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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-04-15 · 190 added, 71 removed, 30 unchanged (90% of the section changed)

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.

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.

The Company was originally incorporated in Nevada on March 14, 1990.

Our offices are located at 1740H Del Range Blvd, Suite 166, Cheyenne, Wyoming 82009.

Our telephone number is (800) 401-4535, and our email address is welcome@generalenterpriseventures.com.

Our website is www.generalenterpriseventures.com and www.mightyfirebreaker.com.

We do not incorporate the information on or accessible through our website into this Registration Statement, and you should not consider any information on, or that can be accessed through, our website a part of this Registration Statement.

We are an environmentally sustainable fire retardant and fire suppression company throughout the United States.

Management is highly experienced at business integration and re-branding potential.

Our brand will be unique as we focus on markets in need of development.

We operate one line of business, which is sales and services relating to the CitroTech flame retardant and flame suppression product.

Since MFB Ohio acquired the MFP portfolio of intellectual property on April 13, 2022 (“MFB”).

MFB owns 33 patents and has 49 patents pending in and for the flame retardant and flame suppression industry.

Our fire retardant and fire suppression product helps slow, stop and prevent wildfires.

This product is typically applied ahead of an active wildfire to stop or slow its spread.

Our product is differentiated by a high level of retardant and suppression effectiveness.

While fire retardant and is primarily used to stop or slow the spread of wildfires, our product is also utilized in a fire preventative capacity.

Since the wildfires in Los Angeles, California during January 2025, western U.S.

states are becoming diligent in wildfire prevention efforts and increasing investments to prevent wildfire risk.

Our management is comprised of two individuals, Joshua Ralston, who is our President, Chief Executive officer, Chief Financial Officer and Chairman of the Board of Directors, and Stepheon Conboy, our Chief Technology Officer.

Known Trends and Uncertainties

Growth in Fire Safety

We believe that fire safety benefits from several growth drivers, including increasing fire severity, as measured by higher acres burned, longer fire seasons and a growing urban component, resulting in a need for higher quantity of fire retardant and fire suppression use per acre, thereby increasing production.

We believe these trends are prevalent in North America, as well as globally and we expect these trends to continue and drive growth in demand for fire retardant and fire suppression products.

We are working to grow our fire prevention and protection business, which is primarily focused on expanding use of ground-applications for long-term fire retardant.

This growth includes use of ground assets in response to active fires (protection), as well as proactive treatments around critical infrastructure and known high-risk areas (prevention).

Fire prevention products can be used to prevent fire ignitions and protect property from potential fire danger by providing proactive retardant treatment in high-risk areas such as residential neighborhoods and commercial infrastructure.

Treating these areas ahead of the fire season can potentially stop ignitions from equipment failures or sparks.

We have invested and intend to continue investing in the expansion of our fire retardant and fire suppression business through product development and business development to grow our customer base.

Weather Conditions and Climate Trends

Our business is highly dependent on the needs of residential homeowners and fire departments to prevent and suppress fires.

As such, our financial condition and results of operations are significantly impacted by weather as well as environmental and other factors affecting climate change, which impact the number and severity of fires in any given year.

Typically, sales of our product is higher during the summer months in the United States of America due to weather patterns that are generally correlated to a higher prevalence of wildfires.

We believe, however, that due to the effect of the wildfires in Los Angeles, California during January 2025, and the more common wildfire season during the summer months that product orders will continue at the current rate throughout calendar year 2025.

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.

The Company is in the early stage of developing and commercializing their product lines.

The Company has been focused historically on obtaining patents and various accreditations.

To date, the Company does not have a large customer base, having relied heavily on a few customers, for the commercialization and testing of our CitroTech products and delivery systems.

The Company currently does not have an established retail product line nor recurring significant customer base.

Therefore, period over period comparisons of our results of operations are not indicative of future results.

The following summary of our results of operations should be read in conjunction with our audited financial statements for the years ended December 31, 2024 and 2023, which are included herein.

Our results of operations for the years ended December 31, 2024 and 2023 are summarized below:

Operating expenses

Other expenses

Net loss from continuing operations

$ (9,855,019 )

$ (2,918,814 )

Income from discontinued operations

Loss on disposition of digital currency and digital currency assets

Net income from discontinued operations, net of tax

$ (9,855,019 )

Other (income) expenses

$ (6,881,722 )

$ (10,102,266 )

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.

The Company’s revenue is associated with revenue from MFB Ohio which acquired intellectual property to fire suppression in April 2022.

During the year ended December 31, 2024, the revenue increased $290,000 from the year ended December 31, 2023, largely due to the commercialization of our CitroTech products following entry into a Partnership Agreement with the EPA, dated August 22, 2022 (the “EPA Agreement”).

After entering into the EPA Agreement and the granting of many of our patents, the Company commenced more on the commercialization of our CitroTech products.

Through a few concentrated customers we sold more of our product as customers bought our systems and CitroTech products for their own internal testing and product usage.

Our revenues consisted of the following:

Products sale

Product installation service

Our revenues from significant customers for the year ended December 31, 2024 and 2023, are as follows:

Percentage of products sale

Percentage of installation service

Total (as a group)

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.

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.

Cost of revenue

Amortization and depreciation

General and administration

Advertising and marketing

Management compensation

Professional fees

Research and development

Total operating expenses

$ (4,505,533 )

The decrease in operating expenses was primarily attributed to decreases in profession fees of $5.9 million, management compensation of $105,000, partially offset by increases in cost of revenue of approximately $395,000, advertising and marketing of approximately $857,000 and general and administrative expenses of approximately $242,000.

Cost of revenue

Cost of inventory

Freight and shipping

Consulting and advisory-related party

Royalty and sales commission-related party

Total cost of revenue

During the year ended December 31, 2024, the cost of revenue increased over the year ended December 31, 2023, primarily due to an increase in cost of inventory and royalty and sales commissions.

Cost of inventory consists of product costs, related supplies and direct testing our CitroTech product and various components required to for installation of Mighty Fire Breaker proactive wildfire defence systems.

Cost of inventory increased during the year ended December 31, 2024, primarily due to an increase in product sales and supplies from increased sales.

Consulting and advisory services are to a related party company for services related to product installations.

Freight and shipping relate to costs for shipping products to customers.

Royalty and sales commissions increased in the year ended December 31, 2024 from more revenue.

The Company recognizes an allocated portion of consulting and direct labor costs associated with our revenue as royalty and sales cost of revenue.

Rent expenses are warehouse rent expenses.

The increase in rent expense is because the Company leased commercial space for office, retail and warehousing from March 2024 under a one year contract.

Amortization and depreciation

Amortization and depreciation expenses are an amortization of patents and a depreciation of vehicle and furniture and equipment.

General and administrative

General and administrative expenses are office, rent, travel, insurance, website, IT and other office related expenses.

For the year ended December 31, 2024, the Company incurred increased expenditures on our website and IT development and travel as well as general office and insurance expenses from expansion of operations.

Advertising and marketing

The increase in advertising and marketing during the year ended December 31, 2024, over December 31, 2023, is primarily stock-based compensation for marketing and services of $660,000 and increased expenses to support revenue growth.

The Company issued 83,333 shares of Series C Convertible Stock, valued at $500,000 for a NASCAR sponsorship and 250,000 shares of Common Stock, valued at $160,000 for compensation of marketing services provided.

Professional fees

The professional fees during the year ended December 31, 2024 primarily included stock-based management compensation of $1.4 million to advisors to our subsidiary MFB and stock-based compensation of $1.0 million to various consultants for IT service for software development, legal on patents and other consulting services in 2024.

During 2023, the Company issued 1,200,000 shares of Series C Preferred Stock for professional fees to a related party consultant (TC Special Investments, LLC (“TCSI”)), which is valued as if they are fully converted to 24 million shares of common stock upon issuance, using the quoted stock price of the Company’s common stock at approval date (November 1, 2022), resulted in an accounting valuation of $8,640,000.

TCSI’s consulting services to the Company include sales and business development, customer relationship management, strategy optimization, investor relations, underwriter interface, coordinating outside counsel and other business aspects at the request of the Board of Directors.

In addition to TCSI, stock-based compensation was remitted to certain individuals with fire retardant and flame suppression industry experience, who provided guidance and insight to the Company’s management and Board of Directors with respect to the fire retardant and flame suppression industry, business development connections, and oversight during the testing and recognition processes.

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.

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.

For the year ended December 31, 2024 and 2023, the other expenses consisted of $258,000 and $4,000 interest related to convertible notes payable issued in 2024, respectively, change in fair value of derivative liability related to convertible notes payable issued in 2024 of $410,000 and $0, respectively, and loss on settlement of notes payable and convertible note issued in 2022 of $909,000 and $0, respectively.

The net loss for the year ended December 31, 2024, decreased by approximately $3.2 million as compared to the year ended December 31, 2023 primarily due to the decrease in operating expenses, primarily from stock-based professional fees, partially offset by an increase in other expenses.

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 $6.9 million and $10.1 million for the years ended December 31, 2024 and 2023, respectively.

During fiscal year 2024, we completed a debt offering and an equity offering which generated net proceeds of approximately $1.2 million and $1.8 million respectively.

Working capital

Current assets

1 unchanged sentence

Working capital (deficiency)

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.

As of December 31, 2024 and 2023, the current assets consisted of cash of $$775,000 and $550,000, respectively, inventory of $325,000 and $230,000, respectively accounts receivable of $317,000 and $427,000, respectively, prepaid expenses of $74,000 and $11,000, respectively, and deferred offering costs of $126,000 and $0, respectively.

As of December 31, 2024 and 2023, the current liabilities consisted of accounts payable and accrued liabilities of $187,000 and $55,000, respectively, due to related parties of $0 and $1.3 million, respectively, promissory note of $0 and $120,000, respectively, convertible notes net of discount of $196,000 and $54,000, respectively, convertible note – related party of $577,000 and $0, respectively, financing loan of $97,000 and $0, respectively, derivative liability of $1,055,000 and $0, respectively, and current portion of operating lease liability of $50,000 and $80,000, respectively.

The increase in working capital deficiency in 2024 was primarily due to the convertible notes and derivative liability related to 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.

For the year ended December 31, 2024 and 2023

Cash used in operating activities

$ (1,937,651 )

$ (1,211,764 )

Cash used in investing activities

1 unchanged sentence

Net Change in cash

Cash Flows from Operating Activities

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.

For the year ended December 31, 2024, net cash flows used in operating activities consisted of a net loss of $6.9 million, reduced by stock-based compensation of $3.1 million, non-cash lease expenses of $80,000, bad debt expense of $23,000, amortization and depreciation of $265,000, amortization of debt discount of $196,000, loss on settlement of debt of $909,000, and changes in derivative liability of $410,000, which were increased by net changes in operating assets and liabilities of $3,000.

For the year ended December 31, 2023, net cash flows used in operating activities was $1.2 million, consisting of a net loss of $10 million, reduced by stock-based compensation of $9 million, non-cash lease expenses of $71,000, and amortization and depreciation of $249,000, which were increased by net changes in operating assets and liabilities of $396,000.

Investing Activities

The Company did not use any funds for investing activities during the year ended December 31, 2024.

For the year ended December 31, 2023, the cash flows used in investing activities were $4,015, which was related to the purchase of equipment.

Financing Activities

For the year ended December 31, 2024, net cash provided by financing activities consisted of $1.8 million proceeds from the issuance of Series C Convertible Preferred Stock, $1.2 million from the issuance of convertible promissory notes and associated warrants in fourth quarter of 2024, $2,000 received from a related party, $126,000 deferred offering cost payment, repayment of a financing loan of $23,000, and $741,000 from a repayment of loan from a related party.

The basic terms of the convertible promissory notes issued in third and fourth quarter of 2024 are:

(i) a 12-month term;

(ii) interest of 10% per annum, compounded annually;

and (iii) voluntary conversion during the term at a conversion price of $0.40 for each dollar of principal amount.

The associated warrants are exercisable for a period of 5 years from the issuance date, for an aggregate of up to 1,620,000 shares at an exercise price of $0.50.

For the year ended December 31, 2023, cash provided by financing activities consisted of $308,000 received from a related party for funding operating costs without interest and due on demand, $908,000 from issuance of Series C Convertible Preferred Stock, $500,000 from stock subscriptions, $120,000 from promissory notes and repayments of $125,000 to a related party.

Contractual Obligations

Convertible notes

In third and fourth quarter 2024, the Company entered into twenty (20) subscription agreements for convertible notes ($1,296,000) and warrants (1,620,000 shares of common stock).

The material terms of this convertible note indebtedness are, (i) a 12-month maturity;

(ii) 10% interest per annum, capitalized on the maturity date;

(iii) conversion rights in the amount of the principal, either (x) divided by 0.40 or (y) a 30% discount to the price sale of its Common Stock pursuant to a registration statement filed with the SEC and listing of the Common Stock on national securities exchange;

and (iv) warrant coverage for five years at the rate of 1.25 shares of Common Stock for each dollar of principal, at an exercise price of $0.50 per share.

Convertible notes – related party

On December 31, 2024, the Company issued convertible note of $577,000 to a related party, in exchange for the amount due to related party.

The convertible note has a term of twelve (12) months, at an interest rate of 10% per annum.

The outstanding principal amount of convertible note and unpaid interest is convertible at a fixed conversion price of $0.36.

Financing loan

The Company had financing loan for a purchase of vehicle of $97,000 as of December 31, 2024.

A repayment of loan schedule is $1,898 per month for the first 36 months and then $2,590 per month for the remaining 30 months with an interest rate of $11.54%.

The Company fully settled this financing loan in March 2025.

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 December 31, 2024:

Year ended December 31,

Imputed interest

Operating lease liabilities

Going Concern

5 unchanged sentences

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.

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

Future Capital Requirements

We expect our existing cash, plus proceeds from recent capital raising to enable us to fund our operating expenses through and capital expenditure requirements for five years from the date of this Annual Report.

We anticipate being cash-flow positive by the end of calendar year 2025.

We believe we will achieve cash-flow positive by the end of calendar year 2025, because (i) we anticipate that our monthly sales, general and administrative expense will be less than $150,000 per month during calendar year 2025, and (ii) during December 2024 and January 2025, our product orders increased to, on average, more than $100,000 per week.

Based on the assumption that product orders will continue at that rate through at least April 2025, we believe that we will be cash flow positive for the entire calendar year 2025.

We believe, however, that due to the effect of the wildfires in Los Angeles during January 2025, and the more common wildfire season during the summer months, that our product orders will continue at the current rate through out the rest of the calendar year 2025.

We do not anticipate a material increase to our sales, general and administrative expense during 2025.

Excess cash flow will enable us to expand sales and business development efforts to further increase product orders subsequent to calendar year 2025.

Therefore, the Company does not anticipate being dependent upon additional capital in the form of either debt or equity to continue our operations and expand our product to new markets.

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 Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”), which require management to make estimates, judgments and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.

We believe our most critical accounting estimates relate to the following:

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.

Fair Value of Convertible Notes

Fair Value of Warrant to Purchase Common Stock

While our estimates and assumptions are based on our knowledge of current events and on actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

For a discussion of the Company’s significant accounting policies, refer to Note 2 of Notes to Consolidated Financial Statements.

Incremental borrowing rate for Right of Use Assets

1 unchanged sentence

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.

Fair Value of Convertible Notes

The Company determined that the conversion feature, embedded in convertible notes, met the definition of a liability in accordance with ASC Topic No.

815-40, Derivatives and Hedging - Contracts in Entity's Own Stock and therefore bifurcated the embedded conversion option once the note become convertible and accounted for it as a derivative liability.

The fair value of the conversion feature was recorded as a debt discount and “day 1” derivative loss for the excess amount of debt discount and amortized to interest expense over the term of the note.

For the conversion feature classified as a liability, the Company uses a Binomial Lattice valuation model to value the derivative instrument at inception and on subsequent valuation dates.

The use of this valuation model requires the input of highly subjective assumptions.

Any change to these inputs could produce significantly higher or lower fair value measurements.

The underlying assumptions of Binomial Lattice model are as follows:

The short-term interest rates, including risk-free rate, are known and remain constant over time.

The absence of any arbitrage opportunities is assumed.

The stock price follows a continuous-time random walk, with the rate of variance proportional to the square of the stock price.

The distribution of possible stock prices at the end of any given finite interval is assumed to be lognormal.

The variance of the rate of return on the stock is constant.

No commissions or transaction costs are incurred when buying or selling the stock or option.

The option's early exercise value is evaluated at each node of the lattice.

If applicable, the tax rate remains consistent for all transactions and market participants.

Fair Value of Warrant to Purchase Common Stock

The Company has issued warrants to investors in our debt offerings.

We evaluate all warrants issued to determine the appropriate classification under ASC 480 and ASC 815.

In addition to determining classification, we evaluate these instruments to determine if such instruments meet the definition of a derivative.

For warrants that are determined to be equity-classified, we estimate the fair value at issuance and record the amounts to additional paid in capital (potentially on a relative fair value basis if issued in a basket transaction with other financial instruments).

Warrants that are equity-classified are not subsequently remeasured unless modified or required to be reclassified as liabilities.

The classification of all outstanding warrants, including whether such instruments should be recorded as equity, is evaluated at the end of each reporting period.

The warrants are valued using a Black Scholes valuation model.

The use of this valuation model requires the input of highly subjective assumptions.

Any change to these inputs could produce significantly higher or lower fair value measurements.

Off-balance sheet arrangements

Quantitative and Qualitative Disclosures about Market Risk.

As a “smaller reporting company,” this item is not required.

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis