Citrotech Inc. quarterly report, Q2 FY2021

Business context and reporting period

This Form 10-Q covers the quarter and six months ended June 30, 2021. The filing is by General Entertainment Ventures, Inc. (GEVI), not Citrotech Inc.; investors should confirm the issuer identity. GEVI states that it had no substantive operations from February 2010 until January 2021 and reports no revenue. In May 2021, it acquired Strategic Asset Holdings, a development-stage home-technology business with a provisional patent for a safe and secure night light.

The company completed a corporate reorganization and redomiciling during the period. A change of control occurred in April when Jan Ralston acquired all 10 million Series A preferred shares, which carry super-voting and conversion rights. GEVI checked the box indicating it is a shell company.

Financial results and liquidity

• Operating expenses included a $52,976 goodwill impairment related to the SAH acquisition, $6,405 of management compensation, and $3,822 of general and administrative expense. No gross margin is available because the company reported no revenue.
• At June 30, 2021, total assets were $4,057, all cash, versus $0 at December 31, 2020. Total current liabilities were $77,139 versus $9,355; stockholders’ deficit was $73,082. The resulting working capital deficit was $73,082.
• Liabilities included a $50,000 related-party note, a $17,260 loan payable, $9,355 due to a related party for former-CEO salary, and $524 of accounts payable/accrued liabilities. The related-party note bears 7.5% interest and matures May 10, 2022.
• For the first six months, operating cash use was $12,518, investing cash inflow was reported as $14,075, and financing cash inflow was $2,500; ending cash was $4,057. The cash-flow statement labels the investing amount as “Acquisition of Strategic Asset Holdings,” but the filing does not clearly explain why it is a positive inflow. The acquisition consideration was a $50,000 note.
• The company had access to an unsecured line of credit of up to $40,000. It reported a $17,260 unpaid balance at June 30 and borrowed a further $3,000 on September 20, 2021.

Changes, outlook, risks and unusual items

Compared with the 2020 periods, when no revenue, expenses, or loss were reported, GEVI recorded a $63,727 net loss in 2021, largely reflecting the acquisition-related impairment. The acquisition was from an entity controlled by the CEO, and the $50,000 consideration was financed with a note payable to the CEO. The filing also reports $6,405 of management fees paid to the company’s sole member.

Management states that there is substantial doubt about the company’s ability to continue as a going concern because it has not generated significant income and has limited operating capital. Continued operations depend on raising capital and generating revenue and profits; the filing provides no specific revenue or earnings guidance. Management said COVID-19 had no material adverse effect on results or financial position at June 30, but future effects remain uncertain.

Disclosure controls and procedures were deemed ineffective as of June 30. Reported material weaknesses include no functioning audit committee, insufficient independent board oversight, inadequate segregation of duties, and management dominated by one individual. The company expects to rely materially on outside accounting consultants and warned that weaknesses could lead to financial-statement errors or restatement. Management reported no material litigation and no material off-balance-sheet arrangements. The company did not check “Yes” to having filed all required reports during the preceding 12 months and did not check “Yes” to submitting all required Interactive Data Files.

Important facts for investors to verify

• Confirm the filing’s issuer identity: the supplied request names Citrotech Inc., while the filing names General Entertainment Ventures, Inc.
• Reconcile the acquisition disclosures, including the SAH entity name, related-party relationship, $50,000 note consideration, $52,976 impairment, and the cash-flow statement’s $14,075 investing inflow.
• Assess the going-concern warning, minimal cash, working capital deficit, debt maturities, and availability of further financing.
• Review the preferred shares’ super-voting and conversion terms and the resulting control implications; confirm the reported outstanding share count of 22,945,388 as of October 6, 2021.
• Evaluate the disclosed material weaknesses, filing-compliance checkboxes, and the reliability of the unaudited financial statements.