What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-10 compared with 2026-05-15 · 345 added, 221 removed, 177 unchanged (76% of the section changed)

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FORWARD-LOOKING STATEMENTS

This Quarterly Report

on Form 10-Q (the “Quarterly Report”) contains forward-looking statements.

This Quarterly Report on

Form 10-Q (the “Quarterly Report”) contains forward-looking statements.

The Securities and Exchange Commission encourages

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factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Our unaudited 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 unaudited 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.

that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Quarterly

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,

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Report, the terms “we”, “us”, “our” and “our company” mean CitroTech Inc.

We are a specialty, non-toxic chemical company

that formed a 50/50 global joint venture with Hexion on April 17, 2026 for the production and sale of CitroTech into the fire retardant

treated wood market.

In addition, the Company manufactures environmentally sustainable fire inhibitors and fire retardants to help prevent

wildland fires and protect assets, as well as putting the fire inhibitors into home systems for their deployment.

Management is highly

experienced at building and running companies, as well as commercializing and executing on strategic partnerships for the sale of products

and services.

Since MFB Ohio acquired the MFB portfolio of intellectual

property on April 13, 2022, our management team has continued to develop and refine our product formulations.

The Company has received

significant third-party recognition for these efforts, including twice receiving the EPA Safer Choice designation, being the first and

only fire inhibitor recognized by the EPA as safe for the environment, and receiving UL GREENGUARD Gold certification, which reflects

We are a specialty chemical company focused on environmentally

friendly fire inhibitor products serving the wildland fire, residential and commercial property protection, and wood products industries

across the United States and Canada.

Our fire inhibitor formulations are also used by the lumber and building materials industry for fire

retardant treatment applications.

The Company’s management team is highly experienced

at building and running companies, as well as commercializing and executing on strategic partnerships for the sale of products and services.

Since Mighty Fire Breaker LLC (“MFB Ohio”)

acquired from Mighty Fire Breaker LLC (“MFB California”) the MFB portfolio of intellectual property on April 13, 2022, our

management team has continued to develop and refine our product formulations.

The Company has received significant third-party recognition

for these efforts, including twice receiving the EPA Safer Choice designation.

Our product is the first and only fire inhibitor recognized

by the EPA as safe for the environment.

We also are the first fire inhibitor to receive UL GREENGUARD Gold certification, which reflects

minimal impact on indoor air quality from toxic smoke over extended exposure.

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the State of California.

We are expanding our patent portfolio and

technology platform into additional markets that can benefit from environmentally safe alternatives to legacy fire retardant and fire

retardant-treated wood products.

CitroTech has developed wood coating products utilizing this technology and is in the initial phases

of commercialization.

The Company is also deploying proactive wildfire

defense systems on residential and commercial properties under the CitroSafe Systems brand.

CitroSafe Systems are self-contained sprinkler

installations that utilize our patented CitroTech product and are deployed in advance of wildfires to reduce structural risk.

This offering

addresses a significant and growing insurance market disruption across eleven western states, where carriers have curtailed or declined

to write wildfire coverage on new construction and existing policies in the Wildland Urban Interface, the transitional zone between undeveloped

land and built environments that is at elevated risk of catastrophic wildfire loss.

The Company is working with a large insurance broker

to offer insurance coverage to customers who install a CitroSafe proactive wildfire system, with policies underwritten by established

insurance carriers.

This program is currently in the proof-of-concept phase.

Our management team consists

of four individuals:

CitroTech has been issued 31 patents and has 56

patents pending.

We are expanding our patent portfolio and technology platform into additional markets that can benefit from environmentally

safe alternatives to legacy fire retardant and fire retardant-treated wood products.

Using this technology, CitroTech has developed products

that help achieve Class-A fire rating for lumber and engineered wood products.

We are in the initial phases of commercializing this product.

In April 2026, CitroTech and Hexion Inc.

formed a 50/50 global joint venture named HexiTech LLC, a Delaware limited liability company

that will work to commercialize the CitroTech product into factory applied lumber and wood products.

This venture will be the Company’s

primary go-to-market channel for this portion of the business.

The Company is also actively deploying proactive

wildfire defense systems on residential and commercial properties under the CitroSafe Systems brand.

CitroSafe Systems are self-contained

sprinkler installations that utilize our patented CitroTech product.

These systems deploy our fire inhibitor in advance of wildfires to

help prevent the advance of fires and reduce structural risk.

In addition to protecting property owners from the ravages of wildfires,

this offering addresses a significant and growing insurance market disruption across the Western United States, where carriers have curtailed

or declined to write wildfire coverage on new construction and are cancelling or not renewing existing policies in the Wildland-Urban

Interface (“WUI”).

WUI is the transitional zone between undeveloped land and built environments that is at elevated risk of

catastrophic wildfire loss.

The Company is working with a large insurance broker to offer insurance coverage to customers who install

a CitroSafe proactive wildfire system, with policies underwritten by established insurance carriers.

This program is currently in the

proof-of-concept phase.

Our management team consists of four individuals:

Bolsen, Chief Executive Officer;

Andrew Hotsko, Chief Operating Officer;

Nanuk Warman, Secretary and Chief

Financial Officer;

Nanuk Warman, Secretary and Chief Financial Officer;

and Anthony Newton, General Counsel.

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growth drivers, including increasing fire severity, as measured by higher acres burned, longer fire seasons and a growing urban component

moving into the Wildland Urban Interface, resulting in a need for higher quantity of specialty chemical fire inhibitors, thereby increasing

We believe these trends are prevalent in North America, as well as globally, and we expect these trends to continue driving

growth in demand for fire retardants and fire retardant treated lumber products.

moving into the WUI, resulting in increased demand for specialty chemical fire inhibitors, thereby increasing production.

We believe these

trends are prevalent in North America, as well as globally, and we expect these trends to continue driving growth in demand for fire retardants

and fire retardant treated lumber products.

We have expanded our certified partner network to more than 20 organizations in the second

quarter of 2026 that will install systems and/or apply CitroTech product around homes and in the community.

We are working to grow our fire prevention and

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ignitions from equipment failures or sparks until a significant rainfall occurs.

Although there is no certainty in wildfire defense, when

our CitroSafe system is installed, we fill it with our CitroTech product.

Thereafter, we will conduct an annual inspection of the system

to help ensure it is ready to help defend against a wildfire.

While there is no specific useful life for our product, if the system has

not been deployed since the third anniversary of the initial installation, or three years following an annual inspection, in an abundance

of caution we will remove and replace the CitroTech.

In addition, we suggest spraying CitroTech in areas surrounding the property that

pose the greatest risk to help reduce the risk posed by dry vegetation, decks, garden bark, and fences.

This prevention effort was proven by San Diego announcing

an expansion of their CitroTech treatment program during 2026 based on success seen in 2025.

Although there is no certainty in wildfire

defense, when our CitroSafe system is installed, we fill it with our CitroTech product.

Thereafter, we will conduct an annual inspection

of the system to help ensure it is ready to help defend against a wildfire.

While there is no specific useful life for our product, if

the system has not been deployed since the third anniversary of the initial installation, or three years following an annual inspection,

in an abundance of caution we will recommend the customer replace the CitroTech product.

In addition, we suggest spraying CitroTech in

areas surrounding the property that pose the greatest risk to help reduce the risk posed by dry vegetation, decks, garden bark, and fences.

We have invested and intend to continue investing

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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 are higher during the summer months in the United States due to weather patterns that

are generally correlated to a higher prevalence of wildfires.

We believe orders will generally peak during the summer months, but with

expanded fire seasons in the United States, ignitions may start in the late Spring and continue through late Fall of calendar year 2026.

impacted by weather, which impact the number and severity of fires in any given year.

Typically, sales of our product are higher during

the summer months in the United States due to weather patterns that are generally correlated to a higher prevalence of wildfires due to

We believe orders will generally peak during the late summer months, but with expanded fire seasons in the United States, ignitions

may continue through late fall or even into the winter months.

Results of Operations

We are developing and commercializing our product

We are developing and commercializing our

product lines.

We have been focused historically on obtaining patents and various accreditations.

To date, we do not have a large customer

base, having relied heavily on a few customers, for the commercialization and testing of our CitroTech product and delivery system.

currently do not have an established retail product line nor recurring significant customer base.

To date, we do not have a

large customer base, having relied heavily on a few customers, for the commercialization and testing of our CitroTech product and

delivery system.

We currently do not have an established retail product line nor recurring significant customer base.

The following summary of our results of operations

should be read in conjunction with our unaudited financial statements for the three months ended March 31, 2026 and 2025, which are included

Our results of operations for the three

months ended March 31, 2026 and 2025 are summarized below:

should be read in conjunction with our unaudited financial statements for six months ended June 30, 2026 and 2025, which are included

Our results of operations for the three months

ended June 30, 2026 and 2025 are summarized below:

Three Months Ended

Operating expenses

Other (income) expenses

Other expense

$ (3,902,554 )

$ (11,904,018 )

$ (8,001,464 )

Our revenue is generated through our subsidiary

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fire season, and is materially influenced by wildfire activity in any given period.

During the three months ended March 31, 2026, revenue

decreased $624,000, or 64%, compared to the three months ended March 31, 2025.

During the three months ended June 30, 2026, revenue

decreased $407,000, or 59%, compared to the three months ended June 30, 2025.

The rare situation of a devastating fire in both the Pacific

Palisades and Eaton Canyon fires in the first quarter of 2025 added to system revenue in the first quarter of 2025 that was not seen in

the first quarter of 2026.

Palisades and Eaton Canyon, in the first quarter of 2025 added to system revenue in the first quarter of 2025 that was not seen in 2026.

In addition, revenue that was booked in the first half of 2025 related to CitroSafe systems is being shifted to our Certified Partners

for the installation of systems, with higher margin CitroTech chemical sales that are being put into the system mostly starting after

the end of the second quarter.

This strategic shift will drive the installation of more systems with more CitroTech product and recurring

income in the future from a redeveloped control system.

This accounts for some of the change in revenues from the prior year quarter.

Although the 50/50 joint venture with Hexion was formed in Q2 2026, no revenues were generated from the joint venture in the early days

of getting it established.

Our revenues consisted of the following:

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Product installation service

Our revenues from significant customers for the

three months ended March 31, 2026 and 2025, are as follows:

Our revenues from significant customers for the three

months ended June 30, 2026 and 2025, are as follows:

Three months ended

Number of customers (more than 10% revenue)

Number of customers (more than 10% of revenue)

Total revenue of top 5 customers

Our revenue is project- and event-driven rather

than subscription- or contract-based, and we do not currently have a meaningful base of recurring customers.

The increase in our top-five

customer concentration to 67.8% in the three months ended March 31, 2026, from 48.1% in the comparable 2025 period, reflects both the

absence of the Pacific Palisades and Eaton Canyon fire deployments that drove revenue in the prior period and the early-stage nature of

our commercial customer base.

Our revenue is currently project- and event-driven

rather than subscription- or contract-based, and we do not currently have a meaningful base of recurring customers.

The decrease in our

top-five customer concentration to 71.9% in the three months ended June 30, 2026, from 78.4% in the comparable 2025 period, reflects both

the absence of the Pacific Palisades and Eaton Canyon fire deployments that drove revenue in the prior period and the early-stage nature

of our commercial customer base.

We expect customer concentration to remain elevated until our channel partner program and recurring utility

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The increase in operating expenses was primarily

attributed to increases in management compensation offset by a decrease in cost of revenue and professional fees.

attributed to increases in professional fees, research and development costs, and advertising and marketing, partially offset by decreases

in management compensation and cost of revenue.

Cost of revenue

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Freight and shipping

Total cost of revenue

During the three months ended June 30, 2026, the cost

of revenue decreased over the three months ended June 30, 2025, primarily due to a decrease in cost of inventory.

Cost of inventory consists of product costs, direct

labor, related supplies, and direct testing of our CitroTech product and the various components required for installation of CitroSafe™

Cost of inventory decreased during the three months ended June 30, 2026, compared to the comparable 2025 period, primarily due

to lower product sales volume.

Freight and shipping relate to costs for shipping

products to customers.

Rent expenses are warehouse and facility rent expenses.

Amortization and depreciation

Amortization and depreciation expenses are from

the amortization of patents and technology and the depreciation of vehicles, furniture and equipment.

General and administrative

General and administrative expenses are office, rent,

travel, insurance, website, IT, public listing fees, and other office related expenses.

For the three months ended June 30, 2026,

we incurred decreased expenditures on our website and IT development and general office offset by an increase in insurance and public

listing fees.

Advertising and marketing

The increase in advertising and marketing during the

three months ended June 30, 2026, over the three months ended June 30, 2025, is primarily due to supporting revenue growth in addition

to investor relations activities after being uplisted to the NYSE American.

This includes rebranding efforts around the official company

name change to CitroTech Inc.

from General Enterprise Ventures Inc as well as the product labels moving from Mighty Fire Breaker to CitroTech

and the conversion of relevant website and marketing materials.

Professional fees

The professional fees during the three months ended

June 30, 2026, primarily included stock-based compensation of $283,000 to advisors to our subsidiary MFB, and various professional

fees for accounting and audit related to SEC filings, legal on patents and other consulting services in 2026.

The professional fees during

the three months ended June 30, 2025, did not include stock-based compensation.

Professional fees were for accounting and audit related

to SEC filings, legal on patents and other consulting services in 2025.

Payroll and management compensation

During the three months ended June 30, 2026, management

compensation decreased to $2.1 million from $2.3 million in the prior period.

This decrease was primarily attributable to the buildout

of a full executive management team during 2025, including the appointment of a Chief Operating Officer, Chief Financial Officer, Chief

Technology Officer, and General Counsel.

Compensation during 2026 and 2025, primarily included stock-based management compensation of

$1.3 million and $1.9 million, respectively.

Payroll compensation to employees during 2026, was approximately $0.8 million as compared

to $0.4 million during 2025.

Research and development costs

We continue to invest heavily in the testing and certifications of CitroTech treated products as well as in advance of submitting formulas

for approval to apply product onto federal lands.

We are spending on outside testing to ensure that our products can pass the rigorous

US Forest Service QPL testing as well as funding an additional product to be submitted to the US Forest Service for testing.

to continue growing R&D spend over historical spend as we add additional product lines and invest in the future of the company.

includes funded research programs with Texas A&M on new products that were not underway in 2025.

Other Expenses

For the three months ended June 30, 2026

and 2025, the other expenses consisted of interest expense primarily related to convertible notes payable issued in 2025 of $31,000

and convertible notes payable issued in 2025 and 2024 of $764,000, respectively, change in fair value of derivative liability

related to convertible notes payable issued in 2025 and 2024 of $0 and $3.0 million, respectively, financing expense of $361,000 and

$2.5 million, respectively, and loss on settlement of debt of $0 and $2.6 million, respectively.

Settlement of debt in 2025 was

the conversion of convertible notes issued in 2024.

Financing expense is from 69,007 shares of Series C Convertible Preferred stock

issued to BoltRock Holdings, LLC (“BRH”) in 2025.

The net loss for the three months ended June 30, 2026

was approximately $3.9 million, a decrease of approximately $8.0 million as compared to the three months ended June 30, 2025, primarily

due to a significant reduction in other expenses, partially offset by lower revenue and higher operating expenses.

Our results of operations for the six months

ended June 30, 2026 and 2025 are summarized below:

Six months ended

$ (1,031,439 )

Operating expenses

Other expenses

(14,159,505 )

$ (10,113,118 )

$ (22,807,422 )

$ (12,694,304 )

Our revenue is generated through our subsidiary

Mighty Fire Breaker LLC ("MFB Ohio"), which acquired our fire suppression intellectual property portfolio in April 2022.

revenue is highly seasonal and event-driven, with demand concentrated in the Western United States during the traditional May to October

fire season, and is materially influenced by wildfire activity in any given period.

During the six months ended June 30, 2026, revenue

decreased $1.0 million, or 62%, compared to the six months ended June 30, 2025.

The rare situation of a devastating fire in both the Pacific

Palisades and Eaton Canyon in the first six months of 2025 added to system revenue in the first half of 2025 that was not seen in the

first half of 2026.

Our revenues consisted of the following:

Six months ended

Products sale

Product installation service

Our revenues from significant customers for the six

months ended June 30, 2026 and 2025, are as follows:

Six months ended

Number of customers (more than 10% of revenue)

Total revenue of top 5 customers

Our revenue is project- and event-driven rather than

subscription- or contract-based, and we do not currently have a meaningful base of recurring customers.

The increase in our top-five customer

concentration to 52.5% in the six months ended June 30, 2026, from 40.7% in the comparable 2025 period, reflects both the absence of the

Pacific Palisades and Eaton Canyon deployments that drove revenue in the prior period and the early-stage nature of our commercial customer

We expect customer concentration to remain elevated until our channel partner program and recurring utility and structural-protection

customer relationships further mature.

Operating Expenses

Six months ended

Cost of revenue

Amortization and depreciation

General and administrative

Advertising and marketing

Payroll and management compensation

Professional fees

Research and development expense

Total operating expenses

The increase in operating expenses was primarily attributed

to increases in management compensation offset by a decrease in cost of revenue and professional fees.

Cost of revenue

Six months ended

Cost of inventory

Freight and shipping

Consulting and advisory-related party

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Total cost of revenue

During the three months ended March 31, 2026,

the cost of revenue decreased over the three months ended March 31, 2025, primarily due to a decrease in cost of inventory.

During the six months ended June 30, 2026, the cost

of revenue decreased over the six months ended June 30, 2025, primarily due to a decrease in cost of inventory.

Cost of inventory consists of product costs, direct

labor, related supplies, and direct testing of our CitroTech product and the various components required for installation of CitroSafe™

Cost of inventory decreased during the three months ended March 31, 2026, compared to the comparable 2025 period, primarily due

Cost of inventory decreased during the six months ended June 30, 2026, compared to the comparable 2025 period, primarily due

to lower product sales volume.

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party company for services related to product installations.

Royalty and sales commissions to a related party

decreased to zero in the three months ended March 31, 2026, from $56,290 in the comparable 2025 period.

During the first quarter of 2025,

we recognized an allocated portion of consulting and direct labor costs associated with our revenue as royalty and sales cost of revenue.

In March 2025, we entered into a new contract under which the consulting and advisory royalty arrangement was terminated.

Rent expenses are warehouse and facility rent

We did not have royalty and sales commissions to a

related party in the six months ended June 30, 2026.

During the first quarter of 2025, we recognized $56,000 as an allocated portion of

consulting and direct labor costs associated with our revenue as royalty and sales cost of revenue.

In March 2025, we entered into a new

contract under which the consulting and advisory royalty arrangement was terminated.

Rent expenses are warehouse and facility rent expenses.

The increase in rent expense is primarily attributable to our relocation to a larger commercial facility for operations, warehousing,

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Amortization and depreciation

Amortization and depreciation expenses are from

the amortization of patents and technology and the depreciation of vehicle, and furniture and equipment.

Amortization and depreciation expenses are from the

amortization of patents and technology and the 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 three months ended March 31, 2026, we incurred increased

expenditures on consulting and payroll fees, our website and IT development and travel as well as general office and insurance expenses

from expansion of operations.

General and administrative expenses are office, rent,

travel, insurance, website, IT, public listing fees, and other office related expenses.

For the six months ended June 30, 2026, we

incurred increased expenditures on public listing fee, 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 three months ended March 31, 2026, over the three months ended March 31, 2025, is primarily due to supporting revenue growth in addition

to investor relations activities after being uplisted to the NYSE American.

The increase in advertising and marketing during the

six months ended June 30, 2026, over the six months ended June 30, 2025, is primarily due to supporting revenue growth in addition to

investor relations activities after being uplisted to the NYSE American.

This includes rebranding efforts around the official company

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and the conversion of relevant website and marketing materials.

We attended and helped to fund events in the wildfire industry to expose

leaders in the fire industry to the CitroTech product, which we believe will lead to sales in the future.

Professional fees

The professional fees during the three months

ended March 31, 2026, primarily included stock-based compensation of $160,000 to advisors to our subsidiary MFB, and various professional

fees for accounting and audit related to SEC filings, legal on patents and other consulting services in 2026.

The professional fees during

the three months ended March 31, 2025, primarily included stock-based management compensation of $2.3 million, of which $2.1 million was

to a related party consultant (TC Special Investments, LLC (“TCSI”)) and various professional fees for accounting and audit

The professional fees during the six months ended

June 30, 2026, primarily included stock-based compensation of $443,000 to advisors, and various professional fees for accounting and audit

related to SEC filings, legal on patents and other consulting services in 2026.

TCSI’s consulting services to us include

sales and business development, customer relationship management, strategy optimization, investor relations, underwriter interface, coordinating

In addition, we had expenses related to the formation

of the HexiTech Joint Venture between CitroTech and Hexion that were a one-time expense.

The professional fees during the six months ended

June 30, 2025, primarily included stock-based management compensation of $2.3 million, of which $2.1 million was to a related party consultant

(TC Special Investments, LLC (“TCSI”)) and various professional fees for accounting and audit related to SEC filings, legal

on patents and other consulting services in 2025.

TCSI’s consulting services to us 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.

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Payroll and management compensation

During the three months ended March 31, 2026,

management compensation increased to $3.1 million from $673,000 in the prior period.

During the six months ended June 30, 2026, management

compensation increased to $5.2 million from $3.0 million in the prior period.

This increase was primarily attributable to the buildout

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Compensation during 2026, primarily included stock-based management compensation of $3.4 million,

and payroll to management and employees of approximately $1 million.

The significant increase in stock-based compensation reflects the

transition from a single-executive structure in the first quarter of 2025, when management compensation consisted of a stock-based management

compensation of $420,000 and a $142,000 cash payment to our former CEO, to a fully staffed leadership team necessary to support our growth

and commercialization objectives.

and payroll to management of $0.8 million and employees of approximately $1.1 million.

The significant increase in stock-based compensation

reflects the transition from a single-executive structure in the first quarter of 2025.

Compensation during 2025, primarily included stock-based

management compensation of $2.3 million and payroll to management of $0.5 million and employees of $0.2 million.

Research and development costs

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Other Expenses

For the three months ended March 31, 2026

and 2025, the other expenses consisted of interest expense related to convertible notes payable issued in 2025 of $942,000 and convertible

notes payable issued in 2025 and 2024 of $473,000, respectively, change in fair value of derivative liability related to convertible notes

payable issued in 2025 and 2024 of $0 and $805,000, respectively, financing expense of $0 and $6.2 million, respectively, and loss on

settlement of debt of $847,000 and $0, respectively.

Settlement of debt in 2026 is the conversion of convertible notes issued in

Financing expense is from 4 million warrants granted to a financial advisor.

The net loss for the three months ended March

31, 2026 was approximately $6.2 million, a decrease of approximately $4.7 million as compared to the three months ended March 31, 2025,

primarily due to a significant reduction in other expenses, partially offset by lower revenue and higher operating expenses.

For the six months ended June 30, 2026

and 2025, the other expenses consisted of interest expense primarily related to convertible notes payable issued in 2025 of $973,000

and convertible notes payable issued in 2025 and 2024 of $1.2 million, respectively, change in fair value of derivative liability

related to convertible notes payable issued in 2025 and 2024 of $0 and $3.8 million, respectively, financing expense of $0.4 million

and $8.7 million, respectively, and loss on settlement of debt of $847,000 and $2.6 million, respectively.

Settlement of debt in

2026 is the conversion of convertible notes issued in 2025.

Settlement of debt in 2025 is conversion of convertible notes issued in

Financing expense is from 4 million warrants granted to a financial advisor and 69,007 shares of Series C Convertible

Preferred stock issued to BRH in 2025.

The net loss for the six months ended June 30, 2026

was approximately $10.1 million, a decrease of approximately $12.7 million as compared to the six months ended June 30, 2025, primarily

due to a significant reduction in other expenses, partially offset by lower revenue and higher operating expenses.

Liquidity and Capital Resources

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operating losses and negative cash flows from our operations.

Our net loss was $6.2 million and $10.9 million for the three months

ended March 31, 2026 and 2025, respectively.

During fiscal year 2025, we completed a debt offering in February and an equity offering

in September and October which generated net proceeds of approximately $3.7 million and $8.1 million, respectively.

Our net loss was $10.1 million and $22.8 million for the six months

ended June 30, 2026 and 2025, respectively.

During fiscal year 2025, we completed a debt offering in February and an equity offering in

September and October which generated net proceeds of approximately $3.7 million and $8.1 million, respectively.

Working capital

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Current liabilities

Working capital (deficiency)

Working capital

$ (1,983,221 )

As of March 31, 2026 and December 31, 2025, the

As of June 30, 2026 and December 31, 2025, the

current assets consisted of cash of $2.5 million and $6.3 million, respectively, inventory of $579,000 and $621,000, respectively, accounts

receivable of $165,000 and $209,000, respectively, and prepaid expenses and other current assets of $419,000 and $317,000, respectively.

As of March 31, 2026 and December 31, 2025, the

current liabilities consisted of accounts payable and accrued liabilities of $414,000 and $316,000, respectively, due to related parties

of $19,000 and $168,000, respectively, convertible notes net of discount of $0 and $219,000, respectively, convertible note – related

party of $2.2 million and $1.3 million, respectively, current portion of financing loan of $31,000 and $30,000, respectively, and current

portion of operating lease liability of $152,000 and $148,000, respectively.

As of June 30, 2026 and December 31, 2025, the

current liabilities consisted of accounts payable and accrued liabilities of $222,000 and $316,000, respectively, deferred revenue of

$21,000 and $3,000, respectively, due to related parties of $5,000 and $168,000, respectively, convertible notes net of discount of $0

and $219,000, respectively, convertible note – related party of $0 and $1.3 million, respectively, current portion of financing

loan of $15,000 and $30,000 respectively, and current portion of operating lease liability of $157,000 and $148,000, respectively.

The decrease in working capital in 2026 was primarily

due to an increase in convertible note- related party and a decrease in cash for operating activities.

For the three months ended March 31, 2026 and

Three months ended

due to a decrease in cash of $3.7 million for operating activities, offset by a decrease in convertible debt due to conversions into common

For the six months ended June 30, 2026 and 2025

Six months ended

Cash used in operating activities

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$ (1,925,535 )

Cash used in investing activities

Cash provided by (used in) investing activities

Cash provided by financing activities

$ (3,617,735 )

Net Change in cash

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Operating Activities

We have not generated positive cash flows from

operating activities.

For the three months ended March 31, 2026, net

cash flows used in operating activities consisted of a net loss of $6.2 million, reduced by stock-based compensation of $2.3 million,

non-cash lease expenses of $38,000, amortization and depreciation of $126,000, amortization of debt discount of $882,000 and loss on settlement

of debt of $847,000, and increased by net changes in operating assets and liabilities of $19,000.

For the three months ended March 31, 2025, net

cash flows used in operating activities consisted of a net loss of $10.9 million, reduced by stock-based compensation of $2.8 million,

financing expense of $6.2 million, non-cash lease expenses of $21,000, amortization and depreciation of $75,000, amortization of debt

discount of $377,000, and changes in derivative liability of $805,000, and increased by net changes in operating assets and liabilities

We have not generated positive cash flows from operating

For the six months ended June 30, 2026, net cash flows

used in operating activities consisted of a net loss of $10.1 million, reduced by stock-based compensation of $4.2 million, non-cash lease

expenses of $78,000, amortization and depreciation of $250,000, amortization of debt discount of $892,000, loss on settlement of debt

of $847,000, loss on disposal of equipment of $32,000, and increased by bad debt recovery of $20,000, and net changes in operating assets

and liabilities of $33,000.

For the six months ended June 30, 2025, net cash flows

used in operating activities consisted of a net loss of $22.8 million, reduced by stock-based compensation of $13.3 million, non-cash

lease expenses of $86,000, amortization and depreciation of $151,000, amortization of debt discount of $1.0 million, loss on settlement

of debt of $2.6 million and changes in derivative liability of $3.8 million, and increased by net changes in operating assets and liabilities

Investing Activities

For the three months ended March 31, 2026 and

2025, the cash flows used in investing activities consisted of the purchase of equipment of $11,000 and $27,000, respectively.

For the six months ended June 30, 2026 and 2025, the

net cash flows provided by (used in) investing activities consisted of the purchase of equipment of $11,000 and $168,000 and sales of

equipment of $12,500 and $0, respectively.

Financing Activities

For the three months ended March 31, 2026, net

cash provided by financing activities consisted of $96,000 capital contribution from a related party and repayments of financing loans of

For the three months ended March 31, 2025, net

cash provided by financing activities consisted of $260,000 proceeds from the issuance of Series C Convertible Preferred Stock, $3.7 million

from the issuance of convertible promissory notes and associated warrants, $23,000 deferred offering cost payment, and repayment of a

financing loan of $216,000.

Our revenue is generated through our subsidiary

Mighty Fire Breaker LLC ("MFB Ohio"), which acquired our fire suppression intellectual property portfolio in April 2022.

revenue is highly seasonal and event-driven, with demand concentrated in the Western United States during the traditional May to October

fire season, and is materially influenced by wildfire activity in any given period.

During the three months ended March 31, 2026, revenue

decreased $624,000, or 64%, compared to the three months ended March 31, 2025.

The rare situation of a devastating fire in both the Pacific

Palisades and Eaton Canyon fires in the first quarter of 2025 added to system revenue in the first quarter of 2025 that was not seen in

the first quarter of 2026.

For the six months ended June 30, 2026, net cash provided

by financing activities consisted of $96,000 capital contribution from a related party and proceeds from the exercise of warrants of $25,000,

and repayment of a financing loan of $30,000.

For the six months ended June 30, 2025, net cash

provided by financing activities consisted of $260,000 proceeds from the issuance of Series C Convertible Preferred Stock, $3.7 million

from the issuance of convertible promissory notes and associated warrants, $59,000 deferred offering cost payment, and repayment of loans

Contractual Obligations

Convertible notes – related party

In February 2025, we entered into one (1) subscription

agreement for convertible notes ($2,000,000) and warrants (416,667 shares of common stock) with a related party.

The convertible

notes have a term of twelve (12) months, at an interest rate of 10% per annum and warrants with a term of five (5) years, at exercise

price of $3.00 per share.

The outstanding principal amount of convertible notes and unpaid interest is convertible at a fixed conversion

price of $2.40.

Our obligations under the convertible note are secured by a pledge of the Company’s membership interests in MFB

In the event of a default, the related party could proceed against the equity of MFB Ohio pledged to collateralize the convertible

MFB Ohio owns our intellectual property portfolio.

On February 27, 2026, related party F extended their convertible promissory note

until April 28, 2026.

Pursuant to the extension, they charged a 1% amendment fee and agreed to release their security pledge against certain

intangible assets of the Company.

In April 2026, the note and accrued interest were fully converted into the Company’s Common Stock.

Financing loans

We had a financing loan for the purchase of a

vehicle in September 2025.

We had a financing loan for the purchase of a vehicle

in September 2025.

The loan repayment is $2,021 per month for 60 months, beginning October 2025, with an interest rate of 11.33%.

We had a financing loan for the purchase of a

second vehicle in September 2025.

The loan repayment is $2,083 per month for 48 months, beginning October 2025, with an interest

rate of 11.90%.

Lease Agreements

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for office and warehouse purposes.

The following table outlines maturities of our lease liabilities as of March 31, 2026:

The following table outlines maturities of our lease liabilities as of June 30, 2026:

Year ending December 31,

2026 (remaining nine months)

2026 (remaining six months)

Imputed interest

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We have incurred losses since inception and incurred

a net loss of $6.2 million during the three months ended March 31, 2026.

However, in September 2025, we completed an equity

offering which generated net proceeds of $5.4 million.

Additionally, in October 2025, we completed an equity offering which generated

net proceeds of $2.7 million.

Our existing cash resources are expected to provide

sufficient funds to carry out our planned operations through fiscal year 2026.

To more rapidly grow our revenue and continue operations

beyond such time frame, we may be required to raise additional funds by completing additional equity or debt offerings or increasing revenue.

We may also raise capital through public or private offerings of equity or debt securities or by entering into a credit facility.

can be no assurance that we will be successful in acquiring additional funding, that our projections of its future working capital needs

will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

a net loss of $10.1 million during the six months ended June 30, 2026.

However, in September 2025, we completed an equity offering

which generated net proceeds of $5.4 million.

Additionally, in October 2025, we completed an equity offering which generated net

proceeds of $2.7 million.

Our existing cash resources, if necessary, could

provide sufficient funds to carry out our planned operations through fiscal year 2026.

To more rapidly grow our revenue and continue

operations beyond such time frame, we will be required to raise additional funds by completing additional equity or debt offerings or

increasing revenue.

We may also raise capital through public or private offerings of equity or debt securities or by entering into a credit

There can be no assurance that we will be successful in acquiring additional funding, that our projections of its future working

capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Contingencies

Certain conditions may exist as of the date the

financial statements are issued, which may result in a loss to us, 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, evaluate 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

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

Certain conditions may exist as of the date the financial

statements are issued, which may result in a loss to us, but which will only be resolved when one or more future events occur or fail

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, evaluate 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.

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considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

Critical Accounting

Critical Accounting Estimates

Our consolidated financial statements are prepared

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to our critical accounting estimates as described in that Annual Report.

and Qualitative Disclosures About Market Risk.

Quantitative and

Qualitative Disclosures About Market Risk.

We are a smaller reporting

2 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis