TerraVolt Holdings, Inc. 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Exchange Act, our principal executive officer and principal financial officer evaluated our company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, these officers concluded that as of the end of the period covered by this Annual Report on Form 10-K, these disclosure controls and procedures were not effective. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading “Management’s Report on Internal Control Over Financial Reporting.” Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdown can occur because of simple error or mistake. 13 Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) for our company. Our internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate. Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the design and operation of our internal control over financial reporting as of December 31, 2020 based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as at December 31, 2020 due to the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines; (iii) inadequate security and restricted access to computer systems including insufficient disaster recovery plans; and (iv) no written whistle-blower policy. We plan to take steps to enhance and improve the design of our internal controls over financial reporting when our company has sufficient staff to allocate responsibilities. During the period covered by this Report, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes once our financial resources will support the required staffing level: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopt sufficient written policies and procedures for accounting and financial reporting and a whistle-blower policy; and (iii) implement sufficient security and restricted access measures regarding our computer systems and implement a disaster recovery plan. The remediation efforts set out in (i) and (iii) are largely dependent upon our company securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely effected in a material manner. This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Report. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Changes In Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 14 PART III Item 10. Directors, Executive Officers and Corporate Governance. Directors and Executive Officers At May 31, 2021, our directors and executive officers, their ages and their positions held with our company were as follows: Name Age Position(s) Held with the Company Michael Campbell 65 Chairman of the Board and Chief Executive Officer Dean S. Skupen 60 Chief Financial Officer There are no arrangements between our directors and any other person pursuant to which our directors were nominated or elected for their positions. There are no family relationships among our directors or officers. The following biographical information regarding our directors and executive officers. Michael Campbell . Mr. Campbell became our Chief Executive Officer on September 12, 2018. For the past 19 years, Mr. Campbell has been the managing director of M1 Advisors LLC, a business advisory and consulting firm that has engineered, orchestrated and provided support and services to numerous private-to-public transitions, debt and equity financings and hyper-organic-growth and consolidation strategies in a wide range of industries. In addition, from December 2011 to February 2017, Mr. Campbell was the Chief Executive Officer and a director of NXChain, Inc., a publicly-traded start-up shell company in the cryptocurrency business that was a successor to AgriVest Americas Inc., a publicly-traded start-up shell company that sought to acquire cattle ranches in Brazil for conversion to soybean farms. Mr. Campbell spent the first 20 years of his career in the high-tech industry creating and operating various companies that included a computer retailing operation, data-storage peripheral company with three computer disk-drive manufacturing companies through joint ventures with the Russian, Chinese and Spanish governments, a specialized call-center company for telco broadband provisioning and an online broadband services ordering and order aggregation company with the Regional Bell Operating Companies. Dean S. Skupen . Mr. Skupen became our Chief Financial Officer on September 12, 2018. Mr. Skupen is a business advisor who has provided various financial accounting services to, or acted as the Interim Chief Financial Officer for, a number of public companies since 2010. Prior to that, he was a Partner at Stonefield Josephson, Inc. (now Marcum, LLP), an accounting firm with five offices throughout California where he provided auditing and consulting services to public companies and to privately-held entrepreneurial companies transitioning to public ownership in diverse industries. Mr. Skupen graduated from the University of Southern California with a Bachelor of Science degree in Accounting. In addition, he is licensed as a Certified Public Accountant in the State of California. All of our officers are currently serving in such capacities as consultants to our company, and we presently have no employees. Our officers and directors are also engaged in outside business activities. Our officers and directors, other than Mr. Campbell, anticipate that they will devote limited time to our business until we are no longer a “shell” company and are engaged in an active trade or business The specific amount of time that management will devote to our company may vary from week to week or even day to day, and therefore the specific amount of time that management will devote to our company on a weekly basis cannot be ascertained with any level of certainty. In all cases, management intends to spend as much time as is necessary to exercise its fiduciary duties as officers and directors of our company. 15 Involvement in Certain Legal Proceedings None of our directors and executive officers have been involved in any of the following events during the past ten years: 1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences); 3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; 4. being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, where the judgment has not been reversed, suspended, or vacated; 5. being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (i) any federal or state securities or commodities law or regulation; (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. Director Independence We currently have only one director: Michael Campbell. We have determined that Mr. Campbell is not an independent director, as that term is used in the Nasdaq Listing Rules of the Nasdaq Stock Market LLC. Once we have acquired significant assets and are no longer a “shell” company, we will appoint one or more independent directors to our board of directors. Board Committees We do not have a standing Audit Committee. We do not believe that the lack of an Audit Committee has had or will have any adverse effect on our financial statements, based upon current operations; however, our board of directors will consider establishing an Audit Committee of independent directors as the number of directors increases. Until such time, our board of directors will perform the duties of an Audit Committee including delegating an auditor firm and interacting with them. We do not have a standing Compensation Committee. Presently, our executive officers, who constitute our only employees, do not take salary or other benefits from our company. As we continue to develop our initial products and commence selling such products on a wholesale or retail basis, we expect to increase the size of our board to include independent directors who will approve the compensation arrangements with our executive officers. We also do not have a Nominating Committee as we have not adopted any procedures by which security holders may recommend nominees to our board of directors. 16 Code of Ethics Effective January 29, 2004, our Board of Directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company’s officers, contractors, consultants and advisors. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to our company at the address on the cover of this Annual Report. Section 16(a) Beneficial Ownership Compliance Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, and without conducting any independent investigation of our own we believe that during the fiscal year ended December 31, 2020, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with. Item 11. Executive Compensation. The following table sets forth all compensation awarded to, earned by or paid to the chief executive officer (“CEO”) of our company during the years ended December 31, 2020 and 2019. No compensation was paid to any other executive officer of our company during such periods. SUMMARY COMPENSATION TABLE Name and Principal Position Fiscal Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation ($) Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Michael Campbell (1) 2020 - - - - - - 180,000 (1) $ 180,000 (1) Chief Executive Officer 2019 - - - - - - 180,000 (1) 180,000 (1) (1) Represents amounts earned by Mr. Campbell under his consulting agreement. Outstanding Equity Awards At Annual Period End There were no outstanding equity awards at December 31, 2020. Aggregated Option Exercises There were no options exercised by any officer or director of our company during the year ended December 31, 2020. Long-Term Incentive Plan Currently, our company does not have a long-term incentive plan in favor of any director, officer, consultant or employee of our company. 17 Directors Compensation No director compensation was paid during the years ended December 31, 2020 and 2019 in the form of cash expenses, stock awards, option awards, non-equity incentive plan compensation, pension value and nonqualified deferred compensation earnings or any other type of compensation. We do not currently pay any cash fees to our directors, nor do we pay directors’ expenses in attending board meetings. Employment Agreements We are not presently a party to any employment agreements. Pension and Retirement Plans Currently, we do not offer any annuity, pension or retirement benefits to be paid to any of our officers, directors or employees, in the event of retirement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth, as of May 31, 2021, the names, addresses and number of shares of common stock beneficially owned by (i) all persons known to our management to be beneficial owners of more than 5% of the outstanding shares of our common stock, (ii) each director of our company, (iii) each named Executive Officer and (iv) all executive officers and directors of our company as a group (except as indicated, each beneficial owner listed exercises sole voting power and sole dispositive power over the shares beneficially owned): Amount and Nature of Name and Address of Beneficial Percent Beneficial Owner Ownership of Class (1) M1 Advisors LLC (2) 8,954,199 69 .0 % Michael B. Campbell (2) 8,954,199 69.0 % Dean Skupen (3) 250,000 1.9 % All executive officers and directors as a group (2 persons) 9,204,199 71.0 % 5% Stockholders: The Cooper Family Living Trust Dtd 7/20/98 (4) 1,000,000 7.7 % (1) As of May 31, 2021 there were 12,960,621 shares of common stock outstanding. Except as indicated in the footnotes to this table, we believe that all persons named in the table have sole voting and investment power with respect to all common stock shown as beneficially owned by them. In accordance with the rules of the Securities and Exchange Commission (the “Commission”), a person or entity is deemed to be the beneficial owner of common stock that can be acquired by such person or entity within sixty (60) days upon the exercise of options or warrants or other rights to acquire common stock. Each beneficial owner’s percentage ownership is determined by assuming that options and warrants that are held by such person (but not those held by any other person) and which are exercisable within sixty (60) days have been exercised. The inclusion herein of such shares listed as beneficially owned does not constitute an admission of beneficial ownership. (2) Represents shares of common stock owned of record by M1 Advisors LLC. The address of Michael B. Campbell and M1 Advisors LLC is 11753 Willard Avenue, Tustin, CA 92782. Mr. Campbell is the sole manager of M1 Advisors LLC. (3) Represents shares of common stock of record by DSS Consulting Corporation, a company controlled by Mr. Skupen. The address of DSS Consulting Corporation is 2945 Townsgate Road, Suite 200, West Lake Village CA 91361. (4) Piers and Sally Cooper are the trustees of The Cooper Family Living Trust Dtd 7/20/98. The address of the trust is 452 Lakeview Way, Emerald Hills, CA 94062. 18 Item 13. Certain Relationships and Related Transactions, and Director Independence. To the best of our knowledge, except as set forth below, during the last fiscal year, there were no material transactions, or series of similar transactions, or any currently proposed transactions, or series of similar transactions, to which we were or are to be a party, in which the amount involved exceeds $120,000 or one percent of the average total assets at year end for each of the last two fiscal years, and in which any director or executive officer, or any security holder who is known by us to own of record or beneficially more than 5% of any class of our common stock, or any member of the immediate family of any of the foregoing persons, has an interest. Item 14. Principal Accountant Fees And Services. Audit Fees The aggregate fees billed for professional services rendered by RBSM LLP, our principal accountants for the years ended December 31, 2020 and 2019, for the audit of financial statements, quarterly reviews of our interim financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for these periods were as follows: For the Years ended December 31, 2020 2019 Audit Fees and Audit Related Fees $ 15,000 $ 10,000 Tax Fees — — All Other Fees — — Total $ 15,000 $ 10,000 In the above table, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our company’s financial statements for the periods indicated above. “Audit-related fees” are fees not included in audit fees that are billed by the auditor for assurance and related services, including quarterly reviews, that are reasonably related to the performance of the audit of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products and services not included in the foregoing categories. Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by our board of directors either before or after the respective services were rendered. 19 PART IV Item. 15. Exhibits, Financial Statement Schedules. Exhibit Number Description 3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form SB-2 filed on July 5, 2002). 3.2 Certificate of Change filed with the Nevada Secretary of State on December 20, 2005 (incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed on December 29, 2005). 3.3 Articles of Merger filed with the Nevada Secretary of State on February 6, 2006 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on February 9, 2006). 3.4 Certificate of Amendment filed with the Nevada Secretary of State on November 27, 2006 (incorporated by reference from Exhibit 99.1 to Current Report on Form 8-K filed on November 30, 2006). 3.5 Articles of Merger filed with the Nevada Secretary of State on February 6, 2006 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 9, 2006). 3.6 Articles of Merger filed with the Nevada Secretary of State on July 15, 2013 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on July 19, 2013). 3.7 Certificate of Change filed with the Nevada Secretary of State on August 28, 2018 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on August 29, 2018). 3.8 Certificate of Designation of Series A Preferred Stock filed with the Nevada Secretary of State on September 12, 2018 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on September 14, 2018). 3.9 Amendment to Certificate of Designation After Issuance of Class or Series filed with the Nevada Secretary of State on October 29, 2018 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on October 29, 2018). 3.10 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on July 19, 2013). 10.1 Form of Warrant issued to Investors in the 2013 Private Placement.(incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on December 13, 2013). 10.2 Form of Amendment to Note and Warrant (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 19, 2016). 10.3 Series A Preferred Stock Purchase Agreement dated as of September 12, 2018 among our company and the purchasers of Series A Preferred Stock listed therein (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 14, 2018). 10.4 Form of OID Convertible Promissory Note due February 28, 2021. 10.5 Form of Series A Warrant. 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .*** 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .*** 32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .*** 101.ins** XBRL Instance Document 101.xsd** XBRL Taxonomy Extension Schema Document 101.cal** XBRL Taxonomy Calculation Linkbase Document 101.def** XBRL Taxonomy Definition Linkbase Document 101.lab** XBRL Taxonomy Label Linkbase Document 101.pre** XBRL Taxonomy Presentation Linkbase Document ** Furnished. Not filed. Not incorporated by reference. Not subject to liability. *** A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 20 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30 th day of June 2021. CalEthos, Inc. By: /s/ Michael Campbell Name: Michael Campbell Title: Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Michael Campbell Chief Executive Officer and Director Date: June 30, 2021 Michael Campbell (Principal Executive Officer) /s/ Dean S. Skupen Chief Financial Officer Date: June 30, 2021 Dean S. Skupen (Principal Accounting Officer) 21 CalEthos, Inc. For the Years Ended December 31, 2020 and 2019 Index to the Financial Statements Contents Page(s) Report of Independent Registered Public Accounting Firm F-2 Balance Sheets as of December 31, 2020 and 2019 F-3 Statements Operations for the Years ended December 31, 2020 and 2019 F-4 Statement of Changes in Stockholders’ (Deficit) Equity for the Years ended December 31, 2020 and 2019 F-5 Statements of Cash Flows for the Years ended December 31, 2020 and 2019 F-6 Notes to the Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of CalEthos, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheets of CalEthos, Inc. (the “Company”), a Nevada corporation, as of December 31, 2020 and 2019, and the related statements of operations, changes in stockholders’ (deficit) equity and cash flows for the years ended December 31, 2020 and 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1, the Company had an accumulated deficit at December 31, 2020, a net loss and periodic cash flow difficulties for year ended December 31, 2020. Those conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. We have served as the Company’s auditor since 2018. /s/ RBSM LLP RBSM LLP Larkspur, CA June 30, 2020 F- 2 CalEthos, Inc. Balance Sheet As of December 31, 2020 2019 ASSETS Current Assets Cash and cash equivalents $ – $ 123,000 Prepaid expenses 2,000 2,000 Total Assets $ 2,000 $ 125,000 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current Liabilities Accounts payable and accrued expenses $ 611,000 $ 363,000 Notes payable, net 11,000 - Convertible promissory notes, net 703,000 323,000 Total Liabilities 1,325,000 686,000 Stockholders’ Deficit Series A convertible preferred stock, par value $0.001, 3,600,000 shares authorized, 85,975 issued and outstanding as of December 31, 2019 (liquidation value of $119,000) – – Preferred stock par value $0.001, 100,000,000 shares authorized, no shares issued and outstanding – – Common stock par value $0.001, 100,000,000 shares authorized; 16,634,951 and 16,634,951, respectively, shares issued and outstanding 17,000 17,000 Additional paid-in capital 8,744,000 8,750,000 Stock subscription receivable (2,000 ) (2,000 ) Accumulated deficit (10,082,000 ) (9,326,000 ) Total Stockholders’ Deficit (1,323,000 ) (561,000 ) Total Liabilities and Stockholders’ Deficit $ 2,000 $ 125,000 These accompanying notes are integral to the financial statements F- 3 CalEthos, Inc. Statements of Operations For the Years Ended December 31, 2020 2019 Revenue $ – $ – Operating expenses Professional fees 340,000 1,154,000 General and administrative expenses 51,000 40,000 Total operating expenses 391,000 1,194,000 Loss from operations (391,000 ) (1,194,000 ) Other expenses Financing costs (227,000 ) (305,000 ) Loss on extinguishment of series A convertible preferred stock (138,000 ) – (365,000 ) (305,000 ) Loss before provision for income taxes (756,000 ) (1,499,000 ) Provision for income taxes – – Net loss (756,000 ) (1,499,000 ) Deemed dividend on conversion price reset of preferred stock series A – (36,000 ) Net Loss attributable to common stockholders $ (756,000 ) $ (1,535,000 ) Net loss per share, basic and diluted $ (0.05 ) $ (0.09 ) Weighted average common shares outstanding – basic and diluted 16,634,951 16,634,951 These accompanying notes are integral to the financial statements F- 4 CalEthos, Inc. Statement of Changes in Stockholders’ Deficit For the Years Ended December 31, 2020 and 2019 Series A Convertible Preferred Stock Common Stock Additional Paid-In Stock Subscription Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Receivable Deficit (deficit) Balance, January 1, 2019 35,975 $ – 16,634,951 $ 17,000 $ 7,660,000 $ (16,000 ) $ (7,827,000 ) $ (166,000 ) Proceeds from the sale of series A convertible preferred stock 50,000 – – – 69,000 – – 69,000 Relative fair value of warrants issued with convertible promissory notes – – – – 205,000 – – 205,000 Beneficial conversion feature (“BCF”) associated with convertible promissory notes – – – – 239,000 – – 239,000 Stock options issued for services – – – – 577,000 – – 577,000 Conversion price reset for preferred stock series A – – – – 36,000 – – 36,000 Deemed dividend on conversion price reset of preferred stock series A – – – – (36,000 ) – – (36,000 ) Deposits from issuance of founder preferred shares – – – – – 14,000 – 14,000 Net loss – – – – – – (1,499,000 ) (1,499,000 ) Balance, December 31, 2019 85,975 $ – 16,634,951 $ 17,000 $ 8,750,000 $ (2,000 ) $ (9,326,000 ) $ (561,000 ) Conversion of series A preferred stock to convertible promissory notes (85,975 ) – – – (119,000 ) – – (119,000 ) Fair value of warrants issued with the conversion of series A convertible preferred stock – – – – 52,000 – – 52,000 Debt premium on convertible promissory notes issued for conversion of series A convertible preferred stock – – – – 58,000 – – 58,000 Relative fair value of warrants issued with convertible promissory notes – – – – 3,000 – – 3,000 Net loss – – – – – – (756,000 ) (756,000 ) Balance, December 31, 2020 – $ – 16,634,951 $ 17,000 $ 8,744,000 $ (2,000 ) $ (10,082,000 ) $ (1,323,000 ) These accompanying notes are integral to the financial statements F- 5 CalEthos, Inc. Statements of Cash Flows For the Years Ended December 31, 2020 2019 Cash flows from operating activities Net loss $ (756,000 ) $ (1,499,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of convertible promissory notes discounts 188,000 305,000 Loss on conversion of convertible preferred stock 86,000 – Fair value of warrants issued with convertible promissory notes 52,000 – Fair value of equity-based compensation – 577,000 Changes in operating asset and liabilities Accounts payable and accrued expenses 248,000 199,000 Net cash used in operating activities (182,000 ) (418,000 ) Cash flows from investing activity Cash held by officer – 12,000 Net cash provided by investing activity – 12,000 Cash flows from financing activities Proceeds from the issuance of convertible promissory notes 49,000 460,000 Proceeds from the issuance of notes payable 10,000 - Proceeds from issuance of convertible preferred stock – 69,000 Net cash provided by financing activities 59,000 529,000 Net change in cash (123,000 ) 123,000 Cash at beginning of reporting period 123,000 – Cash at end of reporting period $ – $ 123,000 Supplemental disclosure of cash flows information Interest paid $ – $ – Income tax paid $ – $ – Supplemental disclosure of non-cash financing activities: Conversion of series A preferred stock to convertible promissory notes $ 119,000 $ – Fair value of warrants issued with the conversion of series A convertible preferred stock $ 52,000 $ – Debt premium on issuance of convertible promissory notes for conversion of series A convertible preferred stock $ 58,000 $ – Relative fair value of warrants issued with convertible notes $ 3,000 $ 205,000 Beneficial conversion feature issued with convertible notes $ – $ 239,000 Stock subscription receivable $ – $ (14,000 ) These accompanying notes are integral to the financial statements F- 6 CalEthos, Inc. Notes to the Financial Statements For the Years Ended December 31, 2020 and 2019 Note 1 - Organization and Accounting Policies CalEthos, Inc. (the “Company”) was incorporated on March 20, 2002 under the laws of the State of Nevada. Since the second quarter of 2016, the Company has been a “shell” company, as defined in Rule 12b-2 under the Exchange Act. On December 20, 2018, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the State of Nevada to change the Company name from “RealSource Residential, Inc.” to “CalEthos, Inc.”. This amendment became effective immediately upon filing on December 20, 2018. Change in Control On May 16, 2018, certain majority stockholders of the Company, including certain former directors and officers of the Company, entered into a stock purchase agreement dated May 16, 2018 (the “Control Purchase Agreement”) with RealSource Acquisition Group, LLC, a Utah limited liability company (“RealSource Acquisition”), whereby RealSource Acquisition agreed to purchase an aggregate of 11,006,356 shares (440,256 shares after giving effect to the Reverse Stock Split (see Note 3) (the “Control Shares”) of the Company’s issued and outstanding shares of common stock for an aggregate purchase price of $180,000. Immediately prior to the closing under the Control Purchase Agreement on September 12, 2018 (the “Closing Date”), RealSource Acquisition assigned its rights under the Control Purchase Agreement to M1 Advisors, LLC, a Delaware limited liability company (“M1 Advisors”), pursuant to a purchase agreement and assignment and assumption of contract rights dated as of August 28, 2018 between RealSource Acquisition and M1 Advisors. M1 Advisors paid RealSource Acquisition $80,000 as consideration for such assignment. Effective on the Closing Date, and in accordance with the amended and restated by laws of the Company and the requirements of the Control Purchase Agreement, (a) each of Michael S. Anderson, Nathan W. Hanks and V. Kelly Randall resigned as directors of the Company, (b) Michael Campbell, the sole member of M1 Advisors, and Piers Cooper were elected to the Company’s board of directors, and (c) Mr. Hanks also resigned as president and chief executive officer of the Company, Mr. Randall also resigned as chief operating office and chief financial officer of the Company, Mr. Campbell was appointed the chief executive officer of the Company and Piers Cooper was appointed president of the Company. On the Closing Date, the Company entered into a series A preferred stock purchase agreement dated as of the Closing Date (the “Preferred Purchase Agreement”) with M1 Advisors, which is an entity controlled by Michael Campbell, the Company’s chief executive officer and a director of the Company at such time, Piers Cooper, the Company’s president and a director of the Company at such time, the members of RealSource Acquisition, and the other investors who were signatories thereto (collectively, the Purchasers”). Pursuant to the Preferred Purchase Agreement, the Company sold to the Purchasers an aggregate of 15,600,544 shares of the Company’s series A preferred stock, which has since been re-designated as Founder preferred stock (“Founder Preferred Stock”), for an aggregate purchase price of $16,000, or $0.001 per share. Of the Founder Preferred Stock purchased, 9,320,414 shares were purchased by M1 Advisors, 4,674,330 shares were purchased by Mr. Cooper and an aggregate of 1,195,000 shares were purchased by the members of RealSource Acquisition or their assigns. Immediately following the above transactions, an aggregate of 15,600,544 shares of Founder Preferred Stock and 630,207 shares of common stock was issued and outstanding. At such time, the shares of Founder Preferred Stock and common stock owned by M1 Advisors represented approximately 60.14% of the issued and outstanding shares of capital stock of the Company on a fully-diluted basis and the shares of Founder Preferred Stock owned by Mr. Cooper represented approximately 28.80% of the issued and outstanding shares of capital stock of the Company on a fully-diluted basis. The shares of Founder Preferred Stock acquired by M1 Advisors were purchased with funds that M1 Advisors borrowed from another entity controlled by Mr. Campbell. F- 7 Business Activity Following the change in control, as described above, the board of directors determined to establish the Company in the rapidly-growing cannabis industry, initially in the State of California. As of December 31, 2020, the primary activity of the Company’s management is to develop and implement a plan to manufacture high-performance computer systems that are scalable, upgradeable and cost effective for processing cryptocurrencies, tokens and blockchain-based transactions, and if other opportunities warrant, acquire assets and all or part of other companies operating in the cryptocurrency mining hardware industry and or invest or joint venture with other more established companies already in the industry. The Company will not restrict its search to any specific business, segment of the cryptocurrency mining hardware industry or geographical location and the Company may participate in a business venture of virtually any kind or nature that is beneficial to the Company and its shareholders. Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and assuming that the Company will continue as a going concern. The Company has no established operations as of December 31, 2020. Accounting Policies The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles. Going Concern and Liquidity The Company incurred a net loss of approximately $756,000 for the year ended December 31, 2020, and had an accumulated deficit of approximately $10,082,000 as of December 31, 2020. 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 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. F- 8 Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Fair Value of Financial Instruments The Company has estimated the fair value of its financial instruments using the available market information and valuation methodologies considered to be appropriate and has determined that the book value of the Company’s prepaid expenses, accounts payable and accrued expenses, as of December 31, 2020 and 2019, respectively, approximate fair value based of their short-term nature. Fair Value Measurement Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Other inputs that are directly or indirectly observable in the marketplace. Level 3 - Unobservable inputs which are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. As of and for the year ended December 31, 2020, the Company had no assets or liabilities that require fair value measurement. Cash and Cash Equivalents The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates its fair value. As of December 31, 2020 and 2019, the Company held only cash deposits at a financial institution. Related Parties The Company follows FASB Accounting Standards Codification (“ASC”) section 850-10 for the identification of related parties and disclosure of related party transactions. Pursuant to ASC section 850-10-20 the related parties include (a.) affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act); (b.) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option of ASC section 825–10–15, to be accounted for by the equity method by the investing entity; (c.) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d.) principal owners of the Company; (e.) management of the Company; (f.) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g.) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. F- 9 The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a.) the nature of the relationship(s) involved; (b.) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c.) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d.) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. Commitments and Contingencies The Company follows ASC section 450-20 to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Debt Discounts The Company accounts for debt discounts originating in connection with conversion features that remain embedded in the related notes in accordance with ASC 470-20, Debt with Conversion and Other Options . These costs are classified on the balance sheet as a direct deduction from the debt liability. The Company amortizes these costs over the term of its debt agreements as interest expense - debt discount in the statement of operations. Warrant Liability In connection with financing arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes Merton (“BSM”) option pricing model as of the measurement date. F- 10 Stock-Based Compensation We account for our stock-based compensation under ASC 718, “ Compensation – Stock Compensation ” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We use the fair value method for equity instruments granted to non-employees and use the BSM model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant (measurement date) and is recognized over the vesting periods. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes , deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. The Company is a United States Company, incorporated in the state of Delaware and has its office in California. The Company has no foreign operations. The tax reform bill that Congress voted to approve December 20, 2017, also known as the “Tax Cuts and Jobs Act”, made sweeping modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions, and a move to a territorial system for corporations that have overseas earnings. The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%. The Company accounts for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence. The Company has adopted guidance related to the accounting for uncertainty in income taxes which prescribes rules for recognition, measurement and classification in the financial statements of tax positions taken or expected to be taken in a tax return. The guidance prescribes a two-step approach which involves evaluating whether a tax position will be more likely than not (greater than 50 percent likelihood) sustained upon examination based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is a greater than 50 percent likelihood of being realized upon settlement. F- 11 The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. The Company is not currently under examination by any taxing authority nor has the Company been notified of a pending examination. The statute of limitations for which the Company is generally no longer subject to federal or state income tax examinations by tax authorities is for years before 2013. Earnings Per Share We use ASC 260, “ Earnings Per Share ” for calculating the basic and diluted earnings (loss) per share. We compute basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and warrants and stock awards. For periods with a net loss, basic and diluted loss per share are 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. There were 1,800,214 common share equivalents at December 31, 2020 and 1,397,000 common share equivalents at December 31, 2019. For the years ended December 31, 2020 and 2019, these potential shares were excluded from the shares used to calculate diluted. These securities were not included in the computation of diluted net earnings per share as their effect would have been antidilutive. Recent Accounting Pronouncements Changes to accounting principles are established by the Financial Accounting Standards Board’s (“FASB”) in the form of Accounting Standards Update (“ASU”) to the FASB’s Codification. We consider the applicability and impact of all ASUs on our financial position, results of operations, cash flows, or presentation thereof. The Company reviewed all recently issued pronouncement in 2021, but not yet effective, and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company’s financial condition or the results of its operations. Note 2 – Cash and Cash Equivalents Cash equivalents are short-term cash investments, which are made for varying periods of up to three (3) months, depending on the immediate cash requirements of the Company and earn interest at prevailing short-term investment rate. As of December 31, 2020 and 2019, the Company held only cash deposits at a financial institution amounting to $0 and $123,000, respectively. Note 3 – Related Party Transactions The Company incurred approximately $180,000 for years ended December 31, 2020 and 2019, and paid approximately $112,000 and $180,000, respectively, to M1 Advisors for the services of the Company’s CEO and miscellaneous operating expenses. Note 4 – Accounts Payable and Accrued Expenses Accounts payable and accrued expenses as of December 31, are as follows: 2020 2019 Accounts payable $ 316,000 $ 187,000 Accrued expenses 255,000 176,000 Accrued interest 40,000 – Accounts payable and accrued expenses $ 611,000 $ 363,000 Note 5 – Notes Payable During the year ended December 31, 2020, the Company issued a promissory note for $11,000 (“Promissory Note”). The total proceeds were $10,000, due to approximately $1,000 for an original issue discount. The Promissory Note is non-interest bearing with the principal due and payable in August 2020. Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10% per annum (default interest). The original issue discount was amortized over the term of the Promissory Note, which was one month. As of September 30, 2020, the Promissory note was in default, so the Company accrued approximately $1,000 of default interest. Note 6 – Convertible Promissory Notes During the year ended December 31, 2020, the Company issued convertible promissory notes in the amount of $213,000 (the “Notes”). The total cash proceeds were approximately $60,000, approximately $147,000 from the conversion of Series A Preferred Stock into convertible promissory note and approximately $6,000 original issue discount (“OID”). The Notes are non-interest bearing with the principal due and payable starting in February 2021. Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10% per annum (default interest). The principal amount and all accrued interest are convertible into shares of the Company’s common stock, as of the date of issuance, at a rate of $1.00 per share (“Conversion Rate”). The conversion rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a breach or default under any other agreement, any money judgment, writ or similar process entered or filed against the Company or any its property or other assets for more than $100,000, bankruptcy filing, application for the appointment of a custodian, trustee or receiver, insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination of the business of the Company. In connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants to purchase an aggregate of 359,000 shares of the Company’s common stock for a purchase price of $1.50 per share, subject to adjustments. F- 12 In accordance with ASC 470 - Debt , the Company has accounted for the issuance of the Notes as an extinguishment of the series A preferred stock. Under extinguishment accounting, the difference between the fair value of the Notes and book basis of the series A preferred stock of $86,000 was accounted for as a loss on extinguishment. Also, the fair value of the Warrants of $52,000 was recorded as a loss on extinguishment. The difference between the fair value of the Notes and the face value of the notes of $58,000 was recorded as additional paid on capital. In addition, the Company has allocated the cash proceeds amounts of the Notes among the Notes, the warrants and the conversion feature. The relative fair value of the warrants issued totaled approximately $3,000 and of the beneficial conversion totaled approximately $0, which amounts are being amortized and expensed over the term of the Notes. For the year ended December 31, 2020, the amortization expense was approximately $187,000. 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 818-15 Derivatives and Hedging . The convertible promissory notes consisted of the following: December 31, 2020 December 31, 2019 Principal Amount $ 708,000 $ 506,000 Original issue discount (3,000 ) (19,000 ) Warrant discount (2,000 ) (79,000 ) Conversion feature discount – (85,000 ) Net balance $ 703,000 $ 323,000 The discounts of $5,000 as of December 31, 2020, will be amortized and expensed over the remaining contractual life of the convertible promissory notes. The amortization expense will be approximately $5,000 for the year ending December 31, 2021. Interest expense on default convertible notes amounted to approximately $39,000 and $0 for the years ended December 31, 2020 and 2019. Note 7 – Stockholders’ Deficit Shares Authorized On August 28, 2018, the Company filed a Certificate of Change to the Articles of Incorporation with the Secretary of State of the State of Nevada to (i) reduce the authorized shares of common stock from 100,000,000 shares to 4,000,000 shares and (ii) to effectuate a stock combination or reverse stock split whereby every 25 outstanding shares of the Company’s common stock were converted into one share of common stock. This amendment became effective on August 30, 2018. All share and per share amounts in these financial statements have been restated to give effect to such reverse stock split. On December 20, 2018, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the State of Nevada to increase the Company’s authorized shares of common stock from 4,000,000 shares to 100,000,000 shares. This amendment became effective immediately upon filing on December 20, 2018. The Company is authorized to issue 200,000,000 shares of which 100,000,000 shares shall be preferred stock, par value $0.001 per share, and 100,000,000 shares shall be common stock, par value $0.001 per share. Common Stock In accordance with the Control Purchase Agreement, the Company was required to effectuate a reverse stock split of the Company’s common stock (the “Reverse Stock Split”). The Company’s board of directors approved the Reverse Stock Split of the Company’s authorized, issued and outstanding shares of common stock at a ratio of one for twenty-five. In connection with the Reverse Stock Split, which was effected on September 11, 2018, the issued and outstanding shares of the Company’s common stock decreased from 15,719,645 shares to 630,207 shares as of December 31, 2017. The par value was amended to be $0.001 per share. All share information has been retroactively restated for the Reverse Stock Split. F- 13 As of December 31, 2020 and 2019, the Company issued 16,634,951 shares for both periods at $0.001 per share. Preferred Stocks Founders Preferred Stock On September 12, 2018, the Company’s board of directors approved, and the Company filed with the Secretary of State of the State of Nevada, a certificate of designation pursuant to which 15,754,744 shares of the Company’s authorized preferred stock were designated as Series A Preferred Stock. The Series A Preferred Stock had one vote per share, had other rights, including upon liquidation of the Company, identical to those of the Company’s common stock, and was automatically convertible into shares of the Company’s common stock, initially on a one-for-one basis, upon any increase in the Company’s authorized but unissued shares of the Company’s common stock to a number that will allow for the issued and outstanding shares of Series A Preferred Stock to be converted in full. On September 12, 2018, the Company issued and sold an aggregate of 15,754,744 shares of Series A Preferred Stock for an aggregate purchase price of $16,000. On October 14, 2018, the board of directors of Company approved, and on October 22, 2018, the holders of all of the outstanding shares of the Company’s Series A Preferred Stock consented to, an amendment to the certificate of designation that the Company filed with the Secretary of State of the State of Nevada to create the outstanding Series A Preferred Stock, to change the designation of the outstanding Series A Preferred Stock from “Series A Preferred Stock” to “Founder Preferred Stock.” An amendment to the Certificate to effect such change was filed with the Secretary of State of Nevada on October 29, 2018. On December 20, 2018, all of the Founder Preferred Stock was converted into 15,754,744 shares of the Company’s common stock. Series A Convertible Preferred Stock In January 2019, the Company issued and sold an aggregate of 50,000 shares of Series A Preferred Stock for an aggregate purchase price of $69,000, or $1.38 per share. The Company initiated a private placement of shares of series A convertible preferred stock. During the years ended December 31, 2019 and 2018, the Company sold 50,000 and 35,975, respectively, shares of Series A for total proceeds of approximately $69,000 and $50,000, respectively, or $1.38 per share. The Series A is convertible into shares of the Company’s common stock at the rate of $1.38 per share, subject to adjustments based on the Company’s future sales of financial instruments at a value less than $1.38 per share. The holders of the Series A have the right to convert any time after the date of issuance. With the issuance of the convertible promissory notes, as explained in Note 5 above, the Series A’s conversion rate adjusted to $1.00 per share. In accordance with ASC 470, the Company has calculated the effect of the conversion rate adjustment, which was approximately $36,000. The conversion rate adjustment has been treated as a deemed dividend, which has been presented in the Statement of Changes in Stockholders’ Deficit. The Series A is mandatorily convertible upon (i) the closing of the sale of shares of the Company’s common stock to the public in an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $10,000,000 of gross proceeds to the Company, (ii) the close of business on the sixtieth consecutive day on which the closing price of the Company’s common stock on the OTC Markets is at least $2.80 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock combination or other similar recapitalization with respect to the common stock, or (iii) the affirmative vote of the holders of at least 66⅔% of the outstanding shares of Series A, given at a meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders all outstanding shares of Series A shall automatically be converted into shares of the Company’s common stock, at the then effective conversion rate. F- 14 On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Articles of Incorporation, holders of Series A shall vote together with the holders of common stock as a single class. From and after the date of the issuance of any shares of Series A, a cumulative dividend on each outstanding share of Series A Preferred Stock shall accrue at a rate per annum equal to ten percent of the Series A original issue price. Accrued dividends on the Series A shall be paid in shares of the Company’s common stock, such shares to be valued for such purpose at the applicable series A conversion price. On February 11, 2020, the Company converted 85,975 shares of Series A Preferred Stock into a Convertible Promissory Notes in the principal amount approximately $147,000. Issuance of Stock Options The Company entered into three separate consulting agreements with provisions for the issuance of options under the Company’s 2019 Stock Options Plan to purchase 685,000, 250,000 and 15,000 shares of the Company’s common stock. The Options will have a life of three years from the vesting date and an exercise price of $0.001 per share with the following vesting terms: Option to purchase 685,000 shares i. 385,000 shares vest upon the signing of the consulting agreement; and ii. 300,000 shares vest on the first anniversary of the date on which the consultant serves as full-time employee as the Company’s Vice President of Capital Markets. As of the expiration of the contract, the employee was not hired by the Company. These options would have been issued if the performance condition was met. As the performance condition was not met prior to expiration of the contract, these options were neither issued nor ever granted. Option to purchase 250,000 shares i. 50,000 shares vest upon the completion of the Company’s first Retail Showcase Store. As the performance condition was not met prior to expiration of the contract, these options were neither issued nor ever granted; ii. 100,000 shares vest on the first anniversary date on which the consultant serves as the Vice President of Retail Store Development of the Company as full-time employee. As the performance condition was not met prior to expiration of the contract, these options were neither issued nor ever granted; and iii. 100,000 shares to vest 1/12 th per month thereafter. As the performance condition was not met prior to expiration of the contract, these options were neither issued nor ever granted. Option to purchase 15,000 shares i. 15,000 shares to vest upon the completion of the Company’s first Retail Showcase Store. As the performance condition was not met prior to expiration of the contract, these options were neither issued nor ever granted. The options that could be granted to the consultants will be performance-based awards to be vested once the individuals are considered to be employees of the Company. Each of the consultants has the option to become a full-time employee only after Company has received a minimum of $5,000,000 in debt or equity financing for the Company’s operations (the “Financing”). This is the time that the Company would begin to operate and use the services of the three option holders. Until the Financing occurs, the Company will be in the predevelopment stage of its intended business model. As of 12/31/2020 all of these consultant agreements had been terminated, as such, no options were issued nor ever granted. An option to purchase 385,000 shares of the Company’s common stock, for $0.001 per share, was granted and vested on April 1, 2019. For the year ended December 31, 2019, the compensation expense, classified as professional fees in the statement of operations, was $577,000, which was calculated using the BSM fair value option-pricing model with key input variables provided by management, as of the date of issuance: volatility of 324%, fair value of common stock $1.50, term of option 3 years, risk free rate of 2.29% and dividend rate of $0. F- 15 The table below summarizes the Company’s stock option activities for the reporting period ended December 31, 2020 and 2019 (all share and per share data reflects the reverse stock split): Number of Stock Option Shares Exercise Price Range Per Share Weighted Average Exercise Price Relative Fair Value Aggregate Intrinsic Value Balance, January 1, 2019 184,800 $ 12.50 $ 12.50 $ – $ – Granted 385,000 0.001 0.001 1.49 578,000 Canceled – – – – – Exercised – – – – – Expired – – – – – Balance, December 31, 2019 569,800 $ – $ 4.05 $ – $ 423,000 Granted – – – – – Canceled – – – – – Exercised – – – – – Expired (184,800 ) 12.50 12.50 – – Balance, December 31, 2020 385,000 $ – $ 0.001 $ – $ 7,315 Earned and exercisable, Dec 31, 2020 385,000 $ – $ 0.001 $ – $ 7,315 Unvested, December 31, 2020 – $ – $ – $ – $ – The following table summarizes information concerning outstanding and exercisable stock options as of December 31, 2020: Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Number Outstanding Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Average Remaining Contractual Life (in years) Weighted Average Exercise Price $ 0.001 385,000 1.25 $ 0.001 385,000 1.25 $ 0.001 Warrants Issued The table below summarizes the Company’s warrant activities for the reporting period ended December 31, 2020 and 2019 Number of warrants issued Exercise Price Weighted Average Exercise Price Balance, January 1, 2019 - $ - $ - Granted 253,000 1.50 1.50 Canceled - - - Exercised - - - Balance, December 31, 2019 253,000 1.50 1.50 Granted 100,804 1.50 1.50 Canceled - - - Exercised - - - Balance, December 31, 2020 353,804 1.50 1.50 Note 8 – Deferred Tax Assets and Income Tax Provision Deferred Tax Assets At December 31, 2020, the Company had net operating loss (“NOL”) carry forwards for Federal income tax purposes of $1,425,000 that may be offset against future taxable income. No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying financial statements because the Company believes that the realization of the Company’s net deferred tax assets of approximately $1,425,000 was not considered more likely than not and accordingly, the potential tax benefits of the net operating loss carry-forwards are fully offset by a full valuation allowance. On September 12, 2018, the Company believes that an “ownership change” has occurred within the meaning of Sections 382 and 383 of the Code. An ownership change is generally defined as a more than 50 percentage point increase in equity ownership by “5 percent shareholders” (as that term is defined for purposes of Sections 382 and 383 of the Code) in any three-year period or since the last ownership change if such prior ownership change occurred within the prior three-year period. As a result of the ownership change on September 12, 2018, the limitations on the use of pre-change losses and other carry forward tax attributes in Sections 382 and 383 of the Code apply and the Company will not be able to utilize any portion of their NOL carry forwards from the years prior to December 31, 2017 and the portion of the NOL for 2018 allocable to the portion of the year prior to September 12, 2018. The utilization of the NOL for 2018 allocable to the portion of the year after September 12, 2018 and the NOLs from subsequent years should not be affected by the ownership change on the September 12, 2018. F- 16 Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realization. The valuation allowance increased by approximately $93,000 and $161,000 for the reporting periods ended December 31, 2020 and 2019, respectively. Components of deferred tax assets are as follows as of December 31: 2020 2019 Net deferred tax assets – Non-current: Expected income tax benefit from NOL carry-forwards $ 299,000 $ 206,000 Less valuation allowance (299,000 ) (206,000 ) Deferred tax assets, net of valuation allowance $ − $ − Income Tax Provision in the Statements of Operations A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows for the years ended December 31: 2020 2019 Federal statutory income tax rate 21.0 % 21.0 % Change in valuation allowance on net operating loss carry-forwards (21.0 ) (21.0 ) Effective income tax rate 0.0 % 0.0 % Note 9 – Subsequent Events The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined the following reportable non-adjusting event: On January 5, 2021, Piers Cooper (“Mr. Cooper”), our President and a member of our Board of Directors, resigned as an officer and director of our company (“Termination Agreement”). As part of the Termination Agreement, Mr. Cooper’s agreed to return 3,674,330 shares of the Company’s common stock (“Cancelled Shares”). The Cancelled shares were to be returned within thirty days of Mr. Cooper’s execution of the Termination Agreement, which was January 5, 2021. The Cancelled Shares were returned and cancelled on April 19, 2021. In January 2021, the Company issued a promissory note for cash amounting to $15,000 with 8% annual interest per year and a maturity date of March 31, 2022. Interest will be computed starting January 11, 2021 and payable at maturity date together with the principal amount. In the event of default, the interest rate of the note shall increase to 10% per annum and computed on the basis of the actual number of days elapsed and a 365-day year. In February 2021, the Company issued a promissory note for cash amounting to $25,000 with 10% annual interest per year and a maturity date of February 19, 2022. The principal and accrued interest is payable in a single installment on or before the maturity date. In the event of default, the interest rate of the note shall increase to 15% per annum and computed on the basis of the actual number of days elapsed and a 365-day or 366-day year. F- 17 In March 2021, the Company issued a convertible promissory note in the amount of $55,000 (the “Note”). The total proceeds were approximately $50,000, due to approximately $5,000 for an original issue discount. The Note is non-interest bearing with the principal due and payable starting in March 2022. Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10% per annum (default interest). The principal amount and all accrued interest are convertible into shares of the Company’s common stock, as of the date of issuance, at a rate of $1.00 per share (“Conversion Rate”). The conversion rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a breach or default under any other agreement, any money judgment, writ or similar process entered or filed against the Company or any 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 27,500 shares of the Company’s common stock for a purchase price of $1.50 per share, subject to adjustments. In February 2021, the Company signed a new consulting agreement that granted one of its shareholders an option to purchase 750,000 shares of the Company’s common stock at $0.001 per share for the consultancy work provided from August 2020 to February 2021. The options were fully vested on the date of issuance. In March 2021, the CEO agreed to forgive approximately $68,000 due to him. In March 2021, the CFO agreed to reduce amount due to him from approximately $127,000 to $30,000. For the reduction of $97,000, the Company will issue 75,000 shares of common stock. The remaining liability of $30,000 will be paid in cash. In April 2021, the Company issued a promissory note for cash amounting to $8,550 with 0% annual interest per year if paid at a maturity date of July 5, 2021. In the event of default, the interest rate of the note shall increase to 8% per annum and computed on the basis of the actual number of days elapsed and a 365-day or 366-day year. In April 2021, an option holder exercised two options for 385,000 and 750,000 shares of the Company’s common stock at an exercise price of $0.001 for both options. The shares for the options have yet to be issued. In April 2021, the Company issued a promissory note for cash amounting to $50,000 with 10% annual interest per year and a maturity date of April 22, 2022. The principal and accrued interest is payable in a single installment on or before the maturity date. In the event of default, the interest rate of the note shall increase to 15% per annum and computed on the basis of the actual number of days elapsed and a 365-day or 366-day year. F- 18