UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from __________ to __________ |
Commission
File No.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☐ | Accelerated filer |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐
As of May 11, 2022, there were outstanding shares of the registrant’s common stock, par value $0.001 per share.
TABLE OF CONTENTS
| i |
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
CalEthos, Inc.
For the Three Months Ended March 31, 2022
Index to the Condensed Consolidated Financial Statements
| ii |
CalEthos, Inc.
Condensed Consolidated Balance Sheets
| As of March 31, 2022 | As of December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Intangible assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable | ||||||||
| Convertible promissory notes, net | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit | ||||||||
| Series A convertible preferred stock, par value $, shares authorized; shares issued and outstanding | ||||||||
| Preferred stock, par value $, shares authorized; shares issued and outstanding | ||||||||
| Common stock, par value $, shares authorized; shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||
| Stock subscription receivable | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements.
| 1 |
CalEthos, Inc.
Unaudited Condensed Consolidated Statements of Operations
For the Three Months Ended March 31,
| 2022 | 2021 | |||||||
| Revenues | $ | $ | ||||||
| Operating expenses | ||||||||
| Professional fees | ||||||||
| General and administrative expenses | ||||||||
| Operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses | ||||||||
| Financing cost | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive income (loss) | ( | ) | - | |||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding - basic and diluted | ||||||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements.
| 2 |
CalEthos, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Deficit
For the Three Months Ended March 31, 2022
Series A Convertible Preferred Stock | Common Stock | Additional Paid-In | Stock Subscription | Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Loss | Deficit | Deficit | ||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Stock based compensation on restricted stock awards | – | – | ||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
For the Three Months Ended March 31, 2021
| Series
A Preferred Shares | Common Stock | Additional Paid-in | Stock Subscription | Accumulated | Total Stockholders | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | Deficit | |||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Relative fair value of warrants issued with convertible promissory notes | - | - | ||||||||||||||||||||||||||||||
| Stock options issued for services | - | - | ||||||||||||||||||||||||||||||
| Stocks issued from debt forgiveness | - | |||||||||||||||||||||||||||||||
| Additional capital from debt forgiveness | - | - | ||||||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements.
| 3 |
CalEthos, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Amortization of convertible promissory note discounts | ||||||||
| Stock based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from the issuance of convertible promissory notes | ||||||||
| Proceeds from the issuance of notes payable | ||||||||
| Payment of notes payable | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-Cash investing and financing activities | ||||||||
| Reclassification of other assets to intangible assets | $ | $ | ||||||
| Relative fair value of warrants issued with convertible promissory notes | $ | $ | ||||||
| Accrued equity compensation granted | $ | $ | ||||||
| Common stock issued from forgiven debt | $ | $ | ||||||
| Additional capital from forgiven debt | $ | $ | ||||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements.
| 4 |
CalEthos, Inc.
Unaudited Condensed Consolidated Notes to the Financial Statements
March 31, 2022
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.
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 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 to 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 million
shares of common stock. At the date of incorporation, shares
were issued to the Company for Korean Won,
or approximately $
AIQ is in the business of (1) developing and manufacturing computer chips and systems, (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 Condensed Consolidated Financial Statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The December 31, 2021 condensed balance sheet data was derived from financial statements but does not include all disclosures required by GAAP. These interim unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim three-month period ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or for any future period.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2021, included in the Company’s annual report on Form 10-K filed with the SEC on March 31, 2022.
| 5 |
Liquidity and Going Concern
The
Company incurred a net loss of approximately $
The Company’s condensed 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.
COVID-19
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.
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 loss per share in the future were not included in the computation of diluted loss per share for the three months ended March 31, 2022 and 2021 because their inclusion would be anti-dilutive. Common share equivalents amounted to and as of March 31, 2022 and 2021, respectively.
| 6 |
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 condensed consolidated financial condition or the results of its operations.
Note 2 – Intangible and Other Assets
On
December 23, 2021, AIQ entered into a Technology Development Agreement (the “Agreement”) with PICOCEL, Co., Ltd. (the “Contractor”
or “PICOCEL”) to develop a Field Programable Gate Array (‘FPGA”) based Bitcoin mining simulation system.
The Agreement was expected to be completed within 6 weeks for a total contract price of
Note 3 – Accounts Payable and Accrued Expenses
The following table summarizes the Company’s accounts payable and accrued expense balances as of the dates indicated:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
Accrued Interest
The following table presents the details of accrued interest as of the dates indicated:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Notes payable | $ | $ | ||||||
| Convertible promissory notes | ||||||||
| Balance, end of the year | $ | $ | ||||||
Note 4 – Notes Payable
The table below summarizes the transactions as of the dates indicated:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Balance, beginning of the year | $ | $ | ||||||
| Additions | ||||||||
| Payments | ( | ) | ( | ) | ||||
| Balance, end of the year | $ | $ | ||||||
On
January 11, 2021, the Company issued a promissory note in the principal amount of $
| 7 |
On
February 19, 2021, the Company issued a promissory note in the principal amount of $
On
April 5, 2021, the Company issued a promissory note in the principal amount of $
On
April 22, 2021, the Company issued a promissory note in the principal amount of $
On
July 1, 2021, the Company issued a promissory note in the principal amount of $
On
July 12, 2021, the Company issued a promissory note in the principal amount of $
On
August 10, 2021, the Company issued a promissory note in the principal amount of $
In
August 2021, the Company issued four promissory notes to a single lender in the aggregate principal amount of $
Interest
expense on notes payable amounted to $
| 8 |
Note 5 – Convertible Promissory Notes
During
the year ended December 31, 2021, the Company issued two convertible promissory notes amounting to $
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
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 $
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.
Financing
cost recognized for the amortization of debt discount was approximately $
The convertible promissory notes consisted of the following as of the dates indicated:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Principal | ||||||||
| Balance, beginning of year | $ | $ | ||||||
| Additions | ||||||||
| Balance, end of year | ||||||||
| Discount | ||||||||
| Balance, beginning of year | ||||||||
| Additions | ||||||||
| Amortization | ( | ) | ( | ) | ||||
| Balance, end of year | ||||||||
| Net carrying amount | $ | $ | ||||||
| 9 |
Effective
interest rate used to amortize the debt discount for the three months ended March 31, 2022 and 2021 ranges from
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Principal | $ | $ | ||||||
| Interest | ||||||||
| Total | ||||||||
| Conversion price per share | ||||||||
| Potential future share | $ | $ | ||||||
Interest
expense on convertible promissory notes amounted to $
Note 6 – Stockholders Deficit
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 stipulated the return of 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 $
In
March 2021, the Company’s Chief Financial Officer agreed to reduce the amounts due to him from approximately $
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 restricted share awards. | |
| 2) | An entity, which is owned by the Company’s CEO and majority shareholder, was granted restricted share awards. |
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.
| 10 |
As
of December 31, 2021, a total of shares were issued to the consultants. The value was $ per share on the date of issuance
(“Grant Date”) for an aggregate fair value of $
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.
| Shares | Deferred compensation | |||||||
| Grant date fair value | $ | |||||||
| Accretion | ( | ) | ||||||
| Balance as of December 31, 2021 | $ | |||||||
Stock based compensation expense for the three months ended March 31, 2022 amounted to $. Stock based compensation expense for the year ended December 31, 2021 amounted to $.
Issuance of Stock Options and Warrants
As of March 31, 2022, a total of warrants expired.
In February 2021, the Company signed a new consulting agreement that granted one of its shareholders an option to purchase shares of the Company’s common stock at $ 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 $, as of the grant date, of which approximately $ was expensed and accrued during the year ended December 31, 2020 and $ was expensed during the three months ended March 31, 2021.
Note 7 – 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
On
April 5, 2022, AIQ entered into a Technology Development Agreement (the “Agreement”) with NNS, Co., Ltd. to develop a FPGA based Bitcoin mining simulation system. The Agreement is expected to be completed within 9 weeks
for a total contract price of
| Amount | ||||||||
| USD | KRW | |||||||
| Within 5 days after signing the contract | $ | |||||||
| Within 5 days after all conditions are met as stated in “Schedule B – Statement of Work” | ||||||||
| Total | $ | |||||||
| 11 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2021.
This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.”
Plan of Operations
As of the filing of this Report, it is the intention of the board of directors for our company to develop and manufacture high-performance computer systems that are scalable, upgradeable, and cost effective for processing cryptocurrencies, tokens and blockchain-based transactions. In November 2021, we established AIQ Systems, a subsidiary company in South Korea, and contracted an engineering design team to start the development of an ASIC chip, which we plan to incorporate into an industrial-grade immersion-cooled bitcoin mining system. Currently, the first phase of ASIC chip development is complete, we are now waiting for the release by one of the qualified semiconductor foundries of a low-voltage design kit that will allow us to move to the next phase of chip development. In parallel to chip development, we have been working with a number of vendors that can supply immersion-cooled systems that will be altered to accommodate the electrical distribution and cooling specifications we require to meet our system performance and energy consumption goals.
As we move through the chip and immersion-cooled bitcoin mining system development process, we will continue to refine and finalize the course of action needed to implement our business plan and operations. As a result, management has not fully determined our actual short-term or long-term capital requirements, which management expects to be substantial.
It is anticipated that we will incur expenses in the implementation of the business plan described herein, and such expenses will require substantial financing to complete the development of our ASIC chip and immersion-cooled bitcoin mining system and to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development plans, any commercialization efforts or other operations. We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs. In addition, even if we are able to obtain sufficient funding to commence our business operations, we may need to pursue additional financing in the future to make expenditures and/or investments to support the growth of our business and may require additional capital to pursue our business objectives and respond to new competitive pressures, pay extraordinary expenses or fund our growth, including through acquisitions. Additional funds, however, may not be available when we need them on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to commence our proposed business operations, to continue to grow and support our business and to respond to business challenges could be significantly limited.
We currently have only limited capital with which to pay these anticipated expenses. To fund our business plan going forward, we intend to raise funds from investors by issuing common stock, preferred stock and/or debt securities.
| 12 |
Results of Operations
The table summarizes the results of operations for the three months ended March 31:
| 2022 | 2021 | |||||||
| Revenues | $ | - | $ | - | ||||
| Operating expenses | ||||||||
| Professional fees | 3,415,000 | 73,000 | ||||||
| General and administrative expenses | 4,000 | 2,000 | ||||||
| Operating expenses | 3,419,000 | 75,000 | ||||||
| Loss from operations | (3,419,000 | ) | (75,000 | ) | ||||
| Other expenses | ||||||||
| Financing cost | (507,000 | ) | (17,000 | ) | ||||
| (507,000 | ) | (17,000 | ) | |||||
| Loss before provision for income taxes | (3,926,000 | ) | (92,000 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (3,926,000 | ) | $ | (92,000 | ) | ||
Revenues
The Company had no revenues for the three months ended March 31, 2022 and 2021.
Expenses
Operating expenses for the three months ended March 31, 2022 were $3,419,000, compared to $75,000 for the three months ended March 31, 2021. The increase of $3,344,000 or 4,459% pertained primarily to (1) the accretion of stock-based compensation related to the restricted stock awards issued to consultants totalling to $3,170,000 in relation to their services and (2) accretion of $90,000 for settling a legal case.
Liquidity and Capital Resources
The Company’s financial position as of March 31, 2022 and December 31, 2021 were as follows:
Working Deficit
| March 31, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Current assets | $ | 2,770,000 | $ | 3,054,000 | ||||
| Current liabilities | 4,143,000 | 3,632,000 | ||||||
| Working deficit | $ | (1,373,000 | ) | $ | (578,000 | ) | ||
At March 31, 2022, the Company had cash of approximately $2,749,000 and prepaid expenses of approximately $21,000. Working deficit increased by approximately $705,000 from December 31, 2021 to March 31, 2022.
Cash Flows
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (234,000 | ) | $ | (79,000 | ) | ||
| Net cash used in investing activities | (37,000 | ) | - | |||||
| Net cash provided by (used in) financing activities | (25,000 | ) | 90,000 | |||||
| Effect of exchange rate changes | (2,000 | ) | - | |||||
| Increase (decrease) in Cash during the Period | (298,000 | ) | 11,000 | |||||
| Cash, Beginning of Period | 3,047,000 | - | ||||||
| Cash, End of Period | $ | 2,749,000 | $ | 11,000 | ||||
| 13 |
Cash flows used in operating activities
Net cash used in operating activities increased by $155,000 or 196% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to (1) payment of consulting fees and other operating expenses, (2) payment for prepaid expenses and (3) payment of accounts payable and accrued expenses.
Cash flows used in investing activities
Net cash used in investing activities increased by $37,000 or 100% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to payments for design and development work for the Company’s ASIC chip.
Cash flows used in financing activities
Net cash used in financing activities increased to $25,000 during the three months ended March 31, 2022 due to repayment of notes payable. Net cash provided by investing activities increased to $90,000 during the three months ended March 31, 2021 due to proceeds from convertible promissory notes and notes payable amounting to $50,000 and $40,000, respectively.
Critical Accounting Policies
The preparation of condensed consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates.
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.
Foreign Currency Translation
The financial statements of our foreign subsidiary, 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.
Debt and Debt Discounts
In accordance with ASC 470-20, Debt with Conversion and Other Options, the Company first allocates the cash proceeds of the notes between the notes and the warrants on a relative fair value basis, secondly, proceeds are then allocated to the conversion feature.
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. 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.
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.
| 14 |
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.
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 condensed consolidated financial condition or the results of its operations.
Off-Balance Sheet Arrangements
As of March 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.
Based on their evaluation, the Certifying Officers concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective.
The material weakness related to internal control over financial reporting that was identified at March 31, 2022 was that we did not have sufficient personnel staffing in our accounting and financial reporting department. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements.
This control deficiency could result in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. However, our management believes that the material weakness identified does not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weakness had any effect on the accuracy of our financial statements included as part of this Quarterly Report.
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking action and implementing additional enhancements or improvements, as necessary and as funds allow.
| 15 |
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
| 16 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments in any of the legal proceedings discussed in Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 1A. Risk Factors
We are a small reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this item.
Item 2. Unregistered Securities Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
There have been no sales of unregistered securities within the period covered by this report that would be required to be disclosed pursuant to Item 701 of Regulation S-K.
Repurchases of Shares or of Company Equity Securities
None.
Item 3. Default Upon Senior Securities
None
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
None
Item 6. Exhibits
The following documents are filed as a part of this report or incorporated herein by reference:
| 17 |
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: May 16, 2022 | CalEthos, Inc. | |
| By: | /s/ Michael Campbell | |
| Name: | Michael Campbell | |
| Title: | Chief Executive Officer | |
| By: | /s/ Dean S Skupen | |
| Name: | Dean S Skupen | |
| Title: | Chief Financial Officer | |
| 18 |
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a)
I, Michael Campbell, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CalEthos, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 16, 2022
| By: | /s/ Michael Campbell | |
| Name: | Michael Campbell | |
| Title: | Chief Executive Officer |
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Rule 13a-14(a)
I, Dean S Skupen, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of CalEthos, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 16, 2022
| By: | /s/ Dean S Skupen | |
| Name: | Dean S Skupen | |
| Title: | Chief Financial Officer |
Exhibit 32.1
CALETHOS, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CalEthos, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Campbell, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| By: | /s/ Michael Campbell | |
| Name: | Michael Campbell | |
| Title: | Chief Executive Officer |
Date: May 16, 2022
Exhibit 32.2
CALETHOS, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CalEthos, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dean S Skupen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| By: | /s/ Dean S Skupen | |
| Name: | Dean S Skupen | |
| Title: | Chief Financial Officer |
Date: May 16, 2022
Cover - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
May 11, 2022 |
|
| Cover [Abstract] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Quarterly Report | true | |
| Document Transition Report | false | |
| Document Period End Date | Mar. 31, 2022 | |
| Document Fiscal Period Focus | Q1 | |
| Document Fiscal Year Focus | 2022 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity File Number | 000-50331 | |
| Entity Registrant Name | CalEthos, Inc. | |
| Entity Central Index Key | 0001174891 | |
| Entity Tax Identification Number | 98-0371433 | |
| Entity Incorporation, State or Country Code | NV | |
| Entity Address, Address Line One | 11753 Willard Avenue | |
| Entity Address, City or Town | Tustin | |
| Entity Address, State or Province | CA | |
| Entity Address, Postal Zip Code | 92782 | |
| City Area Code | (714) | |
| Local Phone Number | 352-5315 | |
| Entity Current Reporting Status | Yes | |
| Entity Interactive Data Current | Yes | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Small Business | true | |
| Entity Emerging Growth Company | false | |
| Entity Shell Company | false | |
| Entity Common Stock, Shares Outstanding | 25,995,621 |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 100,000,000 | 100,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common Stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 100,000,000 | 100,000,000 |
| Common stock, shares issued | 25,995,621 | 25,995,621 |
| Common stock, shares outstanding | 25,995,621 | 25,995,621 |
| Series A Convertible Preferred Stock [Member] | ||
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 3,600,000 | 3,600,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Income Statement [Abstract] | ||
| Revenues | ||
| Operating expenses | ||
| Professional fees | 3,415,000 | 73,000 |
| General and administrative expenses | 4,000 | 2,000 |
| Operating expenses | 3,419,000 | 75,000 |
| Loss from operations | (3,419,000) | (75,000) |
| Other expenses | ||
| Financing cost | (507,000) | (17,000) |
| Total other expenses | (507,000) | (17,000) |
| Loss before provision for income taxes | (3,926,000) | (92,000) |
| Provision for income taxes | ||
| Net loss | (3,926,000) | (92,000) |
| Other comprehensive income (loss) | (3,000) | |
| Comprehensive loss | $ (3,929,000) | $ (92,000) |
| Net loss per share | $ (0.15) | $ (0.01) |
| Weighted average number of shares outstanding - basic and diluted | 25,995,621 | 16,709,951 |
Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) |
Preferred Stock [Member]
Series A Convertible Preferred Stock [Member]
|
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Stock Subscription Receivable [Member] |
AOCI Attributable to Parent [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2020 | $ 17,000 | $ 8,744,000 | $ (2,000) | $ (10,082,000) | $ (1,323,000) | ||
| Balance, shares at Dec. 31, 2020 | 16,634,951 | ||||||
| Net Loss | (92,000) | (92,000) | |||||
| Relative fair value of warrants issued with convertible promissory notes | 3,000 | 3,000 | |||||
| Stock options issued for services | 52,000 | 52,000 | |||||
| Stocks issued from debt forgiveness | 98,000 | 98,000 | |||||
| Stocks issued for debt forgiveness, shares | 75,000 | ||||||
| Additional capital from debt forgiveness | 68,000 | 68,000 | |||||
| Balance at Mar. 31, 2021 | $ 17,000 | 8,965,000 | (2,000) | (10,174,000) | (1,194,000) | ||
| Balance, shares at Mar. 31, 2021 | 16,709,951 | ||||||
| Balance at Dec. 31, 2021 | $ 26,000 | 16,269,000 | (2,000) | $ (2,000) | (16,831,000) | (540,000) | |
| Balance, shares at Dec. 31, 2021 | 25,995,621 | ||||||
| Stock based compensation on restricted stock awards | 3,170,000 | 3,170,000 | |||||
| Foreign currency translation loss | (3,000) | (3,000) | |||||
| Net Loss | (3,926,000) | (3,926,000) | |||||
| Balance at Mar. 31, 2022 | $ 26,000 | $ 19,439,000 | $ (2,000) | $ (5,000) | $ (20,757,000) | $ (1,299,000) | |
| Balance, shares at Mar. 31, 2022 | 25,995,621 |
ORGANIZATION AND ACCOUNTING POLICIES |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Accounting Policies [Abstract] | |
| ORGANIZATION AND ACCOUNTING POLICIES | 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.
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 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 to 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 million shares of common stock. At the date of incorporation, shares were issued to the Company for Korean Won, or approximately $89,000, for 100% ownership of AIQ.
AIQ is in the business of (1) developing and manufacturing computer chips and systems, (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 Condensed Consolidated Financial Statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The December 31, 2021 condensed balance sheet data was derived from financial statements but does not include all disclosures required by GAAP. These interim unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim three-month period ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or for any future period.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2021, included in the Company’s annual report on Form 10-K filed with the SEC on March 31, 2022.
Liquidity and Going Concern
The Company incurred a net loss of approximately $3,926,000 for the three months ended March 31, 2022 and had an accumulated deficit of approximately $20,757,000 as of March 31, 2022. 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 condensed 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.
COVID-19
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.
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 loss per share in the future were not included in the computation of diluted loss per share for the three months ended March 31, 2022 and 2021 because their inclusion would be anti-dilutive. Common share equivalents amounted to and as of March 31, 2022 and 2021, respectively.
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 condensed consolidated financial condition or the results of its operations.
|
INTANGIBLE AND OTHER ASSETS |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Intangible And Other Assets | |
| INTANGIBLE AND OTHER ASSETS | Note 2 – Intangible and Other Assets
On December 23, 2021, AIQ entered into a Technology Development Agreement (the “Agreement”) with PICOCEL, Co., Ltd. (the “Contractor” or “PICOCEL”) to develop a Field Programable Gate Array (‘FPGA”) based Bitcoin mining simulation system. The Agreement was expected to be completed within 6 weeks for a total contract price of 198,000,000 Korean Won (“KRW”) or approximately $167,000. On March 17, 2022, the Company and PICOCEL entered into a mutual agreement to cancel and terminate the Agreement. As of the date of the termination, PICOCEL had completed the first phase of the Agreement upon delivery of the SHA-256 code and FPGA board simulator resulting to a reclassification of deposits amounting to $38,000 under other assets as of December 31, 2021 to intangible assets as of March 31, 2022. Additional payments were made to PICOCEL for the three months ended March 31, 2022 amounting to approximately $36,000. Total intangible assets amounted to $74,000 as of March 31, 2022.
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Note 3 – Accounts Payable and Accrued Expenses
The following table summarizes the Company’s accounts payable and accrued expense balances as of the dates indicated:
Accrued Interest
The following table presents the details of accrued interest as of the dates indicated:
|
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NOTES PAYABLE |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NOTES PAYABLE | Note 4 – Notes Payable
The table below summarizes the transactions as of the dates indicated:
On January 11, 2021, the Company issued a promissory note in the principal amount of $15,000. The interest on this note accrued beginning from the date of issuance, at an interest rate of 8% per annum. The principal and any accrued interest was 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 included 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 accrued at a rate of 10% per annum. The principal and any accrued interest was to be paid in a single installment on or before February 19, 2022. If the Company failed 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 was to accrue interest at the rate of 15% per annum during the default (default interest). Events of default included 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 was settled in full on January 25, 2022.
On April 5, 2021, the Company issued a promissory note in the principal amount of $9,000. The interest on the unpaid principal balance accrued at a rate of 8% per annum. If the Company failed to pay the balance of this note in full on the date or failed to make any payments due within 15 days of the due date, any unpaid principal was to 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 on 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 March 31, 2022. Interest accrued as of March 31, 2022 is $3,000.
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 March 31, 2022. Interest accrued as of March 31, 2022 is $2,000.
On July 12, 2021, the Company issued a promissory note in the principal amount of $5,000. The interest on the unpaid principal balance accrued at a rate of 8% per annum. The principal and any accrued interest was to 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 accrued at a rate of 8% per annum. The principal for each note was to be paid in a single installment during November 2021. If the Company failed to pay the balance of these notes in full on the date or failed to make any payments due within 15 days of the due date, any unpaid principal was to accrue interest at the rate of 8% per annum during the default. Events of default included 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.
Interest expense on notes payable amounted to $2,000 and $1,000 for the three months ended March 31, 2022 and 2021, respectively.
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CONVERTIBLE PROMISSORY NOTES |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONVERTIBLE PROMISSORY NOTES | 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 -year term, volatility of % to %, a risk-free equivalent yield of % to %, and stock price ranging from $ to $.
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.
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.
Financing cost recognized for the amortization of debt discount was approximately $487,000 and $2,000 for the three months ended March 31, 2022 and 2021, respectively.
The convertible promissory notes consisted of the following as of the dates indicated:
Effective interest rate used to amortize the debt discount for the three months ended March 31, 2022 and 2021 ranges from 4.76% to 64.60%. The unamortized debt discounts will be amortized within one and two years as of March 31, 2022 and 2021, respectively.
Interest expense on convertible promissory notes amounted to $18,000 and $14,000 for the three months ended March 31, 2022 and 2021, respectively.
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STOCKHOLDERS DEFICIT |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS DEFICIT | Note 6 – Stockholders Deficit
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 stipulated the return of 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 issued shares of common stock. The remaining liability of $30,000 was paid in cash.
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:
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 shares were issued to the consultants. The value was $ 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.
Stock based compensation expense for the three months ended March 31, 2022 amounted to $. Stock based compensation expense for the year ended December 31, 2021 amounted to $.
Issuance of Stock Options and Warrants
As of March 31, 2022, a total of warrants expired.
In February 2021, the Company signed a new consulting agreement that granted one of its shareholders an option to purchase shares of the Company’s common stock at $ 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 $, as of the grant date, of which approximately $ was expensed and accrued during the year ended December 31, 2020 and $ was expensed during the three months ended March 31, 2021.
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SUBSEQUENT EVENTS |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Subsequent Events [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SUBSEQUENT EVENTS | Note 7 – 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
On April 5, 2022, AIQ entered into a Technology Development Agreement (the “Agreement”) with NNS, Co., Ltd. to develop a FPGA based Bitcoin mining simulation system. The Agreement is expected to be completed within 9 weeks for a total contract price of 99,000,000 KRW, including 9,000,000 KRW VAT, or approximately $82,000. The payments are scheduled as follows:
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ORGANIZATION AND ACCOUNTING POLICIES (Policies) |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Accounting Policies [Abstract] | |
| Amendments to Certificate of Incorporation | 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 to AIQ Blockchain, Inc. The name change has not yet been effected.
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| Incorporation of Korean entity | Incorporation of Korean entity
On November 5, 2021, AIQ System Inc. (“AIQ”) was incorporated in Seoul, Republic of Korea. AIQ is authorized to issue million shares of common stock. At the date of incorporation, shares were issued to the Company for Korean Won, or approximately $89,000, for 100% ownership of AIQ.
AIQ is in the business of (1) developing and manufacturing computer chips and systems, (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.
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| Basis of Presentation | Basis of Presentation
The accompanying Condensed Consolidated Financial Statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The December 31, 2021 condensed balance sheet data was derived from financial statements but does not include all disclosures required by GAAP. These interim unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the interim three-month period ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022 or for any future period.
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2021, included in the Company’s annual report on Form 10-K filed with the SEC on March 31, 2022.
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| Liquidity and Going Concern | Liquidity and Going Concern
The Company incurred a net loss of approximately $3,926,000 for the three months ended March 31, 2022 and had an accumulated deficit of approximately $20,757,000 as of March 31, 2022. 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 condensed 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.
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| COVID-19 | COVID-19
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.
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| 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 loss per share in the future were not included in the computation of diluted loss per share for the three months ended March 31, 2022 and 2021 because their inclusion would be anti-dilutive. Common share equivalents amounted to and as of March 31, 2022 and 2021, respectively.
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| Recent Accounting Pronouncements | 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 condensed consolidated financial condition or the results of its operations. |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) |
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES | The following table summarizes the Company’s accounts payable and accrued expense balances as of the dates indicated:
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| SCHEDULE OF ACCRUED INTEREST | The following table presents the details of accrued interest as of the dates indicated:
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NOTES PAYABLE (Tables) |
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF NOTES PAYABLE | The table below summarizes the transactions as of the dates indicated:
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CONVERTIBLE PROMISSORY NOTES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CONVERTIBLE PROMISSORY NOTES | The convertible promissory notes consisted of the following as of the dates indicated:
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| SCHEDULE OF POTENTIAL FUTURE SHARES ISSUANCE OF CONVERSION NOTES |
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STOCKHOLDERS DEFICIT (Tables) |
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||
| SCHEDULE OF COMPANY RESTRICTED STOCK AWARDS |
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SUBSEQUENT EVENTS (Tables) |
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Subsequent Events [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PAYMENTS |
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ORGANIZATION AND ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | |||
|---|---|---|---|---|
Nov. 05, 2021 |
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
|
| Related Party Transaction [Line Items] | ||||
| Number of common stock issued | 100,000,000 | 100,000,000 | ||
| Shares were issued | 10,000 | |||
| Net loss | $ 3,926,000 | $ 92,000 | ||
| Accumulated deficit | $ 20,757,000 | $ 16,831,000 | ||
| Common share equivalents | 19,011,450 | 2,735,214 | ||
| KOREA, REPUBLIC OF | ||||
| Related Party Transaction [Line Items] | ||||
| Shares were issued | 100,000,000 | |||
| AIQ [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Number of common stock issued | 3,000,000 | |||
| AIQ [Member] | KOREA, REPUBLIC OF | ||||
| Related Party Transaction [Line Items] | ||||
| Shares were issued, value | $ 89,000 | |||
| Equity method investment, ownership percentage | 100.00% | |||
INTANGIBLE AND OTHER ASSETS (Details Narrative) |
3 Months Ended | |||
|---|---|---|---|---|
|
Dec. 23, 2021
USD ($)
|
Dec. 23, 2021
KRW (₩)
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Mar. 31, 2022
USD ($)
|
Mar. 31, 2021
USD ($)
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| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Reclassification of deposits and other assets | $ 38,000 | |||
| Technology Development Agreement [Member] | PICOCEL, Co., Ltd. [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Contract price | $ 167,000 | ₩ 198,000,000 | ||
| Reclassification of deposits and other assets | 38,000 | |||
| Additional payment of intangible assets | 36,000 | |||
| Intangible assets | $ 74,000 | |||
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accounts payable | $ 258,000 | $ 221,000 |
| Accrued expenses | 92,000 | 99,000 |
| Accrued interest | 133,000 | 114,000 |
| Accounts payable and accrued expenses | $ 483,000 | $ 434,000 |
SCHEDULE OF ACCRUED INTEREST (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Notes payable | $ 11,000 | $ 9,000 |
| Convertible promissory notes | 122,000 | 105,000 |
| Balance, end of the year | $ 133,000 | $ 114,000 |
SCHEDULE OF NOTES PAYABLE (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Notes Payable | ||
| Balance, beginning of the year | $ 111,000 | $ 11,000 |
| Additions | 150,000 | |
| Payments | (25,000) | (50,000) |
| Balance, end of the year | $ 86,000 | $ 111,000 |
SCHEDULE OF CONVERTIBLE PROMISSORY NOTES (Details) - Convertible Notes Payable [Member] - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Short-Term Debt [Line Items] | ||
| Principal balance, beginning of year | $ 4,613,000 | $ 708,000 |
| Principal additions | 3,905,000 | |
| Principal balance, end of year | 4,613,000 | 4,613,000 |
| Discount balance, beginning of year | 1,526,000 | 5,000 |
| Discount additions | 2,045,000 | |
| Discount amortization | (487,000) | (524,000) |
| Discount balance, end of year | 1,039,000 | 1,526,000 |
| Net carrying amount | $ 3,574,000 | $ 3,087,000 |
SCHEDULE OF POTENTIAL FUTURE SHARES ISSUANCE OF CONVERSION NOTES (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Principal | $ 4,613,000 | $ 4,613,000 |
| Interest | 122,000 | 105,000 |
| Total | $ 4,735,000 | $ 4,718,000 |
| Potential future share | 3,964,842 | 3,947,394 |
| Minimum [Member] | ||
| Debt Instrument [Line Items] | ||
| Conversion price per share | $ 1.00 | $ 1.00 |
| Maximum [Member] | ||
| Debt Instrument [Line Items] | ||
| Conversion price per share | $ 1.25 | $ 1.25 |
SCHEDULE OF COMPANY RESTRICTED STOCK AWARDS (Details) - Restricted Stock [Member] |
Mar. 31, 2022
USD ($)
shares
|
|---|---|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Grant date fair value, shares | shares | 11,500,000 |
| Deferred compensation grant date fair value | $ | $ 22,195,000 |
| Accretion, shares | shares | |
| Deferred compensation accretion | $ | $ (7,962,000) |
| Shares, balance | shares | 11,500,000 |
| Deferred compensation | $ | $ 14,233,000 |
SCHEDULE OF PAYMENTS (Details) - Apr. 05, 2022 - Subsequent Event [Member] |
USD ($) |
KRW (₩) |
|---|---|---|
| Subsequent Event [Line Items] | ||
| Contract price | $ 82,000 | ₩ 99,000,000 |
| Within Five Days After Signing The Contract [Member] | ||
| Subsequent Event [Line Items] | ||
| Contract price | 41,000 | 49,500,000 |
| Within Five Days Afterall Conditions Are Met [Member] | ||
| Subsequent Event [Line Items] | ||
| Contract price | $ 41,000 | ₩ 49,500,000 |
SUBSEQUENT EVENTS (Details Narrative) - Apr. 05, 2022 - Subsequent Event [Member] |
USD ($) |
KRW (₩) |
|---|---|---|
| Subsequent Event [Line Items] | ||
| Contract price | $ 82,000 | ₩ 99,000,000 |
| AIQ [Member] | ||
| Subsequent Event [Line Items] | ||
| Contract price | 99,000,000 | |
| Value added tax | ₩ 9,000,000 | |
| Payments to Related Parties | $ | $ 82,000 |