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PART
III
Item
10. | Directors,
Executive Officers and Corporate Governance. |
Directors
and Executive Officers
Our
directors and executive officers, their ages and their positions held with our company are as follows:
Name |
|
Age |
|
Position(s)
Held with the Company |
Michael
Campbell |
|
66 |
|
Chairman
of the Board and Chief Executive Officer |
Dean
S. Skupen |
|
61 |
|
Chief
Financial Officer |
Hyuncheol
Peter Kim |
|
47 |
|
Chief
Technical Officer |
Steven
Shum |
|
51 |
|
Director
|
Sean
Fontenot |
|
38 |
|
Director
|
There
are no arrangements between our directors and any other person pursuant to which our directors were nominated or elected for their positions.
There are no family relationships among our directors or officers.
The
following biographical information regarding our directors and executive officers.
Michael
Campbell. Mr. Campbell became our Chief Executive Officer on September 12, 2018. For the past 20 years, Mr. Campbell has been
the managing director of M1 Advisors LLC, a business advisory and consulting firm that has engineered, orchestrated and provided support
and services to numerous private-to-public transitions, debt and equity financings and hyper-organic-growth and consolidation strategies
in a wide range of industries. In addition, from December 2011 to February 2017, Mr. Campbell was the Chief Executive Officer and a director
of NXChain, Inc., a publicly-traded start-up shell company in the cryptocurrency business that was a successor to AgriVest Americas Inc.,
a publicly-traded start-up shell company that sought to acquire cattle ranches in Brazil for conversion to soybean farms. Mr. Campbell
spent the first 20 years of his career in the high-tech industry creating and operating various companies that included a computer retailing
operation, data-storage peripheral company with three computer disk-drive manufacturing companies through joint ventures with the Russian,
Chinese and Spanish governments, a specialized call-center company for telco broadband provisioning and an online broadband services
ordering and order aggregation company with the Regional Bell Operating Companies.
Dean
S. Skupen. Mr. Skupen became our Chief Financial Officer on September 12, 2018. Mr. Skupen is a business advisor who has provided
various financial accounting services to, or acted as the Interim Chief Financial Officer for, a number of public companies since 2010.
Prior to that, he was a Partner at Stonefield Josephson, Inc. (now Marcum, LLP), an accounting firm with five offices throughout California
where he provided auditing and consulting services to public companies and to privately-held entrepreneurial companies transitioning
to public ownership in diverse industries. Mr. Skupen graduated from the University of Southern California with a Bachelor of Science
degree in Accounting. In addition, he is licensed as a Certified Public Accountant in the State of California.
Hyuncheol
(Peter) Kim. Mr. Kim became our Chief Technical Officer on August 17, 2021, and President of our South Korean subsidiary, AIQ
System Co. LTD, in October 2021. Mr. Kim has 20 years of experience in the high-tech industry working as an engineer and executive in
chip development, software, communications, and IT services. Mr. Kim has a long-term relationship with the Korean IT industry through
his involvement in projects with Samsung, LG, KT (Korea Telecom), Hyundai Electronics, and SK Hynix. Previously, he was the President
of Aracore, a South Korean based Canadian ASIC chip development company that developed a 10nm SHA-256 ASIC chip for bitcoin mining machines.
Mr. Kim has also been involved in chip developments that included a Protocol Packet Classification chip for network security equipment
and a Network Processor Unit for a high-performance fiber backbone router and switch. Mr. Kim has been a Samsung Foundry VIP customer
since 2018.
Steven
M. Shum. Mr. Shum has been Chief Executive Officer of INVO Bioscience (NASDAQ: INVO) since October 2019 and a member of the board
of directors of INVO Bioscience since October 2017. Prior to INVO Bioscience, Mr. Shun served as Chief Financial Officer of Eastside
Distilling (NASDAQ: EAST) from October 2015 to November 2019. Prior to joining Eastside, Mr. Shum was an employee and a member of the
board of directors of XZERES Corp. (OTCQB:XPWR), a global renewable energy company, from October 2008 until April 2015, where he served
in various officer roles, including Chief Operating Officer from September 2014 until April 2015, Chief Financial Officer, Principal
Accounting Officer and Secretary from April 2010 until September 2014 (under former name, Cascade Wind Corp) and Chief Executive Officer
and President from October 2008 to August 2010. Mr. Shum also serves as the managing principal of Core Fund Management, LP and the Fund
Manager of Core Fund, LP. He was a founder of Revere Data LLC (now part of Factset Research Systems, Inc.) and served as its Executive
Vice President for four years, heading up the product development efforts and contributing to operations, business development, and sales.
He spent six years as an investment research analyst and portfolio manager of D.N.B. Capital Management, Inc. His previous employers
include Red Chip Review and Laughlin Group of Companies. He earned a B.S. in Finance and a B.S. in General Management from Portland State
University in 1992.
Sean
Fontenot. Mr. Fontenot has spent 20 years as a self-employed IT and network specialist and in 2017 became an executive producer
of independent films. Mr. Fontenot is a technology enthusiast and film producer that manages a 5013c foundation dedicated to (i) educating
the public on the history of video, arcade, and computer gaming - including the technical aspects and the impact of games on society;
(ii) fostering public interest in software development and gaming hardware to enable technological growth and inspire the next generation
of developers, and (iii) developing public space for action sports’ recreation - including mentoring youths and building programs
designed to help bridge the gender gap in various action sports categories as well as underserved community members.
All
of our officers are currently serving in such capacities as consultants to our company, and we presently have no employees. Mr. Campbell
and Mr. Kim devote a majority of their time to advancing the company’s mission and executing our business plan. Management intends
to spend as much time as is necessary to exercise its fiduciary duties as officers and directors of our company.
Involvement
in Certain Legal Proceedings
None
of our directors and executive officers have been involved in any of the following events during the past ten years:
|
1. |
any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time; |
|
|
|
|
2. |
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor
offences); |
|
|
|
|
3. |
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; |
|
|
|
|
4. |
being
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities law, where the judgment has not been reversed, suspended,
or vacated; |
|
|
|
|
5. |
being
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of (i) any federal or state securities or commodities law or regulation;
(ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or
permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order,
or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business
entity; or being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section
1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority
over its members or persons associated with a member. |
Director
Independence
Our
board of directors has reviewed the composition of our board of directors and the independence of each director. Based upon information
requested from and provided by each director concerning his background, employment and affiliations, including family relationships,
our board of directors has determined that each of Steven Shum and Sean Fontenot is an “independent director” as defined
under Rule 5605(a)(2) of the Nasdaq Marketplace Rules. In making such determinations, our board of directors considered the relationships
that each such non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant
in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Board
Committees
We
do not have a standing Audit Committee. We do not believe that the lack of an Audit Committee has had or will have any adverse effect
on our financial statements, based upon current operations; however, our board of directors will consider establishing an Audit Committee
of independent directors as the number of directors increases. Until such time, our board of directors will perform the duties of an
Audit Committee including delegating an auditor firm and interacting with them.
We
do not have a standing Compensation Committee. Presently, our executive officers, who constitute our only employees, do not take salary
or other benefits from our company. As we continue to develop our initial products and commence selling such products on a wholesale
or retail basis, we expect to increase the size of our board to include independent directors who will approve the compensation arrangements
with our executive officers.
We
also do not have a Nominating Committee as we have not adopted any procedures by which security holders may recommend nominees to our
board of directors.
Code
of Ethics
Effective
March 28, 2022, our Board of Directors adopted an amended Code of Business Conduct and Ethics that applies to, among other
persons, members of our board of directors, our company’s officers, contractors, consultants and advisors. We will provide a copy
of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to our company at the address
on the cover of this Annual Report.
Section
16(a) Beneficial Ownership Compliance
Section
16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock,
to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide
us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from
certain reporting persons, and without conducting any independent investigation of our own we believe that during the fiscal year ended
December 31, 2021, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were
complied with.
Item
11. | Executive
Compensation. |
The
following table sets forth all compensation awarded to, earned by or paid to the executive officers of our
company during the years ended December 31, 2021 and 2020. No compensation was paid to any other executive officer of our company during
such periods.
SUMMARY
COMPENSATION TABLE
Name and
Principal Position | |
Fiscal
Year | | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards ($) | | |
Option
Awards ($) | | |
Non-Equity
Incentive Plan Compensation ($) | | |
Nonqualified
Deferred Compensation Earnings ($) | | |
All
Other Compensation ($) | | |
Total
($) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Michael Campbell(1) | |
| 2021 | | |
| - | | |
| - | | |
$ | 2,895,000 | (1) | |
| - | | |
| - | | |
| - | | |
$ | 200,064 | (2) | |
$ | 3,095,064 | (2) |
Chief Executive Officer | |
| 2020 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 180,000 | (2) | |
| 180,000 | (2) |
Dean S. Skupen | |
| 2021 | | |
| - | | |
| - | | |
| 75,000 | | |
| - | | |
| - | | |
| - | | |
| 30,000 | (3) | |
| 105,000 | (3) |
Chief Financial Officer | |
| 2020 | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| — | | |
| — | |
Hyuncheol Peter Kim | |
| 2021 | | |
| - | | |
| - | | |
| 19,300,000 | (1) | |
| - | | |
| - | | |
| - | | |
| 66,664 | (4) | |
| 19,366,664 | (4) |
| |
| 2020 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| — | | |
| — | |
(1) |
Represents a restricted stock share award that vests
as to 50% of the shares upon the completion of the first two phases of chip development, which include the “FPGA Simulation”
and “Tape Out” of our planned 5 nanometer ASIC chip, and will vest as to the remaining 50% of the shares upon the completion
of the next two phases of the chip development that include the completion of the Foundry Mask for production in the semiconductor
foundry and initial production run of chips and the completion of a bitcoin mining system ready for sale to customers; provided,
however, that if we do not raise sufficient capital to complete the Foundry Mask, initial production run of chips and completion
of a bitcoin mining system ready for sale to customers within six months of completing the first two phases of development, then
all unvested shares will vest upon the completion of the first two milestones. Notwithstanding the foregoing, no shares will vest
on any vesting date if the consultant is no longer providing services to us as an employee or consultant. |
(2) |
Represents
amounts earned by Mr. Campbell under his consulting agreement. |
(3) |
Represents
amounts earned by Mr. Skupen under his consulting agreement. All 2020 compensation was accrued but deferred to
2021. |
(4) |
Represents
amounts earned by Mr. Kim under his consulting agreement. Mr. Kim commenced his consulting relationship with our company in September
2021. |
Consulting
Agreements
On
August 17, 2021, we entered into consulting agreements with M1 Advisors LLC, a limited liability company controlled by Michael Campbell,
our sole director and Chief Executive Officer (“M1 Advisors”), and Hyuncheol Kim, pursuant to which M1 Advisors agreed to
continue to provide consulting services to our company and to cause Mr. Campbell to serve as our Chief Executive Officer, and Mr. Kim
agreed to provide consulting services and to serve as our Chief Technology Officer. The term of M1 Advisor’s agreement is for a
period of one year, which will automatically renew unless either party gives written notice to the other of termination not less than
30 days prior to the then-current term. The consulting agreement of Mr. Kim will continue so long as we are continuing with our research
and development efforts to develop a five nanometer ASIC chip for bitcoin mining machines and a completed bitcoin mining system (the
“Project”), and thereafter will continue for a one-year term, which will automatically renew unless either
party gives written notice to the other of termination not less than 30 days prior to the then-current term. Pursuant to such agreements,
each of M1 Advisors and Mr. Kim will be paid consulting fees at the rate of $200,000 per annum for providing as many hours of work as
is necessary and reasonably required to meet our development schedule and achieve the mutually agreed to goals of our company. .
In
addition, pursuant to such consulting agreements, M1 Advisors was granted a restricted stock award of 1,500,000 shares of common stock
and Mr. Kim was granted a restricted stock award of 10,000,000 shares of common stock. Such restricted stock awards vest as to 50% of
the shares upon the completion of the first two phases of chip development, which include the “FPGA Simulation” and “Tape
Out” of our planned 5 nanometer ASIC chip, and will vest as to the remaining 50% of the shares upon the completion of the next
two phases of the chip development that include the completion of the Foundry Mask for production in the semiconductor foundry and initial
production run of chips and the completion of a bitcoin mining system ready for sale to customers; provided, however, that if we do not
raise sufficient capital to complete the Foundry Mask, initial production run of chips and completion of a bitcoin mining system ready
for sale to customers within six months of completing the first two phases of development, then all unvested shares will vest upon the
completion of the first two milestones. Notwithstanding the foregoing, no shares will vest on any vesting date if the consultant is no
longer providing services to us as an employee or consultant.
On
October 20, 2018, we entered into a consulting agreement with DSS Consulting Corporation, a corporation controlled by Dean Skupen,
our Chief Financial Officer (“DSS Consulting”), pursuant to which DSS Consulting agreed to continue to provide
consulting services to our company and to cause Mr. Skupen to serve as our Chief Financial Officer. The agreement with DSS
Consulting will continue until terminated by either party. Pursuant to such agreement, DSS Consulting was issued 250,000 shares of
common stock in March 2019 and DSS Consulting will be paid a monthly consulting fee in the amount of $5,000.
Each
of our consulting agreements contains customary confidentiality restrictions and work-product provisions, as well as customary non-competition
covenants and non-solicitation covenants with respect to our employees, consultants and customers.
Equity
Compensation Plan Information
The
following table provides information as of December 31, 2021, regarding our compensation plans under which equity securities are authorized
for issuance:
Plan category | |
| Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights | | |
| Weighted-
Average Exercise Price of Outstanding Options, Warrants and
Rights | | |
| Number
of Securities Remaining Available for Future Issuance Under
Equity Compensation Plans (Excluding Securities Reflected in Column
(a)) | |
| |
| (a) | | |
| (b) | | |
| (c) | |
2021 Equity compensation plan approved by security holders | |
| — | | |
| — | | |
| 2,500,000 | |
Equity compensation plans not approved by security holders | |
| — | | |
| — | | |
| — | |
Total | |
| — | | |
$ | — | | |
| 2,500,000 | |
2021
Equity Incentive Plan
On
October 4, 2021, we adopted our 2021 Equity Incentive Plan (the “Equity Plan”) to provide an additional means to attract,
motivate, retain and reward selected employees and other eligible persons. Our stockholders also approved the Equity Plan on October
4, 2021. Employees, officers, directors and consultants that provide services to us or one of our subsidiaries were eligible to receive
awards under the Equity Plan. Awards under the Equity Plan are issuable in the form of incentive or nonqualified stock options, stock
appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards.
As
of December 31, 2021, no equity grants had been made under the Equity Plan, and 2,500,000 shares authorized under the Equity Plan remained
available for award purposes.
Purpose.
The purpose of the Equity Plan is to further and promote the interests of our company and its stockholders by enabling us to attract,
retain and motivate employees, directors and consultants, or those who will become employees, directors or consultants, and to align
the interests of those individuals with the interests of our stockholders.
Administration.
The Equity Plan will be administered by an independent compensation committee appointed by the Board (the “Compensation Committee”),
which will have general administrative authority for the Equity Plan. In the event that the Board has not appointed the Compensation
Committee, then the Board shall have all the powers of the Compensation Committee under the Equity Plan. The Compensation Committee may
delegate certain limited authority to one or more of our senior executive officers to grant awards to employees who are not subject to
Section 16 of the Exchange Act. Additionally, the Compensation Committee may designate persons other than members of the Compensation
Committee to carry out the day-to-day ministerial administration of the Equity Plan (other than with regard to the selection for participation
in the Equity Plan and/or the granting of any awards to participants) under such conditions and limitations as prescribed by the Compensation
Committee (the appropriate acting body, be it the Compensation Committee, the Board, or an executive officer within his or her delegated
authority, is referred to herein as the “Administrator”). The Administrator’s determinations under the Equity Plan
need not be uniform and may be made selectively among the Equity Plan’s participants, whether or not such participants are similarly
situated.
The
Administrator has broad authority under the Equity Plan with respect to award grants including, without limitation, the authority to:
| ● | select
the Equity Plan’s participants; |
| ● | make
awards in such amounts and form as the Administrator shall determine; |
| ● | impose
such restrictions, terms and conditions upon such awards as the Administrator shall deem
appropriate; and |
| ● | correct
any technical defect(s) or technical omission(s), or reconciling any technical inconsistency(ies),
in the Equity Plan and/or any award agreement. |
Eligibility.
Persons eligible to receive awards under the Equity Plan include employees, directors and consultants, or those who will become
employees, directors or consultants, of our company and/or its subsidiaries. Notwithstanding the above, incentive stock options may only
be granted under the Equity Plan to our employees.
Authorized
Shares. The maximum number of shares of common stock that may be initially issued or transferred pursuant to awards under the
Equity Plan shall not exceed 2,500,000 shares, all of which may be issued as any type of award permitted under the Equity Plan, including,
but not limited to, incentive stock options.
Types
of Awards. The Equity Plan authorizes awards of stock options and restricted shares of common stock.
A
stock option is the right to purchase shares of common stock at a future date at a specified price per share (the “Exercise Price”).
The per share Exercise Price of an option generally may not be less than the fair market value of a share of common stock on the date
of grant. The maximum term of an option is ten years from the date of grant. An option may either be an incentive stock option or a nonqualified
stock option. Incentive stock option benefits are taxed differently from nonqualified stock options, as described under “Federal
Income Tax Consequences of Awards Under the Plan” below. Incentive stock options are also subject to more restrictive terms and
are limited in amount by the U.S. Internal Revenue Code (the “Code”) and the Equity Plan. Incentive stock options may only
be granted to employees of our company or a subsidiary.
Restricted
shares are shares of common stock granted to Equity Plan participants, subject to such restrictions, terms and conditions, if any, as
the Administrator deems appropriate, including, without limitation, (a) restrictions on the sale, assignment, transfer, hypothecation
or other disposition of such shares, (b) the requirement that the participant deposit such shares with our company while such shares
are subject to such restrictions, and (c) the requirement that such shares be forfeited upon termination of employment or service with
our company for any reason or for specified reasons within a specified period of time or for other reasons (including, without limitation,
the failure to achieve designated performance goals). Upon satisfaction or lapse of the applicable restrictions, terms, and conditions,
subject to applicable securities laws, the participant will receive shares of common stock in exchange for such restricted shares.
Dividend
Equivalents; Deferrals. The Administrator may provide for the deferred payment of awards and may determine the other terms applicable
to deferrals. The Administrator may provide that awards under the Equity Plan earn dividends or dividend equivalents based on the amount
of dividends paid on outstanding shares of common stock.
Assumption
and Termination of Awards. Generally, and subject to limited exceptions set forth in the Equity Plan, if we dissolve or undergo
certain corporate transactions such as a merger, business combination, or other reorganization, or a sale of substantially all of its
assets, all awards then-outstanding under the Equity Plan will become fully vested or paid, as applicable, and will terminate or be terminated
in such circumstances, unless the Administrator provides for the assumption, substitution or other continuation of the award. The Administrator
also has the discretion to establish other change in control provisions with respect to awards granted under the Equity Plan. For example,
the Administrator could provide for the acceleration of vesting or payment of an award in connection with a corporate event that is not
described above and provide that any such acceleration shall be automatic upon the occurrence of any such event.
Clawback.
We may cancel any award under the Equity Plan, require reimbursement from a participant, and effect any other right of recoupment
of equity or other compensation provided under the Equity Plan in accordance with any clawback policies adopted by us.
Transfer
Restrictions. Subject to certain exceptions contained in the Equity Plan, awards under the Equity Plan generally are not transferable
by the recipient other than by will or the laws of descent and distribution and are generally exercisable, during the recipient’s
lifetime, only by the recipient. Any amounts payable or shares issuable pursuant to an award generally will be paid only to the recipient
or the recipient’s beneficiary or representative. The Administrator has discretion, however, to establish written conditions and
procedures for the transfer of awards to other persons or entities, provided that such transfers comply with applicable federal and state
securities laws.
Adjustments.
As is customary in incentive plans of this nature, each share limit and the number and kind of shares available under the Equity
Plan and any outstanding awards, as well as the exercise or purchase prices of awards, and performance targets under certain types of
performance-based awards, are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations,
stock splits, stock dividends, or other similar events that change the number or kind of shares outstanding, and extraordinary dividends
or distributions of property to the stockholders.
No
Limit on Other Authority. The Equity Plan does not limit the authority of the Board or any committee to grant awards or authorize
any other compensation, with or without reference to the our common stock, under any other plan or authority.
Termination
of or Changes to the Equity Plan. The Board may amend or terminate the Equity Plan at any time and in any manner. Stockholder
approval for an amendment will be required only to the extent then required by applicable law or any applicable listing agency or required
under Sections 422 or 424 of the Code to preserve the intended tax consequences of the plan. For example, stockholder approval will be
required for any amendment that proposes to increase the maximum number of shares that may be delivered with respect to awards granted
under the Equity Plan (adjustments as a result of stock splits or similar events will not, however, be considered an amendment requiring
stockholder approval). Unless terminated earlier by the Board, the authority to grant new awards under the Equity Plan will terminate
on October 4, 2031. Outstanding awards, as well as the Administrator’s authority with respect thereto, generally will continue
following the expiration or termination of the Equity Plan. Generally speaking, outstanding awards may be amended by the Administrator
(except for a repricing), but the consent of the award holder is required if the amendment (or any Equity Plan amendment) materially
and adversely affects the holder.
Federal
Income Tax Consequences of Awards under the Plan.
The
U.S. federal income tax consequences of the Equity Plan under current federal law, which is subject to change, are summarized in the
following discussion of the general tax principles applicable to the Equity Plan. This summary is not intended to be exhaustive and,
among other considerations, does not describe the deferred compensation provisions of Section 409A of the Code to the extent an award
is subject to and does not satisfy those rules, nor does it describe certain elections under the Code (such as an election under Code
Section 83(b)), alternative minimum tax, or state, local, or international tax consequences.
With
respect to nonqualified stock options, we are generally entitled to deduct, and the participant recognizes taxable income in an amount
equal to the difference between the option exercise price and the fair market value of the shares at the time of exercise. With respect
to incentive stock options, we are generally not entitled to a deduction nor does the participant recognize income at the time of exercise,
although the participant may be subject to the U.S. federal alternative minimum tax. Upon a disposition of shares acquired by exercise
of an incentive stock option before the end of the applicable incentive stock option holding periods, the participant generally must
recognize ordinary income equal to the lesser of (i) the fair market value of the shares at the date of exercise minus the exercise price
or (ii) the amount realized upon the disposition of the incentive stock option shares minus the exercise price. Otherwise, a participant’s
disposition of shares acquired upon the exercise of an option (including an incentive stock option for which the incentive stock option
holding periods are met) generally will result in only capital gain or loss.
With
respect to restricted shares, we are generally entitled to deduct and the participant recognizes taxable income in an amount equal to
the excess of the fair market value over the price paid (if any) only at the time the restrictions lapse (unless the recipient elects
to accelerate recognition as of the date of grant).
If
an award is accelerated under the Equity Plan in connection with a “change in control” (as this term is used under the Code),
we may not be permitted to deduct the portion of the compensation attributable to the acceleration (“parachute payments”)
if it exceeds certain threshold limits under the Code (and certain related excise taxes may be triggered).
We
have the authority and the right to deduct or withhold, or require a participant to remit to us, an amount sufficient to satisfy any
income, payroll, and other taxes (including, without limitation, pursuant to the Federal Insurance Contributions Act and the Federal
Unemployment Tax Act) to the extent required by law to be withheld with respect to any taxable event concerning a participant arising
as a result of an award under the Equity Plan.
Outstanding
Equity Awards At Annual Period End
The
following table sets forth outstanding equity awards to our named executive officers as of December 31, 2021.
| |
Option
Awards | | |
Stock
Awards | |
Name
(a) | |
Number
of Securities Underlying Unexercised Options (#) Exercisable (b) | | |
Option
Exercise Price (e) | | |
Option
Expiration Date (f) | |
Number
of Shares or Units of Stock that have not Vested (g) | | |
Market
Value of Shares or Units of Stock that have not Vested (h) | |
Michael Campbell | |
| | | |
| | | |
| |
| | | |
| | |
Restricted
Stock Grant(1) | |
| — | | |
$ | — | | |
N/A | |
| 1,500,000 | | |
$ | 2,895,000 | |
| |
| | | |
| | | |
| |
| | | |
| | |
Hyuncheol Peter Kim | |
| | | |
| | | |
| |
| | | |
| | |
Restricted Stock Grant(1) | |
| — | | |
$ | — | | |
N/A | |
| 10,000,000 | | |
$ | 19,300,000 | |
|
(1) |
Such
restricted stock awards vest as to 50% of the shares upon the completion of the first two phases of chip development, which include
the “FPGA Simulation” and “Tape Out” of our planned 5 nanometer ASIC chip, and will vest as to the remaining
50% of the shares upon the completion of the next two phases of the chip development that include the completion of the Foundry Mask
for production in the semiconductor foundry and initial production run of chips and the completion of a bitcoin mining system ready
for sale to customers; provided, however, that if we do not raise sufficient capital to complete the Foundry Mask, initial production
run of chips and completion of a bitcoin mining system ready for sale to customers within six months of completing the first two
phases of development, then all unvested shares will vest upon the completion of the first two milestones. Notwithstanding the foregoing,
no shares will vest on any vesting date if the consultant is no longer providing services to us as an employee or consultant. |
Aggregated
Option Exercises
There
were no options exercised by any officer or director of our company during the year ended December 31, 2021.
Directors
Compensation
No
director compensation was paid during the years ended December 31, 2021 and 2020 in the form of cash expenses, stock awards, option awards,
non-equity incentive plan compensation, pension value and nonqualified deferred compensation earnings or any other type of compensation.
We do not currently pay any cash fees to our directors, nor do we pay directors’ expenses in attending board meetings.
Employment
Agreements
We
are not presently a party to any employment agreements.
Pension
and Retirement Plans
Currently,
we do not offer any annuity, pension or retirement benefits to be paid to any of our officers, directors or employees, in the event of
retirement.
Item
12. | Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The
following table sets forth, as of March 15, 2022, the names, addresses and number of shares of common stock beneficially owned by (i)
all persons known to our management to be beneficial owners of more than 5% of the outstanding shares of our common stock, (ii) each
director of our company, (iii) each named Executive Officer and (iv) all executive officers and directors of our company as a group (except
as indicated, each beneficial owner listed exercises sole voting power and sole dispositive power over the shares beneficially owned):
| |
Amount and | | |
| |
| |
Nature of | | |
| |
Name and Address of | |
Beneficial | | |
Percent | |
Beneficial
Owner | |
Ownership | | |
of
Class(1) | |
M1 Advisors LLC(2) | |
| 8,954,199 | | |
| 46.84 | % |
(Michael Campbell)(2) | |
| 8,954,199 | | |
| 46.84 | % |
Dean Skupen(3) | |
| 325,000 | | |
| 1.70 | % |
Hyuncheol Peter Kim | |
| - | | |
| - | % |
Steven Shum | |
| 4,655 | | |
| 0.02 | % |
Sean Fontenot(4) | |
| 4,620,000 | | |
| 24.17 | % |
All executive officers and directors as
a group (5 persons) | |
| 13,903,854 | | |
| 72.73 | % |
5% Stockholders: | |
| | | |
| | |
David Unsworth (5) | |
| 1,435,000 | | |
| 7.51 | % |
The Cooper Family Living
Trust Dtd 7/20/98 (6) | |
| 1,079,000 | | |
| 5.65 | % |
(1) |
As
of March 15, 2022, there were 25,995,621 shares of common stock outstanding. Except as indicated in the footnotes to this table,
we believe that all persons named in the table have sole voting and investment power with respect to all common stock shown as beneficially
owned by them. In accordance with the rules of the Securities and Exchange Commission (the “Commission”), a person or
entity is deemed to be the beneficial owner of common stock that can be acquired by such person or entity within sixty (60) days
upon the exercise of options or warrants or other rights to acquire common stock. Each beneficial owner’s percentage ownership
is determined by assuming that options and warrants that are held by such person (but not those held by any other person) and which
are exercisable within sixty (60) days have been exercised. The inclusion herein of such shares listed as beneficially owned does
not constitute an admission of beneficial ownership. |
(2) |
Represents
shares of common stock owned of record by M1 Advisors LLC, a company controlled by Michael Campbell. The address
of Michael Campbell and M1 Advisors LLC is 11753 Willard Avenue, Tustin, CA 92782. Mr. Campbell has sole voting and investment
power over the shares held by M1 Advisors LLC. |
(3) |
Represents
shares of common stock owned of record by DSS Consulting Corporation, a company controlled by Dean Skupen. DSS Consulting
Corporation’s address is 2945 Townsgate Road, Suite 200, West Lake Village CA 91361. Mr. Skupen has sole voting and investment
power over the shares held by DSS Consulting Corporation. |
(4) |
Represents 3,080,000 shares of common stock issuable
upon the conversion of a convertible note, and 1,540,000 shares of common stock issuable upon the exercise of warrants, owned of
record by Nanosha Investments, LLC, a company controlled by Sean Fontenot. The address of Nanosha Investments, LLC is 1202 Walnut
Avenue, Long Beach, CA 90813. Mr. Fontenot has sole voting and investment power over the securities held by Nanosha Investments,
LLC. |
(5) |
David Unsworth’s address is 246 Bayview Avenue, Belvedere
CA 94920. |
(6) |
Piers
and Sally Cooper are the trustees of The Cooper Family Living Trust Dated 7/20/98. The address of the trust is 452 Lakeview
Way, Emerald Hills, CA 94062. |
Item
13. | Certain
Relationships and Related Transactions, and Director Independence. |
To
the best of our knowledge, except as set forth below, during the last fiscal year, there were no material transactions, or series of
similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party,
in which the amount involved exceeds $120,000 or one percent of the average total assets at year end for each of the last two fiscal
years, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more
than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest.
Item
14. | Principal
Accountant Fees And Services. |
Audit
Fees
The
aggregate fees billed for professional services rendered by RBSM LLP, our principal accountants for the years ended December 31, 2021
and 2020, for the audit of financial statements, quarterly reviews of our interim financial statements and services normally provided
by the independent accountant in connection with statutory and regulatory filings or engagements for these periods were as follows:
| |
For the Years ended December 31, | |
| |
2021 | | |
2020 | |
Audit Fees and Audit Related Fees | |
$ | 50,000 | | |
$ | 15,000 | |
Tax Fees | |
| — | | |
| — | |
All Other Fees | |
| — | | |
| — | |
Total | |
$ | 50,000 | | |
$ | 15,000 | |
In
the above table, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our
company’s financial statements for the periods indicated above. “Audit-related fees” are fees not included in audit
fees that are billed by the auditor for assurance and related services, including quarterly reviews, that are reasonably related to the
performance of the audit of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional
services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products
and services not included in the foregoing categories.
Our
board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and
approved by our board of directors either before or after the respective services were rendered.
Notes
to the Consolidated Financial Statements
For
the Years Ended December 31, 2021 and 2020
Note
1 - Organization and Accounting Policies
CalEthos,
Inc. (the “Company” or “we”) was incorporated on March 20, 2002 under the laws of the State of Nevada. Since
the second quarter of 2016, the Company has been a “shell” company, as defined in Rule 12b-2 under the Exchange Act.
On
December 20, 2018, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada
to change the Company name from “RealSource Residential, Inc.” to “CalEthos, Inc.”. This amendment became effective
immediately upon filing on December 20, 2018.
As
of December 31, 2021, the primary activity of the Company’s management is to develop and implement a plan to manufacture high-performance
computer systems that are scalable, upgradeable and cost effective for processing cryptocurrencies, tokens and blockchain-based transactions,
and if other opportunities warrant, acquire assets and all or part of other companies operating in the cryptocurrency mining hardware
industry and or invest or joint venture with other more established companies already in the industry. The Company will not restrict
its search to any specific business segment of the cryptocurrency mining hardware industry or geographical location and the Company
may participate in a business venture of virtually any kind or nature that is beneficial to the Company and its shareholders.
Amendments
to Certificate of Incorporation
In
October 2021, the Board of Directors authorized an amendment to the Articles of Incorporation of the Company to change the Company’s
name of AIQ Blockchain, Inc. The name change has not yet been effected.
Incorporation
of Korean entity
On
November 5, 2021, AIQ System Inc. (“AIQ”) was incorporated in Seoul, Republic of Korea. AIQ is authorized to issue 3 million
shares of common stock. At the date of incorporation, 10,000 shares were issued to the Company for 100,000,000 Korean Won or approximately
$89,000 for 100% ownership of AIQ.
AIQ
is in the business of (1) developing and manufacturing computer chips and system, (2) importing and exporting semiconductors and electronic
products, (3) wholesale and retail business of semiconductors and electronic products, and (4) any and all business activities incidental
to the foregoing activities.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”).
Principles
of Consolidation
The consolidated
financial statements include the accounts of the Company and its wholly owned subsidiary from the formation date. All material intercompany
transactions and balances have been eliminated in consolidation.
Going
Concern and Liquidity
The
Company incurred a net loss of approximately $6,749,000
for the year ended December 31, 2021 and
had an accumulated deficit of approximately $16,831,000
as of December 31, 2021. The Company has
financed its activities principally through debt and equity financing and shareholder contributions. Management expects to incur additional
losses and cash outflows in the foreseeable future in connection with its operating activities.
The
Company’s consolidated financial statements have been presented on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The
Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals; successful
development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside
sources of financing; risks associated with research and development; dependence on third-party suppliers and collaborators; protection
of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations
is dependent on future events, including obtaining adequate financing to fund its operations and generating a level of revenues adequate
to support the Company’s cost structure.
The
Company will need to raise debt or equity financing in the future in order to continue its operations and achieve its growth targets.
However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed,
or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number
of factors, including market demand for the Company’s products and services, the success of product development efforts, the timing
of receipts for customer deposits, the management of working capital, and the continuation of normal payment terms and conditions for
purchase of goods and services. The Company believes its cash balances and cash flow from operations will not be sufficient to fund its
operations and growth for the next twelve months from the issuance date of these financial statements. If the Company is unable to substantially
increase revenues, reduce expenditures, or otherwise generate cash flows from operations, then the Company will likely need to raise
additional funding from investors or through other avenues to continue as a going concern.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with GAAP and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting periods.
Foreign
Currency Translation
The
financial statements of foreign subsidiaries, for which the functional currency is the local currency, are translated into U.S. dollars
using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange rate during
the year for revenue, expenses, gains and losses. Translation adjustments are recorded as other comprehensive income (loss) within shareholders’
equity (deficit). Gains or losses from foreign currency transactions are recognized in the consolidated statements of operations.
Fair
Value Measurement
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date.
Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs
are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from
sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that
market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level
1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 - Other inputs that are directly or indirectly observable in the marketplace.
Level
3 - Unobservable inputs which are supported by little or no market activity.
The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value.
As
of and for the year ended December 31, 2021, the Company had no assets or liabilities that require fair value measurement.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Cash and cash equivalents are recorded at cost, which approximates its fair value. The Company maintains its cash and cash equivalents
in banks insured by the Federal Deposit Insurance Corporation (“FDIC”) in accounts that at times may be in excess of the
federally insured limit of $250,000 per bank. The Company minimizes this risk by placing its cash deposits with major financial institutions.
As of December 31, 2021 and 2020, the Company had $2,797,000 and $0 in excess of the federal insurance limit, respectively.
Prepaid
Expense
Prepaid
expenses are assets held by the Company, which are expected to be realized and consumed within twelve months after the reporting period.
Other Assets
Other assets consist of long-term advances paid
for chip and processor design and development.
Related
Parties
The
Company follows Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
section 850-10 for the identification of related parties and disclosure of related party transactions.
Pursuant
to ASC section 850-10-20 the related parties include (a.) affiliates of the Company (“Affiliate” means, with respect to any
specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is
under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act); (b.) entities
for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value
Option of ASC section 825–10–15, to be accounted for by the equity method by the investing entity; (c.) trusts for the benefit
of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d.) principal owners
of the Company; (e.) management of the Company; (f.) other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from
fully pursuing its own separate interests; and (g.) other parties that can significantly influence the management or operating policies
of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other
to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The
consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements,
expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include:
(a.) the nature of the relationship(s) involved; (b.) a description of the transactions, including transactions to which no amounts or
nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary
to an understanding of the effects of the transactions on the financial statements; (c.) the dollar amounts of transactions for each
of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that
used in the preceding period; and (d.) amounts due from or to related parties as of the date of each balance sheet presented and, if
not otherwise apparent, the terms and manner of settlement.
Commitments
and Contingencies
The
Company follows ASC section 450-20 to report accounting for contingencies. Certain conditions may exist as of the date the consolidated
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. The Company 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 the Company or un-asserted claims that may result
in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted 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 that 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 the Company’s consolidated financial statements. If the assessment
indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, and an estimate of the range of possible losses, 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.
Debt
Discounts
The
Company accounts for debt discounts originating in connection with conversion features that remain embedded in the related notes in accordance
with ASC 470-20, Debt with Conversion and Other Options. These costs are classified on the balance sheet as a direct deduction
from the debt liability. The Company amortizes these costs over the term of its debt agreements as financing cost in the consolidated
statement of operations and comprehensive loss.
Warrant
Liability
In
connection with financing arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants
are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company
measures the fair value of the awards using the Black-Scholes Merton (“BSM”) option pricing model as of the measurement date.
Stock-Based
Compensation
We
account for our stock-based compensation under ASC 718, “Compensation – Stock Compensation” using the fair value
based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over
the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which
an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by
the issuance of those equity instruments.
We
use the fair value method for equity instruments granted to non-employees and use the BSM model for measuring the fair value of options.
The stock based fair value compensation is determined as of the date of the grant (measurement date) and is recognized over the vesting
periods.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740, Income Taxes, deferred tax assets and liabilities are computed based
on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate.
ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it
is more likely than not that some portion or all of the net deferred tax asset will not be realized.
The
Company accounts for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable
for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the
Company’s financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions
of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred
tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence.
The
Company has adopted guidance related to the accounting for uncertainty in income taxes which prescribes rules for recognition, measurement
and classification in the financial statements of tax positions taken or expected to be taken in a tax return. The guidance prescribes
a two-step approach which involves evaluating whether a tax position will be more likely than not (greater than 50 percent likelihood)
sustained upon examination based on the technical merits of the position. The second step requires that any tax position that meets the
more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that
is a greater than 50 percent likelihood of being realized upon settlement.
The
Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The
Company is not currently under examination by any taxing authority nor has the Company been notified of a pending examination. The statute
of limitations for which the Company is generally no longer subject to federal or state income tax examinations by tax authorities is
for years before 2013.
Earnings
Per Share
We
use ASC 260, “Earnings Per Share” for calculating the basic and diluted earnings (loss) per share. We compute basic
earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings
(loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common
shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options
and warrants and stock awards. For periods with a net loss, basic and diluted loss per share is the same, in that any potential common
stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.
Securities
that could potentially dilute income (loss) per share in the future were not included in the computation of diluted income (loss) per
share on December 31 because their inclusion would be anti-dilutive as follows:
Schedule
of Income and Loss Per Share Anti-dilutive
| |
2021 | | |
2020 | |
Restricted stock awards | |
| 11,500,000 | | |
| - | |
Convertible promissory notes and accrued interest | |
| 3,947,394 | | |
| 747,032 | |
Series A warrants issued with convertible promissory
notes | |
| 1,921,304 | | |
| 353,804 | |
Series B warrants to be issued upon exercise
of Series A warrants | |
| 1,921,304 | | |
| 353,804 | |
Warrants issued for services | |
| 100,000 | | |
| - | |
Stock options | |
| - | | |
| 385,000 | |
Total potential future
shares | |
| 19,390,002 | | |
| 1,839,640 | |
Recent
Accounting Pronouncements
The
Company’s management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by the
Company and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s
consolidated financial condition or the results of its operations.
Note
2 – Related Party Transactions
The
Company incurred approximately $199,000 and $180,000 for years ended December 31, 2021 and 2020, and paid approximately $202,000 and
$112,000, respectively, to M1 Advisors for the services of the Company’s CEO and miscellaneous operating expenses.
Note
3 – Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses as of December 31, are as follows:
Schedule of Accounts Payable and Accrued Expenses
| |
2021 | | |
2020 | |
Accounts payable | |
$ | 221,000 | | |
$ | 316,000 | |
Accrued expenses | |
| 99,000 | | |
| 255,000 | |
Accrued interest | |
| 114,000 | | |
| 40,000 | |
Accounts payable and
accrued expenses | |
$ | 434,000 | | |
$ | 611,000 | |
Accrued
Interest
The
following table presents the details of accrued interest of December 31:
Schedule
of Accrued Interest
|
|
2021 |
|
|
2020 |
|
Notes
payable |
|
$ |
9,000 |
|
|
$ |
1,000 |
|
Convertible
promissory notes |
|
|
105,000 |
|
|
|
39,000 |
|
Balance,
end of the year |
|
$ |
114,000 |
|
|
$ |
40,000 |
|
Note
4 – Notes Payable
The
table below summarizes the transactions for the years ended December 31:
Schedule
of Notes Payable
| |
2021 | | |
2020 | |
Balance, beginning of the year | |
$ | 11,000 | | |
$ | - | |
Additions | |
| 150,000 | | |
| 11,000 | |
Payments | |
| (50,000 | ) | |
| - | |
Balance, end of the
year | |
$ | 111,000 | | |
$ | 11,000 | |
On
January 11, 2021, the Company issued a promissory note in the principal amount of $15,000. The interest on this note shall accrue beginning
from the date of issuance, at an interest rate of 8% per annum. The principal and any accrued interest are payable on or before March
11, 2022. During any event of default under the note, the interest rate shall increase to 10% per annum. Events of default include failure
to pay principal or interest, breach of covenants, breach of representations and warranties, borrower’s assignment of substantial
part of its property or business, any money judgment, writ, or similar process shall be entered or filed against the borrower or any
subsidiary of the borrower or any of its properties or other assets for more than $100,000, bankruptcy, liquidation of business, and
cessation of operations. The principal and the accrued interest amounting to $15,000 and $1,000, respectively, was settled on October
27, 2021.
On
February 19, 2021, the Company issued a promissory note in the principal amount of $25,000. The interest on the unpaid principal balance
accrues at a rate of 10% per annum. The principal and any accrued interest shall be paid in a single installment on or before February
19, 2022. If the Company fails to pay the balance of this note in full on the due date or fails to make any payment due within 15 days
of the due date, any unpaid principal shall accrue interest at the rate of 15% per annum during the default (default interest). Events
of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy,
appointment of a receiver, custodian, trustee or similar party to take possession of the Company’s assets or property, or assignment
made by the Company for the benefit of creditors. The principal amount outstanding under this note was $25,000 as of December 31, 2021.
Interest accrued as of December 31, 2021 is $2,000.
On
April 5, 2021, the Company issued a promissory note in the principal amount of $9,000. The interest on the unpaid principal balance accrues
at a rate of 8% per annum. If the Company fails to pay the balance of this note in full on the date or fails to make any payments due
within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 8% per annum during the default. Events of
default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment
of a receiver, custodian, trustee or similar party to take possession of the Company’s assets or property, or assignment made by
the Company for the benefit of creditors. The principal and accrued interest under this note was settled September 16, 2021.
On
April 22, 2021, the Company issued a promissory note in the principal amount of $50,000. The interest on the unpaid principal balance
accrues at a rate of 10% per annum. The principal and any accrued interest shall be paid in a single installment on or before April 22,
2022. If the Company fails to pay the balance of this note in full on the date or fails to make any payments due within 15 days of the
due date, any unpaid principal shall accrue interest at the rate of 15% per annum during the default. Events of default include failure
to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver,
custodian, trustee or similar party to take possession of the Company’s assets or property, or assignment made by the Company for
the benefit of creditors. The principal amount outstanding under this note was $50,000 as of December 31, 2021. Interest accrued as of
December 31, 2021 is $2,000.
On
July 1, 2021, the Company issued a promissory note in the principal amount of $25,000. The interest on the unpaid principal balance accrues
at a rate of 10% per annum. The principal and any accrued interest shall be paid in a single installment on or before July 1,2022. If
the Company fails to pay the balance of this note in full on the date or fails to make any payments due within 15 days of the due date,
any unpaid principal shall accrue interest at the rate of 15% per annum during the default (default interest). Events of default include
failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver,
custodian, trustee or similar party to take possession of the Company’s assets or property, or assignment made by the Company for
the benefit of creditors. The principal amount outstanding under this note was $25,000 as of December 31, 2021. Interest accrued as of
December 31, 2021 is $1,000.
On
July 12, 2021, the Company issued a promissory note in the principal amount of $5,000.
The interest on the unpaid principal balance accrues at a rate of 8% per annum. The principal and any accrued interest shall be paid in a single installment on or before October 12, 2021. The
principal amount of this note was settled on September 16, 2021.
On
August 10, 2021, the Company issued a promissory note in the principal amount of $7,000. The interest on the unpaid principal balance
accrues at a rate of 8% per annum. The principal and any accrued interest shall be paid in a single installment on or before November
10, 2021.The principal amount of this note was settled on September 16, 2021.
In
August 2021, the Company issued four promissory notes to a single lender in the aggregate principal amount of $14,000. The interest on
the unpaid principal balance of these notes accrues at a rate of 8% per annum. The principal for each note shall be paid in a single
installment during November 2021. If the Company fails to pay the balance of these notes in full on the date or fails to make any payments
due within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 8% per annum during the default. Events
of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy,
appointment of a receiver, custodian, trustee, or similar party to take possession of the Company’s assets or property, or assignment
made by the Company for the benefit of creditors. The principal amount outstanding under these notes was $13,500 as of September 30,
2021. The principal and the accrued interest aggregating to $14,000 was settled in October 2021.
During
the year ended December 31, 2020, the Company issued a promissory note for $11,000. The total proceeds were $10,000, due to approximately
$1,000 for an original issue discount. This promissory note is non-interest bearing with the principal due and payable in August 2020.
Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10% per annum (default interest). The original
issue discount was amortized over the term of the note, which was one month. The Company is in default on this promissory note as of
December 31, 2021. The principal and accrued interest amounted to $11,000 and $2,000, as of December 31, 2021 and $11,000 and nil as
of December 31, 2020, respectively.
Interest
expense on notes payable amounted to $8,000
and $1,000
as of December 31, 2021 and 2020, respectively.
Note
5 – Convertible Promissory Notes
During
the year ended December 31, 2021, the Company issued two convertible promissory notes amounting to $55,000 and $3,850,000 (the “Notes”),
respectively. The total aggregate proceeds were $3,550,000 due to a $355,000 aggregate original issue discount. The Notes are non-interest
bearing with the principal due and payable on March 1, 2022 and August 31, 2022, respectively. Any amount of unpaid principal on the
date of maturity will accrue interest at rate of 10% per annum (default interest). The principal amount and all accrued interest are
convertible into shares of the Company’s common stock, as of the date of issuance, at a rate of $1.00 and $1.25 per share (“Conversion
Rate”), respectively. The Conversion Rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or
unconverted, the Company issues or sells any shares of the Company’s common stock for no consideration or for a consideration per
share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which
is less than the Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive
Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share
received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a
breach or default under any other agreement, any money judgment, writ, or similar process entered or filed against the Company or any
of its property or other assets for more than $100,000, bankruptcy filing, application for the appointment of a custodian, trustee or
receiver, insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination of the business of the Company.
In
connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants (the “Warrants”)
to purchase an aggregate of 1,567,500 shares of the Company’s common stock for a purchase price of $1.50 to $1.87 per share, subject
to adjustments. The Warrants were valued using the Black Scholes option pricing model for a total fair value of $3,004,000 based on a
3-year term, volatility of 404.91% to 405.93%, a risk-free equivalent yield of 0.27% to 0.42%, and stock price ranging from $0.10 to
$1.95.
In
accordance with ASC 470 - Debt, the Company has allocated the cash proceeds amounts of the Notes among the Notes, the Warrants and the
conversion feature. The relative fair value of the Warrants issued amounted to approximately $1,690,000 and the beneficial conversion
amounted to $0, which amounts are being amortized and expensed over the term of the Notes.
During
the year ended December 31, 2020, the Company issued convertible promissory notes in the amount of $213,000
(the “Notes”). The total cash
proceeds were approximately $60,000,
approximately $147,000
from the conversion of Series A Preferred Stock
into convertible promissory note and approximately $6,000
original issue discount (“OID”).
The Notes are non-interest bearing with the principal due and payable starting in February
2021. Any amount of unpaid principal on the date
of maturity will accrue interest at rate of 10%
per annum (default interest). The principal amount and all accrued interest are convertible into shares of the Company’s common
stock, as of the date of issuance, at a rate of $1.00
per share (“Conversion Rate”). The
conversion rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company issues
or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction of reasonable
expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the Conversion Rate in effect
on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”). Immediately
upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share received by the Company in
such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a breach or default under any
other agreement, any money judgment, writ or similar process entered or filed against the Company or any its property or other assets
for more than $100,000,
bankruptcy filing, application for the appointment of a custodian, trustee or receiver, insolvency, the Company’s common stock
delisted, or dissolution, winding up, or termination of the business of the Company.
In
connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants to purchase an aggregate
of 359,000
shares of the Company’s common stock
for a purchase price of $1.50
per share, subject to adjustments.
In
accordance with ASC 470 - Debt, the Company has accounted for the issuance of the Notes as an extinguishment of the series A preferred
stock. Under extinguishment accounting, the difference between the fair value of the Notes and book basis of the series A preferred stock
of $86,000 was accounted for as a loss on extinguishment. Also, the fair value of the Warrants of $52,000 was recorded as a loss on extinguishment.
The difference between the fair value of the Notes and the face value of the notes of $58,000 was recorded as additional paid on capital.
In addition, the Company has allocated the cash proceeds amounts of the Notes among the Notes, the warrants and the conversion feature.
The relative fair value of the warrants issued totaled approximately $3,000 and of the beneficial conversion totaled approximately $0,
which amounts are being amortized and expensed over the term of the Notes.
Financing
cost recognized for the amortization of debt discount was approximately $524,000
and $187,000
for the years ended December 31, 2021 and
2020, respectively.
The
Company determined that the conversion feature of the Notes would not be an embedded feature to be bifurcated and accounted for as a
derivative in accordance with ASC 815-15 Derivatives and Hedging.
The
convertible promissory notes consisted of the following as of December 31:
Schedule
of Convertible Promissory Notes
| |
2021 | | |
2020 | |
Principal | |
| | | |
| | |
Balance, beginning of year | |
$ | 708,000 | | |
$ | 506,000 | |
Additions | |
| 3,905,000 | | |
| 202,000 | |
Balance, end of year | |
| 4,613,000 | | |
| 708,000 | |
| |
| | | |
| | |
Discount | |
| | | |
| | |
Balance, beginning of year | |
| 5,000 | | |
| 183,000 | |
Additions | |
| 2,045,000 | | |
| 10,000 | |
Amortization | |
| (524,000 | ) | |
| (188,000 | ) |
Balance, end of year | |
| 1,526,000 | | |
| 5,000 | |
Net carrying amount | |
$ | 3,087,000 | | |
$ | 703,000 | |
Effective
interest rate used to amortize the debt discount for the years ended December 31, 2021 and 2020 ranges from 4.76%
to 64.60%.
The unamortized debt discounts will be amortized
within one year as of December 31, 2021 and 2020, respectively.
Potential
future shares to be issued on conversion of the notes as December 31, 2021 and 2020 are as follows:
Schedule
of Potential Future Shares Issuance of Conversion Notes
| |
2021 | | |
2020 | |
Principal | |
$ | 4,613,000 | | |
$ | 708,000 | |
Interest | |
| 105,000 | | |
| 39,000 | |
Total | |
| 4,718,000 | | |
| 747,000 | |
Conversion price per share | |
| 1.00
– 1.25 | | |
| 1.00 | |
Potential future share | |
| 3,947,394 | | |
| 747,032 | |
Interest
expense on default convertible promissory notes amounted to $65,000 and $39,000 for the year ended December 31, 2021 and 2020, respectively.
Note
6 – Commitments and Contingencies
Technology
Development Agreement
On
December 23, 2021, AIQ entered into a Technology Development Agreement (the “Agreement”) with PICOCEL, Co., Ltd. (the “Contractor”
or “PICOCEL”) to develop a FPGA based Bitcoin mining simulation system. The Agreement is expected to be completed
within 6 weeks for a total contract price of 198,000,000
Korean Won (“KRW”) or approximately
$167,000.
As of December 31, 2021, AIQ have made payments amounting to approximately $42,000.
The remaining payments as of December 31, 2021 are scheduled, as follows:
Schedule
of Remaining Payments
| |
Amount | |
| |
USD | | |
KRW | |
Within 14 days after signing the
contract | |
| 42,000 | | |
| 49,500,000 | |
Within 14 days after
delivery of the first set of PM103 FPGA prototype board | |
| 83,000 | | |
| 99,000,000 | |
Total | |
| 125,000 | | |
| 148,500,000 | |
Litigation
From
time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business.
In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not
currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have
a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation
be resolved unfavorably, except as follows.
On January
3, 2022, a complaint was filed against our company in the Superior Court of California, County of Los Angeles titled Michael Sekula
v. CalEthos Inc, Michael Campbell and Does 1-25 (Case No. 22STCV00121) for, among other matters, failure to pay wages, fraud and other
wage-related claims. In the complaint, the plaintiff claims he worked under a consulting agreement as Vice President of Brand Management
of our company and was to be paid $4,000 per month and to receive an option to purchase 50,000 shares of our common stock that was to
vest quarterly over the term of the agreement. In the complaint, the plaintiff alleges that, on or around March 27, 2020, we ceased paying
the plaintiff despite the plaintiff’s continuing efforts on behalf of our company and that we agreed to continue to accrue his monthly
retainer amount until such time that we received at least $100,000 in funding. Plaintiff further alleges that he continued to work for
our company for 38 additional weeks in reliance on our promise of payment. The plaintiff claims that our refusal to make the promised
payments amounts to violations of the California labor laws and seeks damages in excess of $450,000.
We intend to dispute these claims
and to defend this litigation vigorously. However, due to the inherent uncertainties of litigation, the ultimate outcome of this litigations
is uncertain. An unfavorable outcome in this litigation could materially and adversely affect our business, financial condition and results
of operations.
Business
Interruption
The
continuing COVID-19 global pandemic has caused significant disruption to the economy and financial markets globally, and the full extent
of the potential impacts of COVID-19 are not yet known. Circumstances caused by the COVID-19 pandemic are complex, uncertain and rapidly
evolving. The impact of COVID-19 has not been significant to the Company’s results of operations, financial condition, and liquidity
and capital resources. Although no material impairment or other effects have been identified to date, there is substantial uncertainty
in the nature and degree of its continued effects over time. That uncertainty affects management’s accounting estimates and assumptions,
which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and
information become known. The Company will continue to consider the potential impact of the COVID-19 pandemic on its business operations.
Note
7 – Stockholders’ Deficit
Shares
Authorized
The
Company is authorized to issue 200,000,000 shares of which 100,000,000 shares shall be preferred stock, par value $0.001 per share, and
100,000,000 shares shall be common stock, par value $0.001 per share.
Preferred
Stock
Series
A Convertible Preferred Stock
The
Series A Convertible Preferred Stock (“Series A”) is convertible into shares of the Company’s common stock at the rate
of $1.38 per share, subject to adjustments based on the Company’s future sales of financial instruments at a value less than $1.38
per share. The holders of the Series A have the right to convert any time after the date of issuance. With the issuance of the convertible
promissory notes, as explained in Note 5 above, the Series A’s conversion rate adjusted to $1.00 per share. In accordance with
ASC 470, the Company has calculated the effect of the conversion rate adjustment, which was approximately $36,000. The conversion rate
adjustment has been treated as a deemed dividend, which has been presented in the Statement of Changes in Stockholders’ Deficit.
The
Series A is mandatorily convertible upon (i) the closing of the sale of shares of the Company’s common stock to the public in an
underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting
in at least $10,000,000
of gross proceeds to the Company, (ii) the
close of business on the sixtieth consecutive day on which the closing price of the Company’s common stock on the OTC Markets is
at least $2.80 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other
similar recapitalization with respect to the common stock, or (iii) the affirmative vote of the holders of at least 66⅔%
of the outstanding shares of Series A, given at a meeting of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders all outstanding shares of Series A shall automatically be converted into shares of the Company’s common
stock, at the then effective conversion rate.
On
any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company
(or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A shall be entitled to cast the
number of votes equal to the number of whole shares of common stock into which the shares of Series A held by such holder are convertible
as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions
of the Articles of Incorporation, holders of Series A shall vote together with the holders of common stock as a single class.
From
and after the date of the issuance of any shares of Series A, a cumulative dividend on each outstanding share of Series A Preferred Stock
shall accrue at a rate per annum equal to ten percent of the Series A original issue price. Accrued dividends on the Series A shall be
paid in shares of the Company’s common stock, such shares to be valued for such purpose at the applicable series A conversion price.
On
February 11, 2020, the Company converted 85,975 shares of Series A into a Convertible Promissory Notes in the principal amount approximately
$147,000.
Common
Stock
In
January 2021, the Company’s President and a member of the Board of Directors, resigned as an officer and director of the Company
(“Termination Agreement”). Part of the Termination Agreement stipulates the return of 3,674,330 shares of the Company’s
common stock (“Cancelled Shares”). The Cancelled Shares were returned and cancelled on April 20, 2021.
In
March 2021, the Company’s Chief Executive Officer (“CEO’) agreed to forgive approximately $68,000 due to him, which
was treated as contributed paid in capital.
In
March 2021, the Company’s Chief Financial Officer agreed to reduce the amounts due to him from approximately $128,000 to $30,000.
For the reduction of $98,000, the Company will issue 75,000 shares of common stock. The remaining liability of $30,000 will be paid in
cash.
In
September 2021, the Company entered into a release agreement with one of its consultants. As part of the separation payment, the Company
issued 25,000
shares valued at $76,000
and paid $20,000 cash
in October 2021.
Restricted
Common Stock Awards
On
August 17, 2021, the Company entered into Restricted Share Award Agreements (the “Award Agreements”) with two consultants
pursuant to which the Company issued to the consultants shares of common stock of the Company in exchange for their future services.
The Awards have an initial term of one year, which shall be automatically renewed on a year-to-year basis unless either party gives a
written notice of termination. The two consultants who entered into these agreements include:
|
1) |
A
consultant who was granted 10,000,000 restricted share awards. |
|
2) |
An
entity, which is owned by the Company’s CEO and majority shareholder, was granted 1,500,000 restricted share awards. |
As
indicated in the Awards Agreement, fifty percent (50%) of the shares shall vest upon the completion of the first two development phases
of a 5 nanometer ASIC chip that includes the “FPGA Simulation” and “Tape Out”, and the remaining fifty (50%)
of the shares shall vest upon the completion of the next phases of the chip development that include the completion of the Foundry Mask
for production in the semiconductor foundry, initial production run of chips and the completion of a bitcoin mining system ready for
sale to customers. Should the Company not raise sufficient capital to complete the Foundry Mask within 6 months of completing the first
two development phases, then 100%
of the shares shall be considered vested.
The
Company’s management has accounted for the Award Grants as restricted stock compensation in accordance with ASC 718 – Stock
Compensation (“ASC 718”). ASC 718 requires the Company to estimate the service period over which the compensation cost will
be recognized. Management has estimated that the first two development phases will be completed within 15 months and the Foundry Mask
will be completed within 6 months for a total of 21 months service period. Compensation cost will be recognized ratably over 21 months
and in the same manner had the Company paid in cash. The estimated service period will be adjusted for changes in actual and expected
completion dates. Any such change will be recognized prospectively, and the remaining deferred compensation will be recognized over the
remaining service period.
As
of December 31, 2021, a total of 11,500,000
shares were issued to the consultants.
The value was $1.93
per share on the date of issuance (“Grant
Date”) for an aggregate fair value of $22,195,000
The
stock-based award compensation was recorded as an increase in deferred compensation expense, common stock, and additional paid-in capital
in the Company’s books at the time of the grant.
The
table below summarizes the transactions related to the Company restricted stock awards as of December 31, 2021:
Schedule
of Company Restricted Stock Awards
| |
Shares | | |
Deferred
compensation | |
Grant date fair value | |
| 11,500,000 | | |
$ | 22,195,000 | |
Accretion | |
| - | | |
| (4,791,000 | ) |
Balance as of December 31, 2021 | |
| 11,500,000 | | |
$ | 17,404,000 | |
Issuance
of Stock Options and Warrants
In
February 2021, the Company signed a new consulting agreement that granted one of its shareholders an option to purchase 750,000 shares
of the Company’s common stock at $0.001 per share for the consultancy work provided from August 2020 to February 2021. The options
were fully vested on the date of issuance. The fair value of the options was approximately $52,000, as of the grant date, of which approximately
$38,000 was expensed and accrued during the year ended December 31, 2020 and $14,000 was expensed for the year ended December 31, 2021.
In
May 2021, the Company signed a letter of understanding that granted one of its shareholders an option to purchase 300,000 shares of the
Company’s common stock at $0.001 per share for the consultancy work provided during the Company’s restructuring phase from
February 17, 2021 through April 30, 2021. The options were fully vested on the date of issuance. The fair value of the options was approximately
$561,000, as of grant date, which was expensed during the year ended December 31, 2021.
In
May 2021, an option holder exercised three options for 385,000, 750,000 and 300,000 shares of the Company’s common stock at an
exercise price of $0.001 for each option, for total proceeds of approximately $2,000.
The
table below summarizes the Company’s stock option activities for the years ended December 31, 2021 and 2020 (all share and per
share data reflects the reverse stock split):
Schedule
of Stock Option Activities
| |
Number
of Stock
Option Shares | | |
Exercise Price Range
Per Share | | |
Weighted Average Exercise Price | | |
Relative Fair Value | | |
Aggregate Intrinsic Value | |
Balance, January 1, 2020 | |
| 569,800 | | |
$ | – | | |
$ | 4.05 | | |
$ | – | | |
$ | 423,000 | |
Granted | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Forfeited | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Expired | |
| (184,800 | ) | |
| 12.50 | | |
| 12.50 | | |
| – | | |
| – | |
Balance, December 31, 2020 | |
| 385,000 | | |
| – | | |
| 0.001 | | |
| – | | |
| 7,315 | |
Granted | |
| 1,050,000 | | |
| 0.001 | | |
| 0.001 | | |
| 1.94 | | |
| – | |
Forfeited | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Exercised | |
| (1,435,000 | ) | |
| 0.001 | | |
| 0.001 | | |
| – | | |
| – | |
Expired | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Balance, December 31, 2021 | |
| – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
Vested and exercisable, December 31, 2021 | |
| – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
Unvested, December 31, 2021 | |
| – | | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
On
September 15, 2021, the Company issued warrants to purchase 100,000 shares of the Company’s common stock. For the year ended December
31, 2021, the compensation expense, classified as professional fees in the consolidated statement of operations and comprehensive loss,
was $195,000, which was calculated using the Black Scholes fair value option-pricing model with key input variables provided by management,
as of the date of issuance: volatility of 359%, fair value of common stock $1.95, estimated life of 3 years, risk free rate of 0.43%
and dividend rate of $0.
The
table below summarizes the Company’s warrant activities for the years ended December 31, 2021 and 2020 (all share and per share
data reflects the reverse stock split):
Schedule
of Warrants Activity
| |
Number
of Shares | | |
Weighted
Average Strike Price/Share | | |
Weighted
Average Remaining Contractual Term (Years) | | |
Weighted
Average Grant Date Fair Value/Share | | |
Aggregate Intrinsic Value | |
Balance, January 1, 2020 | |
| 253,000 | | |
$ | 1.50 | | |
| 2.81 | | |
$ | 0.30 | | |
$ | – | |
Granted | |
| 100,804 | | |
| 1.50 | | |
| 3.05 | | |
| 0.33 | | |
| – | |
Forfeited | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Expired | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Balance, December 31, 2020 | |
| 353,804 | | |
| 1.50 | | |
| 2.88 | | |
| 0.18 | | |
| – | |
Vested and exercisable, December 31, 2020 | |
| 353,804 | | |
| 1.50 | | |
| 2.88 | | |
| 0.18 | | |
| – | |
Unvested, December 31, 2020 | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2020 | |
| 353,804 | | |
| 1.50 | | |
| 2.88 | | |
| 0.18 | | |
| – | |
Granted | |
| 1,667,500 | | |
| 1.86 | | |
| 3.00 | | |
| 1.67 | | |
| 0.11 | |
Forfeited | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Expired | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
Balance, December 31, 2021 | |
| 2,021,304 | | |
| 1.80 | | |
| 2.98 | | |
| 1.14 | | |
| 0.17 | |
Vested and exercisable, December 31, 2021 | |
| 2,021,304 | | |
| 1.80 | | |
| 2.98 | | |
| 1.14 | | |
| 0.17 | |
Unvested, December 31, 2021 | |
| – | | |
$ | – | | |
| – | | |
$ | – | | |
$ | – | |
The
following table sets forth the weighted-average assumptions used to estimate the fair value of warrants granted for the year ended December
31:
Schedule
of Fair Value of Warrants
| |
2021 | | |
2020 | |
Expected life (in years) | |
| 3 | | |
| 2.33
- 3.25 | |
Risk-free interest rate | |
| 0.27%
- 0.42 | % | |
| 0.18%
- 2.49 | % |
Expected volatility | |
| 405%
- 406 | % | |
| 378%
- 424 | % |
Dividend yield | |
| 0.00 | % | |
| 0.00 | % |
Stock price | |
| $
0.10 – 1.95 | | |
| $
0.11
– 1.60 | |
Note
8 – Deferred Tax Assets and Income Tax Provision
Deferred
Tax Assets
At
December 31, 2021, the Company had net operating loss (“NOL”) carry forwards for Federal income tax purposes of $3,354,000
that may be offset against future taxable income. No tax benefit has been reported with respect to these net operating loss carry-forwards
in the accompanying financial statements because the Company believes that the realization of the Company’s net deferred tax assets
of approximately $2,490,000 was not considered more likely than not and accordingly, the potential tax benefits of the net operating
loss carry-forwards are fully offset by a full valuation allowance. Federal NOL’s have an indefinite carryover period and state
NOL’s begin to expire at 12-31-2040 if not utilized by then.
Deferred
tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred
tax assets because of the uncertainty regarding its realization. The valuation allowance increased by approximately $2,191,000
and $93,000
for the reporting periods ended December 31, 2021 and 2020,
respectively.
Components
of deferred tax assets are as follows as of December 31:
Schedule
of Components of Deferred Tax Assets
| |
2021 | | |
2020 | |
Net deferred tax assets – Non-current: | |
| | | |
| | |
| |
| | | |
| | |
Stock-based compensation | |
$ | 1,488,000 | | |
$ | - | |
| |
| | | |
| | |
Expected income tax benefit from
NOL carry-forwards | |
$ | 1,002,000 | | |
$ | 299,000 | |
| |
| | | |
| | |
Less valuation allowance | |
| (2,490,000 | ) | |
| (299,000 | ) |
| |
| | | |
| | |
Deferred tax assets,
net of valuation allowance | |
$ | - | | |
$ | - | |
Income
Tax Provision in the Statements of Operations
A
reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes
is as follows for the years ended December 31:
Schedule of Reconciliation of Income Tax
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
Federal
statutory income tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
|
|
|
|
|
|
|
|
|
Change
in valuation allowance on net operating loss carry-forwards |
|
|
(21.0 |
) |
|
|
(21.0 |
) |
|
|
|
|
|
|
|
|
|
Effective
income tax rate |
|
|
0.0 |
% |
|
|
0.0 |
% |
Note
9 – Subsequent Events
The
Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued
to determine if they must be reported. The management of the Company determined the following reportable events:
Technology Development Agreement
In relation to the Technology Development Agreement
entered on December 23, 2021, AIQ has made payments to PICOCEL amounting to approximately $42,000 as of the date of this report.
Notes Payable
Subsequent to December 31, 2021, the Company had
made payments to its notes payable holders amounting to $25,000.
As of March 1, 2022, the Company did not pay the
outstanding balance of $55,000 due and payable for a convertible promissory note. As per the promissory note, any unpaid balance as of
maturity accrues interest at a rate of 10.0% per annum.