What changed in this filing

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Item 1. Financial Statements

2022-08-15 compared with 2022-05-16 · 289 added, 183 removed, 294 unchanged (62% of the section changed)

Financial Statements

the Three Months Ended March 31, 2022

the Six Months Ended June 30, 2022

to the Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2022 and 2021

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

Unaudited Condensed Consolidated Notes to the Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021

Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the three and six months ended June 30, 2022 and 2021

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

Unaudited Condensed Notes to the Consolidated Financial Statements

NOTE REGARDING FORWARD-LOOKING STATEMENTS

information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of

Financial Condition and Results of Operations” and elsewhere herein, may address or relate to future events and expectations and,

as such, constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995.

which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial

condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation

of what is believed to be significant factors affecting our business, including many assumptions regarding future events.

Such forward-looking

statements include statements regarding, among other things:

ability to implement our current stated business plans;

ability to retain key members of our management team;

future financing or acquisition plans and our ability to consummate any such transactions on favorable terms if at all ;

anticipated needs for working capital;

ability to establish a market for our common stock and operate as a public company.

Forward-looking

statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use

of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,”

“anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project”

or the negative of these words or other variations on these words or comparable terminology.

Actual results, performance, liquidity,

financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those

expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors.

should not place undue reliance on any forward-looking statements.

Except as expressly required by the federal securities laws, we undertake

no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed

circumstances or any other reason.

Consolidated Balance Sheets

As of March 31, 2022

As of June 30,

As of December 31,

3 unchanged sentences

Total current assets

Intangible assets

Liabilities and Stockholders’ Deficit

4 unchanged sentences

Total liabilities

Commitments and contingencies (Note 6)

Stockholders’ deficit

3 unchanged sentences

no shares issued and outstanding

Preferred stock, value

Common stock, par value $ 0.001 , 100,000,000 shares authorized;

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Condensed Consolidated Statements of Operations

the Three Months Ended March 31,

For the Three Months Ended

For the Six Months Ended

Operating expenses

Professional fees

Stock based compensation

General and administrative expenses

Operating expenses

Impairment loss

Total operating expenses

Loss from operations

( 3,568,000 )

( 6,987,000 )

Other expenses

Financing cost

Financing costs

( 1,113,000 )

Total other expenses

( 1,113,000 )

Loss before provision for income taxes

( 4,174,000 )

( 8,100,000 )

Provision for income taxes

( 4,174,000 )

Other comprehensive income (loss)

( 8,100,000 )

Other comprehensive (loss) income

Comprehensive loss

$ ( 4,172,000 )

$ ( 658,000 )

$ ( 8,101,000 )

$ ( 750,000 )

Net loss per share

Weighted average number of shares outstanding - basic and diluted

Weighted average common shares outstanding:

Basic and diluted

accompanying notes to these Unaudited Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Stockholders’ Deficit

the Three Months Ended March 31, 2022

A Convertible

the Three and Six Months Ended June 30, 2022

Preferred Stock

Comprehensive

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$ ( 1,299,000 )

the Three Months Ended March 31, 2021

Balance, January 1, 2021

based compensation on restricted stock awards

currency translation income

( 4,174,000 )

June 30, 2022

$ ( 24,931,000 )

$ ( 2,265,000 )

Relative fair value of warrants issued with convertible promissory notes

the Three and Six Months Ended June 30, 2021

Preferred Stock

Comprehensive

Stockholders’

Balance, January 1, 2021

$ ( 10,082,000 )

$ ( 1,323,000 )

Relative fair value of warrants issued with convertible promissory note

Stock options issued for services

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$ ( 1,194,000 )

Stocks returned

( 3,674,330 )

Stock options issued for services

Stock issued on exercise for warrants

Balance, June 30, 2021

$ ( 10,832,000 )

$ ( 1,289,000 )

accompanying notes to these Unaudited Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Cash Flows

the Three Months Ended March 31,

the Six Months Ended June 30,

Cash flows from operating activities

$ ( 8,100,000 )

$ ( 750,000 )

Adjustments to reconcile net loss to net cash used in operating activities

Impairment of intangible and other assets

Amortization of convertible promissory note discounts

Stock based compensation

Fair value of equity based compensation

Changes in operating assets and liabilities:

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Net cash used in operating activities

Cash flows from investing activities

Intangible assets

Net cash used in investing activities

Cash flows from investing activity

Net cash used in investing activity

Cash flows from financing activities

1 unchanged sentence

Proceeds from the issuance of notes payable

Payment of notes payable

Proceeds from the exercise of warrants

Repayment of notes payable

Net cash provided by (used in) financing activities

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Non-cash investing and financing activities

Reclassification of other assets to intangible assets

Relative fair value of warrants issued with convertible promissory notes

3 unchanged sentences

accompanying notes to these Unaudited Condensed Consolidated Financial Statements.

Condensed Consolidated Notes to the Financial Statements

Condensed Notes to the Consolidated Financial Statements

1 – Organization and Accounting Policies

1 unchanged sentence

(the “Company” or “we”) was incorporated on March 20, 2002 under the laws of the State of Nevada.

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.

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.

of June 30, 2022, the Company’s principal business had been the development of, with a plan to manufacture, high-performance computer

systems that are scalable, upgradeable and cost effective for processing cryptocurrencies, tokens and blockchain-based transactions.

The Company had also been developing a plan to build a clean-energy-powered, containerized, immersion-cooled data center that the Company

would use for crypto-currency mining and to provide data center colocation services to other mining and enterprise customers.

if other opportunities warranted, the Company planned to acquire assets and all or part of other companies operating in the high-density

computing industry or to invest or joint venture with other more-established companies already in the industry that would add value to

the Company’s business strategy.

July 2022, due to the declining state of the bitcoin mining industry and market, the Company’s board of directors resolved to discontinue

the development in South Korea of the Company’s 5 nanometer ASIC chip and containerized, immersion-cooled bitcoin mining computer

system and to focus exclusively on developing the clean-energy-powered data center segment of its business strategy.

to Certificate of Incorporation

1 unchanged sentence

name to AIQ Blockchain, Inc.

The name change has not yet been effected.

The name change has not yet been effected, and on July 2022, FINRA was notified that CalEthos was no longer changing

its name or symbol and that the application was being withdrawn.

Incorporation

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shares of common stock.

At the date of incorporation, 10,000 shares

were issued to the Company for 100,000,000 Korean Won,

or approximately $ 89,000 , for 100 %

ownership of AIQ.

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.

At the date of incorporation, 10,000 shares were issued to the Company for 100,000,000 Korean Won or approximately

$ 89,000 for 100 % ownership of AIQ.

is in the business of (1) developing and manufacturing computer chips and system, (2) importing and exporting semiconductors and electronic

products, (3) wholesale and retail business of semiconductors and electronic products, and (4) any and all business activities incidental

to the foregoing activities.

of Presentation

1 unchanged sentence

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.

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.

2022 condensed consolidated balance sheet data was derived from audited 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 six-months period ended June 30, 2022 and 2021.

The results for the six months ended June 30, 2022 are not necessarily

indicative of the results to be expected for the full year ending December 31, 2022 or for any future period.

unaudited Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements

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and Going Concern

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.

Company incurred a net loss of approximately $ 8,100,000 for the six months ended June 30, 2022 and had an accumulated deficit of approximately

$ 24,931,000 as of June 30, 2022.

The Company has financed its activities principally through debt and equity financing and shareholder

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stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.

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 19,011,450

and 2,735,214 as of March 31, 2022 and 2021, respectively.

that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share for the six

months ended June 30, 2022 and 2021 because their inclusion would be anti-dilutive.

Common share equivalents amounted to 18,920,915 and

1,525,214 as of June 30, 2022 and 2021, respectively.

Accounting Pronouncements

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(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

or “PICOCEL”) to develop a FPGA based Bitcoin mining simulation system.

The Agreement is expected to be completed within

6 weeks for a total contract price of 198,000,000

Korean Won (“KRW”) or approximately

Total payments made to PICOCEL as of June 30, 2022 amounted to approximately $ 69,000 .

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.

termination, PICOCEL has completed the first phase of the Agreement upon delivery of the SHA-256 code and FPGA board simulator resulting

in a reclassification of deposits amounting to $ 69,000

under other assets to intangible assets as of

June 30, 2022.

April 5, 2022, AIQ entered into a Technology Development Agreement (the “Agreement”) with NNS, Co., Ltd.

(the “Contractor”

or “NNS”) 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:

SCHEDULE OF PAYMENTS

Within 5 days after signing the contract

Within 5 days after all conditions are met as stated in “Schedule B – Statement of Work”

of 90,000,000 KRW or approximately $ 69,000 was made to NNS as of June 30, 2022 which is presented as other assets in the condensed consolidated

balance sheet.

During the six months ended June 30, 2022, the Bitcoin

market was in a constant decline, and since the ASIC chip being developed by AIQ was planned to be used for Bitcoin mining machines, management

believes that there is an impairment indicator as of June 30, 2022.

Management plans to discontinue the operations of AIQ subsequent to

June 30, 2022 and no more future cash flows are expected from AIQ.

See Note 8 – Subsequent Events for more details.

of impairment include significant underperformance relative to historical or projected future operating results, significant changes

in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry

or economic trends.

When indications of impairment arise for a particular asset or group of assets, we assess the future

recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis.

If the carrying

value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the asset’

(or asset group), typically a discounted cashflow analysis, and an impairment charge is recorded for the excess of carrying value

over fair value.

of June 30, 2022, intangibles and other assets were fully impaired.

Impairment loss amounted to $ 154,000 ,

inclusive of a $ 12,000 impairment of prepaid VAT related to the services provided by PICOCEL and NNS.

table below summarizes the impairment loss for the six months ended June 30, 2022:

SCHEDULE OF IMPAIRMENT LOSS

Foreign exchange loss

Impairment loss

3 – Accounts Payable and Accrued Expenses

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Balance, end of the year

On July 7, 2020, the Company issued a promissory note

in the principal amount of $ 11,000 .

The note is noninterest bearing.

The principal is due on or before March 11, 2022.

During any event

of default under the note, the interest rate shall increase to 10 % per annum.

Events of default include failure to pay principal or interest,

breach of covenants, breach of representations and warranties, borrower’s assignment of substantial part of its property or business,

any money judgment, writ, or similar process shall be entered or filed against the borrower or any subsidiary of the borrower or any of

its properties or other assets for more than $ 100,000 , bankruptcy, liquidation of business, and cessation of operations.

The principal

amount outstanding under this note was $ 11,000 as of June 30, 2022.

Interest accrued as of June 30, 2022 is $ 2,000 .

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 %

The principal and any accrued interest was payable on or before March

During any event of default under the

note, the interest rate shall increase to 10 %

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

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.

The interest on this note shall accrue beginning

from the date of issuance, at an interest rate of 8 % per annum.

The principal and any accrued interest are payable on or before March

During any event of default under the note, the interest rate shall increase to 10 % per annum.

Events of default include failure

to pay principal or interest, breach of covenants, breach of representations and warranties, borrower’s assignment of substantial

part of its property or business, any money judgment, writ, or similar process shall be entered or filed against the borrower or any

subsidiary of the borrower or any of its properties or other assets for more than $ 100,000 , bankruptcy, liquidation of business, and

cessation of operations.

The principal and the accrued interest amounting to $ 15,000 and $ 1,000 , respectively, was settled on October

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 %

The principal and any accrued interest was to be paid in a single installment on or before February

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.

The interest on the unpaid principal balance

accrues at a rate of 10 % per annum.

The principal and any accrued interest shall be paid in a single installment on or before February

If the Company fails to pay the balance of this note in full on the due date or fails to make any payment due within 15 days

of the due date, any unpaid principal shall accrue interest at the rate of 15 % per annum during the default (default interest).

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 was settled in full on January 25, 2022.

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 %

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.

The interest on the unpaid principal balance accrues

at a rate of 8 % per annum.

If the Company fails to pay the balance of this note in full on the date or fails to make any payments due

within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 8 % per annum during the default.

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.

April 22, 2021, the Company issued a promissory note in the principal amount of $ 50,000 .

8 unchanged sentences

the benefit of creditors.

The principal amount outstanding under this note was $ 50,000 as of March 31, 2022.

Interest accrued as of March

The principal amount outstanding under this note was $ 50,000 as of June 30, 2022.

Interest accrued as of June

30, 2022 is $ 7,000 .

9 unchanged sentences

the benefit of creditors.

The principal amount outstanding under this note was $ 25,000 as of March 31, 2022.

Interest accrued as of March

The principal amount outstanding under this note was $ 25,000 as of June 30, 2022.

Interest accrued as of June

30, 2022 is $ 2,000 .

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 %

The principal and any accrued interest was to be paid in a single installment on or before October

The principal amount of this note was

settled on September 16, 2021.

The interest on the unpaid principal balance accrues

at a rate of 8 % per annum.

The principal and any accrued interest shall be paid in a single installment on or before October 12, 2021 .

The principal amount of this note was settled on September 16, 2021.

August 10, 2021, the Company issued a promissory note in the principal amount of $ 7,000 .

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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 %

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

as of September 30, 2021.

The principal and the

accrued interest aggregating to $ 14,000

was settled in October 2021.

expense on notes payable amounted to $ 2,000 and $ 1,000 for the three months ended March 31, 2022 and 2021, respectively.

The interest on

the unpaid principal balance of these notes accrues at a rate of 8 % per annum.

The principal for each note shall be paid in a single

installment during November 2021.

If the Company fails to pay the balance of these notes in full on the date or fails to make any payments

due within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 8 % per annum during the default.

of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy,

appointment of a receiver, custodian, trustee, or similar party to take possession of the Company’s assets or property, or assignment

made by the Company for the benefit of creditors.

The principal amount outstanding under these notes was $ 13,500 as of September 30,

The principal and the accrued interest aggregating to $ 14,000 was settled in October 2021.

expense on notes payable amounted to $ 6,000 and $ 3,000 for the six months ended June 30, 2022 and 2021, respectively.

5 – Convertible Promissory Notes

CONVERTIBLE PROMISSORY NOTES

the year ended December 31, 2021, the Company issued two convertible promissory notes amounting to $ 55,000 and $ 3,850,000 (the “Notes”),

respectively.

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

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.

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).

Interest accrued as of June 30, 2022 is $ 2,000 .

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 .

connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants (the “Warrants”)

9 unchanged sentences

derivative in accordance with ASC 815-15 Derivatives and Hedging .

cost recognized for the amortization of debt discount was approximately $ 487,000 and $ 2,000 for the three months ended March 31, 2022

cost recognized for the amortization of debt discount was approximately $ 1,071,000 and $ 7,000 for the six months ended June 30, 2022

and 2021, respectively.

4 unchanged sentences

Balance, beginning of year

( 1,071,000 )

Balance, end of year

Net carrying amount

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 %.

unamortized debt discounts will be amortized within one and two years as of March 31, 2022 and 2021, respectively.

interest rate used to amortize the debt discount for the six months ended June 30, 2022 and 2021 ranges from 4.76 % to 64.60 %.

The unamortized

debt discounts will be amortized within one year as of June 30, 2022 and 2021, respectively.

future shares to be issued on conversion of the notes as of the dates indicated are as follows:

2 unchanged sentences

Potential future share

expense on convertible promissory notes amounted to $ 18,000 and $ 14,000 for the three months ended March 31, 2022 and 2021, respectively.

expense on default convertible promissory notes amounted to $ 37,000 and $ 30,000 for the six months ended June 30, 2022 and 2021, respectively.

6 – Commitments and contingencies

COMMITMENTS AND CONTINGENCIES

time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business.

In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights.

The Company is not

currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have

a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation

be resolved unfavorably, except as follows.

January 3, 2022, a complaint was filed against our company in the Superior Court of California, County of Los Angeles titled Michael

CalEthos Inc, Michael Campbell and Does 1-25 (Case No.

22STCV00121) for, among other matters, failure to pay wages, fraud

and other wage-related claims.

In the complaint, the plaintiff claims he worked under a consulting agreement as Vice President of Brand

Management of our company and was to be paid $ 4,000 per month and to receive an option to purchase 50,000 shares of our common stock

that was to vest quarterly over the term of the agreement.

In the complaint, the plaintiff alleges that, on or around March 27, 2020,

we ceased paying the plaintiff despite the plaintiff’s continuing efforts on behalf of our company and that we agreed to continue

to accrue his monthly retainer amount until such time that we received at least $ 100,000 in funding.

Plaintiff further alleges that he

continued to work for our company for 38 additional weeks in reliance on our promise of payment.

The plaintiff claims that our refusal

to make the promised payments amounts to violations of the California labor laws and seeks damages in excess of $ 450,000 .

June 9, 2022, a Settlement Agreement and Mutual Release was reached by the parties whereby as full consideration for the plaintiff’s

execution of and compliance with the agreement and plaintiff’s release of all claims against the defendants, the Company agreed

to pay a gross settlement amount of $ 90,000 .

Such payment was made on June 23, 2022.

7 – Stockholders Deficit

2 unchanged sentences

(“Termination Agreement”).

Part of the Termination Agreement stipulated the return of 3,674,330

shares of the Company’s common stock (“Cancelled

Part of the Termination Agreement stipulates the return of 3,674,330 shares of the Company’s

common stock (“Cancelled Shares”).

The Cancelled Shares were returned and cancelled on April 20, 2021.

1 unchanged sentence

was treated as contributed paid in capital.

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 75,000

shares of common stock.

The remaining liability

of $ 30,000 was

paid in cash.

March 2021, the Company’s Chief Financial Officer agreed to reduce the amounts due to him from approximately $ 128,000 to $ 30,000 .

For the reduction of $ 98,000 , the Company will issue 75,000 shares of common stock.

The remaining liability of $ 30,000 will be paid in

Common Stock Awards

18 unchanged sentences

remaining service period.

of December 31, 2021, a total of 11,500,000 shares were issued to the consultants.

of June 30, 2022, a total of 11,500,000 shares were issued to the consultants.

The value was $ 1.93 per share on the date of issuance

2 unchanged sentences

in the Company’s books at the time of the grant.

table below summarizes the transactions related to the Company restricted stock awards as of March 31, 2022:

table below summarizes the transactions related to the Company restricted stock awards as of June 30, 2022:

SCHEDULE OF COMPANY RESTRICTED STOCK AWARDS

Deferred compensation

Grant date fair value

( 11,168,000 )

Balance as of December 31, 2021

based compensation expense for the three months ended March 31, 2022 amounted to $ 3,170,000 .

Stock based compensation expense for the

year ended December 31, 2021 amounted to $ 4,792,000 .

of Stock Options and Warrants

of March 31, 2022, a total of 198,000 warrants expired.

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.

were fully vested on the date of issuance.

The fair value of the options was approximately $ 52,000 , as of the grant date, of which approximately

$ 38,000 was expensed and accrued during the year ended December 31, 2020 and $ 14,000 was expensed during the three months ended March

Balance as of June 30, 2022

based compensation expense for the three and six months ended June 30, 2022 amounted to $ 3,206,000

and $ 6,376,000 ,

respectively.

Stock based compensation expense for the three and six months ended June 30, 2021 amounted to $ 561,000 and $ 575,000 ,

respectively.

of June 30, 2022, a total of 253,000 warrants expired.

8 – Subsequent Events

3 unchanged sentences

The management of the Company determined the following reportable events:

Development Agreement

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:

SCHEDULE OF PAYMENTS

Within 5 days after signing the contract

Within 5 days after all conditions are met as stated in “Schedule B – Statement of Work”

July 25, 2022, the Board of Directors of the Company resolved to discontinue the development of the Company’s 5 nanometer

ASIC chip and bitcoin mining machines, to close its South Korean subsidiary, AIQ Systems, Inc., and to pursue other opportunities to

provide solutions for the high-density computing industry, including the development of a clean-energy-powered, containerized, immersion-cooled

July 27, 2022, the Company sent Hyuncheol (Peter) Kim, the Company’s Chief Technology Officer, a letter notifying him that the

Company’s Board of Directors had resolved to discontinue the Company’s 5 nanometer ASIC chip and bitcoin mining machine project

and that his consulting agreement will terminate at the end of August 2022.

Restricted shares issued in connection with the consulting agreement will also be cancelled.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements