Gen 2 Technologies Inc. - Quarter Report: 2017 January (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

From transition period from ___________ to ___________

Commission File No.: __________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of March 22, 2017, the registrant had 50,333,200 shares of common stock outstanding. 

TABLE OF CONTENTS

Reference in this report to “BRK” “we,” “us,” and “our” refer to BRK, Inc.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

The financial information set forth below with respect to our statements of operations for the three and nine months ended January 31, 2017 and 2016 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and nine months ended January 31, 2017, are not necessarily indicative of results to be expected for any subsequent period. Our fiscal year end is April 30.

BRK, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR PERIODS ENDED JANUARY 31,

(Unaudited) 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

BRK, INC.

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION AND ORGANIZATION

BRK, Inc. (“BRK” or the “Company”) was incorporated on May 22, 2008 as a Nevada corporation. The Company has developed a product for the repair of hanging venetian blinds. As part of this development the Company has completed the development and is building a machine to make the parts for blind repair that it is selling. The development and testing of the machine was completed with limited production following and the Company reduced its work in the blind repair kit market space.

On May 6, 2016, the Company acquired intangible assets from ISee Automation for 5,000,000 shares of common stock with a fair market value of $1,600,000 based on the Company’s stock price at the date of issuance. The intangible assets consist of a patent application and related know-how, technology and plans to commercialization related to covers the placement of video cameras and supporting equipment into helmets used by various athletics such as hockey. Life video can then be transmitted from the player’s helmet in real time for display on sports events broadcasts. The Company is in the process of receiving models produced by a third party and developing a marketing strategy for the devise.

On September 28, 2016, the Company incorporated, in the state of Washington, a wholly owned subsidiary ISEE Sports Inc. Since inception, the subsidiary has not been operational or financially active.

Basis of Presentation

The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required to be included in a complete set of financial statements in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended January 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2017. The accompanying unaudited financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2016 Annual Report filed with the SEC on July 29, 2016.

Forward Stock Split

On December 21, 2015, the Company filed, with the Secretary of State of the State of Nevada, a Certificate of Change, effecting a ten-for-one (10:1) forward split of the Company's issued and outstanding shares of common. The forward split took effect on the over-the counter markets on January 12, 2016. The number of shares, issued and outstanding and the weighted average for 2015 has been adjusted to reflect the forward stock split.

Revenue Recognition

The Company receives revenue though a related party for the use of the Company”s equipment on the broadcasting of hockey games from the ref cam, a camera worn on the helmet of the referees. The revenue is recognized first by a related party which holds the initial agreement with the broadcaster when the event being broadcasted is completed. The related party pays the Company upon receipt of payment from the broadcaster. The revenues is reported on a net basis with the deductions for directs costs being deducted from the revenue.

Property, Equipment and Intangible Assets

Property and equipment are carried at cost, less accumulated depreciation. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Intangible assets consist of a patent application purchased and is carried at cost, less accumulated amortization. Depreciation and amortization is provided principally on the straight-line basis method over the estimated useful lives of the assets which is estimated at 36 months. Patent applications submitted after June 8, 1995 have duration of 20 years. Due to the potential changes in technology the Company has elected to amortize the patent application over 15 years.

NOTE 2 - GOING CONCERN

As shown in the accompanying financial statements, BRK has an accumulated deficit of $1,300,209 and negative working capital of $657,013 as of January 31, 2017. Unless profitability and increases in stockholders’ equity continues, these conditions raise substantial doubt as to BRK’s ability to continue as a going concern. The January 31, 2017 financial statements do not include any adjustments that might be necessary if BRK is unable to continue as a going concern. Management plans to continue to raise funds through debt and equity financing to grow the business to profitability.

NOTE 3 - CONCENTRATION OF REVENUE

The Company relies on one customer which is a related party, as its source of revenue. Should the Company lose that customer, the Company may lose its only source of revenue.

NOTE 4 - RELATED PARTY TRANSACTIONS

During the nine months ended January 31, 2017, the Company recorded $22,825 in compensation payable to the President. The president was paid $3,010 cash with the remaining $19,815 accrued for salary expense. As of January 31, 2017, $119,765 was due to the President.

On May 6, 2016, the Company acquired a patent application from ISee Automation for 5,000,000 shares of common stock with a fair value of $1,600,000. Upon the issuance of the shares ISee became a related party.

On May 18, 2016, the Company issued a note for $10,000 in cash to a related party. The note is due on demand and bears an interest rate of 8% per annum.

On July 1, 2016, the Company issued a note for $3,000 in cash to a related party. The note is due on demand and bears no interest.

On July 22, 2016, the Company issued a note for $5,000 in cash to a related party. The note is due on demand and bears no interest.

On August 26, 2016, the Company issued a note for $25,000 in cash to a related party. The note is due on demand and bears no interest.

On August 31, 2016, the Company issued a note for $16,500 in cash to a related party. The note is due on demand and bears no interest.

On September 14, 2016, the Company issued a note for $37,000 in cash to a related party. The note is due on demand and bears no interest.

On September 14, 2016, the Company issued a note for $29,000 in cash to a related party. The note is due on demand and bears no interest

On September 27, 2016, the Company issued a note for $4,675 in cash to a related party. The note is due on demand and bears no interest

On October 3, 2016, the Company issued a note for $1,000 in cash to a related party. The note is due on demand and bears no interest.

On December 1, 2016, the Company issued a note for $500 in cash to a related party. The note is due on demand and bears no interest.

During the quarter ended January 31, 2017 the Company repaid related parties $111,625 in notes payable.

As of January 31, 2017, the balance of notes payable due to related parties was $106,590 and convertible notes payable of $7,089.

As of January 31, 2017 and April 30, 2016 the amount due to related party was $5,200 and $3,200, respectively.

During the nine months ended January 31, 2017, the Company advanced $2,000 to an entity controlled by an acquaintance of the sole officer of the Company. The cash advance is unsecure, bears no interest and is due on demand.

NOTE 5 - EQUITY

On May 6, 2016, the Company acquired intangible assets from ISee Automation for 5,000,000 shares of common stock with a fair market value of $1,600,000 based on the Company’s stock price at the date of issuance.

The assets are carried at cost, less accumulated amortization. Amortization is provided principally on the straight-line basis method over the estimated useful lives of 15 years. For the nine months ended January 31, 2017 the Company recorded amortization of $78,466.

On October 20, 2016, the Company completed two separate consulting agreement with two entities. Both agreements are for a term of one year with the combined compensation being 2,000,000 shares of common stock issued at fair value of $0.33 per share for a total value of $660,000. Per the agreements, the shares were deemed earned at the date of the agreement and thus expensed in the nine month period ended January 31, 2017

On November 11, 2016, the Company issued 250,000 shares of common stock as an inducement for the issuance of a convertible note to two individuals with a relative fair value of $18,805 and was accounted for as debt discount.

NOTE 6 - NOTES

On November 10, 2016, the Company issued a secured promissory note to an individual for $50,000 with net proceeds after cost of $45,256 in cash. Debt issuances cost of $ 4,744 were recognized as a discount on the note. The note matures on February 10, 2017 with an 8% per month interest rate with interest payments of $4,000 payable on December 10, 2016, January 10, 2017, and February 10, 2017. As part of the note agreement the Company will issue 125,000 shares of common stock with a relative fair value of $9,402 to the note holder. The note is secured by 2,500,000 shares of common stock in book entry with the Transfer Agent to be cancelled if the note is paid back per the agreement.

On November 10, 2016, the Company issued a secured promissory note to an individual for $50,000 with net proceeds after cost of $45,256 cash. Debt discount costs of $4,744 were recognized as a discount to the note. The note matures on February 10, 2017 with an 8% per month interest rate with interest payments of $4,000 payable on December 10, 2016, January 10, 2017, and February 10, 2017. As part of the note agreement the Company will issue 125,000 shares of common stock with a relative fair value of $9,403 to the note holder. The note is secured by 2,500,000 shares of common stock in book entry with the Transfer Agent to be cancelled if the note is paid back per the agreement.

NOTE 7 - CONVERTIBLE NOTES

On November 28, 2016, the Company issued a convertible promissory note to an entity with a face value of $53,000 and bearing interest at 12% per annum. Debt issuance costs of $7,000 were recognized as a discount to the note. The note matures on August 28, 2017. The net proceeds to the Company was $46,000 net of legal fees of $2,000 and due diligence fees of $5,000. The note and accrued interest is convertible 180 days after the date of issuance of the note into common stock of the company at 50% discount to lowest trading price during the 20 days prior to the date of the conversion. The note is secured by 10,000,000 shares of common stock in book entry with the Transfer Agent to be cancelled if the note is paid back per the agreement.

On December 1, 2016, the Company issued a convertible note to an entity with a face value of $75,000 bearing interest at 10%. The net proceeds to the Company was $69,000 with legal and due diligence fees of $6,000. The note is due on December 1, 2017 and is convertible at or any time after March 3, 2017 at lower of closing price of the common on the trading day preceding the closing date or 55% of the lowest sales price during the 20 preceding days to conversion with a floor of $.00001. The holder of the note can convert the note up to 4.9% of Company’s outstanding common stock. The note is secured by 3,250,000 shares of common stock in book entry with the Transfer Agent to be cancelled if the note is paid back per the agreement. The reserve amount will be increase by a factor of 2 each time the Company enters into a subsequent convertible note.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

On February 21, 2016, the Company signed a worldwide license agreement to manufacture and distribute the O2Trainer. The product is used by individuals in physical training. The Company will pay a 10% royalty on all sales through February 21, 2026. As of January 31, 2017, there have been no sales of the product.

On July 25, 2016, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K, disclosing, among other things, that pursuant to the terms and conditions that certain Patent Assignment and Technology Transfer Agreement (the “Patent Assignment and Technology Transfer Agreement”), dated May 6, 2016, by and between BRK, Inc., a Nevada corporation (the “Company”) and iSee Automation Inc., a federal Canada corporation (“iSee Automation”), the Company purchased U.S. Patent Application No. 15/079,847, “Helmet System” (the “Patent”) and related technology for a helmet camera system, including intellectual property covered by the Patent. The Patent covers technology designed to wirelessly transmit video images from a small, mobile camera to live broadcast (the “Helmet Camera and Broadcast Technology”).

Pursuant to the terms and conditions of the Patent Assignment and Technology Transfer Agreement, the Company issued 5,000,000 shares of common stock to iSee Automation.

The U.S. U.S. Patent and Trademark Office subsequently published an Assignment of Abstract of Title, date record July 13, 2017, for conveyance of the Patent from iSee Automation Inc. to BRK, Inc.

In connection with the acquisition of the Patent, the Company also entered into that certain Revenue Assignment and Benefit Transfer Agreement, dated September 16, 2016, by and between the Company and iSee Automation (the “Revenue Assignment Agreement”). Under the Revenue Assignment Agreement, iSee Automation is obligated to “deliver to the Company any and all revenues obtained by iSee Automation based on the Helmet Camera patent application previously purchased by BRK from iSee Automation under the Patent Assignment and Technology Transfer Agreement via wire transfer or via direct delivery from customers.

Although we have clear title to and no restrictions to use our intellectual property, disputes may arise regarding the Revenue Transfer Agreement, including but not limited to, the scope and duration of payment of royalties other interpretation-related issues.

On May 17, 2016, the Company entered into that certain Agreement for Services, dated May 17, 2017, by and among the Company, iSee Automation Inc. (Ontario), and Christopher Stramacchia. Pursuant to the terms and conditions of the Agreement for Services, “[a]ny patents derived from the research done jointly and severally by all the above named parties shall be the property of BRK, Inc.,” in consideration for the Company paying $10,000 to iSee Automation (Michigan), which $10,000 the Company paid to iSee Automation (Michigan) on or about May 17, 2016.

On or about February 27, 2017, Christopher Stramacchia, President of iSee Automation, notified the Company that it believes that iSee Automation terminated the Agreement for Services. The Company believes that there is no basis in law or equity for iSee Automation to unilaterally decide to terminate the Agreement for Services and plans to enforce its rights thereunder.

On or about February 28, 2017, Christopher Stramacchia, President of iSee Automation, notified the Company that it believes that iSee Automation terminated the Revenue Assignment Agreement. The Company believes that there is no basis in law or equity for iSee Automation to unilaterally decide to terminate the Revenue Assignment Agreement and plans to enforce its rights thereunder.

NOTE 9 - SUBSEQUENT EVENTS

On February 3, 2017, the Company issued a convertible note to Auctus Fund LLC with a face value of $75,000 bearing interest at 12%. The net proceeds to the Company was $69,000 with legal and due diligence fees of $6,000. The note is due on November 3, 2017 and is convertible 180 days after the issuance of the note at lower of lower of 55% multiplied by the lowest trading price during the previous 25 days or 55% of the lowest sales price during the 25 preceding days. The holder of the note can convert the note up to 4.9% of Company’s outstanding common stock. The note is secured by 5,555,556 shares of common stock in book entry with the Transfer Agent to be cancelled if the note is paid back per the agreement. If the reserve is not maintained at the adequate amount the face value of the note may increase by $15,000.

On or about February 27, 2017, Christopher Stramacchia, President of iSee Automation, notified the Company that it believes that iSee Automation terminated the Agreement for Services. The Company believes that there is no basis in law or equity for iSee Automation to unilaterally decide to terminate the Agreement for Services and plans to enforce its rights.

On or about February 28, 2017, Christopher Stramacchia, President of iSee Automation, notified the Company that it believes that iSee Automation terminated the Revenue Assignment Agreement. The Company believes that there is no basis in law or equity for iSee Automation to unilaterally decide to terminate the Revenue Assignment Agreement and plans to enforce its rights.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

BRK Inc. (“BRK” or the “Company”) was incorporated on May 22, 2008 as a Nevada corporation. The Company has developed a product for the repair of hanging venetian blinds. As part of this development the Company has completed the development and is building a machine to make the parts for blind repair that it is selling. The development and testing of the machine was completed with limited production following and the Company reduced its work in the blind repair kit market space.

On September 28, 2016, the Company incorporated, in the state of Washington, a wholly owned subsidiary ISEE Sports Inc. Since inception, the Subsidiary has not been operational or financially active.

On May 6, 2016, the Company acquired intangible assets from ISee Automation for 5,000,000 shares of common stock with a fair market value of $1,600,000 based on the Company’s stock price at the date of issuance. The intangible assets consist of a patent application and related know-how, technology and plan for commercialization related to the placement of video cameras and supporting equipment into helmets used by various athletics such as hockey. Life video can then be transmitted from the player’s helmet in real time for display on sports events broadcasts. The Company is in the process of receiving models produced by a third party and developing a marketing strategy for the devise.

In summary, management continues to position the company in a way to best benefit from worldwide economic conditions, trends, events, and demand for new technologies.

Liquidity and Capital Resources

As of January 31, 2017, we had an accumulated deficit of $1,300,209. We recorded a net loss of $904,391 for the nine month period ended January 31, 2017. The net loss was $52,643 for the same period during 2015. The loss incurred in 2017 was primarily due to increased depreciation and amortization of $86,884 plus common stock issued for service of $660,000.

Working capital was negative $657,013 as of January 31, 2017, compared to negative $366,823 as of April 30, 2016. Cash used in operations totaled $79,557 during the nine-month period ended January 31, 2017 compared to $26,587 during the same period in 2016. The increase in the net loss in 2017 over 2016 was the major factor in the increase in cash used in 2017 over 2016.

Funds used in investing activities for the nine month period ended January 31, 2017 was $153,488 compared to zero for the same period in 2016. The investments were to purchase fixed assets used for the video reporting via helmet cameras of hockey games.

Funds provided from financing activities was a net of $231,562 in 2017 compared with funds provided from financing activity of $27,000 in 2015. The Company received $212,512 from third parties and $131,675 from related parties in loans and repaid notes to related parties totaling $111,625.

Management expects to continue to issue debt to finance the Company. The purchasers and manner of issuance will be determined per our financial needs and the available exemptions. We also note that if we issue more shares of our common stock our shareholders may experience dilution in the value per share of their common stock.

We intend to rely on debt and equity financing, capital contributions from management and sales of our common stock to pay for costs, services, operating leases, litigation expense and future development of our business opportunities. Accordingly, our focus for the next twelve months will be to obtain additional funding through debt or equity financing. Our success in obtaining funding will depend upon our ability to sell our common stock or borrow on terms that are financially advantageous to us. If we are unable to obtain financing, then expansion of our operations will be delayed.

Results of Operations

The Company recorded $4,901 in revenue, net during the three and nine month periods ended January 31, 2017 and zero for the same period in 2016. The increase in revenue was due to revenue received from ISee for the use of the helmet camera in 2017. Deferred revenue of $10,000 was also recorded in 2017.

General and administrative expenses for the three and nine-month period ended January 31, 2017 totaled $90,412 and $799,939 compared to $12,720 and $46,552 for the same periods in 2015. The increase for nine-month period in 2017 over 2016 was due to additional expense including stock based compensation for consulting expense and G&A expense to rent out equipment for the live video streaming of hockey games from referees helmets.

Depreciation and amortization was $32,058 and $86,884 for the three and nine month periods ended January 31, 2017 compared to $1,009 and $3,031 for the same periods ended January 31, 2015. The depreciation was related to fixed assets consisted of depreciation of the assets used in live streaming the hockey games plus amortization for a patent purchased during the nine month period ended January 31, 2017.

The Company incurred a net loss of $137,124 and $904,391 in the three and nine-month period ended January 31, 2017 compared to $14,749 and $52,643 in the same periods in 2016. The variance in net loss was due to higher amortization cost, stock based compensation and the start up to the live video streams of the hockey games in the three and nine month periods ended January 31, 2017 compared to the same period in 2016.

Off-Balance Sheet Arrangements

None

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures(as defined in Rule 13a-15e under the Securities Exchange Act of 1934 the "Exchange Act"), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this quarterly report on Form 10-Q such disclosure controls and procedures were not effective due to the lack of segregation of duties and lack of a formal review process that includes multiple levels of review to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms because of the identification of a material weakness in our internal control over financial reporting which we view as an integral part of our disclosure controls and procedures. The material weakness relates to the lack of segregation of duties in financial reporting, as our financial reporting and all accounting functions are performed by an external consultant with no oversight by a professional with accounting expertise. Our CEO/CFO does not possess accounting expertise and our company does not have an audit committee. This weakness is due to the company’s lack of working capital to hire additional staff.  To remedy this material weakness, we intend to engage another accountant to assist with financial reporting as soon as our finances will allow.

Changes in Internal Control over Financial Reporting

Except as noted above, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our first quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS.

None

ITEM 1A: RISK FACTORS

There have been no material changes to BRK, Inc.’s risk factors as previously disclosed in our most recent 10-K filing for the year ending April 30, 2016.

ITEM 2: SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On May 6, 2016, the Company acquired an intangible asset from ISee Automation for 5,000,000 shares of common stock with a fair market value of $1,600,000 based on the Company’s stock price at the date of issuance.

On October 20, 2016, the Company issued 2,000,000 shares of common stock issued at fair value of $0.33 per share for a total value of $660,000.

On November 11, 2016, the Company issued 250,000 shares of common stock as an inducement for the issuance of a convertible note to two individuals with a relative fair value of $18,805 and was accounted for as debt discount.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4: MINE SAFETY INFORMATION

None

ITEM 5: OTHER INFORMATION.

None

ITEM 6: EXHIBITS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.