $8.7 million and management compensation offset by increases in general and administration expense and management compensation. Cost of revenue Three Months Ended September 30, 2024 2023 Change % Cost of inventory $ 98,637 $ 79,919 $ 18,718 23 % Freight and shipping 1,171 - 1,171 - Consulting and advisory - related party 5,800 5,900 (100 ) (2 %) Royalty and sales commission - related party 20,456 17,471 2,985 17 % Total cost of revenue $ 126,064 $ 103,290 $ 22,774 22 % During the three months ended September 30, 2024, the cost of revenue slightly increased over the three months ended September 30, 2023, primarily due to an increase in cost of inventory. Cost of inventory consists of the sales of product, related supplies and direct testing our CitroTechproduct and various components required to for installation of Mighty Fire Breaker proactive wildfire defense systems. Cost of inventory increased during the three months ended September 30, 2024, primarily due to an increase in product sales and supplies and royalty and commission, from increased sales. Consulting and advisory services are to a related party company for services related to product installations. Freight and shipping relate to product shipped to customers. Royality and sales commissions decreased during the three months ended September 30, 2024 due to a decrease in revenue. The Company recognizes an allocated portion of consulting and direct labor costs associated with our revenue. General and administrative General and administrative expenses are office, rent, travel, insurance, website, IT and other office related expenses. For the three months ended September 30, 2024, the Company incurred increased expenditures on their website and IT development and travel as well as general office and insurance expenses from expansion of operations. 26 Table of Contents Advertising and marketing The increase in advertising and marketing during the three months ended September 30, 2024, over September 30, 2023, is primarily due to increased marketing expenses to support revenue growth. Professional fees The increase in professional fees during the three months ended September 30, 2024, over September 30, 2023, is primarily due to stock-base management compensation of $8.6 million. The Company issued 1,200,000 shares of Preferred C stock, for professional fees to a related party consultant, which is valued as if they are fully converted to 24 million shares of common stock on issuance, and based on closing stock prices resulted in an accounting valuation of $8,640,000. Other Expenses For the three months ended September 30, 2024 and 2023, the other expenses consisted of $93,875 and $1,760 interest related to convertible notes payable, respectively. Net loss The net loss for the three months ended September 30, 2024, decreased by $8.6 million as compared to the three months ended September 30, 2023 primarily due to the decrease in operating expenses, primarily stock based professional fees. Our results of operations for the nine months ended September 30, 2024 and 2023 are summarized below: Nine Months Ended September 30, 2024 2023 Change % Revenue $ 738,729 $ 258,660 $ 480,069 186 % Operating expenses 4,844,042 10,174,248 (5,330,206 ) (52 %) Other (income) expenses 977,039 2,519 974,520 38,687 % Net loss $ (5,082,352 ) $ (9,918,107 ) $ 4,835,755 (49 %) Revenue The Company’s revenue is associated with revenue from MFB Ohio which acquired intellectual property to fire suppression in April 2022. During the nine months ended September 30, 2024, the revenue increased $480,000 over the nine months ended September 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. 27 Table of Contents Operating Expenses Nine Months Ended September 30, 2024 2023 Change % Cost of revenue $ 342,075 $ 171,641 $ 170,434 99 % Amortization and depreciation 190,247 186,306 3,941 2 % General and administration 534,308 239,208 295,100 123 % Advertising and marketing 530,043 58,474 471,569 806 % Management compensation - 180,000 (180,000 ) (100 %) Professional fees 3,247,369 9,338,619 (6,091,250 ) (65 %) Total operating expenses $ 4,844,042 $ 10,174,248 $ (5,330,206 ) (52 %) The decrease in operating expenses was primarily attributed to decreases in profession fees of $6.1 million, management compensation of $180,000 offset by increases in cost of revenue of $170,000, advertising and marketing of $472,000 and general and administrative expenses of $295,000. Cost of revenue Nine Months Ended September 30, 2024 2023 Change % Cost of inventory $ 233,362 $ 110,680 $ 122,682 111 % Freight and shipping 9,321 10,425 (1,104 ) (11 %) Consulting and advisory-related party 16,200 26,700 (10,500 ) (39 %) Royalty and sales commission-related party 83,192 23,836 59,356 249 % Total cost of revenue $ 342,075 $ 171,641 $ 170,434 99 % During the nine months ended September 30, 2024, the cost of revenue increased over the nine months ended September 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 nine months ended September 30, 2024, primarily due to an increase in product sales and supplies and royalty and commission, from increased sales. Consulting and advisory services are to a related party company for services related to product installations. Freight and shipping relate to product shipped to customers. Royality and sales commissions increased in the nine months ended September 30, 2024 from more revenue. The Company recognizes an allocated portion of consulting and direct labor costs associated with our revenue. General and administrative General and administrative expenses are office, rent, travel, insurance, website, IT and other office related expenses. For the nine months ended September 30, 2024, the Company incurred increased expenditures on their website and IT development and travel as well as general office and insurance expenses from expansion of operations. 28 Table of Contents Advertising and marketing The increase in advertising and marketing during the nine months ended September 30, 2024, over September 30, 2023, is primarily due to stock-based compensation for services of $160,000 and increased expenses to support revenue growth. Professional fees The decrease in professional fees during the nine months ended September 30, 2024, over September 30, 2023, is primarily due to stock-base management compensation of $1.4 million and stock-based services compensation of $1.2 million in 2024 over stock-base management compensation of $8.6 million in 2023. Other Expenses For the nine months ended September 30, 2024 and 2023, the other expenses consisted of $94,760 and $2,519 interest related to convertible notes payable and loss on settlement of debt of $882,279 and $0, respectively. Net loss The net loss for the nine months ended September 30, 2024, decreased by $4.8 million as compared to the nine months ended September 30, 2023 primarily due to the decrease in operating expenses, primarily from stock-based professional fees. Liquidity and Capital Resources Sources of Liquidity Since our inception, we have incurred significant operating losses and negative cash flows from our operations. Our net loss was $0.9 million and $10.1 million for the nine months ended September 30, 2024 and the year ended December 31, 2023, respectively. During July and August 2024, we completed a debt offering which generated net proceeds of $1.1 million, of which $0.75 million was advanced on or before June 30, 2024. Working capital September 30, December 31, 2024 2023 Change % Cash $ 309,129 $ 549,755 $ (240,626 ) (44 %) Current Assets $ 1,110,368 $ 1,218,056 $ (107,688 ) (9 %) Current Liabilities $ 2,113,132 $ 1,617,785 $ 495,347 31 % Working Capital (Deficiency) $ (1,002,764 ) $ (399,729 ) $ (603,035 ) 151 % As of September 30, 2024 and December 31, 2023, the current assets consisted of cash of $309,000 and $550,000, inventory of $271,000 and $230,000, accounts receivable of $430,000 and $427,000, prepaid expenses of $43,000 and $11,000, and deferred offering costs of $57,000 and $0, respectively. 29 Table of Contents As of September 30, 2024 and December 31, 2023, the current liabilities consisted of accounts payable and accrued liabilities of $154,000 and $55,000, due to related parties of $1.3 million and $1.3 million, convertible notes of $633,000 and $54,000, and current portion of operating lease liability of $71,000 and $80,000, respectively. 2024 versus 2023 The increase in working capital deficiency in 2024 was primarily the result of advances for convertible notes. The Company had net loss and negative cash flows from our operations. In 2024, the Company generated funds from more debt financing than equity financing, therefore, current liabilities increased more than current assets. Cash Flows Nine Months Ended September 30, 2024 2023 Change Cash used in operating activities $ (1,319,815 ) $ (819,936 ) $ (499,879 ) Cash used in investing activities $ - $ (2,231 ) $ 2,231 Cash provided by financing activities $ 1,079,189 $ 1,332,600 $ (253,411 ) Net Change In Cash $ (240,626 ) $ 510,433 $ (751,059 ) Cash Flows from Operating Activities We have not generated positive cash flows from operating activities. For the nine months ended September 30, 2024, net cash flows used in operating activities consisted of a net loss of $5.1 million, reduced by stock-based compensation of $2.6 million , non-cash lease expenses of $60,000, amortization and depreciation of $190,000, loss on settlement of debt of $882,000 and increased by net changes in operating assets and liabilities of $1. For the nine months ended September 30, 2023, net cash flows used in operating activities consisted of a net loss of $9.9 million, reduced by stock-based compensation of $9.0 million, amortization and depreciation of $186,000, non-cash lease expenses of $52,000 and reduced by net changes in operating assets and liabilities of $107,000. Cash Flows from Investing Activities The Company did not use any funds for investing activities during the nine months ended September 30, 2024. For the nine months ended September 30, 2023, the cash flows used in investing activities were $2,231, which was related to the purchase of equipment. Cash Flows from Financing Activities For the nine months ended September 30, 2024, net cash provided by financing activities consisted of $165,000 proceed from issuance Series C Preferred Stock, $1.0 million from convertible promissory notes and warrants, $57,000 deferred offering cost payment and $60,000 repayment of loan - related party. 30 Table of Contents For the nine months ended September 30, 2023, net cash provided by financing activities consisted of $305,000 received from a related party, $907,600 from preferred stock subscriptions and $120,000 from promissory note. 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 September 30, 2024: Year ending December 31, 2024 (excluding the nine months ended September 30, 2024) $ 21,798 2025 50,862 Thereafter - 72,660 Less: Imputed interest (1,737 ) Operating lease liabilities $ 70,923 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. Future Capital Requirements Our current available cash and cash equivalents are insufficient to satisfy our liquidity requirements. Our capital requirements for the fiscal year ending December 31, 2024, will depend on numerous factors, including management’s evaluation of the timing of projects to pursue. Subject to our ability to generate revenues and cash flow from operations and our ability to raise additional capital (including through possible joint ventures or partnerships), we expect to incur substantial expenditures to carry out our business plan, as well as costs associated with our capital raising efforts and being a public company. Our plans to finance our operations include seeking equity and debt financing, alliances or other partnership agreements, or other business transactions that would generate sufficient resources to ensure the continuation of our operations. The sale of additional equity or debt securities may result in further dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our Common Stock and could contain covenants that would restrict our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned activities and limit our operations, which could have a material adverse effect on our business, financial condition, and operations results. 31 Table of Contents Contingencies Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. In consultation with its legal counsel as appropriate, our management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is likely, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. 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 product used for lumber product for fire prevention. Revenue is recognized at a point in time, that is which the risks and rewards of ownership of the product 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. 32 Table of Contents 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.