What changed in this filing

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Item 1. Financial Statements

2023-05-15 compared with 2022-11-14 · 184 added, 385 removed, 212 unchanged (73% of the section changed)

Financial Statements

the Nine Months Ended September 30, 2022

the Three Months Ended March 31, 2023

to the Condensed Consolidated Financial Statements

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

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

Condensed Consolidated Statements of Stockholders’ Deficit for each of the three quarters ended September 30, 2022 and

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

to the Unaudited Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022

Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2023 and 2022

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

Notes to the Unaudited Condensed Consolidated Financial Statements

NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

ability to close on the real estate property we have optioned and to obtain the necessary regulatory approvals required for the construction

and build-out of our planned data center operation;

anticipated needs for working capital;

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Consolidated Balance Sheets

September 30,

Current assets

Cash and cash equivalents

Prepaid and other current expenses

Prepaid and other current assets

Total current assets

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Additional paid-in capital

Other comprehensive loss

Other comprehensive income

Stock subscription receivable

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( 3,340,000 )

( 3,143,000 )

Total liabilities and stockholders’ deficit

1 unchanged sentence

Condensed Consolidated Statements of Operations

the three months ended

September 30,

the nine months ended

September 30,

( 11,168,000 )

( 4,791,000 )

and administrative expenses

(income) expenses

( 11,008,000 )

( 4,020,000 )

Income(loss) from operations

( 1,876,000 )

( 2,587,000 )

income (expenses)

( 1,622,000 )

other expense

the Three Months Ended March 31,

Operating expenses

Professional fees

General and administrative expenses

Total operating expenses

Loss from operations

( 3,419,000 )

Other income (expenses)

Interest income

Financing costs

Total other expenses

Loss before provision for income taxes

( 3,926,000 )

( 2,813,000 )

for income taxes

income (loss)

Provision for income taxes

$ ( 199,000 )

$ ( 3,926,000 )

Net income (loss) per share - basic

Net income (loss) per share - diluted

Weighted average common shares outstanding - Basic

Weighted average common shares outstanding - diluted

Comprehensive

income (loss)

Net loss per share, basic and diluted

Weighted average common shares outstanding – basic and diluted

Comprehensive income (loss):

$ ( 199,000 )

$ ( 3,926,000 )

currency translation adjustment

Comprehensive

income (loss)

Foreign currency translation adjustment

Comprehensive loss

$ ( 197,000 )

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Condensed Consolidated Statements of Stockholders’ Deficit

the Nine Months Ended September 30, 2022

Series A convertible preferred stock

Preferred Stock

the Three Months Ended March 31, 2023

A convertible preferred stock

Comprehensive

Stockholders Equity

Income (Loss)

Balance, January 1, 2022

$ ( 16,831,000 )

$ ( 540,000 )

Restricted stock grants

Forgein currency translation income (loss)

( 3,926,000 )

Balance, March 31, 2022

( 20,757,000 )

( 1,299,000 )

Restricted stock grants

Forgein currency translation income (loss)

( 4,174,000 )

Balance, June 30, 2022

( 24,931,000 )

( 2,265,000 )

Forfeiture of stock-based compensation

( 11,500,000 )

Stockholders’

January 1, 2023

$ ( 14,650,000 )

$ ( 3,143,000 )

Forgein currency translation income (loss)

Balance, Sep 30, 2022

currency translation income

March 31, 2023

$ ( 14,849,000 )

$ ( 3,340,000 )

For the Nine Months Ended September 30, 2021

Series A convertible preferred stock

Preferred Stock

Stock Subscription

the Three Months Ended March 31, 2022

A convertible preferred stock

Comprehensive

Stockholders Equity

Income (Loss)

Balance, January 1, 2021

$ ( 10,082,000 )

$ ( 1,323,000 )

Relative fair value of warrants issued with convertible promissory notes

Stock options issued for services

Stocks issued from debt forgiveness

Additional capital from debt forgiveness

Balance, March 31, 2021

( 10,174,000 )

( 1,194,000 )

Stocks returned

Stockholders’

January 1, 2022

$ ( 16,831,000 )

Stock options issued for services

Stock issued on exercise of warrants

Balance June 30, 2021

$ ( 540,000 )

currency translation loss

( 3,926,000 )

Relative fair value of warrants issued with convertible promissory notes

Stock-based compensation

Restricted stock grants

( 3,926,000 )

March 31, 2022

$ ( 20,757,000 )

Balance September 30, 2021

$ ( 1,299,000 )

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

For the nine months ended

September 30,

the Three Months Ended March 31,

Cash Flows From Operating Activities

$ ( 199,000 )

$ ( 3,926,000 )

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

1 unchanged sentence

Fair value of equity-based compensation

Forfeiture of restricted stock grants

( 11,168,000 )

Accretion of compensation cost for restricted stock awards

Changes in operating assets and liabilities

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Cash Flows From Financing Activities

Proceeds from the issuance of convertible promissory notes

Proceeds from the issuance of notes payable

Repayments of Notes

Net Cash (Used in) Provided by Financing Activities

Repayments of notes payable

Net Cash Used in Financing Activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in Cash

Net decrease in Cash

Cash, Beginning of Period

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Non-cash investing and financing activities:

Relative fair value of warrants issued with convertible promissory notes

Accrued equity compensation granted

Common stock issued from forgiven debt

Additional capital from forgiven debt

Reclassification of other assets to intangible assets

accompanying notes to these unaudited condensed consolidated financial statements.

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1 – Organization and Accounting Policies

ORGANIZATION AND ACCOUNTING POLICIES

AND ACCOUNTING POLICIES

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

Company is implementing its plan to build a clean-energy-powered, containerized, immersion-cooled data center that provides wholesale

colocation data center services to enterprise IT and hyperscale customers.

In addition, the Company may 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 for its planned products, 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.

The Company has suspended operations of its South Korean subsidiary and will decide in the next

twelve months whether to use it to develop other products or dissolve it.

to Certificate of Incorporation

October 2021, the Board of Directors authorized an amendment to the Articles of Incorporation of the Company to change the Company’s

name to AIQ Blockchain, Inc.

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

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

Company is implementing its plan to build a clean-energy-powered, modular data center operation using the latest energy-efficient immersion,

liquid and conventional cooling technologies and provide wholesale colocation services to enterprise IT and hyperscale customers.

addition, the Company may 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 the market for its planned products, 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.

The Company has suspended operations of its South Korean subsidiary and will decide in the next twelve months whether to use it to develop

other products or dissolve it.

November 5, 2021, AIQ System Inc.

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disclosures normally included in the Company’s annual financial statements have been condensed or omitted.

The September 30, 2022

The March 31, 2023,

condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required

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 nine-months

period ended September 30, 2022 and 2021.

The results for the nine months ended September 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 the Company’s audited Consolidated Financial Statements

and the notes thereto for the year ended December 31, 2021, included in the Company’s annual report on Form 10-K filed with the

SEC on March 31, 2022.

adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim three-months

ended March 31, 2023 and 2022.

The results for the three months ended March 31, 2023 are not necessarily indicative of the results to

be expected for the full year ending December 31, 2023 or for any future period.

unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial

statements and the notes thereto for the year ended December 31, 2022, included in the Company’s annual report on Form 10-K filed

with the SEC on April 17, 2023.

and Going Concern

Company incurred net income of approximately $ 2,399,000

for the nine months ended September 30, 2022, of which $ 4,791,000

was attributable to a non cash transaction for the reversal of compensation for restricted stock units, and had an accumulated deficit of approximately $ 14,431,000

as of September 30, 2022.

Company incurred net loss of approximately $ 199,000

for the three months ended March 31, 2023 and had an accumulated deficit of approximately $ 14,849,000

as of March 31, 2023.

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

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operating activities.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one

year from the issuance of these condensed consolidated financial statements.

Company’s condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization

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additional funding from investors or through other avenues to continue as a going concern.

The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might

be necessary if the Company is unable to continue as a going concern

continuing COVID-19 global pandemic has caused significant disruption to the economy and financial markets globally, and the full extent

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The Company will continue to consider the potential impact of the COVID-19 pandemic on its business operations.

use ASC 260, “ Earnings Per Share ” for calculating the basic and diluted earnings (loss) per share.

We compute basic

earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding.

Diluted earnings

(loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common

shares outstanding during the period using the treasury stock method.

Dilutive potential common shares include outstanding stock options

and warrants and stock awards.

For periods with a net loss, basic and diluted loss per share is the same, in that any potential common

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

Company uses ASC 260, “ Earnings Per Share ” for calculating the basic and diluted earnings (loss) per share.

computes basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding.

earnings (loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential

common shares outstanding during the period using the treasury stock method.

Dilutive potential common shares include outstanding stock

options and warrants and stock awards.

For periods with a net loss, basic and diluted loss per share is the same, in that any potential

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

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, 2023 and 2022 because their inclusion would be anti-dilutive.

Common stock equivalents amounted to 7,510,448 and

19,011,450 as of March 31, 2023 and 2022, respectively.

Accounting Pronouncements

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condensed consolidated financial condition or the results of its operations.

2 – Intangible and Other Assets

INTANGIBLE AND OTHER ASSETS

December 23, 2021, AIQ entered into a Technology Development Agreement (the “Agreement”) with PICOCEL, Co., Ltd.

(the “Contractor”

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

The Agreement was expected to be completed within

6 weeks for a total contract price of 198,000,000 Korean Won (“KRW”) or approximately $ 167,000 .

Total payments made to PICOCEL

as of September 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.

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 was 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 September 30, 2022 which was expensed and included in in the condensed

consolidated statement of operations.

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.

plans to discontinue the operations of AIQ subsequent to June 30, 2022 and no more future cash flows are expected from AIQ.

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 September 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 nine months ended September 30, 2022:

SCHEDULE OF IMPAIRMENT LOSS

Foreign exchange loss

Impairment loss

3 – Accounts Payable and Accrued Expenses

2 – Other Assets

March 30, 2023, the Company signed an option agreement to acquire 80

acres of commercially zoned land in Imperial County, California (the “Option”) for $ 3,360,000

(“Purchase Price”).

The Option expires in September

The Company paid a non-refundable deposit of $ 84,000

on the signing of the Option, which has been recognized as other assets in the condensed consolidated balance sheet.

The Company is

required to deposit an additional $ 84,000

into an escrow (“Escrow Funds”) within 10 days after the execution of the agreement.

As of the issuance of these interim condensed consolidated financial statements, the escrow had not been set up.

Once the escrow is set up, the Company will deposit the $ 84,000 .

If the Company does not exercise

the Option by September 2024, the Escrow funds will be returned to the Company.

Purchase Price is payable with a cash payment of $ 1,680,000 and the issuance of 840,000 shares of the Company’s common stock (the

“Purchase Shares”).

At the closing of the purchase (“Closing Date”), if the stock is trading at a value less

than $ 1.00 per share, the Company is required to issue a promissory note in the amount of $ 840,000 , payable on the third anniversary

of the closing date, with an interest rate equal to the Secured Overnight Financing Rate plus 2.0 % .

the Purchase Shares are issued at the Closing Date, the Company has agreed to repurchase the Shares (the “Put Option”) under

specific circumstances.

However, the Put Option

expires if the Company’s common stock trades above $2.00 per share for 120 consecutive days.

If the Company’s common stock

trades below $2.00 per for 10 consecutive days, the Holder has the option for the Company to repurchase the Purchase Shares for $2.00

3 – Accounts Payable and Accrued Expenses

following table summarizes the Company’s accounts payable and accrued expense balances as of the dates indicated:

SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

September 30,

PAYABLE AND ACCRUED EXPENSES

following table summarizes the Company’s accounts payable and accrued expense balances:

OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable

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Accounts payable and accrued expenses

following table presents the details of accrued interest as of the dates indicated:

SCHEDULE OF ACCRUED INTEREST

September 30,

following table presents the details of accrued interest:

OF ACCRUED INTEREST

Notes payable

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NOTES PAYABLE

table below summarizes the transactions as of the dates indicated:

SCHEDULE OF NOTES PAYABLE

September 30,

table below summarizes the transactions:

OF NOTES PAYABLE

Balance, beginning of the year

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The note is noninterest bearing.

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

During any event of default under the note, the

interest rate shall increase to 10 %

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 September 30, 2022.

The note principal and interest are past due, therefore in default.

For the nine months ended September

30, 2022 the Company has accrued approximately $ 2,000

of default interest.

February 19, 2021, the Company issued a promissory note in the principal amount of $ 25,000 .

The principal

was due on or before March 11, 2022.

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

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 March 31, 2023.

principal and interest are past due, therefore in default.

Interest accrued as of March 31, 2023 was $ 3,000 .

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

The interest on the unpaid principal balance

accrued at a rate of 10 % per annum.

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

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

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 April

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

15 days of the due date, any unpaid principal shall accrue interest at the rate of 15 %

per annum during the default.

Events of default include failure to make any payment including accrued interest when due, voluntary,

or involuntary petition of bankruptcy, appointment of a receiver, custodian, trustee or similar party to take possession of the

Company’s assets or property, or assignment made by the Company for the benefit of creditors.

The principal amount outstanding

under this note was $ 50,000

as of September 30, 2022.

The note principal and interest are past due, therefore in default.

Interest accrued, including default

interest, as of September 30, 2022 is $ 8,000 .

July 1, 2021, the Company issued a promissory note in the principal amount of $ 25,000 .

The interest on the unpaid principal balance accrues at a rate of 10 %

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

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

days of the due date, any unpaid principal shall accrue interest at the rate of 15 %

per annum during the default (default interest).

Events of default include failure to make any payment including accrued interest

when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver, custodian, trustee or similar party to take

possession of the Company’s assets or property, or assignment made by the Company for the benefit of creditors.

The principal

amount outstanding under this note was $ 25,000

as of September 30, 2022.

The note principal and interest are past due, therefore in default.

Interest accrued, including default

interest, as of September 30, 2022 is $ 3,000 .

expense on notes payable amounted to $ 3,000

for the three and nine months ended September 30, 2022, respectively, and $ 4,000 and $ 8,000 for the three and nine months ended September 30,

2021, respectively.

5 – Convertible Promissory Notes

CONVERTIBLE PROMISSORY NOTES

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).

Interest accrued as of September 30, 2022 is $ 35,000 .

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.

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

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

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

Events of default include failure

to 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 note principal and interest are past due, therefore in default.

to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver,

custodian, trustee, or similar party to take possession of the Company’s assets or property, or assignment made by the Company

for the benefit of creditors.

The principal amount outstanding under this note was $ 50,000 as of March 31, 2023.

The note principal and

interest are past due, therefore in default.

Interest accrued, including default interest, as of March 31, 2023 was $ 12,000 .

expense on notes payable amounted to $ 2,000 and $ 2,000 for the three months ended March 31, 2023 and 2022, respectively.

5 – Convertible Promissory Notes

PROMISSORY NOTES

During the years ended December 2020 and 2019, the Company issued convertible promissory notes for approximately

As of March 31, 2023, the accrued and unpaid interest was approximately $ 193,000 .

2021, the Company issued two convertible promissory notes of $ 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).

Interest accrued as of March 31, 2023 is $ 230,000 .

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

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.

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 note principal and interest are past due,

therefore in default.

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

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The relative fair value of the Warrants issued amounted to approximately $ 1,690,000 and the beneficial conversion

amounted to $ 0 , which amounts are being amortized and expensed over the term of the Notes.

amounted to nil, which amounts are being amortized and expensed over the term of the Notes.

Company determined that the conversion feature of the Notes would not be an embedded feature to be bifurcated and accounted for as a

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

cost recognized for the amortization of debt discount was approximately $ 1,526,000 and $ 170,000 for the nine months ended September 30,

2022 and 2021, respectively.

convertible promissory notes consisted of the following as of the dates indicated:

SCHEDULE OF CONVERTIBLE PROMISSORY NOTES

September 30,

cost recognized for the amortization of debt discount was nil and approximately $ 487,000 for the three months ended March 31, 2023 and

2022, respectively.

convertible promissory notes consisted of the following:

OF CONVERTIBLE PROMISSORY NOTES

Balance, beginning of year

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Net carrying amount

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

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

SCHEDULE OF POTENTIAL FUTURE SHARES ISSUANCE OF CONVERSION NOTES

September 30,

OF POTENTIAL FUTURE SHARES ISSUANCE OF CONVERSION NOTES

Conversion price per share

Potential future share

default interest expense for the convertible promissory notes amounted to $ 88,000 and $ 48,000 for the nine months ended September 30,

default interest expense for the convertible promissory notes amounted to $ 114,000 and $ 18,000 for the three months ended March 31, 2023

and 2022, respectively.

6 – Commitments and contingencies

COMMITMENTS AND CONTINGENCIES

AND CONTINGENCIES

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

3 unchanged sentences

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 claimed 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 alleged that, on or around March 27, 2020,

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

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

Plaintiff further alleged that he

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

The plaintiff claimed 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

STOCKHOLDERS DEFICIT

Common Stock Awards

August 17, 2021, the Company entered into Restricted Share Award Agreements (the “Award Agreements”) with two consultants

pursuant to which the Company issued to the consultants shares of common stock of the Company in exchange for their future services.

The Awards had an initial term of one year, which was to be automatically renewed on a year-to-year basis unless either party gave a

written notice of termination.

The two consultants who entered into these agreements include:

consultant who was granted 10,000,000 restricted share awards.

entity, which is owned by the Company’s CEO and majority shareholder, was granted 1,500,000 restricted share awards.

The Company’s management accounted for the Award Grants as restricted

stock compensation in accordance with ASC 718 – Stock Compensation (“ASC 718”).

ASC 718 required the Company to estimate

the service period over which the compensation cost would be recognized.

Management had estimated that the first two development phases

would be completed within 15 months and the Foundry Mask would be completed within 6 months for a total of 21 months service period.

cost was to be recognized ratably over 21 months and in the same manner had the Company paid in cash.

The estimated service period would

be adjusted for changes in actual and expected completion dates.

Any such change was to be recognized prospectively, and the remaining

deferred compensation was to be recognized over the remaining service period.

Company issued restricted stock grants totaling 10,000,000

shares to Hyuncheol (Peter) Kim, the Company’s former Chief Technology Officer, and 1,500,000

to a M1 Advisors LLC, a company owned by the Company’s chief executive officer.

The value was $ 1.93

per share on the date of issuance (“Grant Date”) for an aggregate fair value of $ 22,195,000

stock-based award compensation was recorded as an increase in deferred compensation expense, common stock, and additional paid-in capital

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

July 27, 2022, the Company sent Hyuncheol (Peter) Kim, the Company’s former 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.

The restricted stock grant issued in

connection with the consulting agreement will also be cancelled.

at the end of August 2022, the Company cancelled the restricted stock grant issued to M1 Advisors LLC.

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

SCHEDULE OF COMPANY RESTRICTED STOCK AWARDS

Grant date fair value

( 11,168,000 )

( 11,500,000 )

( 11,027,000 )

Balance as of September 30, 2022

stock grant compensation expense for the three and nine months ended September 30, 2022, is as follows:

OF RESTRICTED STOCK GRANT COMPENSATION EXPENSE

September 30,

2022 Accretion expense

Reversal of 2021 accretion expense

( 4,791,000 )

Reversal of 2022 accretion expense

( 6,377,000 )

Restricted stock grant compensation

$ ( 11,168,000 )

$ ( 4,791,000 )

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

8 – Earnings (Loss) Per Share

(LOSS) PER SHARE

following table sets forth the computation of basic and diluted earnings (loss) per share

OF EARNINGS PER SHARE BASIC AND DILUTED

For the three Months Ended September 30,

For the Nine Months Ended September 30,

Net income (loss)

$ ( 2,063,000 )

$ ( 2,813,000 )

Effect of dilutive instruments

Convertible notes interest expense

Numerator for diluted EPS

( 2,063,000 )

( 2,813,000 )

Denominator - for basic EPS

Effect of dilutive instruments

Convertible notes

Dilutive potential common shares

Denominator for diluted EPS

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

three and nine months ended September 30, 2021 because their inclusion would be anti-dilutive.

Common share equivalents amounted to 3,942,608

for warrants, 4,612,607

for convertible notes and 11,500,000

for restricted stock units for total of 20,055,215

as of September 30, 2021.

For the three and nine months ended September 30, 2022, the Company had

4,777,276 dilutive securities.

be resolved unfavorably.

During the three months ended

March 31, 2023, a total of 73,304 warrants expired, leaving a remaining outstanding balance of 1,695,000 warrants as of March 31, 2023,

with a weighted average exercise price of $ 1.46 and average remaining life of 0 .75 years.

8 – Subsequent Events

2 unchanged sentences

to determine if they must be reported.

The management of the Company determined there are no reportable events.

The management of the Company determined there are no reportable events except for the following.

of Restricted Stock Awards

April 10, 2023, the Company completed the required paperwork for our transfer agent to cancel 10,000,000 shares of restricted stock that

was previously issued to its former Chief Technology Officer.

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